Letter to shareholders

Dear Shareholders,
With this letter we intend to retrace the most important economic steps in recent years and try to contextualize the investments of Brickstone Growth & Development Fund of which you are shareholders.

The year 2008 represents a changing point particularly  important in economic history and it will be forever remembered as the beginning of one of the deepest, large and  lasting economic crisis; even now, after seven years, we have not clear what will be the final consequences.

Panic related to concerns for banks, sparked by the bankruptcy of Lehman Brothers Merchant Bank, has spread to all latitudes, particularly in Europe and the US.

Recalling the events, since from the beginning two very different approaches appeared, able to act or not through the shock absorber of its currency: on one hand countries like the US with the dollar and Great Britain with the pound, on the other hand Europe.

The Federal Reserve rather than the Bank of England responded promptly with a policy of massive injections of liquidity into their respective systems. A considerable  devaluation, as many Italians can still recall in their memory, that has provided a significant incentive to the economy and that still now shows the goodness of this kind of timely decision.

After all, the heavy European bureaucracy, based on chronic Teutonic short-sightedness, has given birth to the monster of technocratic governments, which have facilitated the development of the crisis rather than neutralize it, increasing unemployment till to imaginable levels, privileging the usual narrow circle represented  by banks and politics, instilling irrational fears about the possibility of pay back a public debt that is anyway only a marginal fraction of the wealth of the countries, but especially then stopping, with the specter of taxation or credit crunch, the investment, that is the real engine of economy; a real drama still misunderstood that will show its  effects only in the future, when we realize what was not invested.

But if the economic side, after so many years, presents the risk of a future endless creeping zero growth, with a scare deflation, the thing that is now emerging equally in worrisome way is the mix of moral crisis and political leadership that is throwing the entire Western world into an embarrassing geopolitical paralysis.

Unable to face the real problems in a unified way, Europe let itself get carried away on a field, the one of the Cold War with Russia, which may not be interesting, based on arguments quite inconsistent: it appeals to the Russian military apparatus, which is actually now a fifth of that of the old Soviet Union, while on the contrary, over the last 20 years, NATO has increased enormously its offensive capabilities including countries of the former Warsaw Pact and even neutral countries. In terms of military investments, the US spends eight times more than Russia. According to the International Institute for Strategic Studies in London, in 2014 NATO countries have invested $ 800 billion in defense against 70 of Russia. The shooting down of a Russian jet at the end of 2015, by Turkey (NATO country), threatened to set off a chain reaction that only the sense of responsibility of the Kremlin has prevented from turning into an international crisis. And in front of a war, obviously without going into social issues, there is no investment that can withstand.

It’s clear that what is happening is not in Europe’s interests; and perhaps even not in Russia’s interests. On the contrary, Europe and Russia would need to build a common area of security and integration; many challenges (from terrorism to the economic crisis, energy issues from the balance in the Middle East) are common challenges and Europe, albeit slowly, begins to understand.

Immediately after the massacre of Paris always at the end of 2015, the French President, visited Moscow acknowledging the role that Russia is now playing in the war in Syria against ISIS and asking a Western commitment to coordinate efforts with Russian partner .

Obviously this is not the abolition of sanctions, which expire at the end of January 2016, and which will be renewed, given the times in which the bureaucracy tends to move, but the acknowledgment that the issue about EU relations with Moscow has to be discussed at the highest level considering that this kind of decision can not be taken quietly and passively; Europe, from a situation like this, can only take a loss.

Dear Shareholders, this is the particularly compromised context in which we live, a world in which we are requested to invest our hard-earned cash buying bonds with negative returns, where the mirage of zero risk was finally cleared through customs now that we understand that the banks shifted on investors their misguided management policies.

In November 2015, a few weeks ago, we had the great satisfaction of being able to make the inauguration of Domina Hotel Novosibirsk. A construction of 218 rooms, a 4 star hotel in the center of the Russian capital of Siberia.

It was not a simple thing, in fact we are proud because we met enormous difficulties  and although in the days of January 2016 the hotel will begin to receive its first guests, we can not allow to let down our guard.

It’s true, it’s been a period of time longer than we had expected for the time of construction, but in the meantime the world has changed dramatically.

Starting from the premises that there is no risk-free investment and considering that even those that are passed off as such, they are not actually free-risk, the management of the project till to date was the best we could humanly do removing all the conditions that fall under the gambling, which as such can not be called investments.

The matter is similar also for the hotel in St Petersburg, adding a further positive element that the hotel is an interesting reference point in the panorama of hospitality of the city having received positive assessments by the travelers as showed specifically  in the scores obtained by Trip Advisor.

The aim for the hotel in St Petersburg is to keep on the results achieved in the recent past and to hope that market conditions do not further deteriorate so that we can, as we did in 2015, continue to repay the outstanding loan.

The latest investment of our discussion is represented by the plot that we own in Ukraine. While the political situation is even more complex than the one in Russian, on the other hand we have part of good fortune since no work is in progress on this plot and at present we only have one project still to be realized.

It’s clear that at present thinking of a commitment to begin the development of the project makes absolutely no sense and therefore the only consideration that we think believeble is to leave the land as it is and waiting for future better times, aware that a solution of the crisis with Russia would lead automatically to a solution also to Ukraine.

Going back to the Fund as a whole, we confirm you that these days the Brickstone Fund Real Estate Fund SICAV plc is engaged in determining the NAV, which necessarily passes through an assessment made by independent experts.

Considering what is happening on the international market with special reference to the general situation “Russia”, we are ready to bet that the evaluators will be extremely conservative in order to protect their position against possible attacks.

The encouragement to believe in our Russian hotels comes from the following elements:

  • Despite international sanctions, Russia is a country that enjoys great reputation;
  • We are talking about people particularly proud that found in the unprovoked attack, reason of union rather than division;
  • From the political point of view the situation is stable;
  • Russia is a big country with huge primary resources;
  • The hotels are located in main locations;
  • Despite the depreciation of the Ruble, the economy will arrange its values through the variable “inflation” and with a little patience the equilibrium temporarily lost will be restablished.

But the reason of this letter is not intended to celebrate what has been done, rather to understand in what kind of situation we are now and in what kind of additional risks the project can incur and what we are doing and why we believe there is the need of the support of all.

The Novosibirsk hotel would not certainly have reached its completion if, a few years ago,  we had not decided to join to the proposals made by a Russian bank (practically only local banks finance projects in the area).

Initially we were long torn and uncertain to accept a loan because starting the way of financing in local currency, with the possibility that rates splattered (as indeed then happened as a result of the crisis “Ukraine”) and the alternative of financing in USD currency, the only existing, assuming a high currency risk, were equally risky as we have verified; but the even greater risk was to get stuck into a project far from to be completed  and with a value close to zero.

We consciously preferred the way of a approachable risk. After this important step, about a year ago, we realized that in order to complete the project in Novosibirsk, needed further financial effort and so it was decided, after having examined the possible alternatives, to turn back to the market asking a capital contribution.

Considering the exceptional characteristics of the historical moment in which we live, extensively summarized at the beginning of this letter, we realized that in order to get someone’s interest, we would have to offer particularly favorable conditions and so we did, giving the possibility of subscribing with a premium respect to the original subscription and thanks to this decision we have found an external partner who injected liquidity to the extent of 25% of the project.

Today, in January 2016, speaking to you, our attentions are addressed specifically in two directions:

  • The first is to find a partner who is interested in taking over the two banks that have granted the financing of projects in St Petersburg and Novosibirsk, because we highly fear the uncertainty of international markets and it should be appropriate to swap some Equity in order to be less subject to mood swings of the market. Therefore, in the event that we are unable to find one or more interested investors, we believe likely to think of a sale of shares rather than a subscription to the Fund because the latter, by virtue of the likely very low NAV values, could dilute you as historical shareholders;
  • The secondis to gather,withthe nextNAV determination ofthe end of December2015,expected by the endof January, the minimum resourcesnecessary to managethe ordinary expensesof the Fund, givingpriority toexistingshareholdersin the Fund and respecting the shares owned by each one,in order to not modify the equilibrium thatavery lowNAVcould bring.It’s clear that in theevent thatsome or allinvestorscurrently in theFundshould notjoin the newsubscription, the subscriptionitself would becomean incredible opportunityfora newinvestor whowould be able toenter with particularly favorable prices.

Dear shareholders, you have the right but also the duty, to think deeply, to leave for a bit what the media advocate every day and to contribute actively to the completion of the project.

For our part we continue to believe in the projects and to commit ourselves to find new solutions also in a particularly difficult moment.

Yours faithfully,

The Director