Interim Financial Information to 30 June 2011

Duet Real Estate Finance Limited

Interim Results for the period ended 30 June 2011

Duet Real Estate Finance Limited (the "Company") is a closed-ended investment company providing exposure to European commercial real estate debt through its investment in European Real Estate Debt Fund LP (the "Master Fund").

Highlights

Ø IPO of the Company in March 2011 raising £50m (gross)

Ø NAV as at 30 June 2011 of 98.6 pence per share

Ø Dividend of 1.0p per share

Ø 2 further investments by the Master Fund totaling £33m

Ø Additional fundraising announced

Quentin Burgess, Chairman of the Company commented:

"The successful IPO of the Company and the performance to date has been pleasing. The announcement of our maiden dividend is in line with that outlined at the time of the IPO and highlights the success to date. I am excited by the depth and quality of the pipeline currently being considered by the Master Fund."

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Chairman's Statement

It is with pleasure that I write to you for the first time as Chairman of the Company, and would like to take this opportunity to welcome you as a shareholder of the Company.

I am pleased to present to the shareholders the Company's first half-yearly financial report for the period ended 30 June 2011.

The Company

The Company raised gross proceeds of £50 million in its initial public offering ("IPO") and was admitted to trading with a premium listing on the main market of the London Stock Exchange on 14 March 2011.

The loss of £715,928 is after listing expenses and subscription premium of £1,000,000 as disclosed in Note 3.

During the period following admission the Company sought to achieve its investment objective to provide shareholders, through its investment in European Real Estate Debt Fund LP (the "Master Fund"), with regular dividends and an attractive total return whilst limiting downside risk to capital, through exposure to European real estate commercial debt.

Investment Performance

The Company's NAV as at 30 June 2011 was 98.6 pence per share, an increase of 0.6% from the opening NAV of 98 pence per share.

Following the period end the Company has received a distribution from the Master Fund totalling £0.68m and has declared a dividend of 1.0 pence per Ordinary Share, payable on 18 August 2011 to those Shareholders on the register on 5 August 2011. This represents an annualised yield of 4 per cent on the issue price per share at the time of the Company's IPO, which is in line with the target set out at the time of the IPO.

As at 30 June 2011, the Company had deployed 38 per cent of its capital that has been committed to the Master Fund.

Principal Risks and Uncertainties

The Company set out in the IPO document from February 2011 the principal risks and uncertainties that could impact its performance; these principal risks and uncertainties remain unchanged since that document was published and are expected to apply in the remaining period to 31 December 2011. Your attention is drawn to that IPO document for the detailed assessment. A copy of the Company's prospectus dated 18 February 2011 has been submitted to the National Storage Mechanism and is available for inspection at www.Hemscott.com/nsm.do.

Placing

In response to demand from both new and existing investors and in light of the continued strength of the pipeline of opportunities currently being seen in the European commercial real estate debt market, the Company announced on 26 July 2011 that it was seeking to raise additional capital targeting in excess of £25m and a prospectus has been published today.

Outlook

I remain confident in the outlook for the Company and am excited by the depth and quality of the pipeline currently being considered by the Master Fund. In a difficult lending environment, your Company's investment in the Master Fund is well positioned to deliver very attractive risk-adjusted returns.

I would like to close by thanking you for your commitment and I look forward to the Company continuing the positive start that it has made.

Investment Adviser's Report

Market Environment

The continuing concerns around sovereign risk for both the Eurozone and US have had a negative impact on market sentiment over the last quarter. The close interaction between sovereign risk and that of financial institutions in the Eurozone in particular, has created an even more cautious lending environment for banks. That has manifested itself in generally higher margins and lower leverage available for commercial real estate lending in Europe. The banking sector is continuing to try and de-lever thus perpetuating the theme of limited credit availability, which we believe will persist for quite some time. In the underlying asset markets, performance has been steady with both the UK and German IPD capital indices showing very little growth over the past year. Indeed, our view for the outlook for returns for property assets over the next few years is largely driven by income and not capital return.

The market drivers which contribute to the success of this investment strategy remain firmly in place and with the outlook suggesting little change we believe we will continue to see a large number of interesting investment opportunities.

Performance

We are continuing to grow our pipeline strongly, and move transactions through to completion. In the last quarter 2 further investments were closed for a total investment value of approximately £33m. We are pleased with the portfolio characteristics to date and in particular with the high cash pay element of our transactions. We continue to believe that this is a key element to not only providing attractive cash income to our investors, but also to de-risking the investments we make.

The portfolio is currently spread across 7 investments and is diversified by both geography and underlying asset type. To date we have closed transactions in the UK, Germany, France and Denmark. In terms of geography, we continue to focus on Northern Europe in general, as the more stable economies and legal systems provide a more attractive lending environment. The key portfolio metrics as at 30 June 2011 are shown in the table below.

In respect of the period to 30 June 2011, the Master Fund recently distributed £3.8m to its investors and the Company received a payment of £0.68m allowing the board to declare a maiden dividend of 1.0 pence per share.

Investment Pipeline and Outlook

The pipeline of investment opportunities continues to build and we are seeing an increasing number of transactions arise as loan maturities pass with limited refinancing options available to borrowers. We are also starting to see an increase in potential discounted loan sales, as certain banks look to reduce exposure, and in some cases exit markets altogether. The current active pipeline (transactions that are in some form of execution) stands at £229.5m spread across 11 deals and we hope to be in a position to announce further additions to the portfolio in due course. We remain on course to be fully invested in the Master Fund by the end of Q1 2012.

Statement of Comprehensive Income

for the period ended 30 June 2011

Statement of Financial Position as at 30 June 2011

Statement of Changes in Equity

For the period ended 30 June 2011

Statement of Cash Flows for the period ended 30 June 2011

The notes form an integral part of these financial statements.

Notes to the interim financial statements for the period ended 30 June 2011

1. General information

The Company was incorporated in Guernsey on 7 January 2011 and is a registered closed-ended investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and The Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission. The Ordinary Shares were admitted for trading on the Main Market of the London Stock Exchange on 14 March 2011.

The Company is a feeder fund and invests in European Real Estate Debt Fund L.P. (the "Master Fund").

This condensed interim financial information was approved for issue on August 2011. This condensed interim financial information does not comprise statutory accounts under Guernsey Company Law and has been reviewed and not audited.

2. Summary of significant accounting policies and basis of preparation of half year report

This is the Company's first interim financial report and there is no previous annual report, therefore a complete disclosure has been provided below of all significant accounting policies. Statutory annual accounts of the Company for the period ended 31 December 2011 will in due course be prepared in accordance with IFRS as adopted by the European Union.

Basis of preparation

The condensed interim financial information for the half year ended 30 June 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 "Interim Financial Reporting" as adopted by the European Union. This condensed interim financial information has been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss.

The preparation of interim financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Directors to exercise judgement in the process of applying the Company's accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. The directors believe that the underlying assumptions are appropriate and that the Company's financial statements therefore presents the financial position and results fairly. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 5.

New IFRS standards, amendments and interpretations issued but not effective for the financial period and not early adopted

The Company's assessment of the impact of these new standards and interpretations is set out below.

IFRS 9, 'Financial instruments', issued in November 2009. This standard is the first step in the process to replace IAS 39, 'Financial instruments: recognition and measurement'. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Company's accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU. The Company is yet to assess IFRS 9's full impact. However, initial indications are that it should not materially affect the Company's accounting for its financial instruments.

IFRS 10, 'Consolidated financial statements'; IFRS 11, 'Joint arrangements'; IFRS 12, 'Disclosures of interests in other entities'; and IFRS 13, 'Fair value measurement' have also been issued during the period to 30 June 2011. All of these new standards are effective from 1 January 2013. The Company has yet to assess the full impact of these new standards.

Foreign currency translation

Functional and presentation currency

The Company is listed on the main market of the London Stock Exchange, the capital raised in the IPO is denominated in Sterling and the intended dividends and distributions to be paid to shareholders are to be denominated in Sterling. The primary activity of the Company is to act as a feeder fund, investing into the Master Fund which itself has an underlying portfolio of UK and European commercial real estate related debt investments. The performance of the Company is measured and reported to the shareholders in Sterling. The Directors consider Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements of the Company are presented in Sterling, which is also the Company's functional currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the balance sheet date.

Foreign exchange gains and losses arising from translation are included in the statement of comprehensive income.

Financial assets at fair value through profit or loss

Classification

The Company classifies its investment in the Master Fund as a financial asset at fair value through profit or loss. This financial asset is designated by the Directors at fair value through profit or loss at inception.

Financial assets designated at fair value through profit or loss at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Company's documented investment strategy.

The Company's policy requires the Directors to evaluate the information about these financial assets on a fair value basis together with other related financial information. Assets in this category are classified as current assets if they are expected to be realised within 12 months of the balance sheet date. Those not expected to be realised within 12 months of the balance sheet date will be classified as non-current.

Recognition, derecognition and measurement

Regular purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed as incurred in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the statement of comprehensive income within net changes in fair value of financial assets at fair value through profit or loss in the period in which they arise.

Dividend income or distributions of a revenue nature from financial assets at fair value through profit or loss are recognised in the statement of comprehensive income within dividend income when the Company's right to receive payments is established.

Fair value estimation

The Company's investments in other funds, including the Master Fund are subject to the terms and conditions of the respective investee funds' offering documents. The investments in investee funds are carried at fair value as determined by the Directors at the period end date, such fair value being primarily based on the latest available coterminous reported information from that investee fund. The Directors review the details of the reported information obtained from the investee funds and consider: (i) the liquidity of the investee fund or its underlying investments, (ii) the date of the net asset value (NAV) provided, (iii) any restrictions on redemptions, and (iv) the basis of accounting in the underlying investee fund and, in instances where the basis of accounting is other than fair value, fair valuation information provided by the investee fund's advisers. If necessary, the Directors make adjustments to the NAV of the investee fund to obtain the best estimate of fair value as at the period end date. Net changes in fair value on financial assets at fair value through profit or loss in the statement of comprehensive income includes the change in fair value of each such investee fund.

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are recognised initially at fair value. They are subsequently measured at amortised cost using the effective interest rate method, less provision for impairment.

A provision for impairment is established when there is objective evidence that the Company will not be able to collect all amounts to be received. Significant financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount to be received is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the effective interest rate used to discount the future cash flows for the purpose of measuring the impairment loss.

The effective interest rate method is a method of calculating the amortised cost of a financial asset and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts throughout the expected life of the financial instrument − or, when appropriate, a shorter period − to the net carrying amount of the financial asset. When calculating the effective interest rate, the Directors estimate cash flows considering all contractual terms of the financial instrument but do not consider future credit losses. The calculation includes all fees and amounts paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Offsetting financial instruments

Financial instruments are offset and the net amount reported in the balance sheet only when there is legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, demand deposits, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

Payables and accrued expenses

Payables and accrued expenses are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Transactions costs

Transaction costs are legal and professional fees including certain subscription premium costs incurred to structure a deal to acquire the financial assets at fair value through profit or loss. They include the upfront fees and commissions paid to agents, advisers, brokers and dealers, due diligence fees and payments required in the nature of subscription premia to investee funds for transmission to the existing investors in those investee funds where there are late admissions of subsequent limited partners. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as an expense.

Subscription premium receivable

Subscription premium receivable from the Master Fund when it admits new investors is recognised as "other income - subscription premia" within the statement of comprehensive income as income on a receivable basis when the Company's entitlement has been determined by the Master Fund.

Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements in the period in which the dividends are approved by the Company's shareholders.

Taxation

The Company is domiciled in Guernsey, Channel Islands. Under the current laws of Guernsey, there is no income, estate, corporation, capital gains or other taxes payable by the Company. The Company does not currently incur any withholding tax in respect of its dividend income received which is recorded gross of withholding tax in the statement of comprehensive income.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors as it is the body that makes strategic decisions. The Board are of the opinion that there is only a single operational segment being the investment in the Master Fund as disclosed in Note 5. As a result no segment information has been provided as the Company only accumulates its funds raised for investment in the Master Fund.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.

3. Expenses

4. Taxation

The Company has obtained exemption from Guernsey Income Tax under The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is subject to an annual fee of £600.

5. Financial assets at fair value through profit or loss

The non-current investment comprises an investment in the Master Fund. The Company has a committed investment of £49,500,000 of which £18,862,655 has been drawn down at the period end. The undrawn commitment to the Master Fund at 30 June 2011 is £30,637,345.

Equalisation is paid to or received from the Master Fund when additional investors are admitted to the Master Fund including the initial investment by the Company. Amounts are paid to or received from the Master Fund so as to equalise (in percentage terms) the net amount drawn from all investors after taking into account any amounts distributed by the Master Fund to prior existing investors. Equalisation paid to the Master Fund is included as part of the purchase cost of the investment and equalisation received from the Master Fund represents a temporary return of capital which can be called again by the Master Fund from the Company as part of its commitment to invest.

The Company received equalisation from the Master Fund in the period of £11,123,383 being £1,427,485 as a consequence of the Master Fund's fifth closing to admit new investors other than the Company and £9,695,898 as a consequence of the Master Fund's sixth closing to admit new investors other than the Company. As at the period end the Company has shown the latter amount of equalisation receivable from the Master Fund as a trade receivable in Note 7.

In addition subscription premia are payable by the Company to the Master Fund as a condition of its investment in the Master Fund and is received from the Master Fund when it admits new investors on subsequent closings after the Company's initial investment. Subscription premia paid or received by the Company are treated as transaction costs or other income as appropriate.

On admission of the Company as an investor in the Master Fund the subscription premium was paid of £844,920 by the Company to the Master Fund, however as part of the agreement with the Investment Adviser this subscription premium was included in the calculation of the issue expenses as the Investment Adviser had agreed to pay an amount to the Company so as to cap all issue costs at 2% of the IPO fund raising. During this period the Company received subscription premia of £529,775 which has been treated as income. Note 7 discloses the subscription premium receivable by the Company from the Master Fund as at the period end.

The Company's investment in the Master Fund is subject to the terms and conditions set out in the Master Fund's offering documents and is accounted for by the Company as at fair value as determined by the Directors at the period end date, this fair value being primarily based on the latest available coterminous reported information from the Master Fund. The Directors review the details of the reported information obtained from the Master Fund and consider: (i) the liquidity of the Master Fund and/or its underlying investments, (ii) the type of investments held within the Master Fund, (iii) the date of the net asset value (NAV) provided, (iv) any restrictions on redemptions, and (v) the basis of accounting adopted by the Master Fund in valuing the investments held and in reporting to investors (the Master Fund reports to investors using IFRS principles). If necessary, the Directors make adjustments to the NAV of the Master Fund so as to obtain the best estimate of fair value as at the period end date. No such adjustments have been made to the reported NAV of the Master Fund as applies to the Company as at 30 June 2011. In addition to normal short term debtors/creditors and cash balances, the investment portfolio held by the Master Fund as at 30 June 2011 included;

i) Originated debt with fixed or determinable payments that are not quoted in an active market and are classified as "loans and receivables" measured at amortised cost less any impairment; and

ii) Debt instruments comprising of commercial mortgage backed securities which are classified as at fair value through profit or loss and valued by the Master Fund based on a combination of quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs.

Although the Directors use their best judgement in estimating the fair value of investments, there are inherent limitations in any estimation techniques.

6. Loss per share and net asset value per share

The loss per share calculation is based on loss for the period and total comprehensive income of £715,928 and the weighted average number of shares in issue since the period of issuance of 50,000,000.

Net asset value per share is based on net assets of £49,284,072 divided by the 50,000,000 Ordinary Shares in issue at 30 June 2011.

7. Trade receivables

8. Share capital

The authorised shares of the Company are as follows:

For the avoidance of doubt, the whole of the share capital account is distributable subject to meeting the solvency test criteria and any restrictions in the Articles of Incorporation of the Company.

One share was issued on incorporation on 7 January 2011. A further 49,999,999 Ordinary Shares were issued at £1 per share on 14 March 2011.

The Company's objective when managing its capital is to follow its investment objective to provide shareholders, through its investment in the Master Fund, with regular dividends and an attractive total return whilst limiting downside risk to capital through exposure to European commercial real estate debt. The Company has a significant commitment to invest in the Master Fund and therefore the Company's financial performance when managing its capital depends almost entirely on the performance of its investment in the Master Fund.

9. Cash and cash equivalents

10. Related party and material transactions

The Company pays a fixed annual fee of £25,000 to the Investment Adviser, Duet Private Equity Limited. The charge for the period was £10,000 which was outstanding at the period end.

Under the terms of an agreement between the Company and the Investment Adviser dated 18 February 2011, Duet Private Equity Limited undertook to reimburse the Company issue expenses and/or subscription premium such that the amount available to be committed to the Master Fund was equal to at least 98% of the gross issue proceeds. The effect of this agreement was to cap the Company's exposure to costs at the initial IPO to a maximum of 2% of the IPO proceeds raised. The rebate due under this agreement during the period was £1,059,074 of which £653,978 was outstanding from the Investment Adviser at the period end.

Transactions and balances with the Master Fund are disclosed in Notes 5 and 7.

The fees to directors during the period to 30 June 2011 were as follows:

Initial fees to the directors are included in issue costs whilst ongoing fees are included in the Statement of Comprehensive Income.

11. Subsequent events

In response to demand from both new and existing investors and in light of the continued strength of the pipeline of opportunities currently being seen in the European commercial real estate debt market, the Company is seeking to raise additional capital through a secondary fundraising.

The Company declared a dividend of 1.0 pence per Ordinary Share on 26 July 2011, which represents a yield of 4 per cent (annualised) based on the issue price per Ordinary Share at the time of the Company's initial public offering.