Interim Management Statement

RNS Number : 0432W

ICG-Longbow Snr Sec UK Prop DebtInv

20 December 2013

 



Unaudited Interim Management Statement ("IMS")

ICG-Longbow Senior Secured UK Property Debt Investments Limited (the "Company") is publishing this Interim Management Statement in accordance with DTR 4.3 of the FCA Handbook.

This Interim Management Statement relates to the period from 1^st August 2013 to 31^st October 2013, and has been prepared solely to comply with the requirement of the Company to provide additional information to Shareholders in an interim management statement. It should not be relied upon by any other party or for any other purpose.

Unless otherwise noted herein, the financial information provided in this interim management statement, and the asset valuations underlying that financial information, are as at 31^st October 2013 and are unaudited.

Background Information:

The Company is a Guernsey closed-ended investment company listed on the Main Market of the London Stock Exchange, and has been registered with the Guernsey Financial Services Commission as a closed-ended collective investment scheme.  The Company was admitted to trading on the Main Market of the London Stock Exchange on 5^th February 2013.  Since that time, and in accordance with the Prospectus, the Company's investment manager, ICG-Longbow (the "Investment Manager"), has been building a pipeline of potential loan transactions which would meet the Investment Objective of the Company, namely:

"…to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% pa, paid quarterly, with an underlying target portfolio IRR of 8% pa…"

UK Commercial Property Debt Market Update:

Against the backdrop of the return of rental growth to parts of the occupational market outside of London (notably regional City Centre offices), the IPD UK All Property Capital Growth index has continued to grow, with the UK Quarterly index showing 1.3% capital growth in the quarter to 30^th September 2013. This follows 0.4% growth in the previous quarter, reflecting future growth expectations and the continued 4% (but narrowing) spread between all property yields and 10 year gilt. Over the last quarter, the Investment Manager has seen strong buying interest from both institutions and debt funded buyers for properties in the South East and early signs of competition for attractive opportunities in other parts of the UK.

In the property debt market, the last quarter has seen a period of stabilisation, with the new lenders reported as entering the market earlier in the year now starting to transact but much of this activity has been concentrated in London and the South East and/ or to high profile names.

Investment Activity:

At the time of announcing the interim financial statements for the period ending 31^st July 2013 (announced on 27^th September 2013), the Company had completed three investments and had deployed £50.3million (49%) of the capital raised at the IPO in February 2013.

Since then, and up to the date of this report, the Company has completed a further 5 investments (£36.91m), bringing the total capital deployed to £87.26m, representing 85% of the capital raised.  The Company has two further investments which are in advanced due diligence and legal documentation  and expects to be substantially (95%) invested by the middle of January 2014.

Investment Portfolio:

The evolution of the investment portfolio from 31^st July 2013 to 31^st October 2013 and to date is set out in the table below:

	No. Loans	£m	% Capital Deployed
Investment portfolio at 31 July 2013	2	32.270	31.5%
Investments completed 31 July to 31 October 2013	1	18.070	17.6%
Portfolio at 31 October 2013	3	50.340	49.1%
Investments completed since 31 October 2013	5	36.815	36.0%
Investment Portfolio at reporting Date	8	87.255	85.1%

These investments bring the Company's aggregate portfolio to £87.255m or 85% of the available capital with a weighted coupon of 7.28% and a projected internal rate of return if held to maturity of 8.29% pa.

The Board and the Investment Manager believe the Company's loan portfolio to be strongly secured, given the senior secured position with a weighted exposure of 61% Loan to Value ratio and a 165% Interest Coverage Ratio, together with the diversification of risk at portfolio level by sector and geography and at loan level through the exposure predominantly to multi-property or multi-tenanted security.

At the date of this statement the portfolio comprised the following investments, each of which is summarised below:

Transaction	Region	Sector	Amount (£m)	Term (yrs)	No. Properties	No. Tenants	Occupancy (By rental value)
Mansion Student Fund	Midlands/ Scotland	Other (Student Accommodation)	18.070	6.0	2	n/a	98.9%
LM Real Estate	North West	Industrial/ Distribution	14.200	5.5	6	29	94.1%
Meadow Partners	London	Retail	18.070	4.5	1	4	100.0%
Northlands Portfolio	London	Mixed Use	7.200	5.0	15	96	96.5%
Hulbert Properties	Midlands	Industrial/ Distribution	6.565	5.0	3	14	99.2%
Halcyon Thames	National	Industrial/ Distribution	8.600	5.0	21	21	100.0%
Cararra Nominees	North West	Office	1.300	5.0	1	1	100.0%
Raees International	London	Mixed Use	13.250	5.0	25	119	98.0%
Total Portfolio			87.255	5.2	74	283	95.2%

The loan portfolio security shows a geographical split⁽¹⁾ of:

Greater London:               43%

Midlands:                            22%

North West:                       16%

Scotland:                             6%

East:                                      5%

South East:                         4%

South West:                        2%

North                                     2%

 ⁽¹⁾  Exposure calculated with reference to aggregate value of underlying properties in each region

The sector split by property sector⁽²⁾   is:

Retail:                                                              21%

Industrial/ Distribution                            34%

Other (student accommodation):         20%

Mixed                                                                23%

Office                                                                   2%

⁽²⁾  Sector splits calculated with reference to the predominant sector exposure of each loan on a capital weighted basis

Loan 1   - Mansion Student Accommodation Fund           

An £18.07 million senior loan secured on two student accommodation blocks located in Birmingham and Glasgow, which are directly let to students.

The Properties are owned by two wholly owned subsidiaries of the Mansion Student Accommodation Fund ("MSAF"), which is managed by the Mansion Group.

The loan benefits from security against two well located, purpose built (and recently refurbished) student blocks, which comprise 1,009 beds. Mansion Group let the accommodation directly to students and the portfolio is currently 99% occupied.

On 23^rd October 2013, MSAF announced that it was suspending subscriptions and redemptions of units in the fund.  MSAF and the borrower entities remain fully compliant with the terms of the loan made by the Company and both properties continue to perform in line with expectations. The Company does not believe that the announcement made by MSAF will have any impact on the performance of the loan or the Company.

Loan 2   - LM Real Estate

A £14.20 million loan facility, which has been drawn to refinance a portfolio of five multi-let industrial and distribution warehouse units located in the North West of England. A further facility of £5.80m, which had been made available to the Borrower to fund further acquisitions has not been drawn and has been cancelled. The Borrower is a property investment and development company located in the North West of England, which specialises in industrial and distribution properties.

The portfolio, which is managed directly by the borrower, benefits from a diverse tenant base and high occupancy, with 34 of 37 units let and income producing, with income secured by 29 tenants.

Loan 3 - Meadow Partners  Retail Park Loan

An £18.07m senior loan facility used to assist financing an established and well supported international real estate fund in the acquisition of a multi-let retail warehouse park located in north London which benefits from A road frontage and is fully let to four tenants.

The Borrower is an SPV owned by Meadow Partners Fund II LP and managed by Meadow Partners, an international real estate investor and asset manager, with offices in New York City and London.

Loan 4 - Northlands Portfolio

A £7.20m senior loan facility used to refinance existing senior debt secured on a mixed use portfolio of high street retail and tenanted residential units located predominantly in London and the South East.  The Borrower is Northlands Holdings and group affiliates on a cross-collateralised basis.

The security portfolio comprises 15 properties with a highly diverse income stream from 39 retail and 57 residential tenants, with the largest tenants being Argos Distributors Ltd and Tesco Stores Ltd, accounting for 10.3% and 8.5% of total rent, respectively.

Loan 5 - Hulbert Properties

A £6.565m loan to refinance a well let portfolio of industrial units predominantly located in Dudley in the West Midlands (92% by value). The Borrower is a west midlands based private property company.  The portfolio is multi-let to 14 tenants and benefits from high occupancy (99%).

Loans 6 and 7 - Halcyon and Carrara Ground Rents

An £8.60m senior loan facility (Halcyon) and a separate £1.30m senior loan facility (Carrara), proceeds of which were used to refinance a portfolio of freehold grounds rents and an individual freehold ground rent investment, respectively. Both of these loans have a common sponsor although they are not cross collateralised.

The Halcyon security comprises a diversified portfolio of 21 freehold ground rent investments with a weighted unexpired lease term of 89 years, of which 72% are industrial with leasehold rents receivable geared to 22-25% of open market rental value, with the balance being leisure uses at leasehold rental gearings of 50% of open market rental value. The properties are predominantly located in the East of England, London and the South East.

The Carrara security comprises a single freehold ground rent investment located in Leeds with an unexpired lease term of 98 years, subject to a 25% rental gearing.

Loan 8 - Raees International

A £13.25m senior loan, the proceeds of which were used to refinance a mixed retail and residential portfolio located in in North East London. The Borrower, Raees International Ltd, is a passive investor which has appointed local managers to carry out the asset management of the portfolio.

The facility is secured by a first and only charge on a mixed use portfolio of high street retail and residential units. The security portfolio comprises 25 properties with a highly diverse income stream from 54 commercial tenants and 65 residential tenants.

All of the loans are fully compliant with the parameters set out in the Prospectus.

Financial Information:

The net asset value per share and share price of the Company for the period was as follows:

Shares in issue	104,619,250
	5 February 2013	30 April 2013	31 July 2013	31 October 2013
Estimated NAV per Ordinary Share (pence)	98.00	97.80	97.74	98.27
Share price (pence)	100.00	104.00	102.00	102.00
Premium / (discount)	2.00%	6.34%	4.36%	3.80%
Market Capitalisation (million)	£104.62	£108.80	£106.67	£106.67

Outlook:

Given the advanced status of negotiations and due diligence on the remaining pipeline transactions, the Investment Manager, and Board expect the Company will be substantially (95%) invested by the middle of January 2014.

Based on the investments completed to date and the current pipeline, ICG-Longbow expects that the Company's Investment Objective: "…to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% pa, paid quarterly, with an underlying target portfolio IRR of 8% pa…" will be met."

Dividend

As stated above and based on the current investment pipeline, on becoming fully invested the Company remains well placed to meet its dividend target of circa 6% per annum.

The Company is pleased to declare its first dividend of 0.5pence per share for the quarter ended 31^st October 2013.

Based on the existing portfolio at the date of this statement, representing 85% investment of capital, the Board believes the Company will be in a position to pay a stabilised dividend of circa 5 pence per share per annum.

Dividend details:

Distribution period:	1st August 2013 - 31st October 2013
Distribution amount per share:	0.5 pence
Ex-dividend date:	31st December 2013
Dividend record date:	3rd January 2014
Payment date:	17th January 2014

Disclaimer

This interim management statement has been prepared solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules and the interim management statement should not be relied on by any other party or for any other purpose.  It does not constitute an invitation to subscribe for or otherwise acquire or dispose of securities in the Company in any jurisdiction.  The information contained in this interim management statement is subject to updating and amendment, and does not purport to be full or complete.  No reliance may be placed for any purpose on the information contained in this interim management statement in connection with the Company or the purchase of securities in the Company.  This interim management statement does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase any investments nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract or commitment whatsoever.  Any decision to purchase shares should only be made after careful consideration of the information contained in the final prospectus issued by the Company.

The potential acquisition by the Company of any of the investments referred to in this interim management statement is subject, among other things, to those projects reaching legal completion and to the Company having conducted satisfactory due diligence in relation to such investments. There is therefore no guarantee that any of the investments will be acquired and if they are on what terms. 

This IMS contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events;forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.  Subject to their legal and regulatory obligations, the Company and its Investment Manager expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

For further information, please contact:

Heritage International Fund Managers Limited:
Mark Huntley James Christie	[phone]
Investec Bank plc:
Tim Mitchell Jeremy Ellis	[phone]
Maitland Consultancy Limited:
Rebecca Mitchell	[phone]

Further information on the Company can be found on its website at http://www.lbow.co.uk

 

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