TIDMTCF
RNS Number : 8752Q
Terra Catalyst Fund
05 December 2016
5 December 2016
TERRA CATALYST FUND
(the "Company")
Interim Financial Statements
Terra Catalyst Fund (AIM:TCF) announces its unaudited interim
financial statements for the six months to 30(th) September 2016
(the "Interim Financial Statements").
The full text of the Interim Financial Statements is set out
below.
ENQUIRIES TO:
Terra Catalyst Fund Tel: +44 (0)1624 690 900
Mike Haxby, Director
www.terracatalystfund.com
Smith & Williamson Corporate Finance Limited Tel: +44 (0)20 7131 4000
Azhic Basirov
Investment Manager's Report
For the six months ended 30(th) September 2016
Portfolio Review and Investment Activity
The remaining asset in Terra Catalyst Fund ("TCF") is Spazio
Investment NV ("Spazio"). More information on Spazio can be found
at www.spazioinvestment.com. This externally managed property fund
specialises in investment in Italian industrial real estate.
Through a wholly-owned Italian regulated property fund, Spazio
Industriale ("the Fund"), Spazio owns a portfolio of Italian
industrial properties. The external manager is Idea FIMIT, who
replaced the former external manager, Prelios RE, in May 2013. TCF
indirectly holds a 26.7% interest in Spazio as at 30(th) September
2016. Laxey Partners Ltd (the "Investment Manager" or "Laxey
Partners"), TCF and other funds under the management of Laxey
Partners, together control 72.4% of Spazio.
Spazio
Carrying value
The carrying value per share of Spazio in these financial
statements is EUR7.0083, being the audited Net Asset Value per
share of Spazio as at 31(st) December 2015, compared with EUR6.2695
as at 30(th) September 2015. The Net Asset Value increased
principally as a result of the increase in the value of Spazio's
Telecom Italia portfolio, after the debt renegotiation.
Strategy and Market Update
The Fund invests in Italian property and continues to
concentrate on its strategic plan to improve the marketability of
the portfolio through asset refurbishment and re-leasing, with a
focus on (i) increasing rental income and extending lease duration
and (ii) selling vacant properties at the highest possible value in
order to release cash and improve the Fund's cash flow.
Spazio's property agent, Celtic Italy s.r.l., together with CBRE
and GVA Redilco, are currently actively marketing certain
properties in order to close, before 31 December 2016, a number of
sales sufficient to meet the amortising schedule of Spazio's bank
debt, although there is a risk this target is not achieved. If
targeted sales are not achieved, the Directors are satisfied that
Spazio has alternative funding plans in place to enable the
amortisation schedule to be met.
The Italian real-estate market
Regarding institutional transactions, in the first quarter of
2016 real estate investment volume reached around EUR1.8bn, which
although down 6.7% against the same period in 2015, was an increase
of 36% against the average quarterly value over the last four
years.
Despite investors being more cautious than they were in 2015,
interest in the Italian market remained high. Foreign capital of
approximately EUR1.3bn, equal to about 74% of the quarterly volume,
has been the main source of real estate investment in Italy in
2016.
Domestic institutional capital invested in the quarter continued
its uptrend, with circa EUR455mn invested - an increase of over
130% against the same period last year; in which domestic
investment had reached about EUR200mn.
In addition to the positive data regarding investment volume,
another current encouraging sign is represented by the presence in
the Italian market of all types of investors, i.e. core,
opportunistic and value added, together with more allocations by
pension funds.
The troubles of the Italian banking sector continue and are well
documented. They continue to have a considerable adverse effect on
the cost of finance and the ability for buyers to finance purchases
of real estate.
Portfolio
Spazio owns a portfolio of 168 properties with predominantly
industrial and logistics use, located throughout Italy and with an
audited total open market value (OMV) at 31(st) December 2015 of
EUR375.2mn, compared with EUR357.8mn at 31(st) December 2014. The
value of the portfolio has risen principally as a result of the
increase in the value of Spazio's Telecom Italia portfolio, after
the debt renegotiation.
On 4(th) February 2014 the Fund signed a conditional preliminary
contract of sale with Eurospin Tirrenica S.p.A. for a property in
Portoferraio (LI), Corso Italia, for EUR2.65mn. Certain conditions
must be fulfilled in order for the final deed of sale to be signed
no later than 31(st) December 2016. To date, the required
environmental decontamination work has been completed and now the
management team is working to obtain the decontamination
certificates from the relevant authorities to fulfil the final
presale condition ahead of 31(st) December 2016.
With regard to leases, during the first nine months of 2016, the
Fund entered into the following new lease agreements:
(i) Pavia Via Veneroni property - logistics use: an additional
4,100 m(2) has been added to an existing lease contract with Riso
Scotti (with natural expiry envisaged on 31(st) March 2020). The
initial additional rent will be for EUR70,000 per annum, with a
provision to step up that would result in addition rent of
approximately EUR80,000 per annum, bringing the total annual rental
payable to EUR200,000.
(ii) Pavia Via Veneroni property - logistics use: to lease
around 4,000 m(2) to a company called SAMI Srl, which in turn
supplies Riso Scotti. SAMI Srl will take care of a light
refurbishment plan and the Fund will receive rent of EUR85,000 in
year 3, EUR50,000 in year 2 and EUR25,000 in year 1.
(iii) Bagni di Tivoli, Cesurni property - logistics use: to
lease a portion of 4.100 m(2) of a logistic building to Arco
Spedizioni Spa for an annual rent of EUR195,000 (on a 6 + 6 year
lease). The Bagni di Tivoli Property is now 50% leased (Ceva is the
other tenant) with a total passing rent equal to EUR530,000 per
annum.
(iv) Turate, Via Salvo d'Acquisto property - office use: to
lease a portion of 4.100 m(2) of offices to Avon Cosmetics on a 9
plus 6 year lease, with a rent regime at year 4 equal to EUR420,000
(EUR230,000 in year 1, EUR280,000 in year 2 and EUR350,000 in year
3). In order to secure this lease agreement, the Fund committed to
a capex plan of approximately EUR1.5mn.
During the first half of 2016, no new investments were made by
the Fund. Sales of the Fund's properties for a total value of
EUR757,800 were finalised.
Bank financing
As previously disclosed, the Fund has a single bank loan with a
face value of EUR213.9mn; with three institutions - Banca IMI S.p.A
(agent bank and lender bank), Natixis S.A. (lender bank) and
UniCredit S.p.A (lender bank). This debt arrangement was signed on
30(th) December 2015 and will finally mature on 31(st) December
2022.
This debt has a 6-month interest period at a reference rate of
the six-month Euribor plus 290 bps. The debt must be repaid
according to the amortisation schedule below:
Amount EUR Repayment deadline
------------------- ---------------------
5,000,000 31(st) December 2016
------------------- ---------------------
5,000,000 30(th) June 2017
------------------- ---------------------
15,000,000 31(st) December 2017
------------------- ---------------------
10,000,000 30(th) June 2018
------------------- ---------------------
15,000,000 31(st) December 2018
------------------- ---------------------
15,000,000 30(th) June 2019
------------------- ---------------------
20,000,000 31(st) December 2019
------------------- ---------------------
20,000,000 30(th) June 2020
------------------- ---------------------
Residual amount at 31(st) December 2020
------------------- ---------------------
The residual Fund debt at 30(th) September 2016, following the
repayment of EUR643,200 from authorised sales is now
EUR213.26mn.
Future Prospects for TCF
As previously announced, due to the cash sweeps in place, since
October 2013 there has not been any free cash for distributions
from the Fund back to Spazio. Spazio has returned EUR3.38 per share
to TCF shareholders to date, equivalent to 66% of the average
weighted acquisition price, however shareholders in TCF should not
expect further substantial returns in the short to medium term.
The focus for Spazio has been to reduce costs where possible and
the board of Spazio believes that there is substantial scope for
additional cost reduction on management fees, consultancy work and
property administration and increasing the rent roll through asset
management and reducing vacancies, as per the following table.
2016 2015 2014
-------------- ---------- ------------- ----------------------- ----------------------- -----------------------
Asset GLA Total Occupancy Annual Occupancy Annual Occupancy Annual
Rent Rent Rent Rent
at Regime
(sq.m.) Considering % (**) % (***) % (****)
Rent
Step
Up
(EUR/000) (EUR/000) (EUR/000) (EUR/000)
-------------- ---------- ------------- ---------- ----------- ---------- ----------- ---------- -----------
Leased
properties 453,982 EUR16,566 85.2% EUR15,751 82.0% EUR16,810 69.4% EUR18,026
-------------- ---------- ------------- ---------- ----------- ---------- ----------- ---------- -----------
Vacant
properties
to be
redeveloped 52,805 EUR389 26.5% EUR311 11.4% EUR226 2.5% EUR94
-------------- ---------- ------------- ---------- ----------- ---------- ----------- ---------- -----------
Vacant
asset
to be
traded
to end
user* 478,003
-------------- ---------- ------------- ---------- ----------- ---------- ----------- ---------- -----------
Grand
total 1,515,597 16,955 16,373 17,263 18,214
-------------- ---------- ------------- ---------- ----------- ---------- ----------- ---------- -----------
* Building Capacity of EGP represents 450.000 sq.m of the total
GLA represented for the "Vacant Asset to be Traded to End User"
** In 3Q 2016 signed contract with Avon Cosmetics for 4.100
sq.m. on Turate Building. Lease start by 2Q 2017.
*** On 26 June 2015 renegotiated all the telecom lease
agreements. Total Rent was reduced from EUR11.3m to EUR9.6m based
on double net agreement and a WALT of 16.9 years.
**** In April 2014 renegotiated the Alstom and ABB lease
agreements for a total rent of EUR2.8m based on 6 years
duration.
Review Report by KPMG Audit LLC to Terra Catalyst Fund
For the six months ended 30(th) September 2016
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 30(th) September 2016, which comprises the Statement
of Financial Position, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash Flows and the
related explanatory notes. We have read the other information
contained in the half-yearly report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the Company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half-yearly report in accordance with IAS 34 Interim
Financial Reporting and the AIM Rules.
The annual financial statements of the Company are prepared in
accordance with IFRSs as adopted by the EU. The condensed set of
financial statements included in this half-yearly report has been
prepared in accordance with IAS 34 Interim Financial Reporting.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Emphasis of matter - valuation of investment in Spazio
Investment NV
In forming our opinion on the condensed set of financial
statements, which is not modified, we have considered the
disclosures made in notes 2(b) and 6 to the financial statements
concerning the valuation of the holding in Spazio Investment NV
("Spazio) of GBP37,158,190. This is stated at Directors' valuation,
with the advice of the Investment Manager, in the absence of a
readily ascertainable and reliable market value and is based on the
net asset value per share of Spazio, per its last audited accounts
as at 31(st) December 2015. Due to the inherent uncertainty
associated with the determination of the valuation the amount
realised on disposal may differ materially from the amount at which
it is stated in the financial statements. The impact of such
uncertainty cannot be quantified.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 30(th) September
2016 is not prepared, in all material respects, in accordance with
IAS 34 and the AIM Rules.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
2 December 2016
Statement of Financial Position
As at 30(th) September 2016
(Unaudited) (Audited)
30(th) September 31(st) March
2016 2016
Notes GBP GBP
Current assets
Cash at bank 1,248,132 1,405,947
Equities - long at fair value through profit or loss 6 37,158,190 34,053,412
Other debtors and accrued income 43,187 3,837
Total assets 38,449,509 35,463,196
Equity
Share capital 7 155,048 155,048
Share premium 52,935,499 52,935,499
Retained losses (15,099,517) (17,975,015)
Total equity 37,991,030 35,115,532
Liabilities
Other creditors and accrued expenses 458,479 347,664
Total liabilities 458,479 347,664
Total liabilities and equity 38,449,509 35,463,196
Net asset value per ordinary share 8 2.45 2.26
The notes are an integral part of the financial statements.
Statement of Comprehensive Income (Unaudited)
For the six months ended 30(th) September 2016
(Unaudited) (Unaudited)
30(th) September 30(th) September
2016 2015
GBP GBP
Notes
Income
Distributions on long
equity securities 36,566 -
Interest
- Cash balances 909 1,129
Net realised losses on
financial assets and liabilities
at fair value through
profit or loss
- Cash balances (440) (1,364)
Net unrealised (losses)/gains
on financial assets and
liabilities
other than currency forwards
at fair value through
profit or loss
- Cash balances (12,193) 1,665
- Equities 6 3,104,778 516,577
Total net investment income 3,129,620 518,007
----------------- -----------------
Expenses
Investment management
fee 102,690 88,663
Administration fees 27,552 23,705
Audit fees 3,336 6,250
Directors' remuneration 50,000 50,000
Other expenses 70,307 62,031
Interest expense
- Cash balances 237 14,892
Total expenses 254,122 245,541
----------------- -----------------
Profit for the period 2,875,498 272,466
----------------- -----------------
Other comprehensive income - -
Total comprehensive income
for the period 2,875,498 272,466
================= =================
Earnings per ordinary
share
Basic and fully diluted GBP 0.19 GBP 0.02
----------------- -----------------
The notes are an integral part of the financial statements.
Statement of Changes in Equity (Unaudited)
For the six months ended 30(th) September 2016
Share Share Retained
capital premium losses Total
GBP GBP GBP GBP
Balance at 1(st) April 2015 155,048 52,935,499 (23,719,155) 29,371,392
Total comprehensive income
Profit for the period - - 272,466 272,466
Balance at 30(th) September 2015 155,048 52,935,499 (23,446,689) 29,643,858
======== =========== ============= ===========
Share Share Retained
capital premium losses Total
GBP GBP GBP GBP
Balance at 1(st) April 2016 155,048 52,935,499 (17,975,015) 35,115,532
Total comprehensive income
Profit for the period - - 2,875,498 2,875,498
Balance at 30(th) September 2016 155,048 52,935,499 (15,099,517) 37,991,030
======== =========== ============= ===========
The notes are an integral part of the financial statements.
Statement of Cash Flows (Unaudited)
For the six months ended 30(th) September 2016
(Unaudited) (Unaudited)
30(th) September 30(th) September
2016 2015
GBP GBP
Cash flows from operating activities:
Interest received 1,146 1,161
Interest paid (237) -
Prepaid expenses - 69
Investment management fee paid (3,688) (4,785)
Administration fee paid (26,771) (23,635)
Other expenses paid (142,424) (146,497)
Net realised and unrealised losses on foreign currency 14,159 -
Net cash outflow from operating activities (157,815) (173,687)
----------------- -----------------
Cash flows from financing activities:
Repurchase of shares - -
Net cash flow from financing activities - -
----------------- -----------------
Decrease in cash and cash equivalents (157,815) (173,687)
Opening cash and cash equivalents 1,405,947 1,732,602
Closing cash and cash equivalents 1,248,132 1,558,915
================= =================
The notes are an integral part of the financial statements.
Notes to the financial statements
For the six months ended 30(th) September 2016
1. General
The Company was incorporated in the Cayman Islands on 21(st)
December 2007 and its shares were admitted to AIM, a market
operated by London Stock Exchange plc, on 25(th) February 2008.
2. Basis of preparation
(a) Statement of compliance
These condensed interim financial statements have been prepared
in accordance with IAS 34 Interim Financial Reporting and do not
include all of the information required for full annual financial
statements.
These condensed interim financial statements were approved by
the Board of Directors on 2 December 2016.
(b) Estimates
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
In preparing these interim financial statements, the significant
judgements made by management in applying the Company's accounting
policies and the key sources of estimation uncertainty were the
same as those that applied to the financial statements as at and
for the year ended 31(st) March 2016. The most significant
estimates and judgements that are required to be made are in
respect of the valuation of investments for which no reliable
market price is available (see note 6).
3. Significant accounting policies
The accounting policies applied by the Company in these
condensed interim financial statements are the same as those
applied by the Company in its financial statements as at and for
the year ended 31(st) March 2016.
4. Financial risk management
The Company's financial risk management objectives and policies
are consistent with those disclosed in the financial statements as
at and for the year ended 31(st) March 2016.
5. Comparative figures
The comparative figures shown in the Statement of Financial
Position is at 31(st) March 2016 and in the case of the Statement
of Comprehensive Income, Statement of Changes in Equity and
Statement of Cash Flows are for the six months to 30(th) September
2015.
6. Investments
30(th) September 31(st) March
2016 2016
GBP GBP
Long positions:
Market value 37,158,190 34,053,412
================= =============
Cost 15,145,206 15,145,206
================= =============
As at 30(th) September 2016, the Company had an interest in
Spazio Investment NV ("Spazio") of GBP37,158,190 (31(st) March
2016: GBP34,053,412) or 96.64% (31(st) March 2016: 96.02%) of the
total assets of the Company. The Directors, with the advice of the
Investment Manager, have resolved to carry the investment at its
most recent audited Net Asset Value, at 31(st) December 2015, being
EUR7.0083 per share (31(st) March 2016: EUR7.0083 per share).
Spazio's property agent, Celtic Italy s.r.l., together with CBRE
and GVA Redilco, are currently actively marketing certain
properties in order to close, before 31(st) December 2016, a number
of sales sufficient to meet the amortising schedule of Spazio's
bank debt, although there is a risk this target is not achieved. If
targeted sales are not achieved, the Directors are satisfied that
Spazio has alternative funding plans in place to enable the
amortisation schedule to be met.
The Company held a 26.7% interest in Spazio as at 30(th)
September 2016 (31(st) March 2016: 26.7%).
The aggregate of realised gains/losses and movement in
unrealised gains/losses for the period ended 30(th) September 2016
resulting from Spazio recorded in the Statement of Comprehensive
Income amounted to a gain of GBP3,104,778 (30(th) September 2015:
GBP516,577).
7. Share capital
Period Period
ended ended Year ended Year ended
Authorised 30(th) 30(th) 31(st) 31(st)
share capital September September March March
2016 2016 2016 2016
Number GBP Number GBP
Ordinary shares
of GBP0.01
each 1,000,000,000 10,000,000 1,000,000,000 10,000,000
10,000,000 10,000,000
=========== ===========
Issued share
capital
At 1(st) April 15,504,787 155,048 15,504,787 155,048
Repurchased
during period/year - - - -
15,504,787 155,048 15,504,787 155,048
=========== ======== =========== ========
8. Net asset value per share
The net asset value per share as at 30(th) September 2016 was
GBP2.45 based on 15,504,787 ordinary shares in issue as at that
date (31(st) March 2016: GBP2.26 based on 15,504,787 ordinary
shares).
9. Earnings per share
The basic and fully diluted earnings per share is based on the
profit for the period of GBP2,875,498 (31(st) March 2016:
GBP5,744,140) and the weighted average number of shares outstanding
at the period of 15,504,787 (31(st) March 2016: 15,504,787).
10. Subsequent events
The Company has evaluated all other events that have occurred
from 1(st) October 2016 through to 2 December 2016 and determined
that no events require recognition or additional disclosures in
these financial statements.
Supplementary Information (unaudited)
Reconciliation of Net Asset Value to Total Equity per Statement
of Financial Position as at 30(th) September 2016
30(th) September 2016 31(st) March 2016
GBP GBP
Net assets 37,991,030 31,525,694
Revaluation of Spazio Investment NV from EUR6.2695 per share
to EUR7.0083 per share as at 31(st) March 2016 - 3,589,838
Shareholder's Funds per Statement of Financial Position 37,991,030 35,115,532
====================== ==================
This information is provided by RNS
The company news service from the London Stock Exchange
END
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