NAV Performance

The NAV % Total Return for November 2023 was -0.91%, which takes the NAV % Total Return to +1.06% over the past six months, and +3.65% over the past 12 months.

The NAV as at 30^th November 2023 was 90.35 pence per Ordinary Share, which was 0.83 pence lower than at 31^st October 2023. This overall loss comprised positive interest income of 0.41 pence per Ordinary Share, net of expenses, and a decrease in portfolio valuations of 1.23 pence per Ordinary Share.

The interest income net of expenses has been negatively impacted during the period due to the prepayment of all outstanding Company leverage which in turn has resulted in the amortisation of associated costs to be recognised in full during the reporting period as opposed to a monthly amortisation until the expected maturity of said facilities.

The primary driver behind the shifts in portfolio valuations is the performance of investment loans 66 and 67. These loans are junior secured and are backed by two portfolios jointly owning five operational hotels in the UK. It is important to note that both loans have been performing consistently, meeting their interest obligations in cash since their inception. They are scheduled for repayment on 4 April 2024.

However, there is uncertainty regarding the borrower's ability to secure refinancing upon maturity. Consequently, the valuation agent has marked down the position by approximately 10% of its nominal value, or when assessed using a discounted cash flow approach, reflecting an increase in default risk from a discount rate of approximately 9% to around 30%.

Currently, the loan-to-value ratio stands at 71%. Nevertheless, the valuer has factored in the possibility that, during a potentially limited marketing period, the hotels could experience a decline in market value of around 30% compared to the latest valuation report. After repaying senior debt, this would result in an indicative average asset coverage of approximately 90%, aligning with the current revised assessment.

Since inception, the portfolio's valuation approach has been based around fair value where the independent third-party valuation agent looks at observable pricing for similar sectors and values the assets based upon where comparables are valued. This incorporates the broader market returns as well as any idiosyncratic risks. Through review of the latest iteration of the extant IPEV guidelines and discussions with the Company's valuation agent and a review of industry practice in light of the change in guidelines, the Company will move to a valuation process that is driven by a yield-based methodology i.e. discounted cash flow approach. The discount rate is driven by observable risk pricing and thus the method is similar in its approach to obtaining fair market value, however this change could lead to valuation differences. After an initial appraisal by the valuation agent, these potential differences are not expected to be material.  This valuation methodology is expected to be used from December onwards.

Portfolio Activity

As at 30^th November 2023, the Company's invested portfolio had an aggregate valuation of £101 million across 31 investments. The average yield was 10.84%, with a weighted average loan life remaining of circa 1.69 years¹⁰. Overall, the portfolio is 95% invested in private market assets and 5% in public bonds.

During the reporting period, investment loan ref 84 was fully repaid at par, or £4m.

At period end, the Company's RCF remains fully undrawn with the term loan B having been repaid in full. The balance sheet has cash of circa £10m of which circa £6m is committed for existing loans that have not been drawn down.