TIDMDREF
RNS Number : 4587K
Duet Real Estate Finance Limited
21 September 2016
Press Release 21 September 2016
Duet Real Estate Finance Limited
(the "Company")
Half-Yearly Results and NAV
Duet Real Estate Finance Limited (LSE: DREF), a registered
closed-ended collective investment scheme incorporated in Guernsey,
today announces its half-yearly results for the period from 1
January 2016 to 30 June 2016.
Highlights
Ø A total of 14.93 pence per share (period to 30 2015: 23.51
pence) has been returned by way of B share issues and redemptions
in the six months ended 30 June 2016. In August 2016 a further 7.67
pence per share was returned by way of the same mechanism.
Ø The NAV total return for the six months ended 30 June 2016 was
1.0% (period to 30 June 2015: 3.6%) including dividends paid and
adjusted for capital returned in the period.
Ø The total shareholder return in the six months ended 30 June
2016 was 35.8% (period to 30 June 2015: 9.1%) including dividends
paid and adjusted for capital returned in the period.
Ø The Master Fund continues its realisation phase and will
continue to receive repayments of or sell off its underlying
investments and return capital to the Company. The Directors intend
to continue to distribute such proceeds to shareholders by way of
further B share issues and redemptions.
Chairman's Statement
I am pleased to present the Company's half-yearly financial
report and unaudited condensed interim financial statements for the
period ended 30 June 2016.
Investment Performance, Capital Management and Dividends
The Company's NAV per share at 30 June 2016 was 14.6 pence (30
June 2015: 27.4 pence). The Company returned 14.9 pence per share
by means of B share issues and redemptions (period to 30 June 2015:
23.5 pence). Based on the opening NAV per share of 29.2 pence as at
31 December 2015 (31 December 2014: 51.3 pence) the NAV total
return in the period was 1.0% (period to 30 June 2015: 3.6%).
The Company's share price at 30 June 2016 was 13.25 pence (30
June 2015: 25.25 pence). Based upon an opening share price of 20.75
pence at 31 December 2015 (31 December 2014: 46.75 pence), the
total shareholder return in the period to 30 June 2016, including
dividends paid and adjusting for capital returned in the period,
was 35.8% (period to 30 June 2015: 9.1%) reflecting a much reduced
discount of the share price to NAV.
Following the August 2016 return of capital of 7.67 pence per
share, the Company has now repaid capital of 87.42 pence per share
and paid dividends of 26.05 pence per share. Shareholders who
subscribed at launch (at GBP1 per share) have now had 113.47 pence
returned to them.
Outlook
Since the summer of 2013, the Master Fund has been in its
realisation phase and will continue to receive repayments on its
loans, sell off assets and return capital to the Company.
Shareholders should note that the General Partner of the Master
Fund, as it was entitled to do, elected to extend the life of the
Fund by a further year and one month to 22 January 2017.
As the underlying portfolio of the Master Fund continues to be
realised, your Board anticipates continuing to make distributions
of capital via B Share issues and redemptions. Your Board has been
advised by the Investment Adviser that the Master Fund expects to
be fully realised and distributed within the next few months,
following which your Board expects to recommend to shareholders
that the Company be wound up.
David Staples
Chairman
21 September 2016
Interim Board Report
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company,
which have not materially changed and which are expected to apply
to the remaining period, are considered to fall into the following
categories:
General market, economic, fiscal and regulatory environment:
-- The Company's and the Master Fund's targeted returns are
based on estimates and assumptions that are inherently subject to
significant business and economic uncertainties and contingencies,
and the actual rate of return may be materially lower than the
targeted returns.
-- Declaration, payment, and the amount of any future
distributions by the Company are subject to the discretion of the
Directors and will depend upon, among other things: the performance
of the Master Fund, realisations of its underlying investments and
consequent returns of capital, distributions made by the Master
Fund and the size of any such distributions as well as the
Company's financial position and cash requirements.
-- The Ordinary Shares may trade at a discount to NAV.
-- The Company and the Master Fund are exposed to changes in tax
and other laws, accounting standards or regulation and any
potential costs arising, potentially with retrospective effect.
-- The Master Fund is exposed to the commercial real estate
market. The value of underlying real estate and the rental income
it produces may fluctuate as a result of factors which are outside
the Company's control.
Concentration and other risks due to the realisation stage of
the Master Fund:
-- The Company is not able to participate in the investment or
divestment decisions of the Master Fund, in which it has invested
substantially all of its capital.
-- It may not be possible for the Company to dispose of its
interest in the Master Fund if it wished to do so.
-- The value of an investment can go down as well as up and, as
a result, a Limited Partner in the Master Fund (including the
Company) may lose some or all of its commitment or the value of its
investment.
-- There is currency risk in the Master Fund from material
movements in the exchange rate between Sterling and the currency in
which certain investments are made, particularly as a result of the
increased volatility since the result of the EU referendum. To
limit currency risk the Master Fund uses currency derivatives to
hedge its exposure, but there is no guarantee that the hedges will
be completely effective.
-- Borrowers from the Master Fund may repay loans early leading
to different returns, and a loss of further returns from that
investment.
-- As the Master Fund sells off its loans or they are repaid, so
the number of remaining loans in the portfolio diminishes which
will lead to increased concentration risk and potentially
proportionately greater currency risk at the Master Fund level.
Reliance on the Investment Adviser:
-- The Investment Adviser is dependent upon the expertise of key
personnel in providing investment advisory services to the Company
and the Master Fund.
-- Failure by the Investment Adviser or other third-party
service providers of the Company and/or the Master Fund to carry
out its or their obligations could materially disrupt the business
of the Company and/or of the Master Fund.
The principal risks and uncertainties in relation to financial
instruments are shown on page 19 of the audited financial
statements for the year ended 31 December 2015.
Related Parties
Related party disclosures are given in note 15.
Going Concern
The Master Fund, the Company's sole investment, is expected to
be fully realised within the next few months. The life of the
Master Fund has already been extended for the maximum period of two
years and one month to 22 January 2017. It is therefore expected
that the Master Fund and hence the Company will distribute the
majority of their remaining assets and income before the end of the
financial year and the Board is then likely to recommend to
shareholders that the Company be wound up. Although the timing
cannot be guaranteed, and even though the Company remains solvent
the Directors no longer consider that the Company is a going
concern and the financial statements have been prepared on a break
up basis.
Auditor interim review
The Board determined that, in view of the Company's situation
referred to above, it was no longer appropriate to incur the cost
of engaging the auditors to conduct a review of and issue a report
on the interim financial information.
Statement of Directors' Responsibility
The Directors confirm that, to the best of their knowledge,
these unaudited condensed interim financial statements for the
period have been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting' as adopted by
the European Union and give a true and fair view of the assets,
liabilities, financial position and profit of the Company as
required by Disclosure and Transparency Rule DTR 4.2.4. The
Chairman's Statement, Interim Board Report and the Investment
Adviser's Report (together constituting the Interim Management
Report) include a fair review of the information required by the
Disclosure and Transparency Rules DTR 4.2.7R and DTR 4.2.8R,
namely:
a. an indication of important events that have occurred during
the first six months of the financial year and their impact on the
unaudited condensed interim financial statements, and a description
of the principal risks and uncertainties for the remaining six
months of the year; and
b. material related party transactions that have taken place in
the first six months of the current financial year that have
materially affected the financial position or performance of the
Company during that period, and any material changes in the related
party transactions disclosed in the Annual Report.
By order of the Board:
David Staples
Director
21 September 2016
Investment Adviser's Report
Upon the completion of its investment programme in May 2013, the
Master Fund consisted of 15 investments with an original
acquisition cost of GBP264.7 million. Based on the respective
acquisition cost of each investment, the fully invested portfolio
had a blended loan-to-value ratio of 69.6% along with a blended
cash pay coupon and payment-in-kind coupon of 9.8% and 2.1%
respectively. The portfolio provides the income and total return as
targeted in the Company's prospectus, whilst maintaining a
resilient risk profile.
As at 30 June 2016, the Master Fund consisted of 5 investments
with a combined unrealised balance of GBP39.0 million. Based on the
respective balance of each investment, the portfolio as at 30 June
2016 had a blended loan-to-value ratio of 68.4% along with a
blended cash pay coupon and payment-in-kind coupon of 6.5% and 4.8%
respectively.
In respect of the unrealised investments forming the residual
portfolio, we continue to assess and monitor investments, with a
particular focus on such aspects as debt servicing arrangements,
compliance with loan covenants and the asset management of the
underlying real estate.
The Company is 95% drawn against its total commitment to the
Master Fund. Following a second partial cancellation of available
commitments by the Master Fund in May 2015, a total of GBP0.53
million (0.7% of total remaining commitment following the second
partial cancellation of available commitments) remains available to
be drawn by the Master Fund for follow-on contributions to existing
investments and for working capital.
A summary of the key performance of the Company and investment
activity of the Master Fund is as follows:
Performance - for the six month period to 30 June 2016 and post
period end
In July 2016, the Master Fund received a full repayment of
mezzanine loan investment 2 (secured by a prime office in the UK),
earning returns in line with its investment criteria.
The Investment Adviser anticipates the trend of earlier
repayments to continue due to the increased liquidity in the
financing markets, the ongoing deleveraging through amortisation of
most transactions, and the generally rising trend in asset values
which has encouraged borrowers to refinance or sell the assets that
back the remaining loans in the Master Fund.
As regards the recent UK EU Referendum result the Investment
Adviser remains hopeful that the Master Fund's remaining assets
will be fully realised within the next few months and in line with
their investment criteria.
Investment Performance
The Company raised GBP76.0m and has, including the return of
capital paid on 11 August 2016, paid dividends totalling GBP19.3m
and returned capital totalling approximately GBP66.5m. The total
value to paid-in ratio of the Company at 30 June 2016 was 1.19 (31
December 2015: 1.19; 30 June 2015: 1.17), based on capital
raised.
The composition of the fully invested portfolio of the Master
Fund along with the make-up of the portfolio as at 30 June 2016 are
detailed in the charts and tables that follow:
Portfolio as at 30 June 2016
Current portfolio Fully invested portfolio
Number of Deals 5 15
Total Unrealised GBP39.0m(2) GBP264.7m
Portfolio
WA LTV 68.4% 69.6%
Coupon
WA Cash Pay 6.48% 9.80%
WA PIK 4.78% 2.06%
Asset Types
Offices 88% 45%
Hotels -% 32%
Retail -% 13%
Healthcare 12% 7%
Mixed -% 3%
Region
UK 70% 50%
Germany -% 24%
France -% 15%
Netherlands 12% 3%
Denmark -% 6%
Belgium 18% 2%
(1) Excluding events post 30 June 2016
(2) Post provision for impairment
Portfolio as at 30 June 2016
Balance
(including
Portfolio Asset accrued
Investment Type Country interest) Description
Loan Offices United Kingdom GBP22.5m Mezzanine loan secured
2 by an office
Loan Healthcare United Kingdom GBP0.0m Mezzanine and senior loan
5 secured by a portfolio
of care homes
Loan Offices Netherlands EUR6.0m Senior loan backed by an
10 office and warehouse portfolio
of 23 assets
Loan Offices Belgium EUR8.4m Mezzanine loan secured
11 by an office
CMBS Healthcare United Kingdom GBP4.7m Securitisation backed by
1 a portfolio of private
hospitals
ERED Investment Adviser LLP
September 2016
Unaudited Condensed Statement of Comprehensive Income
for the period ended 30 June 2016
Period from Period from
1 January 1 January
to to
30 June 30 June
2016 2015
(unaudited) (unaudited)
Note GBP GBP
Investment income 172,412 1,878,662
Net change in fair value on financial
assets at fair value through profit
or loss 209,644 (360,483)
Expenses 7 (177,605) (181,663)
________ ________
Profit for the period and total
comprehensive income 204,451 1,336,516
Earnings per Ordinary Share 8 0.28 pence 1.82 pence
The notes form an integral part of these unaudited condensed
interim financial statements.
Unaudited Condensed Statement of Financial Position
as at 30 June 2016
30 June 31 December
2016 2015
(unaudited) (audited)
Note GBP GBP
Assets
Non-current assets
Financial assets at fair value
through profit or loss 10 - 20,220,570
_________ _________
Current assets
Financial assets at fair value
through profit or loss 10 9,450,751 -
Interest receivable 161 118
Receivables 24,694 17,243
Cash and cash equivalents 13 1,064,527 800,843
_________ _________
10,540,133 818,204
_________ _________
Total assets 10,540,133 21,038,774
_________ _________
Liabilities
Current liabilities
Payables 11 (53,517) (34,895)
_________ _________
Net assets 10,486,616 21,003,879
Equity shareholders' funds
Share capital 12 15,054,449 25,776,163
Revenue reserves (4,567,833) (4,772,284)
_________ _________
10,486,616 21,003,879
Net asset value per Ordinary Share 8 14.6 pence 29.2 pence
The notes form an integral part of these unaudited condensed
interim financial statements.
The unaudited condensed interim financial statements were
approved by the Board of Directors on 21 September 2016 and were
signed on its behalf by:
David Staples
Director
Unaudited Condensed Statement of Changes in Equity
for the period ended 30 June 2016
Share Revenue
capital reserves Total
Note GBP GBP GBP
Balance at 1 January 2015
(audited) 43,609,633 (5,771,916) 37,837,717
Purchase of own shares 12 (148,081) - (148,081)
Capital return - B Shares (17,302,491) - (17,302,491)
Profit for the period and
total comprehensive income - 1,336,516 1,336,516
Dividend paid to Ordinary
Shareholders 9 - (1,655,971) (1,655,971)
_________ ________ _________
Balance as at 30 June 2015
(unaudited) 26,159,061 (6,091,371) 20,067,690
_________ ________ _________
Balance at 1 January 2016
(audited) 25,776,163 (4,772,284) 21,003,879
Capital return - B Shares (10,721,714) - (10,721,714)
Profit for the period and
total comprehensive income - 204,451 204,451
_________ ________ _________
Balance as at 30 June 2016
(unaudited) 15,054,449 (4,567,833) 10,486,616
_________ ________ _________
The notes form an integral part of these unaudited condensed
interim financial statements.
Unaudited Condensed Statement of Cash Flows
for the period ended 30 June 2016
Period from Period from
1 January 1 January
to to
30 June 30 June
2016 2015
(unaudited) (unaudited)
Note GBP GBP
Cash flows from operating activities
Profit for the period and total
comprehensive income 204,451 1,336,516
Capital distributions from investments 10,979,463 6,430,388
Elimination of non-cash items:
Net change in fair value of financial
assets at fair value through profit
or loss (209,644) 360,483
Movements in working capital:
Increase in receivables (7,494) (5,395)
Increase in payables 18,622 3,644
_________ _________
Net cash inflow from operating activities 10,985,398 8,125,636
_________ _________
Financing activities
Purchase of own shares - (159,856)
Capital return - B Shares 12 (10,721,714) (17,302,491)
Dividend paid 9 - (1,655,971)
_________ _________
Net cash outflow from financing
activities (10,721,714) (19,118,318)
_________ _________
Increase/(decrease) in cash and
cash equivalents 263,684 (10,992,682)
Cash and cash equivalents at start
of period 13 800,843 12,165,411
_________ _________
Cash and cash equivalents at end
of period 13 1,064,527 1,172,729
The notes form an integral part of these unaudited condensed
interim financial statements.
Notes to the unaudited interim financial statements for the
period ended 30 June 2016
1. General information
The Company was incorporated in Guernsey on 7 January 2011 and
is a registered closed-ended collective investment scheme
registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended, and The Registered Collective
Investment Scheme Rules 2008 issued by the Guernsey Financial
Services Commission. The Ordinary Shares were admitted for trading
on the Main Market of the London Stock Exchange on 14 March
2011.
The Company is a feeder fund and invests in the European Real
Estate Debt Fund L.P. (the "Master Fund").
These unaudited condensed interim financial statements were
approved for issue on 21 September 2016. These unaudited condensed
interim financial statements do not constitute statutory accounts
under Guernsey Company.
2. Basis of preparation
As explained in the Interim Board Report, the Directors no
longer consider that the Company is a going concern and the
financial statements have been prepared on a break up basis.
The preparation of financial statements in accordance with the
break up basis requires that assets are reduced to their
recoverable amounts and that provisions are made for future losses.
The Directors have considered whether there is any indication that
the recoverable amount of the Company's assets is lower than the
amount recorded as fair value at 30 June 2016. They have concluded
that any post balance sheet changes in value reflect fair value
changes and do not indicate a reduction in the recoverable amount
at 30 June 2016 and, accordingly, that no adjustment is required to
the carrying amount of the Company's assets or increase in the
Company's liabilities at fair value through profit or loss. In
addition the Directors have considered whether any provision is
required for future losses. The Company will continue to incur
expenses up to the date of liquidation. However, the anticipated
redemption value of the Company's assets is expected to exceed the
Company's estimated future expenses and, accordingly, the Directors
do not consider that a provision for future losses is required.
However, as a consequence of the adoption of the break up basis a
provision of GBP25,000 has been made for the estimated costs of
winding the Company up which the Directors consider likely once the
Master Fund is fully realised and distributed.
The unaudited condensed interim financial statements for the six
months ended 30 June 2016 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34 "Interim Financial Reporting" as adopted
by the European Union. These unaudited condensed interim financial
statements should be read in conjunction with the annual financial
statements for the year ended 31 December 2015, which were prepared
in accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union.
The preparation of unaudited condensed interim financial
statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires the Directors to
exercise judgement in the process of applying the Company's
accounting policies. Changes in assumptions may have a significant
impact on the financial statements in the period the assumptions
change. The Directors believe that the underlying assumptions are
appropriate and that the Company's financial statements therefore
present the financial position and results fairly. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in note 10.
3. Significant accounting policies
The accounting policies adopted, apart from as explained above,
are consistent with those of the previous financial year. Statutory
audited annual financial statements of the Company are prepared in
accordance with IFRS as adopted by the European Union. These
unaudited condensed interim financial statements do not contain all
the information and disclosures as presented in the annual
financial statements.
New IFRS standards, amendments and interpretations
The Company has adopted the following amendments since 1 January
2016.
Annual improvements 2012-2014 cycle
The Directors have assessed the impact of the amendments and
concluded that there is no material impact on the Company's results
of operations or financial position.
Impact of standards issued but not yet applied
IFRS 9, 'Financial instruments', issued in November 2009. This
standard is the first step in the process to replace IAS 39,
'Financial instruments: recognition and measurement'. IFRS 9
introduces new requirements for classifying and measuring financial
assets and may affect the Company's accounting for its financial
assets. The standard is not applicable until 1 January 2018 but is
available for early adoption. However, the standard has not yet
been endorsed by the EU. The Company has yet to assess IFRS 9's
full impact. However, initial indications are that it should not
materially affect the Company's accounting for its financial
instruments.
4. Taxation
The Company is domiciled in Guernsey, Channel Islands. Under the
current laws of Guernsey, there are no income, estate, corporation,
capital gains or other taxes payable by the Company. The Company
does not currently incur any withholding tax in respect of income
received from the Master Fund.
The Company has obtained exemption from Guernsey Income Tax
under The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and
accordingly is subject to an annual fee of GBP1,200.
5. Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors as it is
the body that makes strategic decisions. The Board is of the
opinion that there is only a single operational segment, being the
investment in the Master Fund and the associated investment of cash
awaiting calls from the Master Fund.
6. Seasonality of operations
The nature of the entity is such that the effect of seasonality
is not considered to impact the operations and results of the
Company.
7. Expenses
Period from Period from
1 January 1 January
to to
30 June 30 June
2016 2015
(unaudited) (unaudited)
GBP GBP
Administration fees 34,282 34,078
Directors' fees 41,250 41,250
Audit and interim review fees - 19,550
Provision for winding up costs 25,000 -
Investment adviser's fees 12,500 12,500
Legal and professional fees 25,000 25,000
General expenses 39,573 49,285
_______ _______
177,605 181,663
8. Earnings per share and net asset value per share
The earnings per share calculation is based on profit for the
period and total comprehensive income of GBP204,451 (30 June 2015:
GBP1,336,516) and the weighted average number of shares in issue
for the period of 71,813,222 (30 June 2015: 73,569,405).
Net asset value per share is based on net assets of
GBP10,486,616 (31 December 2015: GBP21,003,879) divided by the
71,813,222 (31 December 2015: 71,813,222) Ordinary Shares in
issue.
9. Dividends
To shareholders For the
on the register period Amount 30 June 30 June
Date paid on ended 31 per share 2016 2015
December
(unaudited) (unaudited)
GBP GBP
20 March 27 February
2015 2015 2014 1.25p - 922,084
26 June
2015 5 June 2015 2015 1.00p - 733,887
________ ________
- 1,655,971
10. Financial assets at fair value through profit or loss
30 June 31 December
2016 2015
(unaudited) (audited)
Current Non-current
GBP GBP
Opening valuation 20,220,570 25,689,930
Capital distributions (10,979,463) (6,430,388)
Unrealised gain on revaluation of
investments 209,644 961,028
_________ _________
Closing valuation 9,450,751 20,220,570
The investment has been re-categorised as a current asset during
the period following the adoption of the break up basis.
The investment comprises an investment in the Master Fund. The
Company has a committed investment of GBP75,333,953 (31 December
2015: GBP75,333,953) of which GBP71,451,201 (31 December 2015:
GBP71,451,201) had been drawn down as at the period end. On 22
April 2015 GBP739,567 of the undrawn down amount was cancelled, and
a further GBP2,610,308 was cancelled on 13 November 2015, leaving
the undrawn commitment to the Master Fund at 30 June 2016 at
GBP532,877 (31 December 2015: GBP532,877).
The fair value of the investment in the Master Fund was impacted
by an accrual for the estimated performance fee payable at the
Master Fund level.
The Master Fund had a scheduled termination date of 22 December
2014 unless extended at the discretion of the General Partner for a
maximum of two years and one month by the addition of a one year
period and a further one year and one month period. The General
Partner of the Master Fund elected to extend the life of the Fund
by one year to 22 December 2015 and has further elected to extend
the life of the Fund by one year and one month to 22 January 2017.
The life of the Master Fund may only be further extended by
agreement with the limited partners.
Equalisation was paid to or received from the Master Fund when
additional investors were admitted to the Master Fund, including
the initial investment by the Company. Amounts were paid to or
received from the Master Fund so as to equalise (in percentage
terms) the net amount drawn from all investors after taking into
account any amounts distributed by the Master Fund to prior
existing investors. Equalisation paid to the Master Fund was
included as part of the purchase cost of the investment and
equalisation received from the Master Fund represents a temporary
return of capital which can be called again by the Master Fund from
the Company as part of its commitment to invest. The Company did
not receive any equalisation payments from the Master Fund in the
period, as the Master Fund is closed to new investors. No further
equalisation amounts are expected to be received or paid in future
periods.
The Company's investment in the Master Fund is subject to the
terms and conditions set out in the Master Fund's offering
documents and is accounted for by the Company as at fair value
through profit or loss as determined by the Directors at the period
end date, this fair value being primarily based on the latest
available coterminous reported information from the Master Fund.
The Directors review the details of the reported information
obtained from the Master Fund and consider: (i) the liquidity of
the Master Fund and/or its underlying investments, (ii) the type of
investments held within the Master Fund, (iii) the date of the net
asset value (NAV) provided, (iv) any restrictions on redemptions,
and (v) the basis of accounting adopted by the Master Fund in
valuing the investments held and in reporting to investors (the
Master Fund reports to investors using IFRS principles). If
necessary, the Directors make adjustments to the NAV of the Master
Fund so as to obtain the best estimate of fair value as at the
period end date. No such adjustments have been made to the reported
NAV of the Master Fund as at 30 June 2016. In addition to normal
short term receivables/payables and cash balances, the investment
portfolio held by the Master Fund as at 30 June 2016 included:
i) originated debt with fixed or determinable payments that are
not quoted in an active market and classified as "loans and
receivables" measured at amortised cost less any impairment;
and
ii) debt instruments comprising of commercial mortgage backed
securities which are classified at fair value through profit or
loss and valued by the Master Fund based on a combination of quoted
market prices, dealer quotations or alternative pricing sources
supported by observable inputs.
Although the Directors use their best judgement in estimating
the fair value of investments, there are inherent limitations in
any estimation techniques.
The significant matters considered by the Directors in
determining the fair value of the investment in the Master Fund are
noted above. The investment in the Master Fund is a level 3
investment (see below) and as expected, there are significant
unobservable inputs used by the General Partner to the Master Fund
in assessing its own view on the values of the investments held at
the level of the Master Fund. No quantitative information is
provided by the Company in respect of those significant
unobservable inputs as those inputs are not developed by the
Company when measuring its fair value assessment for its investment
in the Master Fund and those significant unobservable inputs at the
Master Fund level are not reasonably available to the Company.
The Company's investment in the Master Fund is categorised as
level 3 within the fair value hierarchy under IFRS 13, which
indicates inputs for the asset that are not based on observable
market data (unobservable inputs). The table below shows the
movements in level 3 investments and the unrealised gain thereon
recognised in the statement of comprehensive income.
30 June 31 December
2016 2015
(unaudited) (audited)
Level 3 Level 3
GBP GBP
Opening valuation 20,220,570 25,689,930
Capital distribution (10,979,463) (6,430,388)
Unrealised gain on revaluation of
investments 209,644 961,028
_________ _________
Closing valuation 9,450,751 20,220,570
The Company is exposed to market price risk from its holding in
the Master Fund. If the NAV of the Master Fund increased (or
decreased) by 5%, with all other variables held constant, net
assets would increase (or decrease) by GBP472,538 (31 December
2015: GBP1,011,029). The Company's investment in the Master Fund
gives rise to no direct exposure to currency risk or interest rate
risk although the Master Fund itself is exposed to such risks.
11. Payables
30 June 31 December
2016 2015
(unaudited) (audited)
GBP GBP
Audit and interim review fee payable - 18,000
Provision for winding up costs 25,000 -
Other payables 28,517 16,895
_________ _________
53,517 34,895
12. Share capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares of no par value.
Under Guernsey law, the whole of the share capital account is
distributable subject to meeting the solvency test criteria and any
restrictions in the Articles of Incorporation of the Company.
Allotted, called up and fully paid
B shares Ordinary Shares
Number GBP Number GBP
Balance at 1 January
2015 - - 73,766,709 43,609,633
Own shares purchased
and cancelled - - (1,953,487) (530,979)
Capital issued during
year 147,105,418 17,302,491 - (17,302,491)
Capital distributed
during year (147,105,418) (17,302,491) - -
_________ _________ _________ _________
Balance at 31 December
2015 - - 71,813,222 25,776,163
B shares Ordinary Shares
Number GBP Number GBP
Balance at 1 January
2016 - - 71,813,222 25,776,163
Own shares purchased
and cancelled - - - -
Capital issued during
year 71,813,222 10,721,714 - (10,721,714)
Capital distributed
during year (71,813,222) (10,721,714) -
_________ _________ _________ _________
Balance at 30 June
2016 - - 71,813,222 15,054,449
Ordinary Shares carry the rights to any dividend or other
distribution out of the profits of the Company and to vote. On
winding up, the Ordinary Shareholders shall be entitled to the
surplus assets remaining after payment of all creditors.
B Shares do not carry any rights to any dividend or other
distribution out of the profits of the Company or any voting rights
and are not transferable. B Shares were issued to existing
shareholders and redeemed during the period ended 30 June 2016 as
detailed below.
On 28 January 2016, the Company made a Capital Return to
shareholders of GBP10,721,714 equivalent to 14.93 pence per
Ordinary Share by way of an issue on 26 January 2016 and redemption
on 27 January 2016 of B Shares on a pro rata basis.
The Company's objective when managing its capital is to follow
its investment objective to provide shareholders, through its
investment in the Master Fund, with regular dividends and an
attractive total return, whilst limiting downside risk to capital
through exposure to European commercial real estate debt. During
the period, the Master Fund realised certain of its investments and
made capital distributions to the Company. The Company's policy is
to return such capital distributions to investors. The mechanism
for making these capital returns is largely by way of an issue of
redeemable B Shares to existing shareholders and subsequent
redemption of these shares pro rata to their holding.
The Company has a significant investment in the Master Fund and
therefore the Company's financial performance when managing its
capital depends almost entirely on the performance of its
investment in the Master Fund. However, in addition the Company may
borrow up to 20% of NAV, has the ability to suspend payment of
dividends if necessary, may buy back its own shares and may issue
further shares.
Purchase of own shares
There were no purchases of own shares during the period (30 June
2015: 428,000 shares purchased for GBP148,081).
The shares were bought back on the open market and were
cancelled. The cancelled shares represented 0.0% (30 June 2015:
0.6%) of the voting rights.
13. Cash and cash equivalents
30 June 31 December
2016 2015
(unaudited) (audited)
GBP GBP
Cash and cash equivalents at end
of the period comprised:
Cash 39,828 9,445
Money market funds 1,024,699 791,398
_________ _________
1,064,527 800,843
14. Financial risk management
The Company's activities expose it to a variety of financial
risks. The main risks arising from the Company's financial
instruments are market risk, credit risk and liquidity risk.
These unaudited condensed interim financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements, and therefore should
be read in conjunction with the Company's annual financial
statements for the year ended 31 December 2015.
15. Related party and material transactions
The Company pays a fixed annual fee of GBP25,000 to the
Investment Adviser, ERED Investment Adviser LLP ("ERED"), a joint
venture between DRC Capital LLP and Duet Private Equity Limited.
The charge for the period was GBP12,500 (30 June 2015: GBP12,500)
and at 30 June 2016 GBP6,250 was prepaid (31 December 2015:
GBPNil). There are no performance fees payable at the Company
level, although the Investment Adviser is incentivised by
performance fees payable at the Master Fund level.
Transactions and balances with the Master Fund are disclosed in
note 10. In addition distributions from the Master Fund of
GBP170,487 (30 June 2015: GBP1,875,839) are included in investment
income in the statement of comprehensive income.
Directors' interests
No Director has a material interest in any contract which is
significant to the Company's business. David Staples has an
interest in 7,000 shares (31 December 2015: 7,000) and David Moore
has an interest in 39,329 shares (31 December 2015: 39,329). No
other Director who held office at 30 June 2016 had an interest in
the Ordinary Shares of the Company.
16. Subsequent events
On 13 July 2016, a capital distribution of GBP5,512,878 was
received from the Master Fund.
On 11 August 2016, the Company made a Capital Return to
shareholders of GBP5,508,074 equivalent to 7.67 pence per Ordinary
Share by way of an issue on 9 August 2016 and redemption on 10
August 2016 of B Shares on a pro rata basis.
On 12 August 2016, a capital distribution of GBP198,110 was
received from the Master Fund.
Corporate information
Directors Legal advisers to the Company
John Falla (Guernsey Law)
David Moore Carey Olsen
David Staples (Chairman) PO Box 98
Carey House
Administrator, secretary and Les Banques
registered office St Peter Port
International Administration Guernsey
Group (Guernsey) Limited GY1 4BZ
Regency Court
Glategny Esplanade Legal advisers to the Company
St Peter Port (English Law)
Guernsey Berwin Leighton Paisner LLP
GY1 1WW Adelaide House
London Bridge
Registrar London
Capita Registrars (Guernsey) EC4R 9HA
Limited
Mont Crevelt House UK transfer agent
Bulwer Avenue Capita Registrars Limited
St Sampson The Registry
Guernsey 34 Beckenham Road
GY2 4LH Beckenham
Kent
Investment adviser BR3 4TU
ERED Investment Adviser LLP
6 Duke Street St James's Principal bankers
London Bank of New York Mellon London
SW1Y 6BN Branch
One Canada Square
Independent auditors London
PricewaterhouseCoopers CI LLP E14 5AL
PO Box 321
Royal Bank Place Financial adviser and sponsor
Glategny Esplanade Stifel Nicolaus Europe Limited
St Peter Port 150 Cheapside
Guernsey London
GY1 4ND EC2V 6ET
For further information, please contact:
DRC Capital LLP +44 (0)20 7042 0600
Dale Lattanzio
Cyrus Korat
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Neil Winward
Mark Bloomfield
Tunga Chigovanyika
IR LLFLFAVILFIR
(END) Dow Jones Newswires
September 21, 2016 09:36 ET (13:36 GMT)
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