Notes to the Financial Statements

For the year ended 31 March 2023

1. General Information

Real Estate Credit Investments Limited (“RECI” or the “Company”) was incorporated in Guernsey, Channel Islands on

6 September 2005 with registered number 43634. The Company commenced its operations on 8 December 2005.

The Company invests in real estate debt secured by commercial or residential properties in the United Kingdom and

Western Europe, focusing primarily on those countries where it sees the changing dynamics in the real estate debt market

offering a sustainable deal flow for the foreseeable future. The Company has adopted a long-term strategic approach to

investing and focuses on identifying value in real estate debt. In making these investments the Company uses the expertise

and knowledge of its Alternative Investment Fund Manager (“AIFM”), Cheyne Capital Management (UK) LLP (“Cheyne” or

the “Investment Manager”).

The Company’s 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. The shares offer investors a levered exposure to a portfolio of real estate

credit investments and aim to pay a quarterly dividend.

The Company’s investment management activities are managed by the Investment Manager, who is also the AIFM. The

Company 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 Company is an Alternative Investment Fund (“AIF”) within the meaning of the Alternative Investment

Fund Managers Directive (“AIFMD”) and accordingly the Investment Manager has been appointed as the AIFM of the

Company, which has no employees of its own. For its services, the Investment Manager receives a monthly Management

Fee, expense reimbursements and accrues a Performance Fee (see Note 18). The Company has no ownership interest in the

Investment Manager.

Citco Fund Services (Guernsey) Limited is the Administrator and provides all administration services to the Company in this

capacity. The Bank of New York Mellon (International) Limited is the Depositary and undertakes the custody of assets. Aztec

Financial Services (Guernsey) Limited is the Company Secretary.

2. Significant Accounting Policies

Statement of Compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards

(“IFRS”), which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”),

and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International

Accounting Standards Committee (“IASC”) that remain in effect, together with applicable legal and regulatory requirements

of Guernsey Law and the Listing Rules of the UK Listing Authority. The same accounting policies, presentation and methods

of computation have been followed in these financial statements as were applied in the preparation of the Company’s audited

financial statements for the year ended 31 March 2022.

New Standards, Amendments and Interpretations Issued and Effective for the Financial Year Beginning 1 April 2022

Amendment to International Accounting Standards (“IAS”) 37 – Onerous Contracts: Cost of Fulfilling a Contract

The amendments apply a ‘direct related cost approach’. The costs that relate directly to a contract to provide goods or services

include both incremental costs and an allocation of costs directly related to contract activities. General and administrative

costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the

contract. The amendments must be applied prospectively to contracts for which an entity has not yet fulfilled its obligations at

the beginning of the annual reporting period in which it first applies the amendments. The amendment is intended to provide

clarity and help ensure consistent application of the standard. Entities that have previously applied the incremental cost

approach will see increased provisions to reflect the intrusion of costs related directly to contract activities. Judgement will

be required in determining which costs are ‘directly related to contract activities’, but the guidance in IFRS 15 Revenue from

Contracts with Customers will be relevant. The amendments to IAS 37 are effective for annual periods beginning on or after

1 January 2022. The amendments have no material impact on the financial statements of the Company.

New Standards, Amendments and Interpretations Issued but not Effective for the Financial Year Beginning 1 April 2022

and not Early Adopted

Title

Effective for

periods beginning

on or after

IFRS 17

Insurance Contracts

1 January 2023

Amendments to IAS 1 –

Classification of Liabilities as Current or Non-current

1 January 2023

Amendments to IAS 8 –

Definition of Accounting Estimates

1 January 2023

Amendments to IAS 1 and IFRS Practice Statement 2 –

Disclosure of Accounting Policies

1 January 2023

Amendments to IAS 12 –

Deferred Tax related to Assets and Liabilities arising from a Single Transaction

1 January 2023

IFRS 17 Insurance Contracts has no material impact on the financial statements as the Company does not have

insurance contracts.

Amendments to IAS 1 affect only the presentation of liabilities in the Statement of Financial Position and not the amount or timing

of recognition of any asset, liability income or expenses, or the information that the Company discloses about those items.

Amendments to IAS 8 are intended to provide preparers of financial statements with greater clarity as to the definition of

accounting estimates, particularly in terms of the difference between accounting estimates and accounting policies. Earlier

application is permitted. The Company did not early adopt these amendments and expects that the amendments will have

no material impact on the financial statements.

Amendments to IAS 1 and IFRS Practice Statement 2 provide guidance and examples to help entities apply materiality

judgements to accounting policy disclosures. Determining whether accounting policies are material or not requires use

of judgement. Earlier application is permitted. The Company did not early adopt these amendments and expects that the

amendments will have no material impact on the financial statements.

Amendments to IAS 12 clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement

(having considered the applicable tax law) whether such deductions are attributable for tax purposes to the liability recognised

in the financial statements (and interest expense) or to the related asset component (and interest expense). Earlier application is

permitted. The Company did not early adopt these amendments and expects that the amendments will have no material impact

on the financial statements.

Basis of Preparation

The financial statements of the Company are prepared under IFRS on the historical cost or amortised cost basis except for

financial assets and liabilities classified at fair value through profit or loss which have been measured at fair value.

The functional and presentation currency of the Company is British Pounds (“GBP” or “£”) which the Board considers best

represents the economic environment in which the Company operates.

Going Concern

The Directors believe it is appropriate to adopt the going concern basis in preparing the financial statements as, after due

consideration, they consider that the Company has adequate resources to continue in operational existence for a period of

at least twelve months from the date of signing the audited financial statements.

The Investment Manager performed an evaluation of each of its positions in light of all macroeconomic factors on operating

models and valuations, and performed a granular analysis of the future liquidity profile of the Company. A detailed cash flow

profile of each investment was completed, incorporating the probability of likely delays to repayments, other stress tests (and

additional cash needs).

Taking account of the updated forecasting, the Directors consider that the cash resources available as at 31 March 2023

of £14.1 million (31 March 2022: £47.4 million), together with the cash collateral at broker of £2.4 million (31 March 2022:

£5.2 million), the liquidity of the market bond portfolio and the financing available through activities such as repurchase

agreements as described in Note 13, are sufficient to cover normal operational costs and current liabilities, including the

proposed dividend, and the expected funding of loan commitments as they fall due for a period of at least twelve months from

the date of signing the audited financial statements. The Directors note that a key assumption adopted in the going concern

analysis is that leverage through repurchase agreements is not withdrawn. Net debt (leverage minus cash) as at 31 March

2023 was 19.1% (31 March 2022: 14.0%).

Notwithstanding the Directors’ belief that this assumption remains justifiable, the Directors have also determined a number

of mitigations to address a scenario where all outstanding repurchase agreements are required to be settled as they fall

due. Whilst there would be a number of competing strategic factors to consider before implementation of such options, the

Directors believe that these are credible and can generate sufficient liquidity to enable the Company to meet its obligations

as they fall due. Such strategies include further sales of assets within the bond portfolio, cessation or delay of any future

dividends, obtaining longer-term and non-recourse financing, and entering into some off-balance sheet financing agreements

which have partial recourse to the Company.

In carrying out the Company’s strategy, the Investment Manager undertakes the following measures:

• An initial and continuing detailed evaluation of each of its positions in light of the various impacts of changing economic

circumstances on operating models and valuations;

•

Positive engagement with all borrowers and counterparties; and

•

Continued granular analysis of the future liquidity profile of the Company.

As disclosed in Note 19, as at 31 March 2023, the Company had committed £572.0 million into the loan and bond portfolio of

which £367.8 million had been funded (31 March 2022: £522.9 million commitment of which £284.4 million had been funded).

The Investment Manager models these expected commitments and only funds if the borrowers meet specific business plan

milestones.

In consideration of this additional stressed scenario and mitigations identified, the Directors consider that the Company has

adequate resources to continue in operational existence for a period of at least twelve months from the date of signing the

financial statements.

Financial Assets at Fair Value Through Profit or Loss

The Company classifies its investments based on both the Company’s business model for managing those financial assets and

the contractual cash flow characteristics of the financial assets. The portfolio of financial assets is managed and performance

is evaluated on a fair value basis. The Company is primarily focused on fair value information and uses that information to

assess the assets’ performance and to make decisions. The Company has not taken the option to irrevocably designate

any equity securities at fair value through other comprehensive income. The contractual cash flows of the Company’s debt

securities are not solely principal and interest, and these securities are neither held for the purpose of collecting contractual

cash flows nor held both for collecting contractual cash flows and for sale. The collection of contractual cash flows is only

incidental to achieving the Company’s business model’s objective. Consequently, all investments are measured at fair

value through profit or loss. The gain or loss on reassessment of fair value is recognised immediately in the Statement of

Comprehensive Income.

The interest receivable from loans and bonds were reported as part of financial assets at fair value through profit or loss.

The related interest income and expense remained to be included under interest income and expense accounts.

Financial Liabilities at Fair Value Through Profit or Loss

Financing agreements entered into for the purpose of efficient portfolio management are measured at fair value through profit

or loss. The gain or loss on reassessment of fair value is required to be split into the amount of change in fair value attributable

to changes in credit risk of the liability, presented in other comprehensive income, and the remaining amount presented in profit

or loss. The Company’s gain or loss on reassessment of fair value is recognised immediately in the Statement of Comprehensive

Income as the Company has taken its position to recognise the full amount of change in the fair value in profit or loss.

Financial Assets at Amortised Cost

A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold financial assets

in order to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely

payments of principal and interest on the principal amount outstanding. This includes cash and cash equivalents, cash

collateral at broker and other assets.

Financial Liabilities at Amortised Cost

Other liabilities include all other liabilities.

Initial Measurement

Financial assets and liabilities at fair value through profit or loss are measured initially at fair value, with transaction costs

for such financial assets and liabilities being recognised directly in the Statement of Comprehensive Income.

Financial assets and liabilities at amortised cost are measured initially at their fair value plus any directly attributable

incremental costs of acquisition or issue.

Purchases and sales of financial assets and liabilities at fair value through profit or loss are accounted for at trade date.

Realised gain/(loss) on disposals of financial assets and liabilities is calculated using the first-in, first-out (“FIFO”) method.

Subsequent Measurement

After initial measurement, the Company measures financial assets which are classified as at fair value through profit or loss,

at fair value.

Financial liabilities held for trading are measured at fair value through profit or loss, and all other financial liabilities are

measured at amortised cost, unless the fair value option is applied. The Company classifies its financial liabilities as at fair value

through profit or loss.

After initial measurement, the Company measures financial assets and liabilities which are classified as at amortised cost,

at amortised cost using effective interest method.

Recognition

All regular way purchases and sales of financial assets or liabilities are recognised on the trade date, which is the date on which

the Company commits to purchase or sell the financial assets or liabilities. Regular way purchases or sales are purchases or

sales of financial assets or liabilities that require delivery of assets within the period generally established by regulation or

convention in the market place.

Derecognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire

or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IFRS 9.

The Company derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or

has expired.

 

Cash and Cash Equivalents

Cash and cash equivalents includes amounts held in interest-bearing accounts and overdraft facilities with original maturities

of less than three months.

 

Derivative Financial Instruments

Derivative financial instruments used by the Company to manage its exposure to foreign exchange arising from operational,

financing and investment activities are accounted for as financial assets or liabilities at fair value through profit or loss.

Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on revaluation of fair

value is recognised immediately in the Statement of Comprehensive Income.

The fair value of an open forward foreign exchange contract is calculated as the difference between the contracted rate and

the current forward rate that would close out the contract on the reporting date. The change in value is recorded in net gains

on financial assets and liabilities through profit or loss in the Statement of Comprehensive Income. Realised gains and losses

are recognised on the maturity of a contract, or when the contract is closed out and they are transferred to realised gains or

losses in the Statement of Comprehensive Income.

Fair Value

All financial assets carried at fair value are initially recognised at fair value which is equivalent to cost and subsequently

re-measured at fair value. If independent prices are unavailable, the fair value of the financial asset is estimated by reference

to market information which includes, but is not limited to, broker marks, prices of comparable assets and using pricing models

incorporating discounted cash flow techniques and valuation techniques such as modelling.

These pricing models apply assumptions regarding asset specific factors and economic conditions generally, including

delinquency rates, severity rates, prepayment rates, default rates, maturity profiles, interest rates and other factors that may be

relevant to each financial asset.

The objective of a fair value measurement is to determine the price at which an orderly transaction would take place between

market participants on the measurement date, rather than the price arrived at in a forced liquidation or distressed sale. Where

the Company has considered all available information and there is evidence that the transaction was forced, it will not use

such a transaction price as being determinative of fair value.

Note 3 provides specific information regarding the determination of fair value for the Company’s bonds and loans.

Offsetting Financial Instruments

Financial assets and liabilities are offset and the net amount is reported within assets and liabilities when there is a legally

enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and

settle the liability simultaneously.

Expenses Attributable to Any Issue of Shares

The expenses of the Company attributable to any issue of shares are those which are necessary to implement such an issue

including registration, listing and admission fees, corporate finance fees, printing, advertising and distribution costs, legal fees

and other applicable expenses. They are recognised as incurred and are included as a reduction to Reserves in the Statement

of Changes in Equity.

Foreign Currency Transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated to GBP at the

foreign exchange rate ruling at that date.

Foreign exchange differences arising on translation are recognised in gains and losses on financial assets and liabilities at fair

value through profit or loss in the Statement of Comprehensive Income. Foreign currency denominated non-monetary assets

and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the

date of transaction.

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to GBP

at foreign exchange rates ruling at the reporting date. Differences arising on translation of these non-monetary assets and

liabilities between valuation points are recognised in the Statement of Comprehensive Income.

Interest Income

Interest income from financial assets at fair value through profit or loss are recognised within interest income in the Statement

of Comprehensive Income using the effective interest method.

 

Expenses

All expenses are included in the Statement of Comprehensive Income on an accrual basis.

 

Taxation

The Company is a tax-exempt Guernsey limited company and accordingly, no provision for tax is made.

Other Receivables

Other receivables do not carry any interest and are short term in nature and are accordingly stated at their nominal value as

reduced by appropriate allowances for estimated irrecoverable amounts.

Financial Liabilities and Equity

Financial liabilities and equity are classified according to the substance of the underlying contractual arrangements. An equity

instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

Financial liabilities and equity are initially recorded at the proceeds received, net of issue costs and subsequently at amortised

cost. The shares have been classified as equity.

Other Liabilities

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

Segment Information

The Company has two reportable segments, being the Bilateral Loan and Bond Portfolio and the Market Bond Portfolio.

The real estate debt investment strategy of the Company focuses on secured commercial and residential debt in the

United Kingdom and Western Europe. Each segment engages in separate business activities and the results of each segment

are regularly reviewed by the Board of Directors which fulfils the role of Chief Operating Decision Maker for performance

assessment purposes.

Financing Agreements

The Company enters into repurchase agreements for the purpose of efficient portfolio management. There are no material

revenues arising from the use of repurchase agreements and transaction costs are embedded in the price of the investments

and are not separately identifiable. Securities purchased under agreements to resell are valued at fair value and adjusted for

any movements in foreign exchange rates. Interest rates vary for each repurchase agreement and are set at the initiation of

each agreement. It is the lender’s policy to take custody of securities purchased under repurchase agreements and to value

the securities on a daily basis to protect the lender in the event the securities are not repurchased by the Company. The

Company will generally post additional collateral if the market value of the underlying securities decline and are less than the

face value of the repurchase agreements plus any accrued interest. In the event of default on the obligation to repurchase, the

lender has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or

bankruptcy by the counterparty to the agreement, realisation and/or retention of the collateral or proceeds may be subject to

legal proceedings.

Financial Guarantee

Financial guarantees require the Company to make specified payments to reimburse the holder of the guarantee for a loss it

incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt

instrument. Financial guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees

received. This amount is amortised on a straight line basis over the life of the guarantee. At the end of each reporting period,

the guarantees are measured at the higher of (i) the amount of the loss allowance for the guaranteed exposure determined

based on the expected loss model and (ii) the remaining unamortised balance of the amount at initial recognition.

3. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

In the process of applying the Company’s accounting policies (described in Note 2), the Company has determined that the

following judgements and estimates have the most significant effect on the amounts recognised in the financial statements:

Critical Accounting Judgements

Classification of Financial Assets at Fair Value Through Profit or Loss

As described on pages 78-79, classification and measurement of financial assets under IFRS 9 are driven by the entity’s business

model for managing financial assets and the contractual cash flow characteristics of those financial assets.

As further described on pages 78-79, the contractual cash flow characteristics for loan investments are not solely payments of

principal and interest. For the loans held via Stornoway Finance S.à r.l. and ENIV S.à r.l., the Company receives the return for each

underlying loan net of expenses and so it is not considered to be a basic lending arrangement under the standard. As such, these

loan investments are required to be measured at fair value through profit or loss. The loans held via ENIV S.à r.l. are listed and

considered bonds.

In making the judgement regarding Stornoway Finance S.à r.l. and ENIV S.à r.l., the Directors have considered the power

the Company has to influence the investment decisions of the Special Purpose Vehicle housing the underlying loans and

where the Company holds the majority interest it has been determined that the contractual cash flow characteristics for a

basic lending arrangement would be met. However, IFRS 9 also requires an assessment of the business model within which

assets are held. In the case of the Company’s loan investments the Directors have determined that they monitor and evaluate

business performance, manage risk and compensate the Investment Manager based on fair value measures. The business

model is therefore not solely for holding and collecting contractual cash flows to maturity and requires all loan investments to

be measured at fair value through profit or loss.

The Company’s bond investments are classified and measured at fair value through profit or loss in accordance with the above

fact pattern.

Were it to be determined that the business model for managing financial assets and the contractual cash flow characteristics

of those financial assets were not described above, these assets would be classified and measured at amortised cost with

provisions made for expected credits losses and changes to expected credit losses at each reporting date.

Key Sources of Estimation Uncertainty

Valuation of Financial Assets at Fair Value Through Profit or Loss

In accordance with the Company’s accounting policies, the fair value of market bonds is based on quoted prices where such

prices are available from a third party in a liquid market.

The Company has made loans and bonds into structures to gain exposure to real estate secured debt in, but not limited to,

the United Kingdom and Western Europe. These loans are not traded in an active market and there are no independent quotes

available for these loans. The fair values of financial instruments that are not traded in an active market are determined using

valuation techniques such as discounted cash flows models. The rate used to discount future cash flows represents key source of

estimation uncertainty that has material impact on the valuation of the investment portfolio. In the absence of market observable

inputs, this uncertainty translates into a wide range of appropriate discount rates. The Investment Manager believes that the loan

or bond’s own initial effective interest rate represents the most appropriate point estimate within that range.

The Investment Manager has considered relevant geopolitical and macro economic factors including the rise of market interest

rate and continues to believe that this key judgement remains appropriate due to the bespoke nature of the investment portfolio

and the dislocation between the yield of these assets and the market interest rate. The fair value of these loans is linked directly

to the value of the real estate loans in the underlying structure the Company invests in, which are determined based on modelled

expected cash flows (drawdown principal and interest repayments, and maturity dates) with effective yields ranging from 6.2% to

13.2% (31 March 2022: 5.1% to 13.3%).

As highlighted in the long-term viability section in the Strategic Report, the Investment Manager performed an evaluation of each

of its positions, taking into account all relevant geopolitical and macro economic risks, on its operating models and valuations. A

detailed cash flow profile of each investment was completed, incorporating the probability of likely delays to repayments, other

stress tests (and additional cash needs); these were taken into account in the modelled expected cash flows for 31 March 2023.

Adjustments in the fair value of the real estate loans are considered in light of changes in the credit quality of the borrower and

underlying property collateral. On origination of the loan, the Investment Manager performs due diligence on the borrower

and related security/property. This includes obtaining a valuation of the underlying property (to assess loan-to-value of the

investment). In most instances, the terms of the loan require periodic re-valuation of the underlying property to check against

loan-to-value covenants.

The valuation policy for contingent fees and potential profit participations provided for in contractual arrangements is to mark

them at fair value, which in most instances have been obtained for a zero or de-minimis cost, and they are held at this value until

there is sufficient evidence that the position should be revalued.

The Company has been closely monitoring this and indeed all other material macro sources of uncertainty related developments,

such as inflation, supply chains, and other events (including The Ukraine effect, Covid-19 pandemic, the effects of climate change

and cyber security), to ensure that these updated assumptions and any potential impact have been reflected in the valuation of

financial assets at fair value through profit or loss as at 31 March 2023. Future valuation might change significantly in the future.

4. Net (Losses)/Gains on Financial Assets and Liabilities at Fair Value Through Profit or Loss

31 Mar 2023

GBP

31 Mar 2022

GBP

Net gains/(losses)

Net (losses)/gains on market bond portfolio

(8,155,580)

369,084

Net gains on bilateral loan and bond portfolio

12,621,921

2,373,105

Net (losses)/gains on foreign exchange instruments and other foreign currency

transactions

(5,730,490)

2,609,285

Net (losses)/gains on financial assets and liabilities at fair value through

profit or loss

(1,264,149)

5,351,474

5. Operating Expenses

Note

31 Mar 2023

GBP

31 Mar 2022

GBP

Investment management, administration and depositary fees

Investment management fees

18

4,296,688

4,367,244

Administration fees

18

276,595

261,584

Depositary fees

18

65,137

65,969

4,638,420

4,694,797

Other operating expenses

Legal fees

456,542

298,801

Directors’ fees

215,000

213,625

Audit fees

140,775

115,250

Corporate secretary fees

96,214

87,761

Registrar fees

60,000

(23,127)

Fees to auditor for non-audit services

39,500

37,500

D&O insurance fees

24,547

(9,558)

Regulatory body expenses

23,732

36,266

Research fees

35,000

60,388

Other expenses

413,932

329,648

1,505,242

1,146,554

Total operating expenses

6,143,662

5,841,351

The ongoing costs of the Company are shown in the Key Information Document (KID) published on the Company’s website.

The total figure of 2.23% (31 March 2022: 2.36%) is made up of the Investment Manager’s fee of 1.25% (31 March 2022: 1.25%),

other ongoing costs of 0.42% (31 March 2022: 0.46%), and finance costs (which are disclosed separately in the financial

statements) of 0.56% (31 March 2022: 0.65%). The finance costs may vary and are only incurred to increase the overall returns

to investors.

6. Interest Income and Finance Costs

The following table details interest income and finance costs from financial assets and liabilities for the year:

31 Mar 2023

GBP

31 Mar 2022

GBP

Interest income

Real Estate Credit Investments – market bond portfolio

4,960,473

3,241,955

Real Estate Credit Investments – bilateral loan and bond portfolio

26,747,271

23,729,772

Cash and cash equivalents and other receivables

214,799

10,063

Total interest income

31,922,543

26,981,790

Finance costs:

Cost of financing agreements

(3,972,353)

(1,954,553)

Total finance costs

(3,972,353)

(1,954,553)

7. Dividends

31 Mar 2023

GBP

31 Mar 2022

GBP

Share dividends

Fourth dividend for the year ended 31 March 2022/31 March 2021

6,879,974

6,879,974

First dividend for the year ended 31 March 2023/31 March 2022

6,879,974

6,879,974

Second dividend for the year ended 31 March 2023/31 March 2022

6,879,974

6,879,974

Third dividend for the year ended 31 March 2023/31 March 2022

6,879,974

6,879,974

Dividends paid to Shareholders in the year

27,519,896

27,519,896

The total dividends paid during the financial year ended 31 March 2023 amounted to 12 pence per share (31 March 2022:

12 pence per share).

Under Guernsey law, companies can pay dividends provided they satisfy the solvency test prescribed under the Companies

(Guernsey) Law, 2008 as amended, which considers whether a company is able to pay its debts when they become due and

whether the value of a company’s assets is greater than its liabilities.

The Directors considered that the Company satisfied the solvency test for all dividend payments during the period from

1 April 2022 to 31 March 2023.

8. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

31 Mar 2023

31 Mar 2022

Net earnings attributable to shares (GBP)

20,550,319

24,574,377

Weighted average number of shares for the purposes of basic and diluted earnings per share

229,332,478

229,332,478

Earnings per share

Basic and diluted (pence)

9.0

10.7

9. Categories of Financial Instruments

The following table details the categories of financial assets and liabilities held by the Company at the year end date.

31 Mar 2023

GBP

31 Mar 2022

GBP

Assets

Financial assets at fair value through profit or loss:

Real Estate Credit Investments – market bond portfolio

49,243,187

98,450,555

Real Estate Credit Investments – bilateral loan and bond portfolio

351,498,723

295,890,549

Investments at fair value through profit or loss

400,741,910

394,341,104

Derivative financial assets:

Forward foreign exchange contracts

1,756,118

–

Financial assets at amortised cost:

Cash and cash equivalents

14,081,343

47,385,138

Cash collateral at broker

2,383,962

5,204,692

Other assets

27,345

22,708

Total assets

418,990,678

446,953,642

Liabilities

Financial liabilities at fair value through profit or loss:

Financing agreements

80,154,134

100,368,732

Derivative financial liabilities:

Forward foreign exchange contracts

–

1,072,792

Financial liabilities at amortised cost:

Other liabilities

1,870,637

1,576,634

Total liabilities

82,024,771

103,018,158

The value of the bond portfolio assets was £231.4 million as at 31 March 2023, excluding accrued interest of £4.3 million

(31 March 2022: £282.4 million, excluding accrued interest of £2.1 million).

See Note 16 for a summary of the movement in fair value in the Company’s investments for the year.

10. Derivative Contracts

Forward Foreign Exchange Contracts

The following forward foreign exchange contracts were open as at 31 March 2023:

Counterparty

Settlement date

Buy currency

Buy amount

Sell currency

Sell amount

Unrealised gain

GBP

The Bank of New York Mellon

19 May 2023

GBP

163,823,152

EUR

(184,070,000)

1,756,118

Unrealised gain on forward foreign exchange contracts

1,756,118

The following forward foreign exchange contracts were open as at 31 March 2022:

Counterparty

Settlement date

Buy currency

Buy amount

Sell currency

Sell amount

Unrealised loss

GBP

The Bank of New York Mellon

20 May 2022

GBP

161,432,186

EUR

(192,000,000)

(1,072,792)

Unrealised loss on forward foreign exchange contracts

(1,072,792)

11. Other Liabilities

31 Mar 2023

GBP

31 Mar 2022

GBP

Investment management, depositary and administration fees payable

Investment management fees payable

358,118

365,525

Depositary fees payable

33,090

27,086

Administration fees payable

41,939

48,392

433,147

441,003

Other operating payables

Interest payable

287,023

193,902

Registrar fees payable

88,917

28,917

Legal fees payable

73,800

27,199

Directors' fees payable

53,750

48,812

Audit fees payable

30,775

85,250

Corporate secretary fees payable

18,750

18,750

Research fees payable

17,644

17,839

Other expense accruals

866,831

714,962

1,437,490

1,135,631

Total liabilities

1,870,637

1,576,634

12. Structured Entities Not Consolidated

As at 31 March 2023 and 31 March 2022, the Company had an interest in the following structured entities. The Company

has concluded that the unlisted entities in which it invests, but that it does not consolidate, meet the definition of structured

entities because:

•

the Company has obtained funds for the purpose of providing investors with investment management services;

•

the Company’s business purpose, which was communicated directly to investors, is investing solely for returns from capital

appreciation and investment income; and

• the performance of investments is measured and evaluated on a fair value basis.

This conclusion will be reassessed on an annual basis, if any of these criteria or characteristics change.

As a result, the Company recognises its interests in structured entities as investments at fair value through profit or loss in

accordance with IFRS 10 and therefore there is no requirement to consolidate in full. However, in line with IFRS 12 Disclosure

of Interest in Other Entities, the details of the interests in the unconsolidated structured entities are disclosed below. The

maximum exposure to loss is the carrying amount of the financial assets held which is equal to the fair value of loans and units

in funds as at 31 March 2023 and 31 March 2022.

31 March 2023

Name

Fair value

of loans***

GBP

Undrawn

commitment

GBP

Nature and purpose

of the entity

Location

Equity

held

Percentage

held

Other

exposure*

Real Estate Loan Funding

(RELF)**

Earlsfield

12,612,167

707,833

To invest in

Earlsfield real estate

United

Kingdom

No

– %

No

Kensington

8,896,085

10,737,000

To invest in

Kensington real

estate

United

Kingdom

No

– %

No

Lifestory

8,215,843

4,434,157

To invest in

Lifestory real estate

Luxembourg

No

– %

No

Pamplona

3,084,772

1,469,228

To invest in

Pamplona real estate

Luxembourg

No

– %

No

Ruby

2,807,680

8,577,320

To invest in

Ruby real estate

Luxembourg

No

– %

No

Cheyne French Funding

Sub-Fund 3

11,650,667

3,630,876

To invest in

Cheyne French

Funding Sub-Fund 3

real estate

France

No

– %

No

Cheyne French Funding

Sub-Fund 8

22,663,417

7,788,478

To invest in

Cheyne French

Funding Sub-Fund 8

real estate

France

No

– %

No

Cheyne French Funding

Sub-Fund 9

8,470,707

2,477,156

To invest in

Cheyne French

Funding Sub-Fund 9

real estate

France

No

– %

No

*

Other exposure indicates if the investment in the structured entity comes with any associated potential valuation uplift. These can include, but are not limited to: profit share, variable exit

fees, and exposure to enterprise value uplift.

**

The total loan exposure on RELF includes financing within the RELF structure.

*** This amount excludes interest receivables.

31 March 2022

Name

Fair value

of loans***

GBP

Undrawn

commitment

GBP

Nature and purpose

of the entity

Location

Equity

held

Percentage

held

Other

exposure*

Real Estate Loan Funding

(RELF)**

Earlsfield

6,665,679

6,687,513

To invest in

Earlsfield real estate

United

Kingdom

No

– %

No

Cheyne French Funding

Sub-Fund 3

8,418,393

6,278,159

To invest in

Cheyne French

Funding Sub-Fund 3

real estate

France

No

– %

No

Cheyne French Funding

Sub-Fund 7

339,932

665,701

To invest in

Cheyne French

Funding Sub-Fund 7

real estate

France

No

– %

No

Cheyne French Funding

Sub-Fund 8

15,806,040

13,480,123

To invest in

Cheyne French

Funding Sub-Fund 8

real estate

France

No

– %

No

Cheyne French Funding

Sub-Fund 9

7,206,459

3,322,312

To invest in

Cheyne French

Funding Sub-Fund 9

real estate

France

No

– %

No

*

Other exposure indicates if the investment in the structured entity comes with any associated potential valuation uplift. These can include, but are not limited to: profit share, variable exit

fees, and exposure to enterprise value uplift.

**

The total loan exposure on RELF includes financing within the RELF structure.

*** This amount excludes interest receivables.

The Company did not provide support/assistance without a contractual obligation to do so during the year other than as part

of normal investment activity, and the Company has no intention to provide support/assistance to the entities.

13. Financing Agreements

The Company enters into repurchase agreements with several banks to provide leverage. This financing is collateralised

against certain of the Company’s bond portfolio assets with a fair value totalling £139.9 million (31 March 2022: £212.7 million)

and a weighted average cost of 5.86% (31 March 2022: 1.2%) per annum. The contractual maturity period of the repurchase

arrangements is 3 to 6 months (31 March 2022: 3 to 6 months).

This short-term financing is shown as a current liability in the Statement of Financial Position whereas the collateralised assets

are shown as non-current. The movement in financing agreement amounting to £22.5 million (31 March 2022: £20.6 million)

and finance cost amounting to £1.6 million (31 March 2022: £1.9 million) are shown as financing activity in the Statement of

Cash Flows.

During the financial year ended 31 March 2023, the Company continued to maintain some off-balance sheet financing

agreements. These facilities entered into during the previous financial year do not have recourse to the Company, and the

lending is structured using off-balance entities, and secured against the specific loans involved. The aggregate amount of

these off-balance sheet loans as at 31 March 2023 was £20.6 million (31 March 2022: £2.8 million).

During the financial year ended 31 March 2023, the Company also entered into an off-balance sheet financing agreement

which does have partial recourse to the Company. The amount of partial recourse commitment as at 31 March 2023 was

£2.9 million (31 March 2022: £Nil). No expected loss from providing this guarantee has been recognised in these financial

statements and no additional collateralisation has been paid as of year end.

14. Share Capital

The issued share capital of the Company consists of shares and its capital as at the year end is represented by the net

proceeds from the issuance of shares and profits retained up to that date. The Company does not have any externally imposed

capital requirements. As at 31 March 2023, the Company had capital of £337.0 million (31 March 2022: £343.9 million).

31 Mar 2023

Number of Shares

31 Mar 2022

Number of Shares

Authorised Share Capital

Shares of no par value each

Unlimited

Unlimited

Shares issued and fully paid

Balance at the start of the year

229,332,478

229,332,478

Balance at the end of the year

229,332,478

229,332,478

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to

Shareholders. The Company’s overall strategy was outlined in the Prospectus which is published on the Company’s website.

The capital structure of the Company consists of the equity of the Company as disclosed in the Statement of Changes in Equity.

15. Financial Instruments and Associated Risks

The Company’s investment activities expose it to various types of risk which are associated with the financial instruments and

markets in which it invests. The Company’s risk management policies seek to minimise the potential adverse effects of these

risks on the Company’s financial performance.

The financial risks to which the Company is exposed include market price risk, interest rate risk, liquidity risk, currency risk,

credit risk, prepayment and re-investment risk. In certain instances as described more fully below, the Company enters into

derivative transactions in order to help mitigate particular types of risk.

(a) Market Risk

Market risk is the risk that the fair value and future cash flows of a financial instrument will fluctuate because of changes

in market factors. Market risk comprises interest rate risk, currency risk and other price risk.

The Company’s strategy on the management of market risk is driven by the Company’s investment objectives detailed in Note

1 which in respect of the Company is to invest primarily in debt secured by commercial or residential properties in the United

Kingdom and Western Europe.

The Company’s market risk is managed on a daily basis by the Investment Manager in accordance with policies and

procedures detailed below.

The sensitivity analysis below is based on a change in one variable while holding all other variables constant. In practice, this

is unlikely to occur, and changes in some of the assumptions may be correlated – for example, change in foreign currency rate

and change in market values. In addition, as the sensitivity analysis uses historical data as a basis for determining future events,

it does not encompass all possible scenarios, particularly those that are of an extreme nature.

(i) Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in

foreign exchange rates.

The Company is exposed to currency risk to the extent that foreign exchange rates fluctuate as it has financial instruments that

are denominated in currencies other than GBP.

The Company manages its foreign exchange exposure forward foreign exchange contracts. These instruments are detailed in

Note 10.

The currency profile of the Company, including derivatives at fair value, at the year end date was as follows:

As at 31 March 2023:

Monetary

Assets

GBP

Monetary

Liabilities

GBP

Forward Foreign

Currency Exchange

Contracts

GBP

Net

currency

exposure

GBP

Currency

GBP

242,499,869

(60,997,713)

163,823,152

345,325,308

EUR

174,728,260

(21,027,058)

(162,067,034)

(8,365,832)

USD

6,431

–

–

6,431

417,234,560

(82,024,771)

1,756,118

336,965,907

As at 31 March 2022:

Monetary

Assets

GBP

Monetary

Liabilities

GBP

Forward Foreign

Currency Exchange

Contracts

GBP

Net

currency

exposure

GBP

Currency

GBP

236,062,842

(50,234,754)

161,432,186

347,260,274

EUR

210,880,008

(51,710,612)

(162,504,978)

(3,335,582)

USD

10,792

–

–

10,792

446,953,642

(101,945,366)

(1,072,792)

343,935,484

As at 31 March 2023, had the GBP strengthened by 5% or 10% in relation to all currency exposure of the Company with all

other variables held constant, the equity of the Company and the net profit/(loss) per the Statement of Comprehensive Income

would have changed by the amounts shown below. The analysis is performed on the same basis for 2022.

By 5%

31 Mar 2023

GBP

31 Mar 2022

GBP

EUR

(418,292)

(166,779)

USD

322

540

Total

(417,970)

(166,239)

By 10%

31 Mar 2023

GBP

31 Mar 2022

GBP

EUR

(836,583)

(333,558)

USD

643

1,079

Total

(835,940)

(332,479)

A 5% or 10% weakening of the GBP against the above currencies would have resulted in an equal but opposite effect on the

equity of the Company and net profit/(loss) per the Statement of Comprehensive Income to the amounts shown above, on the

basis that all other variables remained constant.

The sensitivity analysis reflects how the equity of the Company would have been affected by changes in the relevant risk

variable that were reasonably possible at the reporting date. Management has determined that a fluctuation of 5% in foreign

exchange rates is reasonably possible, considering the environment in which the Company operates.

(ii) Interest Rate Risk

Interest rate risk is the risk that the fair value and future cash flows of a financial instrument will fluctuate because of

changes in market interest rates.

The Company’s interest rate risk is managed by the Investment Manager in accordance with policies and procedures

detailed below.

The Company invests in fixed and floating rate real estate related debt assets (which includes loans and bonds). Interest rate

risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets

and liabilities and future cash flow.

A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite

directions. When market interest rates rise, prices of fixed-rate bonds fall. However, as explained under the key sources

of estimation uncertainty in Note 3, the Investment Manager believes that the loan or bond’s own initial effective interest

rate represents the most appropriate rate to discount future cash flows. The use of this judgement limits the impact of the

fluctuations in market interest rates on the valuation of the bilateral bonds and loans portfolio.

The Investment Manager has considered relevant geopolitical and macro economic factors including the rise of market

interest rate during the year and continues to believe that this key judgement remains appropriate due to the bespoke

nature of the investment portfolio and the dislocation between the yield of these assets and the market interest rate.

Had movement in market interest rates been fully reflected in the valuation of fixed-rate assets held by the Company, the

estimated impact of a rise of 1% (100 basis points) or 5% (500 basis points) (31 March 2022: 1% (100 basis points) or 5% (500

basis points)) on the net asset value (“NAV”) of the Company, is a decrease of £6.3 million or £31.7 million (31 March 2022:

£3.7 million or £18.3 million), respectively. A decrease in interest rates by 100 basis points or 500 basis points is estimated to

result in an increase in the NAV of the Company by a similar amount. These estimates are calculated based on the fair value

of the fixed-rate securities including accrued interest held by the Company as at 31 March 2023 and 31 March 2022, and

their weighted average lives.

The interest rate profile of the Company as at 31 March 2023 was as follows:

Fixed

GBP

Floating

GBP

Non-interest bearing

GBP

Total

GBP

Financial assets at fair value through profit or loss

287,268,165

99,067,135

14,406,610

*

400,741,910

Cash and cash equivalents

–

14,081,343

–

14,081,343

Cash collateral at broker

–

2,383,962

–

2,383,962

Derivative financial assets

– forward foreign exchange contracts

–

–

1,756,118

1,756,118

Other assets

–

–

27,345

27,345

Financing agreements

–

(80,154,134)

–

(80,154,134)

Other liabilities

–

–

(1,870,637)

(1,870,637)

Total

287,268,165

35,378,306

14,319,436

336,965,907

* Accrued interest related to financial assets at fair value through profit or loss.

The maturity profile of the Company as at 31 March 2023 was as follows:

Within

one year

GBP

One to

five years

GBP

Over

five years

GBP

Total

GBP

Financial assets at fair value through profit or loss

81,576,013

150,257,260

168,908,637

400,741,910

Cash and cash equivalents

14,081,343

–

–

14,081,343

Cash collateral at broker

2,383,962

–

–

2,383,962

Derivative financial assets

– forward foreign exchange contracts

1,756,118

–

–

1,756,118

Other assets

27,345

–

–

27,345

Financing agreements

(80,154,134)

–

–

(80,154,134)

Other liabilities

(1,870,637)

–

–

(1,870,637)

Net Assets

17,800,010

150,257,260

168,908,637

336,965,907

The interest rate profile of the Company as at 31 March 2022 was as follows:

Fixed

GBP

Floating

GBP

Non-interest bearing

GBP

Total

GBP

Financial assets at fair value through profit or loss

292,129,354

90,070,215

12,141,535

*

394,341,104

Cash and cash equivalents

–

47,385,138

–

47,385,138

Cash collateral at broker

–

5,204,692

–

5,204,692

Other assets

–

–

22,708

22,708

Financing agreements

–

(100,368,732)

–

(100,368,732)

Derivative financial assets

– forward foreign exchange contracts

–

–

(1,072,792)

(1,072,792)

Other liabilities

–

–

(1,576,634)

(1,576,634)

Total

292,129,354

42,291,313

9,514,817

343,935,484

* Accrued interest related to financial assets at fair value through profit or loss.

The maturity profile of the Company as at 31 March 2022 was as follows:

Within

one year

GBP

One to

five years

GBP

Over

five years

GBP

Total

GBP

Financial assets at fair value through profit or loss

82,272,397

121,831,664

190,237,043

394,341,104

Cash and cash equivalents

47,385,138

–

–

47,385,138

Cash collateral at broker

5,204,692

–

–

5,204,692

Other assets

22,708

–

–

22,708

Financing agreements

(100,368,732)

–

–

(100,368,732)

Derivative financial assets

– forward foreign exchange contracts

(1,072,792)

–

–

(1,072,792)

Other liabilities

(1,576,634)

–

–

(1,576,634)

Net Assets

31,866,777

121,831,664

190,237,043

343,935,484

The value of the asset backed securities will fluctuate as a result of changes in market prices (other than those arising from

interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or all factors

affecting all instruments traded in the market. The loans in the Company are recorded at fair value on initial recognition and

subsequent measurement.

A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some

interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as “IBOR reform”). As at 31 March 2023, it

is still unclear when the announcement that will set a date for the termination of the publication of IBORs will take place.

Nevertheless, the Company has updated provisions for all IBOR indexed exposures as at 31 March 2023. As the Company has

minimal IBOR exposure, IBOR reform does not have any significant impact on the Company’s financial statements.

(b) Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has

entered into with the Company. Credit risk is generally higher for a non-exchange traded financial instrument because the

counterparty for non exchange traded financial instruments is not backed by an exchange-clearing house.

The Company has credit exposure in relation to its financial assets. The Company invested in financial assets with The Bank of

New York Mellon with the credit quality of AA- (31 March 2022: AA-) according to Standard and Poor’s.

The Company’s maximum exposure to credit risk for financial assets is as follows:

31 Mar 2023

GBP

31 Mar 2022

GBP

Instrument

Financial assets at fair value through profit or loss

400,741,910

394,341,104

Cash and cash equivalents

14,081,343

47,385,138

Cash collateral at broker

2,383,962

5,204,692

Derivative financial assets

1,756,118

–

Total

418,963,333

446,930,934

Market Bond Portfolio

The Company is subject to the risk that issuers of asset backed securities in which it invests may default on their obligations

and that certain events may occur which have an immediate and significant adverse effect on the value of such instruments.

There can be no assurance that an issuer of an instrument in which the Company invests will not default or that an event

which has an immediate and significant adverse effect on the value of such instruments will not occur, and that the Company

will not sustain a loss on the transaction as a result. The Company seeks to mitigate this risk by monitoring its portfolio of

investments, reviewing the underlying credit quality of its counterparties, on a monthly basis.

Bilateral Loan and Bond Portfolio

The Company is subject to the risk that the underlying borrowers to the loans and bonds in which it invests, may default on

their obligations and that certain events may occur which have an immediate and significant adverse effect on the value of

such instruments. Any loan and bond may become a defaulted obligation for a variety of reasons, including non-payment of

principal or interest, as well as covenant violations by the borrower in respect of the underlying loan and bond documents.

In the event of any default on the Company’s investment in a loan and bond by the borrower, the Company will bear a risk of

loss of principal and accrued interest on the loan and bond, which could have a material adverse effect on the Company’s

investment.

There can be no assurance that a borrower will not default, that there will not be an issue with the underlying real estate

security or that an event which has an immediate and significant adverse effect on the value of these loans and bonds will not

occur, and that the Company will not sustain a loss on the transaction as a result. The Company seeks to mitigate this risk by

performing due diligence and monitoring its portfolio of investments, reviewing the underlying credit quality of its borrowers,

performance of the underlying asset, and loan and bond covenants compliance against financial information received and the

performance of the security, on a quarterly basis.

The Company’s total investment in bilateral loan and bond portfolio as at 31 March 2023, amounted to £337.4 million (31 March

2022: £284.4 million) which excludes any interest accrued on loans and bonds at this date.

Derivative Contracts

Transactions involving derivative instruments are usually with counterparties with whom the Company has signed master

netting agreements. Master netting agreements provide for the net settlement of contracts with the same counterparty in the

event of default. The impact of the master netting agreements is to reduce credit risk from the amounts shown as derivative

financial assets on the Statement of Financial Position. The credit risk associated with derivative financial assets subject to a

master netting arrangement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled

after the assets are realised.

The exposure to credit risk reduced by master netting arrangements may change significantly within a short period of time

as a result of transactions subject to the arrangement. The corresponding assets and liabilities have not been offset on the

Statement of Financial Position.

Below are the derivative assets by counterparty and details of the collateral received and pledged by the Company as at

31 March 2023:

Derivative Type

Counterparty

Value of

derivative

assets

GBP

Collateral

received

GBP

Collateral

pledged

GBP

Net (if greater

than zero)

GBP

Forward foreign exchange contracts

The Bank of New York Mellon

1,756,118

–

–

1,756,118

Below are the derivative liabilities by counterparty and details of the collateral received and pledged by the Company as at

31 March 2022:

Derivative Type

Counterparty

Value of

derivative

liabilities

GBP

Collateral

received

GBP

Collateral

pledged*

GBP

Net (if greater

than zero)

GBP

Forward foreign exchange contracts

The Bank of New York Mellon

(1,072,792)

–

1,072,792

–

* Over collateralisation is not presented in this table. The amount of collateral reflected is limited to the amount of the derivative liabilities.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled

transactions is considered small due to the short settlement period involved and the high credit quality of the brokers used.

The Company monitors the credit quality and financial positions of the brokers used to further mitigate this risk.

Custody

The Company monitors its credit risk by monitoring the credit quality of The Bank of New York Mellon (International)

Limited, as reported by Standard & Poor’s or Moody’s.

If the credit quality or the financial position of The Bank of New York Mellon (International) Limited were to deteriorate

significantly, the Investment Manager will seek to move the Company’s assets to another bank. The Bank of New York

Mellon (International) Limited is a Trust Company with a credit quality of Aa2 at the reporting date (31 March 2022: Aa2)

according to Moody’s.

(c) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities.

The Company’s liquidity risk is managed on a daily basis by the Investment Manager in accordance with policies and procedures

detailed below. Where needed, the Investment Manager will liquidate positions to increase cash or reduce leverage.

The following tables detail the current and long-term financial liabilities of the Company at the year end date:

As at 31 March 2023:

Less than 1 month

GBP

1-3 months

GBP

3 months to 1 year

GBP

Greater than 1 year

GBP

Financial liabilities excluding derivatives

– Financing agreements

26,808,659

41,612,299

11,733,176

–

– Other liabilities

–

1,870,637

–

–

26,808,659

43,482,936

11,733,176

–

As at 31 March 2022:

Less than 1 month

GBP

1-3 months

GBP

3 months to 1 year

GBP

Greater than 1 year

GBP

Financial liabilities excluding derivatives

– Financing agreements

17,803,852

72,328,125

10,236,755

–

– Other liabilities

–

1,576,634

–

–

17,803,852

73,904,759

10,236,755

–

The market for subordinated asset backed securities including real estate loans into which the Company is invested, is

illiquid. In addition, investments that the Company purchases in privately negotiated (also called “over-the-counter” or

“OTC”) transactions may not be registered under relevant securities laws or otherwise may not be freely tradable, resulting

in restrictions on their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration

requirements of, or is otherwise in accordance with, those laws. As a result of this illiquidity, the Company’s ability to vary its

portfolio in a timely fashion and to receive a fair price in response to changes in economic and other conditions may be limited.

Furthermore, where the Company acquires investments for which there is not a readily available market, the Company’s

ability to deal in any such investment or obtain reliable information about the value of such investment or risks to which such

investment is exposed may be limited.

(d) Valuation of Financial Instruments

IFRS 13 Fair Value Measurement requires disclosures surrounding the level in the fair value hierarchy in which fair value

measurement inputs are categorised for assets and liabilities measured in the Statement of Financial Position. The

determination of the fair value for financial assets and financial liabilities for which there is no observable market price requires

the use of valuation techniques as described in Note 2, Significant accounting policies and in Note 3, Critical accounting

judgements and key sources of estimation uncertainty. For financial instruments that trade infrequently and have little price

transparency, fair value is less objective.

The Company categorises investments using the following hierarchy as defined by IFRS 13:

•

Level 1 – Quoted market prices in an active market for an identical instrument;

•

Level 2 – Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market

prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than

active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data; and

•

Level 3 – Valuation techniques using significant unobservable inputs. This category includes all instruments where the

valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact

on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments

where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The following tables analyse within the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value

at the year end date:

As at 31 March 2023:

Level 1

GBP

Level 2

GBP

Level 3

GBP

Total

GBP

Current assets

Forward foreign exchange contracts

–

1,756,118

–

1,756,118

Non-current assets

Real Estate Credit Investments – market bond portfolio

–

29,763,268

19,479,919

49,243,187

Real Estate Credit Investments – bilateral loan and bond portfolio

–

–

351,498,723

351,498,723

Total non-current assets

–

29,763,268

370,978,642

400,741,910

Current liabilities

Real Estate Credit Investments – repurchase agreements

–

(80,154,134)

*

–

(80,154,134)

–

(48,634,748)

370,978,642

322,343,894

* Includes repurchase agreements related to Level 3 investments.

As at 31 March 2022:

Level 1

GBP

Level 2

GBP

Level 3

GBP

Total

GBP

Non-current assets

Real Estate Credit Investments – market bond portfolio

–

98,450,555

–

98,450,555

Real Estate Credit Investments – bilateral loan and bond portfolio

–

–

295,890,549

295,890,549

Total non-current assets

–

98,450,555

295,890,549

394,341,104

Current liabilities

Forward foreign exchange contracts

–

(1,072,792)

–

(1,072,792)

Real Estate Credit Investments – repurchase agreements

–

(100,368,732)

*

–

(100,368,732)

–

(2,990,969)

295,890,549

292,899,580

* Includes repurchase agreements related to Level 3 investments.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined based

on the lowest level input that is significant to the fair value measurement in its entirety.

The fair value of forward foreign exchange contracts is the difference between the contracts price and reported market prices

of the underlying contract variables. These are included in Level 2 of the fair value hierarchy.

The fair value of the repurchase agreements is valued at cost or principal and is included in Level 2 of the fair value hierarchy.

The fair values of investments that trade in markets that are not considered to be active but are valued based on quoted

market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2.

These include investment grade corporate bonds (“Real Estate Credit Investments”).

As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions,

valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market

information. In cases where material discounts are applied, the positions will be valued as Level 3.

The Company obtains pricing reports from independent vendors for bonds where prices are not directly observable in the

market. These bonds are classified as Level 3 in the fair value hierarchy. Please refer to Valuation of Financial Assets at Fair

Value Through Profit or Loss in Note 3 for further details which describes the weighting of the valuation between observable

prices from comparable bonds and the valuation result based on proprietary sector curve discount yields is a key unobservable

input in deriving fair value of the investments. A 50% weighting to each data point has been applied and the fair value range

generated by the two approaches is £0.2 million (31 March 2022: £2.5 million). The sector curve discount yields used range

from 4.8% to 11.9% (31 March 2022: 4.0% to 14.0%). Applying a discount yield +/-2% to the valuation would reduce/increase the

fair value at 31 March 2023 by £(1.7) million and £1.6 million (31 March 2022: £(2.5) million and £2.6 million) respectively.

The Company makes loans into structures to gain exposure to real estate secured debt in the United Kingdom and Western

Europe. These loans are not traded in an active market and there are no independent quotes available for these loans. Such

holdings are classified as Level 3 investments. The fair value of these loans is linked directly to the value of the real estate loans

that the underlying structures invests in, which are determined based on modelled expected cash flows (drawdown principal

and interest repayments, and maturity dates) with effective yields ranging from 6.2% to 13.2% (31 March 2022: 5.1% to 13.3%)

(the unobservable input).

Fair value of the real estate loans is adjusted for changes in the credit quality of both the borrower and the underlying property

collateral, and changes in the market rate on similar instruments where changes are material. No material movements on the

fair value of the real estate loans have been identified and the par value of the loans was used. On origination of the loan, the

Investment Manager performs due diligence on the borrower and related security/property. This includes obtaining a valuation

of the underlying property (to assess loan-to-value of the investment). In most instances, the terms of the loan require periodic

revaluation of the underlying property to check against loan-to-value covenants. All the fees associated with the investments

(arrangement fees, exit fees, etc.) are paid directly to the Company and not paid to the Investment Manager.

Previously, many of the Company’s investments in loans were made through a Luxembourg based entity, Stornoway Finance

S.à r.l. via loan note instruments. The majority of the Company’s investments are now made through another Luxembourg

based entity, ENIV S.à r.l. via separate note instruments. As and when market information, such as market prices from

recognised financial data providers becomes available, the Company will assess the impact on its portfolio of loans and

whether there should be any transfers between levels in the fair value hierarchy.

As at 31 March 2023, the Investment Manager has taken into account movements in market rates, any indications of

impairment, significant credit events or significant negative performance of the underlying property structures, which might

affect the fair value of the loans and bonds. Please refer to page 94 for the effects of movement in market rates.

Level 3 Reconciliation

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3

between the beginning and the end of the financial year:

Level 3

31 Mar 2023

GBP

Level 3

31 Mar 2022

GBP

Financial assets at fair value through profit or loss

Opening balance

295,890,549

321,199,802

Total gains recognised in the Statement of Comprehensive Income for the year

10,170,687

2,260,608

Purchases

167,591,125

81,589,656

Sales

(118,994,111)

(109,625,571)

Increase in interest receivable

2,619,692

466,054

Transfer in to Level 3

13,700,700

–

Closing balance

370,978,642

295,890,549

Unrealised gain/(loss) on investments classified as Level 3

at year end

3,840,715

(688,552)

(e) Prepayment and Re-Investment Risk

The Company’s real estate loans have the facility for prepayment. The Company’s exposure to real estate debt securities also

has exposure to potential prepayment risk which may have an impact on the value of the Company’s portfolio. Prepayment

rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond the

Company’s control and consequently cannot be predicted with certainty.

The level and timing of prepayments made by borrowers in respect of the mortgage loans that collateralise certain of the

Company’s investments may have an adverse impact on the income earned by the Company from those investments.

Early prepayments also give rise to increased re-investment risk. If the Company is unable to reinvest such cash in a new

investment with an expected rate of return at least equal to that of the loan repaid, the Company’s net income will be lower

and, consequently, could have an adverse impact on the Company’s ability to pay dividends.

The Investment Manager reviews the prepayment assumptions each quarter and will update as required. These assumptions

are considered through a review of the underlying loan performance information of the securitisations.

16. Segmental Reporting

The Company 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.

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 is therefore considered the “Chief Operating Decision Maker” under IFRS 8.

The Company invests in Real Estate Credit Investments. The Real Estate Credit Investments may take different forms but

are likely to be: (i) secured real estate loans; and (ii) debentures or any other form of debt instrument, securitised tranches of

secured real estate related debt securities, for example, RMBS and CMBS (together “MBS”). The real estate debt strategy

focuses on secured residential and commercial debt in the United Kingdom and Western Europe, seeking to exploit

opportunities in publicly traded securities and real estate loans.

The Company has two reportable segments, being the Market Bond Portfolio and Bilateral Loan and Bond Portfolio.

For each of the segments, the Board of Directors reviews internal management reports prepared by the Investment Manager

on a quarterly basis. The Investment Manager has managed each of the Market Bond Portfolio and the Bilateral Loan and

Bond Portfolio separately; thus two reportable segments are displayed in the financial statements.

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.

Year ended 31 March 2023:

Market Bond Portfolio

GBP

Bilateral Loan and

Bond Portfolio

GBP

Total

GBP

Interest income

4,960,473

26,962,070

31,922,543

Net (loss)/gain on financial assets and liabilities at fair value

through profit or loss

(8,155,580)

12,621,921

4,466,341

Reportable segment (loss)/profit

(3,195,107)

39,583,991

36,388,884

Finance costs

(1,783,805)

(2,188,548)

(3,972,353)

Year ended 31 March 2022:

Market Bond Portfolio

GBP

Bilateral Loan and

Bond Portfolio

GBP

Total

GBP

Interest income

3,241,985

23,739,806

26,981,791

Net gain on financial assets and liabilities at fair value through

profit or loss

369,084

2,373,104

2,742,188

Reportable segment profit

3,611,069

26,112,910

29,723,979

Finance costs

(514,412)

(1,440,141)

(1,954,553)

Year ended 31 March 2023:

Market Bond Portfolio

GBP

Bilateral Loan and

Bond Portfolio

GBP

Total

GBP

Reportable segment assets

49,243,187

351,498,723

400,741,910

Non-segmental assets

–

–

18,248,768

Financing agreements

(36,015,629)

(44,138,505)

(80,154,134)

Non-segmental liabilities

–

–

(1,870,637)

Net assets

336,965,907

Year ended 31 March 2022:

Market Bond Portfolio

GBP

Bilateral Loan and

Bond Portfolio

GBP

Total

GBP

Reportable segment assets

98,450,555

295,890,549

394,341,104

Non-segmental assets

–

–

52,612,538

Financing agreements

(51,702,018)

(48,666,714)

(100,368,732)

Non-segmental liabilities

–

–

(2,649,426)

Net assets

343,935,484

Information regarding the basis of geographical segments is presented in the Investment Manager’s Report and is based on

the countries of the underlying collateral.

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

during the year. Certain income and expenditure is not considered part of the performance of either segment. This includes

gains/(losses) on net foreign exchange and derivative instruments, expenses and interest on borrowings.

The following table provides a reconciliation between net reportable income and operating profits.

31 Mar 2023

GBP

31 Mar 2022

GBP

Reportable segment profit

36,388,884

29,723,979

Net (losses)/gains on foreign exchange instruments and other foreign currency transactions

(5,730,490)

2,609,285

Other income

7,940

37,017

30,666,334

32,370,281

Operating expenses

(6,143,662)

(5,841,351)

Finance costs

(3,972,353)

(1,954,553)

Net profit

20,550,319

24,574,377

Certain assets are not considered to be attributable to either segment, these include, other receivables and prepayments, cash

and cash equivalents and derivative financial assets.

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

31 Mar 2023

GBP

31 Mar 2022

GBP

Reportable segment assets

400,741,910

394,341,104

Cash and cash equivalents

14,081,343

47,385,138

Cash collateral at broker

2,383,962

5,204,692

Derivative financial assets

1,756,118

–

Other assets

27,345

22,708

418,990,678

446,953,642

The following is a summary of the movements in the Company’s investments analysed by the Loan and Bond Portfolios for the

year ended 31 March 2023:

Year ended 31 March 2023:

Market Bond

Portfolio

GBP

Bilateral Loan

and Bond

Portfolio

GBP

Total

GBP

Financial assets at fair value through profit or loss

Opening fair value

98,450,555

295,890,549

394,341,104

Purchases

–

158,644,471

158,644,471

Repayments/sales proceeds

(40,697,172)

(118,277,909)

(158,975,081)

(Decrease)/increase in interest receivable

(354,617)

2,619,692

2,265,075

Realised loss on sales

(4,547,798)

(5,408,771)

(9,956,569)

Net movement in unrealised (loss)/gain on investments at fair

value through profit or loss

(3,607,781)

18,030,691

14,422,910

Closing fair value

49,243,187

351,498,723

400,741,910

The following is a summary of the movements in the Company’s investments analysed by the Loan and Bond Portfolios for the

year ended 31 March 2022:

Year ended 31 March 2022:

Market Bond

Portfolio

GBP

Bilateral Loan

and Bond

Portfolio

GBP

Total

GBP

Financial assets at fair value through profit or loss

Opening fair value

80,359,507

310,081,379

390,440,886

Purchases

31,500,000

81,589,656

113,089,656

Repayments/sales proceeds

(14,447,591)

(109,625,571)

(124,073,162)

Increase in interest receivable

669,555

11,471,980

12,141,535

Realised loss on sales

(390,363)

(99,945)

(490,308)

Net movement in unrealised gain on investments at fair value

through profit or loss

759,447

2,473,050

3,232,497

Closing fair value

98,450,555

295,890,549

394,341,104

17. Cash Collateral

The Company manages some of its financial risks through the use of financial derivative instruments which are subject to

collateral requirements. As at 31 March 2023, a total of £2.4 million (31 March 2022: £5.2 million) was due from various financial

institutions under the terms of the relevant arrangements. The cash held by brokers is restricted and is shown as Cash

collateral at broker on the Statement of Financial Position.

18. Material Agreements and Related Party Transactions

Loan Investments

Previously, many of the Company’s investments in loans were made through a Luxembourg based entity, Stornoway Finance

S.à r.l. via loan note instruments. The loan investments are now made through another Luxembourg based entity, ENIV S.à r.l.

via separate note instruments. This entity has separate compartments for each loan deal which effectively ringfences each

loan deal. Other funds managed by the Investment Manager may invest pari passu in these compartments.

Investment Manager

The Company is party to an Investment Management Agreement with the Investment Manager, dated 22 February 2017,

pursuant to which the Company has appointed the Investment Manager to manage its assets on a day-to-day basis in

accordance with its investment objectives and policies, subject to the overall supervision and direction of the Board of

Directors.

The Company pays the Investment Manager a Management Fee and a Performance Fee.

Management Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Company

an annual Management Fee of 1.25% on an adjusted NAV, being the NAV of the shares.

During the year ended 31 March 2023, the Management Fee totalled £4.3 million (31 March 2022: £4.4 million), of which

£0.4 million (31 March 2022: £0.4 million) was outstanding at the year end.

Performance Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Company

a performance fee calculated as ((A-B) x 20% x C) where:

A = the Adjusted Performance NAV per share, as defined in the Prospectus.

B =

the NAV per share as at the first business day of the Performance Period increased by a simple annual rate of return of

7% over the Performance Period or, if no Performance Fee was payable in the previous Performance Period, the NAV per

share on the first business day of the Performance Period immediately following the last Performance Period in which a

Performance Fee was paid (the “Starting Date”) increased by a simple annual rate of return of 7% over the period since the

Starting Date (“Hurdle Assets”).

C =

the time weighted average number of shares in issue in the period since the Starting Date.

On 1 October 2021, the Company entered a new Performance Period which is expected to run until the end date of the quarter

in which the next continuation resolution is passed. As no Performance Fee was payable in the previous Performance Period,

the NAV on which the Hurdle Assets will be determined in accordance with the above formula was the NAV per share of £1.63

as at 2 October 2017 (being the Starting Date of the Performance Period immediately following the last Performance Period in

which a Performance Fee was paid).

During the year ended 31 March 2023 and 31 March 2022, there were no performance fees accrued.

Administration Fee

Under the terms of the Administration Agreement, the Administrator is entitled to receive from the Company a monthly

administration fee based on the prior month gross assets of the Company adjusted for current month subscriptions and

redemptions of the Company at the relevant basis points per annum rate, subject always to a minimum monthly fee £10,000.

During the year ended 31 March 2023, the administration fee totalled £276,595 (31 March 2022: £261,584), of which £41,939

(31 March 2022: £48,392) was outstanding at the year end.

Depositary Fee

Under the terms of the Depositary Agreement, the Depositary is entitled to receive from the Company an annual Depositary

fee of 0.02% (31 March 2022: 0.02%) of the NAV of the Company. During the year ended 31 March 2023, the Depositary fee

totalled £65,137 (31 March 2022: £65,969). The Company owed £33,090 (31 March 2022: £27,086) to the Depositary at the year

end date.

19. Contingencies and Commitments

As at 31 March 2023, the Company had committed £572.0 million into bilateral loans and bonds of which £367.8 million had

been funded (31 March 2022: £522.9 million commitment of which £284.4 million had been funded).

During the financial year ended 31 March 2023, the Company entered into some off-balance sheet financing agreements

which have partial recourse to the Company. The amount of partial recourse commitment as at 31 March 2023 was £2.9 million

(31 March 2022: £Nil).

20. Subsequent Events

The Directors declared a dividend of 3 pence per share on 21 June 2023.

Since 1 April 2023, RECI received a total of £17.0 million from 2 loans that have repaid.

There have been no other significant events affecting the Company since the year end date that require amendment to or

disclosure in the financial statements.

21. Foreign Exchange Rates Applied to Combined Totals Used in the Preparation of the Financial Statements

The following foreign exchange rates relative to the GBP were used as at the year end date:

Currency

31 Mar 2023

GBP

31 Mar 2022

GBP

EUR

1.14

1.18

USD

1.24

1.32

22. Approval of the Financial Statements

The Annual Report and audited financial statements of the Company were approved by the Directors on 21 June 2023.

East Wing

Trafalgar Court

Les Banques, St. Peter Port

Guernsey, GY1 3PP