Guernsey, 10 November 2016 - Eurocastle Investment Limited (Euronext Amsterdam: ECT) today has released its financial results for the nine months ended 30 September 2016.
Normalised FFO[1] of €11.9 million, or €0.20 per share[2] for the third quarter of 2016. €33.5 million or €0.49 per share for the nine months ended 30 September 2016.
Adjusted Net Asset Value[3] of €463.5 million, or €7.71 per share, an increase of €0.01 per share on the quarter (Q2 2016: €462.7 million, or €7.70 per share) reflecting €0.20 per share of valuation movements before Q3 dividend of €0.125 per share and corporate expenses.
Third Quarter 2016 Dividend of €7.5 million, or €0.125 per share paid in October.
| Q3 2016 | Q2 2016 | YTD Q3 2016 | YTD Q3 2015 | |||||||||
| € million | € per share | € million | € per share | € million | € per share | € million | € per share | |||||
| Normalised FFO1 | 11.9 | 0.20 | 11.0 | 0.18 | 33.5 | 0.49 | 9.0 | 0.16 | ||||
| Legacy Business4 Cash Flow Received | 2.1 | 0.04 | 0.4 | 0.01 | 6.9 | 0.10 | 60.6 | 1.10 | ||||
| Adjusted NAV3 | 463.5 | 7.71 | 462.7 | 7.70 | 463.5 | 7.71 | 528.3 | 7.30 | ||||
BUSINESS HIGHLIGHTS SINCE 30 JUNE 2016
doBank - In October, following approval from the Bank of Italy, doBank (50% owned by Eurocastle) successfully completed the acquisition of Italfondiario S.p.A. ("Italfondiario"), the second largest independent non-performing loan servicer in Italy. Together, doBank and Italfondiario will represent the largest independent banking group in Italy, specialising in the credit management and collection of performing and non-performing loans with over €83 billion gross book value ("GBV") of loans under management, and over 4,000 employees and external consultants across 24 offices in Italy. This acquisition is a major milestone in doBank's expansion in the Italian market which significantly strengthens its position as a leading partner to the Italian banking system.
New Italian Investments - Eurocastle acquired a 25% interest in two portfolios of Italian non-performing loans ("NPLs") with an aggregate GBV of approximately €70 million. The first investment of €1.1 million was made on 23 September 2016, while the second acquisition where the Company invested a further €1.0 million closed on 9 November 2016. The two portfolios are predominantly secured by residential real estate.
Italian Investments5 Performance - During the third quarter, Italian Investments reported strong performance generating in aggregate €9.0 million of gross cash flow. Total cash flow generated for the nine months ended 30 September 2016 amounted to €40.3 million6 of which €26.6 million related to doBank's NPL portfolio and servicing business. Since acquisition, Italian Investments have generated €93.7 million, or €7.0 million more than underwriting expectations.
Legacy Business - In line with its strategy to accelerate recoveries from its legacy real estate assets in Germany, the Company agreed to sell Belfry and Truss, the two remaining Retail portfolios. The sale is expected to generate €2.3 million of net proceeds compared to a reported Adjusted NAV of zero. The majority of the assets sold are expected to close by year-end.
ADDITIONAL INFORMATION
For additional information that management believes to be useful for investors, please refer to the latest presentation posted on the Investor Relations section of the Company's website, www.eurocastleinv.com. For consolidated investment portfolio information, please refer to the Company's most recent Financial Report, which is available on the Company's website (www.eurocastleinv.com).
EARNINGS CALL INFORMATION
Eurocastle's management will host an earnings conference call at 2:00 P.M. London time (9:00 A.M. New York time) later today. All interested parties are welcome to participate on the live call. You can access the conference call by dialing first +1- 800-215-5243 (from within the U.S.) or +1-330-863-8154 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Eurocastle Third Quarter 2016 Earnings Call" or conference ID number "3334554".
A webcast of the conference call will be available to the public on a listen-only basis at www.eurocastleinv.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call.
For those who are not available to listen to the live call, a replay will be available until 11:59 P.M. New York time on Saturday, 10 December 2016 by dialling +1-855-859-2056 (from within the U.S.) or +1-404- 537-3406 (from outside of the U.S.); please reference access code "3334554".
NORMALISED FFO
Normalised FFO is a non-IFRS financial measure that, with respect to the Company's Italian Investments, recognises income on an expected yield basis allowing Eurocastle to report the run rate earnings from these investments in line with their projected annualised returns. On Eurocastle's Legacy Business the measure excludes realised gains and losses, sales related costs (including realised swap losses), impairment losses, foreign exchange movements and any movements on portfolios with a negative NAV other than sales or asset management fees realised.
Eurocastle believes that, given the strategy of seeking to monetise the residual value of the Legacy Business, focusing on the Normalised FFO of the Company's Italian Investments will enhance investor's understanding of current and future earnings given annualised returns achieved and the average net invested capital[4] over the relevant period.
| Segmental Normalised FFO for the Nine Months Ended 30 September 2016 | Average Net Invested Capital | Yield | Italian Investments | Legacy | Total | |
| € Thousands | € Thousands | € Thousands | ||||
| NPLs | 22,462 | 20% | 3,399 | - | 3,399 | |
| RE Fund Units | 43,873 | 34% | 11,335 | - | 11,335 | |
| doBank (Servicer & NPL) | 246,031 | 14% | 25,630 | - | 25,630 | |
| Italian Investments NFFO before expenses | 312,366 | 17% | 40,364 | - | 40,364 | |
| Legacy Portfolios NFFO before expenses | - | 7,785 | 7,785 | |||
| Manager Base & Incentive Fees | (8,621) | (99) | (8,720) | |||
| Other operating expenses | (3,125) | (2,849) | (5,974) | |||
| Normalised FFO | 28,618 | 4,837 | 33,455 | |||
| Per Share | 0.42 | 0.07 | 0.49 |
| Segmental Normalised FFO for the Third Quarter 2016 | Average Net Invested Capital | Yield | Italian Investments | Legacy | Total | |
| € Thousands | € Thousands | € Thousands | ||||
| NPLs | 21,863 | 19% | 1,053 | - | 1,053 | |
| RE Fund Units | 47,737 | 45% | 5,412 | - | 5,412 | |
| doBank (Servicer & NPL) | 246,031 | 14% | 8,560 | - | 8,560 | |
| Italian Investments NFFO before expenses | 315,631 | 19% | 15,025 | - | 15,025 | |
| Legacy Portfolios NFFO before expenses | - | 1,638 | 1,638 | |||
| Manager Base & Incentive Fees | (3,080) | (30) | (3,110) | |||
| Other operating expenses | (1,395) | (259) | (1,654) | |||
| Normalised FFO | 10,550 | 1,349 | 11,899 | |||
| Per Share | 0.18 | 0.02 | 0.20 |
In the first nine months of 2016, Eurocastle generated Normalised FFO of €33.5 million, or €0.49 per share compared to a dividend of €24.1 million, or €0.375 per share. Before corporate costs Italian Investments generated €40.4 million, or €0.59 per share. Given the average net invested capital in the period was approximately €312 million, this equates to a yield of 17%.
In the third quarter of 2016, Eurocastle generated Normalised FFO of €11.9 million, or €0.20 per share. Before corporate costs Italian Investments generated €15.0 million, or €0.25 per share. Given the average net invested capital in the period was approximately €316 million, this equates to a yield of 19%.
| Income Statement for the Nine Months Ended 30 September 2016 | Italian Investments € Thousands | Legacy € Thousands | Total € Thousands |
| Operating income | |||
| Italian Investments | |||
| Fair value movements on Italian Investments | |||
| doBank (Servicer & NPL) | 24,745 | - | 24,745 |
| NPLs[5] | 4,626 | - | 4,626 |
| Real estate fund units (Fund Investment I) | 1,921 | - | 1,921 |
| Share of post-tax profits from associate investment in RE fund units (Fund Investments III, IV) | 15,993 | 2,136 | 18,129 |
| Share of post-tax loss from JV investment in RE fund units (Fund Investment II) | (1,813) | - | (1,813) |
| Interest Income | 180 | - | 180 |
| Legacy Debt Investments | |||
| Interest income | - | 1,107 | 1,107 |
| Losses on foreign currency contracts, translation and swaps | - | (2,023) | (2,023) |
| Impairment losses | - | (1,565) | (1,565) |
| Gain on pay-downs of loans and receivables | - | 2,604 | 2,604 |
| Total operating income | 45,652 | 2,259 | 47,911 |
| Operating expenses | |||
| Interest expense | - | 2,192 | 2,192 |
| Other operating expenses - transaction costs | 538 | - | 538 |
| Other operating expenses - group running costs | 11,009 | 434 | 11,443 |
| Total operating expenses | 11,547 | 2,626 | 14,173 |
| Net operating profit / (loss) before taxation | 34,105 | (367) | 33,738 |
| Total tax expense | 230 | 3 | 233 |
| Net profit / (loss) after taxation from continuing operations | 33,875 | (370) | 33,505 |
| Net loss after taxation from discontinued operations | - | (72,979) | (72,979) |
| Profit / (loss) after taxation for the period | 33,875 | (73,349) | (39,474) |
| Per Share | 0.50 | (1.08) | (0.58) |
| Attributable to: | |||
| Ordinary equity holders of the Company | 33,598 | (73,349) | (39,751) |
| Non-controlling interest | 277 | - | 277 |
For the first nine months of 2016, the total net loss after taxation and non-controlling interests as reported under IFRS was €39.8 million. Within the Group's Italian Investments, where the majority of these assets are accounted for at fair value under a discounted cash flow approach, net income after taxation and non-controlling interest for the first nine months of 2016 was €33.6 million, or €0.49 per share.
| Italian Investments € Thousands | Legacy € Thousands | Total € Thousands | |
| Net profit / ( loss) attributable to ordinary shareholders after taxation | 33,598 | (73,349) | (39,751) |
| Reversal of Net loss attributed to negative NAV portfolios2 | - | 71,304 | 71,304 |
| Adjusted net profit / (loss) | 33,598 | (2,045) | 31,553 |
| Per Share | 0.49 | (0.03) | 0.46 |
Excluding losses arising within those legacy portfolios that have a negative NAV, the Group generated a net profit after taxation of €31.6 million or €0.46 per share. As at 30 September 2016, the remaining Adjusted NAV of the legacy portfolios was €8.1 million, or €0.14 per share which represents under 2% of the Company's Adjusted NAV.
| Balance Sheet and Adjusted NAV Reconciliation as at 30 September 2016 | Italian Investments € Thousands | Corporate € Thousands | Legacy € Thousands | Total € Thousands |
| Assets | ||||
| Cash and cash equivalents | 4,112 | 119,933 | 23,440 | 147,485 |
| Investment properties held for sale | - | - | 222,688 | 222,688 |
| Italian investments at Fair Value | ||||
| doBank (Servicer) | 173,494 | - | - | 173,494 |
| doBank (NPL) | 98,910 | - | - | 98,910 |
| NPLs | 28,376 | - | - | 28,376 |
| Real estate fund units (Fund Investment I) | 14,768 | - | - | 14,768 |
| Associate investment in real estate fund units (Fund Investments III, IV) | 30,745 | - | 2,136 | 32,881 |
| Joint venture investment in real estate fund units (Fund Investment II) | 10,347 | - | - | 10,347 |
| Loans and receivables | - | - | 40,987 | 40,987 |
| Available-for-sale securities[6] | 5,481 | - | - | 5,481 |
| Derivative assets | - | - | 6,144 | 6,144 |
| Other assets | 584 | 1,925 | 9,442 | 11,951 |
| Intangible assets | - | - | 1 | 1 |
| Total assets | 366,817 | 121,858 | 304,838 | 793,513 |
| Total liabilities | ||||
| Trade and other payables | 4,065 | 19,632 | 67,794 | 91,491 |
| Current taxation payable | 16 | 8,495 | 957 | 9,468 |
| CDO bonds payable | - | - | 63,047 | 63,047 |
| Bank borrowings | - | - | 314,864 | 314,864 |
| Finance lease payable | - | - | 12,476 | 12,476 |
| Total liabilities | 4,081 | 28,127 | 459,138 | 491,346 |
| Net Asset Value | 362,736 | 93,731 | (154,300) | 302,167 |
| Non-controlling interest | (1,022) | - | - | (1,022) |
| Net Asset Value after Non-controlling interest | 361,714 | 93,731 | (154,300) | 301,145 |
| Negative NAV Addbacks[7] | - | - | 162,313 | 162,313 |
| Committed Investments | 1,000 | (1,000) | - | - |
| Adjusted NAV | 362,714 | 92,731 | 8,013 | 463,458 |
| Adjusted NAV (€ per Share) | 6.03 | 1.54 | 0.14 | 7.71 |
ABOUT EUROCASTLE
Eurocastle Investment Limited is a publicly traded closed-ended investment company that focuses on investing in Italian performing and non-performing loans, Italian NPL servicing platforms and other real estate related assets primarily in Italy. The Company is Euro denominated and is listed on Euronext Amsterdam under the symbol "ECT". Eurocastle is managed by an affiliate of Fortress Investment Group LLC, a leading global investment manager. For more information regarding Eurocastle Investment Limited and to be added to our email distribution list, please visit www.eurocastleinv.com.
FORWARD LOOKING STATEMENTS
This release contains statements that constitute forward-looking statements. Such forward-looking statements may relate to, among other things, future commitments to sell real estate and achievement of disposal targets, availability of investment and divestment opportunities, timing or certainty of completion of acquisitions and disposals, the operating performance of our investments and financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may", "will", "should", "potential", "intend", "expect", "endeavour", "seek", "anticipate", "estimate", "overestimate", "underestimate", "believe", "could", "project", "predict", "project", "continue", "plan", "forecast" or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. The Group's ability to predict results or the actual effect of future plans or strategies is limited. Although the Group believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, its actual results and performance may differ materially from those set forth in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that may cause the Group's actual results in future periods to differ materially from forecasted results or stated expectations including the risks regarding Eurocastle's ability to declare dividends, amortise the Group's debts, renegotiate the Group's credit facilities, make new investments, or achieve its targets regarding asset di[1]Normalised FFO ("NFFO") is a non-IFRS measure used to provide additional information regarding the underlying performance of the Company, as outlined in note 24 of the Q3 2016 consolidated financial statements.
[2]Throughout this release, amounts per share are calculated on the following basis for the relevant period: Q3 2016 and Q2 2016 - 60.1 million shares. YTD Q3 2016 NFFO and Legacy cash flow - 68.1 million of weighted average shares. YTD Q3 2015 NFFO and Legacy cash flow - 55.2 million of weighted average shares. Q3 2015 Adjusted Net Asset Value ("Adjusted NAV") - 72.4 million ordinary shares in issue.
[3]Throughout this release Adjusted Net Asset Value excludes the net asset value ("NAV") of those Legacy portfolios with negative NAV (Belfry, Truss, Drive and CDO V) whose debt is non-recourse to Eurocastle.
4All investments owned by the Group prior to April 2013.
5All investments acquired by the Group since the establishment of its new strategy in April 2013, previously labelled as "New Investments".
- Total cash flow generated in 2016 includes €22.4 million currently held at the level of the investment. Total cash held at the investment level includes an additional €2.2 million generated in the previous year. Cash flows generated by doBank Servicer represent Eurocastle's 50% share of EBITDA based on unaudited management data.
[4]Time weighted average of invested capital (net of any capital returned) over the relevant period.
[5]The fair value movements on Italian NPL Investments includes €1.5m from subsidiaries, €2.9m from the share of post-tax profits from associates and €0.2m from the share of post-tax profits from joint venture investments which are disclosed separately in the Company's financial statements. These investments are accounted for under the equity method but the underlying investments are fair valued.
2 Reverses losses arising from portfolios with a negative net asset value net of any cash distributions or fees received by the Company.
[6] Represents the investment in the debt of Real Estate Fund Investment IV.
[7] Adjusts to exclude those Legacy portfolios with negative NAV (Truss, Belfry, Drive and CDO V) whose debt is non-recourse to Eurocastle.