REG - Dolphin Capital Inv - Half-year Report <Origin Href="QuoteRef">DOLC.L</Origin> - Part 4
29/09/2017 07:07
- Part 4: For the preceding part double click ID:nRSc1693Sc
the Investment Manager Awards it was entitled to under the
terms of the previous Investment Management Agreement ('IMA') and the Company's share incentive plan.
In line with the Amended and Restated IMA, signed in December 2016, with retroactive effect from 1 July 2016, the following
arrangements came into effect:
i. Fixed management fee
The annual management fees for the second half of 2016 were retrospectively reduced from E8.5 million to E6.5 million per
annum and have been set to a fixed declining annual amount equal to E6 million for 2017, E5 million for 2018 and E4 million
for 2019.
Additionally, the term of the IMA has been reduced and will expire at the earlier of the end of the Divestment Period or 31
December 2019 rather than August 2020 as under the terms of the previous IMA. There will be no fixed management fee due for
2020.
ii. Variable management fee
Variable management fee has been introduced which will become payable solely upon the execution of each asset divestment by
the Company. The variable management fee will be equal to a percentage of the enterprise value (i.e. the equity value of
the asset plus any loans or other liabilities assumed by its purchaser) of any asset disposed by the Company during the
Divestment Period at a valuation at or in excess of 50% of its latest reported NAV.
The variable management fee percentage will be equal to 3% for divestments executed within the second half 2016 and will be
reduced to 2.5%, 2.0% and 1.3% for those concluded in 2017, 2018 and 2019 respectively for disposals completed at 50%. The
variable management fee will increase in respect of transactions executed at sales prices exceeding 50% of their NAV.
The variable management fee will become payable to the Investment Manager three months from the completion of the
respective disposal. Specifically in relation to the Playa Grande disposal, E1 million of the variable management fee has
been paid upon the completion of the disposal and the balance will become payable at the earlier of the date when the
Company makes a distribution of proceeds from asset sales to shareholders or nine months from the completion of the Playa
Grande disposal.
With regard to the disposal of Aristo Developers Ltd and Pearl Island, the Manager will be entitled to a Variable
management fee equal to 3%, 2.5%, 2% and 1.3% on the portion of their corresponding Total Disposal Prices received by the
Company within 2016, 2017, 2018 and 2019, respectively.
The Investment Manager was entitled to a performance fee payable under the terms of the previous IMA. There is no change to
this entitlement. However, any performance fees earned under this arrangement will be fully deducted from any future annual
management fees and variable management fees payable over the term of the IMA.
Previous arrangements, in force until 30 June 2016
Annual fee
The Investment Manager is entitled to an annual management fee defined as follows:
• for the period from 1 July 2015 to and including 31 December 2016, the annual management fee shall be E1 million per calendar month payable quarterly in advance; and
• with effect from and including 1 January 2016, the annual management fee shall be E8.5 million payable quarterly in advance.
• commencing on and with effect from 1 January 2017, the annual management fee payable for the following annual periods will be permanently reduced on 1 January in each year to an amount equal to the lower of:
(i) 1.25% of the gross asset value of the Company calculated as at the last preceding 31 December calculation date; and
(ii) E8.5 million.
In addition, the Company shall reimburse the Investment Manager for any professional fees or other costs incurred on behalf
of the Company for the provision of services or advice.
Performance fee
i. Core asset incentive fee
The Investment Manager will be entitled to the core asset incentive fee based on the net profits received by the Company
from the core assets or the disposal thereof.
Core assets comprise of the following projects: Amanzoe, Kilada Hills, Kea, Pearl Island and Playa Grande. All other
assets of the company are characterized as non-core for the purpose of incentive fee calculations.
The net proceeds will be divided between the Investment Manager and the Company on the following basis:
• first, 100% to the Company until the Company has received an amount equal to E169.6 million (the 'Aggregate Core Asset Base Value');
• second, 100% to the Company until the Company has received an amount equal to the core asset capital and costs;
• third, 100% to the Company until the Company has received an amount equal to the base cost compounded quarterly at the average one-month Euribor rate plus 500 basis points (but capped at a maximum interest rate of 6% per annum);
• fourth, 60% to the Investment Manager and 40% to the Company until the Investment Manager has received an amount equal to 20% of the Net Profits then distributed; and
• thereafter, 20% to the Investment Manager and 80% to the Company such that the Investment Manager shall receive a total core asset incentive fee equivalent to 20% of the Net Profits.
· On the disposal of a core asset, the Investment Manager shall be entitled to receive an advance of the core asset incentive fee on the following basis:
• where the disposal takes place prior to the date on which the Company shall have first received an amount of net profits from the disposal of core assets equal to, or in excess of, E113,055,360 (the 'Trigger Date'), an amount equal to 6.666% of the net profits received by the Company on the disposal of such core asset; or
• where the disposal takes place after the Trigger Date, an amount equal to 10% of the net profits received by the Company on the disposal of such core asset, (in each case a 'Core Asset Incentive Fee Advance Payment').
· The aggregate value of any Core Asset Incentive Fee Advance Payments will at any time be set off against, and thereby reduce to not less than zero, any liability of the Company to pay core asset incentive fees.
ii. Non-core asset incentive fee
The Investment Manager will be entitled to the non-core asset incentive fee based on the net profits received by the
Company from the disposal of any non-core assets. No non-core asset incentive fee will be payable in respect of a non-core
asset unless the aggregate disposal proceeds actually received by the Company in respect of such non-core asset exceeds the
base value (the 'Payment Condition'). The base value is defined as 65% of the non-core asset value as at 31 December 2014.
Subject to satisfaction of the Payment Condition in respect of any non-core asset, the net proceeds actually received by
the Company from the disposal of such non-core asset will be divided between the Investment Manager and the Company on the
following basis:
· first, 100% to the Company until the Company has received an amount equal to the base value;
· second, 12.5% to the Investment Manager and 87.5% to the Company until the net proceeds equal 80% of the base value;
· third, 17.5% to the Investment Manager and 82.5% to the Company until the net proceeds equal 100% of the base value; and
· thereafter, 25% to the Investment Manager and 75% to the Company.
· 50% of each non-core asset incentive fee will be placed in an interest bearing escrow account to be operated by the Company's administrator. Any funds held in this escrow account will be dealt with as follows; commencing on 31 December 2016, in the event that, as at 31 December in each year, the aggregate net proceeds received by the Company in relation to all non-core assets disposed of during the previous 12 month period (the 'Look-back Period'):
· do not equal or exceed the aggregate of the base values of any non-core assets disposed of during an applicable Look-back Period (the 'Aggregate Base Value') then the Company's administrator will be authorised to repay any escrowed funds to the Company until such time as the Company has received an amount equal to the Aggregate Base Value and thereafter any remaining escrowed funds (if any) will be paid to the Investment Manager; or
· equal or exceed the Aggregate Base Value then the Company's administrator will be authorised to pay to the Investment Manager the escrowed funds.
A clawback provision is in place with regard to incentive (performance) fee payments in the event the aggregate proceeds
from the disposal of assets do not exceed certain threshold.
28.3 Shareholder and development agreements
Shareholder agreements
On 6 August 2012, the Company signed an agreement for the sale of eight out of the nine remaining Seafront Villas, part of
the Mindcompass Overseas Limited group of entities. The total base net consideration agreed for this sale was E10 million,
with the Company also entitled to 50% profit participation in the sale of five Villas. It was also agreed that the Company
would undertake the construction contract for the completion of the Villas and a E1 million deposit was paid upon signing.
During 2013, the Company received an additional amount of E990 thousand. The construction of the two Villas is currently
underway.
Development agreements
Pedro Gonzalez Holdings II Limited, a subsidiary of the Group in which the Company held a 60% stake, signed a Development
Management agreement with DCI Holdings Twelve Limited ('DCI H12') in which the Group had a stake of 60%. Under its terms,
DCI H12 undertook, among others, the management of permitting, construction, sale and marketing of the Pearl Island
project. As stated in note 29, the Company entered into a share purchase agreement for the sale of its shareholding in the
project on 17 January 2017 and completion took place on 13 March 2017.
28.4 Other related parties
During the period ended 30 June 2017, the Group did not entered into any related party transactions.
During the period ended 30 June 2016, the Group entered into related party transactions with the following parties:
30 June 2016
Related party name E'000 Nature of transaction
Iktinos Hellas S.A. 24 Project management services in relation to Sitia project and rent payment
Third Point LLC, shareholder of the Company 1,200 Bond interest for the period
29. Business combinations
On 17 January 2017, the Company signed a share purchase agreement with Grivalia Hospitality S.A. for the sale of its 60%
shareholding in all entities related with the Pearl Island Project. Completion of the disposal was subject to a corporate
restructuring and to the consent of the appointed hotel operator to modifications of certain terms of the hotel management
agreement. The consideration for the sale comprised of a cash payment of E27 million, payable in the form of a E1 million
non-returnable deposit, E24 million upon completion of the sale and the remaining E2 million to be retained in an escrow
account for a period of 12 months post completion to cover any tax liabilities, potential breach of the Company's
warranties or undisclosed indebtedness. Completion took place on 13 March 2017 with E24 million received by the Company on
the same date.
E'000
Investment property (28,108)
Property, plant and equipment (25,990)
Receivables and other assets (2,237)
Cash and cash equivalents (183)
Deferred tax liabilities 1,238
Trade and other payables 11,652
Net assets (43,628)
Net assets disposed of - 60% shareholding (26,177)
Net proceeds on disposal 26,476
Gain on disposal recognised in profit or loss 299
Cash effect on disposal:
Net proceeds on disposal 26,476
Cash and cash equivalents (183)
Net cash inflow on disposal 26,293
During the six-month period ended 30 June 2016, the group disposed of its entire holding in DolphinCI Eleven Limited ('DCI
11'), as follows:
E'000
Trading properties (1,599)
Trade and other payables 16
Net assets disposed of (1,583)
Disposal consideration via settlement of liability 2,780
Gain on disposal recognised in profit or loss 1,197
Net cash inflow on disposal -
30. FINANCIAL RISK MANAGEMENT
The Group's financial risks and risk management objectives and policies are consistent with those disclosed in the
consolidated financial statements as at and for the year ended 31 December 2016.
Fair values
The fair values of the Group's financial assets and liabilities approximate their carrying amounts at the statement of
financial position date.
31. Commitments
As of 30 June 2017, the Group had a total of E11,679 thousand contractual capital commitments on property, plant and
equipment (31 December 2016: E1,330 thousand).
Non-cancellable operating lease rentals are payable as follows:
30 June 2017 31 December 2016
E'000 E'000
Less than one year 19 11
Between one and two years 21 -
Total 40 11
32. Contingent liabilities
Companies of the Group are involved in pending litigation. Such litigation principally relate to day-to-day operations as a
developer of second-home residences and largely derive from certain clients and suppliers. Based on advice from the Group's
legal advisers, the Investment Manager believes that there is sufficient defence against any claim and does not expect that
the Group will suffer any material loss. All provisions in relation to these matters which are considered necessary have
been recorded in these consolidated interim financial statements.
A Company of the Group received a lawsuit to settle an amount of E3.97 million to a lending institution which related to
claims assigned by one of the relevant Group company's partners. The Company's position is that there are no existing
obligations towards this lending institution by the relevant Group company thus no provision has been recorded in these
consolidated interim financial statements.
If investment properties, trading properties and property, plant and equipment were sold at their fair market value, this
would have given rise to a variable management fee to the Investment Manager, which would be based on the relevant IMA
provisions.
In addition to the tax liabilities that have already been provided for in the condensed consolidated interim financial
statements based on existing evidence, there is a possibility that additional tax liabilities may arise after the
examination of the tax and other matters of the companies of the Group in the relevant tax jurisdictions.
The Group, under its normal course of business, guaranteed the development of properties in line with agreed specifications
and time limits in favour of other parties.
33. EVENTS AFTER THE REPORtING PERIOD
There were no material events after the reporting period which have a bearing on the understanding of the condensed
consolidated interim financial statements as at 30 June 2017.
This information is provided by RNS
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