Foresight Solar Annual Report (with exit form attached)

[Karellan]

Its just dropped onto my hallway courtesy the postman. The covering letter contains some sort of catchall paragraph in case they cannot / do not meet all investors expectations. Personally I want out but sadly this has been for me the best Foresight VCT however I am just not sure what will be left or do I really trust the management to do the best for me at the end of the day.

[hiriskpaul]

The report thudded through my door this morning as well. I will be voting to exit. Disappointing to see we may have to wait until sometime between March and July next year though. Still, with a return in the range they are predicting £1.24 and £1.30, that is a total tax free return of 78-86% when the 30p tax relief is taken into consideration and I am happy with that. IRR will of course be higher.

[Kidman]

with a return in the range they are predicting £1.24 and £1.30

I assume this is the ordinaries which are quoted offer at 94p.
Am I missing something or is there an opportunity to make a small turn on this one?

[UncleEbenezer]

Won't see the docs 'til I get back home next week.

Isn't this a Prisoners' Dilemma? A nice infra-shaped, tax-free long-term hold provided enough investors stick with it. But if too many exit, the rump could reach a size where fixed costs rise towards or even above Ventus levels.

[Karellan]

Disappointing to see we may have to wait until sometime between March and July next year though.

True , I thought that they already had some idea of the investors intentions from earlier polls. Does anyone know whether the waiting period could cause the departing shareholders to lose out on dividend distributions ?

[hiriskpaul]

I assume this is the ordinaries which are quoted offer at 94p.
Am I missing something or is there an opportunity to make a small turn on this one?

I am afraid not. The figures I quoted, from the annual report, include the already paid dividends. 94p is a fair price and I would not be looking to get more at that price.

[hiriskpaul]

Isn't this a Prisoners' Dilemma? A nice infra-shaped, tax-free long-term hold provided enough investors stick with it. But if too many exit, the rump could reach a size where fixed costs rise towards or even above Ventus levels.

Yes, but there is also a sting in the form of the Performance Incentive (p.24 of the original prospectus. p.47 of the latest accounts). This says that after 100p has been distributed to shareholders Foresight are entitled to receive 20% of Distributions in excess of 100p and 30% of Distributions in excess of 130p. Distributions is defined on p.40 of the original prospectus and is wide ranging, including share buy-backs, tender offers, etc. The Performance Incentive is not something they bother to mention on the binding preference declaration form. I wonder why not?

As of June 2016, they had accrued 5.9p towards the Performance Incentive, leaving the NAV at 100.7p. Knock off 3p for the recent dividend declaration and that leaves 97.7p. Assuming a small number can be picked up at 94, that leaves 3.7p upside by Q2/Q3 next year if the full remaining NAV is paid out. Personally, the small margin here does not interest me, so I will not be buying more.

[SpecialSaver2]

I am having the same dilemma and hence came here to see what others' thoughts are. I shall probably exit given the performance fee and the risk of Ventus-style performance fee.

SS2

[rpannell]

Slightly off topic, but has anyone seen anything about the exit date for the Foresight Solar EIS? From memory, the EIS assets were scheduled to be sold before the VCT assets. For me, due to the tax free status of VCT dividends, I would rather sell the EIS but keep the VCT assets. This reduces the risk but keeps the tax efficiency, assuming of course that the VCT does not become a tiny fund with high charges.

[UncleEbenezer]

I just logged in to computershare, but I can't find the exit form there. Am I missing something?

[Karellan]

Mine was paper.

[127tolmers]

http://www.investegate.co.uk/foresight- ... 4930H3026/
Shareholders' Options

We anticipate that the first liquidity event (the "First Planned Exit Date"), will occur between March and July 2017. Relevant points to consider when evaluating your options regarding the First Planned Exit Date are:

For Ordinary Shares you elect to sell:

We anticipate shares will be acquired by the Company at a price in the range of £0.95 to £1.01 per share. This assumes that total dividends paid to ordinary shareholders by such date will be 29p, of which 23p has already been paid. This would generate a total return since original investment of £1.24 to £1.30 at such point; and Shares will be acquired at net asset value.

For Ordinary Shares you elect to remain invested:

We believe that very few asset classes can deliver such predictable, non-equity correlating returns as solar PV power. Further, the VCT has substantial exposure to Feed-in-Tariff subsidised power plants which provide the most predictable of income streams available to solar power;

The performance of Foresight Solar and Infrastructure "O" Shares has been strong since launch and the Board remains confident that the VCT can continue to deliver dividends of at least 6p per annum in the long term;
Shares that remain in the VCT will continue to deliver to qualifying holders tax-free dividends with potential for tax-free capital growth at a time when there are limited possibilities to access lower risk asset classes within tax advantageous structures; new VCT fund raises cannot be invested into solar PV generating assets, or indeed any energy generating assets;
The Investment Manager, Foresight Group, has substantial experience in overseeing solar assets via its in-house team of engineers and specialist portfolio managers and will actively manage the portfolio in order to continually optimize performance; and
We intend to offer further liquidity at net asset value within two years from the First Planned Exit Date.

For the avoidance of doubt at this point only Ordinary shares of the Company can be sold under this proposal. Planned liquidity events for other share classes, such as C shares and D shares, will be provided after the relevant 5 year anniversaries have passed.

[UncleEbenezer]

Just logged into computershare again this morning, and I see they're now 96p in the market. That's now inside the anticipated realisation range, if anyone can't wait! Wonder what liquidity will look like after the redemption date, with regular sellers out of the market.

With dividends now being tax-free in almost all cases, this is now in direct competition with my JLEN and TRIG holdings. And the management charges are still rather closer to those than to Ventus's ripoff!

[rpannell]

In case people have forgotten, today the the last day to decide (replies in by 15/1/17)

I've voted to hold. For me, the 6p / share post tax yield is still attractive. It's also attractive to have this dividend undeclared and outside my normal earnings. I'm thinking here of some possible future super tax on dividends whereby any income outside the tax return will be highly desirable.

[UncleEbenezer]

Half-year report today. Looks like a comfortable story all round, with a particularly juicy bump for C shareholders. Regular divis due; no specials.

27% of Ord holders opted to exit, so it'll still be a viable size for remainers. Tender offer for exiters to follow; July exit hinted.

[127tolmers]

The half year RNS is worth looking at for a read across to Ventus

http://www.investegate.co.uk/foresight- ... 2157H8476/

As outlined in my statement last October, the key focus of the Board and the Investment Manager is to optimise the portfolio's performance and valuation through a number of concurrent processes including optimising the debt content of investments through refinancing at historically low interest rates; extending leases and planning permissions from 25 years to 35 years to reflect the expected useful life of the plants; and to lock-in increased power prices by entering into power price agreements (PPAs) that maximise revenues but retain flexibility to appropriately manage a rapidly growing portfolio................

Furthermore, the Investment Manager is in the advanced stages of refinancing the Turweston Asset, as well as progressing a number of disposals within the portfolio that will underpin the Board's ongoing dividend commitment to Shareholders; enhance shareholder value and provide resources for future investment................

The annual management fee of the Ordinary Shares fund is 1.5%. During the period the management fees totalled £916,000, including the accrual of £631,000 for the performance incentive fee, of which £71,000 was charged to the revenue account and £845,000 was charged to the capital account.

[BusyBumbleBee]

The half year RNS is worth looking at for a read across to Ventus

Thanks, Tolmers, I will write to the chairman of VEN2 over the weekend pointing out what is happening here - which is essentially what we are asking them to do : will put the letter up here for comment -- kind regards - BBB

[parallellines]

Tender form now received, and all shareholders can apply, though cutbacks may be imposed on those who didn't return the indication of preference saying they will sell , may get cut back if the tender is oversubscribed.

Still only an indicative NAV on which to base sell decisions.

Associate with that is a proposal to change the performance fee. Naively I thought this might be to add an escalator now the Company is not regarded as limited life. Under the current performance fee Foresight take 20% of any return once total return exceeds 120p per share, and 30% above 130p. This was a major factor in my intention to sell. Indeed the tender offer trumpets the Board negotiating an escalator to the 130P threshold. However, on reading closely the actual purposes appears to be to allow the manager to take a performance fee now on the basis of all shareholders exiting.

So in summary , if you exit or stay , there's a full performance fee; if you stay, you still lose 20% of any upside (including cost of living related increases in NAV) while remaining fully exposed to any downside.

I can see the outcome of a substantial minority of shareholders wanting to exit does create practical difficulties in applying the current performance fee. But the proposed solution seems to make both exiting and staying unattractive.

[UncleEbenezer]

Associate with that is a proposal to change the performance fee. Naively I thought this might be to add an escalator now the Company is not regarded as limited life.

Indeed, that seems to be the gist of it. And a 5%/year escalator is a respectable hurdle: one that makes the fund look more attractive to hold long-term.

However, on reading closely the actual purposes appears to be to allow the manager to take a performance fee now on the basis of all shareholders exiting.

Can you elaborate? I don't see anything in the document that makes the fee worse than what was specified in the original prospectus.

So in summary , if you exit or stay , there's a full performance fee; if you stay, you still lose 20% of any upside (including cost of living related increases in NAV) while remaining fully exposed to any downside.

By my reading, the fee is only charged on the excess of any upside above 5%/year.

I note the price is up 5% (effectively 8%, given that it's also ex-div). In the absence of an RNS about transactions in own shares, I have to infer that the market likes what it's just read!

Foresight Solar Fund has just raised substantial new funds. So whatever assets need selling to fund a tender offer, we know there's a prospective buyer in the family.

[parallellines]

Can you elaborate? I don't see anything in the document that makes the fee worse than what was specified in the original prospectus.

So in summary , if you exit or stay , there's a full performance fee; if you stay, you still lose 20% of any upside (including cost of living related increases in NAV) while remaining fully exposed to any downside.

By my reading, the fee is only charged on the excess of any upside above 5%/year.

I note the price is up 5% (effectively 8%, given that it's also ex-div). In the absence of an RNS about transactions in own shares, I have to infer that the market likes what it's just read!

Foresight Solar Fund has just raised substantial new funds. So whatever assets need selling to fund a tender offer, we know there's a prospective buyer in the family.

I'm happy to be corrected, but my reading was that the escalator applies only to the threshold moving from the 20% performance fee to the 30% performance fee.

Indeed, their rationale is that the fee is no worse than what was specified in the original prospectus, and I could accept the change if there is a proper escalator so the 20% fee applies only if a modest inflation plus return is maintained.

I guess my other complaint is that this should have been proposed at the outset, the analysis underlying my decision to submit a BIP to sell is now hopelessly wrong and I need to rework it before deciding whether to accept the tender.