TOC PROPERTY BACKED LENDING TRUST PLC

Interim Report & Financial Statements for the six months ended 31 May, 2021

Announcement of Interim Results

LEI: 213800EXPWANYN3NEV68

Chairman's Statement

Highlights

                    Net Asset Value increase from 83.93 pence per share to 84.68 pence per share

                    Net Asset Value total return of 2.1%

Dividend distributions totalling 1.0p (2020: 1.5p) for the period

Ordinary share mid-price equivalent to a premium of 1.5%, as at 31 May 2021

Gearing facility with Shawbrook Bank Limited renewed to May 2022

Background

At the beginning of the period covered by this report, the Company entered the fifth year of trading since being listed on the main market of the London Stock Exchange in January 2017.

Headlines have continued to be dominated  by the Covid-19 pandemic throughout the period, paradoxically boosting certain areas of the economy, notably digital commerce, e-learning and virtual business systems but adversely affecting sectors including travel, hospitality and high street retail outlets. Housebuilding, on the other hand, has remained resilient, aided by the extension of the UK Stamp Duty holiday scheme and underpinned by a fresh surge in demand for home loans.

Net Asset Value

The Company's Net Asset Value per share increased from 83.93p to 84.68p over the six months ended 31 May 2021. Taking the effects of dividend distributions into account, this was equivalent to a NAV Total Return of 2.1%. This figure may be placed into context by the total return figures over the same period of the Association of Investment Companies' (AIC's) "Property-Debt" sector, of which PBLT is a component member, of 3.4% and of the AIC's "Debt - Direct Lending" sector of 2.3%. Meanwhile in a much broader context the FTSE 100 and FTSE All-Share Indices returned 14.1% and 15.2%, respectively, on a total return basis over the same interval.

Dividends

A first quarterly dividend of 1 penny per share was paid on 30 June 2021. As set out in the Annual Report, the Company expects to pay dividends at a rate of 1 penny per share per quarter, equivalent to 4 pence per share per year in aggregate. Depending on market conditions and the performance of the investment portfolio, a final balancing payment may be made at the end of the current financial year so as to at least fulfil the investment trust qualification requirements.

Investment Portfolio

The total value of the Company's portfolio now stands at £19.7 million, from 17 live projects, following a reduction of £3.2 million in the gross value of loans and receivables. This is the result of repayment of loans by a number of borrowers and has increased the Company's cash available for redeployment.

New Investments - the Company agreed three new facilities during the period:

·      Horizon Cremation, Scotland - £3.8m 36-month facility - funding to construct a modern, environmentally friendly crematorium in East Renfrewshire, Glasgow, Scotland.

·      Bridge Street, Scotland - £1.05m 27-month  facility - mezzanine facility to support the development of 31 residential apartments and three commercial units, working with experienced developers in Paisley, Scotland.

·        Finnieston, Scotland - £320,000 12-month facility - a bridging facility for a piece of land in the city of Glasgow which is currently going through the planning process .Additionally, since the period end, a new £4.5 million, 30 month facility, has been agreed with Calmont (Oak Meadows) Ltd to support the construction of 61 new homes at Middleton St George, Darlington.

Exits - successful redemptions were concluded with Gateshead Town Hall, Rare Earth Medburn and Chilton Moor, with the three projects now fully exited with full loan and interest repayment. These were repaid in December 2020, January 2021 and April 2021, respectively and generated an Internal Rate of Return ('IRR') of 8.23%, 8.24% and 12.77%, respectively.

Impairments - as discussed in the 2020 Annual Report, two legacy projects (Gatsby Homes and West Auckland) continued to be unable to meet their interest obligations as the borrowers work towards finalising the projects. Under IFRS 9 we are required to recognise the interest income, and the offsetting impairment in the Statement of Comprehensive Income. The Board and Investment adviser were aware the interest was unlikely to be received in this period, and liquidity has been planned accordingly. The underlying loans have not been impaired during the period from the recoverable value recorded in the Statement of Financial Position.

The loan portfolio is discussed more fully in the Investment Adviser's review.

Gearing

The Company continued to benefit from a Gearing facility with Shawbrook Bank Limited, the facility having been renewed for a further year in May 2021. None was drawn at the period end. The facility was renewed for a further year until May 2022. The facility provides the company with the capacity to invest in a wider range of loans, thus diversifying exposure and providing operating leverage with respect to the cost base of the Company. The period has been characterised by the winter Covid lockdown, which has to some degree inhibited the ability to deploy the capital available. However, as discussed more fully herein, the Company continues to see a number of good quality lending opportunities and anticipates putting more capital to work in the coming months.

Change of Auditor

Since the end of the period, following a competitive audit tender process, the Company has agreed to appoint MHA MacIntyre Hudson LLP as its auditors.

Outlook

Implementation of the Company's Strategic Review, as described in the 2020 Annual Report, is now underway. A key component of this strategy is the placing the Company's investment portfolio on a less volatile, more stable basis, reducing the risk of its loans by (typically) requiring a higher equity component from its borrowers. This will have the effect of lowering interest earnings from the loans - though still, in the current environment of extremely low interest rates, particularly on savings products, potentially generating an attractive dividend yield. The Company should therefore be well positioned as the UK economy gradually recovers and moves forward in the wake of the Covid crisis.

John Newlands, Chairman

29 July 2021

Investment Adviser's Review

ABOUT THE ADVISER

Tier One Capital Ltd is a Newcastle upon Tyne based wealth management and property lending specialist providing financial advice services and bespoke tailored lending to the residential and commercial property development market.

INVESTMENT ADVISER'S REPORT - REVIEW OF THE 6 MONTHS TO 31 MAY 2021

This Interim Report and Accounts  covers  the  end of the fourth and the beginning of the fifth year of performance of the Company, since its Listing in January 2017.

The Company's primary purpose is to provide debt finance to the property development sector. The Company also benefits from a number of equity positions attained at nil cost in a number of the borrowing entities which it supports.

Investment Adviser's highlights:

The trading period covered by this report has been historically unprecedented due to the ongoing impact of the Covid-19 pandemic which has decimated certain sectors of the economy, most notably travel and hospitality, and brought about what appear to be seismic shifts in how people work and live. A second lockdown was entered into at the beginning of 2021 and this slowed investment decisions until the vaccine roll out gained real momentum towards the end of Q1 2021. In addition to the pandemic, there remain uncertainties following the UK formally exiting the European Union in December 2020. While positive features are seen, such as the improved UK housing market, construction supply chain activity is disrupted and subject to escalating cost pressures.

Measures introduced by the government, most notably the stamp duty holiday, together with an increase in household discretionary cash and a lack of supply saw the residential housing market accelerate to new highs and forecasts expect these increases to be consolidated over the remainder of the year and into 2022.

The Company used the first six months to protect shareholder  value,  rebalance  the  portfolio  to  more conservative loans and reset the Company's investment policy to ensure it is fit for purpose as we enter the years ahead. We are pleased to report the investment highlights below:

·      NAV Total Return of 2.1%.

·      Continued focus on liquidity, creating fund headroom of £9.7m at the period end.

·      Profitable exits of three significant portfolio projects, bringing the number of exits since inception to ten.

·      Refreshed investment strategy allowing greater flexibility to deploy in sectors forecasted to grow.

·      Redeployment of funds across the North East and Scotland, meaning the Company is now focussed on regions and market economies to which it is closest.

·      The collection of 78.12% of contractual Net Interest Income due, despite exposure to non- performing sectors and assets. This figure increases to 94.55% when impaired assets are excluded.

·      Payment of a dividend of 1p for the first quarter, equivalent to an annualised dividend yield of 4.76%.

DEPLOYMENT

Despite the ongoing uncertainties faced, we are pleased to report an active period for new transactions, deployments to existing projects together with full and partial exits:

The Company agreed three new facilities during the period:

·           Horizon Cremation, Scotland - £3.8m 36-month facility

·           Bridge Street, Scotland - £1.05m 27-month facility

·           Finnieston, Scotland - £320,000 12-month facility

Further capital was also deployed to each of these projects in accordance with agreed milestones.

There were further deployments of capital as follows:

Deployments of Capital Update

Post period end, we were delighted to announce a £4.5m facility with Calmont (Oak Meadows) Ltd. The 30 month facility will facilitate the building of 61 new modern homes at Middleton St George, Darlington. The borrower is backed by private equity firm Maven Capital Partners LLP, and demonstrates the Company's ongoing commitment to supporting both residential and commercial developments.

Portfolio Exits

In December 2020, the eighth exit within the loan book occurred with the repayment of the Gateshead Town Hall project. All capital and interest was paid in full in December 2020 generating a positive internal rate of return ('IRR') of 8.23% since June 2018.

The ninth exit occurred in January 2021. Rare Earth Medburn, which has been in the portfolio since listing, repaid all of its capital and interest, generating an IRR of 8.24%.

The tenth exit occurred in April 2021. Chilton Moor, which has been in the portfolio since August 2019, repaid all of its capital and interest, generating an IRR of 12.77%.

Partial Redemptions Update

During the period there were a number of partial redemptions including:

Impairments

The Company, in accordance with IFRS 9, recognises the gross interest receivable on all its loans, and then recognises an impairment charge when that interest is not paid by the borrower, and there is not a clear expectation that this can be recovered subsequently. During the period to 31 May 2021,and as anticipated in the 2020 financial statements, the two projects unable to meet their interest requirements were Gatsby Homes and West Auckland.

We note that Gatsby  Homes  has  repaid  capital  of £172,000 during the period, with further such repayments subsequent to year end. We anticipate that the remainder of the properties in this project will be sold during 2021, with a return of the residual loan balance held on the balance sheet. As such, we anticipate that the residual interest on this loan will be subject to impairment in 2021.

Post period end, West Auckland repaid £911,000 of capital and we anticipate that the remainder of the residual loan balance recognised on the balance sheet will be repaid before the end of the financial year. Pleasingly, this includes a write back of £243,000 to the loan in this reporting period as the recovery strategy that was implemented has delivered.

Accordingly, no provision has been made for loan impairment to the recoverable amount recorded in the Statement of Financial Position.

IFRS 9 also requires the Company to consider various credit loss scenarios and assign a risk weighting to these. This calculation generates a provision which is taken as a further impairment for the year. In this period the Company has increased the provision to £448,000 from the £261,000 that was in place at 30 November 2020. This provision is based on look-forward statements to withstand market-related shocks including those caused by the ongoing Covid-19 pandemic.

Gearing

In May 2021, the Company refreshed a committed revolving credit facility with Shawbrook Bank for a further year. Again the key driver was headroom and liquidity and its renewal for a fourth year demonstrates the support that the Company has from its lender, and the growing confidence in future deployment given the current strength of pipeline.

DEPLOYMENT

PROFIT SHARE PROJECTS

There are currently ten Profit Share projects in the portfolio (Nov 2020: ten).

Since the listing of the Company we have recognised an uplift in the equity value of seven projects (Nov 2020: five), The remaining Profit Share holdings are recognised as nil value, given where we are in the lifecycle of each project. We monitor and review this on an ongoing basis.

REFRESHED INVESTMENT STRATEGY

In March 2021 the Company's shareholders voted overwhelmingly to support a refreshed investment strategy for the Company. The key changes are as follows:

·      Reposition the Company as a stretch senior lender which has the benefit of reducing the risk of default. (as borrowers are typically required to contribute equity).

·      Reduce sector constraints to give the Company greater flexibility for deployment across residential and commercial.

OUTLOOK

Economic Outlook

Residential

As at 31 May 2021, 77.3% of deployed funds were invested across 12 projects with a residential focus.

The housing market has seen considerable growth, with Nationwide House Price Index reporting 13.4% increase in the twelve months to June 2021 across the UK. Within the North East and Scotland, these figures were a more modest 11.2% and 7.1% respectively. In Scotland the Stamp Duty holiday ended on 31 March 2021 which partially explains the smaller increase.

The outlook amongst analysts for the rest of 2021 and 2022 continues to be positive. The Stamp Duty holiday has accelerated transactions for the first half   of the new year but underlying demand is likely to remain in the near term as the economy unlocks. The biggest driver of pricing for the rest of 2021 will be the continued shortage of supply with the Royal Institute of Chartered Surveyors (RICS) June 2021 report showing the number of properties being listed falling for the third successive month. The report goes on to say that "the latest feedback continues to signal a clear excess of demand over supply". The report comments that there is a strong belief that house prices "will increase further over the next twelve months".

Turning to cost pressures, the past twelve months has seen considerable price inflation on both materials and labour. According to ISH Markit/CIPS UK Construction PMI, "construction activity expanded at the fastest pace since June 1997…severe shortages of construction products and materials resulted in a survey record  rise in purchasing prices in June". Specifically in house building construction, the index increased at its fastest pace since November 2003.

The Builders Merchants Federation and Construction Products Association have warned that availability issues are expected to worsen before they improve. The ongoing impact of the Covid-19 pandemic is a significant factor behind the shortages and price increases. There are other factors including the imbalance between global demand and supply for timber which is not likely to be resolved quickly. Therefore cost pressures are here for the rest of 2021.

The Company's residential exposure is predominantly in the North East (93.3%). This will continue to be a key focus as this region continues to offer affordability for house buyers, despite the recent increase in prices. Projects are appraised using the views of market experts for sales values and build cost and delivery, with all assumptions stress tested.

Commercial

As at 31 May 2021, 23.7% of deployed funds were invested across five projects with a commercial focus.

The new investment strategy allows the Company to be more selective in the level of exposure to commercial developments. We believe that a selective approach to the Company's deployment in the commercial property sector will continue to create shareholder value. The sectors within the commercial property space that the Company currently has exposure to are:

·      bereavement (crematorium);

·      strategic land; and

·      shared office space.

Each of the above sub-sectors offer downside protection in the current uncertain economic times with the latter two also giving flexibility for the borrowers as and when trends change. We will continue to identify and support professional, experienced and reliable management teams who have a clear vision and robust plan.

PIPELINE

In addition to the £4.5m project that was supported in June 2021, there is £10.7m at various stages of deployment across three residential projects with 100% in the North East.

The quality and experience of each management team that we are in discussions with will continue to enhance the Company's portfolio and strengthen its reputation in the market. This should lead to the creation of shareholder value that is sustainable in the longer term.

Ian McElroy,

Tier One Capital Ltd

29 July 2021

THE INVESTMENT PORTFOLIO AS AT 31 MAY 2021

*LTV has been calculated using the carrying value of the loans as at the balance sheet date

** Completed in January 2021; plot fees held on the balance sheet.

*** Completed in December 2019; equity shares held on the balance sheet.

Interim Management Report

The principal and emerging risks and uncertainties that could have a material impact on the Company's performance have not changed from those set out in the Company's Annual Report for the year ended 30 November 2020.

The Directors consider that the Chairman's Statement and the Investment Adviser's Review in this Interim Report, the above disclosure on related party transactions and the Statement of Directors' Responsibilities below, together constitute the Interim Management  Report of the Company for the six months ended 31 May 2021 and satisfy the requirements of the Disclosure Guidance and Transparency Rules 4.2.3 to 4.2.11 of the Financial Conduct Authority.

The Interim Report has not been reviewed or audited by the Company's Auditor.

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that these are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this Interim Report. For these reasons they consider that there is sufficient evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

·      The condensed set of financial statements has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities, financial position and profit of the Company, as at 31 May 2021, as required by the Disclosure Guidance and Transparency Rule 4.2.4R;

·      The Interim Management Report includes a fair review of the information required by the Disclosure and Transparency Rule 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      The Interim Management Report includes a fair review of the information concerning related party transactions as required by Disclosure Guidance and Transparency Rule 4.2.8R.

On Behalf of the Board

John Newlands, Chairman

29 July 2021

Condensed Statement of Comprehensive Income

The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

There is no other comprehensive income as all income is recorded in the statement above.