The directors present the strategic report for the year ended 31 December 2022.
The company’s main activity is that of an investment company. At 31 December 2022, the company holds investments in Cain International LP, Cain International II LP and ACZ Investments LP. All are Delaware Limited Partnerships.
The principal activity of Cain International LP is to acquire and dispose of global real estate investments. In 2022 Cain International LP’s underlying investment portfolio faced a number of challenges principally driven by rising interest rates and slow downs in office lease take up. In addition the inflationary environment, challenging margin-driven private equity assets, resulted in the total fair value of the investments decreasing by 15.3%. The portfolio has the potential to generate strong returns if it maximises the opportunities available on assets such as Competitive Socialising Limited, St James, One Beverly Hills, 830 Brickell, and Prezzo.
The principal activity of Cain International II LP is to capitalise and/or otherwise fund its subsidiaries as required in order to enable the group to create a regulated investment and asset management business managing capital for both affiliated entities and independent third parties. In 2022 the Cain International II LP group closed a joint venture with a sovereign wealth fund to create a UK focused logistics platform. This has underpinned continued growth in its assets under management and revenues which have supported further investments in personnel to support future growth.
The principal activity of ACZ Investments LP is to acquire and dispose of global real estate investments. 2022 was its first year of activity, during which it made a number of investments.
At 31 December 2022, the company also held a minority interest in Oasis BH LLC. The Oasis structure holds two hotels and land entitlements. During the year work was undertaken to enable commencement of construction work in late 2023 early 2024.
The directors do not expect any changes in the main activity of the company for the foreseeable future.
The directors consider the principal risks relating to the activities of the company concerning the performance of its investments for which underlying risk factors include: economic uncertainty as a result of geopolitical events, planning, construction, competition, leasing and financial. The directors seek to mitigate such risks where possible and appropriate through influencing the activities, policies, and procedures of the company’s underlying investments.
The results of the company for the year, as set out on page 8, show a loss on ordinary activities before tax of $8,020,086. The shareholders’ funds of the company show a deficit of $55,869,345.
The performance of the company during the year is in line with the directors' expectations. The underlying investments held by Cain International and Cain International II US partnerships are shown in those partnerships' accounts at cost rather than fair value. Holne Investments Limited’s investment in Cain International LP has been written down to nil as at 31 December 2022, under the current accounting policy. Cain International LP obtained a valuation report of its investments as at 31 December 2022, indicating that Holne Investment Limited's share of the investment is calculated to be significantly above the nil carrying value. The underlying fair value of the partnerships' investments will only be realised upon exit from these investments. It is the directors’ expectation that this will facilitate the repayment of debt and return shareholders’ funds to a positive position.
In the opinion of the directors there are no key performance indicators whose disclosure is necessary for an understanding of the development, performance or position of the business.
Section 414CZA(1) of the Companies Act 2006 requires the directors to explain how they considered the matters set out in section 172(1) (a) to (f) of the Companies Act 2006 (‘S172 (1)’) when performing their duty to promote the success of the company. When making decisions, each director ensures that they act in the way that would most likely promote the company’s success for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to its members as a whole.
The company is an investment company with no employees. The strategy set by the board of directors is intended to provide ongoing returns from the company’s investments to its shareholders. Business relationships are maintained through the company’s investments and in the directors’ capacity. The company has historically held investment interests in two US based partnerships, with the recent acquisition of a third and also holds a minority interest in Oasis BH LLC.
The US partnerships operate in the field of real estate and asset management. The main activities of the US based partnerships are acquiring and disposing of global real estate investments, and investing in the partnerships’ subsidiaries as required, enabling the group to create a regulated investment and asset management business managing capital for both affiliated entities and independent third parties. The directors consider the impact of the investment activities of the US partnerships do have an impact on the communities and environments in which they operate. The US Partnerships seek to manage and mitigate negative impacts through active engagement during the planning and development phase; development of green buildings with LEED Platinum certification; with the ultimate aim to create places where people wish to live and work.
The main activity of Oasis BH LLC is a redevelopment project consisting of two hotels and land entitlements associated with the Beverley Hilton. The project plans to create over 300 residential apartments, a new luxury hotel and over 8 acres of public botanical and sculpture gardens. The master plan design has been led by "a green approach" across One Beverly Hills, which is designed to reach LEED Platinum and WELL certifications in recognition due to environmentally friendly design details and promotion of wellbeing. To achieve this, buildings will feature low-embodied carbon materials, as well as "smart luxury" technologies, like circadian dimming, LED lighting and silent HVAC systems.
The directors aim to act fairly as between the company’s members when delivering the company’s strategy. Our shareholders want the company and directors to maximise returns in a sustainable and responsible way and to work with the underlying investments to support the company’s strategic aims. Jonathan Goldstein is actively involved in each of the investments in associates and as a result the company has significant influence over each of the investments.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2022.
The results for the year end are set out on page 8.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The directors have considered the impact of adverse changes in financial risks including market, currency, interest rate, credit and liquidity risks. The directors have determined that adverse changes in the financial risks may negatively impact the fair value of the associate investments and the other investment. The associate investments are held in the financial statements at cost and subsequently measured at cost as adjusted for the company's share of results from Cain International LP, Cain International II LP and ACZ Investments LP and the underlying unincorporated partnerships. Therefore, any negative movement is unlikely to reduce the carrying value of the associate investments. The other investment is initially measured at transaction price excluding transaction costs and subsequently measured at fair value at each reporting date. A negative movement on the financial risks may impact the return realised on exit from the investments which could reduce the return to shareholders.
In accordance with the company's articles, a resolution proposing that HW Fisher LLP be reappointed as auditor of the company will be put at a General Meeting.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
As part of our planning process:
We enquired of management the systems and controls the company has in place, the areas of the financial statements that are most susceptible to the risk of irregularities and fraud, and whether there was any known, suspected or alleged fraud. The company did not inform us of any known, suspected or alleged fraud.
We obtained an understanding of the legal and regulatory frameworks applicable to the company. We determined that the following were most relevant: FRS 102 and Companies Act 2006.
We considered the incentives and opportunities that exist in the company, including the extent of management bias, which present a potential for irregularities and fraud to be perpetuated, and tailored our risk assessment accordingly.
Using our knowledge of the company, together with the discussions held with the company at the planning stage, we formed a conclusion on the risk of misstatement due to irregularities including fraud and tailored our procedures according to this risk assessment.
The key procedures we undertook to detect irregularities including fraud during the course of the audit included:
Identifying and testing journal entries and the overall accounting records, in particular those that were significant and unusual.
Reviewing the financial statement disclosures and determining whether accounting policies have been appropriately applied.
Reviewing and challenging the assumptions and judgements used by management in their significant accounting estimates, in particular in relation to valuation of investments in associates and other investments.
Testing share of profits and losses of associates for evidence of management bias.
Obtaining and reviewing Management's expert valuation of Oasis BH LLC.
Obtaining third-party confirmation of material bank and loan balances.
Documenting and verifying all significant related party balances and transactions.
Reviewing documentation such as the breakdown of legal and professional fees for potential irregularities including fraud.
Reviewing legal documentation relating to finance and investments and reviewing compliance with covenants.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements even though we have properly planned and performed our audit in accordance with auditing standards. The primary responsibility for the prevention and detection of irregularities and fraud rests with the directors and management.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's 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 and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
The statement of comprehensive income has been prepared on the basis that all operations are continuing operations.
Holne Investments Limited is a private company limited by shares incorporated in England and Wales. The registered office is Acre House, 11-15 William Road, London, United Kingdom, NW1 3ER. The company re-registered from a public to a private limited company during the year, on 7 October 2022.
The financial statements are prepared in United States dollars ($), which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest $.
There are considerable complexities in the control, ownership and financing of the underlying investment structure along with inherent uncertainties attaching to its business operations. As such, the nature, timing and quantum of any future returns, profits, losses and distributions flowing to the company are not guaranteed.
The company made a loss in the year of $9,229,036, which includes an unrealised gain of $10,286,882, has significant net liabilities of $55,869,345 as a result of the accumulation of losses borne by certain of the US Partnerships within the Cain International LP, Cain International II LP investments and ACZ Investments LP investments, in which it has participating interests. The negative position is predominantly the result of the significant underlying borrowing costs, borne by these partnerships along with unrealised losses on underlying investments. The measurement in the financial statements of these associate investments is at initial investment cost less accumulated profits and losses from certain of the US partnerships and impairment losses. The directors believe that the company’s investments will generate returns significantly in excess of the initial investment and of their carrying value as at 31 December 2022.
Notwithstanding this view, significant financial and economic market uncertainty has arisen from geo-political events, adverse inflationary pressures and rising interest rates. The directors consider that those events are likely to continue to cause material uncertainty over the short term. Equally the long-term impact on the underlying value of the investments of the company, its ability to recover its original investment and to repay the loans will depend upon market conditions nearer the time of maturity. The loans are due for repayment in June 2027. The Directors are of the opinion that the management of the associate investments has the necessary skills and resources to effectively address the financing and operational challenges being faced and are taking all necessary steps to ensure that the investment strategies and financial commitments can be met, through re-financing and re-structuring opportunities where appropriate.
At the time of approving the financial statements the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the next 12 months, based on the continuing support of J Goldstein, who has confirmed that he intends to provide financial support to meet ongoing operational costs, namely administrative expenses, for the next 12 months and during that period will not seek repayment of the amounts owing to him or his related company until the company has sufficient funds.
The interest in Oasis BH LLC is for a minority holding of shares and as such is held as an other investment. The company does not consider that in its individual capacity it has significant influence over the economic activity of the Oasis group as such it does not meet the criteria for the investment to be recognised as an associate.
Other investments are initially measured at transaction price excluding transaction costs and are subsequently measured at fair value at each reporting date. Changes in fair value are recognised through the profit and loss.
Basic financial assets, which include cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors and loans, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Share capital represents the nominal value of equity shares that have been issued.
Profit and loss reserves represent all current and prior period retained profit and losses.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The accounting policy for the company's investments in Cain International LP, Cain International II LP and ACZ Investments LP are all unincorporated US partnerships, is set out in note 1.3.
FRS 102 provides limited guidance as to how a company should recognise and measure investments in unincorporated entities and thus the directors have applied judgement in determining the accounting policy for these investments.
Other investments relates to a minority holding in shares in Oasis BH LLC. Under FRS 102, if an investment can be measured reliably then measurement at fair value through profit and loss account can be adopted as the accounting policy.
There is no quoted price in an active market to measure the other investment. The directors have relied upon a third party valuation expert which they consider to be a reliable measurement, and so have applied judgment in determining the accounting policy for the other investment.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows:
Fixed asset investments in associates are held at cost adjusted for the company's share of the results of underlying unincorporated partnerships.
Fixed asset investments are assessed for impairment at the reporting date.
The recoverable amount of the investment is estimated in order to determine the extent of the impairment loss. In considering the impairment, the carrying value is reviewed against other impairment indicators such as partner share of capital as presented in the investment entities' accounts and external expert valuation reports. Where there is an indicator present of impairment, impairment is considered with reference to third party valuations of the investments held or considered against the underlying trading value, Trading value is determined by utilising a market based approach. AUM's and net profit are the key metric drivers under this approach. The total impairment of the investments are restricted to the cost of the investments.
The fair value of other investments has been determined by a third party valuation expert and reflects the market value of the other investments.
The fair value of the other investment as at 31 December 2022 was £34,069,605 (2021: £23,782,723). This is a Level 3 estimate.
The fair value of other investments was calculated in two stages; an asset valuation and equity valuation.
The asset valuation is calculated by reference to two valuation techniques; a land residual value analysis and a DCF analysis.
Significant observable inputs: The discount rates applied in the DCF analysis were 7.75% and 6.00% with terminal rates of 5.25% and 4.50% for the property assets and 10.75% for the development land.
The aggregate of the asset valuation is adjusted for the project debt to determine the equity valuation.
The estimated fair value would be impacted as follows if the estimates were adjusted:
If the above rates were sensitised +/- 25bps for the property assets and +/- 50bps for the development land, the resulting valuations would change +/- c $5M.
There were no employees during the year or in the previous year.
The directors did not receive any remuneration, from any source, for their services as directors of the company during the current year or preceding financial year.
The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
The company has estimated net unused tax losses of $58,973,718 (2021: $53,165,406) available to carry forward against future taxable profits. resulting in a deferred tax asset (at 25%) of $14,743,429 (2021: $13,291,351 at 19%).
The revaluation of the Other Investment of $22,743,270 (2021: $12,456,388), necessitates a provision for a deferred tax liability of $5,685,817 (2021:$2,366,714), however due to the existence of a deferred tax losses and revaluation losses within the associates, a deferred tax asset has been offset against this amount reducing the deferred tax liability to $1,208,950 (2021: $nil) for recognition in the financial statements.
The balance of the deferred tax asset after the offset is $11,972,658; this asset has not been recognised in the financial statements as there is uncertainty in connection with their recoverability against profits in future periods. Deferred tax assets and liabilities have been calculated at 25% (2021:19%) aligned to the rate for which the assets and liabilities are expected to be realised at.
On 23 March 2022, a restructuring of the underlying investment structure of Oasis BH LLC was agreed with the JV partners. Phase I of this restructure resulted in Holne's interest in Oasis BH LLC reducing from 2.53% to 2.36%. Currently the Oasis BH LLC structure incorporates the development land and both the Beverly Hilton and Waldorf Astoria hotels. Phase II of the restructure will impact the current beneficial and legal holdings of the company’s investment in Oasis BH LLC. Upon completion of Phase II, which has an undetermined completion date (and longstop of 31 December 2023), the company's shareholding in the Oasis BH LLC will increase to 3.84%. In addition, a new JV will be incorporated, Waldorf JV (Delaware LLC), to which the Waldorf Astoria property will be distributed, and in which Holne is anticipated to have a 0.05% shareholding.
On 9 June 2022, the company acquired a 25% interest in ACZ Investments LP for $31.25m.
Details of the company's associates at 31 December 2022 are as follows:
Cain International LP, Cain International II LP and ACZ Investments LP are all Delaware Limited Partnerships. The registered office of these partnerships is: Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808.
The nature of business of Cain International LP is to acquire and dispose of global real estate investments. As at 31 December 2022, Partners' Capital of the entity totalled $1,008,487,000 and total comprehensive losses recognised for the year totalled $221,566,000.
The nature of business of Cain International II LP is to capitalise and/or otherwise fund its subsidiaries as required in order to enable the group to create a regulated investment and asset management business managing capital for both affiliated entities and independent third parties. As at 31 December 2022, Partners' Capital of the entity totalled $513,725,000 and total comprehensive loss recognised for the year totalled $1,032,000.
The nature of business of ACZ Investments LP is to acquire and dispose of global real estate investments. As at 31 December
2022, Partners' Capital of the entity totalled $63,391,000 and total comprehensive losses recognised for the year totalled
$61,609,000.
As at 31 December 2021, $63,706,916 of loan notes, together with the associated interest of $9,393,106 were secured by fixed and floating charges over all the property or undertaking of the company. These borrowings were from Ellicott Limited, an entity indirectly owned by Cain International LP, a US partnership in which the company has a 25% interest. Interest of 5.25% is charged on the loan notes on an annual basis. The loan notes were due for repayment by 6 January 2024.
On 9 June 2022, the company entered into a new loan agreement with Eldridge HI Funding LLCs, for a total of $106,030,718 for the purpose of repaying the Ellicott loan notes in the sum of $74,780,718 and investing in ACZ Investments LP, in the sum of $31,250,000. Interest of 8% is charged on the loan notes on an annual basis and rolled up into the liability. The loan notes are due for repayment by 6 June 2027 and are secured by fixed and floating charges over all the property or undertaking of the company. Eldridge HI Funding LLC is a related entity of Eldridge Industries LLC, which indirectly, owns a controlling interest in the company’s investment entities.
Repayment of the loan notes can be triggered by events outside the control of the company; if prior to the maturity date of 6 June 2027 the company receives either (i) an Applicable Distribution as determined by the loan agreement from Cain International LP, Cain International II LP, ACZ Investments LP or Oasis BH LLC or (ii) any proceeds upon the sale of any of those investments, the company shall immediately apply such relevant amounts received to repaying the loan notes. The loan notes are therefore shown as due in less than one year.
Other loans of $5,084,869 (2021: $5,461,043) comprise $2,087,660 (2021: $2,087,600) from J Goldstein, a director and majority shareholder, and $2,997,209 (2021: $3,373,383) from JSG Investments Limited, a company controlled by J Goldstein. These are unsecured, interest free and repayable on demand.
Other loans are subordinated to the loan notes.
Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
The deferred tax liability set out above relates to an unrealised gain on other investments which is expected to mature in the mid to long term.
The Ordinary shares and Ordinary A shares both have full voting, dividend and capital distribution (including on winding up) rights. They do not confer any rights of redemption.
The rights of the Ordinary shares and Ordinary A shares are equal in all respects.
Included within other creditors is $255,070 (2021: $167,577) due to J Goldstein, a director of the company. The movement in the director’s current account relates mainly to amounts paid by the director to the company and on behalf of the company to pay on-going costs. This balance is unsecured, interest free and repayable on demand.
Other loans of $5,084,869 (2021: $5,461,043) comprise $2,087,660 (2021: $2,087,600) from J Goldstein, a director and majority shareholder, and $2,997,209 (2021: $3,373,383) from JSG Investments Limited, a company controlled by J Goldstein. These are unsecured, interest free and repayable on demand.
The directors consider J Goldstein to be the ultimate controlling party of the company.