Interim Results

RNS Number : 3926X

Off-Plan Fund Limited (The)

24 June 2008

 



For Immediate Release

24 June 2008

THE OFF-PLAN FUND LIMITED

Interim Results for the six months ended 31 March 2008

The Off-plan Fund Limited, which specialises in providing forward finance to UK housebuilders, is pleased to announce its interim results for the six months ended 31 March 2008.

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

CONDENSED INTERIM FINANCIAL STATEMENTS

FOR SIX MONTHS ENDED 31 MARCH 2008

Chairman's Statement

I am pleased to report the unaudited interim financial statements for the six months ended 31 March 2008.

The period under review and subsequent months have proven to be very testing times for all involved in the UK housebuilding industry, from developers and construction companies to estate agents and lenders.  While your Company is in no way immune from the prevalent negative sentiment surrounding the UK residential property market, it is important to reiterate that the Company was initially established in 2003 to capitalise on a then perceived slowdown in the housing market and it is in these conditions that the Company expects to source the most attractive deals with even the most reputable, well established developers finding that traditional sources of financing are no longer available. The Wallington deal announced during the period is a good indication of the type of opportunity that the Manager expects to negotiate and conclude in the coming months, with reputable developers and supportive lenders, as it continues to seek full investment levels.

It is also worth highlighting that the majority of the Company's existing pipeline of units, and any upon which it may subsequently contract, will not complete until 2010 at the earliest when, on current predictions, there is likely to be a significant shortfall of supply of new homes in certain locations due to the difficulties faced by developers in the current market and the slowdown in new housing starts and permissions. This provides the Company with a significant time frame over which to monitor developments in the market and ascertain the best point in the cycle at which to actively market the units. With predictions of an outright house price crash now fading, as opposed to the inevitable slow-down, the Board and the Manager are hopeful that the market will return to normality within the above timeframe allowing the Company to maximise its returns on the current and future pipeline of projects.

Results

The unaudited net asset value ('NAV') of the Company at 31 March 2008 was £9.5m (30 September 2007: £9.5m), of which £6.3m (57p per share) related to cash reserves (30 September 2007: £7.8m). The NAV per ordinary share has been maintained at around 85p.

As shareholders will be aware the Company 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 deriving from the discounted prices to market value achieved by the Company on entering into transactions. The 'Red Book' NAV, derived from the latest Red Book valuations of the property portfolio prepared by independent valuers, increased by 8% during the period from 94.4p to 101.6p due to the inclusion of Canon House, Wallington. The 'Red Book' NAV was at a 16.7p, or 20%, premium to the unaudited NAV.

Portfolio Review

Canon House, Wallington: During the period under review the Company contracted to purchase 118 units in a new development in Wallington, Surrey for £25m, a 19% discount to the prevailing Red Book valuation. The site 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. It is expected to generate strong demand from owner occupiers and investors given the high quality of on-site facilities.

The strip-out of the existing buildings is complete and construction is due to commence during the summer. Soft marketing has commenced and early indications of investor interest are encouraging.

Oldham Place, Liverpool: The development consists of 51 apartments, all of which the Company has contracted to purchase, and is located to the east of the city centre, between two city centre regeneration areas, Ropewalks and Mount Pleasant.

As reported in the 2007 annual report, the development faced difficulties when the appointed construction company went into receivership in December 2007. As a result there has been no further on-site activity or sales in the period and the units sold remain at 29. However a new project management team has been appointed, revised planning permission is expected shortly and the build contract has been put out to tender. Completion is now expected to be towards the end of 2009 but this delay may prove beneficial to the Company in terms of the additional time permitted for, and timing of, future marketing.

Although Liverpool is not an area which the Manager would currently focus on for new investment, it should be noted that the Company entered into this deal in May 2006 and any recent fall in value is off-set by the increase from that date to the market peak, as supported by the Venmore Partnership LLP valuation at 31 March 2008 of £8.3m, which is in line the time of exchange.

Brook Street, Tring and Yeading Lane, Hayes: It is with some regret that I have to report that despite the continued best efforts of the Manager there has been very little progress on either development, which are with the same developer. Outstanding issues relating to the s106 (affordable housing) elements on Tring and the purchase of the balance of the site on Hayes are a continuing frustration. Neither construction nor marketing have commenced on either site.  

The Board and the Manager are therefore taking advice as to their options and expect to make an announcement in the near future.

Wimbledon House, Leicester: The Company owns 6 flats in Leicester with a market value of £870,000 (30 September 2007: £911,000). Due to the continuing weak local housing market, the Company will hold the units for the foreseeable future. All flats are presently let.

Market

Despite the Bank of England cutting interest rates to 5.0% in April and injecting £50bn into the credit market to support the banking system, the desired result of narrowing the spread between official and market rates has yet to be achieved. 

The latest figures on house prices remain somewhat mixed. Nationwide reported average annual house price inflation at minus 4.4% in May, while HBOS showed the figure at minus 3.8%. Rightmove, which uses asking prices, reported an increase in prices to an annual inflation of 2.2% while official Land Registry numbers showed an annual increase of 2.7% for April. The latter figures also breakdown regional variations and confirm that the areas in which the Manager is now focused continue to out-perform the market as a whole. Unsurprisingly volume of sales have fallen - down 34% year on year as of February - with estate agents and housebuilders the key casualties.

Predictions appear to be bearing out a gradual slow-down, with the prospect of a crash now largely discounted. RICS expects house prices to fall around 5% this year and the OECD expects a combined fall of 10% for 2008 and 2009.

April saw a further decline in overall mortgage approvals to just 58,000 units from 112,000 in March 2007. All lenders have now pulled 100% mortgage offers and even 95% products are becoming ever more scarce. The number of products on offer in total is now 50% lower than before the Northern Rock crisis and the subsequent credit crunch. Self certification is becoming all but impossible with a number of smaller lenders withdrawing from the market all together. There is a clear consolidation of the marketplace as the major lenders are increasing their market share. 

Corporate

At the Company's annual general meeting in April, shareholders voted in favour of the introduction of a new annual continuation vote. As such the annual report to shareholders in respect of the financial year ending September 2008 will include details of the vote to be held at the 2009 annual general meeting.

Outlook

The tightening of credit risk by lenders continues to improve the marketplace for the Company as small to medium-sized developers require increased evidence of pre-sold units. The Manager is experiencing a greater level of pipeline opportunities in its target areas of London and the South East and is working hard to select the right investment proposals, at the best terms achievable, in light of the cooling of the overall housing market.

The Board and the Manager are also pursuing a number of options with lending banks and insurers with a view to utilising the flexibility of the Company's financing model and combining it within an overall finance package that will fit the needs of the full project team - developer, bank and the Company. I hope to be able to provide further details in the coming months. 

Graham Berry

Chairman

June 2008

Consolidated Balance Sheet		(unaudited)	(unaudited)		(audited)
		31 March	31 March		30 September
		2008	2007		2007
	Notes	£	£		£
Non-current assets
Quoted investments	5	2,925,713	5,666,608		5,985,007
Property contracts yet to complete	5	1,781,927	172,806		446,078
Investment property	5	873,000	971,000		911,000
Debtors		253,532	-		253,532
		5,834,172	6,810,414		7,595,617
Current assets
Debtors		279,889	530,815		437,022
Cash and cash equivalents		3,402,320	593,145		1,828,171
		3,682,209	1,123,960		2,265,193
Creditors - amounts falling due within one year
Other payables		(50,590)	(73,978)		(366,806)
Net current assets		3,631,619	1,049,982		1,898,387
Net assets		9,465,791	7,860,396		9,494,004
Equity
Stated capital	7	10,505,154	8,739,246		10,505,154
Capital reserve		145,105	67,600		99,153
Issue costs reserve		(679,868)	(609,232)		(679,868)
Revenue reserve		(504,600)	(337,218)		(430,435)
Total shareholders' funds (all equity)	8	9,465,791	7,860,396		9,494,004
Net asset value per share (pence)		84.9	84.6		85.1

The financial statements were approved by the Board of Directors on 23 June 2008 and signed on its behalf by:

Graham Berry                        Roger King

The accompanying notes are an integral part of the financial statements.

Consolidated Income Statement			(unaudited)
		Six months ended
		31 March 2008
		Revenue	Capital	Total
	Notes	£	£	£
Losses on revaluation of investment property		(38,000)	-	(38,000)
Realised gains on property contracts yet to complete		-	-	-
Realised gains/(losses) on investments		-	11,668	11,668
Unrealised gains/(losses) on investments		-	34,284	34,284
Investment income		148,280	-	148,280
Rental income		18,236	-	18,236
Investment management fee		(93,531)	-	(93,531)
Rental expense		(2,095)	-	(2,095)
Other expenses		(103,518)	-	(103,518)
Net (loss)/gain on ordinary activities before finance costs and taxation		(70,628)	45,952	(24,676)
Taxation	2	(3,537)	-	(3,537)
Net (loss)/gain for the period after taxation	3	(74,165)	45,952	(28,213)
(Loss)/gain per share (pence)		(0.7)	0.4	(0.3)

Notes

• The total column of this statement represents the profit and loss of the Company and the Group.

• All items in the above statement derive from continuing operations.

• The Group has no recognised gains or losses other than those disclosed in the Consolidated Income Statement.

The accompanying notes are an integral part of the financial statements.

	(unaudited)				(audited)
Six months ended				Year ended
31 March 2007				30 September 2007
Revenue	Capital	Total		Revenue	Capital	Total
£	£	£		£	£	£
(11,893)	-	(11,893)		(78,183)	-	(78,183)
-	238,645	238,645		-	262,662	262,662
-	(1,841)	(1,841)		-	(3,442)	(3,442)
-	(9,137)	(9,137)		-	-	-
144,624	-	144,624		333,711	-	333,711
1,371	-	1,371		17,770	-	17,770
(74,228)	-	(74,228)		(156,210)	-	(156,210)
-	-	-		(14,994)	-	(14,994)
(136,171)	-	(136,171)		(268,514)	-	(268,514)
(76,297)	227,667	151,370		(166,420)	259,220	92,800
-	-	-		(3,094)	-	(3,094)
(76,297)	227,667	151,370		(169,514)	259,220	89,706
(0.8)	2.4	1.6		(1.7)	2.6	0.9

Consolidated Cash Flow Statement	(unaudited)	(unaudited)	(audited)
	Six months ended	Six months ended	Year ended
	31 March 2008	31 March 2007	30 September 2007
	£	£	£
Cash flows from operating activities
Investment income received	236,335	244,863	271,833
Deposit interest received	28,147	6,792	63,044
Rental income received	13,684	1,371	17,772
Investment management fees paid	(93,531)	(74,228)	(156,210)
Secretarial fees paid	(1,975)	(19,513)	(5,160)
Rental expenses	(1,849)	-	(14,994)
Other cash payments	(115,370)	(132,066)	(251,967)
Net cash inflow/(outflow) from operating activities	65,441	27,219	(75,682)
Taxation paid	(2,239)	-	(3,094)
Capital expenditure and investment activities
Deposits and acquisition costs relating to property contracts	(1,628,623)	-	138,830
Proceeds from sale of property contracts	(2,290)	183,777	-
Purchase of investments	(1,428,060)	(905,749)	(2,086,995)
Sale of investments	4,569,920	1,151,698	2,023,640
Net cash inflow from investment activities	1,510,947	429,726	75,475
Net cash inflow/(outflow) before financing	1,574,149	456,945	(3,301)
Financing
Issue of shares	-	-	1,765,908
Expenses of share issue	-	-	(70,636)
Net cash inflow from financing	-	-	1,695,272
Increase in cash	1,574,149	456,945	1,691,971

The accompanying notes are an integral part of the financial statements.

Consolidated Statement of Changes in Equity	Stated capital	Capital reserves	Investment property revaluation reserve	Issue costs reserve	Revenue reserve	Total
	£	£	£	£	£	£
For the six months ended 31 March 2008 (unaudited)
At 1 October 2007	10,505,154	99,153	-	(679,868)	(430,435)	9,494,004
Revaluation of investment property	-	-	-	-	(38,000)	(38,000)
Gain/(loss) for the period	-	45,952	-	-	(36,165)	9,787
At 31 March 2008	10,505,154	145,105	-	(679,868)	(504,600)	9,465,791
For the six months ended 31 March 2007 (unaudited)
At 1 October 2006	8,739,246	(160,067)	42,107	(609,232)	(260,921)	7,751,133
Revaluation of investment property	-	-	(42,107)	-	(11,893)	(54,000)
Gain/(loss) for the period	-	227,667	-	-	(64,404)	163,263
At 31 March 2007	8,739,246	67,600	-	(609,232)	(337,218)	7,860,396
For the year ended 30 September 2007 (audited)
At 1 October 2006	8,739,246	(160,067)	42,107	(609,232)	(260,921)	7,751,133
Issue of shares	1,765,908	-	-	-	-	1,765,908
Expenses of share issue	-	-	-	(70,636)	-	(70,636)
Revaluation of investment property	-	-	(42,107)	-	(78,183)	(120,290)
Gain/(loss) for the year	-	259,220	-	-	(91,331)	167,889
At 30 September 2007	10,505,154	99,153	-	(679,868)	(430,435)	9,494,004

The accompanying notes are an integral part of the financial statements.

Consolidated Statement of Total Recognised Gains and Losses	(unaudited)	(unaudited)	(audited)
	Six months ended	Six months ended	Year ended
	31 March 2008	31 March 2007	30 September 2007
	£	£	£
Gain for the period	9,787	163,263	167,889
Loss on revaluation of investment property	(38,000)	(54,000)	(120,290)
Total gains and losses recognised in the period	(28,213)	109,263	47,599

The Group has no other recognised gains or losses that are not shown in the income statement.

Notes to the financial statements

• Accounting Policies

Basis of preparation

The interim 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. For the accounting period beginning on 1 October 2007 the Company has prepared its financial statements in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the International Accounting Standards Board ('IASB'). Prior to the period beginning 1 October 2007, the Board had elected to continue to adopt UK Generally Accepted Accounting Principles ('UK GAAP') and therefore with the new Financial Reporting Standards issued as part of the programme to converge UK GAAP with IFRS. The differences in these approaches have resulted in presentational changes only and have not required the restatement of any prior period numbers.

The accounting policies adopted are consistent with those followed in the preparation of Group's financial statements for the year ended 30 September 2007 except where required by IFRS, in particular with regards to IAS 1 'Presentation of Financial Statements' and IFRS 40 'Investment Properties'.

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 31 March. 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 2007. 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 six months ended 31 March 2008 and the year ended 30 September 2007.

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.   Rental income

Rental income from investment properties is based on short term tenancy agreements and is recognised in the period earned. Property operating costs are expensed as incurred including any element of expenditure not recovered from tenants.

d.   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 income statement as 'gains/losses on investments' and are allocated to realised/unrealised capital reserves as appropriate.

       e.    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 taken to the realised capital reserve.

f.   Investment property

Investment properties are measured initially at cost, and subsequently re-measured 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 income statement, as gain or loss arising from revaluation of investment property.

2.   Taxation

Under Article 123A of the Income Tax (Jersey) Law 1961, as amended, the Company has obtained Jersey exempt company status and is therefore exempt for Jersey income tax on non Jersey source income and bank interest (by concession). A £600 (2007- £600) annual exempt company fee is payable by both the Company and OFP Investment Properties Limited to the Treasurer of States.

The taxation charge arises from income tax deducted at source on the net rental income. Tax has been retained on all properties at the current rate of tax (2007/08 - 22%). Tax has been retained on the net income received from tenants after the deduction of administrative expenses.

3.   Returns per share

The revenue return per share is based on the net loss for the period of £74,165 (31 March 2007: £76,297; 30 September 2007: £169,154) and on 11,153,098 shares (31 March 2007: 9,294,248; 30 September 2007: 10,134,550), being the weighted average number of shares in issue.

The capital return per share is based on the gain for the period of £45,952 (31 March 2007: £227,667; 30 September 2007: £259,220) and on 11,153,098 shares (31 March 2007: 9,294,248; 30 September 2007: 10,134,550), being the weighted average number of shares in issue.

4.   Management fee

	Six months ended	Six months ended	Year ended
	31 March 2008	31 March 2007	30 September 2007
	£	£	£
Management fee	93,531	74,228	156,210

The management fee paid to Development Capital Management (Jersey) Limited ('DCM') is 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.

The management agreement between the Company and DCM is terminable by either party on 12 months notice.

 

5.   Fixed interest investments

		31 March 2008	31 March 2007			30 September 2007
		£	£			£
Opening valuation		5,985,007	5,941,738			5,941,738
Opening unrealised loss		53,320	51,719			51,719
Opening book cost		6,038,327	5,993,457			5,993,457
Movements during the period:
Purchases		1,378,132	895,425			2,086,995
Sales - proceeds		(4,486,169)	(1,148,640)			(2,023,640)
Amortisation of fixed income book costs		2,791	(10,938)			(16,644)
Sales - realised gains		11,668	(1,841)			(1,841)
Closing book cost		2,944,749	5,727,463			6,038,327
Closing unrealised loss		(19,036)	(60,855)			(53,320)
Closing valuation		2,925,713	5,666,608			5,985,007
		31 March 2008	31 March 2007			30 September 2007
		£	£			£
Property contracts yet to complete
Opening book cost		446,078	336,602			336,602
Movements during the period
Purchases		1,335,849	5,875			298,649
Sales - proceeds		-	(169,671)			(451,835)
Sales - realised losses		-	-			262,662
Closing book cost		1,781,927	172,806			446,078

The movement during the period in the table above refers to the deposit of £1,250,000 paid on the new development at Canon House and associated legal costs. The table below summarises the costs associated with these contracts and applies the latest 'Red Book' valuations, prepared by Venmore Partnership LLP for Oldham Place, CB Richard Ellis for Canon House and Cluttons for Brook Street, 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'.

	Oldham Place	Brook Street	Canon  House	Yeading Lane	Total
	£	£	£	£	£
Deposits paid	336,602	292,774	1,250,000	-	1,879,376
Legal and acquisition costs	-	2,937	79,974	8,813	91,724
Proceeds on disposal	(430,043)	-	-	-	(430,043)
Gains on disposal	240,870	-	-	-	240,870
Book cost as at 31 March 2008	147,429	295,711	1,329,974	8,813	1,781,927
Outstanding completion payments	2,948,580	5,562,697	23,750,000	4,569,894	36,831,171
Total historic cost	3,096,009	5,858,408	25,079,974	4,578,707	38,613,098
'Red Book' valuation	3,650,000	7,311,896	30,730,000	N/A	41,691,896
Approximate completion date	Oct 09	Aug 09	Jun 10	Aug 09

The deposit paid on Canon House relates to 118 units. The deposit payable on Yeading Lane has not been reflected in the accounts due to the unfulfilled condition of the developer securing the purchase of the balance of the site.

Investment property

	31 March 2008	31 March 2007		30 September 2007
	£	£		£
Opening book cost	989,183	982,893		982,893
Movements during the period:
Completion payment	-	-		6,290
Closing book cost	989,183	982,893		989,183
Closing unrealised loss	(116,183)	(11,893)		(78,183)
Closing valuation	873,000	971,000		911,000

6.   Contingencies

The Company holds a deposit of £3,000,000 with Allied Irish Bank as a guarantee to the Royal Bank of Scotland. Under the terms of the guarantee a minimum of £3,000,000 balance need to be maintained at all times. This guarantee will reduce in line with the sale of units at Canon House, Wallington Surrey and released on a quarterly basis.

7.   Stated capital

	31 March 2008		31 March 2007	30 September 2007
Authorised:
The Company is a no par value ('NPV') company
Founder shares	10		10	10
99,999,990 participating shares	99,999,990		99,999,990	99,999,990
	100,000,000		100,000,000	100,000,000
Issued:
Founder shares	2		2	2
Participating shares	11,153,098		9,294,248	11,153,098

8.   Net asset value per share

	Net asset value
	attributable per share
	31 March  2008	31 March 2007	30 September 2007
	p	p	p
Participating shares	84.9	84.6	85.1
	Net asset value
	31 March  2008	31 March 2007	30 September 2007
	£	£	£
	9,465,791	7,860,396	9,494,004

9.   Financial instruments

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 that 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 summarised 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 period 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(e). 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 31 March 2008 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 £7,311,896. The total purchase price including acquisition costs, of the one hundred and eighteen contracts at Canon House is £25,079,974 and the Red Book valuation of the properties is £30,730,000. 

Should the Company complete on all the contracts and subsequent Red Book valuations fall by more than 19%, 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 of which it is a creditor. 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 typically held in escrow with the developer's solicitors. This money is only released to the developer on satisfactory completion of the property or receipt of appropriate guarantees. 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 interest

	31 March 2008	31 March 2007	30 September 2007
	£	£	£
Financial assets	2,925,713	5,666,608	5,985,007
Floating rate
	31 March 2008	31 March 2007	30 September 2007
	£	£	£
Financial assets	402,320	593,145	1,828,171
Deposit at AIB	3,000,000	-	-
	3,402,320	593,145	1,828,171
Non-interest bearing
	31 March 2008	31 March 2007	30 September 2007
	£	£	£
Financial assets
Property contracts yet to complete	1,781,927	172,806	446,078
Debtors	253,352	-	253,352
	2,035,279	172,806	699,430

All short-term debtors and creditors have been excluded from this disclosure.

The fixed interest assets have a weighted average maturity of 1.0 years (31 March 2007: 1.2 years; 30 September 2007: 1.1 years) and a weighted average yield of 5.0% (31 March 2007: 5.1%; 30 September 2007: 5.1%) per annum.

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 contract.

 

END

 

 

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