ANNUAL REPORT
2021
EUROCASTLE INVESTMENT LIMITED is a publicly traded closed-
ended investment company with investments focused on Italian
performing and non-performing loans and other real estate related assets
in Italy.
The Company is Euro denominated and is listed on Euronext Amsterdam under the symbol “ECT”.
Eurocastle is managed by an affiliate of Fortress Investment Group LLC, a leading global
investment manager. For more information regarding Eurocastle Investment Limited and to be added
to our email distribution list, please visit www.eurocastleinv.com.
2021
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 1
BUSINESS REVIEW
FINANCIAL HIGHLIGHTS AT A GLANCE
1
STRATEGIC REVIEW
Eurocastle Investment Limited (the “Company” or “Eurocastle”) is a publicly traded closed-ended investment company with investments focused
on Italian performing and non-performing loans (“NPLs”) and other real estate related assets in Italy. On 18 November 2019, the Company
announced a plan to realise the majority of its assets with the aim of accelerating the return of value to shareholders and in March 2021 launched a
strategic review of the Company’s options. The board is currently in intensive discussions with the Manager to analyse potential investment
opportunities.
PORTFOLIO OVERVIEW
Following implementation of the Realisation Plan in December 2019, Eurocastle’s remaining portfolio of Italian Investments is made up of Real
Estate Funds and residual interests in Italian NPLs & Other Loans, with the balance comprising Net Corporate Cash (after taking into account
reserves for future costs and potential liabilities considered by the Board in light of the Realisation Plan). The chart below shows a breakdown of
Eurocastle’s net assets as at
31 December 2021.
3
Adjusted YE 2021 NAV:
€18.2mm
(YE 2020: €16.7mm)
(Q3 2021: €18.1mm)
YE 2021 IFRS NAV of €32.9mm
Adjusted YE 2021 NAV per share
2
:
€9.79ps
(YE 2020: €9.00ps)
(Q3 2021: €9.76ps)
YE 2021 IFRS NAV of €17.73ps
A
€14.8m
Additional
Reserves
€7.94ps
45%
€1.3m
Italian NPLs &
Other Loans
€0.72ps
4%
€2.8m
Real Estate Funds
€1.49ps
8%
€14.1m
Net Corporate Cash
€7.57ps
43%
IFRS NAV
€17.73 ps / €32.9mm
Adjusted NAV
€9.79 ps / €18.2mm
3
3
Italian NPLs & Other Loans: Residual minority interest in 2 loan pools, which are under
contract to be sold once the underlying portfolio level financing of each is repaid.
FY 2021 NAV Bridge
In € per share
Additional Reserves: Reserves required for the Company to continue in operation and fund
its future costs and potential liabilities in light of the Realisation Plan. These reserves are not
accounted for under IFRS. No commitments for these future costs and potential liabilities
existed as at 31 December 2021.
Net Corporate Cash: Corporate cash net of liabilities and additional reserves.
€9.00
€8.46
€9.79
€17.73
(€0.54)
(€0.10)
€0.32
€1.11
€7.94
Q4 2020
Adjusted
NAV
Capital
distribution
Q4 2020
Adjusted NAV
after Capital
Distribution
Italian
NPLs
Fair Value
Movement
RE Fund
Investments
Fair Value
Movement
Reserves
& Other
Movement
Q4 2021
Adjusted
NAV
Additional
Reserves
Q4 2021
IFRS
NAV
Real Estate Funds: Interests in:
• Two private Italian real estate development funds:
RE Fund II: Both buildings completed and fully sold
RE Fund V: Construction completed on budget, with 96% of units sold or under
contract.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 2
BUSINESS REVIEW
2021 BUSINESS HIGHLIGHTS
SUBSEQUENT EVENT TO 31 DECEMBER 2021
FY 2021 Overview
During the year the Company continued to make significant progress on realising its remaining assets as part of its Realisation Plan with
72% of its YE 2020 NAV relating to investments realised in the period. In particular, sales of residential units across both of its real estate
redevelopment funds have proved resilient despite the ongoing challenges from COVID-19. This positive activity in the RE Funds, where
results were achieved above and ahead of what was anticipated, after being adjusted in 2020 for the projected impact of COVID-19, has
been the primary driver for a 31% valuation increase in the period on all investments.
In addition, Eurocastle received its last material distribution from its publicly listed fund investment and sold all underlying assets in one
of the three remaining loan pools the Company has an interest in. The Company is now left with two RE Fund Investments and two NPL
pools with an NAV of €5.1 million, or 28% of the Company’s NAV. In Q1 2022, the Company received a further €2.0 million from its RE
Fund investments. Taking into account these distributions, Eurocastle’s remaining NAV for all of its investments would be €3.1 million,
or 17% of the Company’s Adjusted NAV, which is expected to be realised within the next 18 months.
Investment Realisations & Highlights
During 2021, the Company realised €6.3 million from its investments, of which €5.8 million came from its Real Estate Funds (~78% of
their YE 2020 NAV) and €0.5 million from its minority NPL and Other Loan holdings (~41% of their YE 2020 NAV).
RE Redevelopment Funds – REFI II & REFI V:
In REFI II, all units have been sold and the fund is now in liquidation. In REFI V, assuming all units currently under contract
successfully close, only 4% of units will remain to be sold.
Eurocastle received €5.3 million during the year comprising (i) €0.8 million from REFI II (~32% of its YE 2020 NAV) and (ii) €4.6 million
from REFI V (~96% of its YE 2020 NAV). A further €2.0 million was distributed from the investments in Q1 2022; €1.0 million from REFI
II in January 2022 and €1.0 million from REFI V in March 2022.
REFI I: Following the sale of all the assets in Real Estate Fund Investment I in 2019, in Q1 2021 the Company received its last expected
material distribution of €0.4 million, or 143% of its YE 2020 NAV.
Italian NPLs & Other Loans: During the year the pools generated and distributed €0.5 million, or ~41% of their YE 2020 NAV. The
Company also disposed of all of the underlying assets of one of these 3 pools which generated ~ €0.4 million to the Company (~31% of
its YE 2020 NAV).
Additional Reserves: The Company reduced these reserves from €16.2 million to €14.8 million during the year. The reduction of €1.4
million reflects €1.6 million of reserves being utilised, in line with anticipated costs, and an increase of €0.2 million in the existing
reserves in 2021.
The Company is exposed to a potential tax risk of up to €7.2 million associated with the disposal of a legacy property subsidiary in prior
years. In February 2022, the Company received revised tax assessments related to this risk covering the period 2008 - 2012 determining a
liability of €4.6 million, or €2.50 per share. In respect of the same legacy property subsidiary, the years 2013 - 2015 remain subject to
ongoing tax audits, the timings of which are uncertain. The Company estimates that the remaining financial impact for all these audits,
including interest accruals, is between €1.8 million - €2.5 million. The Company intends to appeal the current and any future assessments
through the German tax system and, having taken independent advice, considers it probable that the matter will finally be determined in
the Company’s favour. In light of this, the Company will recognise a tax asset of €4.6m following payment of this amount in March 2022.
The Company has been advised that, based on average court timings for both the German fiscal and federal court systems, this matter can
be expected to be resolved in approximately four years, but notes that it can take considerably longer and, in rare cases, up to ten years in
total. The total potential liability arising from this matter had already been fully reflected in the Adjusted NAV since implementation of
the Realisation Plan (see page 5) and remains the case at 31 December 2021.
In early January 2022, the Company received a distribution of €1.0 million from Real Estate Fund Investment II. This represents 70% of its
Q4 2021 NAV leaving a residual value of ~€0.4 million for this investment and is already reflected in the Company’s Q4 2021 Adjusted
NAV.
In March 2022, the Company received a distribution of €1.0 million from Real Estate Fund Investment V. This represents 42% of its Q4
2021 NAV and leaves a residual value of ~€1.4 million for this investment.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 3
BUSINESS REVIEW
ITALIAN REAL ESTATE FUNDS
Further details of all remaining real estate fund investments as at 31 December 2021 can be found in the table below:
Fund
In
vestment II
Fund
Investment V
Investment Date Jul-14 Q2-17
Eurocastle Ownership 49.7% 49.6%
Fund Type Private Private
Collateral Type
2 luxury residential
redevelopments
1 luxury residential
redevelopment
Collateral Location Rome Rome
Eurocastle YE 2021 Adjusted NAV per
share
€0.22
3
€1.27
Fund Leverage 0% 0%
4
L
egal Fund Maturity
I
n liquidation Q4 2022
RE Fund
Investments
Equity Invested
€ million
Total
Cash flows
Distributed
to Eurocastle
€ million
Of which
Received in
2021
€ million
Adjusted
NAV
€ million
Adjusted
NAV
€ per share
Total Return
(Cash flows
Distributed
+Adj. NAV)
€ million
I (fully realised Mar ’21)
22.2
26.8
0.4
-
-
26.8
II
3
15.4
15.1
3
0.8
0.4
3
0.22
15.5
V
5.6
5.0
4.6
2.4
1.27
7.4
TOTAL
43.2
46.9
5.8
2.8
1.49
49.7
Since 2014, Eurocastle has made several investments in this asset
class, investing €67.2 million in five separate real estate funds; of
which three have been fully realised.
The Company opportunistically targeted either public or private
funds that could be acquired at a significant discount to the
value of their underlying assets.
Following adoption of the Realisation Plan, the Company plans
to continue to hold and realise these assets in accordance with
existing business plans. It will support these investments to the
extent required to optimise r
eturns and distribute cash to
shareholders when available.
RE Funds Update
During 2021, the Company’s RE Fund interests comprised one publicly listed fund, which was fully realised in March 2021 and in two private
Italian real estate redevelopment funds.
• RE Fund I (publicly listed fund) –The investment was fully realised in March 2021, with a final material distribution of €0.4 million being
received in Q1 2021, resulting in a fair value increase of €0.1 million, or €0.07 per share.
• RE Fund II - All units in both buildings sold as at year-end. Subsequent to year end, the Company received €1.0 million, or 70% of its 2020 YE
NAV. The Q4 2021 NAV is represented entirely by the net cash of the fund. During 2021, a fair value decrease of €0.2 million, or €0.13 pe
r
s
hare was recognised.
• R
E Fund V – Construction completed on budget. As at 31 December 2021, 96% of units are sold or under contract to be sold. The remaining
units are in the process of being sold. ~66% of the Q4 2021 NAV is represented by the net cash of the fund together with the value of units
under contract. Subsequent to year end, the Company received a distribution of €1.0 million, or 42% of the Q4 2021 NAV of this investment.
During 2021, a fair value increase of €2.2 million or €1.17 per share was recognised.
Italian RE funds – FY 2021 Adjusted NAV Bridge
(€ million)
€7.4
€3.7
(€5.8)
€2.1
Q4 2020
NAV
Cashflow
Distributed
Fair Value
Movement
Q4 2021
NAV
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 4
FINANCIAL REVIEW
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021
Income
Statement
Income
Statement
2021
2020
€ Thousands € Thousands
Portfolio Returns
Italian NPLs & Other Loans realised gain
114
-
Italian NPLs & Other Loans unrealised fair value movement
488
99
Real Estate Funds realised fair value movement
129
-
Real Estate Funds unrealised fair value movement
1,932
(2,233)
Fair value movement on Italian investments
2,663
(2,134)
Fair value movements on residual Legacy entities
275
2,501
Other income
-
15
(Loss) / gain on foreign currency translation
(5)
2
Total income
2,933
384
Operating Expenses
Interest expense
7
43
Manager base and incentive fees
175
111
Remaining operating expenses
1,687
1,749
Other operating expenses
1,862
1,860
Total expenses
1,869
1,903
Profit / (loss) for the year
1,064
(1,519)
€ per share
0.57
(0.82)
BALANCE SHEET AND ADJUSTED NAV RECONCILIATION AS AT 31 DECEMBER 2021
I
talian
Investments
€ Thousands
C
orporate
€ Thousands
T
otal
€ Thousands
Assets
Cash and cash equivalents - 28,356
28,356
O
ther assets -
115
115
Investments:
I
talian NPLs & Other Loans
1,337
-
1,337
Real Estate Funds
3,725
-
3,725
Total assets 5,062 28,471 33,533
Liabilities
T
rade and other payables - 564 564
M
anager base and incentive fees - 37 37
Total liabilities - 601 601
IFRS Net Asset Value 5,062 27,870 32,932
Additional Reserves - (14,752) (14,752)
2
RE Fund II distribution (950) 950 -
Adjusted NAV 4,112 14,068 18,180
Adjusted NAV (€ per Share) 2.21 7.57 9.79
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 5
FINANCIAL REVIEW
ADDITIONAL RESERVES
The table below summarises the movement of Eurocastle's Additional Reserves (excluding asset specific reserves which are reflected in the
fair value of the underlying investment), set as part of the Realisation Plan in 2019. In light of the disposal of the majority of its assets as part
of the Realisation Plan, the Company has taken a prudent view in managing its cash reserves. Notwithstanding the Company’s expectation
that the tax matter arising from the disposal of a legacy property subsidiary in prior years will eventually be resolved in the Company’s
favour, as at 31 December 2021, the potential liability was fully reserved for within the Additional Reserves.
Eurocastle started the year with €16.2m of Additional Reserves to fund future costs and potential liabilities. These reserves currently stand
at €14.8m as at 31 December 2021 after utilising €1.6m of reserves in line with anticipated costs and an increase in the existing reserves of
€0.2m in the period.
Dec 2020
Additional
Reserves
€ million
Reserves
(paid/ payable)
in 2021
€ million
Dec 2020 Reserves
less (paid/ payable)
in 2021
€ million
Q4 2021
Reserves
€ million
2021 Net
Movement on
Reserves
€ million
Total
(16.2)
1.6
(14.6)
(14.8)
(0.2)
Per Share
(8.72)
0.87
(7.85)
(7.94)
(0.09)
Additional
Reserves as at
announcement of
Realisation Plan
€ million
Reserves
(paid/ payable)
since Realisation
Plan
€ million
Q4 2021 Reserves
less (paid/ payable)
since Realisation
Plan
€ million
Q4 2021
Reserves
€ million
Net
Movement on
Reserves since
Realisation Plan
€ million
Total
(20.0)
4.8
(15.1)
(14.8)
0.4
Per Share
5
(10.78)
2.64
(8.15)
(7.94)
0.20
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 6
DIRECTORS’ REPORT
DISTRIBUTION
On 4 March 2021, the Board declared a distribution of €1.0 million, or €0.54 per share:
This distribution was treated as a return of capital because there were no prior year or carry-forward profits available at the Company. It
has been reflected in the “Share Capital” column in the Statement of Changes in Equity in the Company’s financial statements.
DIRECTORS
The Directors who have held office during the year were:
Randal A. Nardone
Claire Whittet
6
Jason Sherwill
6
Peter Smith
Simon J. Thornton
6
DIRECTORS INTERESTS
The interests of the Directors in the voting shares of Eurocastle are as follows:
SUBSTANTIAL SHAREHOLDINGS
Per the shareholder register and as at 27 April 2022, the following shareholders had an interest in 3% or more of Eurocastle's share capital:
% Holdings
8
Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV
51%
Euroclear Nominees Limited
30%
State Street Nominees Limited
11%
Vidacos Nominees Limited
4%
Eurocastle is subject to EU transparency rules as a result of its listing on an EU regulated market and, consequently, shareholders are
required to notify the relevant regulators of certain changes to the percentage of voting rights in Eurocastle held by them.
A number of individual shareholders have made a notification of exceeding the reporting thresholds per the EU transparency rules as
implemented in the Netherlands. These notifications are registered in the public register maintained by the Netherlands Authority for
Financials Markets (AFM) and can be found at the following website www.afm.nl
. The shareholding above has been obtained from the
share register, which records legal title to the Company’s shares. The shareholdings listed above may therefore not reflect beneficial
ownership.
Relating to 2020
Period
Type
Date
Declared
Date Paid
€ million € per share
2020
Capital
04/03/2021 30/03/2021 € 1.0 € 0.54
Total € 1.0 € 0.54
As at As at
31-Dec-21 31-Dec-20
Randal A. Nardone
7
7,662 7,662
Claire Whittet 5,324 4,324
Jason Sherwill 13,965 12,965
Peter Smith - -
Simon J. Thornton 12,427 11,427
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 7
DIRECTORS’ REPORT
AUDITORS
BDO LLP were re-appointed during the period and have expressed a willingness to continue in office.
CORPORATE GOVERNANCE
The Directors have applied the principles of the Guernsey Code of Corporate Governance which came into effect from the 1 January 2012.
As a Guernsey incorporated company which is managed and controlled in Guernsey, Eurocastle Investment Limited is subject to the
provisions of the UK City Code on Takeovers and Mergers.
MANAGEMENT AGREEMENT
The Independent Directors have reviewed the continued appointment of the Manager. In carrying out the review, the Independent
Directors considered the past performance of the Company and the capability and resources of the Manager to deliver satisfactory
investment performance and have concluded that the continued appointment of the Manager is in the best interest of the shareholders.
DIRECTORS’ STATEMENTS AS TO DISCLOSURE OF INFORMATION TO AUDITORS
The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 6. Having made enquiries of
fellow Directors and of Eurocastle’s auditors, each of these Directors confirms that:
− to the best of each Director’s knowledge and belief, there is no information (that is, information needed by the Company’s auditors
in connection with preparing their report) of which Eurocastle’s auditors are unaware; and
− each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit
information and to establish that Eurocastle’s auditors are aware of that information.
GOING CONCERN
Following the announcement of the Realisation Plan, the Directors have assessed, and continue to have a reasonable expectation, that the
Company will be able to continue in operation and meet its liabilities as they fall due. The Directors have reviewed the Company’s
processes to control those risks to which the Company is exposed, as disclosed in note 3 to the financial statements, as well as reviewing the
annual budget, including the additional reserves set aside as part of the Realisation Plan. COVID-19 is not expected to have a significant
impact on the Company's liquidity. The Directors have also reviewed forecasts that have been sensitised to reflect plausible downside
scenarios. The Directors have determined that there is no material uncertainty that casts doubt on the entity’s ability to continue as a going
concern. As a result of this, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational
existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
At the date of approval of these financial statements, no dec
ision has been taken by the Directors as to the future of the Company. The
Company continues to follow its Realisation Plan for its remaining investments.
DIRECTORS’ STATEMENTS PURSUANT TO THE DISCLOSURE AND TRANSPARENCY RULES
Each of the Directors as at 31 December 2021 (whose names are listed on page 6) confirms that, to the best of each person’s knowledge and
belief:
− the financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU, give a
true and fair view of the assets, liabilities, financial position and loss of the Company; and
− the Report of the Directors contained in the Annual 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 that they face as
disclosed in note 3 of the Annual Report.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 8
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the financial statements in accordance with applicable Guernsey law and generally accepted
accounting principles.
Guernsey Company law requires the Directors to prepare financial statements for each financial year which 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 year. In preparing these financial statements, the Directors
should:
− select suitable accounting policies and then apply them consistently;
− make judgements and estimates that are reasonable and prudent;
− state whether applicable accounting standards 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
its business.
The Directors are responsible for keeping proper accounting records that 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 reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company
website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
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”, “endeavor”, “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 Company’s ability to predict results or the actual effect of future plans or
strategies is limited. Although the Company 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 Company’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, or achieve its targets regarding asset disposals or asset performance.
Registered Office
Oak House
Hirzel Street
St. Peter Port
Guernsey
GY1 2NP
On behalf of the Board
Simon J. Thornton
Director and Audit Committee Chairman
Date: 28 April 2022
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 9
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROCASTLE INVESTMENT LIMITED
OPINION ON THE FINANCIAL STATEMENTS
In our opinion, the financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 December 2021 and of its profit for the year then ended;
• have been properly prepared 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.
We have audited the financial statements of Eurocastle Investment Limited (the ‘Company’) for the year ended 31 December 2021 which
comprise the Income Statement, the Balance Sheet, the Cash Flow Statement, the Statement of Changes in Equity and the notes to the
financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union.
BASIS OF OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion
INDEPENDENCE
We remain independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
CONCLUSION RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going
concern basis of accounting included:
• Reviewing the forecasted cash flows that support the Directors’ assessment of going concern by comparing to the forecast cash
flows from the Company’s investments used in determining the investment valuations as set out in the Key Audit Matters section
of our report;
• Assessing the sensitivity of the forecasted cash flows to changes in the future financial performance of the Company and its
investments; and
• Challenging the appropriateness of the Director’s assumptions and judgements made with regards to the going concern forecasts
specifically the forecast level of expenditure and the sufficiency of reserves to cover this in both base case and stress-tested
scenarios which considered the outcome of any contingent liabilities.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this
report.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 10
INDEPENDENT AUDITOR’S REPORT
OVERVIEW
Key audit matters
2021 2020
Valuation, existence and ownership of investments —Non
Performing Loans and Real Estate Funds
Materiality
Company financial statements as a whole
€1m (2020: €1m) based on 3% (2020: 3%) of Net assets (2020: Net assets).
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s system of internal
control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of
internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material
misstatement. In particular, we looked at where the Directors made subjective judgements, for example in respect of the valuation of
investments, which have a high level of estimation uncertainty involved in determining the unlisted investment valuations.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts
of the engagement team. This matter was addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on this matter.
Key audit matter
How the scope of our audit addressed the key audit matter
Valuation, existence and
ownership of investments –
Non Performing Loans and
Real Estate Funds
Refer to note 2 accounting
policies (financial
instruments) and note 8
(investments)
The valuation of investments, in
particular unlisted investments,
requires significant judgement
and estimates by management
in determining future cash flows
and discount rates and is
therefore considered a
significant risk due to the
subjective nature of certain
assumptions inherent in each
valuation.
The investment portfolio at the
year-end comprised of unlisted
investments in Non Performing
Loans and Real Estate Funds
valued at €5.0m and have been
valued using discounted cash
flows which includes significant
judgements in relation to future
cash flows and discount rates.
Management uses an
independent valuer in their
valuation of the Real Estate
Fund portfolio investments.
For both portfolios we performed the following procedures:
• Analysed the use of the discount rate adopted against internal
and external evidence and performed sensitivity analysis
around the effect of the discount rate on the fair value
adopted;
• Re-performed the computation of the Net
Present Values
(“NPVs” by reference to forecasted future cash flows and the
timings therof;
•
Tested distributions by agreeing them to the relevant
documentation and bank statements; and
• Agreed the investment holdings to independently received
third party c
onfirmations from the custodian to confirm
existence and ownership.
For all Non Performing Loan portfolios held, we performed the
following specific procedures:
•
Utilised our internal valuation experts to review the
assumptions used in the valuation model
and evaluate the
appropriateness of the valuation methodology used;
• Reviewed, analytically, the changes in the underlying figures
used in the model
including purchase prices, ownership
interests, realised actual cash flows and projected NPV from
the prior
year. We discussed with management any
significant variances from the prior year and obtained
corroborating evidence;
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 11
INDEPENDENT AUDITOR’S REPORT
Any input inaccuracies or
unreasonable bases used in the
valuation judgements could
result in a material misstatement
of the financial statements.
There is also a risk that
management may influence the
significant judgements and
estimates in respect of
valuations in order to achieve
valuations and other
performance targets to meet
market expectations.
• Reconciled the forecasted future cash flows used in the
valuation models to those presented in the Business Plan
reports prepared by the independent Loan Servicer;
• Assessed the accuracy of previous forecasts
by comparing
forecasted cash flows in the prior year to actual cash flows
received in the year; and
• P
erforming sensitivity analysis on forecasted future cash
flows.
For all the Real Estate portfolios held, we performed the following
specific procedure:
•
Obtained a copy of the valuation of the underlying
developments performed by management’s independent
valuer. We assessed the valuers
independence, objectivity,
competence and capabilitie
s and utilised our internal
valuation experts to review the assumptions
used in the
valuation model and evaluate the appropriateness of the
valuation methodology used.
Key observations:
Based on the procedures we performed we considered the assumptions
used by management in the valuation of investments to be reasonable
and did not identify any matters relating to valuation, existence and
ownership of these investments.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 12
INDEPENDENT AUDITOR’S REPORT
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users
that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as
follows:
Company financial statements
2021
2020
Materiality
€1m
€1m
Basis for determining materiality
3% of Net assets
Rationale for the benchmark applied
We consider net assets to represent the most appropriate basis for setting materiality
as it represents the interest of the users of the financial statements.
Performance materiality
750k
750k
Basis for determining performance materiality
75% of total materiality
The level of performance materiality applied was set after having considered a
number of factors including the expected total value of known and likely
misstatements and the level of transactions in the year.
REPORTING THRESHOLD
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of €20,000 (2020: €20,000). We
also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report other
than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify
such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 13
INDEPENDENT AUDITOR’S REPORT
OTHER COMPANIES (GUERNSEY) LAW 2008 REPORTING
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in
our opinion:
• proper accounting records have not been kept by the Company; or
• the financial statements are not in agreement with the accounting records; or
• we have failed to obtain all the information and explanations which, to the best of our knowledge and belief, are necessary for the
purposes of our audit.
OTHER REPORTING - EUROPEAN SINGLE ELECTRONIC FORMAT (ESEF)
In the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European
Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format is
regulated that the annual report of Eurocastle Investments Limited has to be prepared in a single electronic reporting format (ESEF). The
requirements to be met are set out in the aforementioned delegated regulation (these requirements are hereinafter referred to as: the RTS on
ESEF).
In our opinion, the annual financial report made up in XHTML, including the financial statements of Eurocastle Investment Limited has
been prepared in all material respects in accordance with the RTS on ESEF.
Management is responsible for preparing the annual financial report including the financial statements, in accordance with the RTS on
ESEF. Our responsibility is to obtain reasonable assurance for our conclusion whether the annual financial report is in accordance with the
requirements. We have taken into consideration what is stated in Alert 43 of NBA (the Netherlands Institute of Chartered Accountants).
Our procedures included:
• Obtaining an understanding of the entity’s financial reporting process, including the preparation of the annual financial report in
XHTML-format; and
• Examining whether the annual financial report in XHTML-format is in accordance with te RTS on ESEF.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 14
INDEPENDENT AUDITOR’S REPORT
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory framework applicable to the Company and industry in which the Company
operates, and considered the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud. We
considered the significant laws and regulations to be Companies (Guernsey) Law, 2008, Euronext Rule Book and International Financial
Reporting Standards as adopted by the European Union.
Our procedures included:
• agreement of the financial statement disclosures to underlying supporting documentation;
• enquiries of management and those charged with governance relating to the existence of any non-compliance with laws and
regulations;
• review of minutes of Board meetings throughout the period for any non-compliance with laws and regulations; and
• obtaining an understanding of the control environment in monitoring compliance with laws and regulations.
We assessed the susceptibility of the financial statements to material misstatement, including fraud and the risk of management override of
internal controls. Our audit work focussed on the valuation, existence and ownership of investments, where the risk of material
misstatement due to fraud is the greatest (refer to the Key Audit Matter section). We also:
• Recalculated investment management fees in total; and
• Obtained independent confirmation of bank balances.
• Testing journals which met a defined risk criteria by agreeing to supporting documentation and evaluating whether there was
evidence of bias by the Investment Manager and Directors that represented a risk of material misstatement due to fraud.
We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to
any indications of fraud or non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit
procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in
the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities
. This description forms part of our auditor’s report.
SEE PAGE 16 FOR ALL END NOTES EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 15
INDEPENDENT AUDITOR’S REPORT
USE OF OUR REPORT
This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Christopher Young
For and on behalf of BDO LLP
Chartered Accountants and Recognised Auditor
London, UK
28 April 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
EUROCASTLE INVESTMENT LIMITED
|
2021 ANNUAL REPORT
16
ENDNOTES
1
Per share calculations for Eurocastle throughout this document are based on the weighted average or outstanding voting shares and
therefore exclude shares held in treasury. As at 31 December 2021, a total of 1.9 million shares were in issue of which 1.9 million were
voting shares and no shares were held in treasury. Amounts per share are therefore calculated on the following basis: Q4 2021 Net Asset
Value per share (“NAV per share”) – 1.9 million voting shares in issue; Q4 2020 NAV per share based on 1.9 million voting shares; Q3 2021
NAV per share based on 1.9 million voting shares.
2
In light of the Realisation Plan, the Adjusted NAV reflects the additional reserves for future costs and potential liabilities, which have not
been accounted for under the IFRS NAV.
3
In Early January 2022, the Company received €1.0 million of cash received from RE Fund II. This amount has been reallocated from Real
Estate Funds to Net Corporate Cash.
4
Fund leverage as of Q4 2021. Financing fully repaid in July 2021.
5
Per share as at announcement of Realisation Plan based on 1.9 million voting shares post tender offer.
6
Independent directors.
7
Randal A. Nardone is a member of Fortress Operating Entity I LP (registered holder of 38 shares) and Principal Holdings I LP (registered
holder of 750 shares) and as a result of these relationships he is interested in the shares owned by these entities. The Manager and its
principals hold an additional 13,514 shares in the Company.
8
Percentages calculated on 1.9 million voting shares in issue.
EUROCASTLE INVESTMENT LIMITED
INCOME STATEMENT
Year ended
31 December
2021
Year ended
31 December
2020
Notes €'000 €'000
Portfolio Returns
Realised fair value gain on Italian investments 4 243 -
Unrealised fair value movements on Italian investments 4 2,420 (2,134)
Realised fair value movements on other investments 4 275 2,501
Other income
Other income -15
(Loss) / gain on foreign currency translation (5) 2
Total income 2,933 384
Operating expenses
Interest expense 743
Other operating expenses 5 1,862 1,860
Total expenses 1,869 1,903
Net operating profit / (loss) before taxation 1,064 (1,519)
Tax on profit / (loss) 2--
Total tax expense --
Profit / (loss) for the year 1,064 (1,519)
Attributable to:
Ordinary equity holders of the Company 1,064 (1,519)
Profit / (loss) for the year 1,064 (1,519)
€€
Earnings per ordinary share
(1)
Basic and diluted 11 0.57 (0.82)
The Company had no other comprehensive income in the year ended 31 December 2021 and the year ended 31 December 2020.
(1)
See notes to the financial statements (page 21 to 34) which form an integral part of these financial statements.
Earnings per share is based on the weighted average number of shares in the year of 1,856,158 (31 December 2020: 1,852,740). Refer to note 11.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 17
EUROCASTLE INVESTMENT LIMITED
BALANCE SHEET
As at 31
December
2021
As at 31
December
2020
Notes €'000 €'000
Assets
Cash and cash equivalents
6 28,356 25,341
Other assets
7 115 119
Investments 8
5,062 8,683
Total assets 33,533 34,143
Equity and Liabilities
Capital and reserves
12 1,624,762 1,625,741
Accumulated losses (1,591,830) (1,592,872)
Total equity 32,932 32,869
Liabilities
Trade and other payables 10 601 1,274
Total liabilities 601 1,274
Total equity and liabilities 33,533 34,143
See notes to the financial statements (page 21 to 34) which form an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 28 April 2022 and signed on its behalf by:
Simon J. Thornton
Director and Audit Committee Chairman
Issued capital, no par value, unlimited number of shares authorised
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT
18
EUROCASTLE INVESTMENT LIMITED
CASH FLOW STATEMENT
Year ended
31 December
2021
Year ended
31 December
2020
Notes €'000 €'000
Cash flows from operating activities
Profit / (loss) for the year before taxation 1,064 (1,519)
Adjustments for:
Realised fair value gain on Italian investments 4 (243) -
Unrealised fair value movements on Italian investments 4 (2,420) 2,134
Realised fair value movement on other investments 4 (275) (2,501)
Interest expense 743
(Loss) / gain on foreign currency translation 5 (2)
Total adjustments to profit / (loss) for the year (2,926) (326)
(Decrease) / increase in other assets (4) 21
Decrease in trade and other payables (423) (21,864)
Movements in working capital (427) (21,843)
Cash distribution from Italian investments 8 6,284 4,690
Cash distribution from other investments 28 2,714
Interest paid (7) (56)
Cash movements from operating activities 6,305 7,348
Cash generated from / (used in) operations 4,016 (16,340)
Taxation paid --
Net cash flows from operating activities 4,016 (16,340)
Cash flows from financing activities
Distribution paid 13 (1,001) -
Net decrease in cash flows from financing activities (1,001) -
Net increase / (decrease) in cash and cash equivalents 3,015 (16,340)
Cash and cash equivalents, beginning of the year 6 25,341 41,681
Total cash and cash equivalents, end of the year 6 28,356 25,341
See notes to the financial statements (page 21 to 34) which form an integral part of these financial statements.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 19
EUROCASTLE INVESTMENT LIMITED
STATEMENT OF CHANGES IN EQUITY
Share
capital
Accumulated
losses
Total
equity
€'000 €'000 €'000
As at 1 January 2020
1,625,727 (1,591,339) 34,388
Loss for the year
- (1,519) (1,519)
- (1,519) (1,519)
Shares issued to Directors (note 12) 14 (14) -
1,625,741 (1,592,872) 32,869
Profit for the year
- 1,064 1,064
- 1,064 1,064
Contributions by and distributions to owners:
Shares issued to Directors (note 12)
22 (22) -
Distributions declared and paid (note 13)
(1,001) - (1,001)
1,624,762 (1,591,830) 32,932
Total comprehensive profit for the year
As at 31 December 2021
Total comprehensive loss for the year
Contributions by and distributions to owners:
As at 31 December 2020
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 20
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. BACKGROUND
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair value movements on investments
Interest expense
Interest charges on Euro corporate cash deposits are recognised in the income statement on an effective interest rate method.
Fair value movements on un-quoted investments includes revaluation gains and losses from the underlying investments. The Company's investments during the
period comprised Italian NPLs & other loans, distressed loans, real estate fund units and intermediate holding companies (refer to note 8).
Significant estimates and judgements
In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to estimates are recognised prospectively.
The areas involving significant judgements are:
- valuation technique selected in estimating the fair value of unquoted investments - refer to note 8
- treatment of a potential tax liability associated with the disposal of a legacy property subsidiary in prior years - refer to note 17
The area involving significant estimates are:
- estimate inputs used in calculating the fair value of unquoted investments - refer to note 8
Following the classification of the Company as an investment entity under IFRS 10 in July 2017, the Company does not consolidate the entities it controls and
therefore fair values all of its investments (whether through subsidiaries or joint ventures). These separate financial statements of the Company are its only financial
statements.
Following the announcement of the Realisation Plan in 2019, the Directors have assessed, and continue to have a reasonable expectation, that the Company will be
able to continue in operation and meet its liabilities as they fall due. The Directors have reviewed the Company’s processes to control those risks to which the
Company is exposed, as disclosed in note 3, as well as reviewing the annual budget, including the additional reserves set aside as part of the Realisation Plan. As a
result of the Realisation Plan, no contractual commitments have become onerous and no commitments for further realisation costs have been made. Therefore, no
provisions have been recorded in the financial statements for the future costs of the business. COVID-19 is not expected to have a significant impact on the Company's
liquidity. The Directors have also reviewed forecasts that have been sensitised to reflect plausible downside scenarios. The Directors have determined that there is no
material uncertainty that casts doubt on the entity’s ability to continue as a going concern. As a result of this, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in
preparing the financial statements.
At the date of approval of these financial statements, no decision has been taken by the Directors as to the future of the Company. The Company continues to follow
its Realisation Plan for its remaining investments.
These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union on a going concern
basis and under the historical cost basis of accounting, except for investments at fair value through profit and loss, which are measured at fair value. These financial
statements are also prepared in accordance with Guernsey Company Law.
Eurocastle Investment Limited (“Eurocastle”, the "Company") was incorporated in Guernsey, Channel Islands on 8 August 2003 and commenced its operations on 21
October 2003. Eurocastle is a Euro denominated Guernsey closed-end investment company listed on Euronext Amsterdam (formerly listed on the London Stock
Exchange) regulated by the Nederlands Authority for Financial Markets (“AFM”), which is also now its home state regulator as a result of Brexit. Eurocastle is subject
to EU transparency rules as a result of its listing on an EU regulated market and, consequently, shareholders are required to notify Eurocastle and the AFM when their
holding of the issued share capital and/or of the voting rights in Eurocastle reaches, exceeds or falls below certain thresholds, whereby the lowest threshold is 5%.
Eurocastle is externally managed by its investment manager, FIG LLC (the “Manager”). The Manager was acquired by Softbank Group Corp (9984: Tokyo)
(“Softbank”) on December 27, 2017 and operates as an independent business within Softbank under the continuing leadership of Pete Briger, Wes Edens and Randal
Nardone. Eurocastle has entered into a management agreement (the “Management Agreement”) under which the Manager advises the Company on various aspects of
its business and manages its day-to-day operations, subject to the supervision of the Company’s Board of Directors. For its services, the Manager receives an annual
management fee and incentive compensation (as well as reimbursement for expenses, including expenses of certain employees providing asset management and
finance services), as described in note 14. The Company has no ownership interest in the Manager.
Basis of preparation
As a result of the Realisation Plan, the Board does not currently intend to make any material new investments with the proceeds realised from the Company’s existing
holdings. With respect to the remaining assets, which predominantly comprise Eurocastle’s investments in Italian real estate funds, the Company plans to continue to
hold and realise these assets in accordance with existing business plans. It will support these investments to the extent required to optimise returns and distribute cash
to shareholders when available. The Board announced on 5 March 2021 that it has decided to undertake a review of the Company’s strategic options, including the use
of available capital. The board is currently in intensive discussions with the Manager to analyse potential investment opportunities.
The activities of the Company included investing indirectly in Italian performing and non-performing loans (''PLs'' / ''NPLs''), distressed loan assets and other credit
receivables, Italian loan servicing platforms, real estate related assets and other related businesses in Italy. On 18 November 2019 the Board of Directors (“Board”)
announced a plan to realise the majority of the Company’s assets in order to accelerate the return of value to the Company’s shareholders (the “Realisation Plan”).
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 21
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Taxation
Cash and cash equivalents
Capital and reserves
Dividends
Financial Instruments
Recognition
Classification
Financial Assets
Derecognition of financial assets and liabilities
Financial assets
-
-
-
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
A financial asset is derecognised when:
the rights to receive cash flows from the asset have expired;
the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under
a ‘pass through’ arrangement; or
the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b)
has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Company has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Company could be required to repay.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is recognised in the income statement.
Financial assets held at fair value through profit or loss are investments that are initially recognised at fair value with any subsequent movements in fair value
recognised in the income statement.
A financial asset or liability is recognised on the date the Company becomes party to contractual provisions of the instrument.
All financial assets and liabilities are initially recognised on the trade date, i.e. the date that the Company becomes a party to the contractual provisions of the
instrument. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by
regulation or convention in the market place.
Unless otherwise indicated, the carrying amounts of the Company's financial liabilities are a reasonable approximation to their fair value.
Financial liabilities are composed of trade and other payables.
Financial liabilities
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity via the reserves as a deduction from the
issue proceeds.
Dividends are recognised when they become legally payable. In the case of interim and final dividends to equity shareholders, this is when declared and approved by
the board of directors.
The Company falls under the Collective Investment Schemes exemption for Guernsey tax purposes and is charged €1,400 per annum (2020: €1,400). The Company
is granted this exemption status on an annual basis and therefore the Company is treated as not being resident in Guernsey for tax purposes and is not liable for
Guernsey tax on non-Guernsey source income (which for these purposes includes Guernsey bank deposit interest).
Cash and cash equivalents comprise cash at bank, cash on deposit and in hand with an original maturity of three months or less.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 22
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation
Segment Reporting
New standards, interpretations and amendments effective from 1 January 2021
3. FINANCIAL RISK MANAGEMENT
Alternative Investment Fund Managers Directive ("AIFMD") Leverage
Capital Risk Management
•
•
Credit Risk
Risk Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to meet its obligations as they fall due and to achieve positive returns in all
market environments. In order to maintain or adjust the capital structure, the Company may raise or return capital from or to shareholders through the issue and
repurchase of voting shares and/or capital distribution. The Company currently has no nominated advisor or broker. At 31 December 2021, the Company had net
equity of €32.9 million (31 December 2020: €32.9 million) and no direct leverage (31 December 2020: no direct leverage).
This section provides details of the Company's exposure to risk and describes the methods used by the Company to control risk. The most important types of financial
risk to which the Company is exposed are market and liquidity risk.
The Company’s capital is represented by ordinary shares with no par value and which carry one vote each. The shares are entitled to dividends when declared. The
Company has no additional restrictions or specific capital requirements on the issuance and re-purchase of ordinary shares. The movements of capital are shown in the
statement of changes in equity.
The possible timing and extent of returning capital to shareholders in line with the Company’s asset realisation strategy
In order to meet the Company’s capital management objectives, the Manager and the Board monitor and review the broad structure of the Company’s capitalonan
ongoing basis. This review includes:
The presentation currency and the functional currency of the Company is the Euro. Transactions in foreign currencies are initially recorded in the functional currency
rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate
of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate as at the date of initial transaction. Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was determined.
The company operates in one geographical segment, being Europe. The Board of Directors assesses its business through one primary segment, Italian investments.
The Company’s Italian investments are predominantly made up of Italian Real Estate Funds and its residual interests in NPLs & Other Loans.
New amendments were enacted during the year which had no impact on the financial statements of the Company. New standards issued after 31 December 2021 have
been considered and it has been determined that these new standards will not have a material impact on the financial statements of the Company.
Working capital requirements and follow-on investment capital for portfolio investments;
Credit risk is the risk of the financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from
the Company's cash and cash equivalents. As at 31 December 2021, the Company's cash and cash equivalents was €28.4 million (31 December 2020: €25.3 million).
The AIFMD prescribes two methods of measuring and expressing leverage and requires disclosure of the maximum amount of leverage the Company might be subject
to. The definition of leverage is wider than that of gearing and includes those assets on balance sheet that are subject to market based valuation changes. For the
purposes of AIFMD reporting, leverage is the ratio between the fair value of the assets under management and the net asset value of the Company. The ratiois
required to be calculated on a gross basis and a commitment basis, under the European Commission’s Delegated Regulation (commonly known as the Level 2
Regulation). The gross basis does not take into account any netting or hedging, whereas the commitment basis takes into account both netting and hedging. As at 31
December 2021, the leverage (as defined by this measure) under the gross and commitment basis was 15.72% and 15.72% respectively (31 December 2020: 26.78%
and 26.78%).
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 23
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
Banking arrangements
Market Risk
Interest rate risk
Foreign Currency Risk
The majority of the Company's assets and liabilities are denominated in Euros. The Company's foreign currency risk is not considered to be significant.
Liquidity Risk
The Company’s objectives when managing capital are to safeguard the Company’s ability to meet its financial obligations as they fall due in order to support the
business and to maximise shareholder value. Eurocastle’s liquidity is primarily generated by distributions from its Italian Investments. The Company expects that its
cash in hand and cash flow provided by operations and from realisations of investments will satisfy its liquidity needs over the next twelve months.
The Board have assessed future costs and potential liabilities in conjuction with the Realisation Plan and have a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall due.
The Company's interest rate risk is not considered to be significant. The Company is exposed to interest rates on banking deposits held in the ordinary course of
business. Management monitors this risk on a continuous basis.
The Company’s banking arrangements are with major financial institutions with investment grade credit ratings with which the Company and its affiliates may also
have other financial relationships. While it is not anticipated that any of these counterparties will fail to meet their obligations, there is no certainty in current market
conditions that this will be the case. As at 31 December 2021, the Company has placed €24.7 million of its corporate cash in a 35 day notice money market account,
with a financial institution rated long term: A by Fitch; A3 by Moody's; and A negative by S&P (31 December 2020: €21.7 million - rated long term A negativeby
Fitch; Baa1 positive by Moody's; and A negative by S&P). As at 31 December 2021, the remaining corporate cash was held with a financial institution rated long
term: A+ stable by Fitch; A1 Stable by Moody's; and A positive by S&P (31 December 2020: rated long term: A+ negative by Fitch; A1 Stable by Moody's; and A
negative by S&P). The Company monitors on a regular basis the credit worthiness of the various financial institutions to mitigate credit risk exposure with respect to
its banking arrangements.
Market risk encompasses the following macro-economic and political risks:
Macro-economic and political risks
The value of the Company’s investments in its Italian loan portfolio and real estate is dependent on macroeconomic and political conditions prevailing in Italy. A
decline in the Italian economy may have an adverse impact on the Company’s returns on such investments.
The political stability provided when Mario Draghi was appointed as prime minister in early 2021 has continued with the Italian president, Sergio Mattarella, being
sworn in for a second term. As a result, it is widely reported that Draghi should be able to hold together his governing coalition, avoiding destabilising early elections
while guiding Italy through the pandemic recovery. Italian GDP grew by 6.5% in 2021, better than the 4.5% originally expected by the OECD, however the outlook is
clouded by a resurgence of COVID infections and by a steep rise in energy prices, along with other basic necessities, which has hit businesses and households. Real
estate transactions have continued to complete through 2021 with house prices proving resilient after the initial impact of COVID. The majority of the Company’s
remaining investments comprise interests in two real estate redevelopment funds where construction is fully completed and all the units in one fund are fully sold with
more than 95% of the units in the second fund sold or under contract as at year end.
The current instability in the wider geopolitical environment, exacerbated by COVID, could have a material impact on financial activities both at a market and retail
level. Additional risks such as the market disruption resulting from the ongoing war in the Ukraine could have an impact on the Company’s ability to realise its assets
at its target prices and in the timeline envisaged. A deterioration of the Italian economy may affect real estate values as well as the recoveries the Company expects on
its investments. At the same time, it could affect investor demand in general for these types of investments. While the expected yield on these portfolios is sensitive to
the performance of the underlying assets, the value at which these investments are held by the Company is sensitive to the market yields at which they trade. Refer to
note 8 for details of sensitivity analysis on the Italian investments.
The Company aims to manage this risk within acceptable parameters while optimising the return and does so by regular monitoring of the underlying performance
and realisation strategy for all investments.
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EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
4.
PORTFOLIO RETURNS
Realised
fair value
movements
Unrealised
fair value
movements
Total fair
value
movements
Realised
fair value
movements
Unrealised
fair value
movements
Total fair
value
movements
€'000 €'000 €'000 €'000 €'000 €'000
Italian NPLs & Other Loans (note 8) 114 488 602 - 99 99
Real Estate Funds (note 8) 129 1,932 2,061 - (2,233) (2,233)
Portfolio returns on Italian investments 243 2,420 2,663 - (2,134) (2,134)
275 - 275 2,501 - 2,501
Total portfolio returns 518 2,420 2,938 2,501 (2,134) 367
5. OTHER OPERATING EXPENSES
Year ended 31
December
2021
Year ended
31 December
2020
€'000 €'000
Professional fees 224 348
Transaction costs -8
Manager base and incentive fees (related party, note 14) 175 111
Manager recharge (related party, note 14) 815 922
General and administrative expenses 648 471
Total other operating expenses 1,862 1,860
6. CASH AND CASH EQUIVALENTS
As at 31
December
2021
As at 31
December
2020
€'000 €'000
Cash at bank 3,652 3,600
Cash on deposit 24,704 21,741
Total cash and cash equivalent
s
28,356 25,341
Movements on investments are summarised below:
Fair value movements on other investments
Year ended 31 December 2021 Year ended 31 December 2020
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EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
7. OTHER ASSETS
€'000 €'000
Prepaid expenses 115 119
Total other assets 115 119
All other assets are expected to mature in less than one year.
8. INVESTMENTS
As at 31
December
2020
€'000 €'000
Italian investment portfolio 5,062 8,683
Total investments 5,062 8,683
As at 31 December 2021, the movements in the Italian investment portfolio were as follows:
Italian NPLs
& Other
Loans
Real Estate
Funds
Fair value
accounted
Fair value
accounted
Total
Investments
€'000 €'000 €'000
Balance as at 1 January 2021 1,248 7,435 8,683
Distributions received (513) (5,771) (6,284)
Realised fair value movement 114 129 243
Unrealised fair value movement 488 1,932 2,420
Balance as at 31 December 2021 1,337 3,725 5,062
As at 31 December 2020, the movements in the Italian investment portfolio were as follows:
Italian NPLs
& Other
Loans
Real Estate
Funds
Fair value
accounted
Fair value
accounted
Total
Investments
€'000 €'000 €'000
Balance as at 1 January 2020 1,246 14,261 15,507
Distributions received (97) (4,593) (4,690)
Unrealised fair value movement 99 (2,233) (2,134)
Balance as at 31 December 2020 1,248 7,435 8,683
Refer to the portfolio summary for further details on investments on page 27.
As at 31
December
2021
As at 31
December
2020
As at 31
December
2021
The Company indirectly holds the following investments:
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 26
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. INVESTMENTS (CONTINUED)
Portfolio summary
During the year, the Company's investments were categorised as follows:
I. Italian NPLs & Other Loans
II. Real Estate Funds
I. Italian NPLs & Other Loans
II. Real Estate Funds
Real Estate Fund Investment I:
Real Estate Fund Investment II:
Real Estate Fund Investment V:
Real Estate Fund Investment V is managed by Torre, an affiliate of the Manager.
The Company has the following Real Estate Fund investments:
On 28 March 2014, the Company indirectly purchased 11,929 units in UniCredito Immobiliare Uno closed-end Real Estate Fund ("Real Estate Fund Investment I").
The holding represented a 7.46% of the total units issued by Real Estate Fund Investment I. The units were listed on the Italian Stock Exchange. Real Estate Fund
Investment I is managed by Torre SGR S.p.A. (''Torre''), an affiliate of the Manager.
As at 31 December 2021, the fund has been fully realised with the Company receiving its last material distribution of €0.4 million in March 2021.
On 22 July 2014, the Company indirectly invested in a newly established real estate development fund (Real Estate Fund Investment II) which purchased two office
buildings in Rome for redevelopment into high-end residential properties for resale. As at 31 December 2021 both projects have been completed, with all units sold.
In January 2022, the Company received a distribution of €1.0 million from Real Estate Fund Investment II. This represents 70% of its Q4 2021 NAV and leaves a
residual value of ~€0.4 million for this investment.
The Company's investment is held through a joint venture (ownership percentage: 49.7%) investment in Torre Real Estate Fund III Value Added – Sub fund A ("RE
Torre Fund"). Real Estate Fund Investment II is managed by Torre, an affiliate of the Manager.
In April 2017, building on Real Estate Fund Investment II, the Company closed on the purchase of an office to residential conversion development site in Rome
(“Real Estate Fund Investment V”) through a joint venture interest (ownership percentage: 49.6%) in Torre Real Estate Fund III Value Added – Sub fund B.Asat31
December 2021, the project has been fully completed with 96% of the units sold or under contract or to be sold.
In March 2022, the Company received a distribution of €1.0 million from Real Estate Fund Investment V. This represents 42% of its Q4 2021 NAV and leaves a
residual value of ~€1.4 million for this investment.
Following the Realisation Plan in 2019, the Company retained a residual minority interest in three Italian NPL & Other Loan pools which are held in 2 portfolio
structures. The two portfolios are serviced by doValue (refer to note 14).
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 27
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. INVESTMENTS (CONTINUED)
Fair value hierarchy
The following table shows an analysis of the fair value assets on the balance sheet by level of hierarchy:
As at 31 December 2021:
Level 1 Level 2 Level 3
Total fair value
€'000 €'000 €'000 €'000
Italian NPLs & Other Loans - - 1,337 1,337
Real Estate Funds - - 3,725 3,725
Total - - 5,062 5,062
As at 31 December 2020:
Level 1 Level 2 Level 3
Total fair value
€'000 €'000 €'000 €'000
Italian NPLs & Other Loans - - 1,248 1,248
Real Estate Funds 298 - 7,137 7,435
Total 298 - 8,385 8,683
Explanation of the fair value hierarchy:
- Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
- Level 2: Use of a model with inputs (other than quoted prices included in Level 1) that are directly and indirectly observable market data.
- Level 3: Use of a model with inputs that are not based on observable market data.
Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy.
The Company recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level of
observability of the inputs to the valuation techniques as at the end of the reporting period.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 28
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. INVESTMENTS (CONTINUED)
Transfers between levels
The following table shows a reconciliation for the Level 3 fair value measurements as at 31 December 2021:
Italian NPLs &
Other Loans
Real Estate
Funds Total
€'000 €'000 €'000
As at 1 January 2021 1,248 7,137 8,385
Distributions received (513) (5,344) (5,857)
Unrealised fair value movement in the year 488 1,932 2,420
Realised fair value movement in the year 114 - 114
As at 31 December 2021 1,337 3,725 5,062
The following table shows a reconciliation for the Level 3 fair value measurements as at 31 December 2020:
Italian NPLs &
Other Loans
Real Estate
Funds Total
€'000 €'000 €'000
As at 1 January 2020 1,246 11,744 12,990
Distributions received (97) (2,356) (2,453)
Unrealised fair value movement in the year 99 (2,251) (2,152)
As at 31 December 2020 1,248 7,137 8,385
Expected recoveries of investments
The following table summarises the expected recoveries for the Italian investments held by the Company:
Within one
year
(1)
More than one
year
Within one
year
(2)
More than one
year
€'000 €'000 €'000 €'000
Italian NPLs & Other Loans 62 1,275 218 1,030
Real Estate Funds 1,940 1,785 4,419 3,016
(1)
(2)
There were no transfers between levels for the year ended 31 December 2021 (31 December 2020: no transfers).
2021 2020
Amounts recoverable within one year represent actual and known cash flows as at the reporting date with the residual balance for the carrying value of the investments
shown as amounts due to mature in over one year.
Amounts recoverable within one year represent projected cash flows as at the reporting date with the residual balance for the carrying value of the investments shown as
amounts due to mature in over one year.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 29
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. INVESTMENTS (CONTINUED)
Fair value methodology and sensitivity analysis
Italian NPLs & Other Loans
The key assumptions made relating to the valuations are set out below:
For the year ended 31 December 2021:
Italian NPLs Total Unlevered Total Levered
Expected profit multiple
(1)
1.7 1.7 1.9
Remaining weighted average life
(2)
2.4 2.4 2.4
Discount rate 12% 12% 13%
For the year ended 31 December 2020:
Italian NPLs Total Unlevered Total Levered
Expected profit multiple
(1)
1.5 1.5 1.7
Remaining weighted average life
(2)
2.7 2.7 3.0
Discount rate 12% 12% 14%
(1)
(2)
For the year ended 31 December 2021:
Italian NPLs
€'000
Total Unlevered
€'000
Total Levered
€'000
Fair value 1,729 1,729 1,337
Increase in discount rate by 25bps 1,722 1,722 1,331
Value sensitivity (7) (7) (6)
For the year ended 31 December 2020:
Italian NPLs
€'000
Total Unlevered
€'000
Total Levered
€'000
Fair value 1,906 1,906 1,248
Increase in discount rate by 25bps 1,896 1,896 1,238
Value sensitivity (10) (10) (10)
The prior year comparative disclosure has been restated to reflect the assumptions on both a levered and unlevered basis.
Real Estate Funds
For the year ended 31 December 2021
Real Estate
Funds Total
Expected profit multiple 1.1 1.1
Remaining weighted average life 0.8 0.8
Discount rate 11% 11%
For the year ended 31 December 2020
Real Estate
Funds Total
Expected profit multiple 1.1 1.1
Remaining weighted average life 1.0 1.0
Discount rate 16% 16%
The table below presents the sensitivity of the valuation to a change in the most significant assumptions:
Following implementation of the Realisation Plan in 2019, the Company held residual interests in three pools. All pools are classified as level 3 on the fair value
hierarchy. The fair value of the investments is derived from internal valuation models. The assumptions used in the models are based on cash flows (actual and
projected) per the latest business plan and reviewed by senior management.
The expected profit multiple is derived from the underlying cash flows on which the relevant valuation model is built.
An increase in the remaining weighted average life will decrease the fair value and a decrease in the remaining weighted average life will increase the fair value. An
increase in the expected profit multiple will increase the fair value and a decrease in the expected profit multiple will decrease the fair value.
The table below presents the sensitivity of the valuation to a change in the most significant assumption:
The Company's investment in Real Estate Fund Investment II and Real Estate Fund Investment V were classified as level 3 in the fair value hierarchy.
The key assumptions reported above for Total Unlevered are before taking into account any embedded leverage within the respective vehicle. The key assumptions are
also shown on a Total Levered basis so as to report them net of any embedded leverage within the respective vehicle so as to be consistent with the relevant
investment carrying value.
Remaining weighted average life is based on the projected cashflows of the underlying pools
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EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. INVESTMENTS (CONTINUED)
For the year ended 31 December 2021
Real Estate
Funds
€'000
Total
€'000
Fair value 3,725 3,725
Increase in discount rate by 25bps 3,720 3,720
Value sensitivity (5) (5)
For the year ended 31 December 2020
Real Estate
Funds
€'000
Total
€'000
Fair value 7,137 7,137
Increase in discount rate by 25bps 7,123 7,123
Value sensitivity (14) (14)
9. CONTRACTUAL MATURITIES
Contractual maturities
Fair values of financial assets and financial liabilities
10. TRADE AND OTHER PAYABLES
As at 31 December
2021
As at 31 December
2020
€'000 €'000
Due to Manager (related party, refer note 14) 253 283
Accrued expenses and other payables 348 991
Total trade and other payables 601 1,274
All the trade and other payables are recognised at amortised cost and are expected to mature in less than one year.
The table below presents the sensitivity of the valuation to a change in the most significant assumption:
As at 31 December 2021, the Company had no contractual maturities on financial liabilities, outside of trade and other payables which are all due within one year.
The Company's financial assets consist of investments, other debtors and cash and cash equivalents. The Company's financial liabilities consist of trade and other
payables. All financial assets and liabilities are held at fair value.
The Company's Italian investments have been funded through equity.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 31
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
11. EARNINGS PER SHARE
As at 31
December
2021
As at 31
December
2020
Weighted average number of ordinary shares
*
1,856,158 1,852,740
Weighted average number of ordinary shares - dilutive 1,856,158 1,852,740
*weighted average shares for the year
12. SHARE CAPITAL AND RESERVES
Voting
shares
Treasury
shares Total
As at 1 January 2020 1,851,535 - 1,851,535
3,000 - 3,000
As at 31 December 2020 1,854,535 - 1,854,535
3,000 - 3,000
As at 31 December 2021 1,857,535 - 1,857,535
As at 31 December 2021, the Company held no shares in treasury (31 December 2020: no shares in treasury).
Accumulated los
s
The reserve represents the cumulative gains and losses and transactions with shareholders (e.g. dividends) not recognised elsewhere.
Shares issued to the Directors as part of their in-place compensation arrangements for €nil
consideration - 17 June 2021
Number of shares
Shares issued to the Directors as part of their in-place compensation arrangements for €nil
consideration - 7 August 2020
No shares were bought back by the Company in 2021 and 2020.
Basic earnings per share is calculated by dividing net profit after taxation by the weighted average number of ordinary shares outstanding during the year.
There are currently no instruments that would give rise to a dilutive effect on the Company's shares.
The following is a reconciliation of the weighted average number of ordinary shares outstanding on a diluted basis:
The movement in issued share capital is shown as follows:
As at 31 December 2021, there were 1,857,535 shares (31 December 2020: 1,854,535) issued of which no shares (31 December 2020: no shares) were held in treasury.
All shares are fully paid up.
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EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
13. DIVIDENDS PAID AND DECLARED
The following capital distribution was declared and paid during the year ended 31 December 2021 (no distributions declared or paid in 2020):
Declaration date Ex-date Record date
Payment date
Distribution
per share
Amount
€'000
04 March 2021 10 March 2021 11 March 2021 30 March 2021 € 0.540 1,001
Total € 0.540 1,001
14. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS
The Manager is deemed to be the key employee for reporting purposes. As at 31 December 2021, management fees, incentive fees and expense reimbursements of €0.3 million
(31 December 2020: €0.3 million) were due to the Manager. During the year ended 31 December 2021, management fees of €0.2 million(31 December 2020: €0.1 million),nil
incentive fees (31 December 2021: €0.0 million), and expense reimbursements of €0.8 million (31 December 2020: €0.9 million) were charged to the income statement.
Total annual remuneration for the Eurocastle directors as at 31 December 2021 was €0.1 million (31 December 2020: €0.1 million), payable quarterly in equal instalments.
Randal A. Nardone and Peter Smith do not receive any remuneration from the Company.
Fortress Italian NPL Opportunities Series Fund LLC (which owns the NPL pools) and Fortress Italian Real Estate Opportunities Series Fund LLC (being the entity through
which the majority of the Company's interest in Real Estate Fund Investments are held) are managed by an affiliate of the Manager. The total management fee expense for the
year ended 31 December 2021 is €0.1 million (31 December 2020: €0.1 million) and offsets fully against the Company's Management Fee payable to the Manager.
The Company's non-controlling interest in Real Estate Fund Investment I (refer to note 8) along with its joint venture investment in Real Estate Fund Investment II and Real
Estate Fund Investment V (refer to note 8) are held in funds managed by Torre SGR S.p.A, which is majority owned by an affiliate of the Manager. The total management fee
expense, across these funds, for the year ended 31 December 2021 was €0.1 million (31 December 2020: €0.1 million).
As a result of the Realisation Plan, the Company's distribution policy, including the regular quarterly dividend, did not apply with effect from Q3 2019.
The Company entered into the Management Agreement with the Manager in August 2003. Pursuant to the Management Agreement, the Manager, under the supervision of the
Board of Directors, will formulate investment strategies, arrange for the acquisition of assets, arrange for financing, monitor the performance of the Company’s assets and
provide certain advisory, administrative and managerial services in connection with the operations of the Company. Since 1 January 2015 the management fee paid to the
Manager is equal to (i) 1.5% of the Company’s Adjusted NAV reported quarterly, excluding net corporate cash, and (ii) 0.75% of the share of Adjusted NAV relating to net
corporate cash allocated to certain reserves. Adjusted NAV, for the purposes of the management fee calculation includes certain reserves set aside as part of the Realisation
Plan.
The Management Agreement provides that the Company will reimburse the Manager for various expenses incurred by the Manager or its officers, employees and agents on the
Company’s behalf, including the cost of legal, accounting, tax, auditing, finance, administrative, asset management, property management and other similar services rendered
for the Company by providers retained by the Manager or, if provided by the Manager’s or its affiliates’ employees, in amounts which are no greater than those that would be
payable to external professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arms-length basis. Such expenses have been included
in the income statement.
When it was signed in 2003 the Management Agreement provided for an initial term of ten years with automatic three year extensions, subject to certain termination rights. The
Management Agreement may be terminated by the Company by payment of a termination fee, as defined in the Management Agreement, equal to the amount of management
fees earned by the Manager during the 12 consecutive calendar months immediately preceding the termination, upon the vote of a majority of the holders of the outstanding
ordinary shares. In addition, unless an arrangement is made between the Company and the Manager, incentive compensation (as outlined above) will continue to be payable to
the Manager post-termination.
Until Nov 2019, incentive compensation was equal to 25% of the euro amount by which the Company’s Normalised FFO derived from Italian Investments, after allocated
corporate costs, exceeded the net invested capital in the Company's Italian Investments multiplied by the hurdle rate of 8% per annum (calculated on a cumulative but not
compounding basis). In light of the Realisation Plan, the Manager agreed to amend the calculation of its incentive fee to treat the Company’s other remaining investments,
which predominantly comprise investments in Italian real estate funds, as fully realised at an agreed value in 2019 to better reflect the price per ordinary share represented in the
initial Exchange Ratio (the ratio of doValue Shares to be delivered to eligible tender offer shareholders for each ordinary share validly tendered pursuant to the Realisation Plan
tender offer). These amendments reduced the fee payable by the Company to the Manager in the fourth quarter of 2019 by €2.4 million to €19.5 million and no further fees will
be due in relation to the Company’s remaining investments. The Manager will be entitled to earn back a portion of this discount if excess amounts are released from certain
reserves put in place by the Board to fund future costs and potential liabilities. As at 31 December 2021, the amount due to the Manager was €nil (31 December 2020: €42k).
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 33
EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
15. INVESTMENT IN SUBSIDIARIES
The Company has investments in the following subsidiaries (unless otherwise stated the Company has a 100% interest in the entity):
Luxembourg:
Luxgate S.à r.l
Truss Lux Participation S.à r.l (liquidated 31 March 2021)
Italy:
FMIL S.r.l
United States of America:
Fortress Italian Real Estate Opportunities Series Fund LLC - Series 1 (liquidated 30 June 2021)
Fortress Italian Real Estate Opportunities Series Fund LLC - Series 2
As at 31
December 2021, the unconsolidated subsidiaries do not have any significant restrictions (e.g. resulting from borrowing arrangements, regulatory requirements
or contractual arrangements) on the ability to transfer funds to the Company in the form of cash dividends or to repay loans or advances made to the unconsolidated
subsidiary by the Company.
16. SUBSEQUENT EVENTS
In January 2022, the Company received a distribution of €1.0 million from Real Estate Fund Investment II. This represents 70% of its Q4 2021 NAV and leaves a
residiual value of ~€0.4 million for this investment.
In February 2022, the Company received revised tax assessments relating to a legacy German property investment. As previously disclosed, the potential liability
arising from this matter had already been fully reflected in the Adjusted NAV as part of the additional reserves established in December 2019. The revised
assessments cover the period from 2008 – 2012 and determine a liability of €4.6 million, or €2.50 per share, which is in line with the amount reserved by the
Company for this liability. In respect of the same investment, the Company has separately reserved for further interest accruals, as well as the years 2013 – 2015 which
remain subject to ongoing tax audits.
The Company intends to appeal these assessments through the German tax system and, having taken independent advice, considers it probable that the matter will
finally be determined in the Company’s favour.
In March 2022, the Company received a distribution of €1.0 million from Real Estate Fund Investment V. This represents 42% of its Q4 2021 NAV and leaves a
residual value of ~€1.4 million for this investment.
17. CONTINGENT LIABILITIES
The Company is exposed to a potential tax risk of up to €7.2 million associated with the disposal of a legacy property subsidiary in prior years. In February 2022, the
Company received revised tax assessments related to this risk covering the period 2008 - 2012 determining a liability of €4.6 million, or €2.50 per share. In respect
of the same legacy property subsidiary, the years 2013 - 2015 remain subject to ongoing tax audits, the timings of which are uncertain. The Company estimates that
the remaining financial impact for all these audits, including interest accruals, is between €1.8 million - €2.5 million. The Company intends to appeal the current and
any future assessments through the German tax system and, having taken independent advice, considers it probable that the matter will finally be determined in
the Company’s favour. In light of this, the Company will recognise a tax asset of €4.6m following payment of this amount in March 2022. The Company has been
advised that, based on average court timings for both the German fiscal and federal court systems, this matter can be expected to be resolved in approximately four
years, but notes that it can take considerably longer and, in rare cases, up to ten years in total. The total potential liability arising from this matter had already been
fully reflected in the Adjusted NAV since implementation of the Realisation Plan (see page 5) and remains the case as at 31 December 2021.
18. COMMITMENTS
As at 31 December 2021, the Company had no formal commitments.
EUROCASTLE INVESTMENT LIMITED | 2021 ANNUAL REPORT 34
FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements. Such forward-looking statements 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 the investments and financing nee
ds. 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”, “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 Company’s ability to predict
results or the actual effect of future plans or strategies is limited. Although we believe that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, our 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 Company’s actual
results in future periods to differ materially from forecasted results or stated expectations, including the risks regarding Eurocastle’s ability to achieve
its targets regarding asset disposals or asset performance.
BOARD OF DIRECTORS
Randal A. Nardone
Jason Sherwill
Peter M. Smith
Dr. Simon J. Thornton
Claire Whittet
INVESTMENT MANAGER
FIG LLC
(an affiliate of Fortress Investment Group LLC)
1345 Avenue of the Americas
46 Floor
New York, NY 10105
Tel: (212) 798-6100
www.fortress.com
REGISTRAR AND TRANSFER AGENT
JTC Trustees (Guernsey) Limited
Ground Floor, Dorey Court,
Admiral Park, St Peter Port,
GY1 2HT
REGISTERED OFFICE OF THE COMPANY
Oak House
Hirzel Street
St. Peter Port
Guernsey GY1 2NP
ADMINISTRATOR & SECRETARY
OF THE COMPANY
Oak Fund Services
(Guernsey) Limited
P.O. Box 282
Oak House
Hirzel Street
St. Peter Port
Guernsey GY1 3RH
STOCK LISTING
Euronext Amsterdam, ECT. NA
INDEPENDENT AUDITORS
BDO LLP
55 Baker Street
London W1U 7EU
LEGAL COUNSEL
English & Dutch Legal Advisers
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Guernsey Legal Advisers
Carey Olsen
P.O. Box 98
Carey House
Les Banques
St. Peter Port
Guernsey GY1 4BZ
INVESTOR RELATIONS CONTACT
Eurocastle Investment Limited
c/o Fortress Investment Group
1345 Avenue of the Americas, 46 Floor
New York, NY 10105
Tel: (212) 823-5563
Email: investorrelations@eurocastle.com
www.eurocastleinv.com
Eurocastle Investment Limited
www.eurocastleinv.com