Condensed Consolidated Interim Financial Report
REAL ESTATE CREDIT INVESTMENTS PCC LIMITED
CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012
(UNAUDITED)
Contents
Page
Chairman's Statement 3-4
Investment Manager's Report 5-9
Directors' Responsibility Statement 10
Independent Review Report 11-12
Unaudited Consolidated Statement of Comprehensive Income 13-14
Unaudited Consolidated Statement of Financial Position 15-16
Unaudited Consolidated Statement of Changes in Equity 17
Unaudited Consolidated Statement of Cash Flows 18-19
Notes to the Condensed Unaudited Consolidated Financial Statements 20-36
Directors and Advisers 37-38
Chairman's Statement
Over the six months to 30 September, Real Estate Credit Investments PCC Limited (the "Company") posted significant gains in net asset value whilst maintaining an attractive dividend yield. Repositioning the Real Estate Credit Investments Core ("RECI") investment focus towards the European real estate bond markets has delivered attractive risk adjusted returns, solid profits and a material increase in Net Asset Value (NAV).
The first quarter of the financial year saw considerable volatility in capital markets, which the Investment Manager managed through a combination of active trading and market hedges. Substantial policy intervention from regulators and governments buoyed asset prices in the second quarter.
The investment management team ensured RECI was well-positioned ahead of these announcements and the portfolio has benefited from both fair value gains and bond repayments in the past two quarters. Significant bond repayments, equal to approximately 20% of the value of the bond portfolio, underscore RECI's ability to realise returns.
RECI first half net gains of £9.4 million
During the half-year ended 30 September 2012, RECI reported a net gain of £9.4 million compared to a net loss of £2.1 million in the first half of 2011/12. Operating income (excluding the effects of fair value movements) for the six months to 30 September 2012 was £6.5 million versus £6.0 million for the equivalent period in the previous year.
RECI's net asset value ("NAV") as at 30 September 2012 rose to £1.30 per RECI Ordinary Share, from £1.10 per Ordinary Share as at 31 March 2012.
Real Estate Credit Investments Cell ("ERII") continues to generate cash. As at 30 September 2012, the NAV per ERII Ordinary Share was €0.60 versus €0.56 as at 31 March 2012.
Outlook and Strategy
RECI will continue pursuing new investment opportunities in real estate bonds and loans as it reinvests its increased cash holdings.
Despite recent tightening in credit spreads, European CMBS and RMBS markets remain dislocated. RECI believes the risk/reward profile of CMBS and RMBS bonds is more attractive than that of other credit asset classes. The current portfolio, for instance, even after the fair value gains enjoyed in recent months, has a yield of 8.6% compared to a yield of 6.5% for European high yield bonds1.
The Investment Manager expects the dislocation in European real estate loan markets to continue as traditional bank lenders reduce supply of credit to the sector and has identified a number of loan opportunities with attractive risk/return profiles, in which to reinvest existing cash holdings and the proceeds of bonds as they are repaid or sold in the future. A £10 million mezzanine loan has just been completed on a City of London office building currently let to Goldman Sachs.
Given available cash balances, RECI is confident of its ability to increase its exposure to commercial real estate loans in a measured way. The balanced combination of a good quality bond portfolio and the prospective investments generated by the current pipeline of real estate loans and bonds should give support to the level of operating income and the consequential dividend yield.
RECI's Ordinary Share price has risen by over 18% between the start of the financial year and 20 November, reflecting the strong NAV performance and the higher dividend policy announced at the beginning of the period. The shares continue to trade, however, at a significant discount to NAV, although there has been some tightening of this in recent weeks.
Outlook and Strategy (continued)
Since the beginning of the year, the largest shareholder in the RECI Ordinary Shares, a fund in realisation, has now completed the sale of its entire holding (which was 34% as at the start of financial year) and the Board welcomes both the new investors and those who have been able to increase their holdings as a result. With this broader and stronger investor base, the Board and the Investment Manager will continue to work energetically to improve the rating of the shares and further narrow the discount to NAV at which they trade.
Tom Chandos, Chairman
22 November 2012
1 ISHARES MARKIT IBOXX EUR H/Y index
Investment Manager's Report
Real Estate Bond Portfolio Review
RECI recorded mark to market ("MTM") gains of £9.1 million on the real estate bond portfolio for the quarter ended 30 September 2012. The MTM gains are split, £2.4m being attributed to operating income, and fair value gains of £6.7m. This compared with MTM gains of £0.6 million for the quarter ended 30 June 2012.
RECI stepped up bond purchases during the quarter ended 30 September 2012, with net purchases of £7.1 million versus net sales of £2.1 million in the previous quarter. Class A and B bonds accounted for 58% of purchases in the quarter, reflecting expectation that prices would materially increase as policy makers sought to make stimulative interventions in global markets.
The weighted average expected yield to maturity of new investments was 8.6% and RECI purchased the bonds at an average price of 78% of par. As at 31 October 2012, the weighted average price of these investments had increased to 81% of par.
As at 30 September 2012, the portfolio of 124 bonds was valued at £79.5 million, with a nominal face value of £119.8 million[1]. The average purchase price of the portfolio was 68% of par with a weighted average expected yield to maturity of 13.6%[2]. The weighted average effective yield of the portfolio is currently 13.7%.
In the half year ended 30 September 2012 the Company received bond repayments of approximately £16.7 million, or approximately 20% of the average bond portfolio value over the period. Significant bond repayments are listed in table below.
|
Bond |
Date of principal repayment |
Event |
|
TITN 2006-4FS |
July 2012 |
Full repayment of bond with PIK interest following refinancing of deal |
|
ELOC 26 |
July 2012 |
Full repayment of loan backed by an office in the city of London |
|
DECO 2007-E6 |
July 2012 |
Full repayment of loan backed by a shopping centre in Germany |
|
INFIN SOPR |
August 2012 |
Full repayment of loan backed by a shopping centre in Germany |
Real Estate Bond Portfolio Breakdown
31 March 2012
|
UK |
65.2% |
|
Germany |
29.9% |
|
Holland |
3.2% |
|
Italy |
1.0% |
|
Ireland |
0.4% |
|
Portugal |
0.3% |
|
Total (£mm) |
£82.8mm |
30 September 2012
|
UK |
64.9% |
|
Germany |
30.7% |
|
Holland |
3.0% |
|
Italy |
1.0% |
|
Ireland |
0.3% |
|
Portugal |
0.1% |
|
Total (£mm) |
£79.5mm |
Values may not sum to 100% due to rounding differences
Bond purchases and sales since 30 September 2012
Between 1 October 2012 and 31 October 2012, the Company invested £1.7 million at an average price of 84% of par and a weighted average expected yield-to-maturity of 15.3%. RECI also sold £4.5 million of bonds during this period at an average price of 93% of par versus an average purchase price of 81% of par. As at 31 October 2012, the portfolio consisted of 122 bonds with a fair value of £79.2 million and a nominal face value of £117.3 million[3].
Monthly Bond Performance Summary as at 31 October 2012
|
|
May |
June |
July |
August |
September |
October |
|
% Fair Value Change |
-0.47% |
0.62% |
3.61% |
4.72% |
3.76% |
3.13% |
|
WA Purchase Price in month |
0.82 |
0.95 |
0.69 |
0.86 |
0.78 |
0.84 |
|
WA Purchase Yield in month |
8.82% |
8.96% |
9.94% |
8.23% |
8.39% |
15.29% |
Asset Class Distribution of Bond Portfolio by Fair Value as at 31 October 2012
|
Bond Class |
UK CMBS |
UK RMBS |
Euro CMBS |
Euro RMBS |
SME |
Total |
Total as at 31 March 12 |
|
A |
19.4% |
3.3% |
5.5% |
0.2% |
0.0% |
28.5% |
18.3% |
|
B |
2.5% |
6.5% |
9.4% |
0.0% |
0.0% |
18.4% |
30.9% |
|
C |
6.2% |
1.9% |
4.7% |
0.0% |
0.0% |
12.8% |
17.2% |
|
D |
3.5% |
4.1% |
9.7% |
0.2% |
0.0% |
17.5% |
16.5% |
|
E and Below |
9.6% |
9.3% |
4.0% |
0.0% |
0.0% |
22.8% |
17.0% |
|
Total |
41.2% |
25.1% |
33.3% |
0.4% |
0.0% |
100.0% |
|
|
Total as at 31 March 12 |
39.2% |
25.8% |
33.3% |
0.7% |
1.0% |
|
|
Values may not sum to 100% due to rounding differences
Loans - Progress with new investment opportunities
RECI's loan portfolio has continued to provide attractive risk adjusted returns. The Company has concluded the sale of the OMNI loan, has invested in new loans backed by Dutch commercial property and a London office property, and has identified new investment opportunities.
In August 2012, RECI purchased a €4.2m commercial loan in a deal called Utrecht, which is secured against a portfolio of commercial properties in the Netherlands. This loan has a yield of 17.6%, an LTV of 64.1% and a weighted average life of 3.5 years.
By 31 October 2012, the Company had sold the OMNI loan secured by residential properties in London and the South East. The Company exited its position at par and recorded a return of 12.6% on its investment.
On 21 November 2012, the Company made a £10 million loan at a 65% LTV and a 12% yield backed by a London office property. The loan ranks behind a senior loan which has a 50% LTV.
The Company has also identified a £5 million loan that it expects to complete in December. This is a 65% LTV second lien loan backed by a commercial property in London with a yield in excess of 12%.
Top 10 Investment Portfolio Exposures[4] as at 31 October 2012
Market Value £30.9 million
WA Original LTV[5] 51.0%
WA Cheyne Current LTV5 58.3%
WA Effective Yield[6] 10.9%
|
Type |
Class |
Collateral Description |
|
|
Commercial |
A |
Portfolio of nursing homes operated by Four Seasons Health Care Group |
|
|
Commercial |
Loans |
Portfolio of commercial real estate loans in the Netherlands |
|
|
Commercial |
D |
Portfolio of Karstadt retail stores in Germany |
|
|
Commercial |
E |
Portfolio of commercial loans secured by property in London |
|
|
Residential |
E |
Portfolio of residential housing in the UK |
|
|
Commercial |
E |
Portfolio of commercial loans secured by properties in Germany |
|
|
Commercial |
D |
Portfolio of commercial loans secured by properties in Germany |
|
|
Commercial |
A |
Portfolio of commercial real estate loans in the Netherlands |
|
|
Commercial |
C |
Portfolio of commercial loans secured by properties situated in the UK |
|
|
Commercial |
A |
Portfolio of commercial loans secured by properties situated in the UK |
|
Outlook for RECI
RECI will continue pursuing NAV-accretive investment opportunities in real estate bonds and loans and will invest its increased cash holdings in the near term.
The market has shifted to a risk-on phase resulting in a tightening of credit spreads across fixed income. Fears of a breakdown in Eurozone sovereign restructuring have eased, following substantial intervention from the US Federal Reserve and the European Central Bank.
Nonetheless, European CMBS and RMBS markets remain dislocated and the Company sees a continued attractive risk/reward profile in real estate bonds relative to other fixed-income asset classes. For example, using prices as at 31 October 2012, the current portfolio has a yield of 8.6% compared to a yield of 6.5% for European high yield bonds.
RECI's investment management team continues to see attractive value in Class B and Class C bonds. In addition, the Investment Manager has been using its significant status in the RMBS and CMBS markets to act as a cornerstone investor on new issuances. This strategy allows RECI to benefit from both advantageous allocations and favourable investment terms in new loans.
Dislocation in European real estate loan markets will continue as traditional bank lenders reduce supply of credit to the sector. The Investment Manager has identified a number of loan opportunities offering attractive risk/return profiles and expects to identify more. The Company has access to a strong pipeline of loans, and plans to allocate approximately 20% to 25% of its gross asset value to real estate loans over the next two quarters. This should leave the Company close to fully invested.
The Investment Manager will continue to make investments on a measured basis, judging their ability to support the Company's dividend yield and continued NAV growth.
European Residual Income Investments (ERII)
It is the Company's objective, to the extent practicable, to liquidate the ERII portfolio and return cash to shareholders. Dividends from ERII will be payable to ERII's shareholders when the asset coverage ratio (The Preference Share Cover Test) is satisfied. For the period ended 30 September 2012 the Preference Share Cover Test was 2.53, above the threshold of 2.39. Due to the Newgate litigation, ERII is segregating €3.0 million in relation to Newgate 2006-1 residual cash flows received, and holding a further €1.0 million for the ongoing litigation costs. As a result, the Company is declaring a dividend of 3.2 cents per ERII Ordinary Share, returning €1.3 million to investors. The table below shows figures as at 30 September 2012 compared to 31 March 2012.
|
ERII Key Quarter Financial Data |
Q/E 31 March 2012 |
Q/E 30 September 2012 |
|
Cash balance |
€3.7mm |
€5.6mm |
|
Residual Total Dirty Fair Value |
€19.2mm |
€18.5mm |
|
Cash Flows in periods |
€1.2mm |
€1.2mm |
|
Asset Coverage Ratio |
2.37 |
2.53 |
|
Dividend Declared |
N/A |
3.2c |
|
Net Asset Value per ERII Share |
0.56 |
0.60 |
|
ERII Shares Outstanding |
39.97mm |
39.97mm |
|
|
|
|
Investment Portfolio
Overview
ERII reported cash flows for the quarter ended 30 September 2012 of €1.2 million, compared to €1.9 million in the previous quarter and net write downs of €1.1 million. Write downs in the European mortgage portfolio were offset in part by gains in the UK mortgage portfolio.
European Mortgage Portfolio
The European Mortgage Portfolio generated less than €0.1 million of cash flows for the quarter ended 30 September 2012, compared to €0.4 million in the previous quarter. Write-downs in the portfolio totalled €5.4 million and included a €4.7 million write down in the Magellan 1 mortgage portfolio. Write downs were a result of delaying the repayment of the investment from December 2014 to December 2019.
SME Portfolio
The Company has increased the fair value of Smart 06-1 to €1.6 million versus a fair value of €0.6 million in the previous quarter following a decrease in the default rate. Cash flows for Smart 06-1 in the quarter ended 30 September 2012 totalled €0.1 million, unchanged from the previous quarter.
UK Mortgage Portfolio
The UK Mortgage Portfolio recorded cash flows of £0.9 million in the quarter ended 30 September 2012 compared to £1.1 million in the previous quarter. Gains in the portfolio totalled £2.6 million with all investments recording a gain in their market value. Cash flow of £0.5 million was received from the Newgate 2006-1 residual. Cash flows from the Newgate 2006-1 residual totalling £2.4 million have been segregated and will be held pending the outcome of the litigation.
European Residual Income Investments (ERII) (continued)
Investment Portfolio (continued)
|
Name |
% of ERII Portfolio |
Sector |
|
Magellan 1 |
39.6% |
European Mortgage Portfolio |
|
Sestante 1 |
8.6% |
European Mortgage Portfolio |
|
Newgate 06-1 |
11.1% |
UK Mortgage Portfolio |
|
Smart 2006-1 |
6.5% |
SME Portfolio |
|
Alba 06-1 |
7.2% |
UK Mortgage Portfolio |
|
Alba 05-1 |
3.7% |
UK Mortgage Portfolio |
|
Cash |
23.3% |
|
|
TOTAL |
100.0% |
|
Other Company Information
Principal risks and uncertainties
Details of the principal risks and uncertainties facing the Company were set out in the 2012 Annual Report on pages 50 to 67, a copy of which is available on the Company's website (www.recreditinv.com).
The principal risks and uncertainties, being market risk, credit risk, liquidity risk, valuation of financial instruments, prepayment and re-investment risk, default and severity rates, residual interest risk and country risk, and the policies and procedures for minimising these risks and uncertainties remain unchanged and each of them has the potential to affect the Company's results during the remaining six months of the financial year. Note 10 to the condensed set of financial statements gives an update on country and currency risk.
Related party transactions
Related party transactions are disclosed in Note 14 to the condensed unaudited consolidated financial statements. There have been no material changes in the related party transactions as described in the last annual report, except for the change in holding pertaining to Cheyne ABS Opportunities Fund L.P. and RECI's £10 million mezzanine loan investment to finance the purchase of an office property in London, as another Cheyne managed fund, Cheyne Real Estate Credit Holdings Fund L.P. has also invested in the deal via a subordinated loan and equity both of which are subordinated to RECI's investment.
Going concern
As stated in Note 2 to the condensed unaudited consolidated financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.
Cheyne Capital Management (UK) LLP
22 November 2012
Director's Responsibility Statement
We confirm to the best of our knowledge:
a) the condensed unaudited consolidated interim financial report has been prepared in accordance with IAS 34 "Interim Financial Reporting";
b) the interim management report (contained in the Chairman's Statement and Investment Manager's report) includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of principal risks and uncertainties for the remaining six months of the year); and
c) the interim management report (contained in the Chairman's Statement and Investment Manager's report) includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board
Director Director
22 November 2012 22 November 2012
Independent review report to Real Estate Credit Investments PCC Limited
We have been engaged by Real Estate Credit Investments PCC Limited (the "Company") to review the condensed unaudited consolidated financial statements in the half-yearly interim financial report for the six months ended 30 September 2012 which comprises the Unaudited Consolidated Statement of Comprehensive Income, the Unaudited Consolidated Statement of Financial Position, the Unaudited Consolidated Statement of Changes in Equity and the Unaudited Consolidated Statement of Cash Flows and related Notes 1 to 18. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed unaudited consolidated financial statements.
This report is made solely to the Company's members in accordance with the International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review 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, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority.
As disclosed in Note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The condensed unaudited consolidated financial statements included in this interim financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed unaudited consolidated financial statements in the interim financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed unaudited consolidated financial statements in the interim financial report for the six months ended 30 September 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the International Accounting Standards Board and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Emphasis of matter - Fair value of investments held in the European Residual Income Investments Cell
In forming our review conclusion on the interim financial report, we have considered the policies adopted by the Directors for fair valuing the Group's investments and adequacy of the disclosure in Note 2 in respect of the valuation of investments held in the European Residual Income Investments Cell. In accordance with these policies and the requirements of International Accounting Standard 39 "Financial Instruments: Recognition and Measurement", the Directors have estimated the fair value of the investments held in the European Residual Income Investments Cell at EUR 17,013,573 as at 30 September 2012.
The residual income positions held in the European Residual Income Investments Cell are illiquid. As a result of this the fair value estimates of these investments included in the interim financial report are subject to material uncertainty. Different assumptions will impact the measurement of these investments which may have an effect on the interim financial report. It is not possible to quantify the potential effects of the resolution of this material uncertainty.
Deloitte LLP
Chartered Accountants
Guernsey, Channel Islands
22 November 2012
Unaudited Consolidated Statement of Comprehensive Income
For the period from 1 April 2012 to 30 September 2012
|
|
Note |
|
RECI Core |
ERII Cell |
|
Total |
|
|
|
|
30-Sept-2012 |
30-Sept-2012 |
|
30-Sept-2012 |
|
|
|
|
GBP |
EUR |
|
GBP |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
6,064,345 |
2,188,888 |
|
7,817,557 |
|
|
|
|
|
|
|
|
|
Dividend income |
|
|
393,673 |
- |
|
393,673 |
|
|
|
|
|
|
|
|
|
Net gains on financial assets and liabilities at fair value through profit or loss |
3 |
|
5,913,526 |
355,505 |
|
6,197,153 |
|
|
|
|
12,371,544 |
2,544,393 |
|
14,408,383 |
|
|
|
|
|
|
|
|
|
Operating expenses |
4 |
|
(1,016,408) |
(871,438) |
|
(1,714,395) |
|
|
|
|
|
|
|
|
|
Profit before finance costs |
|
|
11,355,136 |
1,672,955 |
|
12,693,988 |
|
|
|
|
|
|
|
|
|
Finance costs |
5 |
|
(1,939,362) |
- |
|
(1,939,362) |
|
|
|
|
|
|
|
|
|
Net profit |
|
|
9,415,774 |
1,672,955 |
|
10,754,626 |
|
|
|
|
|
|
|
|
|
Profit per Ordinary Share |
|
|
|
|
|
|
|
Basic |
8 |
|
GBP 0.24 |
EUR 0.04 |
|
|
|
Diluted |
8 |
|
GBP 0.24 |
EUR 0.04 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average Ordinary Shares outstanding |
|
|
Number |
Number |
|
|
|
Basic |
8 |
|
39,966,985 |
39,966,985 |
|
|
|
Diluted |
8 |
|
39,966,985 |
39,966,985 |
|
|
All items in the above statement are derived from continuing operations.
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements.
Unaudited Consolidated Statement of Comprehensive Income
For the period from 1 April 2011 to 30 September 2011
|
|
Note |
|
RECI Core |
ERII Cell* |
|
Total |
|
|
|
|
30-Sept-2011 |
30-Sept-2011 |
|
30-Sept-2011 |
|
|
|
|
GBP |
EUR |
|
GBP |
|
|
|
|
Represented |
|
|
Represented |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
6,049,134 |
1,177,298 |
|
7,078,512 |
|
|
|
|
|
|
|
|
|
Net losses on financial assets and liabilities at fair value through profit or loss |
3 |
|
(4,404,222) |
(591,373) |
|
(4,921,292) |
|
|
|
|
1,644,912 |
585,925 |
|
2,157,220 |
|
|
|
|
|
|
|
|
|
Operating expenses |
4 |
|
(1,668,957) |
(87,167) |
|
(1,745,171) |
|
|
|
|
|
|
|
|
|
Profit before finance costs |
|
|
(24,045) |
498,758 |
|
412,049 |
|
|
|
|
|
|
|
|
|
Finance costs |
5 |
|
(2,056,769) |
- |
|
(2,056,769) |
|
|
|
|
|
|
|
|
|
Net (loss)/profit |
|
|
(2,080,814) |
498,758 |
|
(1,644,720) |
|
|
|
|
|
|
|
|
|
(Loss)/profit per Ordinary Share |
|
|
|
|
|
|
|
Basic |
8 |
|
GBP (0.05) |
EUR 0.01 |
|
|
|
Diluted |
8 |
|
GBP (0.05) |
EUR 0.01 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average Ordinary Shares outstanding |
|
|
Number |
Number |
|
|
|
Basic |
8 |
|
39,966,985 |
39,966,985 |
|
|
|
Diluted |
8 |
|
39,966,985 |
39,966,985 |
|
|
* The Company converted to a protected Cell Company during the year. The ERII Cell financial statements refer to the period from 11 August 2011 (Date of Conversion) to 30 September 2011.
All items in the above statement are derived from continuing operations.
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements.
Unaudited Consolidated Statement of Financial Position
As at 30 September 2012
|
|
Note |
RECI Core |
ERII Cell |
Total |
|
|
|
30-Sept-2012 |
30-Sept-2012 |
30-Sept-2012 |
|
|
|
GBP |
EUR |
GBP |
|
Non-current assets |
|
|
|
|
|
Investments at fair value through profit or loss |
10 |
87,132,625 |
17,013,573 |
100,687,223 |
|
|
|
87,132,625 |
17,013,573 |
100,687,223 |
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
|
5,621,457 |
5,624,435 |
10,102,406 |
|
Derivative financial assets - options held for trading |
|
3,083,117 |
- |
3,083,117 |
|
Derivative financial assets - unrealised gain on credit default swaps |
|
488,120 |
- |
488,120 |
|
Derivative financial assets - unrealised gain on interest rate swap agreements |
|
21,502 |
- |
21,502 |
|
Other assets |
6 |
3,880,573 |
1,443,555 |
5,030,643 |
|
|
|
13,094,769 |
7,067,990 |
18,725,788 |
|
|
|
|
|
|
|
Total assets |
|
100,227,394 |
24,081,563 |
119,413,011 |
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Reserves |
|
52,031,578 |
23,911,107 |
71,081,394 |
|
|
|
52,031,578 |
23,911,107 |
71,081,394 |
|
Current liabilities |
|
|
|
|
|
Derivative financial liabilities - options held for trading |
|
599,112 |
- |
599,112 |
|
Derivative financial liabilities - unrealised loss on forward foreign exchange contracts |
|
27,869 |
- |
27,869 |
|
Derivative financial liabilities - unrealised loss on total return equity swaps |
|
29,232 |
- |
29,232 |
|
Other liabilities |
|
933,148 |
170,456 |
1,068,949 |
|
|
|
1,589,361 |
170,456 |
1,725,162 |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Preference Shares |
9 |
46,606,455 |
- |
46,606,455 |
|
|
|
|
|
|
|
Total liabilities |
|
48,195,816 |
170,456 |
48,331,617 |
|
|
|
|
|
|
|
Total equity and liabilities |
|
100,227,394 |
24,081,563 |
119,413,011 |
|
|
|
|
|
|
|
Shares outstanding |
|
39,966,985 |
39,966,985 |
|
|
Net asset value per share |
|
GBP 1.30 |
EUR 0.60 |
|
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements. These financial statements were approved by the Board of Directors on 22 November 2012.
Signed on behalf of the Board of Directors by:
Christopher Spencer John Hawkins
Director Director
Unaudited Consolidated Statement of Financial Position
As at 31 March 2012
|
|
Note |
RECI Core |
ERII Cell |
Total |
|
|
|
31-Mar-2012 |
31-Mar-2012 |
31-Mar-2012 |
|
|
|
Audited |
Audited |
Audited |
|
|
|
GBP |
EUR |
GBP |
|
Non-current assets |
|
|
|
|
|
Investments at fair value through profit or loss |
9 |
86,254,269 |
17,841,069 |
101,124,516 |
|
|
|
86,254,269 |
17,841,069 |
101,124,516 |
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
|
2,847,787 |
3,671,833 |
5,908,201 |
|
Derivative financial assets - options held for trading |
|
2,453,717 |
- |
2,453,717 |
|
Derivative financial assets - unrealised gain on credit default swaps |
|
485,444 |
- |
485,444 |
|
Derivative financial assets - unrealised gain on interest rate swap agreements |
|
37,872 |
- |
37,872 |
|
Derivative financial assets - unrealised gain on forward foreign exchange contracts |
|
31,427 |
- |
31,427 |
|
Other assets |
6 |
559,224 |
1,283,650 |
1,629,126 |
|
|
|
6,415,471 |
4,955,483 |
10,545,787 |
|
|
|
|
|
|
|
Total assets |
|
92,669,740 |
22,796,552 |
111,670,303 |
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Reserves |
|
43,974,682 |
22,238,152 |
62,509,828 |
|
|
|
43,974,682 |
22,238,152 |
62,509,828 |
|
Current liabilities |
|
|
|
|
|
Derivative financial liabilities - options held for trading |
|
820,269 |
- |
820,269 |
|
Derivative financial liabilities - unrealised loss on forward foreign exchange contracts |
|
295 |
- |
295 |
|
Derivative financial liabilities - unrealised loss on total return equity swaps |
|
39,632 |
- |
39,632 |
|
Other liabilities |
|
1,282,256 |
558,400 |
1,747,673 |
|
|
|
2,142,452 |
558,400 |
2,607,869 |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Preference Shares |
9 |
46,552,606 |
- |
46,552,606 |
|
|
|
|
|
|
|
Total liabilities |
|
48,695,058 |
558,400 |
49,160,475 |
|
|
|
|
|
|
|
Total equity and liabilities |
|
92,669,740 |
22,796,552 |
111,670,303 |
|
|
|
|
|
|
|
Shares outstanding |
|
39,966,985 |
39,966,985 |
|
|
Net asset value per share |
|
GBP 1.10 |
EUR 0.56 |
|
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements.
Unaudited Consolidated Statement of Changes in Equity
For the period from 1 April 2012 to 30 September 2012
|
|
|
RECI Core |
ERII Cell* |
Total |
|
|
Note |
GBP |
EUR |
GBP |
|
|
|
|
|
|
|
Balance at 31 March 2012 |
|
43,974,682 |
22,238,152 |
62,509,828 |
|
Net profit for the period |
|
9,415,774 |
1,672,955 |
10,754,626 |
|
Distribution to the Ordinary Shareholders of the Company |
7 |
(1,358,878) |
- |
(1,358,878) |
|
Foreign currency translation adjustment |
|
- |
- |
(824,182) |
|
|
|
|
|
|
|
Balance at 30 September 2012 |
52,031,578 |
23,911,107 |
71,081,394 |
|
|
|
|
|
|
|
|
|
|
RECI Core |
ERII Cell* |
Total |
|
|
|
GBP |
EUR |
GBP |
|
|
|
Represented |
|
Represented |
|
|
|
|
|
|
|
Balance at 31 March 2011 |
|
67,808,829 |
- |
67,808,829 |
|
Transfer of assets |
|
(18,690,263) |
21,246,432 |
- |
|
Net (loss)/profit for the period |
|
(2,080,814) |
498,758 |
(1,644,720) |
|
Distribution to the Ordinary Shareholders of the Company |
|
(979,135) |
- |
(979,135) |
|
Foreign currency translation adjustment on change of presentation currency from Euro to GBP |
|
(2,745,468) |
- |
(2,745,468) |
|
Foreign currency translation adjustment |
|
- |
- |
(397,828) |
|
|
|
|
|
|
|
Balance at 30 September 2011 |
43,313,149 |
21,745,190 |
62,041,678 |
|
* The Company converted to a protected Cell Company during the year. The ERII Cell financial statements refer to the period from 11 August 2011 (Date of Conversion) to 30 September 2011.
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements.
Unaudited Consolidated Statement of Cash Flows
For the period from 1 April 2012 to 30 September 2012
|
|
Note |
|
RECI Core |
ERII Cell |
Total |
|
|
|
|
30-Sept-2012 |
30-Sept-2012 |
30-Sept-2012 |
|
|
|
|
GBP |
EUR |
GBP |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
11 |
|
4,093,613 |
1,853,107 |
5,573,226 |
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Dividends paid to Ordinary Shareholders |
|
|
(1,358,878) |
- |
(1,358,878) |
|
Cash flows used in financing activities |
|
|
(1,358,878) |
- |
(1,358,878) |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
2,734,735 |
1,853,107 |
4,214,348 |
|
|
|
|
|
|
|
|
Reconciliation of net cash flow to movement in net cash |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
2,734,735 |
1,853,107 |
4,214,348 |
|
Cash and cash equivalents at start of period |
|
|
2,847,787 |
3,671,833 |
5,908,201 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
38,935 |
99,495 |
118,627 |
|
Foreign currency translation adjustment |
|
|
- |
- |
(138,770) |
|
Cash and cash equivalents at end of period |
|
|
5,621,457 |
5,624,435 |
10,102,406 |
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements.
Unaudited Consolidated Statement of Cash Flows
For the period from 1 April 2011 to 30 September 2011
|
|
Note |
|
RECI Core |
ERII Cell* |
Total |
|
|
|
|
30-Sept-2011 |
30-Sept-2011 |
30-Sept-2011 |
|
|
|
|
GBP |
EUR |
GBP |
|
|
|
|
Represented |
|
Represented |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
11 |
|
11,602,352 |
824,017 |
12,322,838 |
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Dividends paid to Ordinary Shareholders |
|
|
(1,063,345) |
- |
(1,063,345) |
|
Cash flows used in financing activities |
|
|
(1,063,345) |
- |
(1,063,345) |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
10,539,007 |
824,017 |
11,259,493 |
|
|
|
|
|
|
|
|
Reconciliation of net cash flow to movement in net cash |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
10,539,007 |
824,017 |
11,259,493 |
|
Cash and cash equivalents at start of period |
|
|
5,915,587 |
- |
5,915,587 |
|
Transfer of cash |
|
|
(1,304,730) |
1,500,000 |
- |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
611,667 |
13,325 |
623,317 |
|
Foreign currency translation adjustment |
|
|
|
- |
126,464 |
|
Cash and cash equivalents at end of period |
|
|
15,761,531 |
2,337,342 |
17,924,861 |
* The Company converted to a protected Cell Company during the year. The ERII Cell financial statements refer to the period from 11 August 2011 (Date of Conversion) to 30 September 2011.
The accompanying notes form an integral part of the condensed unaudited consolidated financial statements.
Notes to the Condensed Unaudited Consolidated Financial Statements
For the six months ended 30 September 2012
1. General information
Real Estate Credit Investments PCC Limited (the "Company") was registered on 6 September 2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands. The Company commenced its operations on 8 December 2005. The Company is an authorised closed-ended protected cell investment company with limited liability formed under The Companies (Guernsey) Law, 2008. In August 2011 the Company completed the separation of its Core and Legacy assets by converting to a Protected Cell Company ("PCC"), with RECI Core (the "Core" or "RECI") housing the real estate debt portfolio and new residential loan portfolio. The legacy residual income assets were transferred to the Cell, European Residual Income Investments (the "Cell" or "ERII Cell"). The Core and the Cell each has its own portfolio of assets, investment objective and sub-section of the Company's Investment Policy.
The Ordinary Shares of the Core have a premium listing on the London Stock Exchange and its Preference Shares have a standard listing. The shares of the Cell have a separate listing on the Specialist Fund Market of the London Stock Exchange. The registered office of the Company is First Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 6HJ, Channel Islands.
"Group" is defined as the Company and Trebuchet Finance Limited. The Company holds a participation note in Trebuchet Finance Limited, an Special Purpose Entity ("SPE") over which the Company is exposed to the majority of its benefits and business risks. Trebuchet Finance Limited is consolidated in the financial statements of the Group under Standing Interpretations Committee Interpretation 12 "Consolidation-Special Purpose Entities" ("SIC 12").
The investment policy of the Company is sub-divided into an investment policy for the Core and an investment policy for the Cell. This is to reflect the fact that the Investment Manager is responsible for managing two discrete pools of assets, one represented by the Core, into which Core Ordinary Shareholders are invested and one represented by the Cell into which Cell Ordinary Shareholders are invested.
The investment objective for the Core is to invest primarily in debt secured by commercial or residential properties in Western Europe and the United Kingdom ("Real Estate Debt Investments"). The Real Estate Debt Investments may take different forms but will be likely to be: (i) securitised tranches of secured real estate related debt securities, for example, RMBS and CMBS (together "MBS"); and (ii) secured real estate loans, debentures or any other form of debt instrument.
The investment objective of the Cell is to hold the Cell Assets comprising of Residual Income Positions, until maturity of the assets unless opportunities for the sale of the Cell Assets arise prior to maturity. The Directors may, at their discretion, return cash to the Cell Shareholders by dividends or other distribution subject to satisfying the Preference Share Cover Test detailed below. The Directors may also, at their discretion, effect a mandatory redemption of Cell Shares as a means of returning capital to the Cell Ordinary Shareholders.
Effective 1 October 2011, the trading denomination of the Company's Core Ordinary Shares of no par value was changed to British Pound ("GBP"). The Company reviewed its functional and presentation currency and the Company and the Core also changed its functional and presentation currency to GBP prospectively from that date. The Cell's functional and presentation currency remained Euro (see Note 2 for further information).
The liabilities in relation to the Core Preference Shares, being both quarterly Preference Dividends and the repayment of the final capital entitlement of the Preference Shares (the "Final Capital Entitlement"), are borne by the Company. The Company has protected the ability of the Company to meet the Final Capital Entitlement through the introduction of a cover test (the "Preference Share Cover Test"). The Preference Share Cover Test is intended to prevent the erosion of the Company's asset base through the payment of dividends or other distributions from the Cell. Prior to the payment of dividends or other distributions from the Cell, the Preference Share Cover Test will need to be satisfied.
Notes to the Condensed Unaudited Consolidated Financial Statements (continued)
For the six months ended 30 September 2012 (unaudited)
1. General information (continued)
The Preference Share Cover Ratio is the ratio that the Company, in consultation with the Investment Manager, has determined is sufficient to meet the Final Capital Entitlement. The Preference Share Cover Ratio is calculated based on the ratio of total Company assets (i.e. Total Core Assets plus Cell Assets) to the Final Capital Entitlement. The Preference Share Cover Test has been set at 2.39.
Notwithstanding the Company's ability to satisfy the Preference Share Cover Test, the Company will continue to fulfil its obligations towards the Preference Shareholders with respect to the distribution of Preference Dividends. Such obligations are met using the income available in the Core and, if necessary, the Core Assets themselves. Should the Core Assets be insufficient to meet the Company's liabilities in respect of Preference Dividends and/or the Final Capital Entitlement when they fall due, it is intended that the Directors will call upon the income and, where such income is insufficient to satisfy such liabilities, the assets of the Cell to satisfy the liabilities (the "Inter-Cellular Arrangement").
The Group's investment management activities are managed by the Investment Manager. The Group has entered into an Investment Management Agreement (the "Investment Management Agreement") under which the Investment Manager manages its day-to-day investment operations, subject to the supervision of the Company's Board of Directors. The Group has no direct employees. For its services, the Investment Manager receives a monthly management fee (which includes a reimbursement of expenses) and if applicable a quarterly performance-related fee on the Core. The Company and the Investment Manger have agreed that an Incentive Fee will no longer be charged on the Cell Assets. The Group has no ownership interest in the Investment Manager. State Street (Guernsey) Limited is the Administrator and provides all administration and secretarial services to the Group in this capacity.
2. Significant accounting policies
Statements of compliance
The condensed unaudited consolidated financial statements for the period ended 30 September 2012 have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board. The same accounting policies, presentation and methods of computation have been followed in these financial statements as were applied in the preparation of the Group's audited consolidated financial statements for the year ended 31 March 2012 with the exception of the change in the estimation methodology for amortised interest income as detailed further below in this note (see "Change in accounting estimate"). The condensed unaudited consolidated financial statements do not contain all of the information and disclosures required in a full set of annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Group for the year ended 31 March 2012, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The comparative information for the year ended 31 March 2012 does not constitute Statutory Accounts as defined by Guernsey Law. A copy of the Statutory Accounts for that year has been delivered to the Shareholders. The Auditors Report on these Financial Statements was not qualified but did include a reference to an emphasis of matter in relation to the fair value of investments held in the ERII Cell and did not contain a statement under section 263(2) and (3) of The Companies (Guernsey) Law, 2008.
Change in accounting estimate
During the period, the Company changed its estimation methodology from using the contractual maturity of its investments to using the expected realisation date of such investments when calculating the effective interest income recorded in the consolidated statement of comprehensive income. This change in estimation resulted in a GBP 2.5m increase in interest income during the period, with an equal and opposite effect on the net gains on financial assets and liabilities at fair value through profit or loss in the consolidated statement of comprehensive income. There was no overall effect on net profit or net asset value as a result of this change.
2. Significant accounting policies (continued)
Basis of preparation
The condensed unaudited consolidated financial statements of the Group are prepared on the historical cost basis as modified by the following assets and liabilities which are stated at their fair value: financial instruments held for trading and financial instruments classified or designated as at fair value through profit or loss.
The functional and presentation currency of the Company and Core is GBP. The functional and presentation currency of the Cell is Euro. These functional currencies of the Core and Cell best represent the economic environment in which the Core and Cell operate. The presentation currency of the combined consolidated financial statements is GBP.
During the year ended 31 March 2012, effective 1 October 2011, the trading denomination of the Core's Ordinary Shares of no par value was changed to British Pound ("GBP"). As a result of this, the Core changed its functional and presentation currency to GBP prospectively from that date. The presentation currency of the combined consolidated financial statements also changed to GBP from Euro in the audited consolidated financial statements of the Group for the year ended 31 March 2012.
The financial statements for the period ended 30 September 2011 were prepared in Euro. Any Euro references of this prior period, shown as a comparative, have been restated as GBP in the condensed unaudited consolidated financial statements. The Cell's functional and presentation currency remained as Euro.
Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed unaudited consolidated financial statements for the period ended 30 September 2012.
Valuation of investments
The market for Residual Income Positions is illiquid and regular traded prices are generally not available for such investments. There is no active secondary market in Residual Income Positions and, further, there is no industry standard agreed methodology to value Residual Income Positions.
As quoted bid prices are unavailable, the fair value of the Residual Income Positions is estimated by reference to market information, which includes but is not limited to broker marks, prices of comparable assets, estimated fair value from the previous period updated for current period cash flows and a pricing model, that incorporates discounted cash flow techniques as required by IAS 39. The Group may use all or a combination of the prices from these sources in estimating the fair value of the investments. Due to the current market conditions, the Group has relied on pricing models to fair value its investments in Residual Income Positions as broker marks have become less reliable or are not available.
The assumptions upon which the pricing models are based are described in Note 2 (Fair Value) of the Group's audited financial statements for the year ended 31 March 2012. Any changes to assumptions surrounding the pricing models may result in changes to the fair values of the investments. Such changes in the fair value are reported in the Consolidated Statement of Comprehensive Income following the reassessment of the cash flows discounted at the current discount rate for the investment.
3. Net gains and losses on financial assets and liabilities at fair value through profit or loss
The following tables detail the gains and losses, excluding interest income and finance costs, earned by the Group from financial assets and liabilities during the period ended 30 September 2012 and 30 September 2011.
3. Net gains and losses on financial assets and liabilities at fair value through profit or loss (continued)
|
6 month period ended 30 September 2012: |
|
RECI Core |
ERII Cell |
Total |
|
|
|
|
|
30-Sept-12 |
30-Sept-12 |
30-Sept-12 |
|
|
|
|
|
GBP |
EUR |
GBP |
|
|
|
Net realised gains/(losses) |
|
|
|
|
|
|
|
Net realised gains on investments at fair value through profit or loss |
|
1,962,621 |
- |
1,962,621 |
|
|
|
Net realised losses on joint venture |
|
(54,671) |
- |
(54,671) |
|
|
|
Net realised gains on credit default swaps |
|
960,096 |
- |
960,096 |
|
|
|
Net realised gains on options |
|
1,475,344 |
- |
1,475,344 |
|
|
|
Net realised gains/(losses) on foreign exchange instruments |
|
132,355 |
(6,359) |
127,262 |
|
|
|
Net realised gains/(losses) |
|
4,475,745 |
(6,359) |
4,470,652 |
|
|
|
|
|
|
|
|
|
|
|
Net movement in unrealised gains / (losses) |
|
|
|
|
|
|
|
Net movement in unrealised gains on investments at fair value through profit or loss |
|
2,048,491 |
262,369 |
2,257,519 |
|
|
|
Net movement in unrealised gains on joint venture |
|
54,670 |
- |
54,670 |
|
|
|
Net movement in unrealised gains on total return equity swaps |
|
10,400 |
- |
10,400 |
|
|
|
Net movement in unrealised losses on credit default swaps |
|
(3,881) |
- |
(3,881) |
|
|
|
Net movement in unrealised losses on interest rate swap agreements |
|
(16,370) |
- |
(16,370) |
|
|
|
Net movement in unrealised losses on options |
|
(637,358) |
- |
(637,358) |
|
|
|
Net movement in unrealised gains on foreign exchange bank balances |
38,935 |
99,495 |
118,627 |
|||
|
Net movement in unrealised losses on foreign exchange instruments |
|
(57,106) |
- |
(57,106) |
|
|
|
Net movement in unrealised gains |
|
1,437,781 |
361,864 |
1,726,501 |
|
|
|
|
|
|
|
|
|
|
|
Net realised and movement in unrealised gains |
|
5,913,526 |
355,505 |
6,197,153 |
|
|
|
6 month period ended 30 September 2011: |
|
RECI Core |
ERII Cell* |
Total |
|
|
|
30-Sept-11 |
30-Sept-11 |
30-Sept-11 |
|
|
|
GBP |
EUR |
GBP |
|
|
|
Represented |
|
Represented |
|
Net realised (losses)/gains |
|
|
|
|
|
Net realised losses on investments at fair value through profit or loss |
|
(3,095,627) |
- |
(3,095,627) |
|
Net realised losses on options |
|
(519,231) |
- |
(519,231) |
|
Net realised gains on foreign exchange instruments |
|
49,876 |
203 |
50,052 |
|
Net realised (losses)/gains |
|
(3,564,982) |
203 |
(3,564,806) |
|
|
|
|
|
|
|
Net movement in unrealised gains /(losses) |
|
|
|
|
|
Net movement in unrealised losses on investments at fair value through profit or loss |
|
(1,800,720) |
(604,901) |
(2,329,618) |
|
Net movement in unrealised losses on interest rate swap agreements |
|
(79,413) |
- |
(79,413) |
|
Net movement in unrealised gains on options |
|
835,972 |
- |
835,972 |
|
Net movement in unrealised gains on foreign exchange bank balances |
96,579 |
13,325 |
108,231 |
|
|
Net movement in unrealised gains on foreign exchange instruments |
|
108,342 |
- |
108,342 |
|
Net movement in unrealised losses |
|
(839,240) |
(591,576) |
(1,356,486) |
|
|
|
|
|
|
|
Net realised and movement in unrealised losses |
|
(4,404,222) |
(591,373) |
(4,921,292) |
* The ERII Cell amounts, shown above as a comparative, refer to the period from 11 August 2011 (date the Cell was established) to 30 September 2011.
4. Operating expenses
The following tables detail the operating expenses of the Group during the period ended 30 September 2012 and 30 September 2011.
|
6 month period ended 30 September 2012: |
Note |
|
RECI Core |
ERII Cell |
Total |
|
|
|
|
30-Sept-12 |
30-Sept-12 |
30-Sept-12 |
|
|
|
|
GBP |
EUR |
GBP |
|
Investment management, custodian and administration fees |
|
|
|
|
|
|
Investment management fee |
14 |
|
826,545 |
210,895 |
995,463 |
|
Administration fee |
|
|
36,099 |
30,207 |
60,294 |
|
Custodian fee |
|
|
8,122 |
6,797 |
13,566 |
|
|
|
|
870,766 |
247,899 |
1,069,323 |
|
Other operating expenses |
|
|
|
|
|
|
Audit fees |
|
|
67,650 |
51,815 |
109,152 |
|
Directors' fees payable to Directors of Real Estate Credit Investments PCC Limited |
|
|
67,685 |
56,638 |
113,050 |
|
Directors' fees payable to Directors of Trebuchet Finance Limited |
|
|
- |
6,267 |
5,020 |
|
Legal fees |
|
|
99,870 |
344,981 |
376,185 |
|
Pricing expenses |
|
|
16,485 |
- |
16,485 |
|
Other expenses |
|
|
(106,048) |
163,838 |
25,180 |
|
|
|
|
145,642 |
623,539 |
645,072 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,016,408 |
871,438 |
1,714,395 |
|
6 month period ended 30 September 2011: |
Note |
|
RECI Core |
ERII Cell* |
Total |
|
|
|
|
30-Sept-11 |
30-Sept-11 |
30-Sept-11 |
|
|
|
|
GBP |
EUR |
GBP |
|
|
|
|
Represented |
|
Represented |
|
Investment management, custodian and administration fees |
|
|
|
|
|
|
Investment management fee |
14 |
|
991,001 |
63,348 |
1,046,390 |
|
Administration fee |
|
|
106,204 |
- |
106,204 |
|
Custodian fee |
|
|
16,120 |
- |
16,120 |
|
|
|
|
1,113,325 |
63,348 |
1,168,714 |
|
Other operating expenses |
|
|
|
|
|
|
Audit fees |
|
|
74,996 |
- |
74,996 |
|
Directors' fees payable to Directors of Real Estate Credit Investments PCC Limited |
|
|
112,739 |
3,784 |
116,048 |
|
Directors' fees payable to Directors of Trebuchet Finance Limited |
|
|
11,744 |
394 |
12,088 |
|
Legal fees |
|
|
209,174 |
- |
209,174 |
|
Pricing expenses |
|
|
79,852 |
- |
79,852 |
|
Other expenses |
|
|
67,127 |
19,641 |
84,299 |
|
|
|
|
555,632 |
23,819 |
576,457 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,668,957 |
87,167 |
1,745,171 |
* The ERII Cell amounts, shown as a comparative above, refer to the period from 11 August 2011 (date the Cell was established) to 30 September 2011.
5. Finance costs
The following tables detail the finance costs of the Group during the period ended 30 September 2012 and 30 September 2011.
|
6 month period ended 30 September 2012: |
|
RECI Core |
ERII Cell |
Total |
|
|
|
30-Sept-12 |
30-Sept-12 |
30-Sept-12 |
|
|
|
GBP |
EUR |
GBP |
|
Finance costs: |
|
|
|
|
|
Preference Shares issuance expense amortised |
|
53,849 |
- |
53,849 |
|
Dividend paid to Preference Shareholders (Note 6) |
|
1,885,513 |
- |
1,885,513 |
|
Total finance costs |
|
1,939,362 |
- |
1,939,362 |
|
6 month period ended 30 September 2011: |
|
RECI Core |
ERII Cell* |
Total |
|
|
|
30-Sept-11 |
30-Sept-11 |
30-Sept-11 |
|
|
|
GBP |
EUR |
GBP |
|
|
|
Represented |
|
Represented |
|
Finance costs: |
|
|
|
|
|
Preference Shares issuance expense amortised |
|
62,447 |
- |
62,447 |
|
Dividend paid to Preference Shareholders (Note 6) |
|
1,994,322 |
- |
1,994,322 |
|
Total finance costs |
|
2,056,769 |
- |
2,056,769 |
* The ERII Cell amounts, shown above as a comparative, refer to the period from 11 August 2011 (date the Cell was established) to 30 September 2011.
6. Other assets
|
|
|
RECI Core |
ERII Cell |
Total |
|
|
|
30-Sept-12 |
30-Sept-12 |
30-Sept-12 |
|
|
|
GBP |
EUR |
GBP |
|
Interest receivable |
|
414,968 |
1,443,555 |
1,565,038 |
|
Dividend income receivable |
|
50,387 |
- |
50,387 |
|
Receivable for investments sold |
|
3,415,218 |
- |
3,415,218 |
|
|
|
3,880,573 |
1,443,555 |
5,030,643 |
|
|
|
RECI Core |
ERII Cell |
Total |
|
|
|
31-Mar-12 |
31-Mar-12 |
31-Mar-12 |
|
|
|
GBP |
EUR |
GBP |
|
Interest receivable |
|
559,224 |
951,263 |
1,352,087 |
|
Receivable for investments sold |
|
- |
332,387 |
277,039 |
|
|
|
559,224 |
1,283,650 |
1,629,126 |
7. Dividends
Ordinary Share Dividends
A final dividend in relation to the Core's Ordinary Shares for the year ended 31 March 2012 of GBP 0.17 per share was declared on 6 June 2012 and an amount of GBP 679,439 was paid on 27 July 2012.
A first interim dividend for the current period of GBP 0.17 per Core Ordinary Share was declared on 29 August 2012 and an amount of GBP 679,439 was paid on 21 September 2012.
Under Guernsey Law, companies can pay dividends provided they satisfy the solvency test prescribed under The Companies (Guernsey) Law, 2008. The solvency test considers whether a company is able to pay its debts when they become due and whether the value of a company's assets are greater than its liabilities. The Company passed the solvency test for each dividend payment for the period ended 30 September 2012 (also for the year ended 31 March 2012 and period ended 30 September 2011).
The Preference Share Cover Test is intended to prevent the erosion of the Company's asset base through the payment of dividends or other distributions out of the Cell. Prior to the Company declaring a dividend or making a distribution (including for these purposes a redemption) to holders of Cell Shares, the Preference Share Cover Test will also need to be satisfied.
Preference Share Dividends
The Preference Shareholders are entitled to a Preference Dividend equal to 8% per annum of the Preference Share Notional Value. The Preference Dividend will be accrued at each valuation point and paid quarterly. Dividends owing to Preference Shareholders are shown as a Finance Cost in the Unaudited Consolidated Statement of Comprehensive Income on an effective yield basis.
8. Profit per Ordinary Share
The calculation of the basic and diluted earnings per share is based on the following data.
|
6 month period ended 30 September 2012: |
|
RECI Core |
ERII Cell |
|
Total |
|
|
|
GBP |
EUR |
|
GBP |
|
Profit for the purposes of basic earnings per share being net profit attributable to equity holders |
|
9,415,774 |
1,672,955 |
|
10,754,626 |
|
|
|
|
|
|
|
|
Weighted average number of Ordinary Shares for the purposes of basic earnings per share |
|
39,966,985 |
39,966,985 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive potential Ordinary Shares: |
|
|
|
|
|
|
Share options |
|
- |
- |
|
|
|
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share |
|
39,966,985 |
39,966,985 |
|
|
8. Profit per Ordinary Share (continued)
|
6 month period ended 30 September 2011: |
|
RECI Core |
ERII Cell* |
|
Total |
|
|
|
GBP |
EUR |
|
GBP |
|
|
|
Represented |
|
|
Represented |
|
(Loss)/profit for the purposes of basic earnings per share being net (loss)/profit attributable to equity holders |
|
(2,080,814) |
498,758 |
|
(1,644,720) |
|
|
|
|
|
|
|
|
Weighted average number of Ordinary Shares for the purposes of basic earnings per share |
|
39,966,985 |
39,966,985 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive potential Ordinary Shares: |
|
|
|
|
|
|
Share options |
|
- |
- |
|
|
|
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share |
|
39,966,985 |
39,966,985 |
|
|
* The ERII Cell amounts, shown above as a comparative, refer to the period from 11 August2011 (date the Cell was established) to 30 September 2011.
There was no dilution as at 30 September 2012 or 30 September2011 as the share price was below the option price (see Note 14) on that date.
9. Share capital
The capital structure of the Company consists of Preference Shares and equity attributable to equity holders of Core and Cell Ordinary Shares, comprising issued share capital and reserves, as disclosed in the Unaudited Consolidated Statement of Financial Position. The issued share capital of the Company consists of Core Ordinary Shares, Core Preference Shares and Cell Ordinary Shares. The Company's capital managed as at the period end is represented by the value of the shares issued to date. The Company does not have any externally imposed capital requirements. At 30 September 2012 the Company had capital of GBP 71,081,394 (31 March 2012: GBP 62,509,828).
Authorised Share Capital
|
|
30 September 2012 |
31 March 2012 |
|
|
Number of Shares |
Number of Shares |
|
Core Ordinary Shares of no par value each |
Unlimited |
Unlimited |
|
Core Preference Share at par |
49,958,731 |
49,958,731 |
|
Cell Ordinary Shares of no par value each |
Unlimited |
Unlimited |
Core Ordinary Shares Issued and fully paid
|
|
30 September 2012 |
31 March 2012 |
|
Balance at start of the period/year |
39,966,985 |
39,966,985 |
|
Ordinary Shares issued during the period/year |
- |
- |
|
Balance at end of the period/year |
39,966,985 |
39,966,985 |
No Ordinary Shares were bought back or cancelled during the period ended 30 September 2012 or during the year ended 31 March 2012.
9. Share capital (continued)
Cell Ordinary Shares Issued and fully paid
|
|
30 September 2012 |
31 March 2012 |
|
Balance at start of the period/year |
39,966,985 |
- |
|
Cell issued during the period/year |
- |
39,966,985 |
|
Balance at end of the period/year |
39,966,985 |
39,966,985 |
Ordinary Shareholders of the Company were given shares in the Cell on a pro-rata one for one basis as part of the conversion of the Company to a protected cell company and the establishment of the Cell on 11 August 2011.
Core Preference Shares Issued and fully paid
|
|
30-Sept-2012 |
30-Sept-2012 |
|
31-Mar-2012 |
31-Mar-2012 |
|
|
Number of Preference Shares |
GBP |
|
Number of Preference Shares |
GBP |
|
Preference Shares at start of the period/year |
47,137,804 |
46,552,606 |
|
49,958,704 |
48,837,567 |
|
Preference Shares repurchased during the period/year at par net of issue costs |
- |
- |
|
(2,820,900) |
(2,820,900) |
|
Amortised issue costs allocated to Preference Shares |
- |
53,849 |
|
- |
130,035 |
|
Write down of unamortised issue costs* |
- |
- |
|
- |
405,904 |
|
Balance at end of period/year |
47,137,804 |
46,606,455 |
|
47,137,804 |
46,552,606 |
* The actual issuance costs with respect to the Core Preference Shares were lower than originally anticipated and this gave rise to the reversal of GBP 405,904 of the original accrual during the year ended 31 March 2012.
The value of the Core Preference Shares represent an obligation on the Company to pay the par value on winding up of the Company or on redemption of the Core Preference Shares in accordance with their terms. The liabilities in relation to the Core Preference Shares, being both quarterly Preference Dividends and the repayment of the final capital entitlement of the Core Preference Shares, are protected through the Preference Share Cover Test as disclosed in Note 1. The Core Preference Shares carry a maturity date of September 2017.
At 30 September 2012, 47,137,804 Preference Shares were in issue with a par value of GBP 1 per share (31 March 2012: 47,137,804 Preference Shares). All issued shares are fully paid. During the year ended 31 March 2012 the Core repurchased 2,820,900 Preference Shares and holds them in Treasury.
10. Segmental reporting
The Group has adopted IFRS 8 'Operating Segments'. The standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes.
The Board of Directors are charged with setting the Group's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to the Investment Manager. The investment decisions of the Investment Manager are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board.
The Investment Manager has been given full authority to act on behalf of the Group, including the authority to purchase and sell securities and other investments on behalf of the Group in line with the investment strategy and to carry out other actions as appropriate to give effect thereto.
10. Segmental reporting (continued)
Whilst the Investment Manager may make the investment decisions on a day to day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Manager. The Board retains full responsibility as to the major allocation decisions made on an ongoing basis and are therefore considered the "Chief Operating Decision Maker" under the standard.
The Group has two reportable segments, being the Core and the Cell.
The Core invests in Real Estate Debt Investments. The real estate debt strategy focuses on secured residential and commercial debt in the UK and Western Europe, seeking to exploit opportunities in publicly traded securities and real estate loans.
The Cell holds Residual Income Positions. The Company intends to hold the Residual Income Positions until maturity unless opportunities for the sale of these assets arise prior to maturity. It is not intended that the Company will make any further investments of this type.
For each of the segments, the Board of Directors reviews internal management reports prepared by the Investment Manager on a quarterly basis. The Investment Manager has managed each of the Real Estate Debt Investments and Residual Income Positions as part of either the Core or Cell investment policy respectively, with the view of monitoring performance of the Core and Cell separately.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit/loss, as included in the internal management reports that are reviewed by the Board of Directors. Segment profit/loss is used to measure performance as management believes that such information is the most relevant in evaluating the results. Segment information is measured on the same basis as that used in the preparation of the Group's condensed unaudited consolidated financial statements.
|
6 month period ended 30 September 2012: |
Core |
Cell |
Total |
|
|
GBP |
EUR |
GBP |
|
Reportable segment profit |
9,415,774 |
1,672,955 |
10,754,626 |
|
6 month period ended 30 September 2011: |
Core |
Cell* |
Total |
|
|
GBP |
EUR |
GBP |
|
|
Represented |
|
Represented |
|
Reportable segment (loss)/profit |
(2,080,814) |
498,758 |
(1,644,720) |
* The ERII Cell amounts, shown as a comparative above, refer to the period from 11 August 2011 (date the Cell was established) to 30 September 2011.
|
As at 30 September 2012 |
Core |
Cell |
Total |
|
|
GBP |
EUR |
GBP |
|
Reportable segment assets |
100,227,394 |
24,081,563 |
119,413,011 |
|
As at 31 March 2012 |
Core |
Cell |
Total |
|
|
GBP |
EUR |
GBP |
|
Reportable segment assets |
92,669,740 |
22,796,552 |
111,670,303 |
All segment revenues are from external sources. There are no inter-segment transactions between the reportable segments during the period. The reportable segment profit/loss of both the Core and the Cell is equal to the loss of the Group and the reportable segment assets of both the Core and the Cell are equal to the total assets of the Group.
10. Segmental reporting (continued)
The following is a summary of the movements in the Group's investments analysed by the Core and Cell as at 30 September 2012:
|
6 month period ended 30 September 2012: |
Core |
Cell |
Total |
|
|
GBP |
EUR |
GBP |
|
Investments at fair value through profit or loss: |
|
|
|
|
Opening fair value at 31 March 2012 |
86,254,269 |
17,841,069 |
101,124,516 |
|
Foreign currency adjustment in relation to opening fair values |
- |
- |
(656,389) |
|
Purchases |
37,016,026 |
- |
37,016,026 |
|
Sales proceeds |
(38,004,842) |
- |
(38,004,842) |
|
Realised gain on sales |
1,962,621 |
- |
1,962,621 |
|
Net movement in unrealised gains/(losses) on investments at fair value through the profit or loss |
2,048,491 |
262,369 |
2,257,519 |
|
Principal paydowns |
(2,143,940) |
(1,089,865) |
(3,012,228) |
|
Closing fair value |
87,132,625 |
17,013,573 |
100,687,223 |
The following is a summary of the movements in the Group's investments analysed by the Core and Cell as at 31 March 2012:
|
Year ended 31 March 2012: |
Core |
Cell |
Total |
|
|
GBP |
EUR |
GBP |
|
Investments at fair value through profit or loss: |
|
|
|
|
Opening fair value |
109,914,383 |
- |
109,914,383 |
|
Purchases |
73,104,585 |
- |
73,104,585 |
|
Sales proceeds |
(69,733,822) |
- |
(69,733,822) |
|
Transfer of assets at fair value on establishment of the Cell |
(17,221,557) |
19,572,010 |
- |
|
Realised loss on sales |
(6,378,673) |
(193,009) |
(6,543,140) |
|
Net movement in unrealised gains/(losses) on investments at fair value through the profit or loss |
192,637 |
(349,632) |
(105,292) |
|
Principal paydowns |
(1,275,929) |
(1,188,300) |
(2,288,505) |
|
Foreign currency translation adjustment |
(2,347,355) |
- |
(3,223,693) |
|
Closing fair value |
86,254,269 |
17,841,069 |
101,124,516 |
Information regarding the basis of geographical segments is presented in the Investment Manager's Reports and are based on the countries of the underlying collateral.
The principal risks and uncertainties facing the Company, as set out in the 2012 Annual Report, include country and currency risk. The policies and procedures for minimising these risks are detailed in the Annual Report. These policies and procedures remain unchanged since the publication of the Annual Report.
Country risk in particular is a cause of concern to investment companies in recent years. In 2011, the economic crisis entered a new phase within increasing uncertainty surrounding the creditworthiness of some sovereign states and those financial institutions/entities with exposure to sovereign debt of those states. The Company is indirectly exposed to the sovereign debt crisis as any escalation in the crisis could in turn affect the Company's investments.
The Directors and the Investment Manager actively manage the Company's portfolio of investments and exposures, monitoring performance and market data and reposition investments to remain in line with the investment policy and risk appetite of the Company.
10. Segmental reporting (continued)
In order to provide stakeholders with a better overall understanding of the Company's position and prospects in the context of country risk, the Investment Manager's Report includes a geographical breakdown of both the Core and Cell investment portfolios. The Directors believe that the Investment Manager Report provides sufficient detail of the country risk exposure faced by the Company.
Given the significant events in the Eurozone at the present time, there is a possibility of significant bad debts in respect of Eurozone sovereign debt investments, and potentially to the collapse of the Euro itself. The Company hedges its non GBP currency exposures.
Fears of a breakdown in Eurozone sovereign restructuring have eased, following substantial intervention from the US Federal Reserve and the European Central Bank. As such, the Directors have not factored the possible consequences of the collapse of the Euro in the valuation of the Company's investments.
11. Notes to the Unaudited Consolidated Statement of Cash Flows
|
|
|
Period ended 30-Sept-12 |
|
Period ended 30-Sept-12 |
|
Period ended 30-Sept-12 |
|
|
|
|
Core |
|
Cell |
|
Total |
|
|
|
|
GBP |
|
EUR |
|
GBP |
|
|
Net (loss)/profit |
|
9,415,774 |
|
1,672,955 |
|
10,754,626 |
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
Amortised share issue expenses |
|
53,849 |
|
- |
|
53,849 |
|
|
Net realised gains on sale of investments |
|
(1,962,621) |
|
- |
|
(1,962,621) |
|
|
Net realised losses on sale on joint venture |
|
54,671 |
|
- |
|
54,671 |
|
|
Net realised gains on credit default swaps |
|
(960,096) |
|
- |
|
(960,096) |
|
|
Realised gains on options |
|
(1,475,344) |
|
- |
|
(1,475,344) |
|
|
Unrealised gains on investments at fair value through profit or loss |
|
(2,048,491) |
|
(262,369) |
|
(2,257,519) |
|
|
Unrealised gain on joint venture |
|
(54,670) |
|
- |
|
(54,670) |
|
|
Unrealised gains on total return equity swap |
|
(10,400) |
|
- |
|
(10,400) |
|
|
Unrealised (gains)/losses on options |
|
637,358 |
|
- |
|
637,358 |
|
|
Unrealised losses on credit default swaps |
|
3,881 |
|
- |
|
3,881 |
|
|
Unrealised losses on interest rate swap agreements |
|
16,370 |
|
- |
|
16,370 |
|
|
Unrealised gains on foreign exchange bank balances |
|
(38,935) |
|
(99,495) |
|
(118,627) |
|
|
Unrealised losses on foreign exchange instruments |
|
57,106 |
|
- |
|
57,106 |
|
|
|
|
3,688,452 |
|
1,311,091 |
|
4,738,584 |
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
(37,016,026) |
|
- |
|
(37,016,026) |
|
|
Sales proceeds from investments |
|
34,589,624 |
|
- |
|
34,589,624 |
|
|
Purchases of options |
|
(4,086,756) |
|
- |
|
(4,086,756) |
|
|
Options written |
|
4,063,346 |
|
- |
|
4,063,346 |
|
|
Purchases of credit default swaps |
|
(2,313,575) |
|
- |
|
(2,313,575) |
|
|
Sales of credit default swaps |
|
2,958,175 |
|
- |
|
2,958,175 |
|
|
Principal paydowns |
|
2,143,940 |
|
1,089,865 |
|
3,012,224 |
|
|
|
|
338,728 |
|
1,089,865 |
|
1,207,012 |
|
|
|
|
|
|
|
|
|
|
|
Decrease/(increase) in receivables |
|
|
92,202 |
|
(159,905) |
|
(35,875) |
|
Increase in payables |
|
|
(25,769) |
|
(387,942) |
|
(336,495) |
|
|
|
|
66,433 |
|
(547,847) |
|
(372,370) |
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities |
|
|
4,093,613 |
|
1,853,107 |
|
5,573,226 |
11. Notes to the Unaudited Consolidated Statement of Cash Flows (continued)
|
|
|
|
Period ended 30-Sept-11 |
|
Period ended 30-Sept-11 |
|
Period ended 30-Sept-11 |
|
|
|
|
Core |
|
Cell* |
|
Total |
|
|
|
|
GBP |
|
EUR |
|
GBP |
|
|
|
|
Represented |
|
|
|
Represented |
|
Net (loss)/profit |
|
|
(2,080,814) |
|
498,758 |
|
(1,644,720) |
|
Adjustments for: |
|
|
|
|
|
|
|
|
Amortised share issue expenses |
|
|
62,447 |
|
- |
|
62,447 |
|
Net realised losses on sale of investments |
|
|
3,095,627 |
|
- |
|
3,095,627 |
|
Realised losses on options |
|
|
519,231 |
|
- |
|
519,231 |
|
Unrealised losses on investments at fair value through profit or loss |
|
|
1,800,720 |
|
604,901 |
|
2,329,618 |
|
Unrealised gains on options |
|
|
(835,972) |
|
- |
|
(835,972) |
|
Unrealised losses on interest rate swap agreements |
|
|
79,413 |
|
- |
|
79,413 |
|
Unrealised gains on foreign exchange bank balances |
|
|
(96,579) |
|
(13,325) |
|
(108,231) |
|
Unrealised gains on foreign exchange instruments |
|
|
(108,342) |
|
- |
|
(108,342) |
|
|
|
|
2,435,731 |
|
1,090,334 |
|
3,389,072 |
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
(44,143,225) |
|
- |
|
(44,143,225) |
|
Sales proceeds from investments |
|
|
55,303,612 |
|
- |
|
55,303,612 |
|
Purchases of options |
|
|
(2,177,379) |
|
- |
|
(2,177,379) |
|
Options written |
|
|
2,065,297 |
|
- |
|
2,065,297 |
|
Principal paydowns |
|
|
(1,765,364) |
|
(30,453) |
|
(1,791,991) |
|
|
|
|
9,282,941 |
|
(30,453) |
|
9,256,314 |
|
|
|
|
|
|
|
|
|
|
Decrease/(increase) in receivables |
|
|
934,508 |
|
(844,262) |
|
196,322 |
|
Increase in payables |
|
|
(1,050,828) |
|
608,398 |
|
(518,870) |
|
|
|
|
(116,320) |
|
(235,864) |
|
(322,548) |
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities |
|
|
11,602,352 |
|
824,017 |
|
12,322,838 |
* The ERII Cell amounts, shown as a comparative above, refer to the period from 11 August 2011 (date the Cell was established) to 30 September 2011.
12. Collateral
At 30 September 2012, cash collateral of GBP 18,063 (31 March 2012: GBP 286,335) was held by Goldman Sachs on behalf of the Core in relation to financial derivative instruments transactions contracts entered into between the Company and Goldman Sachs. Cash collateral is included in the cash and cash equivalents figure shown in the Unaudited Consolidated Statement of Financial Position of the Core. This cash collateral is restricted and is reported separately by means of this note only.
13. Contingent liability
The Cell's income and assets may be called upon under the Inter-Cellular Agreement to satisfy the liabilities relating to the distribution of Preference Dividends and/or the Final Capital Entitlement where the Core Assets are insufficient to meet these liabilities. Further details in relation to this are disclosed in Note 1. As at 30 September 2012 and 31 March 2012, the Directors considered that the Core's income and assets are sufficient to satisfy the Preference Dividends and/or Final Capital Entitlement and it is not probable that the Cell's income and assets will be called upon and accordingly no provision has been made in the Cell's financial statements.
14. Material agreements and related party transactions
Joint venture with Omni
The Company holds an investment in Omni Capital Loans (Guernsey) Limited, a Guernsey domiciled joint venture with Cheyne Real Estate Credit Holdings LP and CPC Omni Holdings (Guernsey) Limited. The Company made this investment during the year ended 31 March 2012 as part of its investment strategy in order to help it achieve its investment objectives. The market value of the Company's investment in this joint venture was GBP 4,690,648 at 30 September 2012 (31 March 2012: GBP 4,006,266). The Company held 21.87% of the ordinary share capital in the joint venture at 30 September 2012 (31 March 2012: 21.87%). There were no outstanding balances between the Company and the joint venture at the period end date (31 March 2012: GBP Nil). Mr Graham Harrison, a Director of the Company, is also a director of Omni Capital Loans (Guernsey) Limited. These positions were sold subsequent to the period end, see Note 16 for further details.
Subsequent event loan investment
On 21 November 2012, the Company provided a GBP 10 million mezzanine loan to finance the purchase of an office property in London. Another Cheyne managed fund, Cheyne Real Estate Credit Holdings LP, has also invested in the deal via a subordinated loan and equity both of which are subordinated to RECI's investment.
Investment Manager
The Company and Trebuchet Finance Limited are parties to an Investment Management Agreement with the Cheyne Capital Management (UK) LLP (the "Investment Manager"), dated 8 December 2005, pursuant to which both the Company and Trebuchet Finance Limited have appointed the Investment Manager to manage their respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of their respective Boards of Directors.
The Group pays the Investment Manager a Management Fee and Incentive Fee. During the period ended 30 September 2012, the Management Fee totalled GBP 995,463 (period ended 30 September 2011: GBP 1,044,981), of which GBP 344,255 (31 March 2012: GBP 130,748) (30 September 2011: GBP 134,351) was outstanding at the period end. There was no incentive fee charged during the period ended 30 September 2012 or 30 September 2011.
Management Fee
Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Group an annual Management Fee of 1.75 per cent of the net asset value of the Group other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager. The Management Fee is calculated and payable monthly in arrears.
Incentive Fee
Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive an incentive compensation fee in respect of each incentive period that is paid quarterly in arrears. An incentive period will comprise each successive quarter. The Incentive Fee for each incentive period is an amount equivalent to 25 per cent of the amount by which A exceeds (B ´ C) where:
|
A = |
The Group's consolidated net income taking into account any realised or unrealised losses (but only to the extent they have not been deducted in a prior incentive period) and excluding any gains from the revaluation of investments, as shown in the Group's latest consolidated management accounts for the relevant quarter, before payment of any Incentive Fee; |
|
B = |
An amount equal to a simple interest rate equal to two per cent per quarter, subject to the reset mechanic described below (the "Hurdle Rate"); and |
|
C = |
The weighted average number of Shares outstanding during the relevant quarter multiplied by the weighted average offer price of such Shares. |
14. Material agreements and related party transactions (continued)
For the purposes of calculating the Incentive Fee, the Hurdle Rate is reset on 1 April each year equal to the greater of (i) a simple interest rate equal two per cent per quarter, or (ii) one quarter of the sum of the then-prevailing yield per annum on ten-year German Bunds and 300 basis points. While the Group will not pay a Management Fee in respect of that portion of its portfolio that is comprised of investments where the Investment Manager receives fees for its management of the underlying asset portfolio, the income from such investments are included in the consolidated net income of the Group for the purpose of calculating the Incentive Fee.
An Incentive Fee will not be charged on Residual Income Positions and any other assets held by the Cell.
There was no incentive fee charged to the Company during the period ended 30 September 2012 or 30 September 2011.
Administration Fee
Under the terms of the Administration Agreement, the Administrator is entitled to receive from the Group an administration fee of 0.125 per cent of the gross asset value of the Group up to EUR 80,000,000 and 0.0325 per cent of the gross asset value of the Group greater than EUR 80,000,000. State Street Fund Services (Ireland) Limited, the Sub-Administrator, is paid by the Administrator.
Custodian Fee
Under the terms of the Custodian Agreement, the Custodian is entitled to receive from the Group a custodian fee of 0.03 per cent of the gross asset value of the Group up to EUR 80,000,000 and 0.02 per cent of the gross asset value of the Group greater than EUR 80,000,000, plus additional fees in relation to transaction fees, statutory reporting, corporate secretarial fees and other out of pocket expenses.
Investment Manager Options
In recognition of the work performed by the Investment Manager in raising capital for the Group, the Group granted to Cheyne Global Services Limited on 8 December 2005 options representing the right to acquire 2,250,000 Shares, being 10 per cent of the number of Offer Shares (that is, excluding the Shares issued to Cheyne ABS Opportunities Fund LP and the Shares issued to the Directors), at an exercise price per share equal to the Offer Price (EUR 10). The Investment Manager Options are fully vested and immediately exercisable on the date of admission to the London Stock Exchange and will remain exercisable until the 10th anniversary of that date. The Group may grant further Investment Manager Options in connection with any future offering of Shares.
Such options, if any, will represent the right to acquire Shares equal to not more than 10 per cent of the number of Shares being offered in respect of that future offering and will have an exercise price equal to the offer price for that offering. The aggregate fair value of the options granted at the time of the Initial Public Offering using a Black-Scholes valuation model was EUR 7,672,500 (reflecting a valuation of EUR 3.41 per option). This amount has been treated as a cost of the Initial Public Offering. As at 30 September 2012, these options were out of the money as the share price was below the Offer Price of EUR 10.23 (31 March 2012: share price was also below the Offer Price of EUR 10.23). As such there was no dilution as at 30 September 2012 as the share price was below the option price on that date.
Significant Shareholder
Cheyne ABS Opportunities Fund L.P., a Partnership that is also managed by Cheyne Asset Management (UK) LLP which is in realisation, held 8,213,804 Core Ordinary Shares (31 March 2012: 13,698,804 Core Ordinary Shares), and 15,623,804 Cell Shares (31 March 2012: 15,623,804 Cell Shares) in the Company amounting to 20.55% of the issued share capital of the Core and 39.09% of the issued share capital of the Cell at 30 September 2012 (31 March 2012: 34.28% of the issued share capital of the Core and 39.09% of the issued share capital of the Cell).
14. Material agreements and related party transactions (continued)
Significant Shareholder (continued)
As at 22 November 2012 (date of signing these financial statements), Cheyne ABS Opportunities Fund L.P. had sold its remaining Core Ordinary Shares, and a further 2,000,000 Cell Shares, so its only holding in the Company is its remaining 14,623,804 Cell Shares.
15. Significant events during the period
On 29 August 2012, the Company invested into Utrecht Holdings Sarl and Utrecht Sarl (together "Utrecht"), both Luxembourg domiciled companies, whose principal business is the issuance of loans. The Company made this investment as part of its investment strategy in order to help it achieve its investment objective. The Company's investment in Utrecht had a market value of GBP 3.32 million at 30 September 2012.
There have been no other significant events that affected the Group during the period that require amendment to or disclosure in the financial statements.
16. Subsequent events
The Company sold its investment in Omni Capital Loans (Guernsey) Limited on 22 October 2012 for GBP 4,690,646 which reflects the fair value of these investments at the period end.
On 21 November 2012, the Company made a £10 million loan at a 65% LTV and a 12% yield backed by a London office property. The loan ranks behind a senior loan which has a 50% LTV.
As at 22 November 2012 (date of signing these financial statements), Cheyne ABS Opportunities Fund L.P. had sold its remaining Core Ordinary Shares, and a further 2,000,000 Cell Shares, so its only holding in the Company is its remaining 14,623,804 Cell Shares.
For the period ended 30 September 2012 the Preference Share Cover Test was 2.53, above the threshold of 2.39. As a result, the Company is declaring a dividend of EUR 3.2 cents per ERII Ordinary Share, returning €1.3 million to investors.
A second interim dividend for the year ended 31 March 2013 of GBP 0.02 per Core Ordinary Share was approved by the Directors on 22 November 2012. As a result, the Company is declaring a dividend of GBP 0.02 per Ordinary Share, returning GBP 799,340to ordinary shareholders.
A Preference Share dividend for the period 1 October 2012 to 31 December 2012 was approved by the Board of Directors on 22 November 2012. As a result, the Company is declaring a dividend of GBP 0.02 per Preference Share, returning GBP 942,756 to preference shareholders.
There have been no other significant events affecting the Group since the period end date that require amendment to or disclosure in the financial statements.
17. Foreign exchange rates applied to combined totals shown in the condensed unaudited consolidated financial statements
The financial statements of the Cell are translated from Euro to GBP in the combined total figures shown in the Group's condensed unaudited consolidated financial statements.
The following closing GBP/EUR rate was used to prepare the combined total figures shown in the Group's Unaudited Consolidated Statement of Financial Position;
|
|
30-Sept-2012 |
31-Mar-2012 |
|
GBP/EUR |
1.255188 |
1.19978 |
The following average GBP/EUR rate was used to prepare the combined total figures shown in the Group's Unaudited Consolidated Statement of Comprehensive Income, the Unaudited Consolidated Statement of Changes in Equity and the Unaudited Consolidated Statement of Cash Flows;
|
|
30-Sept-2012 |
30-Sept-2011 |
|
GBP/EUR |
1.248502 |
1.17354 |
The Group also held a small US$ cash balance which was translated using the following GBP/US$ rate at the period end.
|
|
30-Sept-2012 |
31-Mar-2012 |
|
GBP/US$ |
1.614799 |
1.597750 |
18. Approval of the Condensed Unaudited Consolidated Financial Statements
The condensed unaudited financial statements of the Group were approved by the Directors on 22 November 2012.
Directors and Advisers
Directors
Tom Chandos (Chairman)
Graham Harrison
John Hawkins
Talmai Morgan
Christopher Spencer
Registered Office
First Floor Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 6HJ
Administrator and Secretary of the Group
State Street (Guernsey) Limited
PO Box 543
First Floor, Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 6HJ
Investment Manager
Cheyne Capital Management (UK) LLP
Stornoway House
13 Cleveland Row
London SW1A 1DH
Corporate Brokers
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Jefferies International Limited (Jefferies Hoare Govett)
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Share Repurchase Agent
JP Morgan Cazenove Limited
20 Moorgate
London EC2R 6DA
Independent Auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St. Peter Port
Guernsey GY1 3HW
Registrar
Capita Registrars (Guernsey) Limited
Mount Crevelt House
Bulwer Avenue
St. Sampson
Guernsey GY2 4LH
UK Transfer Agent
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Custodian
State Street Custodial Services (Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2
Ireland
Sub-Administrator
State Street Fund Services (Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2
Ireland
[1] Cost and nominal shown are calculated with original notional using pool factor and FX rate as at 30 September 2012
[2] Average expected yield to maturity based on cost price
[3] Cost and nominal shown are calculated with original notional using pool factor and FX rate as at 31 October 2012
[4] Based on fair value of bonds and loans.
[5] The weighted average original loan to value has been calculated by reference to the original acquisition value of the relevant collateral as disclosed at the time of issue of the relevant bond or loan. The original LTV is weighted by the market value of the bonds and loans. The weighted average Cheyne current LTV has been calculated by the Investment Manager by reference to the current value ascribed to the collateral by the Investment Manager. In determining these values, the Investment Manager has undertaken its own internal valuation of the underlying collateral. Such valuations have not been subject to independent verification or review. WA LTV figures are calculated with original notional using pool factor and FX rate as at 31 October 2012.
[6] WA effective yield is based on the effective yield as at most recent purchase and is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein. WA effective yield figures are calculated with original notional using pool factor and FX rate as at 31 October 2012.
This information is provided by RNS
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