Inland ZDP PLC

ZDP Share covenant compliance and update

24 March 2023

Covenant compliance

As at 31 December 2022, Inland Homes plc ("Inland Homes"), which has guaranteed the amounts due to ZDP shareholders, had complied with all its covenants under the Loan Note, Contribution Agreement and related security documentation. 

Cover ratio

The Cover Ratio as at 31 December 2022 has been calculated as follows:

Cover Ratio (Assets / Financial Indebtedness)                             2.2 times

Book values are used to calculate the Assets for the cover ratio on a 'going concern' basis. However, as noted in the ZDPCo annual report, the value of assets (such as a partially completed development project) in a liquidation scenario could be significantly lower than any value based on the Group being a 'going concern'.

The Financial Indebtedness includes the ZDP shares at the redemption value of £36.46m, being the aggregate Final Capital Entitlement of 201.4p per ZDP share due on 10 April 2024.

Security cover

Inland ZDP PLC ("ZDPCo") has the benefit of first legal charges granted by members of the Inland Homes Group over specific pledged assets and pledged cash.  The book value of the Pledged Assets has to be 120% of the accrued liability to ZDP Shareholders net of any Pledged Cash.

At 31 December 2022, the accrued value of the ZDP shares was £34,056,427 (188.1 pence per ZDP share) and the balance in the pledged bank account (the Pledged Cash) was £4,000,000, leaving a net £30,056,427 to be supported by Pledged Assets with a book value of at least 36,067,712.  As at 31 December 2022, the Pledged Assets had a combined book value of £36,195,916, satisfying this requirement.

Notes:

Capital Entitlement, Assets, Financial Indebtedness and Cover Ratio have been determined as set out in the Circular to ZDP Shareholders published by Inland ZDP PLC on 19 July 2018, which is available at: http://www.inlandhomesplc.com/investors/inland-zdp/zdp-documents-and-accounts/.

The accrued Capital Entitlement is based on the initial issue price (100p) and its accrual at 7.3% per annum from the initial issue date (12 December 2012) to 148.8p on 13 August 2018, when an extension of the redemption date was approved, subsequently accruing at 5.5% to 10 April 2024.  The accrued value calculated at an even overall rate of 6.32% per annum from the initial issue at 100 per ZDP share to 201.4p on 10 April 2024, was 186.1p per ZDP share. 

Update

ZDPCo has lent the proceeds of ZDP share issues to Inland Homes PLC for use in its Group's business and is reliant on the Inland Homes Group's ability to transfer cash to fund the redemption of the ZDP Shares on 10 April 2024. The market price of ZDP shares has been affected by announcements by Inland Homes of significant provisions for actual and expected losses on a few development projects and construction contracts, bank covenant breaches and the resignations of several directors. This has prompted certain ZDP shareholders to ask for additional information about the above, the value of the Pledged Assets and the Group's ability to redeem the ZDP Shares in April 2024.

These factors led to a significant reduction and increased volatility in the market price of ZDP shares.  On 23 March 2023, the mid market closing price of a ZDP share was 92.5 pence, representing an annualised rate of return of 109.7% to 10 April 2024.

Pledged Assets

Any assets (other than intangible assets) may be pledged to ZDPCo by companies in the Inland Group.  Inland Homes PLC can substitute one asset for another at any time, provided the book value of all Pledged Assets exceeds 120% of the accrued Capital Entitlement less any Pledged Cash.  The security covenant is tested quarterly and Inland has 90 days to remedy any shortfall (ie pledge additional assets as security or buy in ZDP shares to reduce the accrued Capital Entitlement).  The values used for the security covenant are the book values of the Pledged Assets.

The book values represent historical cost less any impairment provisions.  However, as noted in the ZDPCo annual report, the value of assets (such as a partially completed development project) in a liquidation scenario could be significantly lower than any book value based on the Group being a 'going concern'.

The main asset pledged to ZDPCo is the Group's loan to Cheshunt Lakeside Developments Ltd ("CLDL").  However, with the increase in the accrued Capital Entitlement over time, 79 modular homes have been pledged to ZDPCo in anticipation of the 31 March 2023 security covenant.  These homes are bespoke, modular housing units which can be moved from one site to another. Located on dormant land going through the planning process, the modular homes generate additional cashflow for the Inland Group while offering a high-quality, cost-effective solution to local authorities and others in meeting short-term housing needs.

Cheshunt Lakeside Developments Ltd

CLDL is a joint venture company owned by Inland Group (50%) and a third party investor (50%). Inland is entitled to performance fees under a promote agreement as well as its 50% profit share. A loan account balance due from CLDL to Inland is Pledged to ZDPCo.  As at 31 December 2022 this amounted to £34,993,521 (30 September 2022: £37,792,479).

The 30 acre Cheshunt Lakeside development site was formerly a Tesco headquarters and supermarket and is being developed in line with an approved masterplan.

Planning permission took three years of close consultation with the local Councils and community and was granted in June 2019, with the terms of the Section 106 agreement agreed promptly and signed in August 2019.

The Cheshunt Lakeside original masterplan and outline planning consent was for a new "urban village" comprising 1,725 homes, 19,000 sqm of commercial space together with the provision for a new primary school.  Inland Homes, together with its equal joint venture partner, owned and controlled 853 residential plots and 4,905 sqm of commercial and educational space within the masterplan area. Inland Homes is the lead developer on the broader masterplan, which it is working with the council to deliver.

On 9 March 2023 Inland announced that CLDL had received detailed consent for a further phase at Cheshunt Lakeside, Hertfordshire with a further 51 homes on the site, subject to the Section 106 Agreement being varied.  The detailed consent for this phase delivers a total of 425 homes including the 51 extra homes added to the development masterplan, as such the masterplan will now deliver 1,776 new homes overall, of which 904 are controlled by Inland and its joint venture partner.  This phase of development also delivers the new local centre for the development including 2,400 sqm of commercial space, a landscaped public square and key highways infrastructure.

CLDL has loan facilities from Paragon Bank and Homes England as well as the loan from Inland Ltd.  The land loans are being repaid as land sales occur. The loan from Inland Ltd fluctuates with ongoing cash requirements. During the three months to 31 December 2022 Inland received approximately £2.8 million (net) from CLDL, part of which has been subsequently redrawn by CLDL.

The recoverability of Inland's loan to CLDL as at 30 September 2022 has been assessed by reference to forecasted cash flows regarding the development of the site and no impairment provisions were found to be required.

Funding the redemption of ZDP Shares

The Inland Homes Group generates cash from selling sites and completed residential and commercial units as part of its normal business activities.  It has adopted a less capital intensive business model over recent years, pursuing major new developments as either asset management projects (funded by third parties with Inland receiving fees for services and performance), partnership housing or joint ventures.  Thus much of the cash realised on sales of development sites and homes owned by Inland Homes Group is not needed for re-investment in further projects and can be applied to reduce borrowings and for working capital.  This led to a reduction of net debt from £152.3m as at 30 September 2019 to £86.8m as at 30 September 2022. 

The Inland Homes Group does not seek to time specific asset sales to match individual loan maturity dates in order to avoid being pushed into a forced sale position by the buyers of assets. 

The group borrowing policy is to have facilities with compatible covenants from a range of sources, mostly with certain subsidiaries.  The Group can seek new term facilities to refinance those which mature.

Inland Homes has a business plan for managing its cash flows and meeting its obligations to ZDP shareholders, retaining flexibility to adapt to circumstances rather committing to a fixed source of repayment.

Enquiries:

Inland ZDP PLC

Nishith Malde FCA                                                                 Tel: 01494 762450

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulations (EU) No.596/2014 as retained in UK law (MAR). Upon the publication of this announcement, this information is considered to be in the public domain.