TIDMDREF
RNS Number : 5579K
Duet Real Estate Finance Limited
17 April 2015
Press Release 17 April 2015
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
2014.
Highlights
Ø Dividends paid in the year totalled 6.20 pence per share
(2013: 10 pence). A dividend of 1.25 pence per share for the
quarter ended 31 December 2014 was paid on 20 March 2015 to members
on the Company's register on 27 February 2015.
Ø A total of 41.3 pence per share (2013: nil) has been returned
by way of B share issues and redemptions in the year. In January
2015 a further 14.16 pence per share was returned by way of the
same mechanism.
Ø The NAV total return for the year was 5.7% (2013: 5.1%)
including dividends paid and adjusted for capital returned in the
period.
Ø The total shareholder return in the year was 9.0% (2013: 6.6%)
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, which the Directors
intend will be distributed to shareholders by way of further B
share issues and redemptions.
Ø With regard to the profile of the remaining investments, the
General Partner of the Master Fund has elected to extend the life
of the Fund by one year to 22 December 2015 (the first of two
extensions available to the General Partner at its discretion).
Chairman's Statement
I am pleased to present the Annual Report and audited Financial
Statements of the Company for the year ended 31 December 2014.
Economic Backdrop
European stock markets were weighed down by disappointing
economic data and the impact on trade flows of Russia-related
sanctions in 2014, although the UK did see modest gains owing to
improved business and consumer confidence.
By contrast the commercial real estate capital market saw a year
of growth in 2014, which was aided by a low interest rate
environment and the volume of capital from the Far East. Although
there was improved investor sentiment towards the end of 2013,
there was a far more substantial change in the first half of 2014
which set the trend for the year.
There was a surge in investment activity in Spain and Ireland
and in second and third tier towns in UK and Germany which took
total commercial real estate investment activity to EUR218 billion
for 2014, an increase of 32% on 2013 levels. The fourth quarter of
2014 alone saw investment activity totalling EUR78 billion, which
is the largest single quarter since the fourth quarter of 2006. The
increased transaction levels aided the Master Fund in realising a
further four of its investments during the year, delivering returns
in line with its investment criteria.
The total volume of commercial real estate debt across Europe
increased by circa EUR23 billion in 2014, rising from EUR955
billion to EUR978 billion, driven by an increase in new lending
against transactions. 2014 also saw a sharp rise in loan sale
transactions from around EUR20 billion in 2013 to over EUR50
billion in 2014, which was a product of central banks making
progress in addressing legacy positions.
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 in excess of
target. The Master Fund has been fully invested since May 2013 and
entered its realisation phase resulting in four 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 41.3 pence per
share in 2014 by means of B share issues and redemptions (2013:
nil). The Company's NAV was impacted by approximately GBP1 million
as a result of a further write down by the Master Fund of Loan 5
(see the Investment Adviser's Report for more details). The loan is
now fully written down. However, we were pleased to see that a full
settlement was reached in the period with the borrower under Loan
4, where acceleration proceedings had been commenced under the
security package. Returns on the loan were therefore in line with
original expectations. The Investment Adviser continues to report
that all the other remaining loans in the Master Fund's portfolio
continue to perform well.
The Company's NAV per share at 31 December 2014 was 51.3 pence
(2013: 93.5 pence). The Company paid four dividends during the
year, totalling 6.20 pence per share (2013: 10.00 pence). NAV total
return for the year, including those dividends and adjusting for
capital returned, was 5.7% (2013: 5.1%). The Company's share price
at 31 December 2014 was 46.8 pence (2013: 86.5 pence). The total
shareholder return in the year was 9.0% (2013: 6.6%), including
dividends paid and adjusting for capital returned in the
period.
During the year, the Company bought back 1,158,400 of its own
shares for GBP676,211. All purchases were made at discounts to the
prevailing NAV, at an average price of 93% of NAV, and so were
accretive to NAV per share. Since the year end and to the date of
this report the Company has repurchased a further 378,000 shares,
also at discounts to prevailing NAV exceeding 5%.
Including the dividend of 1.25 pence per share paid on 20 March
2015 in respect of the fourth quarter, the Company has paid
dividends totalling 5.20 pence per share in respect of the year to
31 December 2014.
In January 2015, the Company returned an amount of GBP10.4
million, equivalent to 14.15 pence per share, being the Company's
share of proceeds realised by the Master Fund following the
realisation of Loan 6, via an issue of redeemable B shares to
existing shareholders and subsequent redemption of those shares pro
rata to their holding.
Outlook
During the ongoing realisation phase the Master Fund will
continue to receive repayments on its loans, sell down assets and
return capital to the Company. Your Board anticipates that the
Company remains on track to provide Shareholders with distributions
which, taken over the course of a twelve month period, will be in
excess of 7% per annum, based on the issue price as adjusted for
returns of capital and impairments. 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 to 22
December 2015. Given the profile of the remaining assets in its
portfolio, we viewed this as a sensible move. The GP has discretion
to extend again by a further thirteen months and will review the
position towards the end of the year as to whether that would be in
the best interests of the Limited Partners.
David Staples
Chairman
16 April 2015
Investment Adviser's Report
Upon the completion of its investment programme in May 2013, the
Master Fund consisted of 15 investments with an original
acquisition cost of GBP264.7 million. Based on the respective
acquisition cost of each investment, the fully invested portfolio
had a blended loan-to-value ratio of 69.6% along with a blended
cash pay coupon and payment-in-kind coupon of 9.8% and 2.1%
respectively. The portfolio provides the income and total return as
targeted in the Company's prospectus, whilst maintaining a
resilient risk profile.
Following the full realisation of 3 of the Master Fund's
investments in the second half of 2013, a further 4 investments
have been fully realised during 2014 earning returns in-line with
the Fund's stated objective.
As at 31 December 2014, the Master Fund consisted of 8
investments with a combined unrealised balance of GBP99.3 million.
Based on the respective balance of each investment, the portfolio
as at 31 December 2014 had a blended loan-to-value ratio of 65.6%
along with a blended cash pay coupon and payment-in-kind coupon of
8.0% and 3.5% 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 partial cancellation of available
commitments by the Master Fund in November 2014, a total of GBP1.27
million (1.7% 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 2014 and post year end
In January 2014, the Master Fund received a full repayment of
mezzanine loan investment 1 (secured by retail property in
Denmark), earning returns in line with its investment criteria.
In respect of Loan 5, during Quarter 1 2014 a consortium of
hedge funds assumed control of a majority of the senior debt of the
underlying borrower company. Subsequent to the end of the first
quarter of 2014 the senior lenders executed a pre-packaged
administration of the underlying borrower company, purchasing all
the assets of the underlying borrower company at liquidation value.
As a result, the Master Fund's debt claims are now subject to the
administration. Having at 31 December 2013 recognised a partial
impairment, the remaining balance of Loan 5 was fully written down
by the Master Fund as at 31 March 2014 which was reflected in the
Company's NAV from that date.
In June, the Master Fund received a full repayment of a further
mezzanine loan investment, Loan 13 (secured by an office property
in the UK), earning returns in-line with its investment criteria,
reflective of the early repayment of the loan.
Having commenced acceleration proceedings under the loan
security package in late 2012, settlement was reached with the
borrower of the Master Fund's French Offices loan (Loan 4)
resulting in the full repayment of all principal and accrued
interest, earning returns in line with its investment criteria.
In December 2014 the Master Fund also realised its United
Kingdom and Netherlands Hotels investment (Loan 6), following a
refinancing of the underlying portfolio, earning returns in-line
with its investment criteria.
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, including the dividend paid
on 20 March 2015, paid dividends totalling GBP18.1m and returned
capital totalling approximately GBP42.9m. The total value to
paid-in ratio of the Company at 31 December 2014 was 1.150, based
on capital raised.
The following table summarises the progression of the Company's
Net Asset Value over the course of the year ended 31 December 2014,
showing the effect of dividends paid and capital returned during
each period.
Net Asset Value Performance
NAV Cumulative Cumulative
per share Capital returned Dividend Paid Total
31 December 2014 51.3p 41.3p 6.2p 98.8p
30 September
2014 64.8p 27.0p 5.2p 97.0p
30 June 2014 78.9p 13.4p 3.9p 96.2p
31 March 2014 78.4p 13.4p 2.3p 94.1p
31 December 2013 93.5p - - 93.5p
The composition of the fully invested portfolio of the Master
Fund along with the make-up of the portfolio as at 31 December 2014
are detailed in the tables that follow:
Portfolio as at 31 December 2014(1)
Current portfolio(1) Fully invested portfolio
Number of Deals 8 15
Total Unrealised Portfolio GBP99.3m(2) GBP264.7m
WA LTV 65.6% 69.6%
Coupon
WA Cash Pay 7.99% 9.80%
WA PIK 3.49% 2.06%
Asset Types
Offices 33% 45%
Hotels 35% 32%
Retail 20% 13%
Healthcare 5% 7%
Mixed 7% 3%
Region
UK 33% 46%
Germany 54% 22%
France -% 16%
Netherlands 6% 7%
Denmark -% 6%
Belgium 7% 3%
(1) excluding events post 31 December 2014 (see above -
'Performance - during 2014 and post year end')
(2) post provision for impairment
(3) WA - weighted average
Portfolio as at 31 December 2014
Portfolio
Investment Asset Type Country Amount Description
Loan 2 Offices United Kingdom GBP20.3m Mezzanine loan secured by
an office
Loan 5 Healthcare United Kingdom GBP0.0m Mezzanine and senior loan
secured by a portfolio of
care homes
Loan 7 Retail Germany EUR22.9m Mezzanine loan secured by
a portfolio of 45 retail
properties
Loan 9 Mixed United Kingdom GBP7.4m Mezzanine loan secured by
an office
Loan 10 Offices Netherlands EUR7.8m Mezzanine loan secured by
an office and warehouse portfolio
of 23 assets
Loan 11 Offices Belgium EUR7.8m Mezzanine loan secured by
an office
Loan 12 Hotels Germany EUR40.7m Mezzanine loan secured by
an office
CMBS 1 Healthcare United Kingdom GBP4.7m Securitisation backed by
a portfolio of private hospitals
ERED Investment Adviser LLP
March 2015
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 LCF Edmond de Rothschild (C.I.) Limited and has
provided corporate finance advice to clients including open and
closed-ended investment funds, and institutions with significant
property interests. John has served on the board of a number of
Edmond de Rothschild group operating and investment companies but
has now stepped down to focus on non-executive and consulting
activities. John is on the Board of SQN Asset Finance Income Fund
Limited, a listed company.
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 Bedell Cristin 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
2014.
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 invests 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 2014 and
2013:
For the
period Amount Year ended Year ended
To share-holders ended per 31 December 31 December
Date paid on the register 31 December share 2014 2013
on
GBP GBP
28 March
2013 8 March 2013 2012 2.00p - 1,500,952
21 June 2013 31 May 2013 2013 2.00p - 1,498,502
27 September 6 September
2013 2013 2013 1.00p - 749,251
20 December 29 November
2013 2013 2013 5.00p - 3,746,256
14 March 21 February
2014 2014 2013 2.25p 1,685,815 -
13 June 2014 23 May 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 -
________ ________
4,630,498 7,494,961
Since the year end, a dividend of 1.25p pence per Ordinary Share
was paid on 20 March 2015to Ordinary Shareholders on the register
on 27 February 2015.
A vote on the dividend policy will be held at the 2015 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 2014 was 73,766,709 (2013: 74,925,109) Ordinary
Shares.
During the year the Company purchased and cancelled 1,158,400
(2013: 122,500) of its own shares for GBP676,211 (2013:
GBP109,247).
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 31 March 2015.
Number of % of Company's Nature of
Investor Ordinary Shares issued share holding
capital
Merseyside Pension
Fund 10,255,000 13.90 Indirect
West Yorkshire Pension
Fund 10,000,000 13.56 Indirect
Fleming Family & Partners 9,422,350 12.77 Indirect
CCLA Investment Management 7,187,089 9.74 Indirect
Kleinwort Benson Private
Bank 5,917,026 8.02 Indirect
Insight Investment
Management 5,137,059 6.96 Indirect
Brooks Macdonald Asset
Management 5,072,390 6.88 Indirect
NFU Mutual Investment
Managers 3,700,000 5.02 Indirect
Alder Investment Management 2,499,999 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 GBP600 per annum
(GBP1,200 from 2015).
Going concern
The Directors, after due consideration, have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, the
financial statements are 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
(956.07% or 135.76% taking into account the post year end capital
return of GBP10,437,989 (note 13)), projected cash inflows and the
level of on-going expenses.
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 (2013: 7,000) and David Moore has an
interest in 39,329 shares (2013: 39,329). No other Director who
held office at 31 December 2014 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 attends annual meetings with the General
Partner, in addition to the Annual General Meeting of the Master
Fund.
DRC is authorised and regulated by the UK Financial Conduct
Authority. It 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
GBP67,750 from 1 April 2014 (previously GBP66,000) 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:
David Staples
Director
16 April 2015
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 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
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 Investment Adviser of the At each quarterly board meeting
Master Fund provides the Board the Investment Adviser reports
with quarterly capital account to the Board on the performance
summaries and reports to investors, and methodology of the valuations
which indicate the NAV of the at the Master Fund level. The
Company's sole investment, Board regularly challenges
the Master Fund, and provide the Investment Adviser on their
additional detail on the activity. reports to ensure robust and
appropriate valuation methods
The investment in the Master are being applied.
Fund is carried at fair value
as determined by the Directors The Directors review the details
at the period end date, such of the reported information
fair value being primarily obtained on the Master Fund
based on the latest available and consider (i) the liquidity
coterminous reported information of the Master Fund and/or its
from the Master Fund. underlying investments, (ii)
the type of investments held
The Master Fund holds its investments within the Master Fund, (iii)
at amortised cost, unless the the date of the NAV provided,
correct treatment requires (iv) any restrictions on redemptions,
a different methodology. The and (v) the basis of accounting
significant subjective element adopted by the Master Fund
in determining the NAV of the in valuing the investments
Master Fund, and therefore held and in reporting to investors
the Board's valuation of the (the Master Fund reports to
Company's holding, is in regard investors using IFRS principles).
to credit risk on the underlying If necessary, the Directors
borrowers and whether there make adjustments to the NAV
is any event or risk which of the Master Fund so as to
requires a judgement to be obtain the best estimate of
made on the carrying value fair value as at the period
of an investment. end date. No adjustments were
required for the year ended
31 December 2014.
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 2014. 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
2012 and will also comply with revised 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
includesorganisationalagreements 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 2014. There are no material
matters to report.
John Falla
Audit Committee Chairman
16 April 2015
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.
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 2013, boards of
investment companies should fully meet their obligations in
relation to the September 2012 FRC published UK Corporate
Governance Code, which is applicable to the Company for this
reporting period ended 31 December 2014, 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 April 2015 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 meetings Held Attended Held Attended Held Attended
----- --------- ----- --------- ----- ---------
John Falla 4 4 3 3 3 3
David Moore 4 4 3 3 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.
For the year ended 31 December 2014 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 of Corporate Governance except as noted
below:
-- 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
David Staples
Director
16 April 2015
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.
-- Repayments from and sales of loans may lead to early repayments of capital to shareholders.
-- As the Master Fund sells off its loans or they are repaid, so
the number of remaining loans in the portfolio diminishes which
will lead to increased concentration risk and potentially
proportionately greater currency risk at the Master Fund level.
Reliance on the Investment Adviser:
-- The Investment Adviser is dependent upon the expertise of key
personnel in providing investment advisory services to the Company
and the Master Fund.
-- Failure by the Investment Adviser or other third-party
service providers of the Company and/or the Master Fund to carry
out its or their obligations could materially disrupt the business
of the Company and/or of the Master Fund.
The principal risks and uncertainties in relation to financial
instruments and the mitigation thereof are discussed in note 11.
Details of the Board's risk monitoring activities may be found in
the Directors' Report.
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 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
David Staples
Director
16 April 2015
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 2014.
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
2014.
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 2014 was
5.7% (2013: 5.1%).
Directors' remuneration
The fees to Directors during the years ended 31 December 2014
and 31 December 2013 were as follows:
2014 2013
GBP GBP
John Falla (Audit Committee
Chairman) 27,500 25,000
David Moore 22,000 14,341
David Staples (Chairman) 33,000 30,000
Total 82,500 69,341
Mr Moore was appointed on 12 April 2013.
The approval of this report by the shareholders of the Company
is to be sought by ordinary resolution at the Annual General
Meeting to be held on 10 June 2015.
By order of the Board
David Staples
Director
16 April 2015
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 2014 and the
statement of comprehensive income, statement of changes in equity
and 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
2014, and of its financial performance and 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
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;
-- the part of the Corporate Governance Statement relating to
the Company's compliance with the ten 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
16 April 2015
Statement of Comprehensive Income
For the year ended 31 December 2014
2014 2013
Note GBP GBP
Investment income 5,184,419 7,400,769
Net change in fair value of financial
assets at fair value through profit
or loss 6 (961,783) (3,289,227)
Expenses 3 (356,302) (324,680)
________ ________
Profit for the year and total
comprehensive income attributable
to shareholders 3,866,334 3,786,862
Earnings per Ordinary Share -
pence 7 5.2p 5.1p
The notes form an integral part of these financial
statements.
Statement of Financial Position as at 31 December 2014
2014 2013
Note GBP GBP
Assets
Non-current assets
Financial assets at fair value
through profit or loss 6 25,689,930 67,389,243
_________ _________
Current assets
Interest receivable 563 489
Receivables 26,026 26,588
Cash and cash equivalents 10 12,165,411 2,714,827
_________ _________
12,192,000 2,741,904
_________ _________
Total assets 38,881,930 70,131,147
_________ _________
Liabilities
Current liabilities
Payables 8 (44,213) (42,863)
_________ _________
Net assets 37,837,717 70,088,284
Equity shareholders' funds
Share capital 9 43,609,633 75,096,036
Revenue reserves (5,771,916) (5,007,752)
_________ _________
Total equity 37,837,717 70,088,284
Net asset value per share - pence 7 51.3p 93.5p
The notes form an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 16 April 2015 and were signed on its behalf by:
David Staples
Director
Statement of Changes in Equity
For the year ended 31 December 2014
Share Revenue
Note capital reserves Total
GBP GBP GBP
At 1 January 2013 75,205,283 (1,299,653) 73,905,630
Purchase of own shares 9 (109,247) - (109,247)
Profit for the year
and total comprehensive
income for year - 3,786,862 3,786,862
Dividends paid 5 - (7,494,961) (7,494,961)
_________ ________ _________
Balance as at 31 December
2013 75,096,036 (5,007,752) 70,088,284
_________ ________ _________
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
_________ ________ _________
The notes form an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 31 December 2014
2014 2013
Note GBP GBP
Cash flows from operating activities
Profit for the year and total
comprehensive income 3,866,334 3,786,862
Purchase of investments 6 - (7,552,282)
Capital distributions from investment 6 40,737,530 -
Elimination of non-cash items:
Net change in fair value of financial
assets at fair value through profit
or loss 961,783 3,289,227
Movements in working capital:
Decrease/(increase) in receivables 488 (4,104)
(Decrease)/increase in payables (10,425) 5,313
_________ _________
Net cash inflow/(outflow) from
operating activities 45,555,710 (474,984)
_________ _________
Cash flows from financing activities
Purchase of own shares (664,436) (109,247)
Capital return - B shares 9 (30,810,192) -
Dividends paid 5 (4,630,498) (7,494,961)
_________ _________
Net cash outflow from financing
activities (36,105,126) (7,604,208)
_________ _________
Increase/(decrease) in cash and
cash equivalents 9,450,584 (8,079,192)
Cash and cash equivalents at start
of year 2,714,827 10,794,019
_________ _________
Cash and cash equivalents at end
of year 10 12,165,411 2,714,827
The notes form an integral part of these financial
statements.
Notes to the financial statements for the year ended 31 December
2014
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 financial statements have been prepared on a going concern
basis 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 disclosed in the functional and
presentational currency section of the foreign currency translation
note and in note 6 and in the following paragraph below.
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 GBP40,737,530 (2013 GBP Nil) 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 all relevant and below mentioned
standards since 1 January 2014.
IAS 27 (revised) 'Separate financial statements'
IAS 28 (revised) 'Associates and joint ventures'
IFRS 10 'Consolidated financial statements'
IFRS 11 'Joint arrangements'
IFRS 12 'Disclosure of interests in other entities'
Amendments to Transition guidance
IFRS 10, 11,
12
Amendments to Exception from consolidation for 'investment
IFRS 10, 12 and entities'
IAS 27
Amendments to 'Financial Instruments: Presentation,
IAS 32 offsetting financial assets and financial
liabilities
Amendments to 'Impairment of assets', recoverable amount
IAS 36 disclosure for non-financial assets
Amendments to 'Financial instruments: Recognition and
IAS 39 measurement', novation of derivatives
and continuation of hedge accounting
The Directors have assessed the impact of these amendments and
concluded that these new accounting standards do not affect 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 is 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.
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
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, (iii) any
restrictions on redemptions, and (iv) 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 distribution
Dividend distribution to the Company's shareholders is
recognised as a liability 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
2014 2013
GBP GBP
Administration fees 67,313 65,000
Directors' fees 82,500 69,341
Audit fees 31,350 30,795
Investment adviser's fees 25,000 25,000
Legal, brokers' and professional fees 58,697 66,649
Insurance 16,500 16,500
Registrar fees 42,441 20,957
Regulatory fees 18,488 16,222
General expenses 14,013 14,216
_______ _______
Total expenses 356,302 324,680
Auditors' remuneration
2014 2013
GBP GBP
Audit fees 23,600 23,045
Other assurance services - interim
review 7,750 7,750
Non-audit fees - -
_______ _______
31,350 30,795
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 GBP600. This fee
increased to GBP1,200 for 2015.
5. Dividends
For the
period Amount Year ended Year ended
To share-holders ended per 31 December 31 December
Date paid on the register 31 December share 2014 2013
on
GBP GBP
28 March
2013 8 March 2013 2012 2p - 1,500,952
21 June 2013 31 May 2013 2013 2p - 1,498,502
27 September 6 September
2013 2013 2013 1p - 749,251
20 December 29 November
2013 2013 2013 5p - 3,746,256
14 March 21 February
2014 2014 2013 2.25p 1,685,815 -
13 June 2014 23 May 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 -
________ ________
4,630,498 7,494,961
6. Financial assets at fair value through profit or loss
2014 2013
Non-current Non-current
GBP GBP
Opening valuation 67,389,243 63,126,188
Additions - 7,552,282
Capital distributions from investment (40,737,530) -
Unrealised (loss)/gain on revaluation
of investments (961,783) (3,289,227)
_________ _________
Closing valuation 25,689,930 67,389,243
The non-current investment comprises an investment in the Master
Fund. The Company has a committed investment of GBP75,333,953
(2013: GBP75,333,953) of which GBP71,451,201 (2013: GBP71,451,201)
has been drawn down at the period end. On 13 November 2014
GBP2,610,306 of the undrawn down amount was cancelled leaving the
undrawn commitment to the Master Fund at 31 December 2014 at
GBP1,272,446 (2013: GBP3,882,752). The undrawn commitment may not
be drawn in its entirety by the Master Fund, as Limited Partners
are proportionally drawn on their commitment, other than for
advisory fees, on which the Company pays a reduced fee. The level
of commitment that will not be drawn down at 31 December 2014 is
GBPNil (2013: GBP1,441,000) as a result of the cancellation of part
of the undrawn commitment in November 2014.
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 has elected to extend the life of the Fund by one
year to 22 December 2015 (the first of two extensions available to
the General Partner at its discretion). With regard to the profile
of the remaining investments, the Directors expect the General
Partner to elect for the second extension in due course.
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 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, (iv) any
restrictions on redemptions, and (v) the basis of accounting
adopted by the Master Fund in valuing the investments held and in
reporting to investors (the Master Fund reports to investors using
IFRS principles). If necessary, the Directors make adjustments to
the NAV of the Master Fund so as to obtain the best estimate of
fair value as at the period end date. No such adjustments have been
made to the reported NAV of the Master Fund as it applies to the
Company as at 31 December 2014. In addition to normal short term
receivables/payables and cash balances, the investment portfolio
held by the Master Fund as at 31 December 2014 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.
2014 2013
Level 3 Level 3
GBP GBP
Opening valuation 67,389,243 63,126,188
Additions - 7,552,282
Capital distributions from investment (40,737,530) -
Unrealised loss on revaluation of
investments (961,783) (3,289,227)
_________ _________
Closing valuation 25,689,930 67,389,243
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 GBP1,284,497
(31 December 2013: GBP3,369,462). 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 GBP3,866,334 (2013:
GBP3,786,862) and the weighted average number of shares in issue
for the year of 74,574,374 (2013: 74,963,554).
Net asset value per share is based on net assets of
GBP37,837,717 (2013: GBP70,088,284) divided by the 73,766,709
(2013: 74,925,109) Ordinary Shares in issue at 31 December
2014.
8. Payables
2014 2013
GBP GBP
Audit fee payable 23,600 17,250
Directors' fees payable - 18,750
Other payables 20,613 6,863
_________ _________
44,213 42,863
9. Share capital
The authorised shares of the Company are as follows:
2014 2013
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
2013 - - 75,047,609 75,205,283
Purchase of own shares - - (122,500) (109,247)
_________ _________ _________ _________
Balance at 31 December
2013 - - 74,925,109 75,096,036
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
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 2014 as
detailed below.
On 25 February 2014, the Company made a Capital Return to
shareholders equivalent to 13.35 pence per Ordinary Share by way of
an issue and redemption on 26 February 2014 of 74,925,109 B Shares
on a pro rata basis.
On 22 July 2014, the Company made a Capital Return to
shareholders equivalent to 13.62 pence per Ordinary Share by way of
an issue and redemption on 23 July 2014 of 74,675,109 B Shares on a
pro rata basis.
On 2 December 2014, the Company made a Capital Return to
shareholders equivalent to 14.34 pence per Ordinary Share by way of
an issue and redemption on 3 December 2014 of 74,176,709 B Shares
on a pro rata basis.
The Company's objective when managing its capital is to follow
its investment objective to provide shareholders, through its
investment in the Master Fund, with regular dividends and an
attractive total return whilst limiting downside risk to capital
through exposure to European commercial real estate debt. 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 1,158,400 (2013: 122,500)
of its own shares for GBP676,211 (2013: GBP109,247).
The shares were bought back on the open market and 813,400
shares were cancelled by 31 December 2014. The cancelled shares
represented 1.1% (2013: 0.2%) of the voting rights. The remaining
345,000 shares were cancelled in January 2015 representing a
further 0.5% 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
2014 2013
GBP GBP
Cash 39,828 19,377
Money market funds 12,125,583 2,695,450
_________ _________
12,165,411 2,714,827
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 2014:
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
2013 Interest Non-interest
bearing bearing Total
GBP GBP GBP
Non-current assets
Financial assets at fair value
though profit or loss - 67,389,243 67,389,243
Current assets
Cash and cash equivalents 2,714,827 - 2,714,827
Interest receivable - 489 489
Other receivables - 26,588 26,588
Liabilities
Payables - (42,863) (42,863)
_________ _________ _________
Total net assets 2,714,827 67,373,457 70,088,284
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 GBP60,827 (2013:
GBP13,574).
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 money market instruments
totalling GBP12,125,583 (2013: GBP2,695,450) at 31 December 2014,
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 2014 was 956.1% (2013: 69.9%) (135.8% when taking into
account the post year end capital return of GBP10,437,989 (note
13)). When taking account of the level of commitment that will not
be drawn down at 31 December 2013 the commitment cover was 111.2%.
Due to the cancellation of undrawn commitment in November 2014,
there is no commitment that cannot be drawn down at 31 December
2014. 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 (2013: GBP25,000) and there was a prepayment of GBP6,250
at 31 December 2014 (2013: 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.
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 (2013: 7,000) and David Moore has an
interest in 39,329 shares (2013: 39,329). No other Director who
held office at 31 December 2014 had an interest in the Ordinary
Shares of the Company.
13. Subsequent events
A dividend of 1.25 pence per Ordinary Share was paid on 20 March
2015to Ordinary Shareholders on the register on 27 February
2015.
Subsequent to 31 December 2014, up to the date of this report, a
further 378,000 shares have been bought back for GBP130,405.
On 20 January 2015, the Company made a Capital Return to
shareholders of GBP10,437,989 equivalent to 14.15 pence per
Ordinary Share by way of an issue and redemption on 21 January 2015
of B Shares on a pro rata basis.
Company Information
Directors Legal advisers to the Company
John Falla (Guernsey Law)
David Moore Carey Olsen
David Staples (Chairman) PO Box 98
Carey House
Administrator, secretary and Les Banques
registered office St Peter Port
International Administration Guernsey
Group (Guernsey) Limited GY1 4BZ
Regency Court
Glategny Esplanade Legal advisers to the Company
St Peter Port (English Law)
Guernsey Berwin Leighton Paisner LLP
GY1 1WW Adelaide House
London Bridge
Registrar London
Capita Registrars (Guernsey) EC4R 9HA
Limited
Mont Crevelt House UK transfer agent
Bulwer Avenue Capita Registrars Limited
St Sampson The Registry
Guernsey 34 Beckenham Road
GY2 4LH Beckenham
Kent
Investment adviser BR3 4TU
ERED Investment Adviser LLP
6 Duke Street St James's Principal bankers
London Bank of New York Mellon London
SW1Y 6BN Branch
One Canada Square
Auditors London
PricewaterhouseCoopers CI LLP E14 5AL
PO Box 321
Royal Bank Place Financial adviser and sponsor
Glategny Esplanade Stifel Nicolaus Europe Limited
St Peter Port (formerly Oriel Securities
Guernsey Limited)
GY1 4ND 150 Cheapside
London
EC4R 9HA
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAELXFFASEFF
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