Second Quarter Results

RNS Number : 9276S

Real Estate Credit Inv. PCC Ltd

29 November 2011

 



Real Estate Credit Investments PCC Limited

Financial Results Announcement for the Second Quarter Ended 30 September 2011

and Interim Report and Accounts

RECI[1] Second Quarter Highlights

·     On 11 August 2011 Real Estate Credit Investments Ltd converted into a protected cell company ("Real Estate Credit Investments PCC Ltd" or "RECI PCC"), retaining the real estate debt portfolio in the Core ("RECI") and moving the legacy residual income assets into the Cell ("ERII")

·     RECI recorded a net loss of €10.8 million in the second quarter following mark-to-market losses on the investment portfolio; a reflection of lower bond prices and volatility surrounding the Eurozone debt crisis

·     8% increase in operating income from €1.9 million to €2.1 million

·     Bond portfolio has nominal value of £125.9 million versus market value of £74.7 million as of 15 November 2011

·     Strong cash balance of €18.3 million as of 30 September, up from €4.6 million as of 30 June

·     Declaring a dividend of 0.86p per share in respect of RECI Ordinary Shares

RECI Key Second Quarter Financial Data*	30 June 2011	30 September 2011
Gross Assets	€120.6mm	€113.6mm
Real Estate Debt Portfolio	€99.4mm	€90.2mm
Operating Income	€1.9mm	€2.1mm
Fair Value Losses / Gains on Investment Portfolio	€1.8mm	€-10.8mm
Net Profit / Loss**	€1.5mm	€-10.8mm
Net Asset Value per Share	€1.55	€1.26

*Numbers differ to financial statements: 30 June 2011 P&L and balance sheet figures are pro forma as the split of the Core and Cell did not occur until 11 August 2011.  The 30 September 2011 P&L figures are pro-forma, as in the financial statements the Core figures reported include the P&L on the residual income positions up to the 11 August 2011 conversion.** Net profit takes operating and finance expenses into account.

RECI reinforces its defensive stance; well positioned for new investments

RECI has reinforced the defensive stance of its real estate debt portfolio and retains full confidence in the fundamental investment case of the real estate debt market. The Company has made fewer and more defensive asset purchases than in previous quarters, and has reduced its exposure to a fall in UK commercial property prices in 2012 by entering into a hedge on the UK commercial property index.

RECI has also materially increased the proportion of cash on the balance sheet. Strong cash balances will allow RECI to take advantage of potential buying opportunities towards the end of 2011 and early in 2012.  Market reactions to the Eurozone debt crisis have exaggerated price dislocations in the real estate securities markets and the Company expects to be able to make new investments at attractive prices.

On 3 October 2011 the trading denomination of the Company was changed from Euro to Sterling. From this date RECI will hedge its non-sterling currency exposure.   The redenomination to Sterling aligns the Company to broader investor demand.  At the EGM on 21 October 2011, the investors approved a resolution allowing the Company to buy back preference, cell and ordinary shares for the subsequent twelve month period.

Confidence in portfolio

Tom Chandos, Chairman of RECI PCC said: "In a tough trading environment it is vital that RECI retains a focus on its long term strategy while maintaining a defensive bias on investment decisions. With low loan-to-value ratios, backing of high quality assets and primary exposure to UK and Germany, RECI has full confidence in the fundamental strength of its real estate bond portfolio."

Conference Call & Further Information

10.30 am BST Tuesday 29 November 2011.

+ 44 (0)20 7153 8942. Please reference Real Estate Credit Investments.  

A results presentation will be available on the Real Estate Credit Investment website:

www.recreditinvest.com/investmentmanager

A webcast of the conference call will also be available on a listen-only basis at:

www.recreditinvest.com/investmentmanager

For further information please contact:

Public Relations:                              Henrietta Dehn                                                [phone]

Investor Relations:                         Nicole von Westenholtz                               [phone]

About the Company

Real Estate Credit Investments PCC Limited is a protected cell company ("RECI PCC" or the "Company"), being a cellular company governed by the Companies (Guernsey) Law 2008, each cell having its own portfolio of assets, investment objective and sub-section of the Company's Investment Policy.

The RECI ordinary shares (ticker RECI) reflect the performance of the Company's Core real estate debt strategy.  RECI ordinary shares offer investors a levered exposure to a portfolio of real estate credit investments and aim to pay a quarterly dividend.   Such leverage is provided by the RECI preference shares (ticker RECP) which confer the right to a preferential cumulative preference dividend (which is an amount in Sterling equal to 8 per cent per annum of the Preference Share Notional Value) payable quarterly on each Payment Date. Both the RECI ordinary shares and the RECI preference shares are currently listed on the premium segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange plc.

The real estate debt strategy focuses on secured residential and commercial debt in the UK and Western Europe, seeking to exploit opportunities in publicly traded securities and real estate loans.  In making these investments the Company uses the expertise and knowledge of its investment manager, Cheyne Capital Management (UK) LLP. The Company has adopted a long term strategic approach to investing and focuses on identifying value. 

The cell within the Company is known as 'European Residual Income Investments Cell' or 'ERII' (ticker ERII). The cell shares trade on the Specialist Fund Market of the London Stock Exchange plc. Seven Residual Income Positions are attributed to ERII.  Dividends or distributions will only be payable from ERII to the extent that the asset cover ratio (the Preference Share Cover Test) for the RECI preference shares at the Company level is satisfied. 

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "forecasts", "estimates", "anticipates", "expects", "intends", "considers", "may", "will" or "should". By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. The Company's actual results and performance may differ materially from the impression created by the forward-looking statements and should not be relied upon. The Company undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). In this section, unless otherwise defined, capitalised terms have the meaning given to them in the Company's prospectus dated 11 July 2011.

Real Estate Credit Investments (RECI LN)

RECI Financial Summary (Pro-forma)

Numbers differ to financial statements: 30 June 2011 P&L and balance sheet figures are pro-forma as the split of the Core and Cell did not occur until 11 August 2011.  The 30 September 2011 P&L figures are pro-forma, as in the financials the Core figures reported include the P&L on the residual income positions up to the 11 August 2011 conversion.)

€mm	Total Quarter ended 30 June 2011	Total Quarter ended 30 September 2011
Operating Income	1.9	2.1
Gains and losses on fair value through profit or loss financial instruments*	0.5	(8.3)
	2.4	(6.2)
Operating Expenses	(0.9)	(0.7)
Finance Costs**	(0.0)	(3.9)
Net profit / (loss)	1.5	(10.8)
Total Assets	120.6	113.6
Total Liabilities	58.6	63.3
Equity Capital	62.1	50.3
NAV per share	1.55	1.26
Shares Outstanding	39,966,985	39,966,985

*Includes FV movements on hedges

**Net finance costs include FX movement on the preference shares.

Investment Portfolio[2]

A breakdown of RECI's investment portfolio as at 30 June 2011 and 30 September 2011 by jurisdiction (by reference to underlying asset originator) is set out below.

30 June 2011

UK	55.3%
Germany	33.2%
Ireland	4.7%
Holland	3.8%
Portugal	1.9%
Italy	1.0%
Switzerland	0.1%
Total (€mm)	£89.7mm

30 September 2011

UK	57.8%
Germany	33.9%
Holland	3.8%
Portugal	1.9%
Ireland	1.3%
Italy	1.1%
Switzerland	0.1%
Total (€mm)	£77.7mm

Values may not sum to 100% due to rounding differences

Investment Portfolio Review

RECI recorded losses on the investment portfolio of £9.3 million (€10.8 million) for the quarter ended 30 September 2011, driven by a softness in market prices.  Overall the value of the bond portfolio fell by 9.2%. These losses came at a time of substantial falls across equity and credit markets, amid growing concerns about re-structuring of Eurozone sovereign debt.  Over the three-month period the FTSE 100 fell by 14.4% and the ITraxx Crossover Index by 12.1%. 

Against this backdrop RECI's team has been reinforcing the defensive stance of the investment portfolio.  RECI made fewer new bond purchases during the second quarter - a total of £8.4 million (€9.6 million) versus £37.4 million (€42.1 million) in the previous quarter.  The new investments were biased towards defensive bonds; of the 20 bonds purchased, 14 had an investment grade rating, with 6 rated single-A or above.  The weighted average expected yield to maturity of new investments was 16.3% and RECI purchased them at an average price of 64 pence. The Company also sold £8.4 million (€9.6 million) of bonds in the quarter.  As at 30 September 2011, the portfolio of 102 bonds was valued at £77.7 million (€90.2 million), with a nominal face value of £129.8 million (€150.7 million) [3].  The average purchase price of the portfolio was 69 pence with a weighted average expected yield to maturity of 12.9%. 

The Company has made further investments since the end of the second quarter.  Between 1 October 2011 and 15 November 2011, the Company invested £5.6 million at an average price of 82 pence and a weighted average expected yield-to-maturity of 10.2%.   RECI also sold £4.9 million of bonds during this period.  The Company prioritised sales of bonds which are more sensitive to market volatility, with longer WAL (weighed average life) and high beta characteristics.  As at 15 November 2011, the portfolio consisted of 106 bonds with a fair value of £74.7 million and a nominal face value of £125.9 million[4].

On 4 October 2011, the Company purchased a £16.0 million short forward position on the IPD index.  The Company will receive the difference between the value of the IPD index between 31 December 2011 and 31 December 2012.  This hedge will be in the money should capital values of UK commercial property, as measured by the IPD index, fall by approximately 5.5% in the UK.  This hedge should provide some protection to RECI's portfolio of Class C and below bonds. 

Monthly Bond Performance Summary as at 15 November 2011

	June	July	August	September	October	November
% Fair Value Change	-0.47%	-1.53%	-4.27%	-4.67%	-1.37%	-0.25%
WA Purchase Price	0.80	0.69	0.73	0.61	-	0.82
WA Purchase Yield	11.23%	14.01%	13.00%	22.27%	-	10.22%

Ratings Distribution of Bond Portfolio by Fair Value

Bond Class	UK CMBS	UK RMBS	Euro CMBS	Euro RMBS	SME	Total	Total as at 30 September 11
A	5.4%	4.9%	10.5%	1.2%	0.0%	21.9%	21.8%
B	11.6%	12.6%	8.6%	0.3%	0.0%	33.1%	37.0%
C	4.4%	5.5%	3.5%	0.0%	0.0%	13.4%	13.4%
D	4.5%	2.4%	7.9%	0.2%	1.2%	16.2%	16.7%
E and Below	5.8%	3.9%	5.7%	0.0%	0.0%	15.4%	11.1%
Total	31.6%	29.3%	36.2%	1.7%	1.2%	100.0%
Total as at 30 Sep 11	29.1%	28.5%	38.1%	3.2%	1.2%

Current Rating	UK CMBS	UK RMBS	Euro CMBS	Euro RMBS	SME	Total	Total as at 30 September 11
AAA	0.0%	2.7%	0.0%	0.0%	0.0%	2.7%	0.0%
AA	3.1%	11.9%	1.1%	0.0%	0.0%	16.2%	17.5%
A	5.2%	5.7%	11.0%	0.3%	0.0%	22.2%	22.4%
BBB	5.7%	3.8%	9.5%	0.0%	1.2%	20.1%	24.2%
BB and Below	17.6%	5.2%	14.5%	1.5%	0.0%	38.8%	35.9%
Total	31.6%	29.3%	36.2%	1.7%	1.2%	100.0%
Total as at 30 Sep 11	29.1%	28.5%	38.1%	3.2%	1.2%	100%

Values may not sum to 100% due to rounding differences

Top 10 Bonds[5] as at 15 November 2011

Market Value                                    £27.3 million
WA Original LTV[6]                             49.0%
WA Cheyne Current LTV⁷             62.6%
WA Effective Yield[7]                       12.2%   

WA LTV and WA Effective Yield figures are calculated with original notional using pool factor and FX rate at 15 November 2011

Type	Class		Collateral Description
Commercial		A2	Portfolio of nursing homes operated by Four Seasons Health Care Group
Commercial		A	Senior most bond in a portfolio of 13 loans in Germany & Sweden
Commercial		A	Senior most bond in a portfolio of Karstadt retail stores in Germany
Commercial		A1	Portfolio of nursing homes operated by Four Seasons Health Care Group
Commercial		E	Portfolio of commercial loans secured by property in London
Residential		B	Portfolio of UK non-conforming mortgages
Residential		A	Portfolio of UK residential mortgages
Residential		B	Portfolio of UK buy-to-let mortgages
Commercial		D	Portfolio of Karstadt retail stores in Germany
Commercial		E	Portfolio of commercial loans secured by properties in Germany

Outlook for RECI

We are confident that the fundamental investment strategy behind RECI's core real estate debt portfolio will deliver results. With low loan-to-value ratios, backing of high quality assets and primary exposure to UK and Germany, the portfolio has always benefitted from a conservative profile. We are furthering the portfolio's defensive positioning in anticipation of further market turmoil in the short-term.

We are confident the portfolio will continue to generate cash. We have seen significant bond repayments in October and we expect further repayments throughout the coming quarters.

The Company anticipates new opportunities to buy high credit quality paper at attractive returns in the coming weeks or months.  RECI is well positioned to take advantage of this opportunity when it arises.

With many banks under pressure to reduce their risk weighted assets before year end by selling assets, we expect more opportunities to buy high credit quality paper at attractive returns. However, we will balance the timing of these purchases against the likelihood of continued market volatility stemming from the Eurozone sovereign debt restructuring.

While we are cognisant of mark-to-market volatility of the bonds, the structure of real estate bond markets has changed materially since the Lehman Brothers default. Current buyers of European real estate bonds tend to be unlevered and credit aware, while legacy holders of the bonds are in controlled amortisation. This change in market structure should result in a reduced likelihood of widespread forced selling in the real estate bond markets. 

European Residual Income Investments (ERII)

The ERII Cell was created on 11 August 2011, and contains the Company's legacy residual income positions.  It is the Company's objective, to the extent practicable, to liquidate this portfolio and return cash to share holders.  Dividends from ERII will be payable to shareholders as and when the asset coverage test is satisfied. For the period ended 30 September 2011 the asset coverage test was satisfied and a dividend of 2.6 cents was declared. The table below shows figures as at 30 September 2011.

Cash Balance	2,511,764
Residual Total Fair Value	19,532,464
Cash Flows in period ended 30 Sep	1,158,853
Asset Coverage Ratio	2.409
Dividend Declared for period ended 30 September 2011	2.6 cents per share

Investment Portfolio

European Mortgage Portfolio

The European Mortgage Portfolio generated cash flows of €0.4 million for the quarter ended 30 September 2011, compared to €0.5 million that the remaining positions paid in the previous quarter, and above forecasts of €0.3 million. Write-ups in the portfolio totalled €0.1 million and included a €0.2 million write down in the Sestante mortgage portfolio. 

The default rate of the Sestante mortgage portfolio has fallen.  We, however, maintain a conservative stance on the valuation given the transition to a different mortgage servicer is still underway.  ERII has one remaining Portuguese mortgage portfolio, the Magellan 1 portfolio, which we expect to perform satisfactorily despite continued pressures in Portugal.

SME Portfolio

The Company has increased the assumed loss rate of defaulted loans in the Smart 06-1 portfolio, resulting in a €0.9 million decrease in the fair value. Cash flows for Smart 06-1 in the quarter ended 30 September 2011 totalled €0.1 million, compared to €0.1 million the previous quarter.

UK Mortgage Portfolio

The UK Mortgage Portfolio recorded cash flows of £0.6 million in the quarter ended 30 September 2011 compared to £0.2 million in the previous quarter. 

There have been no material developments in relation to the Newgate 2006-1 litigation. 

			RECI Core	ERII Cell	Total		Total
			30-Sept-2011	30-Sept-2011*	30-Sept-2011		30-Sept-2010
	Note		Euro	Euro	Euro		Euro
Interest income			6,874,737	1,177,298	8,052,035		7,586,588
Net (losses)/gains on financial assets and liabilities at fair value through profit or loss	3		(5,005,322)	(591,373)	(5,596,695)		361,454
			1,869,415	585,925	2,455,340		7,948,042
Operating expenses	4		(1,896,741)	(87,167)	(1,983,908)		(1,922,995)
Profit/(loss) before finance costs			(27,326)	498,758	471,432		6,025,047
Finance costs	5		(3,911,705)	-	(3,911,705)		(171,221)
Net (loss)/profit			(3,939,031)	498,758	(3,440,273)		5,853,826
(Loss)/profit per Ordinary Share
Basic and Diluted	7		Euro (0.10)	Euro 0.01			Euro 0.21
Weighted average Ordinary Shares outstanding			Number	Number			Number
Basic and Diluted	7		39,966,985	39,966,985			27,736,651

* As disclosed in Note 1 and Note 14 to these financial statements, the Company converted to a Protected Cell Company during the period.  The ERII Cell financial statements relate to the period from 11 August 2011 (Date of Conversion) to 30 September 2011.

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

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

		RECI  Core	ERII  Cell	Total		Total
		30-Sept-2011	30-Sept-2011	30-Sept-2011		31-Mar-2011
	Note	Euro	Euro	Euro		Euro
Non-current assets
Investments at fair value through profit or loss	9	90,032,032	18,997,562	109,029,594		124,154,185
		90,032,032	18,997,562	109,029,594		124,154,185
Current assets
Cash and cash equivalents		18,300,147	2,511,764	20,811,911		6,681,974
Derivative financial assets - options held for trading		4,484,877	-	4,484,877		1,307,708
Derivative financial assets - unrealised gain on interest rate swap agreements		94,716	-	94,716		184,968
Derivative financial assets - unrealised gain on forward foreign exchange contracts		30,445	-	30,445		-
Other assets		649,991	844,262	1,494,253		2,576,332
		23,560,176	3,356,026	26,916,202		10,750,982
Total assets		113,592,208	22,353,588	135,945,796		134,905,167
Equity and liabilities
Equity
Reserves		50,289,166	21,745,190	72,034,356		76,593,705
		50,289,166	21,745,190	72,034,356		76,593,705
Current liabilities
Distribution payable		559,538	-	559,538		639,472
Derivative financial liabilities - options held for trading		2,767,006	-	2,767,006		237,249
Derivative financial liabilities - unrealised loss on forward foreign exchange contracts		-	-	-		92,684
Other liabilities		2,732,201	608,398	3,340,599		2,177,409
		6,058,745	608,398	6,667,143		3,146,814
Non-current liabilities
Preference shares	8	57,244,297	-	57,244,297		55,164,648
		57,244,297	-	57,244,297		55,164,648
Total liabilities		63,303,042	608,398	63,911,440		58,311,462
Total equity and liabilities		113,592,208	22,353,588	135,945,796		134,905,167
Shares outstanding		39,966,985	39,966,985			39,966,985
Net asset value per share		Euro 1.26	Euro 0.54			Euro 1.92

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

These financial statements were approved by the Board of Directors on 25 November 2011.

Signed on behalf of the Board of Directors by:

Director                                                                                  Director

			RECI  Core	ERII  Cell*	Total
	Note		Euro	Euro	Euro
Balance at 31 March 2011			76,593,705	-	76,593,705
Transfer of assets	1,13		(21,246,432)	21,246,432	-
Net loss for the period			(3,939,031)	498,758	(3,440,273)
Distribution to the Ordinary Shareholders	6		(1,119,076)	-	(1,119,076)
Balance at 30 September 2011			50,289,166	21,745,190	72,034,356

					Total
		Note			Euro
Balance at 31 March 2010					99,329,841
Net profit for the period					5,853,826
Issue of Ordinary Shares of the Company		8			26,644,656
Issue of Preference Shares of the Company		8			(57,665,484)
Share issuance expenses allocated to the Ordinary Shareholders		8			(730,000)
Distribution to the Ordinary Shareholders of the Company		6			(5,995,048)
Balance at 30 September 2010**					67,437,791

* As disclosed in Note 1 and Note 14 to these financial statements, the Company converted to a Protected Cell Company during the period.  The ERII Cell financial statements relate to the period from 11 August 2011 (Date of Conversion) to 30 September.

** In line with IAS 34, the comparative period for the Consolidated Statement of Changes in Equity is the six months ended 30 September 2010. The balance at that period end will not equate to the balance at 31 March 2011, the date of the comparative Consolidated Statement of Financial Position on page 13.

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

		RECI  Core	ERII  Cell	Total		Total
		30-Sept-2011	30-Sept-2011*	30-Sept-2011		30-Sept-2010
	Note	Euro	Euro	Euro		Euro
Net cash provided by operating activities	10	14,207,422	998,439	15,205,861		2,422,659
Financing activities
Net repayment of borrowings from loans		-	-	-		(8,642,967)
Issue of Ordinary Shares		-	-	-		26,644,656
Share issuance expenses		-	-	-		(2,082,602)
Dividends paid to ordinary shareholders	6	(1,199,010)	-	(1,199,010)		(4,263,146)
Cash flows (used in)/provided by financing activities		(1,199,010)	-	(1,199,010)		11,655,941
Net increase in cash and cash equivalents		13,008,412	998,439	14,006,851		14,078,600
Reconciliation of net cash flow to movement in net cash
Net increase in cash and cash equivalents		13,008,412	998,439	14,006,851		14,078,600
Cash and cash equivalents at start of period		6,681,974	-	6,681,974		15,718,951
Transfer of cash	1,13	(1,500,000)	1,500,000	-		-
Effect of exchange rate fluctuations on cash and cash equivalents		109,761	13,325	123,086		(685,683)
Cash and cash equivalents at end of period		18,300,147	2,511,764	20,811,911		29,111,868

* As disclosed in Note 1 and Note 14 to these financial statements, the Company converted to a Protected Cell Company during the period.  The ERII Cell financial statements relate to the period from 11 August 2011 (Date of Conversion) to 30 September.

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

1.    General information        

Real Estate Credit Investments PCC Limited (formerly Real Estate Credit Investments Limited) (the "Company") was registered on 6 September 2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands. 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 First Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 6HJ, Channel Islands. "Group" is defined as the Company and its subsidiary. At 30 September 2011, the Company's only subsidiary is Trebuchet Finance Limited.

On 10 August 2011, following an extraordinary meeting of the Company, the Board of Directors announced the conversion of the Company to a protected cell company ("PCC") under Guernsey Law and the creation of one cell known as European Residual Income Investments Cell (the "Cell" or "ERII Cell").  The majority of the Residual Income Positions, together with cash amounting to Euro 1.5 million, were transferred to the Cell whose Shares have a separate listing on the Specialist Funds Market of the London Stock Exchange. The existing Ordinary Shareholders of the Company at the date of conversion were given shares in the Cell on a pro-rata one for one basis.  The Company's Real Estate Debt Investments continue to be held by the non-cellular remainder of the Company (the "Core" or "RECI Core") and the Core's Ordinary Shares continue to have a premium listing on the London Stock Exchange. The Residual Income Position retained in the Core on conversion was redeemed prior to 30 September 2011. Following from this conversion, the name of the Company was changed to Real Estate Credit Investments PCC Limited on 15 August 2011.

Prior to the conversion, the Group's investment objective was 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 sought to achieve this objective by investing primarily in debt instruments secured by commercial or residential properties in Western Europe and the United Kingdom ("Real Estate Debt Investments").

Following conversion, the investment policy of the Company was sub-divided into an investment policy for the Core and an investment policy for the Cell. This was to reflect the fact that the Investment Manager is responsible for managing two discrete pools of assets, one, represented by the Core, into which Existing Ordinary Shareholders are invested and one, represented by the Cell, into which Cell Shareholders are invested.

The investment objective for the Core is to invest 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 be likely to be: (i) securitised tranches of secured real estate related debt securities, for example, RMBS and CMBS (together "MBS"); and (ii) secured real estate loans, debentures or any other form of debt instrument.

The investment objective of the Cell is to hold the Cell Assets until maturity of the assets unless opportunities for the sale of the Cell Assets arise prior to maturity. The Directors may, at their discretion, return cash to Cell Shareholders by dividends or other distribution subject to satisfying the Preference Share Cover Test detailed below. The Directors may also, at their discretion, effect a mandatory redemption of Cell Shares as a means of returning capital to the Cell Shareholders.

The liabilities in relation to the Preference Shares, being both quarterly Preference Dividends and the repayment of the final capital entitlement of the Preference Shares (the "Final Capital Entitlement"), are borne by the Company. The Company has amended the Articles of Incorporation to protect the ability of the Company to meet the Final Capital Entitlement through the introduction of a cover test (the "Preference Share Cover Test"). The Preference Share Cover Test is intended to prevent the erosion of the Company's asset base through the payment of dividends or other distributions. Prior to the payment of dividends or other distributions, the Preference Share Cover Test will need to be satisfied.

1.    General information (continued)

The Preference Share Cover Ratio is the ratio that the Company, in consultation with the Investment Manager, has determined is sufficient to meet the Final Capital Entitlement. The Preference Share Cover Ratio is calculated based on the ratio of total company assets (i.e. Total Core Assets plus Cell Assets) to the Final Capital Entitlement. The Preference Share Cover Test has been set at 2.39.

Notwithstanding the Company's ability to satisfy the Preference Share Cover Test, the Company will continue to fulfil its obligations towards the Preference Shareholders with respect to the distribution of Preference Dividends. Such obligations are met using the income available in the Core and, if necessary, the Core Assets themselves. Should the Core Assets be insufficient to meet the Company's liabilities in respect of Preference Dividends and/or the Final Capital Entitlement when they fall due, it is intended that the Directors will call upon the income and, where such income is insufficient to satisfy such liabilities, the assets of the Cell to satisfy the liabilities (the "Inter-Cellular Arrangement").

The Group's investment management activities are managed by 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 if applicable a quarterly performance-related fee on the Core. The Company and the Investment Manager agreed that, following Conversion, an Incentive Fee will no longer be charged on the Cell Assets.  The Group has no ownership interest in the Investment Manager. State Street (Guernsey) Limited is the Administrator and provides all administration and secretarial services to the Group in this capacity.  

2.    Significant accounting policies

Statements of compliance

The condensed consolidated financial statements for the period ended 30 September 2011 have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34"). The same accounting policies, presentation and methods of computation have been followed in these financial statements as were applied in the preparation of the Group's audited financial statements for the year ended 31 March 2011. The condensed consolidated financial statements do not contain all of the information and disclosures required in a full set of annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Group for the year ended 31 March 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

Basis of preparation

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

These condensed consolidated financial statements are presented in Euro. The functional currency of the Group is also considered to be Euro because that is the currency of the primary economic environment in which the Group operates. Subsequent to the period end, the functional currency of Company changed.  Note 14 provides further details of this change.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 September 2011.

3.    Net (losses)/gains on the financial assets and liabilities at fair value through the profit or loss

       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 ended 30 September 2011 and 30 September 2010:

	RECI  Core	ERII  Cell	Total		Total
	30-Sept-2011	30-Sept-2011	30-Sept-2011		30-Sept-2010
	Euro	Euro	Euro		Euro
Net realised (losses)/gains
Net realised (losses)/gains on investments at fair value through profit or loss	(3,518,128)	-	(3,518,128)		2,027,787
Net realised losses on options	(590,097)	-	(590,097)		-
Net realised gains/(losses) on foreign exchange instruments	56,683	203	56,886		(47,451)
Net realised (losses)/gains	(4,051,542)	203	(4,051,339)		1,980,336
Net movement in unrealised (losses)/gains
Net movement in unrealised (losses)/gains on investments at fair value through profit or loss	(2,046,486)	(604,901)	(2,651,387)		1,062,369
Net movement in unrealised losses on interest rate swap agreements	(90,252)	-	(90,252)		(1,131,462)
Net movement in unrealised gains/(losses) on options	950,068	-	950,068		(754,189)
Net movement in unrealised gains/(losses) on foreign exchange bank balances	109,761	13,325	123,086		(685,683)
Net movement in unrealised gains/(losses) on foreign exchange instruments	123,129	-	123,129		(109,917)
Net movement in unrealised losses	(953,780)	(591,576)	(1,545,356)		(1,618,882)
Net realised and movement in unrealised (losses)/gains	(5,005,322)	(591,373)	(5,596,695)		361,454

4.    Operating expenses        

		RECI  Core	ERII  Cell	Total		Total
		30-Sept-2011	30-Sept-2011	30-Sept-2011		30-Sept-2010
	Note	Euro	Euro	Euro		Euro
Investment management, custodian and administration fees
Investment management fee	13	1,126,256	63,348	1,189,604		905,131
Administration fee		120,699	-	120,699		99,016
Custodian fee		18,320	-	18,320		18,320
		1,265,275	63,348	1,328,623		1,022,467
Other operating expenses
Audit fees		85,232	-	85,232		85,232
Directors' fees payable to Directors of Real Estate Credit Investments PCC Limited		128,126	3,784	131,910		138,444
Directors' fees payable to Directors of Trebuchet Finance Limited		13,347	394	13,741		14,421
Legal fees		237,723	-	237,723		343,578
Pricing expenses		90,750	-	90,750		48,255
Other expenses		76,288	19,641	95,929		270,598
		631,466	23,819	655,285		900,528
Total operating expenses		1,896,741	87,167	1,983,908		1,922,995

The Group has no employees.

5.   Finance costs

The following table details finance costs from financial assets and liabilities for the period ended 30 September 2011 and 30 September 2010:

	RECI  Core	ERII  Cell	Total		Total
	30-Sept-2011	30-Sept-2011	30-Sept-2011		30-Sept-2010
	Euro	Euro	Euro		Euro
Finance costs:
Interest on loan	-	-	-		3,492
Net movement in unrealised foreign exchange gain on preference shares	1,574,222	-	1,574,222		-
Preference Shares issuance expense amortised	70,970	-	70,970		3,398
Dividend paid to Preference Shareholders (Note 6)	2,266,513	-	2,266,513		164,331
Total finance costs	3,911,705	-	3,911,705		171,221

6.   Dividends

Ordinary Dividends

The second interim dividend for the year ended 31 March 2011 of Euro 0.016 per ordinary share was declared on 15 March 2011 and an amount of Euro 639,472 was paid on 26 April 2011.

The final interim dividend for the year ended 31 March 2011 of Euro 0.014 per share was declared on 16 June 2011 and an amount of Euro 559,538 was paid on 20 July 2011.

A dividend of Euro 0.014 per ordinary share in the Core has been declared by the Directors for the quarter ended 30 June 2011 on 16 September 2011 and an amount of Euro 559,538 was paid on 21 October 2011.

A dividend of GBP 0.0086 per ordinary share in the Core has been declared by the Directors for the quarter ended 30 September 2011.

A dividend of Euro 0.026 per ordinary share in the Cell has been declared by the Directors for the quarter ended 30 September 2011.

Preference Dividends

The Preference Shareholders are entitled to a Preference Dividend equal to 8% per annum of the Preference Share Notional Value of £49,958,704 £1 shares converted to the functional currency of the Group at the reporting date. The Preference Dividend will be accrued at each valuation point and paid at each quarter end.

The Preference Dividend in respect of the period from 1 April 2011 to 30 June 2011 amounting to Euro 1,106,408 was paid on 30 June 2011.

The Preference Dividend in respect of the period from 1 July 2011 to 30 September 2011 amounting to Euro 1,160,105 was paid on 30 September 2011 out of the Core as per the policy in Note 1.

7.    Profit per Ordinary Share

	RECI Core	ERII Cell	Total
	30-Sept-2011	30-Sept-2011	30-Sept-2010
	Euro	Euro	Euro
The calculation of the basic and diluted earnings per share is based on the following data:
(Loss)/profit for the purposes of basic earnings per share being net (loss)/profit attributable to equity holders	(3, 939,031)	498,758	(5,853,826)
Weighted average number of Ordinary Shares for the purposes of basic earnings per share	39,966,985	39,966,985	27,736,651
Effect of dilutive potential Ordinary Shares:
Share options	-	-	-
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share	39,966,985	39,966,985	27,736,651

There is no dilution as at 30 September 2011 or 30 September 2010, as the share price was below the option price for each period.

8.    Share capital

The capital structure of the Company consists of preference shares and equity attributable to equity holders, comprising issued share capital and reserves, as disclosed on the Consolidated Statement of Financial Position. Following conversion to a protected cell company, the issued share capital of the Company consists of existing Ordinary Shares, Preference Shares and Cell Shares. The Company's capital managed as at the period end is represented by the value of the shares issued to date. The Company does not have any externally imposed capital requirements. At 30 September 2011 the Company had capital of Euro 72,034,356 (31 March 2011: Euro 76,593,705).

Authorised Share Capital

		30 September 2011		31 March 2011
		Number of Shares		Number of Shares
Ordinary shares of no par value each		Unlimited		Unlimited
Preference share at par		49,958,731		49,958,731
Cell shares of no par value each		Unlimited		Nil

Core Ordinary Shares Issued and fully paid
		30 September 2011			31 March 2011
Balance at beginning of period		39,966,985			26,644,657
Ordinary shares issued during the period		-			13,322,328
Balance at end of period		39,966,985			39,966,985

No ordinary shares were bought back or cancelled during the period ended 30 September 2011.

Cell Shares Issued and fully paid
		30 September 2011		31 March 2011
Balance at beginning of period		-		-
Ordinary shares issued during the period		39,966,985		-
Balance at end of period		39,966,985		-

As disclosed in Note 1, following the conversion of the Company to a PCC and the transfer of assets from Core to Cell, the existing Ordinary Shareholders of the Company at the date of conversion were given shares in the Cell on a pro-rata one for one basis.

Core Preference Shares Issued and fully paid

	30 September 2011	30 September 2011		31 March 2011	31 March 2011
	Number of Preference Shares	Euro		Number of Preference Shares	Euro
Preference shares at start of period	49,958,704	55,164,648		-	-
Preference shares issued during the period at par net of issue costs	-	-		49,958,704	56,309,484
Amortised issue costs allocated to Preference Shares	-	70,970		-	89,615
Write down of unamortised issue costs*	-	434,457		-	-
Net unrealised losses/(gains) due to foreign exchange fluctuations	-	1,574,222		-	(1,234,451)
Balance at end of period	49,958,704	57,244,297		49,958,704	55,164,648

* The actual issuance costs with respect to the preference shares were lower than originally anticipated and this gave rise to the reversal of Euro 434,457 of the original accrual.

8.    Share capital (continued)

The value of the preference shares represent an obligation on the Company to pay the preference shares par value on winding up of the Company or on redemption of the Preference Shares in accordance with their terms. Following the conversion of the Company to a PCC, the liability with respect to the preference shares remains in the Core subject to meeting the requirements of the Preference Share Cover Test as disclosed in Note 1.

9. 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 and are therefore considered the "Chief Operating Decision Maker" under the standard. 

The Group has two reportable segments, being the Core and the Cell.  This is a change in the reportable segments since the previous financial period where the reportable segments were the Real Estate Debt Investment Portfolio and the Residuals Income Positions Portfolio. As disclosed in Note 1 and Note 14, the Company converted to a Protected Cell Company with the creation of one cell, the ERII Cell. The Company's Real Estate Debt Investments remained in the non-cellular remainder of the Company being the Core. Each of the Residual Income Positions with the exception of Amstel, was transferred into the Cell with the objective of holding these investments until the earlier of maturity of the coupons or sale. Amstel remained in the Core as the redemption of this investment was imminent. Following the redemption of Amstel and as at 30 September 2011, the Core only holds Real Estate Debt Investments.

For each of the segments, the Board of Directors reviews internal management reports prepared by the Investment Manager on a quarterly basis. Up to the date of conversion, these internal management reports split the Company's portfolio into the Real Estate Debt Investments Portfolio and the Residual Income Positions Portfolio. However, following the conversion of the Company, the Investment Manager has managed each of the Real Estate Debt Investments and Residual Income Positions as part of either the Core or Cell to which these investments were transferred, with the view of monitoring performance of the Core and Cell separately. Accordingly, as at the date of these interim financial statements, the segments managed by the Investment Manager changed to the Core and Cell.  Each residual income position held within the Cell is also individually monitored by the Investment Manager and performance analysed separately.

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.

9. Segmental Reporting (continued)

Period Ended 30 September 2011	Core	Cell	Total
	Euro	Euro	Euro
Reportable segment loss	(3,939,031)	498,758	(3,440,273)

Period Ended 30 September 2011	Real Estate Debt Investment Portfolio	Residual Income Positions Portfolio	Total
	Euro	Euro	Euro
Reportable segment profit (old segment definition*)	(7,418,076)	8,861,946	1,443,870

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

As at 30 September 2011	Core	Cell	Total
	Euro	Euro	Euro
Reportable segment assets	113,592,208	22,353,588	135,945,796
As at 31 March 2011*	Real Estate Debt Investment Portfolio	Residual Income Positions Portfolio	Total
	Euro	Euro	Euro
Reportable segment assets	72,149,748	53,955,239	126,104,987

* As noted above, the Company changed its reportable segments from Real Estate Debt Investments Portfolio and Residual Income Positions Portfolio to Core and Cell during the period.  This was to reflect the change in the structure of the Company during the period and the way in which the portfolio is now managed.  Comparatives have not been restated as this would not enable a proper commercial understanding of the management of the portfolio as at each reporting date.

The reportable segment loss of the Core as reported above includes all of the Real Estate Debt Investments and Residual Income Positions up to the date of conversion and also includes the Amstel Residual Income Position subsequent to the conversion since this investment was retained in the Core.  The reportable segment loss of the Cell only includes the Residual Income Positions transferred to the Cell from the date of conversion.

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

For the period ending 30 September 2011, the reportable segment loss is equal to the loss of the Company since all income and expenditure can now be attributed to each segment i.e. Core and Cell, which was not the case previously.  For the period ending 30 September 2010, certain income and expenditure was not considered part of the performance of an individual segment i.e. Real Estate Debt Investment Portfolio and Residual Income Positions Portfolio. 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.

9. Segmental Reporting (continued)

		Period Ended 30 September 2010
		Euro
Reportable Segment profit/(loss)		9,541,109
Interest income from cash and cash equivalents		4,173
Net foreign exchange (losses)/gains		(843,051)
Net losses on options		(754,189)
		7,948,042

		Euro
Expenses		(1,922,995)
Finance costs		(171,221)
Net profit		5,853,826

As at 30 September 2011, the reportable segment assets are equal to the total assets of the Company since all other assets can now be attributed to each segment i.e. Core and Cell, which was not the case previously.  As at 31 March 2011, certain assets and liabilities are not considered to be attributable to a particular segment i.e. Real Estate Debt Investment Portfolio and Residual Income Positions Portfolio, 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 31 March 2011
		Euro
Total segment assets		126,104,987
Other receivables and prepayments		810,498
Cash and cash equivalents		6,681,974
Derivative financial assets - options held for trading		1,307,708
		134,905,167

The following is a summary of the movements in the Group's investments analysed by the Core and Cell as at 30 September 2011:

Period Ended 30 September 2011	Core	Cell	Total
	Euro	Euro	Euro
Investments at fair value through profit or loss
Opening fair value	124,154,185	-	124,154,185
Purchases	51,864,896	-	51,864,896
Sales proceeds	(62,851,627)	-	(62,851,627)
Transfer of assets at fair value on conversion	(19,572,010)	19,572,010	-
Realised loss on sales	(3,518,128)	-	(3,518,128)
Net movement in unrealised losses on investments at fair value through the profit or loss	(2,046,486)	(604,901)	(2,651,387)
Principal payups	2,001,202	30,453	2,031,655
Closing fair value	90,032,032	18,997,562	109,029,594

* The opening fair value per segment will not equate to the closing fair value per segment as at 31 March 2011, due to the change in reportable segments. 

9. Segmental Reporting (continued)

The following is a summary of the movements in the Group's investments analysed by the Residual Income Portfolio and Real Estate Debt Bond Portfolio as at 31 March 2011:

Year Ended 31 March 2011	Real Estate Debt Bond Portfolio	Residual Income Portfolio	Total
	Euro	Euro	Euro
Investments at fair value through profit or loss
Opening fair value	58,136,765	61,455,016	119,591,781
Purchases	19,023,826	-	19,023,826
Sales proceeds	(12,152,621)	(3,167,489)	(15,320,110)
Realised gain on sales	1,817,878	2,412,896	4,230,774
Net movement in unrealised losses on investments at fair value through the profit or loss	5,048,973	(6,813,535)	(1,764,562)
Principal paydowns	(1,181,023)	(426,501)	(1,607,524)
Closing fair value	70,693,798	53,460,387	124,154,185

In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the countries of the underlying collateral. The Real Estate Debt Investments and Amstel Residual Income Position prior to redemption included in the Core and the remaining Residual Income Positions included in the Cell have cross border exposures and so these have been grouped into a combined 'Europe' segment. Exposures in this segment include Germany, Spain, and Switzerland.

It is not possible to split the reporting further without significant cost with limited benefit to the user of the financial statements.  As a result of the change in investment policy during the period, the significant segments for the period ended 30 September 2011 differ from the segments reported in the previous year.

	Segmental (Loss)/Profit		Segmental Assets
	Period Ended 30 September 2011	Period Ended 30 September 2010	As at 30 September 2011	As at 31 March 2011
	Euro	Euro	Euro	Euro
Ireland	-	-	50,006,332	59,479,203
Italy	(331,314)	(2,652,584)	3,635,455	2,871,195
Netherlands	-	-	4,561,679	17,238,452
Portugal	(70,577)	1,266,378	1,327,525	-
United Kingdom	(2,573,673)	4,187,641	56,172,609	43,032,910
Europe	(464,709)	6,739,674	20,242,196	3,483,227
	(3,440,273)	9,541,109	135,945,796	126,104,987

10.  Notes to Statement of Cash Flows

	Note	RECI  Core	ERII  Cell	Total		Total
		30-Sept-2011	30-Sept-2011	30-Sept-2011		30-Sept-2010
		Euro	Euro	Euro		Euro
Net (loss)/profit		(3,939,031)	498,758	(3,440,273)		5,853,826
Adjustments for:
Amortised expenses		70,970	-	70,970		-
Legal expenses		750,000	(750,000)	-		-
Net realised losses/(gains) on sale of investments	3	3,518,128	-	3,518,128		(2,027,787)
Net realised losses on expired options	3	590,097	-	590,097		-
Net movement in unrealised foreign exchange gain on preference shares	5	1,574,222	-	1,574,222		-
Net movement in unrealised losses/(gains) on investments at fair value through profit or loss	3	2,046,486	604,901	2,651,387		(1,062,369)
Net movement in unrealised (gains)/losses on options	3	(950,068)	-	(950,068)		754,189
Net movement in unrealised losses on interest rate swap agreements	3	90,252	-	90,252		1,131,462
Net movement in unrealised (gains)/losses on foreign exchange bank balances	3	(109,761)	(13,325)	(123,086)		685,683
Net movement in unrealised (gains)/losses on foreign exchange instruments	3	(123,129)	-	(123,129)		109,917
		3,518,166	340,334	3,858,500		5,444,921
Purchases of investments	9	(50,168,034)	-	(50,168,034)		(17,718,529)
Sales proceeds from investments	9	62,851,627	-	62,851,627		10,843,242
Purchases of options		(2,632,635)	-	(2,632,635)		(2,439,237)
Options exercised		1,195,608	-	1,195,608		-
Options written		1,149,592	-	1,149,592		503,949
Cash receipts on investments		(2,006,306)	(25,355)	(2,031,661)		4,707,075
		10,389,852	(25,355)	10,364,497		(4,103,500)
Decrease/(Increase) in receivables		1,085,025	(2,946)	1,082,079		(29,798)
(Decrease)/increase in payables		(1,220,078)	686,406	(533,672)		1,111,036
Write down of unamortised issue costs		434,457	-	434,457		-
		299,404	683,460	982,864		1,081,238
Net cash inflow from operating activities		14,207,422	998,439	15,205,861		2,422,659

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.

11. Collateral

The Core held Euro 1,370,000 as cash collateral for financial derivative instruments transactions undertaken with Goldman Sachs. This collateral also represents an obligation on the Core to repay Goldman Sachs on settlement of the financial derivative instrument and is not included in the Condensed Consolidated Statement of Financial Position of the Core. As this amount is the minimum deemed by the brokers for collateral requirements the cash is restricted and is reported separately by means of this note only.

12. Contingent liability

The Cell's income and assets may be called upon under the Inter-Cellular Agreement to satisfy the liabilities relating to the distribution of Preference Dividends and/or the Final Capital Entitlement where the Core Assets are insufficient to meet these liabilities. Further details in relation to this are disclosed in Note 1. As at 30 September 2011, the Directors consider that it is not probable that the Cell's income and assets will be called upon and accordingly no provision has been made in the Cell's financial statements.

 
13. Material agreements and related party transactions

Investment Manager

The Group pays Cheyne Capital Management (UK) LLP (the "Investment Manager") a Management Fee and Incentive Fee. During the period ended 30 September 2011, the Management Fee totalled Euro 1,126,256 (period ended 30 September 2010: Euro 905,131), of which Euro 155,990 (31 March 2011: Euro 198,009) was outstanding at the year end. There was no incentive fee charged during the period ended 30 September 2011 or 30 September 2010.

Significant Shareholder

Cheyne ABS Opportunities Fund L.P., a Partnership that is also managed by Cheyne Asset Management (UK) LLP, held 15,773,804 Core ordinary shares, 15,773,804 Cell shares and 10,672,255 Core preference shares in the Company amounting to 39.47% of the issued share capital of the Core and the Cell and 21.36% of Core preference shares at 30 September 2011.

14. Significant Events during the period

In May 2011 the Company reduced its exposure to Portuguese mortgage residual income investments by selling the Lusitano Mortgages No. 1 plc, Lusitano Mortgages No. 2 plc and Lusitano Mortgages No. 3 plc Portuguese mortgage residual income investments, and in June 2011, the Company further reduced its exposure to UK mortgage residual income investments by selling the RMAC 2004 NSP4 plc, RMAC 2005 NS3 plc and RMAC 2005 NS4 plc UK mortgage residual income investments. The sale of these residual income positions raised EUR 26,429,836.

On 10 August 2011, following an extraordinary meeting of the Company, the Board of Directors announced the conversion of the Company to a protected cell company under Guernsey Law and the creation of one cell known as European Residual Income Investments Cell (the "Cell" or "ERII Cell").  The majority of the Residual Income Positions with a fair value based on the pricing models at the transfer date of Euro 19,572,010, together with other assets amounting to Euro 1,674,422, were transferred to the Cell whose Shares have a separate listing on the Specialist Funds Market of the London Stock Exchange. The existing Ordinary Shareholders of the Company at the date of conversion were given shares in the Cell on a pro-rata one for one basis.  The Company's Real Estate Debt Investments and certain Residual Income Positions continue to be held by the non-cellular remainder of the Company (the "Core") and the Core's Ordinary Shares continue to have a premium listing on the London Stock Exchange.  Following from this conversion, the name of the Company was changed to Real Estate Credit Investments PCC Limited on 15 August 2011.  Note 1 provides further details of the major changes that occurred as a result of this conversion.

14. Significant Events during the period (continued)

On 25 August 2011 the Amstel residual income position which was retained within the Core, was redeemed for a principal amount of € 12,453,998 and interest of € 2,036,090.

15.  Subsequent Events

On 3rd October 2011 the trading denomination of the Company's Core Ordinary Shares of no par value was changed to Sterling. The Company reviewed its functional and presentation currencies and the Company and Core also changed its functional and presentation currency to Sterling prospectively from that date. The Cell's functional and presentation currency remained the Euro.

There have been no other events subsequent to 30 September 2011 which require adjustment to or disclosure in the interim financial report or notes thereto.

16.  Approval of the Consolidated Financial Statements

The condensed consolidated interim financial report was approved by the Directors on 25 November 2011.

Directors

Tom Chandos (Chairman)

Graham Harrison

John Hawkins

Talmai Morgan

Christopher Spencer

Registered Office

First Floor Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 6HJ

Administrator and Secretary of the Group

State Street (Guernsey) Limited

PO Box 543

First Floor, Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 6HJ

Investment Manager

Cheyne Capital Management (UK) LLP

Stornoway House

13 Cleveland Row

London SW1A 1DH

Corporate Brokers

Liberum Capital Limited

Ropemaker Place, Level 12

25 Ropemaker Street

London EC2Y 9LY

Share Repurchase Agent

JP Morgan Cazenove Limited

20 Moorgate

London EC2R 6DA

Independent Auditor

Deloitte LLP

Regency Court

Glategny Esplanade

St. Peter Port

Guernsey GY1 3HW

Registrar

Capita Registrars (Guerrnsey) Limited

Mount Crevelt House

Bulwer Avenue

St. Sampson

Guernsey GY2 4LH

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

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[1] RECI refers to the Real Estate Credit Investments Core.

[2] The investment portfolio includes two bonds collateralised by SME loans accounting for 1.2% of the portfolio at 30 September 2011.

[3] Cost and nominal shown are calculated with original notional using pool factor and FX rate at 30 September 2011

[4] Cost and nominal shown are calculated with original notional using pool factor and FX rate at 15 November 2011

[5] Based on fair value of bonds

[6] The weighted average original loan to value has been calculated by reference to the original acquisition value of the relevant collateral as disclosed at the time of issue of the relevant bond. The original LTV is weighted by the market value of the bonds.   The weighted average Cheyne current LTV has been calculated by Cheyne by reference to the current value ascribed to the collateral by Cheyne.  In determining these values, Cheyne has undertaken its own internal valuation of the underlying collateral.  Such valuations have not been subject to independent verification or review.

[7] WA effective yield is based on the effective yield as at most recent purchase and is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein.

 

END

 

 

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