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REG-Eurocastle Inv. Ltd 1st Quarter Results - Part 2
 
RNS Number:8714L 
Eurocastle Inv. Ltd  
Part  2 : For preceding part double-click [nRNSD8714L] 
 
 
 
Financial Instruments 
 
Classification 
 
Financial assets and liabilities measured at fair value through the profit and 
loss account those instruments that the Company principally holds for the 
purpose of short-term profit taking. These include securities portfolio 
contracts and forward foreign exchange contracts that are not designated as 
effective hedging instruments. 
 
Available-for-sale assets are financial assets that are not classified as held 
for trading purposes, loans and advances, or held to maturity. 
Available-for-sale instruments include real estate and other asset backed 
securities. 
 
Recognition 
 
The Company recognises financial assets held for trading and available-for-sale 
assets on the date it commits to purchase the assets (trade date). From this 
date any gains and losses arising from changes in fair value of the assets are 
recognised. 
 
A financial liability is recognised on the date the Company becomes party to 
contractual provisions of the instrument. 
 
Measurement 
 
Financial instruments are measured initially at fair value plus, in the case of 
a financial asset or liability not measured at fair value through profit and 
loss, transaction costs that are directly attributable to the acquisition or 
issue of the financial asset or financial liability. 
 
Subsequent to initial recognition all trading instruments and available for sale 
assets are carried at fair value. 
 
All financial assets other than trading instruments and available-for-sale 
assets are measured at amortised cost less impairment losses. Amortised cost is 
calculated on the effective interest rate method. Premiums and discounts, 
including initial transaction costs, are included in the carrying amount of the 
related instrument and amortised based on the effective interest rate of the 
instrument. 
 
Fair value measurement principles 
 
The fair value of financial instruments is based on their quoted market price at 
the balance sheet date without any deduction for transaction costs. If a quoted 
market price is not available, the fair value of the instrument is estimated 
using pricing models or discounted cash flow techniques, as applicable. 
 
Where discounted cash flow techniques are used, estimated future cash flows are 
based on management's best estimates and the discount rate is a market related 
rate at the balance sheet date for an instrument with similar terms and 
conditions. Where pricing models are used, inputs are based on market related 
measures at the balance sheet date. 
 
The fair value of derivatives that are not exchange traded is estimated at the 
amount that the Company would receive or pay to terminate the contract at the 
balance sheet date taking into account current market conditions and the current 
creditworthiness of the counterparties. 
 
Gains and losses on subsequent measurement 
 
Gains and losses arising from a change in the fair value of trading instruments 
are recognised directly in the income statement. Gains and losses arising from a 
change in the fair value of available-for-sale securities are recognised 
directly in equity until the investment is derecognised (sold, collected, or 
otherwise disposed of) or impaired, at which time the cumulative gain or loss 
previously recognised in equity is included in the income statement for the 
period. 
 
Derecognition 
 
A financial asset is derecognised when the Company loses control over the 
contractual rights that comprise that asset. This occurs when the rights are 
realised, expire or are surrendered. A financial liability is derecognised when 
it is extinguished. 
 
Assets held for trading and available-for-sale assets that are sold are 
derecognised and corresponding receivables from the buyer for the payment are 
recognised as of the date the Company commits to sell the assets. The Company 
uses the specific identification method to determine the gain or loss on 
derecognition. 
 
Impairment 
 
The Company assesses at each balance sheet date whether there is objective 
evidence that a financial asset or group of financial assets is impaired. A 
financial asset or a group of financial assets is impaired and impairment losses 
are incurred if, and only if, there is objective evidence of impairment as a 
result of one or more events that occurred after the initial recognition of the 
asset (a 'loss event') and that loss event (or events) has an impact on the 
estimated future cash flows of the financial asset or group of financial assets 
that can be reliably estimated. 
 
In the case of financial assets classified as available-for-sale, a significant 
or prolonged decline in the fair value of the security below its cost is 
considered in determining whether the assets are impaired. If any such evidence 
exists for available-for-sale financial assets, the cumulative loss - measured 
as the difference between the acquisition cost and the current fair value, less 
any impairment loss on that financial asset previously recognised in profit or 
loss - is removed from equity and recognised in the income statement. 
 
Impairment losses recognised in the income statement on securities and loans are 
not reversed through the income statement. Subsequent increases in the fair 
values of debt instruments classified as available-for-sale, which can be 
objectively related to an event occurring after previous impairment losses have 
been recognized in the income statement, are recorded in the income statement. 
Such reversals are then taken through the income statement only to the extent 
previous impairment losses have been taken through the income statement. 
 
Hedge accounting 
 
Where there is a hedging relationship between a derivative instrument and a 
related item being hedged, the hedging instrument is measured at fair value. 
 
Where a derivative financial instrument hedges the exposure to variability in 
the cash flows of recognised assets or liabilities, the effective part of any 
gain or loss on re-measurement of the hedging instrument is recognised directly 
in equity. The ineffective part of any gain or loss is recognised in the income 
statement. 
 
The gains or losses that are recognised in equity are transferred to the income 
statement in the same period in which the hedged firm commitment affects the net 
profit and loss. 
 
Repurchase Agreements 
 
Securities and real estate loans subject to repurchase agreements are 
reclassified in the financial statements as pledged assets when the transferee 
has the right by contract or custom to sell or repledge the collateral. The 
counterparty liabilities have been classified as repurchase agreements. 
 
Cash and Cash Equivalents 
 
Cash and cash equivalents comprise cash at banks and in hand and short-term 
deposits with an original maturity of three months or less. 
 
Restricted Cash 
 
Restricted cash comprises margin account balances held by derivative 
counterparties as collateral for forward foreign exchange contracts, as well as 
cash held by the trustees of the CDO I securitisation as a reserve for future 
trustee expenses. As such, these funds are not available for use by the Group. 
 
Investment Properties 
 
Investment properties comprise land and buildings. In accordance with IAS 40, 
property held to earn rentals and/or for capital appreciation is categorised as 
investment property. Investment property acquired at the end of December 2004 
has been recognised at cost, being the fair value of the consideration given, 
including real estate transfer taxes, professional advisory fees and other 
acquisition costs. After initial recognition, investment properties are measured 
at fair value, with unrealised gains and losses recognised in the consolidated 
income statement. 
 
The value of investment properties incorporates five properties which are held 
by the Company under finance or operating leases. An associated liability is 
recognised at an amount equal to the fair value of the leased property or, if 
lower, the present value of the minimum lease payments, determined at the 
inception of the lease. 
 
Fair values for all investment properties have been determined by reference to 
the existing rental income and operating expenses for each property and the 
current market conditions in each geographical market. Fair values also 
incorporate current valuation assumptions which are considered reasonable and 
supportable by willing and knowledgeable parties. 
 
Deferred Financing Costs 
 
Deferred financing costs represent costs associated with the issuance of 
financings and are amortised over the term of such financing using the effective 
interest rate method. 
 
Interest-Bearing Loans and Borrowings 
 
All loans and borrowings, including the Company's repurchase agreements, are 
initially recognised at fair value, being the fair value of consideration 
received, net of transaction costs incurred. Borrowings are subsequently stated 
at amortised cost; any difference between proceeds net of transaction costs and 
the redemption value is recognised in the income statement over the period of 
the borrowings using the effective interest method. 
 
Minority Interests 
 
Minority interests represent interests held by outside parties in the Company's 
consolidated subsidiaries. 
 
Revenue Recognition 
 
Revenue is recognised to the extent that it is probable that the economic 
benefits will flow to the Company and the revenue can be reliably measured. 
 
Interest income and expenses are recognised in the income statement as they 
accrue, taking into account the effective yield of the asset/liability or an 
applicable floating rate. Interest income and expense include the amortisation 
of any discount or premium or other differences between the initial carrying 
amount of an interest bearing instrument and its amount at maturity calculated 
on an effective interest rate basis. 
 
Rental income is recognised on an accruals basis. 
 
Income Tax 
 
The Company is a Guernsey, Channel Islands limited company and is not subject to 
taxation. The company's subsidiaries, EFL, CDO I, CDO II and CDO III are Irish 
registered companies and are structured to qualify as securitisation companies 
under section 110 of the Taxes Consolidation Act 1997. It is envisaged that 
these companies will generate minimal net income for Irish income tax purposes 
and no provision for income taxes has been made for these companies. 
 
The Company's German subsidiary companies, Longwave and Shortwave, are subject 
to German income tax on income arising from its investment properties, after the 
deduction of allowable debt financing costs and other allowable expenses. The 
taxation provision for the quarter ended 31 March 2005 relates to these 
subsidiaries. 
 
Foreign Currency Translation 
 
The functional and presentation currency of the Company and its subsidiaries is 
the euro.  Transactions in foreign currencies are initially recorded in the 
functional currency rate of exchange ruling at the date of the transaction. 
Monetary assets and liabilities denominated in foreign currencies are 
retranslated at the functional currency rate of exchange ruling at the balance 
sheet date.  All differences are taken to the consolidated income statement. 
Non-monetary items that are measured in terms of historical cost in a foreign 
currency are translated using the exchange rate as at the date of initial 
transaction.  Non-monetary items measured at fair value in a foreign currency 
are translated using the exchange rates at the date when the fair value was 
determined. 
 
Share-Based Payments 
 
Share-based payments are accounted for based on their fair value on grant date. 
In accordance with the transitional provisions of IFRS 2, Share-Based Payment 
the Company has restated the comparative information by way of adjusting the 
opening balance of equity for earlier periods. The effect of the transitional 
provisions is in compliance with IAS 8, Accounting Policies, Changes in 
Accounting Estimates and Errors. 
 
 
3. OTHER OPERATING EXPENSES 
 
                          Unaudited Three Months   Three Months Ended 
                                           Ended 
                                   31 March 2005        31 March 2004 
                                           e'000                e'000 
--------------------------------------------------------------------- 
 
Professional fees                            456                  168 
Management fees                            1,475                  236 
Other                                        786                   34 
                               -------------------       -------------- 
                                           2,717                  438 
                               ===================       ============== 
 
4. AVAILABLE-FOR-SALE SECURITIES 
 
The following is a summary of the Company's available-for-sale securities at 31 
March 2005. 
 
                                          Gross                           
                                        Unrealised                        Weighted Average 
                                       ---------------              -----------------------------------  
                Current    Amortised   Gains    Losses    Carrying      S&P   Coupon   Yield   Maturity 
                   Face         Cost                         Value   Rating                     (Years) 
                 Amount        Basis                          
                -------    --------    ------   ------      -------  -------  ------   -----  ------- 
                  e'000       e'000    e'000    e'000       e'000 
Portfolio I 
CMBS            172,110     171,876    2,445      (40)    174,281    BBB+      3.93%   3.98%    3.49 
Other ABS       208,116     207,863    3,187     (262)    210,788    BBB+      4.22%   4.29%    3.97 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
                380,226     379,739    5,632     (302)    385,069    BBB+      4.09%   4.15%    3.75 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
Portfolio 
II 
CMBS             93,683      92,961      935      (18)     93,878    BBB       3.76%   3.89%    5.51 
Other ABS       107,244     107,575    1,045      (11)    108,609    BBB       4.13%   4.06%    5.07 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
                200,927     200,536    1,980      (29)    202,487    BBB       3.96%   3.98%    5.28 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
Portfolio 
III 
CMBS            118,232     118,558    1,783     (166)    120,175    BBB+      4.55%   4.52%    3.74 
Other ABS        99,700      99,019    1,501     (297)    100,223    BBB+      4.22%   4.83%    3.14 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
                217,932     217,577    3,284     (463)    220,398    BBB+      4.40%   4.66%    3.47 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
                -------    --------   ------   ------     -------   ------  -------  ------  ------- 
Total Portfolio 799,085     797,852   10,896     (794)    807,954    BBB+      4.14%   4.25%    4.06 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
 
Other Securities 
CMBS            137,779     137,175      595     (443)    137,327    AA-       3.33%   3.57%    2.44 
Other ABS        68,560      68,567      760        -      69,327     A        3.20%   3.12%    5.04 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
                206,339     205,742    1,355     (443)    206,654     A+       3.29%   3.42%    3.30 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
                -------    --------   ------   ------     -------   ------  -------  ------  ------- 
              1,005,424   1,003,594   12,251   (1,237)  1,014,608    BBB+      3.97%   4.08%    3.90 
                -------    --------   ------   ------     -------  ------   -------  ------  ------- 
Short Term 
Investments 
 
Asset backed 
commercial 
paper           200,000     199,490        -        -     199,490    A-1+     n/a      2.12%    0.16 
                -------    --------   ------   ------     ------- 
Total         1,205,424   1,203,084   12,251   (1,237)  1,214,098 
                -------    --------   ------   ------     ------- 
 
Restricted Cash                                            22,517 
                                                          ------- 
Total Asset Backed 
Securities (including 
cash to be invested)                                    1,236,615 
                                                          ------- 
 
CMBS - Commercial Mortgage Backed Securities 
Other ABS - Other Asset Backed Securities 
 
The securities within Portfolio I are encumbered by the CDO I securitisation 
(Note 8). The securities within Portfolio II and Portfolio III are encumbered by 
the borrowings under the warehouse credit facilities for CDO II and CDO III 
described in Note 9. 
 
Asset backed securities, available for sale at fair value of e405.1 million have 
been pledged to third parties in sale and repurchase agreements. In accordance 
with the revisions to IAS 39 Financial Instruments: Recognition and Measurement, 
effective 1 January 2005, these securities have been reclassified as pledged 
securities as follows: 
 
                                                      Unaudited   31 December  
                                                  31 March 2005          2004 
                                                          e'000         e'000 
                                                     ------------    ---------- 
Asset backed securities, available for sale 
(includes cash to be invested)                          831,492       796,522 
Asset backed securities pledged under 
repurchase agreements                                   405,123       467,962 
                                                     ------------    ---------- 
Total asset backed securities                         1,236,615     1,264,484 
                                                     ------------    ---------- 
 
Net unrealised gains on available for-sale-securities and hedge instruments 
recognised in the statement of changes in equity were as follows: 
 
                                                      Unaudited   31 December  
                                                  31 March 2005          2004 
                                                          e'000         e'000 
                                                     ------------    ---------- 
Unrealised gains on available-for-sale 
securities                                               12,251         7,833 
Unrealised losses on available-for-sale 
securities                                               (1,237)       (1,229) 
Unrealised (loss)/gain on hedge instruments 
(Note 14)                                                  (759)          713 
                                                     ------------    ---------- 
                                                         10,255         7,317 
                                                     ============    ========== 
 
5. REAL ESTATE LOANS 
 
                                         Gross                           
                                        Unrealised                        Weighted Average 
                                       ---------------              -----------------------------------  
                Current    Amortised   Gains    Losses    Carrying      S&P   Coupon   Yield   Maturity 
                   Face         Cost                         Value   Rating                     (Years) 
                 Amount        Basis                          
                -------    --------    ------   ------      -------  -------  ------   -----  ------- 
Real estate  
loans            46,682      46,356        -        -        46,356       *     6.82%   8.07%    4.51 
                =======    ========    ======   ======      ======== =======  =======  ====== ======= 
 
* Included in real estate loans are loans with a total current face amount of 
e23,844,000 and with an average rating of BB from Standard and Poors. 
 
Real estate loans with a carrying value of e23.8 million have been pledged to 
third parties in sale and repurchase agreements. In accordance with the 
revisions to IAS 39 Financial Instruments: Recognition and Measurement, 
effective 1 January 2005, these loans have been reclassified as pledged assets 
as follows: 
 
                                                      Unaudited   31 December  
                                                  31 March 2005          2004 
                                                          e'000         e'000 
                                                    ------------    ---------- 
Real estate loans                                        22,512        21,938 
Real estate loans pledged under repurchase 
agreements                                               23,844             - 
                                                     ------------    ---------- 
Total real estate loans                                  46,356        21,938 
                                                     ============    ========== 
 
6. OTHER ASSETS 
 
                                                      Unaudited   31 December  
                                                  31 March 2005          2004 
                                                          e'000         e'000 
                                                  ------------    ---------- 
 
Interest receivable                                  9,262              7,800 
Rent receivable                                        461                344 
Deferred financing costs                               217                217 
Prepaid insurance                                       75                227 
Derivative assets                                        -                990 
Other assets                                           387                  - 
                                               -------------      ------------- 
                                                    10,402              9,578 
                                               =============      ============= 
 
Deferred financing costs represent costs associated with the issuance of a 
collateralised debt obligation and will be offset against the proceeds of the 
issuance. 
 
7. INVESTMENT PROPERTIES 
 
The table below shows the items aggregated under investment property in the 
consolidated balance sheet: 
 
EUR '000 (unaudited)         Land & Buildings    Leasehold Property         Total 
--------------------------------------------------------------------------------- 
 
At 1 January 2004                     303,480             15,034          318,514 
Additions                                   9                  -                9 
                                 --------------      -------------     ------------ 
At 31 March 2005                      303,489             15,034          318,523 
                                 ==============      =============     ============ 
 
The property portfolio consists of 96 office and retail assets located 
throughout metropolitan and regional Germany, predominantly in western Germany. 
The properties were acquired from Deutsche Bank, which remains the largest 
occupant of the portfolio, occupying approximately 52% of the portfolio by area. 
Deutsche Bank's weighted average unexpired lease term is 7.0 years. Additions 
during the period represent additional purchase costs capitalised in respect of 
existing properties. 
 
A summary of the location and proportionate value of each property in the 
portfolio is as follows: 
 
Location                          Number of Properties      Proportionate Value 
--------------------------------------------------------------------------------- 
Nordrhein-Westfalen                                 30                    33.71% 
Baden-Wurttemberg                                   20                    23.91% 
Hesse                                                9                     8.56% 
Lower Saxony                                         8                     9.66% 
Bayern                                               7                     7.30% 
Rhineland-Palatinate                                 6                     4.54% 
Saxony-Anhalt                                        3                     4.45% 
Thuringia                                            5                     2.68% 
Saxony                                               2                     1.63% 
Schleswig-Holstein                                   1                     1.33% 
Hamburg                                              1                     0.99% 
Bremen                                               1                     0.43% 
Mecklenburg-West Pomerania                           2                     0.51% 
Brandenburg                                          1                     0.30% 
--------------------------------------------------------------------------------- 
                                                    96                   100.00% 
================================================================================= 
 
Fair values for the properties have been assessed by the company to be in line 
with the initial cost of the properties including acquisition costs, and as 
such, no profit or loss arising from changes in value has been brought to 
account in the current period. 
 
8. BONDS PAYABLE 
 
CDO Bonds 
 
As at 31 March 2005 (unaudited) 
------------------------------------------------------------------------- 
   Class       Rating     Current Face   Carrying    Weighted   Weighted 
                                Amount     Amount     Average    Average 
                                 e'000      e'000     Cost of   Maturity 
                                                    Financing  (in years) 
------------------------------------------------------------------------- 
A and B Notes    AAA/AA          351,000    347,973        2.78%       7.1 
========================================================================= 
 
As at 31 December 2004 
------------------------------------------------------------------------- 
   Class       Rating     Current Face   Carrying    Weighted   Weighted 
                                Amount     Amount     Average    Average 
                                 e'000      e'000     Cost of   Maturity 
                                                    Financing  (in years) 
------------------------------------------------------------------------- 
A and B Notes    AAA/AA          351,000    347,877        2.78%       7.3 
========================================================================= 
 
None of the CDO bonds are due to be repaid within one year of the balance sheet 
date. 
 
9. BANK BORROWINGS 
 
The bank borrowings comprises of: 
 
                                           31 March 2005        31 December 2004 
                                                   e'000                   e'000 
-------------------------------------------------------------------------------- 
Warehouse borrowing   (Note 9.1)                 371,873                 350,843 
Term finance          (Note 9.2)                 243,865                 244,006 
Revolving credit      (Note 9.3)                  27,000                  14,000 
facility 
-------------------------------------------------------------------------------- 
                                                 642,738                 608,849 
================================================================================ 
 
The amounts drawn under the revolving credit facility (e27,000,000) and the 
warehouse borrowing facility (e371,873,000) are due for repayment within one 
year of the balance sheet date. 
 
 
9.1 Warehouse Borrowings 
 
In July 2004, through its subsidiaries CDO II and CDO III, the Company exercised 
its option to purchase securities under the securities portfolio contract for an 
aggregate purchase price of approximately e77.5 million. The Company financed 
the purchase price through a revolving credit facility arrangement with a major 
investment bank, whereby the securities purchased, along with any additional 
securities to be acquired, are financed and held in a custody account by the 
bank. The Company is using this credit facility as a means of accumulating 
securities intended to be used in future securitisation transactions. The 
Company completed the securitisation of CDO III on 28 April 2005 and expects to  
complete the securitisation of CDO II on 5 May 2005 as described in Note 17  
(Subsequent Events). 
 
The terms of the credit facility provide for interest to be calculated with 
reference to floating rate benchmarks (i.e. Euribor or Sterling Libor) plus 75 
basis points. The weighted average financing cost was 2.83% at 31 March 2005. 
 
9.2 Term Financing for Investment Properties 
 
On 23 December 2004, in order to finance the acquisition of investment 
properties the Company's subsidiaries entered into a e246.5 million term loan 
facility with a major real estate lending bank. The facility is secured in the 
customary manner for German real estate lending, granting security over, inter 
alia, all the real estate purchased as well as over rental streams and bank 
accounts. The term of the facility is 8.3 years with final maturity in April 
2013. The interest rate on the loan is Euribor + 1.18% p.a, payable quarterly. 
 
9.3 Revolving Credit Facility 
 
In December 2004, the Company entered into a revolving e35 million credit 
facility with a major investment bank as a means of securing access to temporary 
working capital. The facility is secured by receivables flowing from CDO I, CDO 
II, CDO III and EFL and with security assignments of the Company's rights under 
its management agreement with Fortress Investment Group LLC. The facility 
contains a number of financial covenants including a maximum leverage ratio and 
a minimum interest cover ratio. The interest rate on drawn amounts is Euribor + 
2.5% p.a., while on undrawn amounts it is 0.5% p.a. 
 
10. REPURCHASE AGREEMENTS 
 
In 2004, the Company's consolidated subsidiary EFL entered into a master 
repurchase agreement with certain major investment banks to finance the purchase 
of available-for-sale securities. The obligations under those agreements are 
guaranteed by the Company. The terms of the repurchase agreements provide for 
interest to be calculated with reference to floating rate benchmarks (i.e. 
Euribor or Sterling Libor) which resets or rolls monthly or quarterly, with the 
corresponding security coupon payment dates, plus an applicable spread. 
 
The Company's carrying amount and weighted average financing cost of these 
repurchase agreements was approximately e403.2 million and 2.28%, respectively 
at 31 March 2005. 
 
11. TRADE AND OTHER PAYABLES 
 
                                             31 March 2005   31 December 2004 
                                                     e'000              e'000 
----------------------------------------------------------------------------- 
 
Security deposit                                     5,006              5,000 
Unsettled security purchases                         2,625            254,051 
Interest payable                                     4,690              2,283 
Accrued expenses                                     3,099              2,264 
Due to affiliates - Manager                            964                237 
Derivative liabilities                               1,235                  - 
Finance & operating lease payable                    2,926              2,925 
Other payables                                           -                127 
----------------------------------------------------------------------------- 
                                                    20,545            266,887 
============================================================================= 
 
12. EARNINGS PER SHARE 
 
Basic earnings per share is calculated by dividing net profit (loss) available 
to ordinary shareholders by the weighted average number of shares of ordinary 
stock outstanding during the period. 
 
Diluted earnings per share is calculated by dividing net profit (loss) available 
to ordinary shareholders by the weighted average number of ordinary shares 
outstanding plus the additional dilutive effect of potential ordinary shares 
during the period. 
 
The Company's potential ordinary shares during the period were the stock options 
issued under its share option plan. 
 
There have been no other transactions involving ordinary shares or potential 
ordinary shares since the reporting date and before the completion of the 
financial statements. 
 
The following is a reconciliation of the weighted average number of ordinary 
shares outstanding on a diluted basis. 
----------------------------------------------------------------------------- 
                                                          Three         Three 
                                                         Months        Months 
                                                          Ended         Ended 
                                                       31 March      31 March 
                                                           2005          2004 
----------------------------------------------------------------------------- 
 
Weighted average number of ordinary shares, 
outstanding basic                                  18,463,670    11,857,670 
Dilutive effect of ordinary share options             710,424        10,480 
----------------------------------------------------------------------------- 
Weighted average number of ordinary shares 
outstanding, diluted                               19,174,094    11,868,150 
============================================================================= 
 
 
13. SHARE CAPITAL AND RESERVES 
 
The Company was registered in Guernsey on 8 August 2003 under the provisions of 
the Companies (Guernsey) Law, 1994 (as amended). On 21 October 2003, the Company 
issued 118,576,700 shares at e1.00 each. Pursuant to a written resolution of the 
Company dated 18 June 2004 the Shareholders resolved to receive one share for 
every ten shares previously held by them. In June 2004, through its initial 
public offering, the Company received subscriptions for and issued 6,600,000 
ordinary shares at a price of e12 each. At the same time, the Company issued 
5,000 shares to Paolo Bassi and 1,000 shares to Keith Dorrian in their capacity 
of Directors of the Company. The shares issued to the Directors were non-cash 
shares, and were issued with nil proceeds. 
 
Under the Company's Articles of Association, the Directors have the authority to 
affect the issuance of additional ordinary shares or to create new classes of 
shares as they deem necessary. 
 
Other Reserves 
 
Other reserves represent the fair value of share options at the grant date, 
granted to the Manager in December 2003 and June 2004. 
 
14. HEDGE ACCOUNTING - CASH FLOW HEDGES OF INTEREST RATE RISK 
 
The Company's policy is to hedge its exposure to interest rates and foreign 
currencies on a case-by-case basis. Hedge accounting is only applied to cash 
flow hedges of interest rate risk exposures. Interest rate swaps under which the 
Company pays a fixed rate and receives a floating rate have been used to hedge 
the interest rate risk on floating rate long-term bank borrowing. 
 
The gain or loss on measurement of the fair value of the interest rate swaps has 
been recognised in the statement of changes in equity to the extent that the 
swaps are effective. 
 
The details of interest rate swaps entered into by the Company are as follows: 
 
                                        31 March 2005       31 December 2004 
                                                 e000                   e000 
----------------------------------------------------------------------------- 
Nominal amount                                210,000                210,000 
Pay rate                                         3.47%                  3.47% 
Receive rate                          3 Month Euribor        3 Month Euribor 
Remaining life                              8.0 years              8.3 years 
Fair value of swaps (liabilities)                (759)                   713 
/assets                                 
----------------------------------------------------------------------------- 
 
15. SHARE OPTION PLAN 
 
In December 2003, the Company (with the approval of the Board of Directors and 
pursuant to the confidential information memorandum dated August 2003) adopted a 
nonqualified share option plan (the "Company Option Plan") for officers, 
Directors, employees, consultants and advisors, including the Manager. In 
December 2003, for the purpose of compensating the Manager for its successful 
efforts in raising capital for the Company, the Manager was granted options 
representing the right to acquire 1,185,767 ordinary shares at an exercise price 
of e10 per share (number of shares and exercise price adjusted for share 
consolidation). The fair value of the options at the date of grant was e0.2 
million and was estimated by reference to an option pricing model. 
 
In June 2004 following the IPO, the Manager was granted an additional 660,000 
options at an exercise price of e12 per share. The fair value of the additional 
options at the date of grant was e0.2 million and was also estimated by 
reference to an option pricing model. The Manager options represent an amount 
equal to 10% of the ordinary shares issued by the Company. The options granted 
to the Manager were fully vested on the date of grant and expire ten years from 
the date of issuance. 
 
The fair value at the date of grant of options granted to the Manager has been 
offset against the proceeds from issuance of ordinary shares as the grant of 
options is a cost of capital. 
 
16. DIVIDENDS PAID & PROPOSED 
                                                                   2005 
                                                                   e000 
                                                            ------------- 
Paid during the 3 months ended 31 March 2005: 
 
Equity dividends on ordinary shares: 
Fourth quarter dividend for 2004: e0.33 (2003: nil)               6,093 
                                                            ------------- 
                                                                  6,093 
 
Dividend declared on 19 April 2005 (not recognised as 
a liability at 31 March 2005) 
 
Equity dividends on ordinary shares: 
First quarter dividend for 2005: e0.33 (2004: nil)                6,095 
 
No dividends were declared and/or paid during the three months ended 31 March 
2004. 
 
17. SUBSEQUENT EVENTS 
 
Subsequent to quarter end, Eurocastle successfully priced two secured debt 
offerings to match-fund credit sensitive real estate securities and other asset 
backed securities. CDO II is a £200 million collateralized debt obligation which 
is expected to be issued by Eurocastle CDO II PLC on 5 May 2005 to purchase 
sterling investments. CDO III is a e400 million financing which was issued by 
Eurocastle CDO III PLC on 28 April 2005 to purchase euro investments. 
 
 
 
 
 
 
 
 
 
 
 
                      This information is provided by RNS 
            The company news service from the London Stock Exchange 
 
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