The directors present their annual report and audited financial statements for CILS Sherburn Limited (the "Company") for the year ended 31 December 2023.
In preparing this report, the Company has taken the advantage of the exemption provided by section 414B of the Companies Act 2006 in not preparing a Strategic Report under the small company exemption.
The results for the year are set out on page 7. The Company made an operating loss of £16,602,656 (2022: £85,280) of which £16,361,600 (2022: £nil) relates to fair value loss on investment properties.
No ordinary dividends were paid. The Directors do not recommend payment of a final dividend.
Business performance
The Company has had a successful year completing the development of its investment property now moving focus to leasing the asset and maximising occupancy.
The Directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Directors are confident the Company will achieve stable revenue now the site is complete and once it is leased. Focus is now on leasing the asset to maximise the revenue for the commercial units over the next financial year as tenants look to secure attractive logistics premises from which to operate.
The Directors are satisfied that the location will offer a continuing appeal in the logistics sector and to businesses seeking a location with good links for distribution. These factors along with continued careful management of development costs, which are fixed with the developer, are expected to drive profitability in the future.
Going concern
The directors have conducted a robust assessment of the Company's ability to continue as a going concern for the financial year ended 31 December 2023, considering the available resources and expected obligations up until 31 October 2025, being the going concern period. The Company is part of a Group which also includes CI Logistics Strat 1 LP, CI Logistics Strat 1 GP Limited, CILS1 UK Holdings Limited and its subsidiaries (collectively referred to as the ‘Group’). The directors have assessed that the going concern of the Company is dependent upon the going concern of the Group. At the Group level, the directors have prepared a detailed forecast of the anticipated operational outgoings, incorporating severe but plausible downside risks, and have considered the operational income, expenses, and financing costs up until 31 October 2025. As at 31 December 2023, the Company has net current liabilities of £191,566 (2022: £206,986) and net assets of £17,966,037 (2022: £9,530,001). The Company’s activities are funded by capital from its shareholder CILS1 UK Holdings Limited, which in turn is funded by capital from CI Logistics Strat 1 LP.
The Group has a lending facility of £422,200,000 of which £379,422,476 is drawn as at 31 December 2023. The facility expires in April 2025 at which point the Group has two options, firstly to extend the current loan agreement for 12 months up to April 2026 or to refinance the loan with a new lender. Both options are outside of the Group’s control. The directors have considered both options, along with their associated covenants and indicative terms received from two lenders and have determined that in both cases the Group is able to meet the required criteria, subject to an amount of equity which will be required to pay down the loan which will likely lead to cash shortfall during the going concern period.
The directors have determined that there are material uncertainties in relation to (i) the Group’s ability to extend the loan or refinance, since both options depend on meeting certain covenants, as well as future valuation and occupancy levels of the assets over which management does not have absolute control or discretion and (ii) whether the Group will be able to secure additional capital from the Limited Partners of CI Logistics Strat 1 LP to cover the identified cash shortfall, resulting from requirements to extend the current loan or refinance with a new lender by 2025. These material uncertainties may cast significant doubt over the ability of the Company to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Notwithstanding the material uncertainties described above, the Company has a reasonable expectation that given the quality and location of the assets, that the Group will be able to lease all assets during the going concern period which will in turn increase rental income received and the fair value of the assets held. Since the year end the Group has signed an additional lease representing 20% of the entire property portfolio. The directors also have a reasonable expectation that the Company will receive additional capital from its direct and indirect shareholders to fund the cash shortfall. This expectation is based on the financial outlook of the Limited Partners of CI Logistics Strat 1 LP, past experience of the Limited Partners providing financial support, and their willingness to support the Group to protect their invested economic interest. In addition, since the year-end the Limited Partners have continued to support the Partnership with the signing of an upsized LPA in April 2024 taking the Limited Partners commitment up to £262,200,000 plus an optional commitment of £46,139,893. For these reasons the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period up until 31 October 2025 being the going concern period, and therefore considers it appropriate to prepare the financial statements on a going concern basis.
Ernst & Young LLP were re-appointed as auditor to the Company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
Details of subsequent events are set out in note 17.
We have audited the financial statements of CILS Sherburn Limited (the ‘Company’) for the year ended 31 December 2023 which comprise of the Income Statement, the Statement of Financial Position, the Statement of Changes in Equity and the related notes1 to 17, including material accounting policy information. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards including FRS 101 “Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
Material uncertainties relating to going concern
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the Directors’ report has been prepared in accordance with applicable legal requirements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company and determined that the most significant are the Companies Act 2006, those relating to its reporting framework being the United Kingdom Generally Accepted Accounting Practice and any relevant direct and indirect tax compliance regulation in the United Kingdom.
We understood how the Company is complying with those frameworks by making enquiries of management and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of minutes of board meetings of the Company as well as validating how policies and procedures in these areas are communicated and monitored. We also reviewed any correspondence with relevant authorities.
We assessed the susceptibility of the Company’s financial statements to material misstatement, including how fraud might occur by making enquiries of management and those charged with governance. Where the risk was considered to be higher, we performed audit procedures in response to the identified fraud risks. These procedures included testing of specific accounting journal entries and focussed testing on the Company’s investment. These procedures were designed to provide reasonable assurance that the financial statements were free from fraud and error. We also considered management’s incentives around improving the performance of the Company, the opportunities available to execute any such actions through management override as well as the controls that the Company has established to address any such risks identified, including to prevent, deter and detect fraud and the monitoring of such controls by management..
Based on this understanding we designed our audit procedures to identify noncompliance with such laws and regulations. Our procedures involved supplementing our enquiries of management and those charged with governance as well as review of board meeting minutes of the Company.
A further description of our responsibilities for the audit of the financial statements is located 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 Income Statement has been prepared on the basis that all operations are continuing operations.
The Company has no other comprehensive income for the current financial year other than the results above and, therefore, no statement of other comprehensive income is presented.
The financial statements include the notes presented in pages 10 - 19.
The financial statements include the Notes presented on pages 10 to 19.
CILS Sherburn Limited is a private Company limited by shares registered in England and Wales and incorporated in the United Kingdom under the Companies Act 2006. The principal activity of the Company is the leasing of commercial logistics property. The immediate parent company is CILS1 UK Holdings Limited, the ultimate parent company is CI Logistics Strat 1 LP, an entity registered in Jersey.
The registered office of the Company was changed to 72 Welbeck Street, London, W1G 0AY on 22 April 2024 (previously 116 Upper Street, London, N1 1QP).
The financial statements are prepared in sterling, which is the functional currency of the Company. Monetary amounts in these financial statements are rounded to the nearest £.
Summary of disclosure exemptions
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.
The following exemptions from the requirements of UK Adopted International Accounting Standards have been applied in the preparation of these financial statements, in accordance with FRS 101:
• IFRS 7, ‘Financial instruments: Disclosures’.
• Paragraph 38 of IAS 1, ‘Presentation of financial statements’ – comparative information requirements in respect of paragraph 79(a)(iv):
• The following paragraphs of IAS 1, ‘Presentation of financial statements’:
- 10(d) (statement of cash flows)
- 16 (statement of compliance with all IFRS)
- 38A (requirement for minimum of two primary statements, including cash flow statements)
- 38B-D (additional comparative information)
- 111 (cash flow statement information); and
- 134-136 (capital management disclosures)
• IAS 7, ‘Statement of cash flow’.
• Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation).
• The requirements in IAS 24, ‘Related party disclosures’, to disclose related party transactions entered into between two or more members of a group.
• The requirements in IAS 24, ‘Related party disclosures’, to disclose related party transactions entered into between two or more members of a group.
• Paragraphs 30 and 31 of IAS 8, ‘Accounting Policies, Changes in Accounting estimates and Errors’.
• IFRS 13, 'Fair Value Measurement: Disclosures'
• IAS 40, 'Investment property: comparative disclosures'
Where relevant, these disclosures have been made in the financial statements of CILS1 UK Holdings Limited which are publicly available and can be obtained as set out in note 15. Details of the parent entity are given in note 15 to the financial statements.
The directors have conducted a robust assessment of the Company's ability to continue as a going concern for the financial year ended 31 December 2023, considering the available resources and expected obligations up until 31 October 2025, being the going concern period. The Company is part of a Group which also includes CI Logistics Strat 1 LP, CI Logistics Strat 1 GP Limited, CILS1 UK Holdings Limited and its subsidiaries (collectively referred to as the ‘Group’). The directors have assessed that the going concern of the Company is dependent upon the going concern of the Group. At the Group level, the directors have prepared a detailed forecast of the anticipated operational outgoings, incorporating severe but plausible downside risks, and have considered the operational income, expenses, and financing costs up until 31 October 2025. As at 31 December 2023, the Company has net current liabilities of £191,566 (2022: £206,986) and net assets of £17,966,037 (2022: £9,530,001). The Company’s activities are funded by capital from its shareholder CILS1 UK Holdings Limited, which in turn is funded by capital from CI Logistics Strat 1 LP.
The Group has a lending facility of £422,200,000 of which £379,422,476 is drawn as at 31 December 2023. The facility expires in April 2025 at which point the Group has two options, firstly to extend the current loan agreement for 12 months up to April 2026 or to refinance the loan with a new lender. Both options are outside of the Group’s control. The directors have considered both options, along with their associated covenants and indicative terms received from two lenders and have determined that in both cases the Group is able to meet the required criteria, subject to an amount of equity which will be required to pay down the loan which will likely lead to cash shortfall during the going concern period.
The directors have determined that there are material uncertainties in relation to (i) the Group’s ability to extend the loan or refinance, since both options depend on meeting certain covenants, as well as future valuation and occupancy levels of the assets over which management does not have absolute control or discretion and (ii) whether the Group will be able to secure additional capital from the Limited Partners of CI Logistics Strat 1 LP to cover the identified cash shortfall, resulting from requirements to extend the current loan or refinance with a new lender by 2025. These material uncertainties may cast significant doubt over the ability of the Company to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Notwithstanding the material uncertainties described above, the Company has a reasonable expectation that given the quality and location of the assets, that the Group will be able to lease all assets during the going concern period which will in turn increase rental income received and the fair value of the assets held. Since the year end the Group has signed an additional lease representing 20% of the entire property portfolio. The directors also have a reasonable expectation that the Company will receive additional capital from its direct and indirect shareholders to fund the cash shortfall. This expectation is based on the financial outlook of the Limited Partners of CI Logistics Strat 1 LP, past experience of the Limited Partners providing financial support, and their willingness to support the Group to protect their invested economic interest. In addition, since the year-end the Limited Partners have continued to support the Partnership with the signing of an upsized LPA in April 2024 taking the Limited Partners commitment up to £262,200,000 plus an optional commitment of £46,139,893. For these reasons the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period up until 31 October 2025 being the going concern period, and therefore considers it appropriate to prepare the financial statements on a going concern basis.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
The tax expense represents the sum of the tax currently payable and deferred tax.
Trade and other receivables
Trade and other receivables are initially recognised at fair value, which is the transaction price, and subsequently measured at amortised cost less provision for impairment.
The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables and contract assets. These estimates are based on historic credit loss experience, adjusted for forward-looking factors specific to the debtors and macro-economic and specific country-risk considerations with higher default rates applied to older balances.
In addition, if specific circumstances exist which would indicate that the receivable is irrecoverable a specific provision is made. A provision is made against trade receivables and contract assets until such time as the Company believes there to be no reasonable expectation of recovery, after which the trade receivable or contract asset balance is written off.
Trade and other payables
These amounts represent liabilities for services provided to the Company prior to the end of the financial year which are unpaid. Trade and other payables are presented as current liabilities. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
Share capital
Share capital and Share Premium issued by the Company is recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the Company.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period end that may have a significant risk of causing a material misstatement to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
In the application of the Company's accounting policies that are set out in note 1, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The directors have also made judgements about the going concern of the Company as described in note 1.2. 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 if the revision affects only that period, or in the period if the revision and future periods if the revision affects both current and future periods.
The following are the Company's key sources of estimation uncertainty:
The Company's investment property held is initially measured at cost and subsequently at fair value through profit or loss at the end of the reporting period. Any unrealised gains or losses on this investment is recognised immediately in the income statement.
Fair value is the amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm's length transaction.
The fair valuation of the property was carried out by an external third-party valuation expert for inclusion in the audited financial statements where a significant period of time had elapsed since its acquisition date as part of quantifying the investment property held by the Company. The significant methods and assumptions used by valuers in estimating fair value of investment property are set out in Note 8.
Investment property is measured based on estimates prepared by independent real estate valuation experts.
The Company had no employees and incurred no staff costs during the year. There were £nil Directors' emoluments in the year (2022: £nil).
£2,755,364 (2022: £776,302) of borrowing costs are included in the cost of qualifying assets during the year at a capitalisation rate of 3.5% plus the daily compounded SONIA rate. These are not included in the borrowing costs above.
The major components of income tax expense for the period-ended 31 December 2023 are:
The charge for the year can be reconciled to the income statement as follows:
The Company has unutilised carried forward tax losses of £2,895,436 as at 31 December 2023 (2022: £nil). No deferred tax asset has been recognised on this amount as the Company cannot be certain that there will be taxable profits arising within its residual business from which the future reversal of the deferred tax asset could be deducted.
There was no deferred income tax recognised in the period.
In the March 2021 Budget it was announced that legislation would be introduced in the Finance Bill 2021 to increase the main rate of UK corporation tax from 19% to 25%, effective April 2023. This was substantively enacted in May 2021 therefore, any closing deferred tax balance is calculated at 25%.
The cost of the Investment property as at 31 December 2023, based on the historical cost basis is £90,061,600 (2022: £22,372,870).
The illustrative calculations of a valuation considered to be compliant with the principals of RICS Valuation - Professional Standards 2022, were carried out by CBRE Limited as at 31 December 2023. The valuers have prepared the calculations using the basis of fair value as at the valuation date pursuant to IFRS - Fair Value Measurement.
Key assumptions used in the valuation include an estimated rental value of £8.00 per sq ft, a capitalisation rate of 5.75% and adjusting for purchaser costs at 6.8%. In 2022, the asset was under development and the fair value of the asset was equivalent to cost incurred to date.
VAT receivable was recovered in full post year end.
All Trade and other receivable amounts are interest-free and unsecured.
Amount owed by parent undertaking is repayable on demand.
The Company always recognises lifetime ECL (expected credit losses) for trade receivables, which are estimated using an analysis of the debtor's current financial position and general economic conditions at the reporting date. The Company did not make any impairment in the year.
Amounts owed to the parent undertaking are unsecured, interest-free and repayable on demand.
The Loan interest accrual include amounts accrued from 21 October to 31 December of both periods, in relation to the bank borrowings.
The Company has a finance facility provided by Blackstone (via Claus Investments S.a.r.l) for a 5-year loan facility, commencing 2 April 2022, and guaranteed by its parent CILS1 UK Holdings Limited. The initial facility terms is for 3 years with the option to extend annually for the remaining two years. The facility is secured against the development asset.
The bank finance is subject to a 82.5% loan-to-value and 4.5% debt yield, which is applicable to April 2025. The Company was compliant with this requirement as at the year end.
As at the year-end there is £897,657 (2022: £264,311) of accrued loan interest shown as a current liability. Interest is repayable quarterly and capital repayable at the end of the term.
CILS1 UK Holdings Limited, the parent entity, purchased a two year interest rate cap in March 2022, for the group facility, to hedge the interest rate risk, capping the total interest payable at 2.50%.
CILS1 UK Holdings Limited, the parent entity, purchased a one year interest rate cap in April 2024, for the group facility, to hedge the interest rate risk, capping the total interest payable at 6%.
On 4 April 2023, the Company issued 1 Ordinary Share of £1 at a price of £254,352, creating share premium of £254,351.
On 20 June 2023, the Company issued 1 Ordinary Share of £1 at a price of £7,351,000, creating share premium of £7,350,999.
On 28 September 2023, the Company issued 1 Ordinary Share of £1 at a price of £2,593,000 creating share premium of £2,592,999.
On 22 December 2023, the Company issued 1 Ordinary Share of £1 at a price of £15,322,157, creating share premium of £15,322,156.
During the year ended 31 December 2023, CILS1 UK Holdings Limited provided the Company with funding amounts totalling £25,520,509 which were unsecured, interest free and repayable on demand. During 2023 the amounts were converted to equity consisting of a total of four equity shares of £1 each issued at a total premium of £25,520,505 (2022: £9,615,258 of loan under an ICL agreement was converted to 4 shares at a premium of £9,615,254).
The accumulated losses reserve represents cumulative profits and losses net of dividends paid and other adjustments. These are shown in the statement of changes in equity (page 9).
In accordance with FRS 101 under IAS 24, the Company has taken advantage of the exemption from disclosing related party transactions with entities owned wholly by the group.
On 28 March 2024, £60,000 of temporary funding was converted to 1 ordinary £1 share at a premium of £59,999.
On 1 July 2024, £725,000 of temporary funding was converted to 1 ordinary £1 share at a premium of £724,999.
On 26 September 2024, £320,000 of temporary funding was converted to 1 ordinary £1 share at a premium of £319,999.