News Release

image View printer-friendly version
<< Back
REG-Eurocastle Inv. Ltd Final Results - Part 2
RNS Number:9742I 
Eurocastle Inv. Ltd  
Part  2 : For preceding part double-click [nRNSX9742I] 
Fair values for all investment property 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 
Interest-Bearing Loans and Borrowings 
All loans and borrowings, including the Company's repurchase agreements, are 
initially recognised at cost, being the fair value of the consideration received 
net of issue costs associated with the borrowing. 
After initial recognition, interest-bearing loans and borrowings are 
subsequently measured at amortised cost using the effective interest rate 
method. Amortised cost is calculated by taking into account any issue costs, and 
any discount or premium on settlement. 
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 it 
accrues, 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. No provision for 
income taxes has been made. 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 
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 
net income attributable to the subsidiaries for the year ended 31 December 2004 
was de minimis and, therefore, no provision has been made. 
Foreign Currency Translation 
Transactions in foreign currencies are recorded at the rate ruling at the date 
of the transactions. Monetary assets and liabilities denominated in foreign 
currencies are re-measured at the rate of exchange ruling at the balance sheet 
date. All differences are taken to the income statement. Non-monetary assets and 
liabilities denominated in foreign currencies, if any, are translated at the 
historical exchange rate and all differences are recognised in equity. 
                                         Year Ended        8 August 2003 
                                   31 December 2004       (Formation Date) 
                                                        31 December 2003 
                                              e'000                e'000 
-----------------------              --------------       -------------- 
Professional fees                               764                  484 
Management fees (Note 14)                     2,180                  257 
Other                                           459                   18 
                                       --------------       -------------- 
                                              3,403                  759 
                                       ==============       ============== 
The following is a summary of the Company's available-for-sale securities at 31 
December 2004. 
                                           Gross                           Weighted Average 
                                        Unrealised                 ---------------------------------- 
                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            177,069     176,867   1,522      (79)    178,310    BBB+      4.01%   4.03%    3.65 
Other ABS       215,177     214,051   2,576     (290)    216,337    BBB+      3.86%   4.24%    4.00 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
                392,246     390,918   4,098     (369)    394,647    BBB+      3.93%   4.16%    3.84 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
CMBS             95,035      94,468     630      (38)     95,060    BBB-      4.23%   4.31%    4.81 
Other ABS        76,356      76,570     575        -      77,145    BBB       3.86%   3.82%    5.68 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
                171,391     171,038   1,205      (38)    172,205    BBB       4.07%   4.09%    5.20 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
CMBS            121,232     121,505   1,079     (204)    122,380    BBB+      4.62%   4.51%    3.80 
Other ABS        97,550      96,398     878     (175)     97,101    BBB+      4.24%   4.77%    3.32 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
                218,782     217,903   1,957     (379)    219,481    BBB+      4.45%   4.63%    3.59 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
                  -------    --------  ------  -------    --------   ------  -------  ------  ------- 
Portfolio       782,419     779,859   7,260     (786)    786,333    BBB+      4.11%   4.28%    4.07 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
CMBS            131,472     130,630     300     (417)    130,513    AA-       3.32%   3.63%    2.26 
Other ABS        83,928      84,187     273      (26)     84,434     A+       3.04%   2.96%    4.89 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
                215,400     214,817     573     (443)    214,947    AA-       3.21%   3.37%    3.29 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
                  -------    --------  ------  -------    --------   ------  -------  ------  ------- 
                997,819     994,676   7,833   (1,229)  1,001,280    BBB+      3.91%   4.08%    3.90 
                  -------    --------  ------  -------    --------  ------   -------  ------  ------- 
Short Term 
Asset Backed 
paper           255,073     254,051       -        -     254,051    A1+      n/a      2.13%    0.19 
                -------    --------  ------  -------    -------- 
      Total   1,252,892   1,248,727   7,833   (1,229)  1,255,331 
                =======    ========  ======  =======    ======== 
CMBS - Commercial Mortgage Backed Securities 
Other ABS - Other Asset Backed Securities 
The Carrying Value in the table above excludes restricted cash of e9.2 million 
included in Portfolio I pending its reinvestment in additional CMBS and other 
The securities within Portfolio I are encumbered by the CDO I securitization 
(Note8). 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. Most of the securities categorised as other above were 
subject to repurchase agreements described in Note 10 as at 31 December 2004. 
                               Gross                           Weighted Average 
                             Unrealised                ---------------------------------- 
         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 
         --------  --------  ------  ------- --------   ------   ------  ------  ------- 
estate   22,165    21,938       -        -   21,938     NR       8.35%   8.44%    5.88 
loans    ========  ========  ======  ======= ========  ======    ======  ======  ======= 
                                        31 December 2004   31 December 2003 
                                                   e'000              e'000 
--------------------------                 -------------      ------------- 
Interest receivable                                7,800                  - 
Rent receivable                                      344                  - 
Deferred financing costs                             217                203 
Prepaid insurance                                    227                111 
Derivative assets                                    990                  - 
Other assets                                           -                  2 
                                             -------------      ------------- 
                                                   9,578                316 
                                             =============      ============= 
Deferred financing costs represent costs associated with the issuance of a 
collateralised debt obligation and will be offset against the proceeds of the 
The table below shows the items aggregated under investment property in the 
consolidated balance sheet: 
EUR '000                     Land & Buildings            Leasehold          Total 
-------------------              --------------         Property       ------------ 
At 1 January 2004                           -                  -                - 
Additions                             303,480             15,034          318,514 
                                 --------------      -------------     ------------ 
At 31 December 2004 
(unaudited)                           303,480             15,034          318,514 
                                 ==============      =============     ============ 
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, who remains the largest 
occupant of the portfolio, occupying approximately 52% of the portfolio by area. 
Deutsche Bank's weighted average unexpired lease term is 7.2 years. 
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                     0.29% 
--------------------                   -----------------         ---------------- 
                                                    96                   100.00% 
====================                   =================         ================ 
CDO Bonds 
----------------        --------      ---------   --------    ---------    --------- 
Class                   Rating          Current Carrying     Weighted     Weighted 
                                       Amount     Amount      Average      Average 
                                        e'000      e'000        Cost of   Maturity 
                                                                        (in years) 
----------------        --------    ---------   --------    ---------    --------- 
A and B Notes           AAA/AA        351,000    347,877        2.777%        7.30 
================        ========    =========   ========    =========    ========= 
The bank borrowings comprises of: 
                                        31 December 2004        31 December 2003 
                                                   e'000                   e'000 
           -----------------------        --------------------     -------------- 
Warehouse borrowing   (Note 9.1)                 350,843                       - 
Term finance          (Note 9.2)                 244,006                       - 
Revolving credit      (Note 9.3)                  14,000                       - 
           -----------------------        --------------------     -------------- 
                                                 608,849                       - 
           =======================        ====================     ============== 
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 currently anticipates completing the securitisations in the near term. 
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 2.89% at 31 December 2004. 
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 + 1.15% 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 over 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. 
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 e197.6 million and 2.35%, respectively 
at 31 December 2004. 
                                          31 December 2004   31 December 2003 
                                                     e'000              e'000 
------------------------                -----------------      ------------- 
Unsettled security purchases                       254,051                  - 
Security deposit                                     5,000                  - 
Interest payable                                     2,283                  - 
Accrued expenses                                     2,264                307 
Due to affiliates - Manager                            237                381 
Finance & operating lease payable                    2,925 
Other payables                                         127                  - 
------------------------                   -----------------      ------------- 
                                                   266,887                688 
========================                   =================      ============= 
The unsettled security purchase of e254.0 million relates to the purchase of 
commercial paper bonds, which settled on 6 January 2005. 
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 ordinary share equivalents 
during the period. 
The Company's ordinary share equivalents outstanding 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 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. 
Under the Company's Articles of Association, the Directors have the authority to 
effect the issuance of additional ordinary shares or to create new classes of 
shares as they deem necessary. 
The following is a reconciliation of the weighted average number of ordinary 
shares outstanding on a diluted basis. 
------------------------------                   ------------     ------------ 
                                                  Year Ended    8 August 2003 
                                                   31 December     (Formation 
                                                        2004        Date) to 
                                                                    31 December 
------------------------------                    ------------      ------------ 
Weighted average number of ordinary shares, 
outstanding basic                                 15,214,818       11,857,670 
Dilutive effect of ordinary share options            280,965                - 
------------------------------                    ------------     ------------ 
Weighted average number of ordinary shares 
outstanding, diluted                              15,495,783       11,857,670 
==============================                    ============     ============ 
The Company entered into the Management Agreement with the Manager in August 
2003, which provides for an initial term of ten years with automatic three year 
extensions, subject to certain termination rights. The Management Agreement may 
be terminated by the Company by payment of a termination fee, as defined in the 
Management Agreement, equal to the amount of management fees earned by the 
Manager during the twelve consecutive calendar months immediately preceding the 
termination, upon the vote of a majority of the holders of the outstanding 
ordinary shares. Pursuant to the Management Agreement, the Manager, under the 
supervision of the Company's board of directors, will formulate investment 
strategies, arrange for the acquisition of assets, arrange for financing, 
monitor the performance of the Company's assets and provide certain advisory, 
administrative and managerial services in connection with the operations of the 
Company. For performing these services, the Company will pay the Manager an 
annual fee (payable monthly in arrears) of 1.5% of the gross equity of the 
Company, as described in the Management Agreement. 
The Management Agreement provides that the Company will reimburse the Manager 
for various expenses incurred by the Manager or its officers, employees and 
agents on the Company's behalf, including the cost of legal, accounting, tax, 
auditing, administrative and other similar services rendered for the Company by 
providers retained by the Manager or, if provided by the Manager's employees, in 
amounts which are no greater than those that would be payable to external 
professionals or consultants engaged to perform such services pursuant to 
agreements negotiated on an arms-length basis. Such expenses have been included 
in the Consolidated Income Statement. 
To provide an incentive for the Manager to enhance the value of the Company's 
ordinary stock, the Manager is entitled to receive incentive compensation on a 
cumulative, but not compounding, basis in an amount equal to the product of (A) 
25% of the euro amount by which (1) funds from operations ("FFO") of the Company 
before the incentive compensation per ordinary share, exceeds (2) an amount 
equal to (a) the weighted average of the price per ordinary share in any 
offerings by the Company (adjusted for any prior capital dividends or 
distributions) multiplied by (b) a simple interest rate of eight percent (8%) 
per annum multiplied by (B) the weighted average number of ordinary shares 
outstanding during such period. 
FFO is used to compute the Company's incentive compensation to the Manager. FFO, 
for these purposes, represents net income (computed in accordance with 
International Financial Reporting Standards), plus depreciation and amortisation 
on real estate property (and excluding accumulated depreciation and amortisation 
from the computation of gain or loss on sold real estate property), after 
adjustments for unconsolidated partnerships and joint ventures (calculated to 
reflect FFO on the same basis). 
At 31 December 2004 and 31 December 2003, management fees and expense 
reimbursements of approximately e0.2 million and e0.4 million respectively, were 
due to the Manager. 
Derivative Financial Instruments - Securities Portfolio Contract 
In November 2003, the Company entered into a securities portfolio contract with 
a major investment bank (the 'Bank') whereby the Bank purchased European 
commercial mortgage backed and other asset backed securities, targeted to 
aggregate approximately e500 million, subject to the Company's right, but not 
the obligation, to purchase such securities from the Bank. The Company had paid 
a deposit to the Bank. In June and July 2004 the Company exercised its right to 
purchase the securities. The fair value of the contract was calculated as the 
value of the securities purchased by the Bank, adjusted for the cost of funding 
the purchase of securities and any other applicable costs. The fair value of the 
contract as at 31 December 2003 was approximately e57.6 million. 
Risk Management 
This section provides details of the Company's exposure to risk and describes 
the methods used by management to control risk. The most important types of 
financial risk to which the Company is exposed are market risk, credit, 
liquidity, interest rate and foreign currency risk. 
Market Risk 
The Company's exposure to market risk is comprised mainly of movements in the 
value of its security and property investments. The investment portfolios are 
managed within the parameters disclosed in the Company's prospectus. 
The Company's securities are predominantly floating rate and as such are valued 
based on a market credit spread over Euribor and Libor benchmarks for euro and 
sterling denominated assets respectively. Increases in the credit spreads above 
such benchmarks may affect the Company's net equity, net income or cash flow 
directly through their impact on unrealised gains or losses on 
available-for-sale securities, and therefore its ability to realise gains on 
such securities, or indirectly through their impact on its ability to borrow and 
access capital. 
Under the terms of the securities contract the Company was exposed to market 
risk on the underlying securities as, should the intended securitisation of such 
assets not be consummated, the Company would be required to either purchase the 
securities or pay the loss realised on the disposal up to the amount of any 
deposits made by the Company under the contract, less any interest earned on the 
Credit risk 
The Company is subject to credit risk with respect to its investments in real 
estate and other asset backed securities and loans. 
The securities the Company invests in are generally junior in right of payment 
of interest and principal to one or more senior classes, but benefit from the 
support of one or more subordinate classes of securities or other form of credit 
support within a securitisation transaction. While the expected yield on these 
securities is sensitive to the performance of the underlying assets, the more 
subordinated securities are designed to bear the first risk of default and loss. 
The Company further minimises credit risk by actively monitoring its securities 
portfolios and the underlying credit quality of its holdings and, where 
appropriate, repositioning its investments to upgrade the credit quality and 
yield on the investments. 
The Company's securities portfolio is diversified by asset type, industry, 
location and issuer. This diversification minimises the risk of capital loss. At 
December 31, 2004, the Company's securities, which serve as collateral for its 
CDO financings and other borrowings, had an overall weighted average credit 
rating of approximately BBB+. 
The Company's asset backed securities for sale portfolio was split between 
countries within Europe as follows: 
                       -------------       ---------------     ------------ 
Country                    Number of         Face Value of Location Split 
                        Securities            Securities 
                  31 December 2004                 e'000 
                       -------------       ---------------     ------------ 
United Kingdom                  32               387,653            38.85% 
Italy                           15               255,941            25.65% 
Pan European                     9               135,703            13.60% 
Germany                         11               101,578            10.18% 
France                           5                46,399             4.65% 
Other                           11                70,545             7.07% 
                       -------------       ---------------     ------------ 
                                83               997,819           100.00% 
                       =============       ===============     ============ 
The Company's hedging transactions using derivative instruments also involve 
certain additional risks such as counterparty credit risk, the enforceability of 
hedging contracts and the risk that unanticipated and significant changes in 
interest rates will cause a significant loss of basis in the contract. The 
counterparties to the Company's derivative arrangements are major financial 
institutions with investment grade credit ratings with which the Company and its 
affiliates may also have other financial relationships. As a result, it is not 
anticipated that any of these counterparties will fail to meet their 
Liquidity risk 
The Company's ability to execute its business strategy, particularly the growth 
of its investment portfolio, depends to a significant degree on the Company's 
ability to obtain additional capital. 
The Company's primary source of funds for liquidity consist of net cash provided 
by operating activities, borrowings under loans and the issuance of debt and 
equity securities. The Company's loans and debt securities are generally secured 
directly over its assets. The Company expects that its cash on hand and cash 
flow provided by operations will satisfy its liquidity needs with respect to its 
current investment portfolio over the next twelve months. The Company expects to 
meet its long-term liquidity requirements, specifically the repayment of its 
debt obligations, through additional borrowings and the liquidation or 
refinancing of its assets at maturity. 
A significant portion of the Company's investments are financed with 
collateralised debt obligations, known as CDOs. If spreads for CDO liabilities 
widen or if demand for such liabilities ceases to exist, then the ability to 
execute future CDO financings will be restricted. Proceeds from the sale of real 
estate and other asset backed securities which serve as collateral for the 
Company's CDO financings, including gains thereon, are required to be retained 
in the CDO structure until the related bonds are retired and are therefore not 
available to fund current cash needs. 
The Company's real estate securities are financed long-term and their credit 
status is continuously monitored; therefore, these investments are expected to 
generate a generally stable current return, subject to interest rate 
fluctuations. The Company's operating real estate is also financed long-term and 
primarily leased to credit tenants with long-term leases and is therefore also 
expected to generate generally stable current cash flows. 
As described in Note 9.3, the Company has access to temporary working capital 
through a revolving e35 million credit facility. 
Interest Rate Risk 
The Company's primary interest rate exposures relate to its real estate and 
other asset backed securities, loans and floating rate debt obligations, as well 
as its interest rate swaps. Changes in the level of interest rates also can 
affect the Company's ability to acquire securities and loans and its ability to 
realise gains from the settlement of such assets. 
The Company's general financing strategy focuses on the use of match-funded 
structures, meaning that it seeks to match the maturities of its debt 
obligations with the maturities of its investments to minimise the risk that the 
Company will have to refinance its liabilities prior to the maturities of its 
assets, reducing the impact of changing interest rates on its earnings. In 
addition, the Company match funds interest rates on its investments with 
like-kind debt directly or through the use of interest rate swaps. 
As of December 31, 2004, a 100 basis point increase in short-term interest rates 
would increase the Company's earnings by approximately e1 million per annum. 
The weighted average interest rate on the fixed rate portion of the asset backed 
securities available-for-sale portfolio shown in the table below is 7.14%. 
The fixed interest rate portion of the bank loan and the relating interest rate 
swap was 4.53%. 
The interest rate profile of the Company at 31 December 2004 and 31 December 
2003 was as follows: 
Assets                                Within 1 year     1 to 5 years      Over 5 years 
------------      ---------  -------- ------ -------   ------   -------  ------  ------- 
Type            Total per      Non    Fixed  Variable Fixed    Variable  Fixed  Variable 
               consolidated interest   %       %                  %       %        % 
                 balance     bearing 
                 sheet      assets 
                    e'000     e'000                        % 
------------     ---------  -------- ------  -------   ------   ------- ------   ------- 
Cash and cash 
equivalents        10,293         -      -   10,293        -         -      -         - 
cash                2,812         -      -    2,812        -         -      -         - 
Asset backed 
available for 
sale            1,264,484         -      -        -   46,850   389,893      -         - 
Real estate 
related loans 
available for 
sale               21,938         -      -        -        -    21,938      -   827,741 
property          318,514   318,514      -        -        -         -      -         - 
Other assets        9,578     8,588      -      276        -         -    714(1)      - 
                  ---------  -------- ------  -------   ------   ------- ------  ------- 
                1,627,619   327,102      -   13,381   46,850   411,831    714   827,741 
                  ---------  -------- ------  -------   ------   ------- ------   ------- 
Cash and cash 
equivalents         1,690         -      -    1,690        -         -      -         - 
contract           57,611         -      -   57,611        -         -      -         - 
Other assets          316       316      -        -        -         -      -         - 
                  ---------  -------- ------  -------   ------   ------- ------   ------- 
                   59,617       316      -   59,301        -         -      -         - 
                  =========  ======== ======  =======   ======   ======= ======   ======= 
(1) Net interest rate swap receivable related to the fixed e210 million portion of the 
term loan financing the investment properties. 
Liabilities                              Within 1 year    1 to 5 years      Over 5 years 
------------     ---------      --------  ------  -------  ------ -------   ------    ------- 
Type           Total per   Non interest  Fixed  Variable  Fixed  Variable  Fixed    Variable 
              consolidated    bearing     %        %       %       %                   % 
                balance     liabilities 
                   e'000         e'000                                          % 
------------    ---------      -------- ------   ------- ------  -------    ------   ------- 
CDO bonds 
payable          347,877             -      -         -      -        -         -   347,877 
Bank loans       608,849             -      -   364,843      -        -   210,000    34,006 
agreements       197,584             -      -   197,584      -        -         -         - 
Trade and 
other            266,887       266,887      -         -      -        -         -         - 
payables         ---------      -------- ------   ------- ------  -------    ------   ------- 
               1,421,197       266,887      -   562,427      -        -   210,000   381,883 
                 ---------      -------- ------   ------- ------  -------    ------   ------- 
Trade and 
other                688           688      -         -      -        -         -         - 
payables         ---------      -------- ------   ------- ------  -------    ------   ------- 
                     688           688      -         -      -        -         -         - 
                 =========      ======== ======   ======= ======  =======    ======   ======= 
Foreign Currency Risk 
The Company's primary foreign currency exchange rate exposures relate to its 
sterling denominated portfolio of securities and loans. Changes in the currency 
rates can adversely impact the fair values and earnings streams of the Company's 
non euro denominated assets and liabilities. The Company has mitigated this 
impact through a combination of (i) sterling denominated financing and (ii) 
rolling forward foreign exchange contacts to hedge its net sterling equity 
investment. At 31 December 2004, the net unrealised gain on these contracts was 
approximately e0.28 million. 
In connection with the Company's purchase of its available-for-sale real estate 
and other asset backed securities and real estate loans, the foreign currency 
risk is covered through forward foreign currency exchange contracts. 
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 
Bank 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 at fair value of both the hedged item and the 
interest rate swaps have been recognised in the statement of changes in equity 
to the extent that the swap is effective. 
The details of interest rate swaps entered into by the Company are as follows: 
                         31 December 2004   31 December 2003 
                                     e000               e000 
                            ---------------      ------------- 
Nominal amount                    210,000                  - 
Pay rate                             3.47%                 - 
Receive rate              3 Month Euribor                  - 
Remaining life                  8.3 years                  - 
Fair value                            713                  - 
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). In June 2004 following the IPO, the Manager was granted an 
additional 660,000 options at an exercise price of e12 per share. 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 Company operates in one geographical segment, being Europe. The company has 
conducted business through three primary segments: asset backed securities, real 
estate related loans and investment properties. 
Summary financial data of the Company's business segments is provided below: 
                   ----------   ----------    ---------     ---------    --------- 
               Asset Backed  Real Estate   Investment Unallocated          Total 
                 Securities      Related   Properties                 Eurocastle 
For Year Ended                    Loans 
31 December 2004      e'000       e'000        e'000         e'000        e'000 
                  ----------   ----------    ---------     ---------    --------- 
Gross revenues       28,502          284          344             -       29,130 
expense             (13,353)           -         (310)            -      (13,663) 
expenses               (147)           -          (33)       (3,256)      (3,436) 
                   ----------   ----------    ---------     ---------    --------- 
Net profit           15,002          284            1        (3,256)      12,031 
                   ==========   ==========    =========     =========    ========= 
               Asset Backed  Real Estate   Investment Unallocated          Total 
                 Securities      Related   Properties                 Eurocastle 
As at                              Loans 
31 December 2004      e'000        e'000        e'000         e'000        e'000 
                 ----------   ----------    ---------     ---------    --------- 
Total assets      1,278,992       22,568      320,884         5,175    1,627,619 
liabilities      (1,152,462)           -     (266,234)       (2,501)  (1,421,197) 
interest                  -            -            -            (2)          (2) 
                   ----------   ----------    ---------     ---------    --------- 
Net assets          126,530       22,568       54,650         2,672      206,420 
                   ==========   ==========    =========     =========    ========= 
The unallocated portion consists primarily of interest on short-term 
investments, general and administrative expenses, and management fees pursuant 
to the Management Agreement. 
The legal entity group structure of Eurocastle is designed to support the 
Group's businesses within an efficient legal, tax, regulatory and funding 
The significant operating subsidiaries, in which the Company owns a 100% equity 
interest, are listed by jurisdiction below: 
Luxgate s.a.r.l. 
Eurobarbican s.a.r.l. 
Shortwave Acquisition GmbH                      L-Wave Grundstucksverwaltungsgesellschaft 29 GmbH 
S-Wave Grundstucksverwaltungsgesellschaft 1     L-Wave Grundstucksverwaltungsgesellschaft 30 
GmbH                                            GmbH 
S-Wave Grundstucksverwaltungsgesellschaft 2     L-Wave Grundstucksverwaltungsgesellschaft 31 
GmbH                                            GmbH 
Longwave Acquisition GmbH                       L-Wave Grundstucksverwaltungsgesellschaft 32 
L-Wave Grundstucksverwaltungsgesellschaft 1     L-Wave Grundstucksverwaltungsgesellschaft 33 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 2     L-Wave Grundstucksverwaltungsgesellschaft 34 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 3     L-Wave Grundstucksverwaltungsgesellschaft 35 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 4     L-Wave Grundstucksverwaltungsgesellschaft 36 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 5     L-Wave Grundstucksverwaltungsgesellschaft 37 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 6     L-Wave Grundstucksverwaltungsgesellschaft 38 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 7     L-Wave Grundstucksverwaltungsgesellschaft 39 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 8     L-Wave Grundstucksverwaltungsgesellschaft 40 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 9     L-Wave Grundstucksverwaltungsgesellschaft 41 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 10    L-Wave Grundstucksverwaltungsgesellschaft 42 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 11    L-Wave Grundstucksverwaltungsgesellschaft 43 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 12    L-Wave Grundstucksverwaltungsgesellschaft 44 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 13    L-Wave Grundstucksverwaltungsgesellschaft 45 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 14    L-Wave Grundstucksverwaltungsgesellschaft 46 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 15    L-Wave Grundstucksverwaltungsgesellschaft 47 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 16    L-Wave Grundstucksverwaltungsgesellschaft 48 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 17    L-Wave Grundstucksverwaltungsgesellschaft 49 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 18    L-Wave Grundstucksverwaltungsgesellschaft 50 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 19    L-Wave Grundstucksverwaltungsgesellschaft 51 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 20    L-Wave Grundstucksverwaltungsgesellschaft 52 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 21    L-Wave Grundstucksverwaltungsgesellschaft 53 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 22    L-Wave Grundstucksverwaltungsgesellschaft 54 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 23    L-Wave Grundstucksverwaltungsgesellschaft 55 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 24    L-Wave Grundstucksverwaltungsgesellschaft 56 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 25    L-Wave Grundstucksverwaltungsgesellschaft 57 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 26    L-Wave Grundstucksverwaltungsgesellschaft 58 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 27    L-Wave Grundstucksverwaltungsgesellschaft 59 
GmbH                                            GmbH 
L-Wave Grundstucksverwaltungsgesellschaft 28    L-Wave Grundstucksverwaltungsgesellschaft 60 
GmbH                                            GmbH 
Additionally, the Company has investments in Eurocastle Funding Limited, 
Eurocastle CDO I PLC, Eurocastle CDO II PLC, and Eurocastle CDO III PLC which it 
consolidates in accordance with SIC 12. 
On 23 February 2005 the directors declared a fourth quarter 2004 interim 
dividend of e0.33 per share to all holders of shares on 2 March 2005, the record 
date. The total dividend payable on 11 March 2005 is e6.1 million. 
The Annual General Meeting will be held on 19 April 2005. 
The Company commenced operations on 21 October 2003. As the Company's first 
period of operations is shorter than one year, comparative periods for the 
consolidated statement of income, cash flows and statement of changes in equity 
are shown for the period 8 August to 31 December 2003. 
The financial information set out in this announcement does not constitute the 
Company's audited accounts for the years ended 31 December 2004 or 31 December 
2003. The financial information for the year ended 31 December 2003 is derived 
from the audited accounts for that year. The 31 December 2003 accounts contained 
an unqualified audit report. 
A copy of the Annual Report and Financial Statements for the year ended 31 
December 2004 will be posted to the shareholders in due course. Copies of this 
announcement can be obtained from Eurocastle Investment Limited, 5-10 Bolton 
Street, London, W1J 8BA. 
                      This information is provided by RNS 
            The company news service from the London Stock Exchange