Interim 2013 Eurocastle Investments LTD Earnings Conference Call

Aug 07, 2013 AM EDT
ECT.AS - Eurocastle Investment Ltd
Interim 2013 Eurocastle Investments LTD Earnings Conference Call
Aug 07, 2013 / 12:00PM GMT 

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Corporate Participants
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   *  Andrew Dempsey
      Fortress Investment Group - Managing Director
   *  Steve Charlton
      Eurocastle Investment LTD - CFO
   *  Francesco Colasanti
      Fortress Investment Group - Managing Director

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Conference Call Participants
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   *  Michael Franke
      Kingdon Capital - Analyst
   *  Edmond Faffa
      EMF - Analyst

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Presentation
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Operator   [1]
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 Good afternoon. My name is Jodie and I will be your conference operator today. At this time, I would like to welcome everyone to the Eurocastle First Half 2013 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

 (Operator Instructions)

 Thank you. I would now like to turn the conference over to Andrew Dempsey, Managing Director of Fortress. Please go ahead, sir.

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 Andrew Dempsey,  Fortress Investment Group - Managing Director   [2]
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 Thank you, Jodie. Good afternoon, and I'd like to welcome all of you to Eurocastle's First Half 2013 Earnings Call. Joining us today are Francesco Colasanti, Managing Director at Fortress, covering Fortress' European real estate-related investments, and Steve Charlton, Eurocastle's CFO.

 This call is being recorded and the replay number is on our website. This call is also available via webcast at our website, which is www.eurocastleinv.com. I'd also like to point out that statements, opinions and beliefs communicated today which are not certain historical facts may, in fact, be forward-looking statements. Our ability to predict results or the actual outcomes of current actions and future plans is limited.

 Although we believe that the expectations reflected in any such statements are based on reasonable assumptions, our actual performance results may differ materially from those set forth in any estimates, projections or expectations expressed in any statement we make and from any past performance or result.

 In addition, references to past trends or activities should not be taken as representation that such trends or activities will continue in the future. Eurocastle does not undertake any obligation to update any such statements, which generally speak only as of the end of the first half of 2013.

 With that, I'd like to turn the call over to Francesco Colasanti. Francesco?

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [3]
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 Thanks, Andrew. Welcome, everyone, to Eurocastle First Half 2013 Earnings Call. First, I'd like to mention that through the duration of this call we'll be referencing a presentation that we posted on our website under the Financial Information section and which I hope you will find helpful.

 So, the first half of this year was very transformational and productive for Eurocastle. Our main focus was to rebound the Company's capital structure, institute a new investment strategy focused on Italy, and reach equity for new investments in line with our investment strategy. We also continue to be focused on realizing the value from our legacy business. And today we'll run through the progress we've made so far.

 So, early this year we've cleaned up the capital structure through the conversion of the convertible debt into ordinary shares at EUR0.05 per share. As part of the conversion process, we agreed with Fortress, our manager, to reduce the base management fee, resulting in annualized savings for Eurocastle of over EUR17.5 million. We obtained shareholders' approval to complete a 200-to-one share consolidation, reducing the total number of shares outstanding to 17.6 million.

 The restructuring of the capital structure gave us the opportunity to go out and raise capital for new investments around distressed Italian loans and real estate-related assets. In May, we issued 15 million shares at the price of EUR7.25 per share, generating gross proceeds of approximately EUR109 million.

 Since May, we've invested EUR16.6 million in one pool of Italian performing loans and five pools of Italian non-performing loans with expected gross unlevered IRR of over 18%. We also agreed to reinstate the payment of an annual dividend of EUR0.50 per share starting from the third quarter, subject to resources being available and the board approval.

 And now I'll turn to Steve for a summary of our financial results for the first half of this year.

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [4]
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 Thank you, Francesco, and welcome, everyone. I'll spend a few minutes reviewing the financial highlights set out on slide three of the presentation. More details are contained in the appendix of the presentation as well as in the comprehensive half-yearly financial statements released today.

 After adjusting for the convertible bond conversion and the recent capital raise, the pro forma net asset value at the end of 2012 was EUR12.61 per share. Mainly as a result of some specific asset valuation events within the legacy German commercial real estate and [debt] businesses, Eurocastle's NAV at the half-year-end was EUR378.4 million, or EUR11.60 per share.

 Italian investments and available corporate cash accounted for EUR4.19 per share, while the NAVs in the German real estate and debt businesses were EUR5.15 and EUR2.26 per share, respectively.

 Eurocastle recorded a net loss during the first six months of EUR52.5 million, largely as a result of the fair value movements in the legacy portfolios already mentioned. Excluding these valuation changes and gains and losses on asset sales, normalized FFO for the first six months of 2013 was EUR9.4 million, compared to normalized FFO of EUR2.4 million for the comparable period in 2012. This in part reflects the lower base management fees in the second quarter this year.

 Slide 18 shows the breakdown of FFO and normalized FFO between the Group's business segments as well as separating the German real estate and debt businesses into non-recourse book values for that are freely cash flowing. And those are currently cash trends.

 For the first half of the year, the normalized FFO for the Italian business and for the cash flowing legacy portfolios was EUR3.4 million after absorbing all corporate overheads. From a pure cash flow perspective, taking into account cash released from asset sales, year-to-date cash distributions for the [topco] from the legacy portfolios was EUR22.6 million, of which EUR21.5 million came from the German real estate business. This is shown in more detail on slides 13 and 14.

 Now turning to dividends. No dividends were declared or paid during the first half; however, as a result of the change in the Company's articles, approved at the AGM in May, we are now ready to start paying dividends. We have previously announced our intention to reinstate an annual dividend of $0.50 per share, subject to Eurocastle having available resources. We expect the board to declare an interim dividend at the end of the third quarter, payable in November.

 With this, let me turn back to Francesco for an update on Eurocastle's business and outlook for the third quarter.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [5]
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 Thank you, Steve. So, as you can see on page four of this presentation, today Eurocastle business is split between two core segments -- the Italian investments and the legacy business. The Italian investments represent new investment strategies for Eurocastle. The combined NAV for this segment is EUR137 million, which includes investment made in the first six months of this year, in line with the new strategy, and the corporate cash available for the new investments.

 The other side is our legacy business, which combines investment in German commercial real estate and European real estate-related debt with combined NAV of EUR242 million. The market cap of Eurocastle as of August 5 was EUR281 million, and excluding the new Italian investments and the available cash implies EUR144 million valuation for the legacy business for approximately 40% discount to the legacy business NAV.

 First of all, I'd like to focus on the Italian investment strategy and why we are so excited about the marketplace and the size of these opportunities. As I mentioned before, we started a new investment program in Eurocastle, which includes investments in the Italian distressed loans and real estate-related assets.

 In order to achieve our investment objectives, we developed a strategic relationship with [Italfundiaria], that is Italy's largest independent, non-bank special servicer and is an affiliate of our manager, Fortress Investment Group. We believe that in order to succeed in investing in Italy in this asset class is crucial to have [underground] presence and partnership with a strong servicing platform that Italfundiaria offers to us.

 We also intend to leverage our manager's experience in Italy. Fortress has been actively in Italy, and specifically in this asset class, for over a decade and has a strong team of professionals with very good experience in sourcing investment opportunities and long-term relationships with senior management of top Italian banks. We believe that these factors give Eurocastle a significant competitive advantage and provides access to a wide range of investment opportunities, as well as underwriting and active servicing of portfolio (inaudible).

 Italian [care] portfolios are typically highly diversified and require active loan-by-loan underwriting and asset management, and we believe, really, that we have a top tier team to execute this strategy and generate very attractive risk-adjusted returns for our shareholders. A typical portfolio, as is shown in page five of the presentation, is what I call a mixed bag of collateral.

 So, if you look at the pie chart you can see that the collateral could vary from between commercial real estate, residential real estate, retail real estate, loans with personal and corporate guarantees and other collateral, and finally, unsecured piece.

 Given the general market conditions and the current situation of the Italian banks, we think that we can buy these NPLs somewhere between EUR0.20 and EUR0.30 of face value. Through active management such as discounted pay-offs, loan restructuring and judicial recoveries, we believe the investment can generate mid to high teens and 1.5 to two times multiple on our money.

 So, if you look on the next page, you can see that the Italian NPLs are at all-time high and growing. The past six months, we've seen the inventory of NPLs on the banks' balance sheet growing from EUR125 billion to EUR136 billion, which is over three times increased as compared to 2008 book. We believe that after several years of inactivity the Italian banks are now entering into a third big wave of NPL sales.

 Most of you probably saw the recent headlines in the Wall Street Journal and other publications about the growing NPL inventory and the increased pressure on the Italian banks, which support our investment thesis. On page seven, you can see that. As of the December 2012, about EUR122 billion of NPLs are concentrated within the top 10 Italian banks, which is more than 90% of the total NPL inventory.

 The banks are trying now to solve for three major issues -- really create liquidity, avoid incurring losses through the sales, and deconsolidate the assets. Italy historically has been a very cyclical market, and we have not seen NPL transactions for a long time now. And this is not because of the lack of demand for this asset class, but because of the spread between bid and ask was too wide. The investors couldn't pay the book value of the banks and the banks didn't want to incur losses from the sales of these assets.

 And as I told earlier, the Bank of Italy and other European-level regulators are now increasing pressure on the Italian banks since the fourth quarter of 2012 to increase the provisions against the non-performing loan book, and with this, aligning the book value of these loans to the fair market value. And one thing that

 I'd like to mention is that once the bad loans are correctly provisioned it makes no sense at all for the banks to keep them. There's no yield, they are very asset management intensive, and require specific competencies that the banks don't have, and they have very high capital absorption. So once they are correctly provisioned, it's better for the banks to sell them and re-deploy the capital in fresh lending.

 In addition to that, we see in the Italian market significant opportunities to invest in Italian real estate market through the acquisition of existing real estate closed-end funds or direct investment in properties sold by the government or distressed sellers. The government a couple of months ago announced that it's getting ready to start selling its real estate assets to reduce the public debt.

 In addition, right now there are over 305 Italian real estate funds with over EUR50 billion of assets under management. Of these 305 funds, 22 are listed in the Milan Stock Exchange and there are approximately EUR6 billion to EUR7 billion of assets under management. Those 22 funds trade right now at an average 56% discount to NAV, and many of them are very -- at very low leverage and are very close to their life end.

 So, our goal is to provide transparency of the performance of our investments and give you confidence on the returns that we can generate. We're working hard on a number of other transactions on the NPL side that we are very optimistic about. And on page nine, we have laid out the initial investment profile and performance update so far.

 So, as I mentioned earlier in the beginning of this call, since May we have invested EUR16.6 million in Italian performing and non-performing loans. In May, we have acquired one performing and four non-performing pool of loans for EUR14 million. This investment is already performing ahead of our underwriting assumptions.

 At the end of June, the portfolio generated EUR2.8 million of cash flow, with estimated EUR4.7 million of additional cash flow currently anticipated to be received by year-end. We believe that we can improve significantly the 18.3% unlevered IRR estimated underwriting, considering the cash collected so far.

 In addition, at the end of July we made a second investment with the acquisition of 50% stake in a EUR14 million face value portfolio, fully secured for a price of EUR2.6 million, and the expected IRR unlevered for this portfolio is 18.3%.

 So, including a run rate investment for the first half of this year, we believe that the Company will be able to reinstate and annualize EUR0.50 per share, starting from the third quarter. Although the board will make the final determination, give all facts available when the decision will be made.

 In addition, if we're able to invest the further EUR128 million of cash available in the new strategy at 17.5% unlevered IRR, that should be totally feasible considering the past investments and the current market, we would expect to be able to support an increase to the dividends of EUR0.40 per share on an annualized basis, or EUR0.10 per quarter.

 So, as I mentioned before, our goal is to provide you with transparency, not only around the existing investments, but also on transactions that we are actively evaluating. Today, Fortress, on behalf of Eurocastle and other co-investors, is evaluating a strong pipeline of EUR15 billion [JBV] of non-performing loans and is currently under exclusivity agreement on a portfolio with face value of EUR3 billion and has been short-listed on a second NPL transaction with a face value up to EUR500 million.

 We are also in the process of detailed due diligence on a number of other transactions that are listed on page 12. And we will continue to update you on the progress of all these transactions.

 So, let's spend some time on the legacy business. Eurocastle's historical business model has been focused on investing in two categories of assets -- German commercial real estate and European real estate-related debt. Within our real estate portfolio, over the course of the last few years, we sold a number of assets and used the proceeds to repay the debt obligations.

 Today, the commercial real estate portfolio is composed of 383 properties across Germany, with market value of approximately EUR1.7 billion, which is an equivalent NOI of 5.7% and is held in 10 separate vehicles with no-recourse financing.

 It's important to remember that all of the debt is no-recourse for Eurocastle and, therefore, is no liability for Eurocastle to fund any shortfall. So, excluding Mars Floating, which has negative NAV but no recourse to Eurocastle, the NAV for the real estate business is EUR168 million. So our strategy continues to be focused on deleveraging certain portfolios and, where possible, realizing value for Eurocastle.

 The first half of 2013, Eurocastle funded 22 properties with sale proceeds of EUR205 million, with an additional nine assets currently under a binding contract with estimated sales proceeds of EUR93 million. Another sale contract for (inaudible) was signed (inaudible) and with approximately EUR61 million purchase price, and all this in line with the market value of the properties.

 And so I'd like to hand back to Steve now, who will discuss the debt business.

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [6]
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 Thanks, Francesco. Within our debt investment portfolio, we have EUR460 million of assets, mainly consisting of commercial real estate-backed loans and securities held across three portfolios with net assets of EUR74 million at the half-year-end. Our largest vehicle within the debt business, CDO V, is a commercial real estate debt securitization vehicle with net assets of EUR48.8 million and long-term non-recourse financing.

 At the half-year-end, it owned 60 assets with a carrying value -- that's amortized cost less impairment charges -- of EUR403.2 million and securitized debt of EUR354 million. During the half-year, we reinvested EUR29 million, which otherwise would have been diverted to repay senior debt. The investments were investment grade commercial mortgage-backed securities and purchase at an average price of EUR0.94.

 Whilst collateralization tests within this portfolio continue to fall significantly below the thresholds required for Eurocastle to receive returns, the long-term and non-recourse nature of the financing enables us to actively manage the assets over time in order to potentially achieve recovery sufficient to generate some returns to Eurocastle in the future.

 Principally, however, distributions from CDO V are limited to management fees, which amounted to approximately EUR200,000 for the year-to-date. Additional cash flows from the other two portfolios totaled EUR900,000, which were mainly in the form of excess interest.

 Amortization proceeds within CDO IV, which has net assets of EUR23.3 million, continued to be used to repay the outstanding debt, which matures in December 2014. Whilst approximately EUR400,000 was received in the first half, a further EUR15.5 million was generated in July following partial prepayments on three of the nine assets in this portfolio, reducing the outstanding loan from EUR36.6 million at the end of 2012 to EUR20.3 million today.

 The assets in this portfolio are mainly carried at market value and have performed favorably in the first half of the year, increasing by EUR5.6 million in value largely due to improvements in the performance of the underlying collateral.

 We continue to remain focused on harvesting any long-term value in CDO V, while at the same time seeking to realize cash flows in the other two smaller portfolios in the near-term. We still have a lot of hard work to do, but we are excited about our business and its potential. On behalf of everyone at Eurocastle, we thank you for your continued support and look forward to updating you on progress as the year continues to unfold.

 With that, we'd like to open the call for questions. Thank you.



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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Your first question comes from the line of [Michael Franke] from [Kingdon Capital].

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 Michael Franke,  Kingdon Capital - Analyst   [2]
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 Hi, guys. A question for you on the pipeline, I guess which was on slide 12, of EUR15 billion of face. Obviously, what that can get purchased for is really a big function of whether it's secured or unsecured, and [I saw] you guys bought -- what you guys bought in May was over a EUR3 billion portfolio for merely EUR9 million.

 And so Fortress, it looks like, has exclusivity on a EUR3 billion portfolio, which the only one that shows up is for Q4 '13. There's another one you guys are short-listed on, which is EUR500 million, and it looks like it's also Q4 '13.

 So, I guess not knowing whether they're secured or unsecured, and I guess what's the anticipation of you guys using up the EUR128 million and what kind of timeframe? And to the extent if they are -- have any security, will Fortress be partnering with you using their balance sheet? And lastly, I guess, if we are to buy things, can we expect updates more often than just on half-year results as to what's been bought?

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [3]
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 Thanks for your question. As you know, the underwriting of this portfolio -- portfolios of NPLs -- it takes quite a while. It takes two or three months to do the underwriting. We have completed the underwriting on the first portfolio is EUR3 billion, so we are discussing the results with the banks.

 And we estimated that if we reach an agreement, the binding contract will be signed in the third quarter with the closing of the contract to be made on the fourth quarter. The other pool where we have been short-listed is something that also we expect to close, if we reach an agreement on pricing, on Q4 2013, so at the end of the year.

 Regarding the amount that Eurocastle will invest, Eurocastle has EUR128 million and we expect to have approximately EUR140 million of cash available by year-end. The speed at which we will be able to invest would depend if we agree to the price of the two transactions, and the split between Eurocastle and the other co-investment filers will depend on the cash available for Eurocastle and the part of the time when the investment will be made.

 We are also looking at several other opportunities, as I mentioned in the call, for Eurocastle on both the real estate -- Italian real estate funds that in my opinion could be a really interesting investment opportunity for us as well as other kind of claims and receivables that we can buy in the Italian territory that where we have a lot of experience also (inaudible) from the other and can generate the same return we are seeing here, so 15% to 20%.

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 Michael Franke,  Kingdon Capital - Analyst   [4]
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 Okay. And, Francesco, I guess, just on the two portfolios that we talked about, that if you can get to agreement on pricing, I guess, the wildcard -- what I don't know is -- if it's an unsecured portfolio, it's goes for pennies on the dollar, and if it's secured, obviously it can go for $0.30 on the dollar, and those are obviously big deltas as we're talking about a EUR3 billion face, anywhere from EUR10 million to EUR1.5 billion. So, I just -- is there -- can you give a sense as to what percentage of those portfolios you're looking at are secured?

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [5]
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 The EUR500 million is mainly secured.

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 Michael Franke,  Kingdon Capital - Analyst   [6]
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 Okay.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [7]
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 So the majority of the EUR500 million is secured. And the pool one is a mix of secured and unsecured. The secured portion, depending on the final portfolio that we acquire, but could range between 30% and 40%.

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 Michael Franke,  Kingdon Capital - Analyst   [8]
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 Okay. Okay, that helps. That helps me a lot, at least trying to benchmark. So, it would seem that if you guys did -- depending on what your co-partners that you would -- if, obviously, if the math on the last three deals that you've done seems correct, that it would seem like you -- if both of these transactions consummated, you would need a partner to get them fully completed?

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [9]
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 Yes, yes, yes, definitely. But I would assume that if both of these transactions will happen, most of the cash currently available to Eurocastle would be deployed.

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 Michael Franke,  Kingdon Capital - Analyst   [10]
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 Understood. Okay, thank you very much. And will you guys be updating the market, other than just -- if you were to buy one of these, can we expect to hear --? I think people -- it's important for people to hear the progress you guys are making as you make it, each time you find a deal as opposed to waiting three to six months each time.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [11]
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 I totally agree with you. And as I mentioned in the call, we want to give investors transparency on what we're doing, so when we do the deals, the significant deals like this, we will have a call with our investors to update on what we're doing.

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 Michael Franke,  Kingdon Capital - Analyst   [12]
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 Okay, great. Thank you very much, Francesco.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [13]
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 No problem. Thank you.

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Operator   [14]
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 (Operator Instructions). Your next question comes from the line of [Edmond Faffa] from [EMF].

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 Edmond Faffa,  EMF - Analyst   [15]
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 Hi. I have a couple of questions. On the Italian funds that was at discount, is the strategy just to find compelling opportunities, or is there something more active about it? Do you -- is the passive stakes effectively that you're just waiting for liquidation, or do you have to do something - I came to while you do it when you buy these other portfolio where you actually have to service it or liquidate it.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [16]
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 Well, it's a combination of things. As you see, there are 22 funds, EUR7 billion of assets under management. Many of them have very low leverage, so you are actually buying at a very high discount to the asset value -- net asset value. And it's a combination of things.

 Certain investments could be seen as a minority investment because it's a specific opportunity, maybe the fund is very close to liquidation. Being in the market, we know that the properties will be sold and so we can realize the value, not being actively part of this liquidation of this portfolios.

 In other circumstances, we might find an opportunity to invest in funds where we can actually help toward the liquidation of the assets, and so be actively involved with the liquidation of the realization of the value for us.

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 Edmond Faffa,  EMF - Analyst   [17]
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 Understood. And on the new NPLs you're buying, how does it get reflected on the balance sheet and on the NAV of that business? Is it as you're paying -- is there a big discount and you have large distributions over time, do you have a methodology for mark-to-market or you just amortize it? How do we -- how is that going to be represented on the NAV?

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [18]
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 Edmond, it's Steve. The way we're accounting for our NPL investments is to use a discounted cash flow approach.

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 Edmond Faffa,  EMF - Analyst   [19]
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 Okay.

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [20]
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 So in relation to the portfolios that we've all seen in May, we bought them with an IRR of 18.3%. And then, based on the cash flows we've received to date, plus known cash flows to the end of July, together with our original underwriting cash flows, we then discounted those cash flows at the same rate --

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 Edmond Faffa,  EMF - Analyst   [21]
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 Understood.

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [22]
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 -- (inaudible) and that gave rise to an effective increase in value on that portfolio of approximately EUR1 million. So that's the methodology.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [23]
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 Actually, using this methodology, this portfolio has now an IRR of 22%.

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 Edmond Faffa,  EMF - Analyst   [24]
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 Right. One other question on the legacy real estate portfolio. You announced certain asset sales and [releasing staff]. It's very hard for us to follow all of that; there's billions of dollars of assets in there. So, there are changes in the valuations as well.

 I guess where I'm going is when you separate on the table the cash-flowing properties or portfolios you have, without making a promise, but is the idea that these are in a place where they can continue to generate cash or their underlying operating performance is deteriorating or improving? Can you give us a little bit of a general sense of where the real estate values are going in Germany so that we can look forward and sort of see where the value is going to come from?

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [25]
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 I think it's a good (inaudible). So, in terms of where the properties are going in Germany, the investment market or similar properties, like commercial real estate, has been -- 2013 has been pretty good, actually. The transaction volume is around like EUR12.6 billion, and it's probably an increase around 34%, EUR 30.2 billion compared to last year, the same period. And it's probably the best result since 2007.

 So the appeal for the income-producing properties in Germany is high, although it's concentrated mainly in the five major cities. And if you look at our portfolios, not all of our assets are concentrated in the main cities, so we have very diversified portfolios. But to respond to your question, if you look at certain cash stock portfolios and other portfolios are cash-flowing.

 So, the performance on the cash-flowing portfolio is actually pretty good. We have a retail portfolio that is actually generating a significant amount of cash flow. And as debt, that has duration for the next -- has to be reimbursed in the next three to four years, so it's quite a long duration.

 There are other portfolios that are under cash traps, so we are at the same time generating good fees -- management fees and sales fees -- for Eurocastle, like the Drive portfolio. And there are other assets where actually through the management of the underlying properties we expect to be able to place the assets to the market, stabilize the occupancy rate, and sell them and generate cash available for distribution after having repaid the debt, such as --.

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 Edmond Faffa,  EMF - Analyst   [26]
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 Right.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [27]
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 -- [our Wave] portfolio. So, I think that it's -- our assets [are not] located in the best locations. Certainly, like portfolio, have their own challenges, like the Mars portfolio, but many of them generate recurring cash flow, operating cash flow that we have -- we own as Eurocastle. And in any case, we generate a reasonable amount of fees from the Drive portfolio that is cash trapped and we are actively working on selling the assets.

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 Edmond Faffa,  EMF - Analyst   [28]
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 Understood. Okay, thank you very much.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [29]
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 Thank you.

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [30]
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 Thank you.

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Operator   [31]
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 (Operator Instructions). There are no further questions at this time. I will now turn it back over to management for closing remarks.

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 Andrew Dempsey,  Fortress Investment Group - Managing Director   [32]
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 Thanks, everyone, for attending the First Half Eurocastle Earnings Call and we thank you for your continued support. If you have any further questions, please reach out to us on (inaudible) through Investor Relations.

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 Steve Charlton,  Eurocastle Investment LTD - CFO   [33]
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 Thank you, everyone.

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 Francesco Colasanti,  Fortress Investment Group - Managing Director   [34]
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 Thank you.

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Operator   [35]
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 Thank you. That concludes today's conference call. You may now disconnect.




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