Eurocastle Releases First Half 2014 Financial Results

EUROCASTLE INVESTMENT LIMITED

                                                                  FOR IMMEDIATE RELEASE
Contact:
International Administration Group (Guernsey) Limited
Company Administrator
Attn:  Mark Woodall
Tel:  +44 1481 723450                                                                                          

Eurocastle Releases First Half 2014 Financial Results

Guernsey. 14 August 2014 - Eurocastle Investment Limited (Euronext Amsterdam: ECT) today has released the interim report for the six months ended 30 June 2014 and an investor presentation on the Investor Relations section of its website www.eurocastleinv.com.

In addition, management will host an earnings conference call at 3:00 P.M. London time (10:00 A.M. New York time). All interested parties are welcome to participate on the live call. You can access the conference call by dialing +1-800-215-5243 (from within the U.S.) or +1-330-863-8154 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Eurocastle First Half 2014 Earnings Call or Conference ID Number: 82225542"

A webcast of the conference call will be available to the public on a listen-only basis at www.eurocastleinv.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call.

For those who are not available to listen to the live call, a replay will be available until 11:59 P.M. New York time on Sunday,
14 September 2014 by dialing +1-855-859-2056 (from within the U.S.) or +1-404-537-3406 (from outside of the U.S.); please reference access code "82225542." 

A summary of the interim report is detailed below:

Key highlights

In March, invested €21.3 million to acquire 11,929 units of an Italian closed-end real estate fund at ~37% discount to NAVIn June, invested €7.4 million to acquire an interest in a portfolio of Italian NPLs with a GBV of €883 millionDividends declared to date in 2014 amount to €8.2 millionNAV as at 30 June 2014 of €293.6 million or €9.00 per shareNormalised FFO of €3.0 million or €0.09 per share (€1.4 million or €0.04 per share for the second quarter)

Strategy

Eurocastle Investment Limited ("Eurocastle" or the "Company") and its consolidated investments (together with Eurocastle, the "Group") continue to focus its investment strategy on Italy and is targeting a wide range of real estate related products, including, but not limited to, non-performing loans ("NPLs"), real estate fund units and real estate assets. The Company may also pursue other performing and non-performing loan and receivable deals in Italy, real estate related investments (including direct and real estate-related debt investments) in other European markets, including Germany and the United Kingdom. The Company will generally target assets that generate significant current cash flows and/or have the potential for meaningful capital appreciation. At the same time, the Group may further invest in its legacy business to preserve or harvest value from the underlying portfolio.

Dividends

The Company has declared and paid cash dividends for the first two quarters of 2014. Each quarter's dividend was for a total of
€4.1 million which equated to a dividend of €0.125 per ordinary share.

New Investments

On 9 June 2014, the Group acquired 25% of the membership interest of Fortress Italian NPL Opportunities Series Fund LLC (the "Series 1 Fund") for a total consideration of €7.4 million. The Series 1 Fund acquired the non-performing loan portfolio from
Banca Monte dei Paschi di Siena ("MPS") on 27 June 2014.

During the half-year, the Company received €4.2 million of cash from the investments in the performing and non-performing loan portfolios. The fair value of the Group's investment increased by €1.3 million for the half-year(1).

(Unaudited)Acquisition DateGross
book
value
(1)
€'000Purchase
price
 (1)
€'000No. of
loansSecured
% Palazzo portfolio May 2013 8,102.8 4,594.2 869 100.0% Ieffe and BAM portfolios May 2013 3,252,804.1 9,412.5 7,290 11.7% BNL portfolio July 2013 6,895.9 2,632.5 86 100.0% MPS portfolio June 2014 883,100.0 7,357.0 11,763 19.0% Total Italian Investments4,150,902.823,996.220,00813.6%Actual (1)Underwriting (1)(Unaudited)Estimated future cashflows
€'000Life
to date
Cashflows
 (2)
€'000Internal
rate of
return
(3)
%Life
to date cashflows
 (2)
€'000Internal
rate of
return
 (3)
% Palazzo portfolio 3,145.6 3,477.5 37.6% 2,883.4 17.1% Ieffe and BAM portfolios 7,805.0 7,621.6 53.8% 5,591.3 19.9% BNL portfolio 3,110.6 907.5 21.8% 643.8 18.4% MPS portfolio 12,504.4 - 20.7% - 20.7% Total Italian Investments26,565.612,006.637.8%9,118.519.4%The amount is shown net of minority interestsCash flows received from date of acquisitionEffective rate represents current estimated internal rate of return given cash flows received to date and projected cash flows based on the current projections and original underwriting assumptions.

On 28 March 2014, the Group purchased 11,929 (representing 7.46%) of the units in UniCredito Immobiliare Uno - Closed-End Real Estate Investment Fund ("UIU") for €21.3 million. The acquisition cost per unit was €1,787.50 which was a 36.5% discount to NAV of the fund. In addition, the Group incurred €1.0 million of transaction costs. UIU is a close-ended real estate fund listed on the Italian Stock Exchange. It was incorporated in 2009 and has a maturity of 31 December 2017. The fund invests in a variety of real estate across Italy which includes residential, office and commercial properties. As at 30 June 2014, the share price was €1,822.00 per unit.

The summarised portfolio strats as at 30 June 2014 are as follows:

Split of Property portfolio (Unaudited)No. of
assetsMarket value of
assets
€'000Market value as % of total portfolio Office 2 236,800 48% Residential and residential conversions 3 148,423 30% Commercial 1 55,684 11% Retail 8 51,637 11% Total portfolio14492,544100%

Existing Business - European Real Estate Debt

In January 2014, the Group sold the remaining securities in the CDO IV portfolio for an average price of 96.4% of face value. After repaying the CDO IV facility in full, the Group realised €22.5 million of cash.

In February 2014, Eurocastle Funding Limited acquired €4.0 million of the Group's own senior liabilities at a price of 51% of nominal generating a book gain of €2.0 million.

The net asset value of the portfolio remained stable in the quarter at €24.0 million with €0.4 million of an impairment charge to the Group's loan and receivable positions, set off by accretion income in the other positions.

In the second quarter of 2014, the Duncannon portfolio received €12.0 million of amortisation proceeds. These proceeds (together with additional available cash) were used to repay €12.4 million of senior debt, with €247.0 million of debt outstanding at the end of June 2014.

Since June 2009, Duncannon has failed to meet certain cashflow triggers, where compliance is generally a function of the default rate and external credit ratings of the underlying investments. As a consequence, excess interest has been mandatorily diverted to amortise senior debt. In order to meet this threshold, the value (calculated by reference to various rating agency criteria) of the assets must exceed the amount of debt senior to Eurocastle's interest by at least 5%. As at 30 June 2014, the ratio was reported at 78.0% against the required covenant level of 105%, which equates to a shortfall of €67.9 million or 27.0%. The Company does not therefore expect to receive cash flows from this portfolio in the near term.

The net assets of the debt business are shown by portfolio in the table below:

CDO IV
 (1)Duncannon
(2)Balance
Sheet
(3)Total European Debt Portfolio(Unaudited)€'000€'000€'000€'000 Total assets 8,165 260,846 1,942 270,953 Total liabilities (7) (246,896) (104) (247,007)Net assets excluding non-controlling interest8,15813,9501,83823,946

The summarised portfolio strats as at 30 June 2014 are as follows:

(Unaudited)CDO IV
 (1)Duncannon
(2)Balance
Sheet
(3)Total European Debt Portfolio Weighted average Credit Rating D CCC D CCC % Investment Grade 0% 16% 0% 14% Number of securities (4) 2 51 4 48 Debt Maturity - Jun 2047 - - CDO IV represents the net assets of CDO IV PLCDuncannon represents the net assets of Duncannon CRE CDO I PLCBalance Sheet represents the net assets of Eurocastle Funding LimitedThe number of securities consolidates positions where multiple classes are held. The total column eliminates positions that are held in two or more portfolios.

Existing Business - German Commercial Real Estate

The Group has a number of non-recourse financing facilities which are due to reach maturity within the next 12 months at which time, the outstanding balance of the financings will become due and payable unless such financings can be extended. If proceeds from the sale of the assets which secure the relevant portfolio financing do not equal or exceed the amount outstanding under the relevant portfolio financing, the Group would be unable to repay the outstanding balance of the relevant portfolio financing when it becomes due and payable. The Group will engage in discussions with lenders in relation to the relevant portfolio financing, as they approach maturity, typically commencing such discussions three to six months prior to the relevant maturity date. Given the non-recourse nature of the financings, the Company is not obliged to utilise any additional capital to support any of the relevant portfolio financings.

In April 2014, the Senior loan of the Drive portfolio was refinanced by the lending syndicate of the Junior facility to a maturity date of 15 January 2016 with interim amortisation targets of €110.0 million in July 2014, €70.0 million in January 2015 and
€35.0 million in July 2015. The Junior loan was also extended in parallel at in-place terms to the same final maturity date. Additional terms of the Senior Loan include an arrangement fee of 1.1% (equivalent to an amount of €1.6 million), interest at a rate of 3 month Euribor plus 3.1% and an additional undrawn facility of up to €20 million to fund capital expenditures. Excess cash flow will continue to be retained at the senior loan level until the loan is repaid in full.

Sale fees equivalent to 3.5% of gross sales proceeds will continue to be paid to the Group should it meet the repayment targets with €1.2 million released to the Company in April  following the repayment of the existing Senior loan and a further €1.1 million in July. The outstanding balance reported as at 31 December 2013 of €142.3 million has since been repaid by a further €44.4 million, primarily from asset sales, resulting in a remaining balance of €97.9 million.

In April 2014, the Group agreed a short term extension of the Wave facility to end of August 2014 with an option to extend the loan a further 2 months should Eurocastle have agreed a sale of the remaining assets by the initial maturity date. As part of the terms of the extension, the loan has been repaid by €38.5 million in 2014, reducing the outstanding balance to €68.2million (equivalent to a loan to value of 60% on the remaining assets). Of the €38.5 million repaid, €29.0 million was generated from the sale of four assets. The remaining amount of €9.5 million was paid using available cash within the Group, of which €6.1m came from corporate cash and €3.4m from cash reserves held within the Wave portfolio.

The Group is in advanced negotiations for a sale of the Wave portfolio. In parallel with the sales process, the Group has also received favourable terms to refinance the portfolio on both a short and a long term basis.

In January 2014, the Group secured an amendment to the Mars Floating facility extending the December 2013 maturity for a further six months to 30 June 2014. The Company continues to benefit from running asset management and sales fees, receiving
€0.5 million in the first six months of 2014. Since the year end, one asset has been sold and the loan has been repaid by a further €8.7 million reducing the outstanding balance to €118.0 million. The remaining assets are now under binding sales contracts for a total value of €70.3 million which will generate an additional €0.9m of sales fees to the Company. In order to facilitate the closure of the sales, the facility has been extended on a short-term basis to 31 August 2014. As with all of the Group's real estate financings, the debt is non-recourse to Eurocastle.

Following the maturity of the Zama portfolio facility, the loan of €39.9 million is currently subject to a short term standstill pending negotiations of a proposed 2 year extension.

Ahead of its October 2014 loan maturity, the Group is also currently in discussions with the lenders of the Tannenberg portfolio regarding a potential extension of the facility.

During the six months ended 30 June 2014 and excluding Mars Floating, the Group signed 49 commercial leases for approximately 18,785 square metres (sqm). Of the leases signed, 5,976 sqm relate to new leases. The renewal rate for the six months ending
30 June 2014 was 76.6%. Physical occupancy was at 76.6% compared to 78.2% at the end of 2013 on a like-for-like basis. In the first six months of 2014, the Group sold 15 properties for total sales proceeds of €87.4 million versus a carrying value of
€86.0 million with a loss after transaction costs (€3.9 million).

As at 30 June 2014, the NAV of the German Real Estate business excluding the Mars Floating portfolio was €113.4 million. Valuation adjustments arising from binding sales contracts, together with capital expenditure, resulted in a fair value loss of
€20.5 million.

On 15 January 2014, the Bridge portfolio financing matured without any agreement on an extension or a refinancing. Following the execution of the Lender's security shares in the Company's subsidiaries holding the Bridge portfolio, these companies were transferred out of the Group. Consequently, the Group deconsolidated the Bridge portfolio with a reduction in NAV of €26.1 million.

Property Valuation Data (by Portfolio)

For 2014:

Number ofOccup-
ancyLettable spaceProperty valuation (1)Passing RentNet operating income
(NOI) (2)NOI
yield on valuationproperties%(sqm)€m€m€m% Drive 131 51.6% 282,614 444.1 23.6 16.1 3.6% Turret 63 95.4% 141,608 165.7 14.3 11.8 7.1% Wave 44 75.6% 108,041 114.0 9.0 6.2 5.4% Truss 41 95.3% 81,367 90.7 7.9 6.3 6.9% Mars Fixed 2 2 89.8% 32,172 89.9 5.7 4.1 4.5% Belfry 27 85.7% 52,900 56.5 4.6 3.7 6.5% Tannenberg 27 89.7% 49,574 58.4 4.9 4.0 6.9% Superstella 18 100.0% 38,641 55.1 4.4 3.9 7.0% Zama 8 94.8% 30,396 43.6 3.8 3.5 8.0% Total portfolio excluding Mars Floating36176.6%817,3131,118.078.259.65.3% Mars Floating (3) 6 59.8% 103,747 70.3 6.9 4.6 6.5% Total portfolio36774.7%921,0601,188.385.164.25.4%

For 2013 (on a like-for-like basis):

Number ofOccup-ancyLettable spaceProperty valuation (1)Passing RentNet operating income
(NOI) (2)NOI
yield on valuationproperties%(sqm)€m€m€m€m Drive 131 55.4% 282,610 452.5 24.5 16.2 3.6% Turret 63 96.2% 141,608 170.0 14.6 12.9 7.6% Wave 44 76.4% 108,079 113.7 9.1 7.1 6.2% Truss 41 92.9% 81,437 92.7 7.8 6.8 7.4% Mars Fixed 2 2 92.1% 32,163 89.3 5.9 4.7 5.2% Belfry 27 86.7% 52,900 57.3 4.6 3.9 6.7% Tannenberg 27 90.7% 49,574 58.5 5.0 4.2 7.2% Superstella 18 100.0% 38,641 55.2 4.4 4.0 7.3% Zama 8 95.2% 30,396 44.6 3.7 3.3 7.4% Total portfolio excluding Mars Floating36178.2%817,4081,133.879.663.15.6% Mars Floating (3) 6 55.6% 103,738 83.7 6.5 3.3 4.0% Total portfolio36775.6%921,1461,217.586.166.45.5%Property valuation excludes the leasehold gross-ups of €25.2 million (31 December 2013: €23.1 million).Net operating income is after deducting €2.6 million (31 December 2013: €1.1 million on a like-for-like basis) of free rent. It excludes the amortisation of tenant incentives and leasing commissions, the fund costs related to the Drive portfolio and other real estate related general expenses included within property operating expenses in the consolidated income statement. It is shown here as the annualised amount at the period end.The total portfolio includes 100% of the Mars Floating Portfolio, in which the Group has a 50% investment. The portfolio has a negative net asset value and has been separated as the financing is non-recourse to the Company and not callable as a result of any changes in the fair value of the assets.

Business Segments

The table below shows the summarised financial performance of the Group's business segments (excluding Mars Floating) for the six months ended 30 June 2014:

European
Real
Estate
Debt (1)German
Real
Estate
(1)Italian Investments (1)Corporate (1)Total Eurocastle(Unaudited)€'000€'000€'000€'000€'000 Revenue 4,140 49,549 (5) 31 53,715 Impairment losses (10,653) - - - (10,653) Fair value movements - (20,471) 1,961 - (18,510) Interest expense (2,442) (20,959) 45 - (23,356) Other operating expense 1,622 (51,173) (1,059) (5,315) (55,925)Net operating (loss) / profit before taxation(7,333)(43,054)942(5,284)(54,729) Taxation expense (1) (1,109) (12) - (1,122)Net operating (loss) / profit after taxation and before minority interest(7,334)(44,163)930(5,284)(55,851) Minority interest in Italian Investments - - (245) - (245)Net (loss) / profit after taxation and minority interest(7,334)(44,163)685(5,284)(56,096) Decrease in fair values of investment properties - 19,677 - - 19,677 FFO adjustment to Italian Investments - - 1,651 - 1,651 Unrealised fair market gains on Italian Investments - - (1,304) - (1,304) Deferred tax charge on investment properties - (1,292) - - (1,292)Funds from operations (FFO)(7,334)(25,778)1,032(5,284)(37,364) Net realised losses on investment property sales after sales costs and closure of swaps - 4,347 - - 4,347 Gains on foreign currency contracts, translation and swaps (906) - - 298 (608) Impairment losses 10,653 - - - 10,653 Gain on purchase of Mezzanine debt (1,963) - - - (1,963) Loss on sale of debt securities 407 - - - 407 Loss on deconsolidation of Bridge Portfolio - 26,077 - - 26,077 Normalisation of RE Fund Unit returns - - 477 - 477 Transaction costs on acquisition of UIU - - 1,012 - 1,012Normalised funds from operations8574,6462,521(4,986)3,038(Unaudited)European
Real
Estate
Debt (1)German
Real
Estate
(1)Italian Investments (1)Corporate (1)Total EurocastleNet (loss) / gain  per ordinary share €(0.22)(1.35)0.03(0.16)(1.71)Net (loss) / gain  per weighted average ordinary share €(0.22)(1.35)0.03(0.16)(1.71)FFO per weighted average ordinary share €(0.22)(0.79)0.03(0.16)(1.15)Normalised FFO per weighted diluted ordinary share €0.030.140.08(0.15)0.09Unallocated revenue and other operating expense has been allocated between the segments based on each segment's share of net asset value.

FFO as defined represents net profit after taxation (computed in accordance with IFRS), excluding changes in the fair value of investment properties net of attributable deferred taxation, fair value changes of the Italian investments, changes in the fair value of interest rate swaps that are taken to the income statement, unrealised movements on currency swaps (net of translation gains/losses of related assets) and accounting losses on investments made with non-recourse financing to the extent they exceed the net amount invested. The Group considers the realisation of gains and losses on its investments to be a normal part of its recurring operations and therefore does not exclude such gains and losses when arriving at FFO. FFO does not represent cash generated from operating activities in accordance with IFRS and therefore should not be considered an alternative to cash flow as a measure of liquidity, and is not necessarily indicative of cash available to fund cash needs. Eurocastle's calculation of FFO may be different from the calculation used by other companies and, therefore, comparability may be limited.

Normalised FFO is a non-IFRS financial measure used to provide investors with additional information regarding the underlying performance of the Group and its ability to service debt and make capital expenditure. This measure excludes realised gains and losses, sales related costs (including realised swap losses), impairment losses, foreign exchange movements, and accounting adjustments related to the Mars refinancing.

The table below shows the summarised financial position of the Group's business segments for the six months ended 30 June 2014:

European
Real
Estate
DebtGerman
Real
Estate
 (2)Italian Investments (1)Corporate
 (1)Total Eurocastle(Unaudited)€'000€'000€'000€'000€'000 Investments 257,615 1,137,545 39,061 - 1,434,221 Other assets (including cash) 13,338 50,192 5,211 124,680 193,421Total assets270,9531,187,73744,272124,6801,627,642 Interest-bearing debt financing (246,420) (975,446) - - (1,221,866) Other liabilities (587) (86,149) (3,949) (8,747) (99,432)Total liabilities(247,007)(1,061,595)(3,949)(8,747)(1,321,298)Segment net assets23,946126,14240,323115,933306,344 Tax liability - (12,726) (2) - (12,728)Adjusted net assets23,946113,41640,321115,933293,616 Minority interest (2) (4) 2,142 - 2,136 Add back net liabilities of Mars Floating Portfolio (2) - (44,907) - - (44,907)Net Assets23,94468,50542,463115,933250,845Adjusted net asset value per ordinary share €0.733.481.243.559.00Net asset value per ordinary share €0.732.101.303.557.69Adjusted asset value per diluted weighted average ordinary share €0.733.481.243.559.00Net asset value per diluted weighted average ordinary share €0.732.101.303.557.69Unallocated assets and liabilities have been allocated to Italian Investments as it represents the net cash available for future investments in this segment.The negative net asset value of Mars Floating has been adjusted as this financing is non-recourse to the Company and not callable as a result of any changes in the fair value of the assets.

The table below shows the summarised cashflow of the Group's business segments for the six months ended 30 June 2014:

Six months ended 30 June 2014 (unaudited)European Real
Estate
DebtGerman
Real
Estate Italian Invest-mentsCorp-orateTotal Adjusted EurocastleMars Floating and MinoritiesTotal Eurocastle€'000€'000€'000€'000€'000€'000€'000 Cashflows from operating activities (1,851) 16,717 (1,019) (5,284) 8,563 (1,256) 7,307 Cashflows from investing activities 79,743 47,508 (2,937) (8) 124,306 9,535 133,841 Cashflows from financing activities (52,953) (91,697) (951) (8,158) (153,759) (8,050) (161,809)Net increase /  (decrease) in cash and cash equivalents24,939(27,472)(4,907)(13,450)(20,890)229(20,661)

Forward-Looking Statements
This release contains statements that constitute forward-looking statements. Such forward-looking statements may relate to, among other things, future commitments to sell real estate and achievement of disposal targets, availability of investment and divestment opportunities, timing or certainty of completion of acquisitions and disposals, the operating performance of our investments and financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may", "will", "should", "potential", "intend", "expect", "endeavour", "seek", "anticipate", "estimate", "overestimate", "underestimate", "believe", "could", "project", "predict", "project", "continue", "plan", "forecast" or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. The Group's ability to predict results or the actual effect of future plans or strategies is limited. Although the Group believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, its actual results and performance may differ materially from those set forth in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that may cause the Group's actual results in future periods to differ materially from forecasted results or stated expectations including the risks regarding Eurocastle's ability to declare dividends, amortise the Group's debts, renegotiate the Group's credit facilities, make new investments, or achieve its targets regarding asset disposals or asset performance.

This announcement is distributed by Nasdaq OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Eurocastle Investment Limited via Globenewswire
HUG#1848751