Real Est.cred Regulatory News (RECI)

REAL ESTATE CREDIT INVESTMENTS PCC LIMITED

(formerly Real Estate Credit Investments Limited)

CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

(UNAUDITED)

Contents

Page

Chairman's Statement 3

Investment Manager's Report 4

Directors' Responsibility Statement 8

Independent Review Report 9

Unaudited Condensed Consolidated Statement of Comprehensive Income 11

Unaudited Condensed Consolidated Statement of Financial Position 12

Unaudited Condensed Consolidated Statement of Changes in Equity 13

Unaudited Condensed Consolidated Statement of Cash Flows 14

Notes to the Unaudited Condensed Consolidated Financial Statements 15

Directors and Advisers 28

Chairman's Statement

In the past six months the Company has completed its transformation to a dedicated European real estate debt investor. In converting to a protected cell company, Real Estate Credit Investments PCC Limited ("the Company" or "RECI PCC") has retained the real estate debt portfolio in the Core (RECI LN) and split the legacy residual income assets into the Cell (ERII LN).

The Company is now well positioned to take advantage of the current dislocation in the European real estate securities markets. The Company expects this dislocation to continue in the foreseeable future as a technical supply-demand imbalance offers the opportunity to buy good quality credit assets at substantial discounts to par.

In the near term, significant volatility in the credit markets is expected as the European sovereign and bank restructuring continues. This may introduce some mark to market losses in the bond portfolio, but currently does not suggest a fundamental change in the credit outlook or specific credit events of the real estate debt portfolio.

First half net loss of €3.4 million

During the half year ended 30 September 2011, the Company reported a net loss of €3.4 million compared to a net gain of €5.9 million in the first half of 2010/11. Operating income (excluding the effects of fair value movements) for the six months to 30 September 2011 was €8.1 million versus €7.6 million in the previous year. In the first half of the year, the Company recorded net cash flows on operating activities of €15.2 million, compared to €2.4 million for the six months to 30 September 2010.

The Company's combined net asset value ("NAV") for the quarter ended 30 September 2011 was €1.80 per share, up from €1.59 per ordinary share following the completion of the Company's bonus issue of preference shares on 17 September 2010. As at 30 September 2011, the NAV per share of the Core was €1.26 (£1.08) per ordinary RECI share and €0.54 (£0.47) per ordinary ERII share.

Well Positioned

The Company has maintained a defensive stance over the past several months, electing to keep a higher proportion of the balance sheet in cash. In addition, the Company has hedged some of its exposure to the commercial property markets by entering into a short position against the value of the 2012 UK IPD property index. RECI's strong cash balances leave it well positioned to capitalise on the buying opportunities arising from continued bank deleveraging and asset sales. While current bond prices offer attractive value, the Company remains careful with respect to the timing of new purchases. We recognise that the current level of cash balances, while providing both defensive and prospective opportunistic benefits, entail a drag on the overall portfolio's yield, which the Company will consider ways to mitigate in order to improve shareholder returns.

Tom Chandos, Chairman

25 November 2011

Investment Manager's Report

Real Estate Credit Investments (RECI)

Investment Portfolio

A breakdown of RECI's investment portfolio as at 30 June 2011 and 30 September 2011 by jurisdiction (by reference to underlying asset originator) is set out below.

30 June 2011

30 September 2011

Values may not sum to 100% due to rounding differences

Investment Portfolio Review

RECI recorded losses on the investment portfolio of £9.3 million (€10.8 million) for the quarter ended 30 September 2011, driven by a softness in market prices. Overall the value of the bond portfolio fell by 9.2%. These losses came at a time of substantial falls across equity and credit markets, amid growing concerns about re-structuring of Eurozone sovereign debt. Over the three-month period the FTSE 100 fell by 14.4% and the ITraxx Crossover Index by 12.1%.

Against this backdrop RECI's team has been reinforcing the defensive stance of the investment portfolio. RECI made fewer new bond purchases during the second quarter - a total of £8.4 million (€9.6 million) versus £37.4 million (€42.1 million) in the previous quarter. The new investments were biased towards defensive bonds; of the 20 bonds purchased, 14 had an investment grade rating, with 6 rated single-A or above. The weighted average expected yield to maturity of new investments was 16.3% and RECI purchased them at an average price of 64 pence. The Company also sold £8.4 million (€9.6 million) of bonds in the quarter. As at 30 September 2011, the portfolio of 102 bonds was valued at £77.7 million (€90.2 million), with a nominal face value of £129.8 million (€150.7 million) . The average purchase price of the portfolio was 69 pence with a weighted average expected yield to maturity of 12.9%.

The Company has made further investments since the end of the second quarter. Between 1 October 2011 and 15 November 2011, the Company invested £5.6 million at an average price of 82 pence and a weighted average expected yield-to-maturity of 10.2%. RECI also sold £4.9 million of bonds during this period. The Company prioritised sales of bonds which are more sensitive to market volatility, with longer WAL (weighed average life) and high beta characteristics. As at 15 November 2011, the portfolio consisted of 106 bonds with a fair value of £74.7 million and a nominal face value of £125.9 million.

Investment Portfolio Review (continued)

On 4 October 2011, the Company purchased a £16.0 million short forward position on the IPD index. The Company will receive the difference between the value of the IPD index between 31 December 2011 and 31 December 2012. This hedge will be in the money should capital values of UK commercial property, as measured by the IPD index, fall by approximately 5.5% in the UK. This hedge should provide some protection to RECI's portfolio of Class D and below bonds.

Monthly Bond Performance Summary as at 15 November 2011

Ratings Distribution of Bond Portfolio by Fair Value

Values may not sum to 100% due to rounding differences

Top 10 Bonds as at 15 November 2011

Market Value £27.3 millionWA Original LTV 49.0%WA Cheyne Current LTV6 62.6%WA Effective Yield 12.2%

WA LTV and WA Effective Yield figures are calculated with original notional using pool factor and FX rate as at 15 November 2011

Top 10 Bonds as at 15 November 2011 (continued)

Outlook for RECI

We are confident that the fundamental investment strategy behind RECI's core real estate debt portfolio will deliver results. With low loan-to-value ratios, backing of high quality assets and primary exposure to UK and Germany, the portfolio benefits from a conservative profile. We are furthering the portfolio's defensive positioning in anticipation of further market turmoil in the short-term.

We are confident the portfolio will continue to generate cash. We have seen significant bond repayments in October and we expect further repayments throughout the coming quarters.

The Company anticipates new opportunities to buy high credit quality paper at attractive returns in the coming weeks or months. RECI is well positioned to take advantage of this opportunity when it arises.

With many banks under pressure to reduce their risk weighted assets before year end by selling assets, we expect more opportunities to buy high credit quality paper at attractive returns. However, we will balance the timing of these purchases against the likelihood of continued market volatility stemming from the Eurozone sovereign debt restructuring.

While we are cognisant of mark-to-market volatility of the bonds, the structure of real estate bond markets has changed materially since the Lehman Brothers default. Current buyers of European real estate bonds tend to be unlevered and credit aware, while legacy holders of the bonds are in controlled amortisation. This change in market structure should result in a reduced likelihood of widespread forced selling in the real estate bond markets.

European Residual Income Investments (ERII)

The ERII Cell was created on 11 August 2011, and contains the Company's legacy residual income positions. It is the Company's objective, to the extent practicable, to liquidate this portfolio and return cash to share holders. Dividends from ERII will be payable to shareholders as and when the asset coverage test is satisfied. For the period ended 30 September 2011 the asset coverage test was satisfied and a dividend of 2.6 cents was declared. The table below shows figures as at 30 September 2011.

Investment Portfolio

European Mortgage Portfolio

The European Mortgage Portfolio generated cash flows of €0.4 million for the quarter ended 30 September 2011, compared to €0.5 million that the remaining positions paid in the previous quarter, and above forecasts of €0.3 million. Write-ups in the portfolio totalled €0.1 million and included a €0.2 million write down in the Sestante mortgage portfolio.

The default rate of the Sestante mortgage portfolio has fallen. We, however, maintain a conservative stance on the valuation given the transition to a different mortgage servicer is still underway. ERII has one remaining Portuguese mortgage portfolio, the Magellan 1 portfolio, which we expect to perform satisfactorily despite continued pressures in Portugal.

SME Portfolio

The Company has increased the assumed loss rate of defaulted loans in the Smart 06-1 portfolio, resulting in a €0.9 million decrease in the fair value. Cash flows for Smart 06-1 in the quarter ended 30 September 2011 totalled €0.1 million, compared to €0.1 million the previous quarter.

UK Mortgage Portfolio

The UK Mortgage Portfolio recorded cash flows of £0.6 million in the quarter ended 30 September 2011 compared to £0.2 million in the previous quarter.

There have been no material developments in relation to the Newgate 2006-1 litigation.

Cheyne Capital Management (UK) LLP

25 November 2011

Director's Responsibility Statement

We confirm to the best of our knowledge:

a) the condensed consolidated interim financial report has been prepared in accordance with IAS 34 "Interim Financial Reporting";

b) the interim management report (contained in the Chairman's Statement and Investment Manager's report) includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report (contained in the Chairman's Statement and Investment Manager's report) includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the BoardDirector Director25 November 2011 25 November 2011

Independent review report to Real Estate Credit Investments PCC Limited

We have been engaged by Real Estate Credit Investments PCC Limited (formerly Real Estate Credit Investments Limited) (the "Company") and it's subsidiary, Trebuchet Finance Limited (together "the Group") to review the condensed consolidated financial statements in the half-yearly interim financial report for the six months ended 30 September 2011 which comprises the Unaudited Condensed Consolidated Statement of Comprehensive Income, the Unaudited Condensed Consolidated Statement of Financial Position, the Unaudited Condensed Consolidated Statement of Changes in Equity and the Unaudited Condensed Consolidated Statement of Cash Flows and related Notes 1 to 16 (the "interim financial report"). We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated financial statements.

This report is made solely to the Company in accordance with the International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority.

As disclosed in Note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS"). The condensed consolidated financial statements included in this interim financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated financial statements in the interim financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the interim financial report for the six months ended 30 September 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - Fair value of investments held in the European Residual Income Investments Cell

In forming our review conclusion on the interim financial report, we have considered the policies adopted by the Directors for fair valuing the Group's investments held in the European Residual Income Investments Cell. In accordance with these policies and the requirements of International Accounting Standard 39 "Financial Instruments: Recognition and Measurement", the Directors have estimated the fair value of the investments held in the European Residual Income Investments Cell at Euro 18,997,562 as at 30 September 2011.

The residual income positions held in the European Residual Income Investments Cell are illiquid. As a result of this the fair value estimates of these investments included in the interim financial report are subject to material uncertainty. Different assumptions will impact the measurement of these investments which may have an effect on the interim financial report. It is not possible to quantify the potential effects of the resolution of this material uncertainty.

Deloitte LLP

Chartered Accountants

Guernsey, Channel Islands

25 November 2011

Notes: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the Directors but no control procedures can provide absolute assurance in this area.

Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the period from 1 April 2011 to 30 September 2011

* As disclosed in Note 1 and Note 14 to these financial statements, the Company converted to a Protected Cell Company during the period. The ERII Cell financial statements relate to the period from 11 August 2011 (Date of Conversion) to 30 September 2011.

All items in the above statement are derived from continuing operations.

The accompanying notes form an integral part of the condensed consolidated financial statements.

Unaudited Condensed Consolidated Statement of Financial Position

As at 30 September 2011

The accompanying notes form an integral part of the condensed consolidated financial statements.

These financial statements were approved by the Board of Directors on 25 November 2011.

Signed on behalf of the Board of Directors by:

Director Director

Unaudited Condensed Consolidated Statement of Changes in Equity

For the period from 1 April 2011 to 30 September 2011

* As disclosed in Note 1 and Note 14 to these financial statements, the Company converted to a Protected Cell Company during the period. The ERII Cell financial statements relate to the period from 11 August 2011 (Date of Conversion) to 30 September.

** In line with IAS 34, the comparative period for the Consolidated Statement of Changes in Equity is the six months ended 30 September 2010. The balance at that period end will not equate to the balance at 31 March 2011, the date of the comparative Consolidated Statement of Financial Position on page 13.

The accompanying notes form an integral part of the consolidated financial statements.

Unaudited Condensed Consolidated Statement of Cash Flows

For the period from 1 April 2011 to 30 September 2011

* As disclosed in Note 1 and Note 14 to these financial statements, the Company converted to a Protected Cell Company during the period. The ERII Cell financial statements relate to the period from 11 August 2011 (Date of Conversion) to 30 September.

The accompanying notes form an integral part of the consolidated financial statements.

Notes to the Unaudited Condensed Consolidated Financial Statements

1. General information

Real Estate Credit Investments PCC Limited (formerly Real Estate Credit Investments Limited) (the "Company") was registered on 6 September 2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands. The Company commenced its operations on 8 December 2005. The Company is an authorised closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008. Its Ordinary Shares have a premium listing on the London Stock Exchange and its Preference Shares have a standard listing. The registered office of the Company is First Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 6HJ, Channel Islands. "Group" is defined as the Company and its subsidiary. At 30 September 2011, the Company's only subsidiary is Trebuchet Finance Limited.

On 10 August 2011, following an extraordinary meeting of the Company, the Board of Directors announced the conversion of the Company to a protected cell company ("PCC") under Guernsey Law and the creation of one cell known as European Residual Income Investments Cell (the "Cell" or "ERII Cell"). The majority of the Residual Income Positions, together with cash amounting to Euro 1.5 million, were transferred to the Cell whose Shares have a separate listing on the Specialist Funds Market of the London Stock Exchange. The existing Ordinary Shareholders of the Company at the date of conversion were given shares in the Cell on a pro-rata one for one basis. The Company's Real Estate Debt Investments continue to be held by the non-cellular remainder of the Company (the "Core" or "RECI Core") and the Core's Ordinary Shares continue to have a premium listing on the London Stock Exchange. The Residual Income Position retained in the Core on conversion was redeemed prior to 30 September 2011. Following from this conversion, the name of the Company was changed to Real Estate Credit Investments PCC Limited on 15 August 2011.

Prior to the conversion, the Group's investment objective was to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends. The Group sought to achieve this objective by investing primarily in debt instruments secured by commercial or residential properties in Western Europe and the United Kingdom ("Real Estate Debt Investments").

Following conversion, the investment policy of the Company was sub-divided into an investment policy for the Core and an investment policy for the Cell. This was to reflect the fact that the Investment Manager is responsible for managing two discrete pools of assets, one, represented by the Core, into which Existing Ordinary Shareholders are invested and one, represented by the Cell, into which Cell Shareholders are invested.

The investment objective for the Core is to invest primarily in debt secured by commercial or residential properties in Western Europe and the United Kingdom ("Real Estate Debt Investments"). The Real Estate Debt Investments may take different forms but will be likely to be: (i) securitised tranches of secured real estate related debt securities, for example, RMBS and CMBS (together "MBS"); and (ii) secured real estate loans, debentures or any other form of debt instrument.

The investment objective of the Cell is to hold the Cell Assets until maturity of the assets unless opportunities for the sale of the Cell Assets arise prior to maturity. The Directors may, at their discretion, return cash to Cell Shareholders by dividends or other distribution subject to satisfying the Preference Share Cover Test detailed below. The Directors may also, at their discretion, effect a mandatory redemption of Cell Shares as a means of returning capital to the Cell Shareholders.

The liabilities in relation to the Preference Shares, being both quarterly Preference Dividends and the repayment of the final capital entitlement of the Preference Shares (the "Final Capital Entitlement"), are borne by the Company. The Company has amended the Articles of Incorporation to protect the ability of the Company to meet the Final Capital Entitlement through the introduction of a cover test (the "Preference Share Cover Test"). The Preference Share Cover Test is intended to prevent the erosion of the Company's asset base through the payment of dividends or other distributions. Prior to the payment of dividends or other distributions, the Preference Share Cover Test will need to be satisfied.

1. General information (continued)

The Preference Share Cover Ratio is the ratio that the Company, in consultation with the Investment Manager, has determined is sufficient to meet the Final Capital Entitlement. The Preference Share Cover Ratio is calculated based on the ratio of total company assets (i.e. Total Core Assets plus Cell Assets) to the Final Capital Entitlement. The Preference Share Cover Test has been set at 2.39.

Notwithstanding the Company's ability to satisfy the Preference Share Cover Test, the Company will continue to fulfil its obligations towards the Preference Shareholders with respect to the distribution of Preference Dividends. Such obligations are met using the income available in the Core and, if necessary, the Core Assets themselves. Should the Core Assets be insufficient to meet the Company's liabilities in respect of Preference Dividends and/or the Final Capital Entitlement when they fall due, it is intended that the Directors will call upon the income and, where such income is insufficient to satisfy such liabilities, the assets of the Cell to satisfy the liabilities (the "Inter-Cellular Arrangement").

The Group's investment management activities are managed by Cheyne Capital Management (UK) LLP (the "Investment Manager"), an investment management firm authorised and regulated by the Financial Services Authority. The Group 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 Group has no direct employees. For its services, the Investment Manager receives a monthly management fee (which includes a reimbursement of expenses) and if applicable a quarterly performance-related fee on the Core. The Company and the Investment Manager agreed that, following Conversion, an Incentive Fee will no longer be charged on the Cell Assets. The Group has no ownership interest in the Investment Manager. State Street (Guernsey) Limited is the Administrator and provides all administration and secretarial services to the Group in this capacity.

2. Significant accounting policies

Statements of compliance

The condensed consolidated financial statements for the period ended 30 September 2011 have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34"). The same accounting policies, presentation and methods of computation have been followed in these financial statements as were applied in the preparation of the Group's audited financial statements for the year ended 31 March 2011. The condensed consolidated financial statements do not contain all of the information and disclosures required in a full set of annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Group for the year ended 31 March 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

Basis of preparation

The condensed consolidated financial statements of the Group are prepared on the historical cost basis as modified by the following assets and liabilities which are stated at their fair value: financial instruments held for trading and financial instruments classified or designated as at fair value through profit or loss.

These condensed consolidated financial statements are presented in Euro. The functional currency of the Group is also considered to be Euro because that is the currency of the primary economic environment in which the Group operates. Subsequent to the period end, the functional currency of Company changed. Note 14 provides further details of this change.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 September 2011.

3. Net (losses)/gains on the financial assets and liabilities at fair value through the profit or loss

The following table details the gains and losses, excluding interest income and finance costs, earned by the Group from financial assets and liabilities during the period ended 30 September 2011 and 30 September 2010:

4. Operating expenses

The Group has no employees.

5. Finance costs

The following table details finance costs from financial assets and liabilities for the period ended 30 September 2011 and 30 September 2010:

6. Dividends

Ordinary Dividends

The second interim dividend for the year ended 31 March 2011 of Euro 0.016 per ordinary share was declared on 15 March 2011 and an amount of Euro 639,472 was paid on 26 April 2011.

The final interim dividend for the year ended 31 March 2011 of Euro 0.014 per share was declared on 16 June 2011 and an amount of Euro 559,538 was paid on 20 July 2011.

A dividend of Euro 0.014 per ordinary share in the Core has been declared by the Directors for the quarter ended 30 June 2011 on 16 September 2011 and an amount of Euro 559,538 was paid on 21 October 2011.

A dividend of GBP 0.0086 per ordinary share in the Core has been declared by the Directors for the quarter ended 30 September 2011.

A dividend of Euro 0.026 per ordinary share in the Cell has been declared by the Directors for the quarter ended 30 September 2011.

Preference Dividends

The Preference Shareholders are entitled to a Preference Dividend equal to 8% per annum of the Preference Share Notional Value of £49,958,704 £1 shares converted to the functional currency of the Group at the reporting date. The Preference Dividend will be accrued at each valuation point and paid at each quarter end.

The Preference Dividend in respect of the period from 1 April 2011 to 30 June 2011 amounting to Euro 1,106,408 was paid on 30 June 2011.

The Preference Dividend in respect of the period from 1 July 2011 to 30 September 2011 amounting to Euro 1,160,105 was paid on 30 September 2011 out of the Core as per the policy in Note 1.

7. Profit per Ordinary Share

There is no dilution as at 30 September 2011 or 30 September 2010, as the share price was below the option price for each period.

8. Share capital

The capital structure of the Company consists of preference shares and equity attributable to equity holders, comprising issued share capital and reserves, as disclosed on the Consolidated Statement of Financial Position. Following conversion to a protected cell company, the issued share capital of the Company consists of existing Ordinary Shares, Preference Shares and Cell Shares. The Company's capital managed as at the period end is represented by the value of the shares issued to date. The Company does not have any externally imposed capital requirements. At 30 September 2011 the Company had capital of Euro 72,034,356 (31 March 2011: Euro 76,593,705).

Authorised Share Capital

No ordinary shares were bought back or cancelled during the period ended 30 September 2011.

As disclosed in Note 1, following the conversion of the Company to a PCC and the transfer of assets from Core to Cell, the existing Ordinary Shareholders of the Company at the date of conversion were given shares in the Cell on a pro-rata one for one basis.

Core Preference Shares Issued and fully paid

* The actual issuance costs with respect to the preference shares were lower than originally anticipated and this gave rise to the reversal of Euro 434,457 of the original accrual.

8. Share capital (continued)

The value of the preference shares represent an obligation on the Company to pay the preference shares par value on winding up of the Company or on redemption of the Preference Shares in accordance with their terms. Following the conversion of the Company to a PCC, the liability with respect to the preference shares remains in the Core subject to meeting the requirements of the Preference Share Cover Test as disclosed in Note 1.

9. Segmental Reporting

The Group 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.

The Board of Directors is charged with setting the Group's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to its Investment Manager but retain responsibility to ensure that adequate resources of the Group are directed in accordance with their decisions. The investment decisions of the Investment Manager are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board.

The Investment Manager has been given full authority to act on behalf of the Group, including the authority to purchase and sell securities and other investments on behalf of the Group and to carry out other actions as appropriate to give effect thereto.

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 are therefore considered the "Chief Operating Decision Maker" under the standard.

The Group has two reportable segments, being the Core and the Cell. This is a change in the reportable segments since the previous financial period where the reportable segments were the Real Estate Debt Investment Portfolio and the Residuals Income Positions Portfolio. As disclosed in Note 1 and Note 14, the Company converted to a Protected Cell Company with the creation of one cell, the ERII Cell. The Company's Real Estate Debt Investments remained in the non-cellular remainder of the Company being the Core. Each of the Residual Income Positions with the exception of Amstel, was transferred into the Cell with the objective of holding these investments until the earlier of maturity of the coupons or sale. Amstel remained in the Core as the redemption of this investment was imminent. Following the redemption of Amstel and as at 30 September 2011, the Core only holds Real Estate Debt Investments.

For each of the segments, the Board of Directors reviews internal management reports prepared by the Investment Manager on a quarterly basis. Up to the date of conversion, these internal management reports split the Company's portfolio into the Real Estate Debt Investments Portfolio and the Residual Income Positions Portfolio. However, following the conversion of the Company, the Investment Manager has managed each of the Real Estate Debt Investments and Residual Income Positions as part of either the Core or Cell to which these investments were transferred, with the view of monitoring performance of the Core and Cell separately. Accordingly, as at the date of these interim financial statements, the segments managed by the Investment Manager changed to the Core and Cell. Each residual income position held within the Cell is also individually monitored by the Investment Manager and performance analysed separately.

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. Segment information is measured on the same basis as that used in the preparation of the Group's financial statements.

9. Segmental Reporting (continued)

* As noted above, the Company changed its reportable segments from Real Estate Debt Investments Portfolio and Residual Income Positions Portfolio to Core and Cell during the period. This was to reflect the change in the structure of the Company during the period and the way in which the portfolio is now managed. Comparatives have not been restated as this would not enable a proper commercial understanding of the management of the portfolio as at each reporting date.

The reportable segment loss of the Core as reported above includes all of the Real Estate Debt Investments and Residual Income Positions up to the date of conversion and also includes the Amstel Residual Income Position subsequent to the conversion since this investment was retained in the Core. The reportable segment loss of the Cell only includes the Residual Income Positions transferred to the Cell from the date of conversion.

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

For the period ending 30 September 2011, the reportable segment loss is equal to the loss of the Company since all income and expenditure can now be attributed to each segment i.e. Core and Cell, which was not the case previously. For the period ending 30 September 2010, certain income and expenditure was not considered part of the performance of an individual segment i.e. Real Estate Debt Investment Portfolio and Residual Income Positions Portfolio. This includes net foreign exchange gains / loss, expenses and interest on borrowings. The following table provides a reconciliation between net reportable income and operating profits.

9. Segmental Reporting (continued)

As at 30 September 2011, the reportable segment assets are equal to the total assets of the Company since all other assets can now be attributed to each segment i.e. Core and Cell, which was not the case previously. As at 31 March 2011, certain assets and liabilities are not considered to be attributable to a particular segment i.e. Real Estate Debt Investment Portfolio and Residual Income Positions Portfolio, these include, other receivables and prepayments, cash and cash equivalents, and derivative financial assets - options held for trading.

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

The following is a summary of the movements in the Group's investments analysed by the Core and Cell as at 30 September 2011:

* The opening fair value per segment will not equate to the closing fair value per segment as at 31 March 2011, due to the change in reportable segments.

9. Segmental Reporting (continued)

The following is a summary of the movements in the Group's investments analysed by the Residual Income Portfolio and Real Estate Debt Bond Portfolio as at 31 March 2011:

In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the countries of the underlying collateral. The Real Estate Debt Investments and Amstel Residual Income Position prior to redemption included in the Core and the remaining Residual Income Positions included in the Cell have cross border exposures and so these have been grouped into a combined 'Europe' segment. Exposures in this segment include Germany, Spain, and Switzerland.

It is not possible to split the reporting further without significant cost with limited benefit to the user of the financial statements. As a result of the change in investment policy during the period, the significant segments for the period ended 30 September 2011 differ from the segments reported in the previous year.

10. Notes to Statement of Cash Flows

Purchases and sales of investments are considered to be operating activities of the Group, given its purpose, rather than investing activities.

Cash and cash equivalents includes amounts held in interest bearing accounts and overdraft facilities.

11. Collateral

The Core held Euro 1,370,000 as cash collateral for financial derivative instruments transactions undertaken with Goldman Sachs. This collateral also represents an obligation on the Core to repay Goldman Sachs on settlement of the financial derivative instrument and is not included in the Condensed Consolidated Statement of Financial Position of the Core. As this amount is the minimum deemed by the brokers for collateral requirements the cash is restricted and is reported separately by means of this note only.

12. Contingent liability

The Cell's income and assets may be called upon under the Inter-Cellular Agreement to satisfy the liabilities relating to the distribution of Preference Dividends and/or the Final Capital Entitlement where the Core Assets are insufficient to meet these liabilities. Further details in relation to this are disclosed in Note 1. As at 30 September 2011, the Directors consider that it is not probable that the Cell's income and assets will be called upon and accordingly no provision has been made in the Cell's financial statements.

 13. Material agreements and related party transactions

Investment Manager

The Group pays Cheyne Capital Management (UK) LLP (the "Investment Manager") a Management Fee and Incentive Fee. During the period ended 30 September 2011, the Management Fee totalled Euro 1,126,256 (period ended 30 September 2010: Euro 905,131), of which Euro 155,990 (31 March 2011: Euro 198,009) was outstanding at the year end. There was no incentive fee charged during the period ended 30 September 2011 or 30 September 2010.

Significant Shareholder

Cheyne ABS Opportunities Fund L.P., a Partnership that is also managed by Cheyne Asset Management (UK) LLP, held 15,773,804 Core ordinary shares, 15,773,804 Cell shares and 10,672,255 Core preference shares in the Company amounting to 39.47% of the issued share capital of the Core and the Cell and 21.36% of Core preference shares at 30 September 2011.

14. Significant Events during the period

In May 2011 the Company reduced its exposure to Portuguese mortgage residual income investments by selling the Lusitano Mortgages No. 1 plc, Lusitano Mortgages No. 2 plc and Lusitano Mortgages No. 3 plc Portuguese mortgage residual income investments, and in June 2011, the Company further reduced its exposure to UK mortgage residual income investments by selling the RMAC 2004 NSP4 plc, RMAC 2005 NS3 plc and RMAC 2005 NS4 plc UK mortgage residual income investments. The sale of these residual income positions raised EUR 26,429,836.

On 10 August 2011, following an extraordinary meeting of the Company, the Board of Directors announced the conversion of the Company to a protected cell company under Guernsey Law and the creation of one cell known as European Residual Income Investments Cell (the "Cell" or "ERII Cell"). The majority of the Residual Income Positions with a fair value based on the pricing models at the transfer date of Euro 19,572,010, together with other assets amounting to Euro 1,674,422, were transferred to the Cell whose Shares have a separate listing on the Specialist Funds Market of the London Stock Exchange. The existing Ordinary Shareholders of the Company at the date of conversion were given shares in the Cell on a pro-rata one for one basis. The Company's Real Estate Debt Investments and certain Residual Income Positions continue to be held by the non-cellular remainder of the Company (the "Core") and the Core's Ordinary Shares continue to have a premium listing on the London Stock Exchange. Following from this conversion, the name of the Company was changed to Real Estate Credit Investments PCC Limited on 15 August 2011. Note 1 provides further details of the major changes that occurred as a result of this conversion.

14. Significant Events during the period (continued)

On 25 August 2011 the Amstel residual income position which was retained within the Core, was redeemed for a principal amount of € 12,453,998 and interest of € 2,036,090.

15. Subsequent Events

On 3rd October 2011 the trading denomination of the Company's Core Ordinary Shares of no par value was changed to Sterling. The Company reviewed its functional and presentation currencies and the Company and Core also changed its functional and presentation currency to Sterling prospectively from that date. The Cell's functional and presentation currency remained the Euro.

There have been no other events subsequent to 30 September 2011 which require adjustment to or disclosure in the interim financial report or notes thereto.

16. Approval of the Consolidated Financial Statements

The condensed consolidated interim financial report was approved by the Directors on 25 November 2011.

Directors and Advisers

Directors

Tom Chandos (Chairman)

Graham Harrison

John Hawkins

Talmai Morgan

Christopher Spencer

Registered Office

First Floor Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 6HJ

Administrator and Secretary of the Group

State Street (Guernsey) Limited

PO Box 543

First Floor, Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 6HJ

Investment Manager

Cheyne Capital Management (UK) LLP

Stornoway House

13 Cleveland Row

London SW1A 1DH

Corporate Brokers

Liberum Capital Limited

Ropemaker Place, Level 12

25 Ropemaker Street

London EC2Y 9LY

Share Repurchase Agent

JP Morgan Cazenove Limited

20 Moorgate

London EC2R 6DA

Independent Auditor

Deloitte LLP

Regency Court

Glategny Esplanade

St. Peter Port

Guernsey GY1 3HW

Registrar

Capita Registrars (Guerrnsey) Limited

Mount Crevelt House

Bulwer Avenue

St. Sampson

Guernsey GY2 4LH

UK Transfer Agent

Capita Registrars

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

Custodian

State Street Custodial Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland

Sub-Administrator

State Street Fund Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland