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REG-Eurocastle Inv. Ltd Interim Results - Part 3
RNS Number:7149P
Eurocastle Inv. Ltd
Part 3 : For preceding part double-click [nRN1D7149P]
Unaudited 31 December
30 June 2005 2004
e'000 e'000
------------ ----------
Asset backed securities, available for sale
(includes cash to be invested) 923,682 796,522
Asset backed securities pledged under
repurchase agreements 289,703 467,962
------------ ----------
Total asset backed securities 1,213,385 1,264,484
------------ ----------
Cumulative 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
30 June 2005 2004
e'000 e'000
------------ ----------
Unrealised gains on available-for-sale securities 10,562 7,833
Unrealised losses on available-for-sale securities (1,310) (1,229)
Unrealised (loss)/gain on hedge instruments (Note 14) (6,179) 713
------------ ----------
3,073 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
------- -------- ------ ------ ------- ------ ------- ------ -------
e'000 e'000 e'000 e'000 e'000
------ ------- ------ ------ -------- ------ ------- ------ -------
Real estate
loans 47,485 47,239 - - 47,239 * 6.82% 8.27% 3.91
====== ======= ====== ====== ======== ====== ======= ====== =======
* Included in real estate loans are loans with a total current face amount of
e24.2 million and with an average rating of BB- from Standard and Poors.
Real estate loans with a carrying value of e14.07 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
30 June 2005 2004
e'000 e'000
------------ ----------
Real estate loans 33,170 21,938
Real estate loans pledged under repurchase
agreements 14,069 -
------------ ----------
Total real estate loans 47,239 21,938
============ ==========
6. OTHER ASSETS
Unaudited 31 December 2004
30 June 2005
e'000 e'000
------------- -------------
Interest receivable 11,379 7,800
Rent receivable 702 344
Deferred financing costs - 217
Prepaid insurance 36 227
Derivative assets 76 990
Unsettled security transactions 417 -
Other assets 308 -
------------- -------------
12,918 9,578
============= =============
Deferred financing costs represented costs associated with the issuance of a
collateralised debt obligation and were 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 2005 303,480 15,034 318,514
Additions 404 20 424
Increase in fair value 446 67 513
-------------- ------------- ------------
At 30 June 2005 304,330 15,121 319,451
============== ============= ============
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.
Fair values of the investment properties have been assessed by the company based
on a valuation carried out by external valuers.
8. BONDS PAYABLE
CDO Bonds
As at 30 June 2005 (unaudited)
---------- -------- ----------- -------- -------- --------
Class Rating Current Face Carrying Weighted Weighted
Amount Amount Average Average
e'000 e'000 Cost of Maturity
Financing (in years)
---------- -------- ----------- -------- -------- --------
A,B and C AAA/AA/ 799,058 789,563 2.63% 8.6
Notes A
========== ======== =========== ======== ======== ========
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 AAA/AA 351,000 347,877 2.78% 7.3
Notes
========== ======== =========== ======== ======== ========
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:
Unaudited 31 December 2004
30 June 2005
e'000 e'000
----------------------- ---------------- ---- --------------
Warehouse borrowing (Note 9.1) - 350,843
Term finance (Note 9.2) 244,004 244,006
Revolving credit (Note 9.3) - 14,000
facility
----------------------- ---------------- ---- --------------
244,004 608,849
======================= ================ ==== ==============
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 subsequent
securities acquired, were financed and held in a custody account by the bank.
The Company used 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 the securitisation of CDO II
on 5 May 2005. The proceeds of the securitisation issues allowed the CDO II and
CDO III warehouse borrowings to be repaid in full during the period.
The terms of the credit facility provided for interest to be calculated with
reference to floating rate benchmarks (i.e. Euribor or Sterling Libor) plus 75
basis points.
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 8.1 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. The facility was increased
to e50 million on 26 May 2005.
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 reset or roll 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 e303.8 million and 2.33%, respectively
at 30 June 2005.
11. TRADE AND OTHER PAYABLES
Unaudited 31 December 2004
30 June 2005
e'000 e'000
------------------------ ----------------- -------------
Security deposit 5,006 5,000
Unsettled security purchases 20,336 254,051
Interest payable 6,551 2,283
Accrued expenses 3,393 2,264
Due to affiliates - Manager 1,971 237
Derivative liabilities 6,179 -
Finance & operating lease payable 2,886 2,925
Other payables 134 127
------------------------ ----------------- -------------
46,456 266,887
======================== ================= =============
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.
-------------------------------- ---------- ----------
Unaudited Unaudited
Six Months Six Months
Ended Ended
30 June 30 June
2005 2004
-------------------------------- ---------- ----------
Weighted average number of ordinary shares,
outstanding basic 18,529,515 11,930,263
Dilutive effect of ordinary share options 724,450 25,352
-------------------------------- ---------- ----------
Weighted average number of ordinary shares
outstanding, diluted 19,253,965 11,955,615
================================ ========== ==========
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
as Directors of the Company. The shares issued to the Directors were non-cash
shares, and were issued with nil proceeds. In April 2005 the Company issued a
further 5,000 shares to Paolo Bassi and 1,000 to Keith Dorrian in their capacity
as Directors of the company for nil proceeds. On 29 June 2005 the Company made a
second public offering and issued 5,740,000 ordinary shares at a price of e17.25
each. After issue costs, the secondary offering raised e95 million for 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.
Other Reserves
Other reserves represent the fair value of share options at the grant date,
granted to the Manager in December 2003, June 2004 and June 2005.
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:
Unaudited 31 December 2004
30 June 2005
e000 e000
--------------- ----------------
Nominal amount 210,000 210,000
Pay rate 3.47 % 3.47%
Receive rate 3 Month Euribor 3 Month Euribor
Remaining life 7.8 years 8.3 years
Fair value of swaps (liabilities) (6,179) 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. In June 2005 following the secondary
public offering, the Manager was granted an additional 574,000 options at an
exercise price of e17.25 per share. The fair value of the additional options at
the date of grant was e0.6 million. The Manager's 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 & DECLARED
Unaudited
Six months ended
30 June2005
e000
-------------
Paid during the 6 months ended 30 June 2005:
Equity dividends on ordinary shares:
Fourth quarter dividend for 2004: e0.33 (2003: nil) 6,093
First quarter dividend for 2005: e0.33 (2004: nil) 6,095
-------------
12,188
Second quarter dividend declared on 14 June 2005:
e0.35 (2004: nil) 6,464
-------------
17. SUBSEQUENT EVENTS
Subsequent to the half year end, the Company invested approximately e184 million
in assets backed by a portfolio of commercial properties under long-term leases
with the Italian government. Consistent with the Company's policy of match
funding, this investment has been term financed on a fixed rate basis. In
addition, the Company has established a e400 million three year extendable
revolving credit facility under which e168.7 million of assets are currently
financed.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR IFFSITRIVIIE