Interim Results
Off-Plan Fund Limited (The)
30 June 2006
For Immediate Release 30 June 2006
The Off-plan Fund Limited
Interim results
for the period 1 October 2005 to 31 March 2006
The Off-plan Fund Limited, which specialises in providing forward finance to UK
housebuilders, is pleased to announce its interim results for the period ended
31 March 2006. Copies have been published for shareholders and may be also be
obtained free of charge from Development Capital Management Limited, 84 Grosvenor
Street, London, W1K 3JZ.
List of Contacts
Development Capital Management
Roger Hornett
Tom Pridmore
020 7355 7600
Buchanan Communications
Charles Ryland
020 7466 5000
Numis Securities
Charles Farquhar
020 7776 1500
Chairman's Statement
I would like to welcome shareholders both old and new to the first set of
financial statements for the Off-plan Fund Limited since the flotation on the
Alternative Investment Market of the London Stock Exchange (AIM). Following the
year end the Fund has undergone a series of important changes, which both the
Board and the Manager hope will place it in a strong future position.
At the EGM on the 14 November 2005 a number of amendments to the Fund were
proposed as part of the process of implementing the raising of additional
capital and of listing on AIM. These resolutions were; extending the life of the
Fund to 10 years following listing, authorising the issue of the new shares for
the placing and amending the investment restrictions to allow the Manager
greater flexibility given the Fund's size. I am pleased to report all
resolutions were duly passed and the listing and placing of shares was
successful raising a further £6.8m. The Fund made its debut on AIM on 12
December 2005 closing at 101.5p a slight premium to the 100p issue price.
Further to the resolutions and as a consequence of the additional fund raising
555,002 bonus shares were also issued to existing shareholders in order to
reduce the dilution of their shareholdings.
Since the fundraising the Manager has been reviewing a significant number of
sites and investigating potential opportunities with a range of developers
across the country. The Manager is working closely with several of these
developers on a number of promising opportunities, the first of which to reach
fruition, Oldham Place in Liverpool, was announced following the period end. We
hope to make further announcements as each of these discussions conclude. Both
the Board and the Manager are focused on committing the extra funds raised as
early as possible, but of course this will be balanced with the need to hold a
quality portfolio of well diversified investments.
With regard to the Fund's existing investments the Manager has been holding
discussions with several large purchasers in order to realise a potential bulk
sale of the apartments in Nottingham. Progress to date has been slow but we are
confident the quality of the site will ensure a satisfactory conclusion. In
Leicester a show flat has been completed and marketing of the six units has
recently commenced.
As 2006 progresses, the UK housing market seems to be moving to a more firm
footing following the cautious position we saw last year. Prices and volumes are
both on the rise and steady growth over the year would not seem unreasonable,
although some of the recent, more over heated figures are unlikely to be
maintained. The development market in the UK has clearly matured from the boom/
bust cycles of the past and in response to this the Manager has been tailoring
its financing models accordingly. The results of these negotiations we hope to
announce as the year unfolds.
It is with regret that on 2 March 2006 the Board announced the retirement of
James Ogilvy due to health considerations. Mr Ogilvy was instrumental in
supporting the Manager in the establishment and launch of the Fund in 2003 and
played an active role in the Fund's development. Both the Board and the Manager
wish to record their gratitude for all that he has done on behalf of the Fund
and wish him well in his retirement.
As mentioned in the year end financial statements the Board has taken the
decision to present the accounts valuing the property contracts under the
historic cost accounting method. This treatment results in an NAV per share of
85.1p, a 6.2% fall from the year end. Valuing the contracts under 'Red-Book'
principles results in a NAV of 91.1p. The changes in NAV resulted principally
from the diluting effect of fund raising, 91p per new share after expenses. For
investors information the Board will continue to release both figures on a
quarterly basis.
Subsequent to the period end on 11 May 2006, the Board was pleased to announce
the purchase of a development in Oldham Place, Liverpool. The Fund's unique
financing model has enabled the Manager to secure a well located site at an
excellent price. We expect this to be the start of a series of attractive
investments, whereby the Fund, working closely with both developers and their
banks, can secure promising investments and provide an encouraging foundation
for the future.
Graham Berry
Chairman
May 2006
Manager's Report
The last six months have seen a dramatic change in the size of the Fund. The
placing and AIM listing have allowed the Manager the additional resources to
pursue some of the more attractive opportunities currently available. In
addition to this the Manager has completed a review of the major conurbations
within the UK and is now targeting specific locations where they believe the
Fund is best placed to invest. During the period the existing portfolio has
matured as the developments advance towards completion.
As the market becomes more sophisticated, the Manager has evolved a number of
unique financing models which, in partnership with developers, can offer the
Fund very competitive purchase terms. In conjunction with this, the Manager
continues to build relationships with a range of banks in order to work with
both developer and lender at the earliest stage of the development process.
The potential returns available within residential property remain strong. The
off-plan market continues to mature, with greater publicity and marketing of
off-plan sales to retail investors. This has in turn, lead to greater
competition and professionalism within the market and a change in the attitude
of both the banks and developers. Principally both parties have assumed a longer
term strategy, thereby smoothing market cyclicality.
Portfolio and Activity
At the period end the Fund held contracts in respect of 36 properties in
Leicester and Nottingham. A 'Red Book' valuation of these properties was
undertaken by Colliers CRE as at 31 March 2006. This valued the portfolio at
£5,934,000, a reduction in the September valuation of 2.8% caused by a decrease
in the value of the Nottingham site from £5,045,000 to £4,874,000. The Manager
is looking to build a portfolio weighted roughly equally between sites,
diversified both geographically and across completion dates. The nature of
property development has meant however, that prior to the period end, a number
of contracts being worked upon were not ready to be included within the
portfolio as at 31 March 2006. The first of these, Oldham Place, was announced
on 11 May 2006.
Wimbledon House, Leicester
The six apartments at Wimbledon House, Leicester remained valued at £1,060,000.
The entire development comprises 24 two bed, two bathroom units in an existing
four storey Victorian warehouse on the lower ground, raised round and two upper
floors. The development is now completed to shell with practical completion
expected in July/August. The interior fit out which includes kitchen and
bathroom design has been agreed and an on site show flat has been completed. The
sales and marketing of the development began in May.
Waterfront Plaza, Nottingham
The development comprises a residential block of 107 units which is nearing
external completion with final work on the facade and balconies close to
completion. The interior fit is partially finished with electrical and first fit
in the bathrooms and kitchen. Practical completion is expected at the end of
June 2006. The 30 apartments at Waterfront Plaza were valued at £4,874,000 a
reduction of 3.4% from the September figure. The Nottingham city centre market
has seen values fall over the last six months, due to what appears to be a short
term increase in supply. Eight major developments are currently under
construction creating over 850 units in the city centre competing for buyers.
Within this market the Manager is focusing on a sale to bulk purchasers and the
sale of the single apartment announced in the year end report has now been
dropped.
Post Period End - Oldham Place, Liverpool
Following the period end the Fund exchanged contracts to purchase 51 apartments
in Oldham Place, Liverpool.
The site is located between two Liverpool city centre regeneration areas; the
Ropewalks, a newly established residential quarter and Mount Pleasant, an area
with a large student population. Just east of the city centre, it is
approximately a 5 to 10 minute walk to Lime Street railway station and 15
minutes from The Albert Dock and Royal Liver Building.
The total purchase price of the apartments is £6.6m (£192 per square foot) a 20%
discount to the 'Red Book' valuation of £8.25m (£238 per square foot). A 5%
deposit (£332,489) has been paid with the remainder due on completion. The
investment represents the entire residential element of the site, which combined
with the alternative financing model, working alongside the developer and bank
has allowed the Fund to invest at a highly attractive price.
The development is expected to commence shortly with completion due in June
2007. An agent has been appointed and pre-marketing has begun.
Fixed Income Portfolio
Over the period under review the additional funds raised were invested in 11 new
holdings and increases to some existing positions, taking the total number of
securities to 27. The theme remains foreign issued GBP denominated debt, with a
spread of bank issuers and some corporates, all within the investment grade
ratings stipulated by the investment mandate. The maturity profile has reduced
slightly to 1.7 years down from 2 years at the same point last year. In line
with rising short term interest rates the portfolio yield has increased to 5.2%
from 4.9% last year. 92% of the Fund's assets are currently held in this
portfolio, which will be drawn upon as property investments are made. The
Manager intends to hold approximately half the Fund's assets as a completion
reserve, but in line with the new investment restrictions may reduce this to 30%
should it be felt necessary.
Market
The recovery in the UK's housing market which began towards the end of the
second quarter of 2005 appears to have gathered pace in early 2006, with home
starts and completions in the first quarter up 19% and 12% year on year
respectively. The increase in activity coupled with a late jump in prices has
continued through the first quarter of the year, with the Land Registry
reporting sales volumes up 37% year on year. However the economic conditions
would seem too soft to support sustained growth at current rates. Previous
forecasts of a fall in house prices now seem overly pessimistic, with most
market commentators expecting continued if unspectacular growth.
The regional house price data is less clear: the Nationwide Building Society
reported that house price rises accelerated across every region in the 1st
Quarter 2006 while the Halifax reported further slowdowns in the North East and
Scotland. The Land Registry figures cloud the waters a little, by reporting the
highest growth in Northern England and Wales. Importantly they also report a
healthy 6.4% increase in the prices of new apartments over the first quarter.
All three show a resurgence in London house price inflation. This above average
growth shown in both London and the South East, is a trend we would expect to
continue as the year progresses. Outside of these areas regional job losses in
consumer facing industries and manufacturing may cause a housing market slowdown
in those areas such as South West, the East and North West.
The residential letting market continues to show steady growth with the RICS
reporting that tenant demand rose at its fastest pace in nearly five years in
the 1st Quarter 2006. Tenant demand has now exceeded new letting instructions
for seven consecutive quarters. Affordability pressures within the residential
property market should ensure that demand remains healthy, supporting further
growth in rental incomes. Regionally London remains the strongest rental market.
Data from both RICS and the RPI rent index suggest that over the past year
rental growth across the UK has averaged between 3.5% and 4% per annum. This
trend is expected to continue.
Outlook
Since the fundraising the Manager has conducted a detailed review of major towns
in England, Scotland and Wales. Good local knowledge is one of the key elements
of this business and in each location the Manager has established relationships
with local developers, agents and lenders in order to ensure the Fund is
positioned to take advantage of opportunities as they arise.
This process has enabled the Manager to develop a number of financing models
which allow lenders, developers and the Fund to collaborate in structuring
forward finance to the mutual benefit of each party. By working in partnership
with the developer the Fund is able to not only gain very competitive purchase
prices, but work with the developer throughout the project and ensure the Fund
has an attractive portfolio of properties to sell on.
We continue to pursue investments located in or around urban areas across the
country, where there is a strong prospect of demand from owner occupiers, and
private or institutional investors. Target opportunities within improving city
centres, particularly those with strong inward investment, regeneration and high
quality transport infrastructure continue to be a priority. Particularly
locations where there is strong demand from the rental sector.
As mentioned above, the Manager is working closely with a number of developers
across the UK on several potential opportunities, these discussions continue and
we expect further announcements to be made in the months ahead.
Development Capital Management
(Jersey) Limited
May 2006
------------------- -------- -------- -------- ----------
Balance Sheet
AS AT 31 MARCH 2006
Notes As at As at As at
31 March 31 March 30 Sept
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Restated) (Restated)
£ £ £
Fixed Interest Investments 4 7,351,126 1,469,171 1,280,973
Property contracts yet to 4 362,905 300,527 362,905
complete -------- -------- ----------
7,714,031 1,769,698 1,643,878
Current assets
Debtors 127,835 37,605 45,280
Cash and cash equivalents 147,350 29,650 148,995
-------- -------- ----------
275,185 67,255 194,275
Creditors-amounts falling
due within one year
Other payables (79,243) (30,962) (50,167)
Net current assets 195,942 36,293 144,108
-------- -------- ----------
Total net assets 7,909,973 1,805,991 1,787,986
-------- -------- ----------
Equity
Stated capital 5 9,294,248 1,970,000 1,970,000
Realised capital reserve 2,232 - 1,570
Unrealised capital reserve (18,489) 3,457 13,116
Revenue reserve (1,368,018) (167,466) (196,700)
-------- -------- ----------
Total shareholders' funds
(all equity) 7,909,973 1,805,991 1,787,986
-------- -------- ----------
Net asset value per
Share (pence) 7 85.11 91.67 90.76
------------------ -------- -------- -------- ----------
The financial statements were approved by the Board of Directors on 19 June 2006
and signed on its behalf by
Graham Berry William Roger King
------------------------ -------- -------- -------
Cash Flow Statement
FOR THE SIX MONTHS ENDED 31 MARCH
2006
As at As at As at
31 March 31 March 30 Sept
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
£ £ £
Cash flows from operating activities
Investment income received (17,612) 14,187 28,114
Deposit interest received 44,350 11,495 12,793
Investment management fees paid (41,298) (24,824) (35,315)
Secretarial fees paid (1,691) (1,702) (3,406)
Other cash payments (42,088) (49,111) (91,165)
-------- -------- -------
Net cash outflow from operating
activities (58,339) (49,955) (88,979)
Capital expenditure and investment
activities
Deposits and acquisition costs
relating - (286,247) (329,182)
to property
Purchase of investments (6,252,812) (648,121) (648,121)
Sale of investments 149,492 - 201,304
-------- -------- -------
Net cash outflow from investment
activities (6,103,320) (934,368) (775,999)
Net cash outflow before financing (6,161,659) (984,323) (864,978)
Financing
Issue of shares 6,769,246 - -
Expenses of share issue (609,232) - -
-------- -------- -------
Net cash inflow from financing 6,160,014 - -
Decrease in cash
----------------------- -------- -------- -------
(1,645) (984,323) (864,978)
-------- -------- -------
---------------------------------------------
Reconciliation of Movements in Shareholders Funds
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Share Capital Revenue Total
Capital Reserve Reserve
(restated) (restated)
£ £ £ £
For the six months ended
31 March 2006
At 1 October 2005 1,970,000 14,686 (196,700) 1,787,986
Issue of ordinary
shares for cash 6,769,246 - - 6,769,246
Expenses of
share issue - - (609,232) (609,232)
Bonus share issue 555,002 (555,002) -
Loss for the period - (30,943) (7,084) (38,027)
--------- -------- -------- --------
At 31 March
2006 9,294,248 (16,257) (1,368,018) 7,909,973
--------- -------- -------- --------
For the six months ended
31 March 2005
At 1 October 2004 1,970,000 3,079 (148,474) 1,824,605
Loss for the period - 378 (18,992) (18,614)
--------- -------- -------- --------
At 31 March 2005 1,970,000 3,457 (167,466) 1,805,991
--------- -------- -------- --------
For the year ended 30
September 2005
At 1 October 2004 1,970,000 3,079 (148,474) 1,824,605
Loss for the year - 11,607 (48,226) (36,619)
--------- -------- -------- --------
At 30 September 2005 1,970,000 14,686 (196,700) 1,787,986
-------------------- --------- -------- -------- --------
Income Statement
FOR THE SIX MONTHS ENDED 31 MARCH 2006
(Unaudited) (Unaudited) (Audited)
(Restated) (Restated)
Six months ended Six months ended Year ended
31 March 2006 31 March 2005 30 September 2005
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £ £ £ £
(Losses)/
gains on
investments - (30,943) (30,943) - 378 378 - 11,607 11,607
Income 109,433 - 109,433 39,937 - 39,937 77,291 - 77,291
Investment 3 (41,298) - (41,298) (11,519) - (11,519) (22,010) - (22,010)
management fee
Other expenses (75,219) - (75,219) (47,410) - (47,410) (103,507) - (103,507)
--------- --------- --------- --------- ------- -------- --------- -------- ---------
Net (loss)/gain
on ordinary
activities before
finance costs and
taxation (7,084) (30,943) (38,027) (18,992) 378 (18,614) (48,226) 11,607 (36,619)
(Loss)/gain on
ordinary
activities
before and
after taxation (7,084) (30,943) (38,027) (18,992) 378 (18,614) (48,226) 11,607 (36,619)
--------- --------- --------- --------- ------- -------- --------- -------- ---------
(Loss) / gain
per ordinary
share (pence) 2 (0.11) (0.49) (0.60) (0.96) 0.02 (0.94) (2.45) 0.59 (1.86)
Notes
a. The total column of this statement represents the profit and loss of the
company.
b. The financial statements have been restated to reflect the changes to
accounting practices as set out in the accompanying notes. See note 9 for a
summary of these changes.
c. All items in the above statement derive from continuing operations.
Notes to the Financial Statements
1 ACCOUNTING POLICIES
Accounting Policies
The financial statements have been prepared under the historical cost
convention, as modified to include the revaluation of quoted investments and in
accordance with applicable Accounting Standards and with 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 2004 the Company had the option to prepare its financial
statements in accordance with International Financial Reporting Standards
('IFRS'), as adopted by the International Accounting Standards Board ('IASB').
The Board has elected to continue to adopt UK Generally Accepted Accounting
Principles ('UK GAAP') and thus the new Financial Reporting Standards issued as
part of the programme to converge UK GAAP with IFRS. Figures for the period
ended 31 March 2005 and the year ended 30 September 2005 have been restated
accordingly. The same accounting policies used for the year ended 30 September
2005 have been applied with the following exceptions:
(a) 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 period.
Income bought and sold on fixed interest securities is recognised in the income
statement.
(b) Quoted Investments
Purchases of investments are recognised on a trade date basis and designated
upon initial recognition as held at fair value through profit or loss. Sales of
assets 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'. Also
included in this caption are transaction costs in relation to the purchase or
sale of investments.
(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 the 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.
2 Returns per share
Six months ended 31 March 2006
The return per share is based on the net loss for the period of £38,027 and on
6,356,500 shares, being the weighted average number of shares in issue.
Six months ended 31 March 2005
The return per share is based on the net loss for the period of £18,614 and on
1,970,000 shares, being the weighted average number of shares in issue.
Year ended 30 September 2005
The return per share is based on the net loss for the period of £36,619 and on
1,970,000 shares, being the weighted average number of shares in issue.
3 Management fee
----------- ------------ ------------ --------
Six months ended Six months ended Year ended
31 March 2006 £ 31 March 2005 £ 30 Sept 2005 £
Management fee 41,298 11,519 22,010
----------- ------------ ------------ --------
The management fee paid to Development Capital Management (Jersey ) Limited
(DCM) was, until 18 January 2006, 1.25% 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 investment properties. This was increased to
2% per annum from 19 January 2006. The management agreement between the Company
and DCM is terminable by either party on 12 months notice, subject to an initial
term of 24 months.
4 Fixed Interest Investments
------------------ --------- ---------- --------
Six months Six months Year ended
ended ended
31 March 2006 31 March 2005 30 Sept 2005
(Restated) (Restated) (Restated)
£ £ £
Opening valuation 1,280,973 819,029 819,029
Opening unrealised
appreciation (13,116) (3,079) (3,079)
--------- ---------- --------
Opening book cost 1,267,857 815,950 815,950
Movements during the period:
Purchases 6,253,664 648,121 648,121
Sales - proceeds (150,344) - (201,304)
Amortisation of fixed
income book costs (2,224) (1,643) (3,520)
Sales - realised gains 662 - 1,570
--------- ---------- --------
Closing book cost 7,369,615 1,465,714 1,267,857
Closing unrealised
appreciation Closing
valuation (18,489) 3,457 13,116
------------------ --------- ---------- --------
7,351,126 1,469,171 1,280,973
--------- ---------- --------
Property Contracts Yet to Complete
Six months Six months Year ended
ended ended
31 March 2006 31 March 2005 30 Sept 2005
£ £ £
Opening book cost 362,905 18,274 18,274
Movements during the
period: - 282,253 344,631
---------- --------- ----------
Purchases Book cost 362,905 300,527 362,905
------------------ ---------- --------- ----------
The book costs above refer to the 36 property contracts in respect of Wimbledon
House, Leicester (6 residential apartments) and Waterfront Plaza, Nottingham (30
residential apartments). The table below summarises the costs associated with
these contracts and applies the 'Red Book' valuation, prepared by Colliers CRE
as at 31 March 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 8.
---------------- ---------- ----------- --------
Wimbledon Waterfront
House Plaza Total
£ £ £
Deposits paid 46,575 217,906 264,481
Legal and acquisition costs 12,114 86,310 98,424
---------- ----------- --------
Book cost as at 31 March 2006 58,689 304,216 362,905
Outstanding completion payments 884,925 4,140,213 5,025,138
---------- ----------- --------
Total historic cost 943,614 4,444,429 5,388,043
---------- ----------- --------
'Red Book' valuation 1,060,000 4,874,000 5,934,000
Approximate completion date August 2006 August 2006
---------------- ---------- ----------- --------
5 Stated Capital
As at 31 March 2006 and 2005 and 30 September 2005
Authorised:
The company is a no par value ('NPV') company Number
Founder shares 10
99,999,990 participating shares 99,999,990
100,000,000
As at 31 March 2006
------------- ------------ ----------- --------
Issued: 31 March 2006 31 March 2005 30 Sept 2005
Founder shares 2 2 2
Participating shares 9,294,248 1,970,000 1,970,000
------------- ------------ ----------- --------
On 12 December 2005, 6,769,246 participating shares were issued at 100p raising
net proceeds of £6,160,014. 555,002 bonus participating shares were also issued
on this date.
6 Transaction costs
There were no transactions costs charged to the Company during the period. A
one-off fee, including brokerage costs, is charged by the custodian to the
Manager, Development Capital Management (Jersey) Limited.
7 Net asset value per share
Net asset value per share Net asset value
attributable per share
31 March 2006 31 March 2005 30 Sept 2005
p p p
Participating shares (note 5) 85.11 91.67 90.76
Net asset value
31 March 2006 31 March 2005 30 Sept 2005
£ £ £
7,909,973 1,805,991 1,787,986
--------------- ---------- ------------
8. Financial instruments & Property Contracts Yet to Complete
The Company's financial instruments comprise fixed interest securities, cash
balances 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 property contracts yet to complete are not 'financial
instruments' but appropriate disclosures have been given below.
The main risks which 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 movements, (ii) credit risk, (iii) interest rate risk
and (iv) liquidity risk. The Board regularly 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
the portfolio 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 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 each of the property contracts yet to complete
at the lower of cost and net realisable value as set out in note 1(d). The total
purchase price including acquisition costs, of the 36 contracts was £5,388,043
and the 'Red Book' valuation of the properties as at 31 March 2006 was
£5,934,000. Should the Company complete on all the contracts and subsequent 'Red
Book' valuations fall by more than 9%, the Company would then be exposed to any
further falls in the market, as the net realisable values would then be below
cost.
Credit risk
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 Company
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 developer's solicitors. This money is only released to the
developer on satisfactory completion of the property. Should a developer default
on the contract the deposit and any interest earned would be returned to the
Company.
Interest rate risk
Financial Assets
The interest rate risk profile of financial assets at the balance sheet date was
as follows:
---------------- ---------- ----------- ---------
Fixed Interest 31 March 2006 31 March 2005 30 Sept 2005
£ £ £
Financial Assets 7,351,126 1,469,171 1,280,973
Property contracts yet to complete - - -
---------- ----------- ---------
7,351,126 1,469,171 1,280,973
Floating Rate 31 March 2006 31 March 2005 30 Sept 2005
£ £ £
Financial Assets 147,350 29,650 148,995
Property contracts yet to complete - - -
---------- ----------- ---------
147,350 29,650 148,995
Non-Interest Bearing 31 March 2006 31 March 2005 30 Sept 2005
£ £ £
Financial Assets 340,933 278,555 340,933
Property contracts yet to complete - - -
---------- ----------- ---------
340,933 278,555 340,933
---------------- ---------- ----------- ---------
All short-term debtors and creditors have been excluded from this disclosure.
The fixed interest assets have a weighted average maturity of 1.7 years (31
March 2005: 2.0 years; 30 September 2005: 1.7 years) and a weighted average
yield of 5.2% (31 March 2005: 4.9%; 30 September 2005: 4.8%) 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. It will have no impact on the
property contracts yet to complete.
Liquidity risk
The Company's assets mainly comprise cash balances and readily realisable
securities, which can be sold to meet funding commitments if necessary. They
also are comprised of property contracts yet to complete. 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 commitments set out in the
contracts which is currently £5,025,138.
9. Restatement of figures
As mentioned in note 1(a), interest earned on financial assets accrues at the
effective interest rate, 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. Previously, only interest coupons receivable on
such assets were taken to the revenue account, accrued on a daily basis during
the period of ownership of the asset.
The effect of adopting this new policy has been that amounts previously charged
or credited to capital account are now charged or credited to revenue account.
The following tables detail the effects on shareholders' funds:
--------------- ------------ ---------- --------
Before Effects of After
restatement change restatement
£ £ £
As at 31 March 2005
Stated capital 1,970,000 1,970,000
Realised capital reserve - -
Unrealised capital reserve 5,100 (1,643) 3,457
Revenue reserve As at 30 September 2005 (169,109) 1,643 (167,466)
------------ ---------- --------
1,805,991 - 1,805,991
------------ ---------- --------
Stated capital 1,970,000 1,970,000
Realised capital reserve 616 954 1,570
Unrealised capital reserve 17,590 (4,474) 13,116
Revenue reserve As at 31 March 2006 (200,220) 3,520 196,700
------------ ---------- --------
1,787,986 - 2,181,386
------------ ---------- --------
Stated capital 9,294,248 9,294,248
Realised capital reserve 1,468 764 2,232
Unrealised capital reserve (16,429) (2,060) (18,489)
Revenue reserve (1,369,314) 1,296 (1,368,018)
------------ ---------- --------
7,909,973 - 7,909,973
------------ ---------- --------
These changes have therefore resulted in a reallocation of shareholders' funds
between retained revenue and capital reserve at the period or year ends, but not
in the overall total shareholders' funds as at these dates.
10 Subsequent Events
Following the period end the Company entered into a contract to purchase 51
apartments in Oldham Place, Liverpool. The total purchase price of the
apartments is £6.6m of which the Company is paying a 5% deposit, which will be
held in escrow pending completion.
This information is provided by RNS
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