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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
financings.
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
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
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.
3. OTHER OPERATING EXPENSES
Year Ended 8 August 2003
31 December 2004 (Formation Date)
to
31 December 2003
e'000 e'000
----------------------- -------------- --------------
Professional fees 764 484
Management fees (Note 14) 2,180 257
Other 459 18
-------------- --------------
3,403 759
============== ==============
4. AVAILABLE-FOR-SALE SECURITIES
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
------- -------- ------ ------- -------- ------ ------- ------ -------
Portfolio
II
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
------- -------- ------ ------- -------- ------ ------- ------ -------
Portfolio
III
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
------- -------- ------ ------- -------- ------ ------- ------ -------
------- -------- ------ ------- -------- ------ ------- ------ -------
Total
Portfolio 782,419 779,859 7,260 (786) 786,333 BBB+ 4.11% 4.28% 4.07
------- -------- ------ ------- -------- ------ ------- ------ -------
Other
Securities
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
Investments
Asset Backed
commercial
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
ABS.
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.
5. REAL ESTATE LOANS
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
-------- -------- ------ ------- -------- ------ ------ ------ -------
Real
estate 22,165 21,938 - - 21,938 NR 8.35% 8.44% 5.88
loans ======== ======== ====== ======= ======== ====== ====== ====== =======
6. OTHER ASSETS
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
issuance.
7. INVESTMENT PROPERTIES
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%
==================== ================= ================
8. BONDS PAYABLE
CDO Bonds
---------------- -------- --------- -------- --------- ---------
Class Rating Current Carrying Weighted Weighted
Face
Amount Amount Average Average
e'000 e'000 Cost of Maturity
Financing
(in years)
---------------- -------- --------- -------- --------- ---------
A and B Notes AAA/AA 351,000 347,877 2.777% 7.30
================ ======== ========= ======== ========= =========
9. BANK BORROWINGS
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 -
facility
----------------------- -------------------- --------------
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.
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 e197.6 million and 2.35%, respectively
at 31 December 2004.
11. TRADE AND OTHER PAYABLES
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.
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 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.
13. SHARE CAPITAL
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
2003
------------------------------ ------------ ------------
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
============================== ============ ============
14. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS
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.
15. FINANCIAL INSTRUMENTS
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
deposits.
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
obligations.
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 %
------------ --------- -------- ------ ------- ------ ------- ------ -------
2004
Cash and cash
equivalents 10,293 - - 10,293 - - - -
Restricted
cash 2,812 - - 2,812 - - - -
Asset backed
securities,
available for
sale 1,264,484 - - - 46,850 389,893 - -
Real estate
related loans
available for
sale 21,938 - - - - 21,938 - 827,741
Investment
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
--------- -------- ------ ------- ------ ------- ------ -------
2003
Cash and cash
equivalents 1,690 - - 1,690 - - - -
Securities
portfolio
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
sheet
e'000 e'000 %
------------ --------- -------- ------ ------- ------ ------- ------ -------
2004
CDO bonds
payable 347,877 - - - - - - 347,877
Bank loans 608,849 - - 364,843 - - 210,000 34,006
Repurchase
agreements 197,584 - - 197,584 - - - -
Trade and
other 266,887 266,887 - - - - - -
payables --------- -------- ------ ------- ------ ------- ------ -------
1,421,197 266,887 - 562,427 - - 210,000 381,883
--------- -------- ------ ------- ------ ------- ------ -------
2003
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.
16. 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
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 -
17. 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). 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.
18. SEGMENTAL REPORTING
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
Interest
expense (13,353) - (310) - (13,663)
Other
operating
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
Total
liabilities (1,152,462) - (266,234) (2,501) (1,421,197)
Minority
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.
19. INVESTMENT IN SUBSIDIARIES
The legal entity group structure of Eurocastle is designed to support the
Group's businesses within an efficient legal, tax, regulatory and funding
framework.
The significant operating subsidiaries, in which the Company owns a 100% equity
interest, are listed by jurisdiction below:
Luxemburg:
Luxgate s.a.r.l.
Eurobarbican s.a.r.l.
Germany:
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
GmbH
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.
20. SUBSEQUENT EVENTS
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.
21. COMPARATIVES
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.
22. OTHER NOTES
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
END
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