TIDMECT
EUROCASTLE INVESTMENT LIMITED
Contact:
Oak Fund Services (Guernsey) Limited
Company Administrator
Attn: Tracy Lewis
Tel: +44 1481 723450
Eurocastle Releases First Quarter 2022 Interim Management
Statement and
Announces the Results of the Strategic Review, Tender Offer
and
General Meeting to be held on 20 July 2022
Guernsey, 8 July 2022 -- Eurocastle Investment Limited (Euronext
Amsterdam: ECT) today
https://www.globenewswire.com/Tracker?data=CU3oV-BzAsCnf1vOx08eHu9g-E2gqF4zRWV8u3Cmv4P1LwNfrKfYlzy8Z532sLgG
has released its interim management statement for the quarter ended
31 March 2022. In addition, the Company announces that its Board of
Directors (the "Board") has concluded the strategic review and made
a decision to relaunch the Company's investment activity (the
"Relaunch"). The Company is today also launching a tender offer to
provide a liquidity opportunity for those shareholders who do not
wish to participate in the Relaunch (the "Tender Offer"). The
Tender Offer is at a price of EUR10.26 per share, a 28% premium to
the closing share price of EUR8.00 per share on 6 July 2022, and
the maximum share buyback price authorised by the Company's
shareholders. During the Tender Offer period the Company will hold
a general meeting on 20 July, 2022 (the "General Meeting") to vote
on the resolution to waive the requirement for the Company's
Manager and its affiliates (the "FIG Concert Party") to make a
general offer for the Company should their ownership interest in
the Company exceed 30% as a result the Tender Offer. Closing of the
Tender Offer is conditional on the passing of this resolution. All
shareholders other than the FIG Concert Party are entitled to vote
at the General Meeting, including those intending to participate in
the tender offer.
-- Q1 ADJUSTED NET ASSET VALUE ("NAV")1 of EUR19.6 million, or EUR10.53 per
share2, up EUR0.74 per share vs. EUR9.79 per share at 31 December 2021
due to:
1. Valuation increases:
-- EUR0.04 per share increase (2%) in the valuation of the remaining two
real estate fund investments.
-- EUR0.03 per share increase (4%) in the valuation of the remaining two NPL
and other loan interests.
2. Release of EUR0.68 per share of reserves.
-- STRATEGIC REVIEW CONCLUSION
In March 2021, the Company announced that in light of a number
of potentially attractive investment opportunities created by
market turmoil, the Board had decided to conduct a review of the
Company's strategic options, including use of available capital.
The Board has since concluded the strategic review and decided to
relaunch the Company's investment activity with a new strategy
focussed on speciality finance and real estate investments and an
emphasis on sustainability.
New Investment Strategy
The Company's new investment strategy seeks to leverage the
Manager's experience of over two decades in the Southern European
distressed debt market.
With over EUR200 billion of non-performing exposures(3) ("NPE")
having traded from banks in Italy, Spain and Greece over the past 3
years and now largely sitting in the hands of investors, the
Manager has identified an opportunity to create a Southern European
speciality finance and real estate platform with a geographic focus
initially in Greece and Italy.
Through the new investment strategy, the Company is seeking to
build a large granular portfolio of loans and real estate assets
over time, targeting gross unlevered returns in the high single
digits, increasing to the mid-teens after modest leverage.
The strategy has two key pillars which capitalise on the desire
of NPE investors to accelerate collections:
(1) Speciality Finance
-- The platform intends to source opportunities to provide capital to
borrowers who are unable to raise financing from traditional banks.
-- The platform intends to focus on borrowers which the Company believes are
likely able to agree a discounted pay off ("DPO") of their debt with NPE
investors who are willing to accept DPOs to drive their own returns.
-- Capital is expected to be provided to borrowers with strong collateral
asset value to refinance or restructure their debt. The Company believes
that borrowers in this position are generally willing to agree to
attractive terms, in order to rehabilitate their credit and become
re-performing.
-- New capital would typically be secured against real estate and other hard
assets and provided in situations where the borrower is free of other
senior creditors. Sustainability criteria will be employed in structuring
the Company's investments.
(2) Opportunistic Real Estate
-- The Company has identified an opportunity to build a granular portfolio
of real estate coming from NPE portfolios.
-- The strategy seeks to take advantage of an anticipated significant supply
and demand imbalance (i) for real estate collateral being sold through
uncompetitive auctions and (ii) from NPE investors seeking to dispose of
individual real estate assets they have repossessed.
-- The Company believes that high barriers to entry generally limit
participation in judicial auctions, while it expects volumes to increase
following a backlog from auctions postponed during the COVID-19 pandemic.
The Company also expects a significant increase in auction volumes driven
by the recent changes in legislation to streamline the auction processes
and recent sizeable trades of portfolios to NPE investors actively
seeking to realise collateral in order to enhance their returns.
-- The Manager expects this significant demand and supply imbalance will
likely result in real estate assets being sold at a material discount to
their open market value. The Company intends to capitalize on the
Manager's experience and knowledge of the market and auction systems to
identify assets being sold at a discount to market value which the
platform will then acquire and sell through an open market process over
time. The Company will also seek to improve the environmental performance
of such assets.
-- In addition, complementing its specialty finance business, the platform
may also provide capital to real estate companies who are unable to
access traditional financing sources.
-- In light of the anticipated granular nature of the opportunity, the
strategy is targeting individual real estate acquisitions of below EUR10
million, subject to certain exceptions.
While specialty finance and real estate form the core of the
Company's new investment strategy, the Company may seek to make
opportunistic investments arising from the significant capital to
be provided by the European Union's recently established recovery
and resilience facility ("RRF") of approximately EUR724 billion to
support business in the wake of the COVID-19 pandemic. The Company
will focus on opportunities aligned to its sustainable investing
principles.
The Board believes that these investments will provide the
Company with stable running cash flows which, once the business is
deemed sufficiently established, will provide the Company with the
basis to pay a regular stable dividend with a targeted unlevered
yield in the high single digits.
The Company will commence seeking investments under the new
investment strategy using its remaining available cash which, as at
31 March 2022 and prior to the Tender Offer, stood at EUR16.4
million, or EUR8.82 per Ordinary Share, after accounting for
reserves. The maximum funding requirement for the Tender Offer
(including costs) is EUR13.9 million. Following completion of the
Tender Offer and assuming all eligible shareholders tender in full,
the Company expects to hold EUR10.9 million of net corporate cash,
or EUR2.5 million of available capital after accounting for all
reserves as at 31 March 2022, with in excess of EUR3 million
expected to be realised from its remaining investments over the
next 12 to 18 months.
The Company is also intending to raise cash from new and
existing institutional investors by way of a private placement of
Ordinary Shares in order to support the new investment strategy in
the course of 2022. The timing and quantum of the funds to be
raised and the terms (including the price) at which the new shares
could be issued will be determined by the Board at the relevant
time.
In connection with the Relaunch, certain terms of the Management
Agreement will be amended to reflect the expected return profile of
the new investment strategy.
Shareholders should be aware that the implementation and
performance of the Company's new investment strategy is subject to
risks, uncertainty, and assumptions. The Manager is currently in
the early stages of trying to establish the platform and there can
be no certainty that it will have success in doing so. There is
likewise no certainty that it will be able to attain sufficient
scale to achieve the desired returns. In addition, changes in
economic conditions generally and the real estate and debt markets
specifically, the availability of appropriate investment
opportunities and the ability to raise financing on suitable terms
may also affect the success of the Relaunch. Accordingly, there is
no guarantee that the Company's new investment strategy will be
effectively implemented nor will there necessarily be a future
opportunity for shareholders to achieve an exit from their
investment in the Company at a price equal to or higher than the
current share price. In light of the above risks of the Relaunch,
the Board is implementing the Tender Offer to provide a liquidity
opportunity for those shareholders who do not wish to participate
in the Relaunch.
-- TER OFFER
The Tender Offer is intended to provide shareholders who do not
wish to participate in the Relaunch with an opportunity to exit
their investment in the Company in full or in part for cash at the
maximum price that the Company is authorised by its shareholders to
repurchase its shares -- 97.50% of the Company's most recently
published Adjusted NAV (i.e. EUR10.26 per share). Shareholders
choosing to tender would therefore be able to exit not only at an
attractive premium to the current share price, but at effectively
the 'run-off' NAV based on reserves set by the Board estimating
future costs and potential liabilities to liquidate the Company in
an orderly fashion. In support of the Relaunch, the FIG Concert
Party and the Independent Directors have irrevocably undertaken not
to participate in the Tender Offer. Closing of the Tender Offer is
conditional on the passing of an ordinary resolution by independent
shareholders at a general meeting of the Company to waive the
requirement for the FIG Concert Party to make a general offer for
the Company under Rule 9 of the City Code on Takeovers and Mergers
(the "Code") should its ownership interest in the Company exceed
30% as a result the Tender Offer.
The FIG Concert Party has an interest in approximately 29.05% of
the Ordinary Shares in issue. Therefore, if the Tender Offer is
implemented, the shareholding of the FIG Concert Party would likely
exceed 30% of the voting rights of the Company, thereby triggering
a requirement to make a general offer for the Company, in
accordance with Rule 9 of the Code. As the price per Ordinary Share
of such an offer would not be required to be higher than that
offered in the Tender Offer, the Independent Directors are of the
view that requiring the FIG Concert Party to make a general offer
to shareholders under Rule 9 of the Code, as a result of the Tender
Offer would add unnecessary levels of complexity, time and expense
to the Relaunch process without offering shareholders any
substantive benefits over and above those offered by the Tender
Offer.
The Panel on Takeovers and Mergers has agreed to waive this
requirement subject to the approval of the Company's independent
shareholders to give Eurocastle the flexibility to implement the
Tender Offer without the FIG Concert Party being obliged to make a
general offer for the Company. Accordingly, Eurocastle has today
published a circular to shareholders (the "Circular") containing
details of the Tender Offer and a notice of General Meeting to vote
on a resolution to waive the Rule 9 requirement (the "Rule 9 Waiver
Resolution"). The Circular has been posted on the Investor
Relations section of the Company's website under the tab "Periodic
Reports and Shareholder Communications -- July 2022 Notice of
Extraordinary General Meeting and Circular " and has been mailed to
eligible shareholders on the register as at close of business on 7
July 2022.
No member of the FIG Concert Party will be entitled to vote on
the Rule 9 Waiver Resolution. The Rule 9 Waiver Resolution will,
therefore, be taken on a poll of independent shareholders.
If the Rule 9 Waiver Resolution is not passed at the General
Meeting, the Tender Offer will not proceed and will lapse. The
Board currently intends in any case to proceed with the subsequent
steps of the Relaunch. While the Board may consider other options
to create liquidity for shareholders, there is no certainty that
any alternative transaction will be available.
The Board considers the Tender Offer to be in the best interests
of shareholders as a whole as, amongst other things, it will
ensure, as far as possible, that shareholders who remain invested
in the Company are those who are committed to the Relaunch.
Furthermore, the Company has been trading at a discount to its
Adjusted NAV and, in light of the Company's available capital, the
Board believes that the implementation of the Tender Offer at a
premium to the prevailing market price balances the interests of
shareholders seeking liquidity while representing an accretive and
expeditious use of available cash for the Company and its remaining
shareholders.
-- Q1 2022 BUSINESS HIGHLIGHTS
Q1 Cash
Q4 2021 NAV Movement Q1 FV Movement Q1 2022 NAV
-------------- --------------- -------------- --------------
EUR EUR EUR EUR
EUR per EUR per EUR per EUR per
million share million share million share million share
Real Estate
Funds(4) 2.8 1.49 (1.0) (0.53) 0.1 0.04 1.9 1.00
Italian NPLs &
Other Loans 1.3 0.72 (0.1) (0.03) 0.0 0.03 1.3 0.71
Net Corporate
Cash(5) 14.1 7.57 1.1 0.56 1.3 0.68 16.4 8.82
Adjusted NAV 18.2 9.79 - - 1.4 0.74 19.6 10.53
============== ======= ===== ======= ====== ======= ===== ======= =====
-- In Q1 2022, the Company received EUR2.0 million from its investments, of
which EUR1.0 million related to Real Estate Fund Investment II and was
reallocated to Net Corporate Cash in the Q4 2021 Adjusted NAV. The
remaining amounts relate to:
(i) EUR1.0 million from Real Estate Fund Investment V (42% of its Q4'21 NAV) and
(ii) EUR0.1 million from Italian NPLs & Other Loans (5% of its Q4'21 NAV).
-- As at 31 March 2022, the Company's remaining assets comprise:
-- Interests in two fully developed, luxury residential real estate
redevelopment funds in Rome where the apartments in Real Estate
Fund Investment II ("REFI II") are now 100% sold or under contract
to be sold and 97% of the units in Real Estate Fund Investment V
("REFI V") are now sold or under contract to be sold. The majority
of each of these investments therefore comprises of the net cash
within these funds which will be distributed at the discretion of
the fund manager as the funds are liquidated.
-- Residual minority interests in two predominantly secured NPL pools
where the underlying assets are under contract to be sold once the
underlying portfolio level financing of each is repaid.
-- Net corporate cash of EUR16.4 million, comprising corporate cash
net of liabilities and additional reserves.
-- Additional Reserves - In light of the disposal of the majority of its
assets as part of the Realisation Plan, the Board set aside reserves to
allow it to complete the realisation of its investments and fund its
future costs and potential liabilities. These reserves amount to EUR13.1
million, or EUR7.06 per share, as at the end of Q1 2022 and are not
accounted for under IFRS. Of this amount, EUR6.7 million is specifically
related to the legacy German tax matter with the balance of approximately
EUR6.4 million in place to allow for an orderly liquidation process.
During the quarter, EUR1.3 million, or EUR0.68 per share, of the
reserves were released by the Company. The majority of this amount
relates to the legacy German tax matter following a revision to the
estimated total liability. As previously announced, the Company
made a payment of EUR4.6 million in March 2022 in relation to this
matter against which it raised a corresponding tax asset with the
current remaining financial impact (excluding associated costs of
EUR0.2 million) estimated to be between EUR1.7 million and EUR1.9
million. Notwithstanding the Company's expectation that the tax
matter will eventually be resolved in the Company's favour, as at
31 March 2022, the full potential liability is fully reserved for
within the Additional Reserves.
Balance Sheet and Adjusted NAV Reconciliation as at Italian Investments Corporate Total
31 March 2022 EUR Thousands EUR Thousands EUR Thousands
----------------------------------------------------- ------------------- -------------- --------------
Assets
Cash and cash equivalents - 25,424 25,424
Other assets - 85 85
Tax asset(6) - 4,645 4,645
Investments:
Italian NPLs & Other Loans 1,322 - 1,322
Real Estate Funds 1,862 - 1,862
Total assets 3,184 30,154 33,338
Liabilities
Trade and other payables - 582 582
Manager base and incentive fees - 85 85
Total liabilities - 667 667
IFRS NAV 3,184 29,487 32,671
------------------------------------------------------- ------------------- -------------- --------------
Cash reserves - (8,465) (8,465)
Non-cash reserves(1) - (4,645) (4,645)
------------------------------------------------------- ------------------- -------------- --------------
Total additional reserves(7) - (13,110) (13,110)
Adjusted NAV 3,184 16,377 19,561
Adjusted NAV (EUR per share)(8) 1.71 8.82 10.53
------------------------------------------------------- ------------------- -------------- --------------
NOTICE: This announcement contains inside information for the
purposes of the Market Abuse Regulation 596/2014.
ADDITIONAL INFORMATION
For investment portfolio information, please refer to the
Company's most recent Financial Report, which is available on the
Company's website (www.eurocastleinv.com).
Terms not otherwise defined in this announcement shall have the
meaning given to them in the Circular.
ABOUT EUROCASTLE
Eurocastle Investment Limited ("Eurocastle" or the "Company") is
a publicly traded closed-ended investment company. 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. On 8 July 2022, the Company announced the relaunch of
its investment activity with the aim to build a Southern European
speciality finance and real estate platform. For more information
regarding Eurocastle Investment Limited and to be added to our
email distribution list, please visit www.eurocastleinv.com.
FORWARD LOOKING STATEMENTS
This release contains statements that constitute forward-looking
statements. Such forward-looking statements may relate to, among
other things, future commitments to sell real estate and
achievement of disposal targets, availability of investment and
divestment opportunities, timing or certainty of completion of
acquisitions and disposals, the operating performance of our
investments and financing needs. Forward-looking statements are
generally identifiable by use of forward-looking terminology such
as "may", "will", "should", "potential", "intend", "expect",
"endeavour", "seek", "anticipate", "estimate", "overestimate",
"underestimate", "believe", "could", "project", "predict",
"project", "continue", "plan", "forecast" or other similar words or
expressions. Forward-looking statements are based on certain
assumptions, discuss future expectations, describe future plans and
strategies, contain projections of results of operations or of
financial condition or state other forward-looking information. The
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.
(1) In light of the Realisation Plan announced in November 2019,
the Adjusted NAV as at 31 March 2022 reflects additional reserves
for future costs and potential liabilities, which have not been
accounted for under the IFRS NAV. No commitments for these future
costs and potential liabilities existed as at 31 March 2022. IFRS
NAV as at 31 March 2022 was EUR32.7 million or, EUR17.59 per
share.
(2) Per share calculations for Eurocastle throughout this
document are based on 1.9 million shares
(3) Source: Italy: Deloitte Deleveraging Europe -- June 2021 and
internal estimates for remainder of 2021. Greece: Estimate based on
internal records of marketed and announced transactions.
(4) In Q4 2021, EUR1.0 million distribution received in January
2022 from RE Fund II reallocated from Real Estate Funds to Net
Corporate Cash.
(5) Reflects corporate cash net of liabilities and additional
reserves.
(6) Tax asset recognised following the payment of a EUR4.6
million revised tax assessment associated with the disposal of a
legacy property subsidiary in prior years. Notwithstanding the
Company's expectation that the tax matter will eventually be
resolved in the Company's favour, as at 31 March 2022, this tax
asset was fully reserved for within the Additional Reserves.
(7) In light of the Realisation Plan, the Adjusted NAV as at 31
March 2022 reflects the additional reserves for future costs and
potential liabilities of EUR13.1 million which have not been
accounted for under the IFRS NAV.
(8) Amounts per share calculated on 1.9 million outstanding
ordinary shares.
(END) Dow Jones Newswires
July 08, 2022 02:00 ET (06:00 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
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