Replacement - Interim Report

RNS Number : 0309X

Real Estate Credit Investments Ltd

30 November 2010

REPLACEMENT OF ANNOUNCEMENT (RNS NUMBER 0141X) RELEASED AT 7AM

REAL ESTATE CREDIT INVESTMENTS LIMITED

(FORMERLY QUEEN'S WALK INVESTMENT LIMITED)

INTERIM REPORT AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE PERIOD ENDED 30 SEPTEMBER 2010

REAL ESTATE CREDIT INVESTMENTS LIMITED

Contents

Page

Directors and Advisers 3

Chairman's Statement 5

Investment Manager's Report 6

Directors' Responsibility Statement 10

Independent Review Report 11

Unaudited Condensed Consolidated Statement of Comprehensive Income 13

Unaudited Condensed Consolidated Statement of Changes in Equity 14

Unaudited Condensed Consolidated Statement of Financial Position 15

Unaudited Condensed Consolidated Statement of Cash Flows 16

Notes to the Condensed Consolidated Unaudited Financial Statements 17

REAL ESTATE CREDIT INVESTMENTS LIMITED

Directors and Advisers

Directors

Tom Chandos (Chairman)

Graham Harrison

John Hawkins

Talmai Morgan

Christopher Spencer

Registered Office

Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 3BG

Administrator and Secretary of the Group

Kleinwort Benson (Channel Islands) Fund Services Limited

Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 3BG

Investment Manager

Cheyne Capital Management (UK) LLP

Stornoway House

13 Cleveland Row

London SW1A 1DH

Corporate Brokers

Citigroup Global Markets Limited

Citigroup Centre

Canada Square

Canary Wharf

London E14 5LB

Liberum Capital

Ropemaker Place, Level 12

25 Ropemaker Street

London EC2Y 9LY

Share Repurchase Agent

JP Morgan Cazenove Limited

20 Moorgate

London EC2R 6DA

REAL ESTATE CREDIT INVESTMENTS LIMITED

Directors and Advisers (continued)

Independent Auditors

Deloitte LLP

Regency Court

Glategny Esplanade

St. Peter Port

Guernsey GY1 3HW

Registrar

Capita IRG (CI) Limited

2^nd Floor

No. 1 Le Truchot

St. Peter Port

Guernsey GY1 4AE

UK Transfer Agent

Capita Registrars

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

Custodian

State Street Custodial Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland

Sub-Administrator

State Street Fund Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland

REAL ESTATE CREDIT INVESTMENTS LIMITED

Chairman's Statement

In the six months to 30 September 2010, Real Estate Credit Investments Ltd ("the Company" or "RECI") has improved profitability and made substantial progress in establishing real estate debt investment as the focus of renewed growth.

The Company was early in identifying the dislocation in the prices of European real estate debt, and has used available cash to increase its exposure since 2008. Completion of the €26.6 million open offer in September 2010 combined with shareholder support to change the investment mandate has laid the foundations for growth.

First half net profit of €5.9 million

For the quarter to 30 September 2010, the Company has recorded a net profit of €3.1 million or €0.08 per ordinary share¹, up from a profit of €2.8 million or €0.07 per adjusted ordinary share¹ in the June quarter end. During the half year ended 30 September 2010, the Company reported a net profit of €5.9 million or €0.15 per ordinary share, compared to a net loss of €1.4 million or -€0.05 per ordinary share² in the first half of 2009/10.

The Company's net asset value ("NAV") for the quarter ended 30 September 2010 was €1.69 per share, up from €1.59 per ordinary share¹ following the completion of the Company's bonus issue of preference shares on 17 September 2010. In the first half, the Company recorded gross cash flow of €11.8 million from its investment portfolio, compared to €12.3 million for the six months to 30 September 2009.

In the first half of the financial year the Company has paid ordinary shareholders dividends of 14.5 cents per ordinary share³. As highlighted previously the Company intends to continue paying a dividend on the ordinary shares, albeit at a lower level. The preference shares distributed as a bonus to ordinary shareholders in September should provide a more significant level of income.

Real Estate Debt Portfolio now 45% of all assets

The Company started the financial year with approximately 15% of the investment portfolio in real estate backed bonds. As at 30 September 2010, this has increased to 37%, and then further increased to 45% as at 15 November 2010. Investing in real estate debt has improved the credit quality of the portfolio, maintained an attractive expected yield and supported NAV. In the September quarter, the bond portfolio recorded fair value gains of 3.3%.

The residual investment portfolio has continued to perform better than expected. The mortgage portfolios have been supported by low interest rates. Default and delinquency rates have fallen on assets in all jurisdictions in which the Company has invested. The SME portfolio is also benefitting from forbearance by banks, and a recovery in global markets. The Company has maintained a conservative bias in its valuations and will continue to do so. The Company will continue to seek remedies with respect to loans in its mortgage portfolios that have breached representations and warranties.

The financial environment is currently subject to renewed concerns about the European economies. While these may impact sentiment and the valuation of some of the Company's assets, as is discussed in the Investment Manager's report, the Board continues to believe that overall, the Company's portfolio is robust; and at the same time, unsettled conditions should generate attractive opportunities to acquire new assets.

RECI's strong cash flow and the increased resources arising from its equity issue which closed in September leave it well positioned to continue purchasing undervalued real estate debt, at the same time as both covering the preference share dividends and paying dividends on the ordinary shares.

Tom Chandos, Chairman

29 November 2010

¹ The reference to both shares and adjusted shares reflect the increased ordinary shares following the open offer.

² The 2009 comparative uses the shares outstanding at the end of September 2009.

³ The 14.5 cents per share relates to the number of shares outstanding on 15 September 2010 (prior to the settlement of the open offer).

REAL ESTATE CREDIT INVESTMENTS LIMITED

Investment Manager's Report

Investment Portfolio

Below is a breakdown of the Company's investment portfolio as at 30 June 2010 and 30 September 2010 by jurisdiction (by reference to underlying asset originator). The Real Estate Debt Portfolio is included in the charts and detailed in the next section. Percentages for each asset class are in relation to the value of the Company's investment portfolio, as at the relevant date (excluding cash and hedges).

Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 June 2010
Portugal	33.3%
UK	27.5%
Germany	15.5%
Holland	12.4%
Italy	7.9%
France	3.3%
Total (€mm)	92.3

Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 September 2010
UK	34.1%
Portugal	28.9%
Germany	15.4%
Holland	11.9%
Italy	6.5%
France	3.1%
Total (€mm)	101.8

Below is a breakdown of the Company's investment portfolio by asset type (by reference to underlying asset collateral). Percentages for each asset type are in relation to the value of the Company's investment portfolio, excluding cash and hedges.

Queen's Walk Portfolio Breakdown by Asset Type as at 30 June 2010
European Mortgages	40.2%
Real Estate Debt	30.9%
SME	18.7%
UK Mortgages	10.2%

Total (€mm)	92.3

Queen's Walk Portfolio Breakdown by Asset Type as at 30 September 2010
Real Estate Debt	36.8%
European Mortgages	34.4%
SME	17.9%
UK Mortgages	11.0%

Total (€mm)	101.8

REAL ESTATE CREDIT INVESTMENTS LIMITED

Investment Manager's Report (continued)

Real Estate Debt Portfolio^{^[1]}

The Real Estate Debt Portfolio is gathering momentum in size and performance and is on course to comprise more than 50% of the Company's investment portfolio by the end of the calendar year. As at 30 September, it represented 37% of the investment portfolio, up from 31% three months earlier. This rose to 45% as at 15 November 2010.

New bond purchases totalled €9.8 million in the quarter ended 30 September, versus €12.5 million in the previous quarter. As at 30 September 2010 the average purchase price was 66 cents with a weighted average expected yield to maturity of 13.6%. Between 1 October and 15 November 2010, the Company invested a further €15.4 million at an average price of 57 cents and a weighted average expected yield to maturity of 14.9%.

The Real Estate Debt Portfolio recorded cash flows of €0.8 million in the quarter ended 30 September 2010, compared with €0.2 million in the previous quarter. Performance of the Real Estate Debt Portfolio has been strong with fair value gains of €1.1 million in the recent quarter or approximately 3.3% in the quarter.

As at 30 September 2010, the Real Estate Debt Portfolio comprised 56 bonds at an amortised cost value of €33.7 million and a nominal value of €58.8^{^[2]}million. As at 15 November 2010, the portfolio consisted of 78 bonds at an amortised cost value of €48.5 million and a nominal value of €87.8 million^{^[3]}. The following table details the bonds held by the Company as at 15 November 2010[4]. The weighted average expected yield to maturity of the Real Estate Debt Portfolio as at 15 November 2010 was approximately 14.0% and the weighted average purchase price was 63.3.

Ratings Distribution by Fair Value (as at 15 November 2010)

Current Rating	UK CMBS	UK RMBS	Euro CMBS	Euro RMBS	SME	Total	Total at 30 Jun 10
AAA	3.1%	6.8%	9.4%	0.0%	0.0%	19.3%	18.9%
AA	1.6%	7.4%	6.1%	0.2%	0.0%	15.4%	25.2%
A	2.6%	13.9%	1.0%	0.0%	0.0%	17.5%	23.6%
BBB	5.6%	6.8%	4.5%	0.0%	1.9%	18.9%	11.7%
BB and Below	5.9%	4.1%	18.7%	0.2%	0.0%	28.9%	20.6%
Total	18.9%	39.0%	39.8%	0.4%	1.9%	100.0%
Total at 30 Jun 10	23.8%	41.9%	31.0%	0.4%	3.0%

European Mortgage Portfolio

The European Mortgage Portfolio, generated cash flow of €2.0 million for the quarter ended 30 September 2010, compared to €2.9 million in the previous quarter and ahead of forecasts of €1.1 million. Write-downs in this portfolio totalled €1.4 million, of which €1.1 million was from the Sestante mortgage portfolio.

Due to concerns about the servicing of the Sestante mortgage portfolio, the Company has lowered its recovery rate on defaulted loans. However, Meliorbanca is seeking to move the servicing of the portfolio to Italfondiario, a larger servicer in the Italian market.

Valuation of the Portuguese mortgage portfolio was largely unchanged and the portfolio continues to perform in line with expectations. All Portuguese loans in the European Mortgage Portfolio are seasoned having been originated between 1997-2004. The assets benefit from having low loan to value ratios. Less than 10% of Portuguese mortgage loans have an LTV of more than 80%. Due to being Euribor linked, Portuguese assets benefit from carrying a low average weighted interest rate with most 2.5% or lower.

European Mortgage Portfolio (continued)

The Company is closely following developments regarding fiscal deficits in Southern Europe and widening credit spreads. The Company believes that the wider spreads should have no direct impact on its mortgage portfolios because the majority of its mortgage loans are indexed to short term Euribor rates. The key risks to asset value remain a rise in Euribor and an increase in unemployment and consequent mortgage defaults as a result of government austerity measures.

SME Portfolio

Cash flows in the quarter ended 30 September 2010 totalled €0.3 million, compared with €1.8 million in the previous quarter. The fall reflects the sale of the two SME assets in the first quarter which had delivered gross cash flows of €1.4 million in the previous period.

The Company expects default rates in this portfolio to remain volatile. In the second quarter, defaults were lower than expected. The SME portfolio's average default rate fell to 0.24%, from 2.1% in the previous quarter. The Smart 06-1 asset recorded a substantial decrease in default rates from 4.1% to 0.5%. The default rate of the Amstel SME portfolio remained at 0%.

The table below outlines actual default rates in the SME portfolio and intra-period volatility of default rates. Valuations of SME assets continue to maintain a conservative bias in our default rate forecast relative to historical averages.

	March 2010 Default Rate (annualised)	June 2010 Default Rate (annualised)	Sept 2010 Default Rate (annualised)
Amstel 06-1	0.5%	0.0%	0.0%
Smart 06-1	0.7%	4.1%	0.5%
Average	0.6%	2.1%	0.2%

UK Mortgage Portfolio

The UK Mortgage Portfolio recorded cash flows of €1.3 million in the quarter ended 30 September 2010 compared to €0.9 million in the previous quarter.

The Company has increased its valuation of the UK mortgage portfolio by €3.5 million, as a result of out performing our assumptions. The Company increased the valuation of its RMAC assets as well as the Eurosail 2006-1 asset, previously marked at zero. The Company continues to work with mortgage originators to identify loans that do not satisfy the representations and warranties provided at the time of the securitisation.

Portfolio Valuation

In accordance with the Company's valuation procedures, the fair value of the Company's investments is calculated on the basis of observable market data, market discount rates and the Investment Manager's expectations regarding future trends. Given re-structurings at many investment banks, there is a lack of reliable, independent broker marks for assets in the residual income portfolio. Therefore, the Company has elected to use a model-based approach to value its residual investments and employs an external valuation agent to review the underlying pricing assumptions. The Company applies a discount rate to the loss-adjusted cash flows to calculate the fair value. The Company received broker marks for all of its bonds.

Increases in the balance sheet value of the residual portfolio between 30 June 2010 and 30 September 2010 (excluding sales) totalled €0.6 million. This comprised -€1.8 million of principal amortisation and fair value gains of €2.4 million. In relation to the Real Estate Debt Portfolio, the balance sheet value increased by €9.3 million.

There were €9.8 million new purchases, fair value gains of €1.1 million, principal amortisations of -€0.7 million and sales of -€0.9 million. After giving effect to these balance sheet changes in the quarter ended 30 September 2010, the NAV of the Company was €1.69 per ordinary share as at 30 September 2010, versus €3.75 per ordinary share as at 30 June 2010 and an adjusted NAV of 1.59 per ordinary share as at 17 September 2010.⁵

The Company recorded total cash flows of €6.1 million in the quarter, of which €4.5 million came from the investment portfolio (excluding hedges). The sale of one bond generated €0.9 million and a further €0.6 million came from interest rate swap hedges⁵. The table below summarises changes in balance sheet values of the Company's investment portfolio by asset class:

Asset Class	30 Jun 2010 B/S Value^1,2 (€mm)	30 Sep 2010 B/S Value² (€mm)	Change to B/S Value Since 30 Jun 2010 (€mm)	Cash flows Received in the Quarter Ended 30 Sep 2010 (€mm)	Cash flows Received in the Quarter Ended 30 Jun 2010³ (€mm)
UK Mortgages	9.5	11.2	1.7	1.5	1.9
Euro Mortgages	37.1	35.0	-2.1	2.0	1.8
SME	17.3	18.2	0.9	0.3	1.7
Real Estate Debt	28.1	37.4	9.3	0.8	0.2
TOTAL⁴	92.0	101.8	9.8	4.6	5.5

1. Balance sheet values as at 30 Jun 2010 are expressed using 30 Sep 2010 FX rates.

2. The balance sheet value figures for 30 Jun 2010 and 30 Sep 2010 include accrued interest.

3. Cash flows for 30 Jun 2010 are expressed using 30 Sep 2010 FX rates.

4. The values for each column may not sum to the total due to rounding differences.

Company Outlook -Real Estate Debt on course to become the flagship investment strategy

During the second quarter, RECI has made progress in laying foundations for long-term growth. The Company has deployed capital raised in September to add to its Real Estate Debt Portfolio, putting it firmly on course to become RECI's flagship strategy.

The Company will continue with this approach in the third quarter, with market conditions supporting our view that we can invest profitably in dislocated assets. We are optimistic that RECI will reach its target of growing the Real Estate Debt Portfolio to 50% of the Company's investment portfolio by the calendar year end.

The Company believes that real estate debt investments, in particular residential and commercial mortgage-backed bonds, should deliver investors improved returns and a more favourable risk/reward profile. The Company is confident it can find opportunities to invest at yields in excess of 12%. The shift towards publicly-traded securities is providing greater transparency of asset prices and more liquidity.

Our strategy remains to make two thirds of new investments in bonds backed by commercial real estate debt in the form of CMBS. One third of new investments are to be in bonds backed by residential mortgages in the form of RMBS. Geographically, investments focus on Northern Europe, including the UK.

RECI will continue to manage the SME, European Mortgage and UK Mortgage Portfolios with a high degree of diligence. The priority remains to identify the right opportunities to sell such assets. At the same time we are closely monitoring any developments that affect asset values, unemployment levels in Portugal and the Euribor rate. Furthermore, the Company will continue working with mortgage originators to identify loans that do not satisfy the representations and warranties provided at the time of the securitisation. The Company is satisfied that NAV has improved during the quarter under review and is committed to maximising NAV through its growth strategy.

Cheyne Capital Management (UK) LLP

29 November 2010

5. The values may not sum to totals or sub-totals due to rounding differences.

REAL ESTATE CREDIT INVESTMENTS LIMITED

Directors' Responsibility Statement

We confirm to the best of our knowledge:

a) the condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting";

b) the interim management report (contained in the Chairman's Statement and Investment Manager's report) includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report (contained in the Chairman's Statement and Investment Manager's report) includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Director Director

29 November 2010 29 November 2010

REAL ESTATE CREDIT INVESTMENTS LIMITED

Independent review report to Real Estate Credit Investments Limited

We have been engaged by Real Estate Credit Investments Limited (formerly Queen's Walk Investment Limited) (the "Company") to review the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2010 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Financial Position and the Condensed Consolidated Statement of Cashflows and related Notes 1 to 23. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated financial statements.

This report is made solely to the Company in accordance with the International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority.

As disclosed in Note 2, the annual financial statements of the group are prepared in accordance with IFRS. The condensed consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

REAL ESTATE CREDIT INVESTMENTS LIMITED

Independent review report to Real Estate Credit Investments Limited (continued)

Emphasis of matter - Fair value of investments

In forming our opinion on the condensed consolidated financial statements, which is not qualified, we have considered the adequacy of disclosures made in Notes 2, 3 and 10 to the condensed consolidated financial statements which describe the policy adopted by the Directors for fair valuing the Group's investments. In accordance with this policy and the requirements of International Accounting Standard 39 "Financial Instruments: Recognition and Measurement", the Directors have estimated the fair value of the investments at Euro 100,599,597 at 30 September 2010.

As described in Notes 2, 3 and 10 of the condensed consolidated financial statements, the market for subordinated asset-backed securities, including residual interest positions, is illiquid and there has been considerable volatility which has affected the estimation of the fair value of the investments. As a result of this the fair value estimates included in the condensed consolidated financial statements are subject to considerable uncertainty. Different assumptions will impact the measurement of the investments which may have an effect on the condensed consolidated financial statements. It is not possible to quantify the potential effects of the resolution of this uncertainty.

Deloitte LLP

Chartered Accountants

Guernsey, Channel Islands

29 November 2010

Notes: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the Directors but no control procedures can provide absolute assurance in this area.

Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

REAL ESTATE CREDIT INVESTMENTS LIMITED

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the period from 1 April 2010 to 30 September 2010

	Note	Period ended 30 September 2010	Period ended 30 September 2009
		Euro	Euro

Interest income	5	7,586,588	8,271,921
Gains and losses on fair value through profit or loss financial instruments	4	361,454	(7,348,971)
		7,948,042	922,950

Operating expenses	6	(1,922,995)	(1,951,601)
Finance costs	5	(171,221)	(359,576)

Net profit/(loss)		5,853,826	(1,388,227)

Profit/(loss) per Ordinary Share
Basic	8	Euro 0.21	Euro (0.05)
Diluted	8	Euro 0.21	Euro (0.05)

Weighted average Ordinary Shares outstanding		Number	Number
Basic	8	27,736,651	26,644,657
Diluted	8	27,736,651	26,644,657

All items in the above statement are derived from continuing operations.

All income is attributable to the Ordinary Shareholders of the Company.

The accompanying notes form an integral part of the condensed consolidated financial statements.

REAL ESTATE CREDIT INVESTMENTS LIMITED

Unaudited Condensed Consolidated Statement of Changes in Equity

For the period from 1 April 2010 to 30 September 2010

		Share Capital	Reserves	Total
Note		Euro	Euro	Euro

Balance at 31 March 2009		-	105,585,091	105,585,091

Net loss for the period		-	(1,388,227)	(1,388,227)
Distribution to the Ordinary Shareholders of the Company	7	-	(4,263,146)	(4,263,146)

Balance at 30 September 2009 *		-	99,933,718	99,933,718

Balance at 31 March 2010		-	99,329,841	99,329,841

Net profit for the period		-	5,853,826	5,853,826
Issue of Ordinary Shares of the Company	16	-	26,644,656	26,644,656
Issue of Preference Shares of the Company	16	-	(57,665,484)	(57,665,484)
Shares issuance expenses allocated to the Ordinary Shareholders	2	-	(730,000)	(730,000)
Distribution to the Ordinary Shareholders of the Company	7	-	(5,995,048)	(5,995,048)

Balance at 30 September 2010		-	67,437,791	67,437,791

The accompanying notes form an integral part of the condensed consolidated financial statements.

* In line with IAS 34, the comparative period for the Consolidated Statement of Changes in Equity is the six months ended 30 September 2009. The balance at that period end will not equate to the balance at 31 March 2010, the date of the comparative Consolidated Statement of Financial Position on page 15.

REAL ESTATE CREDIT INVESTMENTS LIMITED

Unaudited Condensed Consolidated Statement of Financial Position

As at 30 September 2010

	Note	30 September 2010	31 March 2010
		Euro	Euro
Non-current assets
Investments at fair value through profit or loss	10	100,599,597	91,568,184
		100,599,597	91,568,184
Current assets
Cash and cash equivalents		29,111,868	15,718,951
Derivative financial assets- options held for trading	10	1,431,399	250,300
Derivative financial assets-unrealised gain on interest rate swap agreements	12	1,290,421	2,421,883
Other assets	11	1,406,650	1,376,852
		33,240,338	19,767,986

Total assets		133,839,935	111,336,170

Equity and liabilities

Equity
Reserves	17	67,437,791	99,329,841
		67,437,791	99,329,841
Current liabilities
Distribution payable	7	3,863,475	2,131,573
Derivative financial liabilities - unrealised loss on forward foreign exchange contacts	12	109,917	-
Other liabilities	15	6,115,870	1,231,789
		10,089,262	3,363,362

Non-current liabilities
Preference Shares	16	56,312,882	-
Loans	13	-	8,642,967
		56,312,882	8,642,967
Total liabilities		66,402,144	12,006,329

Total equity and liabilities		133,839,935	111,336,170

The accompanying notes form an integral part of the condensed consolidated financial statements.

The financial statements were approved by the Board of Directors on 29 November 2010.

Signed on behalf of the Board of Directors by:

Director Director

REAL ESTATE CREDIT INVESTMENTS LIMITED

Unaudited Condensed Consolidated Statement of Cash Flows

For the period from 1 April 2010 to 30 September 2010

	Note	Period ended 30 September 2010	Period ended 30 September 2009
		Euro	Euro
Net cash inflow from operating activities	18	2,422,659	7,787,392

Financing activities
Net repayment of borrowings from loans		(8,642,967)	(7,478,717)
Issue of ordinary shares	16	26,644,656	-
Ordinary Shares issuance expenses		(2,082,602)	-
Dividends paid to shareholders	7	(4,263,146)	(4,263,146)
Cash flows from financing activities		11,655,941	(11,741,863)

Net increase/(decrease) in cash		14,078,600	(3,954,471)

Reconciliation of net cash flow to movement in net cash
Net increase/(decrease) in cash and cash equivalents		14,078,600	(3,954,471)
Cash and cash equivalents at start of period		15,718,951	18,661,098
Effect of exchange rate fluctuations on cash and cash equivalents		(685,683)	111,185
Cash and cash equivalents at end of period		29,111,868	14,817,812

The accompanying notes form an integral part of the condensed consolidated financial statements.

REAL ESTATE CREDIT INVESTMENTS LIMITED

Notes to the Condensed Consolidated Unaudited Financial Statements

1. General information

Queen's Walk Investment Limited was registered on 6 September 2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands. On 17 September 2010, the Company changed its name to Real Estate Credit Investments Limited (the "Company"). The Company commenced its operations on 8 December 2005. The Company is an authorised closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008. Its Ordinary Shares have a premium listing on the London Stock Exchange and its Preference Shares have a standard listing. The registered office of the Company is Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined as the Company and its subsidiary. At 30 September 2010, the Company's only subsidiary was Trebuchet Finance Limited.

The investment objective of Queen's Walk Investment Limited was to preserve capital and provide stable returns to Shareholders in the form of quarterly dividends. It sought to achieve this by investing primarily in a diversified portfolio of tranches of asset-backed securities ("ABS") where the Investment Manager considered that the coupon or cash flows on the tranche were attractive relative to the underlying credit. These were, in most cases, below investment grade or unrated and in many cases, represented the residual income positions typically retained by the originator of a securitisation transaction as the "equity" or "first loss" position.

Following the approval of the Placing and Open Offer, the Group changed its investment objective and the objective will be to aim to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends. The Group will seek to achieve this objective by investing primarily in debt secured by commercial or residential properties in Western Europe and the United Kingdom ("Real Estate Debt Investments"). The Real Estate Debt Investments may take different forms but will likely be: (i) securitised tranches of secured real estate related debt securities; and (ii) secured real estate loans, debentures or any other form of debt instrument. At least 70% of the net asset value of the Group will be invested in Real Estate Debt Investments.

The Group's investment management activities are managed by its Investment Manager, Cheyne Capital Management (UK) LLP (the "Investment Manager"), an investment management firm authorised and regulated by the Financial Services Authority. The Group has entered into an Investment Management Agreement (the "Investment Management Agreement") under which the Investment Manager manages its day-to-day investment operations, subject to the supervision of the Company's Board of Directors. The Group has no direct employees. For its services, the Investment Manager receives a monthly management fee (which includes a reimbursement of expenses) and a quarterly performance-related fee. The Group has no ownership interest in the Investment Manager. The Company is administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the "Administrator"). State Street Fund Services (Ireland) Limited provide certain administration services to the Group in its capacity as Sub-Administrator.

2. Significant accounting policies

Basis of preparation

The condensed consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and in accordance with IAS 34 "Interim Financial Reporting". The same accounting policies, presentation and methods of computation are followed in this set of financial statements as applied in the Company's latest annual audited financial statements for the year ended 31 March 2010.

The Financial Statements of the Group are prepared on the historical cost basis modified by the following assets and liabilities which are stated at their fair value: derivative financial instruments, financial instruments held for trading and financial instruments classified or designated as fair value through profit or loss.

The majority of the Group's investments are financial instruments that are classified as fair value through profit or loss. Where bid prices are not available from a third party in a liquid market, the fair value of the financial instrument is estimated by reference to market information, which includes but is not limited to broker marks, prices on comparable assets and a pricing model that incorporates discounted cash flow techniques.

These pricing models apply assumptions regarding asset-specific factors and economic conditions generally, including delinquency rates, severity rates, prepayment rates, default rates, maturity profiles, interest rates and other factors that may be relevant to each financial asset. Where such pricing models are used, assumptions are reviewed and updated on the basis of actual performance data as it is received and on the basis of market conditions as at the Statement of Financial Position date. See Note 2 - Fair value and Interest income and Note 3 - Critical accounting judgements and key sources of estimation uncertainty for further information regarding assumptions and critical judgements.

The Directors believe it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements as, after due consideration, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. On 6 April 2010, the Company paid back the remaining Euro 8,642,967 and all interest due on the loan, terminating any further liabilities under the loan facility. In addition, the Directors note the cash resources available (Euro 29.1m as at 30 September 2010), of which some will be used to pay the proposed dividend, which are sufficient to cover normal operational costs and current liabilities for the foreseeable future.

These condensed consolidated financial statements are presented in Euro because that is the currency of the primary economic environment in which the Group operates. The functional currency of the Group is also considered to be Euro.

Changes in Accounting Standards

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 1 (amended)/IAS 27 (amended) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

IFRS 3 (revised 2008) Business Combinations

IFRS 9 Financial Instruments

IAS 27 (revised 2008) Consolidated and Separate Financial Statements

IAS 28 Investments in Associates

IFRIC 17 Distributions of Non-cash Assets to Owners

Improvements to IFRSs (April 2009)

The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial statements of the Group.

Basis of consolidation

Subsidiaries are entities controlled by the Company (Note 9). The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. At 30 September 2010, the Group is made up of the Company and its only subsidiary, Trebuchet Finance Limited. In accordance with the Standing Interpretations Committee Interpretation 12 "Consolidation-Special Purpose Entities" ("SIC 12"), the Company consolidates only entities over which control is indicated by activities, decision making, benefits and residual risks of ownership. In accordance with SIC 12 the Company does not consolidate an SPE in which it holds less than a substantial interest in the residual income position.

Where it holds more than a substantial interest, it does not consolidate the SPE where the residual income position represents only a small part of the gross assets of the SPE and the Company was neither involved in the establishment of the SPE or the origination of the assets owned by the SPE, on the basis that the Company is not exposed to the majority of the risks and benefits of the assets owned by the SPE, provided control is not otherwise indicated by the Company's activities, decision making, benefits and residual risks or ownership.

Trebuchet Finance Limited, the Company's only subsidiary, is an SPE over which the Company exercises control and its financial statements are therefore included in the consolidated financial statements of the Group. The Company does not consolidate any of the SPEs in which it holds a residual income position as it is not exposed to the majority of the risks and benefits of the assets owned by the relevant SPEs and does not control any of them.

Investments

Investments in residual interests and real estate debt bonds are recognised initially at their acquisition cost (being fair value at acquisition date) as debt securities. Thereafter they are re-measured at fair value and are designated as fair value through profit or loss investments in accordance with the Amendment to International Accounting Standard 39 ("IAS 39") Financial Instruments: Recognition and Measurement-The Fair Value Option, as the Group is an investment Group whose business is investing in financial assets with a view to profiting from their total return in the form of interest and changes in fair value.

Financial assets classified as at fair value through profit or loss are recognised/derecognised by the Group on the date it commits to purchase/sell the investments in regular way trades.

Cash and cash equivalents

Cash and cash equivalents includes amounts held in interest bearing accounts and overdraft facilities.

Derivative financial instruments

Derivative financial instruments used by the Group to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value.

Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the Condensed Consolidated Statement of Comprehensive Income.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

The fair value of options is their quoted market price at the reporting date. Broker marks are obtained for these positions. The change in value is recorded in net gains/(losses) in the Condensed Consolidated Statement of Comprehensive Income. Realised gains and losses are recognised on the maturity or sale of the option.

The fair value of forward exchange contracts is their quoted market price at the Statement of Financial Position date, being the present value of the quoted forward price. The change in value is recorded in net gains/(losses) in the Condensed Consolidated Statement of Comprehensive Income. Realised gains and losses are recognised on the maturity of a contract, or when the contract is closed out and they are transferred to realised gains or losses in the Condensed Consolidated Statement of Comprehensive Income.

Fair value

All financial assets carried at fair value are initially recognised at fair value and subsequently re-measured at fair value based on bid prices, where such bids are available from a third party in a liquid market. If bid prices are unavailable, the fair value of the financial asset is estimated by reference to market information which includes but is not limited to broker marks, prices on comparable assets and using pricing models incorporating discounted cash flow techniques.

These pricing models apply assumptions regarding asset‑specific factors and economic conditions generally, including delinquency rates, severity rates, prepayment rates, default rates, maturity profiles, interest rates and other factors that may be relevant to each financial asset. The objective of a fair value measurement is the price at which an orderly transaction would take place between market participants on the measurement date; it is not a forced liquidation or distressed sale. Where the Group has considered all available information and there is evidence that the transaction was forced, it will not use a transaction price as being determinative of fair value.

Where a forced sale price is not used the Group will estimate the fair value with reference to other market data as described above.

With regard to residual income positions, historical performance and observable market data is analysed to determine the average level of these factors and their volatility over time. These assumptions are typically derived by reference to the historical delinquencies, defaults, recoveries and prepayments actually realised by the originator of the underlying assets and any empirical data available that may be available in respect of any of these factors for the particular asset class.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported within assets and liabilities when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Derecognition of a financial asset

A financial asset is derecognised only if substantially all of the asset's risks and rewards of ownership are transferred or control is transferred in the event that not substantially all of the asset's risks and rewards of ownership are transferred. However, if substantially all of the risks and rewards are retained, the asset is not derecognised. Control is transferred if the transferee has the practical ability to sell the asset unilaterally without needing to impose additional restrictions on the transfer.

Interest-bearing loans and borrowings

Interest‑bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest‑bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Condensed Consolidated Statement of Comprehensive Income using the effective interest rate method. Financing costs associated with the issuance of financings are recognised in the Consolidated Statement of Comprehensive Income using the effective interest rate method.

Preference Shares

The Company has made a Bonus Issue to Ordinary Shareholders of Preference Shares. The value of the Preference Shares represent an obligation on the Group to pay the Preference Share Notional Value on winding up of the Group or on redemption of the Preference Shares in accordance with their terms. The fair value of the Preference Shares amounts to the Notional Value of the Preference Shares translated into the functional currency of the Group on the day of issuance, less the costs arising from the issue of these shares. Subsequent to initial measurement, the Preference Shares are remeasured at amortised cost using the effective interest rate method over the life of the Preference Shares of seven years.

Fixed Income Preference Shares

The Preference Shares have been classified as non-current liabilities in these financial statements. The amortisation of the Preference Share will be treated as a finance cost through the Statement of Comprehensive Income.

The Preference Shareholders are entitled to a Preference Dividend equal to 8% per annum of the Preference Share Notional Value. The Preference Dividend will be accrued at each valuation point using the effective interest method and paid quarterly. Dividends owing to Preference Shareholders are shown as a Finance Cost in the Condensed Consolidated Statement of Comprehensive Income on an accruals basis.

Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Consolidated Statement of Financial Position date are translated to Euro at the foreign exchange rate ruling at that date.

Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Euro at foreign exchange rates ruling at the dates the fair value was determined.

Expenses attributable to the Placing and Open Offer and the Bonus Issue

The expenses of the Company attributable to the Placing and Open Offer and the Bonus Issue are those which are necessary to implement the Placing and Open Offer and the Bonus Issue. Such expenses include registration, listing and admission fees, corporate finance fees, printing, advertising and distribution costs, legal fees and other applicable expenses.

These expenses have been allocated to the Ordinary and Preference Shareholders based on a pro-rata allocation. Expenses attributable to the Ordinary Shareholders have been expensed as incurred and are included as a reduction to Reserves in the Condensed Consolidated Statement of Changes in Equity. Expenses attributable to the Preference Shareholders will be amortised over the life of the Preference Shares of seven years and the amortisation is included in Operating Expenses in the Condensed Consolidated Statement of Comprehensive Income.

Interest income

Interest income is accrued over the projected lives of the investments using the effective interest method as defined under International Accounting Standard 39. Where the Group adjusts its expected cash flow projections to take account of any change in underlying assumptions, such adjustments are recognised in the Condensed Consolidated Statement of Comprehensive Income by reflecting changes in a revised amortised cost value of the investment and applying the original effective interest rate to this revised amortised cost value for the purposes of calculating future income.

Taxation

The Company is a tax-exempt Guernsey limited Company. Accordingly, no provision for income taxes is made. Trebuchet Finance Limited is a "qualifying Company" within the meaning of Section 110 of the Irish Taxes Consolidation Act 1997 and accordingly its taxable profits are subject to tax at a rate of 25 per cent. Payments under the Participation Note are paid gross to the Company and the income portion of such payments is deductible by Trebuchet Finance Limited. Consequently, Trebuchet Finance Limited has a minimal amount of taxable income. The activities of Trebuchet Finance Limited are exempt for Irish Value Added Tax (VAT) purposes under the Irish VAT Act of 1972.

Other receivables

Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial liabilities and equity are recorded at the proceeds received, net of issue costs.

Other accruals and payables

Other accruals and payables are not interest-bearing and are stated at their accrued value.

Segment information

For management purposes, the Group is organised into two main operating segments, which invest in 1) Real Estate Debt Bonds and 2) in Residual Bonds. Each segment engages in separate business activities and the results of each segment are regularly reviewed by the Board of Directors who have assumed the role of Chief Operating Decision Maker for performance assessment purposes.

3. Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the Group's accounting policies (described in Note 2 above), the Group has determined that the following judgements and estimates have the most significant effect on the amounts recognised in the condensed consolidated financial statements:

Income recognition of residual income positions and bonds

The Group invests in a diversified portfolio of residual income positions, being the subordinated tranches of asset-backed securities ("ABS") and bonds. The Group follows a policy of accounting for such investments and bonds at fair value through profit or loss and has elected to recognise income on an effective interest rate ("EIR") method in accordance with paragraph 30 of IAS 18 "Revenue".

ABS are securities that are typically backed by consumer finance receivables (such as mortgage loans) and commercial loans and receivables (including commercial mortgage loans and loans to small-and-medium sized enterprises).

Residual income positions are typically unrated or rated below investment grade and are often referred to as the "equity" or "first loss" position of a securitisation transaction.

Unlike a more conventional debt instrument and the more senior tranches of ABS (which generally hold the rights to fixed levels of income), the cash flow profile of a residual income position does not generally include a contractually established schedule of fixed payments divided between interest and principal.

Instead, the cash flows generally vary over time, and the periodic cash flows associated with a residual income position may include a significant element of principal repayment as well as income payments.

Where the cash payments generated by residual income positions do not typically follow the pattern of a standard cash-pay debt instrument (in that there is not a constant level of income in each period followed by a repayment of the principal amount at maturity), a given cash payment received in respect of a residual income position can generally be considered to represent a combination of the return on the investment and the repayment of some of the capital initially invested.

As a result, the stream of expected cash flows associated with a particular residual income position may have an uneven payout profile, in that the cash payment expected in one period (and the proportion of that payment that represents principal repayment versus interest income) may vary significantly from the cash payments expected in other periods.

The amortised value of a residual income position at any given measurement date after the Group's initial acquisition of the asset reflects repayments of principal in accordance with the effective interest method. This revised amortised value (adjusted to account for the accrual of interest and principal paydowns) is subject to further adjustment on the basis of market conditions and other factors that are likely to affect the fair value of the asset.

Where actual performance data or expectations regarding defaults, delinquencies and prepayments received in respect of a given asset is notably different from the default, delinquency and prepayment assumptions incorporated in the pricing model for the asset, the assumptions are revised to reflect this data and the pricing model is updated accordingly. In addition to the actual performance data observed in respect of a particular asset, market factors are also taken into account within the model.

Broker marks (where available) and any other available indicators are assessed to determine whether or not the market is attributing higher or lower default, delinquency or prepayment expectations to similar assets in determining whether or not the assumptions incorporated in the pricing model remain reasonable.

Interest income is recorded based on the original EIR calculated on acquisition for each individual residual income position and bond. Where there is a carry value reduction driven by lower cashflow expectations, interest income will be reduced as it reflects the reduced cashflow expectations.

Valuation of investments

The market for subordinated asset-backed securities, including residual income positions is illiquid and regular traded prices are generally not available for such investments. There is no active secondary market in residualincome positions and, further, there is no industry standard agreed methodology to value residual income positions.

In accordance with the Group's accounting policies, fair value of financial assets is based on quoted bid prices where such bids are available from a third party in a liquid market. At 30 September 2010 quoted bid prices were not available for any of the Group's residual portfolio investments.

There is very limited information available in relation to transactions in comparable investments. As quoted bid prices are unavailable, the fair value of the investments is estimated by reference to market information, which includes but is not limited to broker marks, prices of comparable assets, estimated fair value from the previous period updated for current period cash flows and a pricing model, that incorporates discounted cash flow techniques as required by IAS 39. The Group may use all or a combination of the prices from these sources in estimating the fair value of the investments. Broker marks are estimates of values provided by market participants who are typically the originators of the investments.

Broker marks are not binding prices and there is no guarantee that the Group could transact at these prices in the current market. Due to the current market conditions, the Group has relied on pricing models to fair value its investments as broker marks become less reliable or unobtainable.

The assumptions upon which the pricing models are based are described in Note 2 (Fair Value). Any change to assumptions surrounding the pricing models may result in changes to the fair values being attributed to the investments. Where the fair value of the investment is written down due to changes in assumptions and expected cash flows, the change in the fair value is taken to the Condensed Consolidated Statement of Comprehensive Income following the reassessment of the cash flows discounted at the current market rate estimated for the investment.

The fair value of the Group's investments is set out in Note 10. Given the number of individual investments and the number of individual parameters that make up each pricing model, the Group believes that it would be impractical to disclose the effects of changes to each assumption in respect of each individual investment and this would not provide meaningful additional disclosure. However, general assumptions used in the pricing models are disclosed with sensitivities in the Group's annual report and consolidated financial statements.

4. Gains and losses on financial instruments

The following table details the gains and losses, excluding interest income and finance costs, earned by the Group from financial assets and liabilities during the period:

	Period ended 30 September 2010		Period ended 30 September 2009
		Euro		Euro
Net realised gains/(losses)
Net realised gains/(losses) on investments at fair value through profit or loss		2,027,787		(181,039)
Net realised losses on options		-		(778,736)
Net realised losses on foreign exchange instruments		(47,451)		(151,348)
Net realised gains/(losses)		1,980,336		(1,111,123)

Net movement in unrealised gains/(losses)
Net unrealised gains/(losses) on investments at fair value through profit or loss		1,062,369		(4,004,323)
Net unrealised losses on interest rate swap agreements		(1,131,462)		(343,523)
Net unrealised losses on options		(754,189)		(2,001,187)
Net unrealised (losses)/gains on foreign bank balances		(685,683)		111,185
Net unrealised losses on foreign exchange contracts		(109,917)		-
Net unrealised losses		(1,618,882)		(6,237,848)

Net realised and movement in unrealised gains/(losses)		361,454		(7,348,971)

5. Interest income and finance costs

The following table details interest income and finance costs from financial assets and liabilities during the period:

	Period ended 30 September 2010		Period ended 30 September 2009
		Euro		Euro
Interest income
Investments designated at fair value through profit or loss upon initial recognition		7,582,415		8,266,047
Loans and receivables (including cash and cash equivalents)		4,173		5,874
Total interest income		7,586,588		8,271,921

	Period ended 30 September 2010		Period ended 30 September 2009
Finance costs:		Euro		Euro
Liabilities held at amortised cost:
Interest on loan		3,492		359,576
Preference Shares issuance expense amortised		3,398		-
Dividend owing to Preference Shareholders		164,331		-
Total finance costs		171,221		359,576

6. Operating expenses

	Period ended 30 September 2010		Period ended 30 September 2009
Note		Euro		Euro
Investment management, custodian and administration fees
Investment management and incentive fee	19	905,131		891,730
Administration fee	19	99,016		98,302
Custodian fee	19	18,320		18,120
		1,022,467		1,008,152
Other operating expenses
Audit fees		85,232		84,301
Directors' fees payable to Directors of Real Estate Credit Investments Limited		138,444		119,013
Directors' fees payable to Directors of Trebuchet Finance Limited		14,421		12,397
Legal fees		343,578		347,122
Pricing expenses		48,255		114,575
Other expenses		270,598		266,041
		900,528		943,449

Total operating expenses		1,922,995		1,951,601

The Group has no employees.

7. Dividends

Ordinary Dividends

The third interim dividend for the year ended 31 March 2010 of Euro 0.08 (2009: Euro 0.08) per share was declared on 11 March 2010 and an amount of Euro 2,131,573 was paid on 16 April 2010.

The fourth interim dividend for the year ended 31 March 2010 of Euro 0.08 (2009: Euro 0.08) per share was declared on 9 June 2010 and an amount of Euro 2,131,573 was paid on 30 June 2010.

A dividend of Euro 0.145 (2009: Euro 0.08) per share was declared on 3 September 2010 as a first interim dividend for the year ended 31 March 2011 and an amount of Euro 3,863,475 was paid to shareholders on 22 October 2010. This dividend was paid in respect of the period from 1 April 2010 to 15 September 2010.

Under Guernsey Law, companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed under The Companies (Guernsey) Law, 2008. The solvency test considers whether a company is able to pay its debts when they become due and whether the value of a company's assets are greater than its liabilities. The Company passed the solvency test for each dividend payment for the period ended 30 September 2010.

It is the Directors intention to declare an interim ordinary dividend in respect of the period from 16 September 2010 to 31 December 2010.

The Group's objective is to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends.

Preference Dividends

The Preference Shareholders are entitled to a Preference Dividend equal to 8% per annum of the Preference Share Notional Value. The Preference Dividend will be accrued at each valuation point and paid quarterly. Dividends owing to Preference Shareholders are shown as a Finance Cost in the Condensed Consolidated Statement of Comprehensive Income on an accrual basis.

The Preference Dividend in respect of the period from 15 September 2010 (the date when the Preference Shares were issued) to 30 September 2010 amounting to Euro 164,311 has been accrued for in these financial statements and will be paid with the Preference Dividend for 31 December 2010.

8. Profit/(loss) per Ordinary share

	Period ended 30 September 2010	Period ended 30 September 2009
	Euro		Euro
The calculation of the basic and diluted earnings per share is based on the following data:
Profit/(loss) for the purposes of basic earnings per Ordinary Share being net loss attributable to equity holders	5,853,826		(1,388,227)

Weighted average number of Ordinary Shares for the purposes of basic earnings per share	27,736,651		26,644,657

Effect of dilutive potential Ordinary Shares:
Share options	-		-

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share	27,736,651		26,644,657

There is no dilution as at 30 September 2010 or 30 September 2009, as the share price was below the option price for the period.

9. Subsidiary

Trebuchet Finance Limited was incorporated in Ireland on 19 May 2005 and, pursuant to the Articles of Association of Trebuchet Finance Limited, the Group has the right to appoint a majority of the Board of Directors of Trebuchet Finance Limited. Two of the Directors of the Company have been appointed Directors of Trebuchet Finance Limited.

To ensure that the Group will be able to maintain a majority of the Board of Directors of Trebuchet Finance Limited in the future, the Company has been allotted a single share in Trebuchet Finance Limited carrying the right to appoint a majority of the Board of Directors. Trebuchet Finance Limited was established for the sole purpose of acquiring and holding interests in certain assets.

10. Investments

The following is a summary of the Group's investments:

	30 September 2010	31 March 2010
	Euro	Euro
Securities at fair value through profit or loss	100,599,597	91,568,184
Options purchased held for trading	1,876,471	301,610
Options written held for trading	(445,072)	(51,310)
	102,030,996	91,818,484

	Period ended 30 September 2010	Year ended 31 March 2010
	Euro	Euro
Movement in Asset-backed securities
Opening cost	238,331,927	250,110,675
Purchases	21,491,574	12,415,474
Sales Proceeds	(10,843,242)	(14,166,837)
Realised gain/(loss)	2,027,787	448,834
Principal payups	2,220,417	5,788,194
Principal paydowns	(6,927,492)	(16,264,413)
Closing cost	246,300,971	238,331,927
Cumulative unrealised losses	(145,701,374)	(146,763,743)
Securities at fair value	100,599,597	91,568,184

Concentration of credit risk

The Group is subject to concentration of credit risk in that the four largest structures within the asset backed securities portfolio comprise approximately 63% (31 March 2010: 48%) of the total assets. One of the structures, comprising approximately 9% of its asset-backed securities portfolio has had a temporary suspension in cash flows as a result of prepayment rate triggers being breached (31 March 2010: 21%).

The following options contracts were open as at 30 September 2010:

Counterparty	Expiration	Description	Currency	Notional Amount	Strike price	Unrealised Gains/(Losses) Euro
Goldman Sachs	31 Dec 2011*	EUR Call GBP Put	Euro	10,000,000	0.9315	(1,094,780)
JP Morgan	31 Dec 2010	EUR Call GBP Put	Euro	10,000,000	1.300	(10,000)
JP Morgan	31 Dec 2011	EUR Call GBP Put	Euro	14,000,000	0.9315	(247,424)
Goldman Sachs	31 Dec 2011	EUR Call GBP Put	GBP	14,000,000	1.300	6,820
Goldman Sachs	30 Sep 2017	EUR Put GBP Call	GBP	12,500,000	0.8333	(359,382)
Goldman Sachs	31 Dec 2010	EUR Call GBP Put (Written option)	Euro	10,000,000	1.300	161,970
JP Morgan	31 Dec 2010	EUR Call GBP Put (Written option)	Euro	10,000,000	0.9315	182,110
JP Morgan	31 Dec 2011	EUR Call GBP Put (Written option)	Euro	14,000,000	1.300	29,262
Goldman Sachs	31 Dec 2011	EUR Call GBP Put (Written option)	GBP	14,000,000	0.9315	(144,465)
Net unrealised loss on options contracts						(1,475,889)
Premium on options contracts						2,907,288
Options at fair value						1,431,399

The following options contracts were open as at 31 March 2010:

Counterparty	Expiration	Description	Currency	Notional Amount	Strike price	Unrealised Gains/(Losses) Euro
Goldman Sachs	29 Dec 2011*	EUR Call GBP Put	Euro	10,000,000	0.9315	(840,390)
Goldman Sachs	29 Dec 2010	EUR Call GBP Put (Written option)	Euro	10,000,000	1.300	118,690
Net unrealised loss on options contracts						(721,700)
Premium on options contracts						972,000
Options at fair value						250,300

* On 6 April 2010, the Group extended the maturity to 31 December 2011.

11. Other assets

	30 September 2010	31 March 2010
	Euro	Euro
Interest receivable on investment portfolio	1,194,722	877,917
Lehman Claim*	-	328,230
Interest receivable on cash and cash equivalents	211,928	170,705
	1,406,650	1,376,852

* Since 31 March 2010, the Lehman claim was sold for Euro 328,230.

The Directors consider that the carrying amount of other assets approximates their fair value.

12. Derivative contracts

The following interest rate and balanced guaranteed interest rate swaps were unsettled at 30 September 2010:

Termination Date	Counterparty	Initial Notional Amount (GBP)	Unrealised Gain Euro
25 January, 2013	Goldman Sachs	451,431	20,052
15 October, 2011	Goldman Sachs	5,500,000	111,359
15 November, 2011	Goldman Sachs	1,300,000	25,629
25 January, 2013	Goldman Sachs	1,226,713	79,984
15 October, 2011	Goldman Sachs	3,000,000	74,053
12 September, 2011	Goldman Sachs	1,700,000	36,038
27 March, 2011	Goldman Sachs	17,348,100	313,729
15 February, 2011	Goldman Sachs	8,282,152	143,858
15 January, 2011	Goldman Sachs	26,198,025	485,719
			1,290,421

The following interest rate and balanced guaranteed interest rate swaps were unsettled at 31 March 2010:

Termination Date	Counterparty	Initial Notional Amount (GBP)	Unrealised Gain/(Loss) Euro
25 January, 2013	Goldman Sachs	451,431	21,760
15 October, 2011	Goldman Sachs	5,500,000	163,068
15 November, 2011	Goldman Sachs	1,300,000	37,473
25 January, 2013	Goldman Sachs	1,226,713	65,943
15 October, 2011	Goldman Sachs	3,000,000	88,536
12 September, 2011	Goldman Sachs	1,700,000	45,234
27 March, 2011	Goldman Sachs	17,348,100	642,940
15 February, 2011	Goldman Sachs	9,700,584	330,394
15 January, 2011	Goldman Sachs	27,568,395	1,026,535
			2,421,883

The following foreign exchange forward contracts were unsettled at 30 September 2010 (31 March 2010: Nil):

Maturity Date

Amount Bought

Amount Sold

Unrealised Loss

Euro

10 December 2010

GBP 7,000,000

Euro 8,189,769

(109,917)

13. Loans

	30 September 2010	31 March 2010
	Euro	Euro
Loans	-	8,642,967

On 6 April 2010 the Company repaid the remaining EUR 8,642,967 and all interest due, terminating any further liabilities under the loan facility.

14. Segmental Reporting

The Group has adopted IFRS 8 'Operating Segments'. The standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes.

The Board of Directors is charged with setting the Group's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to its Investment Manager but retain responsibility to ensure that adequate resources of the Group are directed in accordance with their decisions. The investment decisions of the Investment Manager are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board. The Investment Manager has been given full authority to act on behalf of the Group, including the authority to purchase and sell securities and other investments on behalf of the Group and to carry out other actions as appropriate to give effect thereto.

Whilst the Investment Manager may make the investment decisions on a day to day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Manager. The Board retains full responsibility as to the major allocation decisions made on an ongoing basis.

The Group has two reportable segments, being the Investment Grade Bond Portfolio and the Residuals Income Portfolio. For each of the sub-portfolios, the Board of Directors reviews internal management reports on a quarterly basis. The Chairman's Statement and Investment Manager's Report further break down the Residuals Portfolio into European Mortgages, UK Mortgages and SMEs. Each of these residuals is individually monitored by the Investment Manager and performance analysed separately but all are managed as one sub portfolio. When assets are purchased it does not matter what type of asset it is only whether the asset is suitable for the Group's requirements.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit/loss, as included in the internal management reports that are reviewed by the Board of Directors. Segment profit/loss is used to measure performance as management believes that such information is the most relevant in evaluating the results. Segment information is measured on the same basis as that used in the preparation of the Group's financial statements

	Real Estate Debt Bonds	Residual Income Portfolio	Total
Period Ended 30 September 2010	Euro	Euro	Euro
Reportable segment profit	4,414,725	5,126,384	9,541,109

Period Ended 30 September 2009
Reportable segment profit	794,341	2,942,821	3,737,162

	Real Estate Debt Bonds	Residual Income Portfolio	Total
As at 30 September 2010	Euro	Euro	Euro
Reportable segment assets	38,706,810	64,377,930	103,084,740

As at 31 March 2010
Reportable segment assets	14,088,157	80,779,827	94,867,984

There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss since 31 March 2010.

All segment revenues are from external sources. There are no inter-segment transactions between the reportable segments during the year.

Certain income and expenditure is not considered part of the performance of an individual segment. This includes net foreign exchange gains/loss, expenses and interest on borrowings. The following table provides a reconciliation between net reportable income and operating profits.

	Period Ended 30 September 2010		Period Ended 30 September 2009
		Euro	Euro

Reportable Segment profit/(loss)		9,541,109	3,737,162
Interest income from loans and receivables		4,173	5,874
Net foreign exchange losses		(843,051)	(40,163)
Net losses on options		(754,189)	(2,779,923)
		7,948,042	922,950

Expenses		(1,922,995)	(1,951,601)
Finance costs		(171,221)	(359,576)
Total profit/(loss)		5,853,826	(1,388,227)

Certain assets and liabilities are not considered to be attributable to a particular segment, these include, other receivables and prepayments, cash and cash equivalents, and derivative financial assets - options held for trading.

The following table provides a reconciliation between net total segment assets and total assets.

	As at 30 September 2010		As at 31 March 2010
		Euro	Euro

Total segment assets		103,084,740	94,867,984
Other receivables and prepayments		211,928	498,935
Cash and cash equivalents		29,111,868	15,718,951
Derivative financial assets - options held for trading		1,431,399	250,300
		133,839,935	111,336,170

The following is a summary of the movements in the Group's investments analysed by the residual portfolio and the Investment Grade Portfolio:

Period Ended 30 September 2010	Real Estate Debt Bonds	Residual Income Portfolio	Total
	Euro	Euro	Euro
Asset-backed securities

Opening cost	14,065,417	224,266,510	238,331,927
Purchases	21,491,574	-	21,491,574
Sales proceeds	(1,243,242)	(9,600,000)	(10,843,242)
Realised gain/(loss)	397,763	1,630,024	2,027,787
Principal payups	494,305	1,726,112	2,220,417
Principal paydowns	(399,994)	(6,527,498)	(6,927,492)
Closing cost	34,805,823	211,495,148	246,300,971
Unrealised gains/(losses)	2,895,440	(148,596,814)	(145,701,374)
Asset-backed securities at fair value	37,701,263	62,898,334	100,599,597

Year Ended 31 March 2010	Real Estate Debt Bonds	Residual Income Portfolio	Total
	Euro	Euro	Euro
Asset-backed securities

Opening cost	7,229,936	242,880,739	250,110,675
Purchases	12,415,474	-	12,415,474
Sales proceeds	(5,418,136)	(8,748,701)	(14,166,837)
Realised gain/(loss)	1,225,098	(776,264)	448,834
Principal payups	-	5,788,194	5,788,194
Principal paydowns	(1,386,955)	(14,877,458)	(16,264,413)
Closing cost	14,065,417	224,266,510	238,331,927
Unrealised losses	(450,184)	(146,313,559)	(146,763,743)
Asset-backed securities at fair value	13,615,233	77,952,951	91,568,184

In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the countries of the underlying collateral. The SMEs and ABS Bonds have cross border exposures and so these have been grouped into a combined 'Europe' segment, exposures in this segment include UK, Germany, Italy, Spain, Switzerland, The Netherlands. It is not possible to split the reporting further without significant cost with limited benefit to the user of the accounts.

	Segmental Revenues			Segmental Assets
	Period ended 30 September 2010	Period ended 30 September 2009		As at 30 September 2010		As at 31 March 2010
	Euro	Euro		Euro		Euro
Italy	(2,652,584)	2,621,719		5,731,140		8,383,724
Portugal	1,266,378	(4,255,900)		29,254,190		33,197,921
United Kingdom	4,187,641	4,354,458		10,893,049		10,742,343
Europe	6,739,674		1,016,885		57,206,361		42,543,996
	9,541,109		3,737,162		103,084,740		94,867,984

15. Other liabilities

	30 September 2010	31 March 2010
	Euro	Euro

Interest payable	-	42,778
Dividend owing to preference shareholders	164,307	-
Due to related parties - Investment Manager (Note 19)	161,041	147,854
Payable for investments purchased	3,773,045	-
Accrued expenses	2,017,477	1,041,157
	6,115,870	1,231,789

Other liabilities principally comprise amounts outstanding in respect of interest payable and ongoing costs. The Directors consider the carrying amount of other liabilities approximates their fair value.

16. Share capital

The capital structure of the Company consists of cash and cash equivalents and equity attributable to equity holders, comprising issued share capital (Ordinary), liabilities due to Preference Shareholders and reserves, as disclosed on the Condensed Consolidated Statement of Financial Position.

The Company does not have any externally imposed capital requirements. At 30 September 2010 the Company had capital of Euro 67,437,791 (31 March 2010: Euro 99,329,841).

The investment objective is to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends. The Group will seek to achieve this objective by investing primarily in debt secured by commercial or residential properties in Western Europe and the United Kingdom.

The Group's dividend policy has been amended so that available income is first used to pay any Preference Dividend that is due and payable and then, if the Directors in their sole discretion so resolve, to Ordinary Shareholders.

Authorised shares
	30 September 2010	30 September 2010	31 March 2010	31 March 2010
	Number of Ordinary Shares	Euro	Number of Ordinary Shares	Euro
Ordinary Shares of no par value each	Unlimited	-	Unlimited	-

Issued and fully paid	30 September 2010	30 September 2010	31 March 2010	31 March 2010
	Number of Ordinary Shares	Euro	Number of Ordinary Shares	Euro
Balance at beginning of period/year	26,644,657	-	26,644,657	-
Ordinary Shares issued during the period	13,322,328	-	-	-
Balance at end of period/year	39,966,985	-	26,644,657	-

In terms of the Placing and Open Offer, the ordinary shares were issued at Euro 2.00 per share.

No ordinary shares were bought back or cancelled during the period.

The Company made a Bonus Issue to Ordinary Shareholders of Preference Shares pro rata to their holding of Ordinary Shares following the completion of the Placing and Open Offer.

Preference Shares Issued and fully paid
	30 September 2010	30 September 2010	31 March 2010	31 March 2010
	Number of Preference Shares	Euro	Number of Preference Shares	Euro
Balance at beginning of period	-	-	-	-
Preference Shares issued during the period	49,958,704	57,665,484	-	-
Issue costs allocated to Preference Shares	-	(1,352,602)	-	-
Balance at end of period	49,958,704	56,312,882	-	-

During the period ending 30 September 2010 49,958,704 Preference Shares were issued with a par value of £1 (EUR 1.154) per share. All issued shares are fully paid. Expenses arising as a result of the Bonus Issue have been allocated to the Ordinary and Preference Shareholders based on a pro-rata allocation. Expenses borne by the Preference Shareholders will be amortised over the life of the Preference Shares, being seven years. The initial recognised fair value of the Preference Shares has been reduced by the amount of expenses accrued at 30 September 2010.

The holders of Preference Shares are entitled to receive dividends of 8% per annum of the Preference Share Notional Value. Preference shares do not carry the right to vote. The holders of Preference Shares participate only to the extent of the face value of the shares. The Preference Shares are classified as liabilities.

The Preference Shares shall be redeemed by the Company in the following circumstances:

a) at any time, by way of the purchase of any such Preference Shares by the Company through the facilities of the London Stock Exchange; or

b) upon a change of control of the Company (defined as the acquisition by a single person or persons acting in concert of more than 50% of the voting rights attached to the Ordinary Shares), but only if a majority of Preference Shareholders attending and voting at a special class meeting of Preference Shareholders (which shall be convened within 60 days of the change of control) so resolve by way of an ordinary resolution, at a price equal to the Repayment Amount; or

c) if more than 75% of the Preference Shares have been redeemed before the expiration of the seven year period referred to under paragraph (d) below, by way of a mandatory redemption programme launched by the Company at its sole discretion, at a price equal to the higher of (i) the Repayment Amount, or (ii) the average mid-market closing price over the five Business Days prior to the announcement of the launch of such programme; or

d) if not redeemed earlier pursuant to paragraphs (a), (b) or (c) above, on a date that is seven years after their issue at the Repayment Amount.

17. Reserves

		30 September 2010
	Accumulated Reserves		Capital Reserves	Total Reserves
	Euro		Euro	Euro
Balance at start of period	91,657,341		7,672,500	99,329,841
Net profit for the period	5,853,826		-	5,853,826
Issue of Ordinary Shares of the Company	26,644,656		-	26,644,656
Issue of Preference Shares of the Company	(57,665,484)		-	(57,665,484)
Ordinary Shares issuance expenses	(730,000)		-	(730,000)
Distribution to the Ordinary Shareholders of the Company	(5,995,048)		-	(5,995,048)
Balance at end of period	59,765,291		7,672,500	67,437,791

		31 March 2010
	Accumulated Reserves	Capital Reserves	Total Reserves
	Euro	Euro	Euro
Balance at start of year	97,912,591	7,672,500	105,585,091
Net profit for the year	2,271,042	-	2,271,042
Distribution to the Ordinary Shareholders of the Company	(8,526,292)	-	(8,526,292)
Balance at end of year	91,657,341	7,672,500	99,329,841

As the Ordinary Shares of the Company have no par value and since the Group is not required to maintain separate classes of reserves, the proceeds from the open offer have been classified as reserves.

18. Notes to cash flow statement

	Note	Period ended 30 September 2010	Period ended 30 September 2009
		Euro	Euro
Net profit/(loss)		5,853,826	(1,388,227)
Adjustments for:
Net realised (gains)/losses on sale of investments	4	(2,027,787)	181,039
Net unrealised (gains)/losses on investments at fair value through profit or loss	4	(1,062,369)	4,004,323
Unrealised losses on interest rate swap agreements	4	1,131,462	343,523
Unrealised losses/(gains) on foreign bank balances	4	685,683	(111,185)
Unrealised losses on options	4	754,189	2,001,187
Unrealised losses on foreign exchange contracts	4	109,917	-
		5,444,921	5,030,660

Purchases of investments	10	(17,718,529)	(3,975,513)
Sales proceeds from investments	10	10,843,242	-
Purchase of options		(2,439,237)
Options Written		503,949	978,603
Principal paydowns	10	6,927,492	7,825,442
Principal payups	10	(2,220,417)	(2,975,991)
		(4,103,500)	1,852,541

(Increase)/Decrease in receivables		(29,798)	48,707
Increase in payables		1,111,036	855,484
		1,081,238	904,191
Net cash inflow from operating activities		2,422,659	7,787,392

Purchases and sales of investments are considered to be operating activities of the Group, given its purpose, rather than investing activities. Cash and cash equivalents includes amounts held in interest bearing accounts and overdraft facilities.

19. Material agreements and related party transactions

Investment Manager

The Company and Trebuchet Finance Limited are parties to an Investment Management Agreement with the Investment Manager, dated 8 December 2005, pursuant to which each of the Company and Trebuchet Finance Limited has appointed the Investment Manager to manage their respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of their respective Boards of Directors.

The Group pays the Investment Manager a Management Fee and Incentive Fee (see Note 6). During the period ended 30 September 2010, the Management Fee totalled Euro 905,131 (period ended 30 September 2009: Euro 891,730) of which Euro 161,041 (31 March 2010: Euro 147,854) was outstanding at the period end, and the Incentive Fee totalled Euro Nil (2009: Euro Nil).

Management Fee

Under the terms of the Investment Management Agreement, the Investment Manager was entitled to receive from the Group an annual Management Fee of 1.75 per cent of the net asset value of the Group other than to the extent that such value was comprised of any investment where the underlying asset portfolio was managed by the Investment Manager (as is the case with Cheyne Finance plc, Cheyne High Grade ABS CDO Ltd. and Cheyne CLO Investments I Limited).

Following completion of the Bonus Issue of Preference Shares, the Group amended the calculation of the Management Fee set out above so that the Management Fee payable will be equal to 1.75 per cent. per annum of the Adjusted NAV of the Company other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager. The Adjusted NAV will be equal to the prevailing NAV calculated in accordance with the Company's accounting policies increased by an amount equal to the number of Preference Shares in issue (excluding Preference Shares held in treasury) multiplied by the Preference Share Notional Value. The Management Fee is calculated and payable monthly in arrears.

Incentive Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive an incentive compensation fee in respect of each incentive period that is paid quarterly in arrears. An incentive period will comprise each successive quarter, except the first such period was the period from admission to the London Stock Exchange to 31 March 2006. The Incentive Fee for each incentive period is an amount equivalent to 25 per cent of the amount by which A exceeds (B ´ C) where:

A =	The Group's consolidated net income taking into account any realised or unrealised losses (but only to the extent they have not been deducted in a prior incentive period) and excluding any gains from the revaluation of investments, as shown in the Group's latest consolidated management accounts for the relevant quarter, before payment of any Incentive Fee;
B =	An amount equal to a simple interest rate equal to two per cent per quarter, subject to the reset mechanic described below (the "Hurdle Rate"); and
C =	The weighted average number of Shares outstanding during the relevant quarter multiplied by the weighted average offer price of such Shares.

For the purposes of calculating the Incentive Fee, the Hurdle Rate will be reset on 1 April 2011, and on each 1 April thereafter to equal the greater of (i) a simple interest rate equal two per cent per quarter, or (ii) one quarter of the sum of the then-prevailing yield per annum on ten-year German Bunds and 300 basis points. While the Group will not pay a Management Fee in respect of that portion of its portfolio that is comprised of investments where the Investment Manager receives fees for its management of the underlying asset portfolio, the income from such investments are included in the consolidated net income of the Group for the purpose of calculating the Incentive Fee.

There was no incentive fee charged during the period ended 30 September 2010 or 30 September 2009.

Administration Fee

Under the terms of the Administration Agreement, the Administrator is entitled to receive from the Group an administration fee of 0.125 per cent of the gross asset value of the Group up to Euro 80,000,000 and 0.0325 per cent of the gross asset value of the Group greater than Euro 80,000,000. State Street Fund Services (Ireland) Limited, the sub-administrator, is paid by the Administrator.

Custodian Fee

Under the terms of the Custodian Agreement, the Custodian is entitled to receive from the Group a custodian fee of 0.03 per cent of the gross asset value of the Group up to Euro 80,000,000 and 0.02 per cent of the gross asset value of the Group greater than Euro 80,000,000 plus additional fees in relation to transaction fees, statutory reporting, corporate secretarial fees and other out of pocket expenses.

Investment Manager Options

In recognition of the work performed by the Investment Manager in raising capital for the Group, the Group granted to Cheyne Global Services Limited on 8 December 2005 options representing the right to acquire 2,250,000 Shares, being 10 per cent of the number of Offer Shares (that is, excluding the Shares issued to Cheyne ABS Opportunities Fund LP and the Shares issued to the Directors), at an exercise price per share equal to the Offer Price (Euro 10). The Investment Manager Options are fully vested and immediately exercisable on the date of admission to the London Stock Exchange and will remain exercisable until the 10th anniversary of that date.

The Group may grant further Investment Manager Options in connection with any future offering of Shares. Such options, if any, will represent the right to acquire Shares equal to not more than 10 per cent of the number of Shares being offered in respect of that future offering and will have an exercise price equal to the offer price for that offering. The aggregate fair value of the options granted at the time of the Initial Public Offering using a Black-Scholes valuation model was Euro 7,672,500 (reflecting a valuation of Euro 3.41 per option). This amount has been treated as a cost of the Initial Public Offering. As at 30 September 2010, these options were out of the money as the share price was below the Offer Price of Euro 10.

Controlling Party

Cheyne ABS Opportunities Fund, a Company that is also managed by Cheyne Asset Management (UK) LLP, has a controlling interest in the Company.

20. Significant Events during the period

On 15 September 2010, the Company's shareholders approved a 1 for 2 Placing and Open Offer of ordinary shares at EUR 2.00 per share. In conjunction with the Placing and Open Offer, the Company has issued a bonus 8% seven year Preference Share, denominated in GBP, to qualifying shareholders. The Bonus Issue amounted to 1.25 Preference Shares for every Ordinary Share held. The Company intends to use the proceeds of the offer to invest in European real estate debt investments. Accordingly, the Company changed its name to Real Estate Credit Investments Limited to reflect its change in investment policy which is now toaimed to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends. The Group will seek to achieve this objective by investing primarily in debt secured by commercial or residential properties in Western Europe and the United Kingdom ("Real Estate Debt Investments").

The Group has amended its dividend policy. The Group's dividend policy was to pay out a majority of its net income (but excluding any realised or unrealised surpluses from the sale, realisation or revaluation of investments held directly by the Company) to Ordinary Shareholders in the form of quarterly dividends, subject to having distributable profits available for this purpose and any Financial Services Authority or other legal limitations. Following completion of the Bonus Issue of Preference Shares, the Company currently intends that available income is first used to pay any Preference Dividend that is due and payable and then, if the Directors in their sole discretion so resolve, to pay dividends to Ordinary Shareholders. It is expected that any future dividends payable to Ordinary Shareholders, following payment of any Preference Dividend, will be substantially reduced as compared to the dividends that have been previously paid in respect of the Ordinary Shares.

However, the Directors do currently intend that the Company continues to pay a dividend to Ordinary Shareholders when it is able and appropriate to do so. The Company further intends, subject to the performance of the Investment Portfolio, that the amount of dividends paid, if any, to Ordinary Shareholders following the change to the dividend policy should be adjusted from time to time in line with any increase or decrease in interest income from the Investment Portfolio, subject to applicable law and regulation.

On 6 April 2010, the Company paid back Euro 8,642,967 and all interest due on the loan, terminating any further liabilities under the loan facility.

21. Subsequent Events

There have been no events subsequent to 30 September 2010 which require adjustment of or disclosure in the quarterly report or notes thereto.

22. Foreign Exchange Rates

The following Foreign Exchange rates relative to the Euro were used as at 30 September 2010:

British Pound 0.86635

US Dollar 1.36520

The following Foreign Exchange rates relative to the Euro were used as at 30 September 2009:

British Pound 0.91393

US Dollar 1.46170

23. Approval of the Financial Statements

The financial statements were approved by the Directors on 29 November 2010.

[1] The Real Estate Debt portfolio includes one bond collateralised by SME loans accounting for 2.6% of the portfolio

[2] Cost and nominal shown is original notional using pool factor and FX rate at 30 September 2010.

[3] Cost and nominal shown is original notional using pool factor and FX rate at 15 November 2010.

[4] The table includes the bonds at their fair value at 15 November 2010.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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