TIDMDREF
RNS Number : 5941T
Duet Real Estate Finance Limited
30 March 2016
Press Release 30 March 2016
Duet Real Estate Finance Limited
(the "Company")
Final Results
Duet Real Estate Finance Limited (LSE: DREF), a registered
closed-ended investment scheme incorporated in Guernsey, today
announces its final results for the year ended 31 December
2015.
Highlights
Ø A total of 23.51 pence per share (2014: 41.3 pence per share)
has been returned by way of B share issues and redemptions in the
year. In January 2016 a further 14.93 pence per share was returned
by way of the same mechanism.
Ø As a result of the significant returns of capital in 2014 and
2015, the total of dividends paid in the year dropped to 2.85 pence
per share (2014: 6.20 pence).
Ø Earnings were 4.2 pence per share (2014: 5.2 pence per
share)
Ø The NAV total return for the year was 8.4% (2014: 5.7%)
including dividends paid and adjusted for capital returned in the
period.
Ø The total shareholder return in the year was 0.8% (2014: 9.0%)
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 Annual Report and audited Financial
Statements of the Company for the year ended 31 December 2015.
Economic Backdrop
European stock markets continued to recover in 2015, as markets
saw benefit from low interest rates and the European Central Bank's
(ECB) quantitative easing programme which added liquidity to the
economy. The UK saw steady improvement for most of the year, aided
by the result of the General Election, but there was a general
slowdown in the latter part of the year owing to uncertainty over
Chinese growth and consideration over a possible exit from the
European Union.
2015 saw further growth in the commercial real estate investment
market to record levels, and despite the greater volatility arising
from concerns over China and oil prices, European economies have
benefitted from the ongoing mix of low commodity prices and
emerging markets weakness.
Total commercial real estate investment activity in the EMEA
region increased by a further 20% to EUR263 billion in 2015. This
was driven by a 30% year-on-year increase in activity in Germany,
whilst all of the other major European economies also saw growth
from 2014 levels. The continued, buoyant transaction levels aided
the Master Fund in realising a further three of its investments
during the year, delivering returns in line with its investment
criteria.
The positive market sentiments also spread to the European
commercial real estate debt market, which, buoyed by strong
performance in the UK, France and Germany as well as increased
appetite in Spain and the Nordic markets, saw new commercial real
estate lending rise 39% from 2014 to an estimated EUR125 billion in
2015.
Investment Performance, Capital Management and Dividends
I am pleased to report that your Company had a solid year and
continued to make income returns to shareholders. The Master Fund
has been fully invested since May 2013 and continued its
realisation phase resulting in three exits and consequent capital
returns to the Company in line with return expectations but ahead
of schedule as regards to timing. This resulted in the Company
returning to shareholders 23.5 pence per share in 2015 by means of
two separate B share issues and redemptions (2014: 41.3 pence). The
third realisation was paid out in January 2016. Aside from Loan 5,
which is fully written down as reported last year, the Investment
Adviser continues to report that the four other remaining loans in
the Master Fund's portfolio continue to perform well.
The Company's NAV per share at 31 December 2015 was 29.2 pence
(2014: 51.3 pence). The Company paid four dividends during the
year, totaling 2.85 pence per share (2014: 6.20 pence). NAV total
return for the year, including those dividends and adjusting for
capital returned, was 8.4% (2014: 5.7%). The Company's share price
at 31 December 2015 was 20.8 pence (2014: 46.8 pence). The total
shareholder return in the year was 0.8% (2014: 9.0%), including
dividends paid and adjusting for capital returned in the period,
having been impacted by a widening of the share price discount to
NAV per share.
During the year, the Company bought back 1,953,487 of its own
shares for GBP530,979. All purchases were made at meaningful
discounts to the prevailing NAV, at an average price of 95% of NAV,
and so were accretive to NAV per share.
The Company has paid dividends totaling 1.6 pence per share in
respect of the year to 31 December 2015. Following the significant
capital repayments by the Master Fund, the level of income from the
Master Fund has much reduced. The Directors took the view to forgo
the March 2016 dividend payment as the costs of making the
distribution would have been disproportionately high to the small
dividend which could have been paid. The Directors will continue to
evaluate on a quarterly basis whether there will be sufficient net
income to pay dividends bearing in mind the costs of making
relatively small distributions.
In January 2016, the Company returned an amount of GBP10.72
million, equivalent to 14.93 pence per share, being the Company's
share of proceeds realised by the Master Fund following the
realisation of Loan 12, via an issue of redeemable B shares to
existing shareholders and subsequent redemption of those shares pro
rata to their holding.
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. Given the
profile of the remaining assets in its portfolio, we viewed this as
a sensible move.
As the underlying portfolio of the Master Fund continues to be
realised, your Board anticipates that the Company will continue to
make distributions of capital via B Share issues and redemptions.
Barring any catastrophe in the debt and real estate markets, we are
now hopeful that the Master Fund will be fully realised without the
need for a life extension (which can only be done with the consent
of the Limited Partners) and therefore the Company will have
distributed the bulk of its assets and income within the next
twelve months.
David Staples
Chairman
30 March 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.
Following the full realisation of 2 of the Master Fund's
investments in the second half of 2014, a further 3 investments
have been fully realised during 2015 earning returns in-line with
the Fund's stated objective.
As at 31 December 2015, the Master Fund consisted of 5 ongoing
investments with a combined unrealised balance of GBP39.2 million.
Based on the respective balance of each investment, the portfolio
as at 31 December 2015 had a blended loan-to-value ratio of 68.7%
along with a blended cash pay coupon and payment-in-kind coupon of
6.6% and 4.6% 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 initial commitment to
the Master Fund. Following a further cancellation of available
commitments by the Master Fund in April 2015, a total of GBP0.53
million (0.7% of total commitment) 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 and investment activity of the
Master Fund is as follows:
Performance - during 2015 and post year end
In April 2015, the Master Fund received a full repayment of
mezzanine loan investment 7 (secured by retail property in
Germany), earning returns in line with its investment criteria.
In June 2015, the Master Fund received a full repayment of a
further mezzanine loan investment, Loan 9 (secured by a business
park property in the UK), earning returns in-line with its
investment criteria.
In December 2015 the Master Fund received the full repayment of
all principal and accrued interest on its German Hotels loan (Loan
12). The loan repaid significantly ahead of the scheduled maturity
date. The early redemption, along with favourable terms specific to
the underlying investment, resulted in returns in excess of the
usual investment criteria. The Master Fund made the relevant
capital distribution to the Company in January 2016.
The Investment Adviser anticipates the trend of earlier
repayments to continue as increased liquidity in the financing
markets, the ongoing deleveraging through amortisation of most
transactions and the generally rising trend in asset values
encourage borrowers to refinance or sell the assets that back the
remaining loans in the Master Fund.
Investment Performance
The Company raised GBP76.0m and has paid dividends totalling
GBP19.3m and returned capital (including the January 2016 capital
return) totalling approximately GBP61.0m. The total value to
paid-in ratio of the Company at 31 December 2015 was 1.190, based
on capital raised.
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The following table summarises the progression of the Company's
Net Asset Value over the course of the year ended 31 December 2015,
showing the effect of dividends paid and capital returned during
each period.
NAV Cumulative Cumulative
per Capital Dividend Total
share returned Paid
31 December
2015 29.3p 23.5p 2.9p 55.7p
30 September
2015 27.5p 23.5p 2.6p 53.6p
30 June 2015 27.4p 23.5p 2.3p 53.2p
31 March 2015 36.9p 14.2p 1.3p 52.4p
31 December
2014 51.3p - - 51.3p
The composition of the fully invested portfolio of the Master
Fund along with the make-up of the portfolio as at 31 December 2015
are detailed in the charts and tables that follow:
Portfolio as at 31 December 2015(1)
Current portfolio(1) Fully invested
portfolio
Number of Deals 5 15
Total Unrealised GBP39.2m(2) GBP264.7m
Portfolio
Weighted Average
LTV 68.7% 69.6%
Coupon
Weighted Average
Cash Pay 6.55% 9.80%
Weighted Average
PIK 4.63% 2.06%
Asset Types
Offices 88% 45%
Hotels - 32%
Retail 12% 13%
Healthcare - 7%
Mixed - 3%
Region
UK 67% 46%
Germany - 22%
France - 16%
Netherlands 15% 7%
Denmark - 6%
Belgium 18% 3%
(1) excluding events post 31 December 2015 (see above -
'Performance - during 2015 and post year end')
(2) post provision for impairment
Portfolio as at 31 December 2015
Portfolio Asset
Investment Type Country Amount Description
Loan Offices United GBP21.7m Mezzanine loan secured
2 Kingdom by an office
Loan Healthcare United GBP0.0m Mezzanine and senior
5 Kingdom loan secured by a
portfolio of care
homes
Loan Offices Netherlands EUR7.6m Mezzanine loan secured
10 by an office and warehouse
portfolio of 23 assets
Loan Offices Belgium EUR8.2m Mezzanine loan secured
11 by an office
CMBS Healthcare United GBP4.6m Securitisation backed
1 Kingdom by a portfolio of
private hospitals
ERED Investment Adviser LLP
March 2016
Board of Directors
David Staples (Chairman)
David, a Guernsey resident, has a BSc in Business Economics and
Accounting from the University of Southampton. He is a fellow of
the Institute of Chartered Accountants in England and Wales and a
Chartered Tax Adviser. He also holds the Institute of Directors'
Diploma in Company Direction. David joined PricewaterhouseCoopers
("PwC") in the UK in 1978 and became a partner in 1990. David
remained with PwC until 2003 and held a number of senior positions
during that time, including head of tax for the south east region.
David is currently on boards of a number of listed companies, being
MedicX Fund Limited, a leading investor in large, purpose-built GP
surgeries (of which he is chairman), Gottex Fund Management
Holdings Limited, a global alternative investment management group,
Aberdeen Private Equity Fund Limited, Global Fixed Income
Realisation Limited and Henderson Far East Income Limited. He is
also a director of HSBC Private Bank (C.I.) Limited and the general
partners of five private equity funds advised by Apax.
David was appointed to the Board in February 2011 and has served
as Chairman since January 2013.
John Falla
John, a Guernsey resident, is a Chartered Accountant and has a
BSc Hons degree in Property Valuation and Management from The City
University, London. He is a Chartered Fellow of the Chartered
Institute for Securities and Investment having been awarded their
diploma. John joined Ernst and Young in London in 1984 as a trainee
in the audit department and moved to the corporate finance
department in 1989, becoming a senior manager before moving back to
Guernsey in 1996. On his return to Guernsey John joined Bermuda
Trust Company (Guernsey) Limited, part of the Bank of Bermuda Group
as trust development manager focussing on business development as
well as dealing with private trust and employee benefit fiduciary
and corporate structures. In 1998 John was part of the team that
launched the Channel Islands Stock Exchange and he set up the
listing department responsible for vetting applications for listing
and monitoring compliance with continuing obligations. He was a
member of the Market Authority of the Exchange and contributed
towards the development of the listing rules of the Exchange. In
2000 John joined Edmond de Rothschild (C.I.) Limited and provided
corporate finance advice to clients including open and closed-ended
investment funds, and institutions with significant property
interests. John served on the board of a number of Edmond de
Rothschild group operating and investment companies. He is now a
non-executive director and consultant. He is also on the Board of
SQN Asset Finance Income Fund Limited and NB Private Equity
Partners Limited, both listed and/or publicly traded companies.
John was appointed to the Board in February 2011 and has served
as Chairman of the Audit Committee since January 2013.
David Moore
David, a Guernsey resident, is a lawyer and an advocate of the
Royal Court of Guernsey. He holds an LLB from Wolverhampton
University and an LLM from Cambridge University. He is currently a
consultant with Collas Crill in Guernsey. David was formerly a
partner with Mourant Ozannes where he worked from 1993 to January
2013, and was Head of the Corporate Department within Ozannes prior
to its merger with Mourant,du Feu & Jeune. Before that he spent
10 years practising in the City of London, predominantly with
Ashurst Morris Crisp. He specialises in corporate, banking,
insurance and financial matters and is non-executive director of
Raven Russia Limited and was, until May 2013, a director (and
former Chairman) of Standard Life Investments Property Income Trust
Limited. He is also a director of a number of unlisted financial
institutions including banking, investment management and insurance
companies.
David was appointed to the Board in April 2013.
Directors' Report
The Directors present their annual report on the affairs of Duet
Real Estate Finance Limited (the "Company"), together with the
audited financial statements, for the year ended 31 December
2015.
The Company
The Company was incorporated in Guernsey on 7 January 2011 and
is a registered closed-ended 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.
Principal activity
The principal activity of the Company is that of an investment
company. The Company is a feeder fund and is invested solely in the
European Real Estate Debt Fund L.P. (the "Master Fund").
Business review
A review of the Company's business during the period designed to
provide information primarily about the Company's business and
results for the period and an indication of likely future
developments is contained in the Chairman's Statement and
Investment Adviser's Report.
Results and dividends
The results for the year are shown in the Statement of
Comprehensive Income.
The following dividends were paid during the years 2015 and
2014:
For
the Amount Year ended Year ended
To share-holders period per 31 December 31 December
Date paid on the ended share 2015 2014
register 31 December
on
GBP GBP
14 March 21 February
2014 2014 2013 2.25p - 1,685,815
13 June 23 May
2014 2014 2014 1.65p - 1,232,139
19 September 29 August
2014 2014 2014 1.30p - 970,777
19 December 28 November
2014 2014 2014 1.00p - 741,767
20 March 27 February
2015 2015 2014 1.25p 922,083 -
26 June 5 June
2015 2015 2015 1.00p 733,887 -
25 September 4 September
2015 2015 2015 0.30p 215,440 -
24 December 4 December
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2015 2015 2015 0.30p 215,440 -
________ ________
2,086,850 4,630,498
A vote on the dividend policy will be held at the 2016 Annual
General Meeting.
Capital structure
The Company has one class of Ordinary Shares of no par value.
The authorised share capital of the Company is an unlimited number
of these Ordinary Shares. The issued share capital of the Company
at 31 December 2015 was 71,813,222 (2014: 73,766,709) Ordinary
Shares.
During the year the Company purchased and cancelled 1,953,487
(2014: 1,158,400) of its own shares for GBP530,979 (2014:
GBP676,211).
Further details are shown in note 9.
Substantial shareholdings
The Company is aware that the following shareholders had an
interest in 3% or more of the issued share capital of the Company
on 10 March 2016.
Number of % of Company's Nature
Investor Ordinary issued share of holding
Shares capital
Merseyside Pension
Fund 10,255,000 14.28 Indirect
West Yorkshire
Pension Fund 10,000,000 13.93 Indirect
Fleming Family
& Partners 9,329,976 12.99 Indirect
CCLA Investment
Management 7,187,089 10.01 Indirect
Kleinwort Benson
Private Bank 4,598,246 6.40 Indirect
Insight Investment
Management 4,164,559 5.80 Indirect
NFU Mutual Investment
Managers 3,700,000 5.15 Indirect
Brooks Macdonald
Asset Management 2,797,734 3.90 Indirect
Alder Investment
Management 2,499,999 3.48 Indirect
Weiss Asset Management 2,431,866 3.39 Indirect
------------------------ ----------- --------------- ------------
Taxation
The Company has obtained exempt tax status in Guernsey under the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and the
Company is not, therefore, liable to taxation in Guernsey. The
Company pays a fixed tax exemption fee of GBP1,200 per annum.
Viability statement
The Company's sole investment is in the Master Fund. The General
Partner of the Master Fund has elected to extend the life of the
Master Fund by a further one year and one month to 22 January 2017,
the second of two extensions available to the General Partner of
the Master Fund at its discretion. The Investment Adviser is
working with the borrowers on the possible early repayment of the
remaining loans in the Master Fund, two of which do have repayment
dates beyond the scheduled end of the Master Fund. It is the
Investment Adviser's current expectation that all of the
investments will be realised in 2016 and on full settlement it is
expected that the Master Fund will be wound up.
The Directors are continuing to monitor the performance of the
Master Fund when assessing the Company's current position and
future prospects through discussion with the Investment Adviser and
review of Investment Adviser's reports and cash flow forecasts. In
making their assessment the Directors have considered a two year
period having regard to the extension of the life of the Master
Fund to 22 January 2017, at which point the Company's investment is
expected to be fully realised.
The future viability of the Company and its business model and
formal strategy will naturally be called into question when the
Master Fund is fully wound up but no decision has yet been made on
the future of the Company by the Directors.
In assessing the viability of the Company, the Directors
conducted a robust assessment of the Principal Risks and
Uncertainties and in particular, given the Master Fund is coming to
the end of its life, the concentration risks and the exposure to
potential additional costs should the Master Fund be unable to
realise its investments and terminate as planned by 22 January
2017.
Based on our assessment of the prospects of the Company and its
viability, the Directors confirm that they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a two year period
ending 31 December 2017.
Going concern
The Directors have also considered it appropriate to prepare the
financial statements on the going concern basis, as explained in
the Basis of preparation paragraph in note 2 to the financial
statements.
Directors
The Directors, who served during the year, were as follows:
John Falla
David Moore
David Staples (Chairman)
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 (2014: 7,000) and David Moore has an
interest in 39,329 shares (2014: 39,329). No other Director who
held office at 31 December 2015 had an interest in the Ordinary
Shares of the Company.
Management
The board of directors is entirely made up of non-executive
directors. The Company has appointed third party service providers
to carry out its day to day activities under the Board's control
and supervision.
The Company has appointed ERED Investment Adviser LLP ("ERED")
as Investment Adviser. ERED is a joint venture between DRC Capital
LLP ("DRC") and Duet Private Equity Limited ("DPEL"). DRC was
formed by the investment team that provided investment advice to
the Company and Master Fund at DPEL. The Company is represented on
the Master Fund's advisory panel and meets with the General Partner
at the Annual General Meeting of the Master Fund.
ERED and DRC are authorised and regulated by the UK Financial
Conduct Authority. DRC is also the Sub-Investment Adviser of the
Master Fund.
The Investment Adviser advises the Directors to enable them to
make informed decisions on behalf of the Company, advises on
funding and working capital requirements of the Company and
provides other investment advisory services as detailed in the
Company Investment Advisory Agreement including the management of
uninvested cash. The Investment Adviser also, upon request by the
Company, provides advice to the Company which is similar in scope
and/or nature to advice already provided or in the course of being
provided to the Master Fund pursuant to the Master Fund Investment
Advisory Agreement. The Company Investment Advisory Agreement will
terminate at the same date as the Master Fund Investment Advisory
Agreement save for the occurrence of certain specified events. The
fee payable by the Company to the Investment Adviser is GBP25,000
per annum payable quarterly in advance.
The Company has appointed International Administration Group
(Guernsey) Limited ("the Administrator") to provide accounting,
company secretarial and administration services to the Company. The
administration fee payable by the Company is an annual fee of
GBP68,563 from 1 July 2015 (previously GBP67,750) payable quarterly
in advance. The Company is also required to reimburse the
Administrator in respect of all reasonable and properly evidenced
out of pocket expenses incurred by the Administrator in the
performance of its duties.
Independent auditors
PricewaterhouseCoopers CI LLP have expressed their willingness
to continue to act as independent auditors of the Company and a
resolution for their reappointment will be proposed at the Annual
General Meeting.
By order of the Board:
John Falla
Director
30 March 2016
Report of the Audit Committee
The Audit Committee, which comprises all the Directors, is
chaired by John Falla. The Board consider that the inclusion of all
Directors on the Audit Committee is appropriate due to the small
size of the Board. The Audit Committee meets as often as required
but at least twice a year. The Audit Committee's main functions
include, inter alia, making recommendations to the Board in
relation to the appointment and remuneration of the Company's
auditors and monitoring and reviewing annually their independence,
objectivity, effectiveness and qualifications. The Audit Committee
also monitors the integrity of the financial statements of the
Company, including its annual and interim reports and any
preliminary results announcements and provide advice to the Board
on whether, taken as a whole, the annual report and accounts are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
The Audit Committee is responsible for overseeing the Company's
relationship with the external auditors. The Audit Committee
considers the nature, scope and results of the auditors' work and
reviews, develops and implements policy on the supply of non-audit
services that are to be provided by the external auditors to ensure
that the auditors continue to be objective and remain independent
of the Company's management whilst still providing value for money.
The Audit Committee focuses particularly on compliance with legal
requirements, accounting standards and the Listing Rules and
ensuring that an effective system of internal financial and
operating controls is maintained.
Significant judgements, key assumptions and estimates
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The Audit Committee pays particular attention to matters it
considers to be important by virtue of their impact on the
Company's results or the level of complexity, judgement or
estimation involved in their application to the financial
statements. The main area of focus during the year is set out
below:
Matter considered Action
Valuation of the Master
Fund
The General Partner At each quarterly board
of the Master Fund provides meeting the Investment
the Board with quarterly Adviser reports to the
capital account summaries Board on the performance
and reports to investors, and methodology of the
which indicate the NAV valuations at the Master
of the Company's sole Fund level. The Board
investment, the Master regularly challenges
Fund, and provide additional the Investment Adviser
detail on the activity. on their reports to
ensure robust and appropriate
The investment in the valuation methods are
Master Fund is carried being applied.
at fair value as determined
by the Directors at The Directors review
the period end date, the details of the reported
such fair value being information obtained
primarily based on the on the Master Fund and
latest available coterminous consider (i) the liquidity
reported information of the Master Fund and/or
from the Master Fund. its underlying investments,
(ii) the type of investments
The Master Fund holds held within the Master
its investments at amortised Fund, (iii) the date
cost, unless the correct of the NAV provided,
treatment requires a and (iv) the basis of
different methodology. accounting adopted by
The significant subjective the Master Fund in valuing
element in determining the investments held
the NAV of the Master and in reporting to
Fund, and therefore investors (the Master
the Board's valuation Fund reports to investors
of the Company's holding, using IFRS principles).
is in regard to credit If necessary, the Directors
risk on the underlying make adjustments to
borrowers and whether the NAV of the Master
there is any event or Fund so as to obtain
risk which requires the best estimate of
a judgement to be made fair value as at the
on the carrying value period end date. No
of an investment. adjustments were required
for the year ended 31
December 2015.
Independent auditors
The Audit Committee obtained sufficient assurance on the quality
of external audit from its own evaluation, the audit feedback
documentation and from correspondence and discussions with the
audit partner to recommend that PricewaterhouseCoopers CI LLP are
proposed for reappointment at the next Annual General Meeting.
The independent auditors have been in office since the initial
reporting period, 31 December 2011.
The auditors provided no non-audit services this year, except
for the review of the interim financial statements. Note 3 details
the total fees paid to PricewaterhouseCoopers CI LLP in the
financial year to 31 December 2015. PricewaterhouseCoopers CI LLP
have confirmed to the Audit Committee in writing that they, in
their professional judgement, are independent within the meaning of
regulatory and professional requirements and the objectivity of the
entire audit team is not impaired. Having considered this and
discussed it with the audit partner, the Audit Committee was
satisfied that PricewaterhouseCoopers CI LLP have continued to be
independent.
Internal controls
The Board has established a process for identifying, evaluating
and managing the financial, operational and compliance risks faced
by the Company. The process is subject to regular review by the
Board.
The Directors are responsible for the Company's system of
internal control which is designed to safeguard the Company's
assets, maintain proper accounting records and ensure that
financial information used within the business, or published, is
reliable. However, such a system can only be designed to manage
rather than eliminate the risk of failure to achieve business
objectives and therefore can only provide reasonable, but not
absolute, assurance against fraud, material misstatement or
loss.
The Board conducts regular risk assessments to identify any
deficiencies in the internal financial, operational and compliance
controls operating over all aspects of the Company. The Board is
responsible for a formal risk assessment on an annual basis and
carries out quarterly reviews. These risk assessment processes are
in line with the UK Corporate Governance Code issued in September
2014.
Since investment advisory services are provided to the Company
by the Investment Adviser and all administrative services are
provided to the Company by third party service providers including
the Administrator, the Company's system of internal control mainly
comprises monitoring the services provided by the Investment
Adviser and the Administrator and their associates, including the
operating controls established by them, to ensure they meet the
Company's business objectives. The Company does not have an
internal audit function of its own, but relies on the internal
review and business control processes operated by the Investment
Adviser and the Administrator to ensure that services are provided
within a suitably managed risk environment. The key elements
designed to provide effective internal control are as follows:
-- Financial Reporting - Regular and comprehensive review by the
Board of key investment and financial data, including Company
periodic financial reports, written reports from the Investment
Adviser, written reports from the Administrator and Company
Secretary;
-- Investment Advisory Agreement - Appointment of an Investment
Adviser regulated by the UK Financial Conduct Authority whose
responsibilities are clearly defined in a written agreement;
-- Administration Agreement - Appointment of an Administrator
regulated by the Guernsey Financial Services Commission ("GFSC"),
whose responsibilities are clearly defined in a written
agreement;
-- Investment Adviser Management Systems - The Investment
Adviser's system of internal control includes organisational
agreements which clearly define the lines of responsibility within
that organisation, delegated authorities, control procedures and
systems. These are monitored by the Investment Adviser's management
team which regularly monitors compliance in accordance with their
compliance manual.
-- Administrator Management Systems - The Administrator's system
of internal control includes internal procedures, checklists and
controls that are subject to a compliance monitoring programme
conducted by its Compliance Officer. This compliance monitoring
programme includes the activities undertaken for the Company by the
Administrator and the objectives of the reviews are to ensure that
work is carried out in compliance with relevant regulation.
Immediate action is taken to resolve any issues raised as a result
of both compliance monitoring and permanent control checks. The
Administrator is subject to periodic inspection by the GFSC. The
Administrator is required to respond to all relevant findings and
implement recommendations by set deadlines.
-- Investment Strategy - The setting and monitoring of the
Company's investment strategy by the Board.
The Board keeps under review the effectiveness of the Company's
system of internal control by monitoring the operation of the key
operating controls of the Investment Adviser and the Administrator
and their associates as follows:
-- the Board reviews the terms of the investment advisory and
administration agreements;
-- the Board receives regular reports from the Administrator
which includes input from the Compliance Officer;
-- the Board receives regular reports from the Investment Adviser;
-- the Board has undertaken a full review of the Company's
business risks which have been analysed in accordance with a risk
matrix, duly recorded, reviewed and updated regularly. As mentioned
above the Board receives various reports to assist with this
review.
In accordance with the procedures set out above the Board
confirms that it has reviewed the effectiveness of the Company's
system of internal control, including the internal control and risk
management systems in relation to the financial reporting process,
for the period ended 31 December 2015. There are no material
matters to report.
John Falla
Audit Committee Chairman
30 March 2016
Corporate Governance Report
The Board has put in place a framework for corporate governance
which it believes is appropriate for an investment company and
which will enable the Company to comply with the UK Corporate
Governance Code and relevant laws.
The Company must comply with the provisions of The Companies
(Guernsey) Law, 2008 and, since its shares are listed on the London
Stock Exchange, the UK Listing Authority's ("UKLA") Listing and
Disclosure Rules ("the Listing Rules"). The Board relies on its
Company Secretary and advisers to ensure adherence to Guernsey
legislation and the UKLA Rules.
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The Financial Reporting Council (the "FRC") has confirmed that
by following the AIC Code of Corporate Governance (the "AIC Code")
(including the Guernsey and Jersey editions) produced by the
Association of Investment Companies in February 2015, boards of
investment companies should fully meet their obligations in
relation to the 2014 FRC published UK Corporate Governance Code,
which is applicable to the Company for this reporting period ended
31 December 2015, and paragraph 9.8.6 of the Listing Rules.
The Board of the Company has considered the principles and
recommendations of the AIC Code by reference to the AIC Corporate
Governance Guide for investment companies (the "AIC Guide"). The
AIC Code, as explained in the AIC Guide, addresses all the
principles set out in the UK Corporate Governance Code, as well as
setting out additional principles and recommendations on issues
that are of specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to shareholders. Copies of the AIC Code and the
AIC Guide can be found at www.theaic.co.uk.
Leadership, Board effectiveness and accountability
The Board comprises three directors, all of whom are independent
non-executive directors. The Directors believe that the Board has a
balance of skills and experience which will enable it to provide
effective strategic leadership and proper governance of the
Company. Information about the Directors including their relevant
experience can be found under the heading Board of Directors.
The Company has no executive directors or employees. The Board
has contractually delegated investment advice and administration,
including accounting and company secretarial, to external agencies.
The Directors are independent of the Investment Adviser and the
Administrator and free of any business or other relationship that
could influence their ability to exercise independent judgement.
The relationships with these external agencies are bound by
Investment Advisory and Administration Agreements which establish
the areas of delegated responsibilities. The Board monitors the
performance of the external agencies and their adherence to the
agreements. All areas outside these agreements remain under Board
authority, which include:
-- Formulation and agreement of strategy;
-- Financial reporting and controls (including oversight of the
appointment of and communications with the auditors and the overall
audit process);
-- Board membership and other appointments;
-- Internal financial and operating controls;
-- Communication with shareholders and Stock Exchange announcements;
-- Remuneration of the Directors;
-- Delegation and overall supervision of all delegated authorities;
-- Corporate governance matters;
-- Appointment of third party advisers/service providers;
-- Dividend policy; and
-- Gearing and capital management.
The Directors are initially appointed, under letters of
appointment, for a period of 12 months and will seek reappointment
at the first annual general meeting following their appointment.
Thereafter, the Directors will retire by rotation at not less than
three yearly intervals and may offer themselves for re-election,
subject to satisfactory performance and the support of the Board.
Whilst the Board acknowledges the need to review its composition
from time to time, it believes that in order to be effective it is
desirable that the Board should work together over a reasonable
period of time thereby accumulating a thorough knowledge of the
Company's business to secure the best results for the Company.
Ordinarily a Director should serve no longer than nine years.
However the Board believes that in certain circumstances it may be
prudent to re-appoint a Director to serve for longer if is deemed
in the best interests of the Company having regard to the
Director's continuing independence and performance. The Board will
at all times seek to maintain a sensible balance of skills,
experience and diversity including where possible, by gender. The
Board conduct a self-assessment process annually. The last
assessment was conducted in March 2016 and the Board concluded that
it was performing satisfactorily and that no changes were required
for the time being.
The Articles allow for the removal of a Director without notice,
however, the Directors' letters of appointment allow for
termination on both sides on three months' notice. The letter of
appointment of each Director is available for inspection at the
registered office of the Company.
The Board meets at least quarterly and receives full information
on financial performance and the financial position along with any
other relevant information in advance of meetings.
The ultimate responsibility for reviewing and approving the
annual report and financial statements remains with the Board. The
Board welcomes shareholders' views and places great importance on
communication with the Company's shareholders. The Board aims to
ensure that shareholders are provided with sufficient information
to understand the risk/reward balance to which they are exposed by
the holding of shares in the Company. In addition to the annual and
interim reports and interim management statements, the Company
provides portfolio updates and makes other announcements of
significant developments. These are available of the Company's
website (www.dreflimited.com). The Board obtains the views of the
Company's major shareholders primarily through Broker and
Investment Adviser visits and contact. The Board gives due
consideration to any corporate governance matters raised by
shareholders. Should any shareholder wish to raise any matter with
the Board or Investment Adviser, they can write to the Company at
its registered address as disclosed at the end of this report, or
alternatively use the contact e-mail address on the Company's
website. The Annual General Meeting also provides a forum where
shareholders may discuss issues with the Board and Investment
Adviser.
The Board believes that consideration of social, ethical and
environmental (SEE) matters is not applicable to the Company as it
holds no discretion over the underlying investments of the Master
Fund.
Committees of the Board
The Company has three committees of the Board, the
responsibilities of which are set out in Terms of References which
are available on request at the registered office. The Report of
the Audit Committee is included in this Annual Report.
The Company established a Remuneration and Nomination Committee
which comprises all the Directors, with David Staples as the
Chairman. The Board consider that the inclusion of all Directors on
the Remuneration and Nomination Committee is appropriate due to the
small size of the Board. The Remuneration and Nomination Committee
has responsibility for considering the remuneration of the
Directors and meets at least once a year. It also: (i) identifies
individuals qualified to become Board members and selects the
director nominees for election at general meetings of the
Shareholders or for appointment to fill vacancies; (ii) determines
director nominees for each committee of the Board; and (iii)
considers the appropriate composition, including gender, of the
Board and its committees. The Remuneration and Nomination Committee
meet at least once a year to consider the remuneration of the
Directors and composition of the Board and its committees.
The Company established a Management Engagement Committee which
comprises all the Directors, with David Moore as the Chairman. The
Management Engagement Committee meets at least once a year. The
Management Engagement Committee's main function is to review and
make recommendations on any proposed amendment to the investment
advisory contract between the Company and the Investment Adviser
and keep under review the performance of the Investment Adviser in
its role as investment adviser to the Company. The Management
Engagement Committee considered the performance of the Investment
Adviser and presented its view to the Board and the Board concluded
that it is in the interest of shareholders to retain the services
of the Investment Adviser for the foreseeable future. The
Management Engagement Committee also reviewed the performance of
all other service providers to the Company, and considered no
changes were necessary to their contract terms.
The table below details the attendance at Board and Committee
meetings during the period.
Regular Ad hoc Audit
Board Board Committee
Number of Held Attended Held Attended Held Attended
meetings
----- --------- ----- --------- ----- ---------
John Falla 4 4 3 3 3 3
David Moore 4 4 3 2 3 3
David Staples 4 4 3 3 3 3
Ad hoc board meetings are called as and when required usually to
deal with matters relating to the declaration and payment of
dividends, share buy backs etc implementing strategy and policies
agreed at the quarterly board meetings. They are therefore usually
brief and the Board does not insist on all directors attending. A
quorum is any two directors.
In addition the Remuneration and Nomination Committee met once
during the year and all Directors attended. The Management
Engagement Committee also met once during the year and all
Directors attended.
Throughout the year ended 31 December 2015 the Directors believe
that the Company has been in compliance with the AIC Code
provisions insofar as they apply to the Company's business and with
the provisions of the UK Code Corporate Governance Code except as
noted below:
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-- As the Company is an externally managed investment company
and is a feeder fund into the Master Fund the Company does not have
a Chief Executive Officer. All of the Company's day to day
management and administration is outsourced to third parties.
-- The Board is comprised solely of non-executive directors
meaning the Code provisions relating to executive directors'
remuneration are not relevant to the Company. Directors' fees are
detailed in the Directors' Remuneration Report.
-- As the Company delegates to third parties its day to day
operations and has no employees, the Board has determined that
there is no requirement for an internal audit function. The
Directors review annually whether a function equivalent to an
internal audit is needed and will continue to monitor its systems
of internal controls in order to provide assurance that they
operate as intended.
-- No separate senior independent director has been appointed as
this is not considered appropriate given the size and composition
of the Board.
By order of the Board
John Falla
Director
30 March 2016
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company 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 dividends
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 investment strategy of
the Company:
-- 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. 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.
-- Investments within the Master Fund may not all be realised
prior to the planned or extended termination of the Master Fund
exposing the Master Fund and/or the Company to additional
costs.
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 and the mitigation thereof are discussed in note 11.
Details of the Board's risk monitoring and management activities
may be found in the Report of the Audit Committee.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable laws and
regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial year. Under that
law the Directors have prepared financial statements in accordance
with International Financial Reporting Standards ("IFRSs") as
adopted by the European Union ("EU"). Under The Companies
(Guernsey) Law, 2008 the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable IFRSs as adopted by the EU have been
followed subject to any material departures disclosed and explained
in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Company and hence for taking responsible steps for the prevention
and detection of fraud and other irregularities.
So far as each of the Directors is aware at the time the report
is approved there is no relevant audit information of which the
Company's auditors should be aware and the Directors have taken all
steps they ought to have taken to make themselves aware of any
relevant audit information and to establish that the auditors are
aware of that information.
The Directors are responsible for the maintenance and integrity
of the Company's website. The work carried out by the auditors does
not include consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially
presented on the website. Legislation in the United Kingdom and
Guernsey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' statement pursuant to the Disclosure and Transparency
Rules and the UK Corporate Governance Code
Each of the Directors confirms that, to the best of each
person's knowledge and belief that:
-- the financial statements, prepared in accordance with IFRSs
as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and results of the Company;
-- the financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for the shareholders to assess the Company's position and
performance, business model and strategy, and
-- the Annual Report including the Chairman's Statement, the
Investment Adviser's report and the Directors' report includes a
fair review of the development and performance of the business and
the position of the Company, together with a description of the
principal risks and uncertainties.
By order of the Board
John Falla
Director
30 March 2016
Directors' Remuneration Report
The Board of Directors of Duet Real Estate Finance Limited
presents its Directors' remuneration report in respect of the year
ended 31 December 2015.
Remuneration policy
The remuneration policy of the Company is set by the Board.
The remuneration policy of the Company is to pay its
non-executive directors fees that are appropriate to the role and
the amount of time spent in discharging their duties that are
broadly in line with those of comparable investment companies and
are sufficient to attract and retain suitably qualified
individuals.
All Directors are non-executive directors. In aggregate
Directors' fees shall not exceed GBP125,000 per annum (or such
larger sum as the Company may, by ordinary resolution, determine).
Each Director has entered into a letter of appointment with the
Company which sets out fee arrangements including annual fees and
the basis of additional fees.
The Chairman of the Board and the Audit Committee Chairman are
entitled to receive fees at a higher level, of GBP33,000 and
GBP27,500 respectively, than those of the other Director who
receives GBP22,000 per annum, reflecting their additional duties
and responsibilities. Directors' fees are not subject to any
performance criteria. In addition to the annual fees, each Director
is entitled to receive reasonable additional fees in respect of his
services in relation to any material transaction undertaken by the
Company and in relation to any services provided to the Company
that are not currently envisaged or any commitment required in
relation to his role in excess of that currently envisaged. No
additional fees were charged in the year ended 31 December
2015.
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The Directors may be paid all reasonable travelling, hotel and
other expenses properly incurred in connection with the exercise of
their powers and discharge of their duties as directors including
expenses incurred travelling to and from and attending meetings of
the Board, committee meetings, general meetings and separate
meetings of holders of any class of securities of the Company.
The Directors are not entitled to any benefits upon termination
of their appointment under the terms of their agreements with the
Company, or pension, retirement or similar benefits.
Company performance
The Directors believe that a return calculated on the NAV is the
most appropriate measure of the Company's performance as it is the
measure which is most aligned with the interests of
shareholders.
The NAV total return for the year ended 31 December 2015 was
8.4% (2014: 5.7%).
Directors' remuneration
The fees to Directors during the years ended 31 December 2015
and 31 December 2014 were as follows:
2015 2014
GBP GBP
John Falla (Audit Committee
Chairman) 27,500 27,500
David Moore 22,000 22,000
David Staples (Chairman) 33,000 33,000
Total 82,500 82,500
The approval of this report by the shareholders of the Company
is to be sought by ordinary resolution at the Annual General
Meeting.
By order of the Board
John Falla
Director
30 March 2016
Independent Auditors' Report To The Members Of Duet Real Estate
Finance Limited
Report on the Financial Statements
We have audited the accompanying financial statements of Duet
Real Estate Finance Limited ("the Company") which comprise the
statement of financial position as of 31 December 2015 and the
statement of comprehensive income, the statement of changes in
equity and the statement of cash flows for the year then ended and
a summary of significant accounting policies and other explanatory
information.
Directors' Responsibility for the Financial Statements
The directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards as adopted by the
European Union and with the requirements of Guernsey law. The
directors are also responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with International Standards on Auditing. Those Standards require
that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditors' judgement, including
the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair
view of the financial position of the Company as of 31 December
2015, and of its financial performance and its cash flows for the
year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union and have been
properly prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
Report on other Legal and Regulatory Requirements
We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
financial statements. The other information comprises the Contents,
the Highlights, the Chairman's Statement, the Investment Adviser's
Report, the Board of Directors, the Directors' Report, the Report
of the Audit Committee, the Corporate Governance Report, the
Principal Risks and Uncertainties, the Statement of Directors'
Responsibilities, the Directors' Remuneration Report and the
Company Information.
In our opinion:
-- the information given in the Directors' Report is consistent
with the financial statements; and
-- the information given in the Report of the Audit Committee
and the Corporate Governance Report with respect to internal
control and risk management systems is consistent with the
financial statements.
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
262 of The Companies (Guernsey) Law, 2008 and for no other purpose.
We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
which we are required to review under the Listing Rules:
-- the directors' statement in relation to going concern. As
noted in the directors' statement, the directors have concluded
that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis
presumes that the Company has adequate resources to remain in
operation, and that the directors intend it to do so, for at least
one year from the date the financial statements were signed. As
part of our audit we have concluded that the directors' use of the
going concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are not a
guarantee as to the Company's ability to continue as a going
concern;
-- the directors' statement that they have carried out a robust
assessment of the principal risks facing the Company and the
directors' statement in relation to the longer-term viability of
the Company. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statements
are consistent with the knowledge acquired by us in the course of
performing our audit;
-- the part of the Corporate Governance Report relating to the
Company's compliance with the ten further provisions of the UK
Corporate Governance Code specified for our review; and
-- certain elements of the report to shareholders by the Board
on directors' remuneration.
John Patrick Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
30 March 2016
Statement of Comprehensive Income
For the year ended 31 December 2015
2015 2014
Note GBP GBP
Investment income 2,467,062 5,184,419
Net change in fair value
of financial assets at
fair value through profit
or loss 6 961,028 (961,783)
Expenses 3 (341,608) (356,302)
________ ________
Profit for the year and
total comprehensive income
attributable to shareholders 3,086,482 3,866,334
Earnings per Ordinary
Share - pence 7 4.2p 5.2p
The notes form an integral part of these financial
statements.
Statement of Financial Position as at 31 December 2015
2015 2014
Note GBP GBP
Assets
Non-current assets
Financial assets at fair
value through profit or
loss 6 20,220,570 25,689,930
_________ _________
Current assets
Interest receivable 118 563
Receivables 17,243 26,026
Cash and cash equivalents 10 800,843 12,165,411
_________ _________
818,204 12,192,000
_________ _________
Total assets 21,038,774 37,881,930
Liabilities
Current liabilities
Payables 8 (34,895) (44,213)
_________ _________
Net assets 21,003,879 37,837,717
Equity shareholders' funds
Share capital 9 25,776,163 43,609,633
Revenue reserves (4,772,284) (5,771,916)
_________ _________
Total equity 21,003,879 37,837,717
Net asset value per share
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March 30, 2016 11:09 ET (15:09 GMT)
- pence 7 29.2p 51.3p
The notes on form an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 30 March 2016 and were signed on its behalf by:
John Falla
Director
Statement of Changes in Equity
For the year ended 31 December 2015
Share Revenue
Note capital reserves Total
GBP GBP GBP
At 1 January 2014 75,096,036 (5,007,752) 70,088,284
Purchase of own
shares 9 (676,211) - (676,211)
Capital return
- B shares 9 (30,810,192) - (30,810,192)
Profit for the
year and total
comprehensive income
for year - 3,866,334 3,866,334
Dividends paid 5 - (4,630,498) (4,630,498)
_________ ________ _________
Balance as at 31
December 2014 43,609,633 (5,771,916) 37,837,717
_________ ________ _________
At 1 January 2015 43,609,633 (5,771,916) 37,837,717
Purchase of own
shares 9 (530,979) - (530,979)
Capital return
- B shares 9 (17,302,491) - (17,302,491)
Profit for the
year and total
comprehensive income
for year - 3,086,482 3,086,482
Dividends paid 5 - (2,086,850) (2,086,850)
_________ ________ _________
Balance as at 31
December 2015 25,776,163 (4,772,284) 21,003,879
_________ ________ _________
The notes form an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 31 December 2015
2015 2014
Note GBP GBP
Cash flows from operating
activities
Profit for the year and
total comprehensive income 3,086,482 3,866,334
Capital distributions
from investment 6 6,430,388 40,737,530
Elimination of non-cash
items:
Net change in fair value
of financial assets at
fair value through profit
or loss (961,028) 961,783
Movements in working capital:
Decrease in receivables 9,228 488
Increase/(decrease) in
payables 2,457 (10,425)
_________ _________
Net cash inflow from operating
activities 8,567,527 45,555,710
_________ _________
Cash flows from financing
activities
Purchase of own shares (542,754) (664,436)
Capital return - B shares 9 (17,302,491) (30,810,192)
Dividends paid 5 (2,086,850) (4,630,498)
_________ _________
Net cash outflow from
financing activities (19,932,095) (36,105,126)
_________ _________
(Decrease)/increase in
cash and cash equivalents (11,364,568) 9,450,584
Cash and cash equivalents
at start of year 12,165,411 2,714,827
_________ _________
Cash and cash equivalents
at end of year 10 800,843 12,165,411
The notes form an integral part of these financial
statements.
Notes to the financial statements for the year ended 31 December
2015
1. General information
The Company was incorporated in Guernsey on 7 January 2011 and
is a registered closed-ended 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").
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied throughout the period unless otherwise
stated.
Basis of preparation
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs), interpretations issued by
the International Financial Reporting Interpretations Committee
(IFRIC), applicable legal and regulatory requirements of Guernsey
Law, the Listing Rules and Disclosure and Transparency Rules of the
Financial Conduct Authority.
The Directors, after due consideration, consider that the
Company has adequate resources to continue in operational
existence. Accordingly, the financial statements have been prepared
on a going concern basis. In forming this expectation the Directors
have considered the level of cash cover for uncalled commitments to
invest in the Master Fund (150.29%), projected cash inflows and the
level of on-going expenses.
The financial statements have been prepared under the historical
cost convention, as modified by the revaluation of financial assets
at fair value through profit or loss.
The preparation of the 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 changed. 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 judgment or complexity,
or areas where assumptions and estimates are significant to the
financial statements are: selection of the functional and
presentational currency as shown in the foreign currency
translation note; the determination of the fair value of the
investments in the Master Fund as discussed in note 6 and in the
treatment of receipts from the Master Fund as dealt with in the
following paragraph.
As the consolidated financial statements of the Master Fund do
not distinguish between distributions of an income or capital
nature, the Directors have sought confirmation from the General
Partner of the Master Fund as to the form of amounts received by
the Partnership to fund such distributions. The General Partner has
advised that distributions of GBP6,430,388 (2014 GBP40,737,530)
were of a capital nature and accordingly these have been accounted
for as a reduction to the Company's cost investment in the Master
Fund.
New IFRS standards, amendments and interpretations
The Company has adopted the following amendments since 1 January
2015.
Annual improvements 2011-2013 (effective 1 July 2014) (endorsed
for 1 Jan 2015)
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.
There are no other standards issued but not yet applied that are
expected to have a material impact on the financial statements of
the Company.
Foreign currency translation
Functional and presentation currency
The Company's share capital is denominated in Sterling and the
dividends and distributions paid and to be paid to shareholders are
denominated in Sterling. The primary activity of the Company is to
act as a feeder fund, investing into the Master Fund which itself
has an underlying portfolio of UK and European commercial real
estate related debt investments. The performance of the Master Fund
is measured and reported to its limited partners in Sterling. The
Company's expenses are incurred in Sterling. The Directors
therefore consider Sterling as the currency that most appropriately
represents the economic effects of the underlying transactions,
events and conditions. The financial statements of the Company are
presented in Sterling, which is also the Company's functional
currency.
Transactions and balances
Foreign currency transactions are translated into Sterling using
the exchange rates prevailing at the dates of the transactions.
Foreign currency assets and liabilities are translated into
Sterling using the exchange rate prevailing at the period end
date.
Foreign exchange gains and losses arising from translation are
included in the statement of comprehensive income.
Financial assets at fair value through profit or loss
Classification
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The Company classifies its investment in the Master Fund as a
financial asset at fair value through profit or loss. This
financial asset is designated by the Directors at fair value
through profit or loss at inception.
Financial assets designated at fair value through profit or loss
at inception are financial instruments that are not classified as
held for trading but are managed, and their performance is
evaluated on a fair value basis in accordance with the Company's
documented investment strategy.
The Company's policy requires the Directors to evaluate the
information about these financial assets on a fair value basis
together with other related financial information. Assets in this
category are classified as current assets if they are expected to
be realised within 12 months of the period end date. Those not
expected to be realised within 12 months of the period end date
will be classified as non-current.
Recognition, derecognition and measurement
Investment in the Master Fund is recognised on the date the
drawdown payments become due under the drawdown notices as a
financial asset at fair value through profit or loss and is
initially recognised at fair value. Transaction costs are expensed
as incurred in the statement of comprehensive income. Financial
assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred
substantially all risks and rewards of ownership.
Subsequent to initial recognition, all financial assets at fair
value through profit or loss are measured at fair value. Gains and
losses arising from changes in the fair value of the 'financial
assets at fair value through profit or loss' category are presented
in the statement of comprehensive income within net changes in fair
value of financial assets at fair value through profit or loss in
the period in which they arise.
Distributions of a revenue nature from financial assets at fair
value through profit or loss are recognised in the statement of
comprehensive income within investment income when the Company's
right to receive payments is established.
Fair value estimation
The Company's investment in the Master Fund is subject to the
terms and conditions of the Master Fund's Limited Partnership
Agreement. The investment is carried at fair value as determined by
the Directors at the period end date, such 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 its underlying
investments, (ii) the date of the NAV provided, and (iii) the basis
of accounting in the underlying Master Fund and, in instances where
the basis of accounting is other than fair value, fair valuation
information provided by the Master Fund's adviser. If necessary,
the Directors make adjustments to the NAV of the Master Fund to
obtain the best estimate of fair value as at the period end date.
Net changes in fair value on financial assets at fair value through
profit or loss in the statement of comprehensive income includes
the change in fair value of the Master Fund.
Transfers between levels of the fair value hierarchy
Transfers between levels of the fair value hierarchy are deemed
to have occurred at the end of the reporting period.
Receivables
Receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
Receivables are recognised initially at fair value. They are
subsequently measured at amortised cost using the effective
interest rate method, less provision for impairment.
A provision for impairment is established when there is
objective evidence that the Company will not be able to collect all
amounts to be received. Significant financial difficulties of the
counterparty, probability that the counterparty will enter
bankruptcy or financial reorganisation, and default in payments are
considered indicators that the amount to be received is impaired.
Once a financial asset or a group of similar financial assets has
been written down as a result of an impairment loss, interest
income is recognised using the effective interest rate used to
discount the future cash flows for the purpose of measuring the
impairment loss.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, demand deposits,
other short-term highly liquid investments with original maturities
of three months or less.
Payables and accrued expenses
Payables and accrued expenses are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method.
Dividend distributions
Dividend distributions to the Company's shareholders are
recognised as liabilities in the Company's financial statements in
the period in which the dividends are declared and have received
all of the required approvals by either the Directors or
shareholders.
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 its
income received.
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 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 as disclosed in note 6.
Share capital
Ordinary Shares are classified as equity.
3. Expenses
2015 2014
GBP GBP
Administration fees 68,157 67,313
Directors' fees 82,500 82,500
Audit fees 32,000 31,350
Investment adviser's fees 25,000 25,000
Legal, brokers' and professional
fees 50,000 58,697
Insurance 15,578 16,500
Registrar fees 39,210 42,441
Regulatory fees 17,780 18,488
General expenses 11,383 14,013
_______ _______
Total expenses 341,608 356,302
Auditors' remuneration
2015 2014
GBP GBP
Audit fees 24,000 23,600
Other assurance services
- interim review 8,000 7,750
_______ _______
32,000 31,350
4. Taxation
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. Dividends
For
the Amount Year ended Year ended
To share-holders period per 31 December 31 December
Date paid on the ended share 2015 2014
register 31 December
on
GBP GBP
14 March 21 February
2014 2014 2013 2.25p - 1,685,815
13 June 23 May
2014 2014 2014 1.65p - 1,232,139
19 September 29 August
2014 2014 2014 1.30p - 970,777
19 December 28 November
2014 2014 2014 1.00p - 741,767
20 March 27 February
2015 2015 2014 1.25p 922,083 -
26 June 5 June
2015 2015 2015 1.00p 733,887 -
25 September 4 September
2015 2015 2015 0.30p 215,440 -
24 December 4 December
2015 2015 2015 0.30p 215,440 -
________ ________
2,086,850 4,630,498
6. Financial assets at fair value through profit or loss
2015 2014
Non-current Non-current
GBP GBP
Opening valuation 25,689,930 67,389,243
Capital distributions from
investment (6,430,388) (40,737,530)
Unrealised gain/(loss) on
revaluation of investments 961,028 (961,783)
_________ _________
Closing valuation 20,220,570 25,689,930
The non-current investment comprises an investment in the Master
Fund. The Company has a committed investment of GBP75,333,953
(2014: GBP75,333,953) of which GBP71,451,201 (2014: GBP71,451,201)
had been drawn down at the period end. On 22 April 2015 GBP739,567
of the undrawn down amount was cancelled, GBP2,610,308 having been
cancelled on 13 November 2014, leaving the undrawn commitment to
the Master Fund at 31 December 2015 at GBP532,877 (31 December
2014: GBP1,272,444).
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For the first time the fair value of the investment in the
Master Fund has been 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 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
year, 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 NAV
provided, and (iv) 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 it applies to the Company as at 31
December 2015. In addition to normal short term
receivables/payables and cash balances, the investment portfolio
held by the Master Fund as at 31 December 2015 included;
i) originated debt with fixed or determinable payments that are
not quoted in an active market and are 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 as 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 judgment 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.
2015 2014
Level 3 Level 3
GBP GBP
Opening valuation 25,689,930 67,389,243
Capital distributions from
investment (6,430,388) (40,737,530)
Unrealised gain/(loss) on
revaluation of investments 961,028 (961,783)
_________ _________
Closing valuation 20,220,570 25,689,930
The Company is exposed to market price risk from its holding in
the Master Fund. If the fair value of the investment in the Master
Fund increased (or decreased) by 5%, with all other variables held
constant, net assets would increase (or decrease) by GBP1,011,029
(31 December 2014: GBP1,284,497). 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.
7. Earnings per share and net asset value per share
The earnings per share calculation is based on profit for the
year and total comprehensive income of GBP3,086,482 (2014:
GBP3,866,334) and the weighted average number of shares in issue
for the year of 72,738,703 (2014: 74,574,374).
Net asset value per share is based on net assets of
GBP21,003,879 (2014: GBP37,837,717) divided by the 71,813,222
(2014: 73,766,709) Ordinary Shares in issue at 31 December
2015.
8. Payables
2015 2014
GBP GBP
Audit fee payable 18,000 23,600
Other payables 16,895 20,613
_________ _________
34,895 44,213
9. Share capital
The authorised shares of the Company are as follows:
2015 2014
GBP GBP
Authorised
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.
B shares Ordinary Shares
Number GBP Number GBP
Balance at 1
January 2014 - - 74,925,109 75,096,036
Own shares purchased
and cancelled - - (813,400) (514,583)
Own shares purchased
and awaiting
cancellation - - (345,000) (161,628)
Capital issued
during year 223,776,927 30,810,192 - (30,810,192)
Capital distributed
during year (223,776,927) (30,810,192) - -
_________ _________ _________ _________
Balance at 31
December 2014 - - 73,766,709 43,609,633
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
One share was issued on incorporation on 7 January 2011. A
further 49,999,999 Ordinary Shares were issued at GBP1 per share on
14 March 2011 and 25,976,249 shares were issued at 100.25p per
share on 16 August 2011.
Ordinary Shares carry the rights to any dividend or other
distribution out of the profits 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 year ended 31 December 2015 as
detailed below.
On 22 January 2015, the Company made a Capital Return to
shareholders equivalent to 14.15 pence per Ordinary Share by way of
an issue on 20 January 2015 and redemption on 21 January 2015 of
73,766,709 B Shares on a pro rata basis.
On 18 June 2015, the Company made a Capital Return to
shareholders equivalent to 9.36 pence per Ordinary Share by way of
an issue on 16 June 2015 and redemption on 17 June 2015 of
73,338,709 B Shares on a pro rata basis.
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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 commitment to invest in the Master
Fund and therefore the Company's financial performance when
managing its capital depends primarily 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
During the year the Company purchased 1,953,487 (2014:
1,158,400) of its own shares for GBP530,979 (2014: GBP676,211).
The shares were bought back on the open market. The cancelled
shares represented 2.7% (2014: 1.6%) of the voting rights.
All shares bought back were purchased at a discount to NAV
inclusive of the transaction costs and so their subsequent
cancellation was accretive to NAV per share.
10. Cash and cash equivalents
2015 2014
GBP GBP
Cash 9,445 39,828
Money market funds 791,398 12,125,583
_________ _________
800,843 12,165,411
11. Financial risk management
The Company is committed to invest in the Master Fund. Funds
held to meet future drawdowns and funds held pending return to
shareholders are invested in money market funds and cash.
The Company's material financial instruments comprise:
-- Investment in the Master Fund
-- Investment in money market funds
-- Cash
Financial risk management and policies
The main risks arising from the Company's financial instruments
are market risk, credit risk and liquidity risk. The Board
regularly reviews and agrees policies for managing these risks and
these are summarised below.
Market price risk
Market risk arises mainly from uncertainty about future prices
of financial instruments held. It is the intention of the Company
to hold its investment in the Master Fund until maturity. It may
not be possible for the Company to dispose of its investment in the
Master Fund. Any disposal would require the consent of the General
Partner of the Master Fund. There is no guarantee that the Company
could find a willing buyer or would, on sale, achieve the fair
value used for the purpose of valuing investments in these
financial statements. The key driver for changes in the value of
the Master Fund is changes in the actual or perceived market price
of real estate assets securing the investments of the Master Fund.
The overall market positions of the Master Fund are managed by the
Investment Adviser on a weekly basis. The Investment Adviser of the
Company is also the Investment Adviser of the Master Fund.
The Company also holds most of its cash awaiting calls for
drawdowns from the Master Fund and cash pending return to
shareholders in money market funds which distribute all income and
have a stable NAV.
Foreign currency risk
Substantially all the Company's assets and liabilities are
denominated in Pounds Sterling so there is no significant foreign
currency risk at the level of the Company. However, the Master
Fund's investments may be in Euros and Pounds Sterling although
they may also be made in other European currencies. There could be
material movements in the exchange rate between Pounds Sterling and
the currency in which the Master Fund's investments are made. As a
result the value of the Master Fund's investments may go up and
down solely as a result of changes in currency exchange rates.
Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Company's exposure to market
risk for changes in interest rates relates primarily to the
Company's money market funds and cash. All cash bears interest at
floating rates. The following table sets out the Company's exposure
to interest rate risk at 31 December 2015:
2015 Interest Non-interest
bearing bearing Total
GBP GBP GBP
Non-current assets
Financial assets at
fair value though profit
or loss - 20,220,570 20,220,570
Current assets
Cash and cash equivalents 800,843 - 800,843
Interest receivable - 118 118
Other receivables - 17,243 17,243
Liabilities
Payables - (34,895) (34,895)
_________ _________ _________
Total net assets 800,843 20,203,036 21,003,879
2014 Interest Non-interest
bearing bearing Total
GBP GBP GBP
Non-current assets
Financial assets at
fair value though profit
or loss - 25,689,930 25,689,930
Current assets
Cash and cash equivalents 12,165,411 - 12,165,411
Interest receivable - 563 563
Other receivables - 26,026 26,026
Liabilities
Payables - (44,213) (44,213)
_________ _________ _________
Total net assets 12,165,411 25,672,306 37,837,717
The interest bearing assets are all at floating rates
denominated in Pounds Sterling. The cash and cash equivalents have
daily liquidity. If the interest rate increased/decreased by 50
basis points and all other variables were held constant, the net
income would increase/decrease for a year by GBP4,004 (2014:
GBP60,827).
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company.
The main concentration of credit risk is in the Master Fund. The
credit risk within the Master Fund is largely related to the
tenants that occupy the properties that form security for its real
estate loan investments. Investments within the Master Fund are
generally structured as loans to bankruptcy remote SPVs that own
the properties the investments are secured against. Counterparty
risk is related to its derivative hedging counterparties. The
Master Fund's policy is to enter into financial instruments with a
range of reputable counterparties to reduce its exposure to
material credit losses.
The Company is also invested in two money market instruments
totalling GBP791,398 (2014: GBP12,125,583) at 31 December 2015, all
with a Triple A rating. In addition the Company holds cash at a
bank with a rating of A-1+.
The carrying amounts of financial assets best represented the
maximum credit risk exposure at the balance sheet date.
Liquidity risk
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet its financial
commitments. Substantially all of the Company's assets are invested
in the Master Fund. Funds held pending distribution are invested in
highly liquid money market investments. Commitment cover at 31
December 2015 was 150.29% (2014: 956.1% (135.8% when taking into
account the post year end capital return of GBP10,437,989)). Due to
the cancellation of undrawn commitment in November 2014 and April
2015, there is no commitment that cannot be drawn down at 31
December 2015. For further information on commitments see note
6.
At the beginning of each financial year the Investment Adviser
prepares an annual budget and cash flow forecast which is approved
by the Board and updates are reviewed at each quarterly board
meeting. On an ongoing basis the Investment Adviser considers the
Company's future working capital requirements and ensures
sufficient funds are available in the Company's current account to
maintain the day to day cash requirements of the Company. Detailed
working capital reports are reviewed by the Board at each quarterly
board meeting and also before any dividend or other distribution is
declared or paid.
Fair value
All the Company's investments are carried at fair value at the
balance sheet date. For certain financial instruments including
receivables and payables the carrying value approximates to fair
value due to the immediate or short term nature of those financial
instruments. Interest receivables, receivables and payables are
considered to fall within level 3 of the fair value hierarchy,
whilst cash and cash equivalents are deemed level 1 assets.
12. 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 investment advisory agreement was novated from Duet Private
Equity Limited to ERED on 11 May 2012. The charge for the year was
GBP25,000 (2014: GBP25,000) and there was a prepayment of GBPNil at
31 December 2015 (2014: GBP6,250). 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.
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Transactions and balances with the Master Fund are disclosed in
note 6.
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 (2014: 7,000) and David Moore has an
interest in 39,329 shares (2014: 39,329). No other Director who
held office at 31 December 2015 had an interest in the Ordinary
Shares of the Company.
13. Subsequent events
A capital distribution of GBP10,979,462 was received from the
Master Fund on 4 January 2016.
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.
An income distribution of GBP170,487 was received from the
Master Fund on 12 February 2016.
Company information
Directors Legal advisers to the
John Falla Company (Guernsey Law)
David Moore Carey Olsen
David Staples (Chairman) PO Box 98
Carey House
Administrator, secretary Les Banques
and registered office St Peter Port
International Administration Guernsey
Group (Guernsey) Limited GY1 4BZ
Regency Court
Glategny Esplanade Legal advisers to the
St Peter Port Company (English Law)
Guernsey Berwin Leighton Paisner
GY1 1WW LLP
Adelaide House
Registrar London Bridge
Capita Registrars (Guernsey) London
Limited EC4R 9HA
Mont Crevelt House
Bulwer Avenue UK transfer agent
St Sampson Capita Registrars Limited
Guernsey The Registry
GY2 4LH 34 Beckenham Road
Beckenham
Investment adviser Kent
ERED Investment Adviser BR3 4TU
LLP
6 Duke Street St James's Principal bankers
London Bank of New York Mellon
SW1Y 6BN London Branch
One Canada Square
Auditors London
PricewaterhouseCoopers E14 5AL
CI LLP
PO Box 321 Financial adviser and
Royal Bank Place sponsor
Glategny Esplanade Stifel Nicolaus Europe
St Peter Port Limited
Guernsey 150 Cheapside
GY1 4ND London
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
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JMMITMBAJBRF
(END) Dow Jones Newswires
March 30, 2016 11:09 ET (15:09 GMT)
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