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REG-Eurocastle Inv. Ltd 3rd Quarter Results - Part 1
RNS Number:4961T
Eurocastle Investment Limited
02 November 2005
FOR IMMEDIATE RELEASE
Contact:
International Administration (Guernsey) Limited
Company Administrator
Attn: Mark Woodall
Tel: +44 1481 723450
EUROCASTLE INVESTMENT LIMITED
FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2005
Nine Months 2005 Highlights
-Share offer completed in June 2005, raising net proceeds of e95 million
-Increased dividend by 12.1% from e0.33 per share in Q1 to e0.37 per share
in Q3
-Completed two further non-recourse term financings for target real estate
debt portfolios of £200 million and e400 million
-Net profit after taxation of e29.6 million for the nine months, or e1.39
per diluted share
-Funds from operations ("FFO") of e22.0 million for the nine months, or
e1.04 per diluted share
-FFO return on average invested capital was 12.7%
Third Quarter 2005 Highlights
-Total assets amounted to e1,927.7 million at the quarter end
-Equity book value total of e306.2 million, or e12.65 per share
-Net profit after taxation of e16.4 million for the quarter, or e0.65 per
diluted share
-FFO of e9.3 million, or e0.37 per diluted share
-Third quarter dividend of e0.37 per share, to be paid on 11 November 2005
-FFO return on average invested capital during the quarter was 12.5%
------------------------ ----------- ----------- ------------
Selected Financial Data Three Months Nine Months Nine Months
Ended Ended Ended
(amounts in e'000, except share 30 September 30 September 30 September
data and supplemental data) 2005 2005 2004
Operating Data
------------------------ ----------- ----------- ------------
Net profit after
taxation 16,352 29,567 6,970
------------------------ ----------- ----------- ------------
Earnings per diluted
share 0.65 1.39 0.49
------------------------ ----------- ----------- ------------
FFO 9,298 22,000 6,970
------------------------ ----------- ----------- ------------
FFO per diluted share 0.37 1.04 0.49
------------------------ ----------- ----------- ------------
Weighted average number
of shares outstanding,
diluted 25,046,485 21,206,023 14,302,043
------------------------ ----------- ----------- ------------
Balance Sheet Data As of As of
30 September 31 December
2005 2004
------------------------------ -------------- ------------
Asset backed securities
(includes cash to be
invested and securities
pledged under
repurchase agreements) 1,203,752 1,264,484
------------------------------ -------------- ------------
Real estate loans
(includes loans pledged
under repurchase
agreements) 99,632 21,938
------------------------------ -------------- ------------
Investment property 398,042 318,514
------------------------------ -------------- ------------
Real estate fund units 181,992 -
------------------------------ -------------- ------------
Cash and cash
equivalents 17,500 10,293
------------------------------ -------------- ------------
Total assets 1,927,734 1,627,619
------------------------------ -------------- ------------
Debt obligations 1,550,281 1,154,310
------------------------------ -------------- ------------
Shareholders' equity 306,237 206,420
------------------------------ -------------- ------------
Reconciliation of Funds from Operations Three Months Nine Months Nine Months
(FFO) to net profit after taxation Ended Ended Ended
30 September 30 September 3 0 September
2005 2005 2004
------------------------ ----------- ----------- -----------
------------------------ ----------- ----------- -----------
Net profit after
taxation 16,352 29,567 6,970
Decrease/(increase) in
fair value of
investment properties 68 (445) -
Increase in fair value
of real estate fund
units (7,122) (7,122) -
----------- ----------- -----------
Funds from operations
(FFO) 9,298 22,000 6,970
------------------------ =========== =========== ===========
FFO is an appropriate measure of the underlying operating performance of real
estate companies because it provides investors with information regarding our
ability to service debt and make capital expenditures. Furthermore, FFO is used
to compute our incentive compensation to our manager. FFO, for our purposes,
represents net profit after taxation (computed in accordance with IFRS),
excluding changes in the fair value of investment properties and mark to market
fluctuations in real estate fund units. We consider gains and losses on
resolution of our investments to be a normal part of our recurring operations
and therefore do not exclude such gains and losses when arriving at FFO. FFO
does not represent cash generated from operating activities in accordance with
IFRS and therefore should not be considered an alternative to cash flow as a
measure of liquidity, and is not necessarily indicative of cash available to
fund cash needs. Our calculation of FFO may be different from the calculation
used by other companies and, therefore, comparability may be limited.
Supplemental Total Real Estate and Other ABS Securities and Real Estate Loans
Data
------------------------------- ------------ -------------
As of As of
30 September 31 December
2005 2004
------------------------------- ------------ -------------
Total debt investments (excluding
restricted cash) 1,278,683 1,023,218
Weighted average asset yield 4.06%* 4.18%
Weighted average liability cost 2.72% 2.73%
Weighted average net spread 1.34% 1.45%
Weighted average credit rating BBB+ BBB+
Weighted average asset credit spread
(above Euribor) 1.95%* 1.99%
Percentage investment grade of
securities portfolio 92% 93%
Number of securities and loans 106 87
* includes assets and liabilities referenced under a total return swap
Supplemental Total Credit Leased Real Estate Data
------------------------------- ------------ -------------
As of As of
30 September 31 December
2005 2004
------------------------------- ------------ -------------
Investment properties at fair value 398,042 318,514
Real estate fund units 181,992 -
Total investment in credit leased real
estate assets 580,034 318,514
Weighted average asset yield 7.99% 7.10%
Weighted average liability cost 4.78% 4.56%
Weighted average net spread 3.21% 2.54%
EUROCASTLE INVESTMENT LIMITED AND SUBSIDIARIES
CHAIRMAN'S STATEMENT
Overview
Eurocastle Investment Limited (LSE: ECT) reports net profit after taxation for
the quarter ended 30 September 2005 of e16.4 million, or e0.65 per diluted
share, as compared to e3.2 million, or e0.17 per diluted share, for the third
quarter of 2004. The Company also reports net profit after taxation for the nine
months ended 30 September 2005 of e29.6 million, or e1.39 per diluted share, as
compared to e7.0 million, or e0.49 per diluted share, for the first nine months
of 2004. Funds from operations (or FFO) amounted to e22.0 million and e9.3
million, respectively, for the nine months and quarter ended 30 September 2005.
This amount excludes a e7 million increase in the fair value of the Company's
credit-leased real estate classified as investment properties and real estate
fund units. Eurocastle generated an FFO return on average invested common equity
of 12.5% for the quarter, and 12.7% for the nine months, ended 30 September
2005. As of 30 September 2005, the Company's shareholders' equity was e306.2
million or e12.65 per outstanding share, as compared to e203.3 million, or
e11.01 per outstanding share, as of 30 September 2004.
Eurocastle's core business strategy is to invest in and manage a diverse
portfolio consisting primarily of European credit-leased real estate and
European real estate related debt. Based on current opportunities, we see the
increased emphasis on investment in the credit-leased real estate side of our
business continuing. The Company's objective is to deliver stable and growing
dividends and attractive risk-adjusted returns to shareholders by optimizing the
difference between the yield on investments and the cost of financing these
investments. Since Eurocastle's IPO in June 2004, the Company's annualized
dividend to shareholders has increased by approximately 23% from e1.20 to e1.48
per share.
Eurocastle was very active on the investment side during the third quarter and
has built a strong pipeline of accretive investments for the near term.
Substantially all of the proceeds from Eurocastle's equity capital raise in June
2005 have been invested or committed to investment. Accordingly, Eurocastle
expects to be back shortly to raise additional capital.
Third Quarter 2005 Dividend
Eurocastle aims to pay out substantially all of its funds from operations in the
form of quarterly dividends to shareholders. On 18 October 2005, the Board of
Directors declared a dividend of e0.37 per share for the quarter ended 30
September, an increase of e0.02 per share from the prior quarter. The record
date for this increased dividend was 28 October 2005 and the payment date is 11
November 2005.
Investment Activity
Credit-Leased Real Estate Investment Portfolio
Eurocastle has made significant progress in growing its European credit-leased
real estate investment portfolio, which comprises investment properties and real
estate fund units. During the third quarter, the Company purchased approximately
e254 million of credit leased real estate investments in Germany and Italy.
These purchases, which are described below, brought directly or indirectly
Eurocastle's total credit-leased real estate investments to e580 million at
30 September 2005, or 31% of the Company's total investment portfolio.
i) Investment Properties
During the third quarter, the Company purchased 30 recently developed German
retail stores for approximately e79 million. The stores are well-located
throughout Germany and are leased on a long-term basis to a number of leading
German grocery retailers. In addition, Eurocastle has agreed to acquire or
received letters of intent from vendors to sell 47 other German retail
properties for approximately e134 million. These transactions are expected to
close in the fourth quarter 2005, increasing Eurocastle's credit-leased real
estate investment portfolio to approximately e700 million.
ii) Real Estate Fund Units
In July 2005, Eurocastle purchased a e175 million interest (net of accrued
income) in a real estate investment fund that owns a portfolio of 394 properties
in Italy. The properties are 100% occupied under long-term lease agreements with
Italian government agencies.
Real Estate Debt Portfolio
In the nine months ended 30 September 2005, Eurocastle purchased approximately
e391 million of real estate related securities and e77 million of real estate
related loans, with approximately e240 million in face amount of real estate
related securities and real estate loans having been purchased during the
quarter ended 30 September 2005. The securities purchased during the quarter had
an average credit rating of BBB and an average credit spread above Euribor of
1.15%. Purchases of CMBS in the third quarter amounted to e66.6 million, with an
average spread of 1.19% and average rating of BBB. RMBS purchases in the third
quarter amounted to e84.0 million, with an average spread of 0.87% and average
rating of BBB+. Other ABS purchases in the third quarter amounted to e35.5
million, with an average spread of 1.78% and average rating of BB+. Real estate
related loans purchased amounted to e53.5 million with an average spread of
2.66%.
After allowing for sales of securities and principal redemptions, the net
increase in face amount of real estate related securities and real estate
related loans during the third quarter was e155.7 million, raising the amount of
these investments from e1.1 billion at the last quarter end to approximately
e1.3 billion at 30 September 2005, an increase of approximately 14%.
The European real estate debt markets remain strong with record-level new
issuances. The Company expects this growth to continue to provide significant
accretive investment opportunities in real estate related debt. Attractive
opportunities to invest in the B-Note and mezzanine loan markets are increasing
as this market expands in Europe and we were able to grow the portfolio of these
loans by 111% in the third quarter. Eurocastle has developed a robust pipeline
of these securities and loan investments for the near term.
Capital Markets
During the second quarter, Eurocastle successfully completed a public offering
of 5,740,000 shares resulting in gross proceeds to the Company of approximately
e99 million (net proceeds e95 million).
On 14 July 2005, Eurocastle established a e400 million three year extendable
revolving credit facility. This facility was used to refinance a significant
part of the portfolio previously financed under short-term repurchase
agreements, and is being used to acquire further real estate debt. At 30
September 2005, approximately e161.9 million had been drawn under this facility.
During the third quarter, Eurocastle financed its credit-leased real estate
investment purchases with fixed rate term loans, which has eliminated exposure
to increased interest rates. This is consistent with our objective of locking in
the spread between the yield on our investments and the cost of financing those
investments.
Investment Portfolio
Credit-Leased Real Estate Investment Portfolio
As of 30 September 2005, Eurocastle owned an approximately e580 million
portfolio of credit-leased real estate investments, comprising investment
properties of e398 million and real estate fund units of e182 million. This
portfolio represents 30% of the Company's total assets.
i) Investment Properties
The credit-leased real estate portfolio included e318 million of German bank
properties purchased in December 2004 and e80 million of German retail stores.
The German bank investment consists of 96 properties, or approximately 295,000
square meters of office space, which is leased primarily to Deutsche Bank for an
average of 6.4 years. Since acquiring the portfolio in December 2004, Eurocastle
has added 16 new leases, bringing the total occupancy of this portfolio to
approximately 76%. The Company also owns 30 recently developed German retail
properties. These properties are located in popular sites throughout Germany and
are leased to some of the country's largest grocery retailers for an average
term of approximately 11 years.
ii) Real Estate Fund Units
Eurocastle has a e182 million interest in a real estate investment fund that
owns a portfolio of 394 Italian properties. The properties are let to Italian
government agencies. The original term of the Lease Agreement is 9 years,
automatically renewable for a further 9 years. The properties have a total
occupancy of 100%.
Real Estate Debt Portfolio
As of 30 September 2005, Eurocastle's total real estate debt portfolio of
approximately e1.3 billion, which represents approximately 68% of the Company's
total assets, included e604.8 million of CMBS, e574.2 million of other asset
backed securities, e99.6 million of loans and e24.7 million of cash held pending
investment in additional real estate related debt. The real estate debt
portfolio is well diversified with 106 securities and loans and an average life
of approximately 4.06 years; approximately 96% of the portfolio comprises
floating-rate securities. The portfolio is geographically diversified with
direct exposures of 52% in the UK, 13% in Italy, 13% in Germany, 11% Pan
European and 5% in France. The average credit quality of the securities
portfolio is BBB+ and approximately 92% of the securities are rated investment
grade. The portfolio's weighted average credit spread was approximately 1.95% as
of 30 September 2005.
Eurocastle's real estate debt portfolio has continued to perform well. As of 30
September 2005, none of the Company's securities or loans have defaulted, and
there have been no principal losses to date. Eurocastle continues to seek
investments that will generate superior risk-adjusted returns with a long-term
objective of capital preservation and earnings stability in varying interest
rate and credit cycles.
About Eurocastle
Eurocastle Investment Limited is a Euro-denominated Guernsey closed-end
investment company listed on the London Stock Exchange as a property investment
company. The Company invests in and manages a diverse portfolio consisting
primarily of European credit-leased real estate and real estate related debt.
Eurocastle is managed by Fortress Investment Group LLC, a global alternative
investment and asset management firm with approximately US$15 billion of equity
capital currently under management. For more information regarding Eurocastle
and to be added to our email distribution list, please visit
www.eurocastleinv.com.
Conference Call
Management will conduct a conference call on Wednesday, 2 November 2005 to
review the Company's financial results for the quarter ended 30 September 2005.
The conference call is scheduled for 1:00 P.M. London time (8:00 A.M. New York
time). All interested parties are welcome to participate on the live call. You
can access the conference call by dialing +1-866-323-3742 (from within the U.S.)
or +1-706-643-0550 (from outside of the U.S.) ten minutes prior to the scheduled
start of the call; please reference "Eurocastle Third Quarter Earnings Call."
For those who are not available to listen to the live call, a replay will be
available until 11:59 P.M. New York time on 18 November 2005 by dialing
+1-800-642-1687 (from within the U.S.) or +1-706-645-9291 (from outside of the
U.S.); please reference access code "1596968."
EUROCASTLE INVESTMENT LIMITED AND SUBSIDIARIES
INDEPENDENT REVIEW REPORT TO EUROCASTLE INVESTMENT LIMITED
Introduction
We have been instructed by the Company to review the financial information for
the nine months ended 30 September 2005 which comprises Consolidated Income
Statements, Consolidated Balance Sheets, Consolidated Statements of Cash Flows,
Consolidated Statements of Changes in Equity and the related notes 1 to 18. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
United Kingdom Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company, for
our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to interim figures should be consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1994/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of group management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the nine months
ended 30 September 2005.
Ernst & Young LLP
London
01 November 2005
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