EUROCASTLE INVESTMENT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. BACKGROUND
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interest income
Significant estimates and judgements
In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to estimates are recognised prospectively.
The areas involving significant judgements are:
- treatment of potential tax liability associated with the disposal of a legacy property subsidiary in prior years - refer to note 19
- recognition of a tax asset associated with the disposal of a legacy property subsidiary in prior years - refer to note 19
Following the classification of the Company as an investment entity under IFRS 10 in July 2017, the Company does not consolidate the entities it controls and
therefore fair values all of its investments (whether through subsidiaries or joint ventures). These separate financial statements of the Company are its only financial
statements.
Following the announcement of the Realisation Plan in 2019, the Directors have assessed, and continue to have a reasonable expectation, that the Company will be
able to continue in operation and meet its liabilities as they fall due. The Directors have reviewed the Company’s processes to control those risks to which the
Company is exposed, as disclosed in note 3, as well as reviewing the annual budget, including the additional reserves set aside as part of the Realisation Plan. As a
result of the Realisation Plan, no contractual commitments have become onerous and no commitments for further realisation costs have been made. Therefore, no
provisions have been recorded in the financial statements for the future costs of the business. The ongoing conflict in Israel and war in Ukraine are not expected to
have a significant impact on the Company's liquidity. The Directors have also reviewed forecasts that have been sensitised to reflect plausible downside scenarios. The
Directors have determined that there is no material uncertainty that casts doubt on the entity’s ability to continue as a going concern. The Directors have also
considered the above in light of the New Investment Strategy. As a result of this, the Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial
statements.
These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union on a going concern
basis and under the historical cost basis of accounting, except for investments at fair value through profit and loss, which are measured at fair value. These financial
statements are also prepared in accordance with Guernsey Company Law.
Until December 2019, the activities of the Company included investing indirectly in Italian performing and non-performing loans (''PLs'' / ''NPLs''), distressed loan
assets and other credit receivables, Italian loan servicing platforms, real estate related assets and other related businesses in Italy. On 18 November 2019 the Board of
Directors (“Board”) announced a plan to realise the majority of the Company’s assets in order to accelerate the return of value to the Company’s shareholders (the
“Realisation Plan”). On 8 July 2022, the Company announced the relaunch of its investment activity and will initially focus on opportunistic real estate in Greece with
a plan to expand across Southern Europe, where the Manager has an extensive footprint and a long track record investing in this asset class (the ''New Investment
Strategy''). The Company’s New Investment Strategy seeks to leverage the Manager’s deep knowledge of the sector, which offers significant investment opportunities
in the current market cycle.
Eurocastle Investment Limited (“Eurocastle”, the "Company") was incorporated in Guernsey, Channel Islands on 8 August 2003 and commenced its operations on 21
October 2003. Eurocastle is a Euro denominated Guernsey closed-end investment company listed on Euronext Amsterdam (formerly listed on the London Stock
Exchange) regulated by the Nederlands Authority for Financial Markets (“AFM”), which is also now its home state regulator as a result of Brexit. Eurocastle is subject
to EU transparency rules as a result of its listing on an EU regulated market and, consequently, shareholders are required to notify Eurocastle and the AFM when their
holding of the issued share capital and/or of the voting rights in Eurocastle reaches, exceeds or falls below certain thresholds, whereby the lowest threshold is 3%.
Basis of preparation
Eurocastle is externally managed by its investment manager, FIG LLC (the “Manager”). The Manager was acquired by Softbank Group Corp (9984: Tokyo)
(“Softbank”) on December 27, 2017 and operates as an independent business within Softbank under the continuing leadership of Pete Briger, Wes Edens and Randal
Nardone. Eurocastle has entered into a management agreement (the “Management Agreement”) under which the Manager advises the Company on various aspects of
its business and manages its day-to-day operations, subject to the supervision of the Company’s Board of Directors. For its services, the Manager receives an annual
management fee and incentive compensation (as well as reimbursement for expenses, including expenses of certain employees providing asset management and
finance services), as described in note 16. The Company has no ownership interest in the Manager.
Interest income is recognised in the income statement as it accrues, taking into account the effective yield of the asset or an applicable floating rate. Interest income
includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at
maturity calculated on an effective interest rate basis.
EUROCASTLE INVESTMENT LIMITED | 2023 ANNUAL REPORT 21