28 April 2021

CEIBA INVESTMENTS LIMITED

(the "Company")

(TICKER CBA, ISIN: GG00BFMDJH11)

Legal Entity Identifier: 213800XGY151JV5B1E88

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020

COMPANY OVERVIEW

GENERAL

CEIBA Investments Limited ("CEIBA" or the "Company") is a Guernsey-incorporated, closed-ended investment company, with registered number 30083.  The Ordinary Shares of the Company are listed on the Specialist Fund Segment ("SFS") of the London Stock Exchange's Main Market under the symbol CBA (ISIN: GG00BFMDJH11).  The Bonds are listed on the The International Stock Exchange, Guernsey under the symbol CEIB1026 (ISIN: GG00BMV37C27).  The Company is governed by a Board of Directors, the majority of whom are independent.  Like many other investment companies, it outsources its investment management, administration and other services to third party providers.  Through its consolidated subsidiaries (together with the Company, the "Group"), the Company invests in Cuban real estate and other assets by acquiring shares in Cuban joint venture companies or other entities that own the underlying properties.  The Company also arranges and invests in financial instruments granted in favour of Cuban borrowers.

FINANCIAL HIGHLIGHTS AS AT 31 DECEMBER 2020 IN £ AND US$ (FOREX: £/US$ = 1.3608)

The Company's Net Asset Value ("NAV") and share price are quoted in Sterling (£) but the functional currency of the Company is the U.S. Dollar (US$). As such, the financial highlights of the Company set out below are being provided in both currencies, applying the applicable exchange rate as at 31 December 2020 of £1:US$1.3608 (2019 £1=US$1.3113). 

1 These are considered Alternative Performance Measures.  See glossary for more information.

2 These figures differ from the figures derived from the audited Consolidated Financial Statements.  The figures are calculated in full accordance with International Financial Reporting Standards ("IFRS"), except that they include the effect of an adjustment recognising the full amount of US$5.0m / £3.9m received from Aberdeen Standard Fund Managers Limited on 23 November 2018 in connection with the execution of the Management Agreement in the Statement of Comprehensive Income for the year ended 31 December 2018, rather than deferring this amount over the five-year term of the Management Agreement as required by IFRS.

3 Source: Refinitiv 

This adjustment resulted in the increase of the net income attributable to the shareholders of the Company for the year ended 31 December 2018 by US$5.0m / £3.9m and decreases the net income attributable to the shareholders of the Company by the amount of US$1.0m / £0.7m per year over the five year term of the Management Agreement.  Consequently, for the year ended 31 December 2020 the adjustment resulted in a decrease in the net income attributable to the shareholders of the Company in the amount of US$1.0m / £0.7m.

MANAGEMENT

The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML" or the "AIFM") as the Company's alternative investment fund manager to provide portfolio and risk management services to the Company.  The AIFM has delegated portfolio management to Aberdeen Asset Investments Limited (the "Investment Manager").  Both ASFML and the Investment Manager are wholly-owned subsidiaries of Standard Life Aberdeen plc, a publicly-quoted company on the London Stock Exchange.  Aberdeen Standard Investments ("ASI") is a brand of Standard Life Aberdeen plc.  References throughout this document to ASI refer to both the AIFM and the Investment Manager.

CHAIRMAN'S STATEMENT

Since publication of the 2019 Annual Report of CEIBA Investments Limited ("CEIBA" or the "Company") in April 2020, both the Company and Cuba have, in line with most of the rest of the world, been battling the Covid-19 pandemic.  The extreme impact of this virus was difficult to assess at that time and there still remains considerable uncertainty about its duration and the long-term impact, and the expected return to normality.

One of our prime concerns throughout this period has been ensuring the wellbeing of our people and protecting the safety of the people working to advance the affairs of the Company.  It is notable that Cuba itself has handled the virus well, with some 103,524 total infections as of writing this report and a death toll of 604 people since the start of the pandemic, which on a global basis is an enviable record.

2020 REVIEW

Inmobiliaria Monte Barreto S.A. ("Monte Barreto"), the Cuban joint venture company in which the Company owns a 49% interest, owns and operates the Miramar Trade Centre.  Given the backdrop, it has traded very strongly since the onset of the pandemic and occupancy levels have remained over 98% throughout 2020.  Although revenues were down slightly as compared with the prior year, net income in 2020 reached US$14.4 million / £10.6 million for the year, representing a small increase over the prior year and making 2020 the most profitable year since incorporation of the joint venture.

The 2021 outlook for Monte Barreto continues to be positive, with occupancy percentage levels expected to remain in the high ninetiesthroughout the year.  Furthermore, following the recent significant monetary reforms in Cuba it is anticipated that there may be some material savings in the overheads of the Miramar Trade Centre going forward.

The global hotel industry has been severely impacted by the Covid-19 pandemic and the hotels in which CEIBA has an interest have proved to be no exception.  CEIBA's main hotel interests are held through its 32.5% holding in the Cuban joint venture company, Miramar S.A. ("Miramar").  Miramar owns three hotels in Varadero and one hotel in Havana.  In Varadero, the Meliã Las Américas and the Meliã Varadero have remained closed since the end of March 2020 while the Meliã Sol Palmeras remained open for most of the year but has traded on a heavily scaled-back basis.  The Havana-based hotel, the Meliã Habana, has similarly been open throughout 2020 and remains open, but also on a reduced basis.  Given the trading environment, Miramar was still able to finish 2020 with a positive EBITDA of approximately US$ 3.9 million / £2.9 million (2019: US$25.0 million / £18.3 million) of which CEIBA's share amounts to US$1.3 million / £0.9 million.  Miramar is well capitalised and is able to continue to operate without recourse to additional funding and has been using the closures to undertake certain cosmetic upgrading of rooms and facilities.

CEIBA's other hotel interest is in its 40% holding in the Cuban joint venture company, TosCuba S.A. ("TosCuba"), which is constructing the 400 room Meliã Trinidad Península Hotel.  This hotel is situated on the south coast of Cuba close to the historic city of Trinidad and will be the first modern international-standard beach resort hotel in the area.  The construction continued throughout the year, albeit at a reduced pace.  The issue on 31 March 2021 by the Company of €25 million 10.00% senior unsecured convertible bonds due 2026 ensures that the funding for the completion and start-up of operations of this exciting new property is in place.  It is presently anticipated that completion will take place during the third quarter of 2022 in time for the 2022-2023 high season.

The Board is also encouraged by the recent investment made in Grupo B.M. Interinvest Technologies Mariel S.L. ("GBM Mariel") through which the Company has acquired a 50% shareholding.  The Company has made an initial commitment of €1.5 million / US$1.8million to the project to develop an industrial logistics and warehousing complex to be constructed on a 11.3 hectare site situated in the Special Development Zone of Mariel.  To date, an amount of €250,000 / US$303,175 has been invested in order to partially fund the groundworks related to the construction of the first four warehouses of this multi-phase project.

Results for the year ended 31 December 2020

The NAV per Share at 31 December 2020 was US$1.41 / 103.8p compared to US$1.50 / 114.5p at 31 December 2019 and the loss per share for the financial year was US$0.14 / (10.6p) compared to a profit of US$0.06 / 4.2p for 2019. The valuation of the principal assets of the Company as well as the earnings generated by the Hotels of Miramar in respect of the year ended 31 December 2020 have clearly been negatively impacted by the Covid-19 pandemic.  The Hotels have been written down in these financial statements by US$24.7 million / £18.2 million in aggregate from 31 December 2019, reflecting both the present lack of trading as compared to last year and the uncertain road to full recovery.  However, as there is a much clearer route out of lockdown and towards the resumption of international travel than was the case in June 2020, the valuations have been increased from the position at 30 June 2020 by US$16.9 million / £12.4 million.

While the NAV total return was (9.4%) in Sterling terms, the share price total return was 19.0% (2019: (26.1%)). The share price fell, in line with most instruments, in the wake of the pandemic and at 30 June 2020 was as low as 64.5p. However, as we came through the summer, and particularly once news of successful vaccines and the outcome of the U.S. elections in November improved the outlook, we saw the share price recover strongly to close at 84.5p.

Cuban economic backdrop

For a country that relies heavily upon tourism to drive its economy, the Covid-19 pandemic and the continued tightening of economic sanctions imposed by the Trump administration have been extremely challenging for Cuba's economy and it experienced an 11% contraction in 2020.

Against this backdrop and in an effort to create jobs and revive the economy, the government very recently announced that it would greatly expand the number of economic activities open to private enterprise.  While there is still a considerable number of businesses that will remain state controlled, this opening up of the economy is nonetheless a significant move.  In addition, in late 2020 the government, at relatively short notice, announced and has now initiated the unification of the two Cuban currencies such that there will now be just one currency - the Cuban peso.  While initially this has and will create operational challenges, in the longer term the unification of currencies will help drive many inefficiencies out of the economy and should prove of material benefit to the day-to-day operations of the Company's hotels and of the Monte Barreto office complex.  The Board believes the changes implemented will greatly ease the ability to do business in Cuba, will enhance entrepreneurism and have positive long-term benefits to the general economy.  In addition, although new currency exchange challenges may be created, full implementation of the reforms may very well increase the attractiveness of Cuba as a market for foreign direct investment, improve the autonomy of joint venture companies and have a material positive impact on the investments of the Company.

These, and other reforms, are being initiated at the same time as a significant change in the Cuba's leadership. On 16^th April 2021, at the start of the 8^th Congress of Cuba's Communist Party, Raul Castro announced that he is stepping down as Secretary of the Party - leaving the island without a Castro guiding affairs for the the first time in more than six decades - whilst stating that he will ".. keep one foot in the stirrups to defend the fatherland, the revolution and socialism". Cuba's President, Miguel Díaz-Canel, will be his successor tasked with combining "continuity" with progress and reforms.

U.S. Cuba relations

Under the Trump administration, the economic restrictions imposed upon Cuba were continuously tightened and no let up was experienced during the last year of his presidency.  In June 2020, the U.S. expanded the Cuba Restricted List to include Fincimex, a Cuban financial corporation that handles the majority of US and many other international family remittances to Cuba, and finally, on 11 January 2021 the Trump administration chose to reinstate Cuba to the list of State Sponsors of Terrorism.  However, with the new Biden presidency, we can anticipate a gradual reversal of the Trump initiatives and a return to the relationship experienced in the later years of the Obama presidency.  We would envisage the initial steps to include the removal once again of Cuba from the list of State Sponsors of Terrorism, the relaxation of rules concerning travel to Cuba by US citizens and the removal of restrictions on remittances to Cuba.  We would also expect a suspension of Title III of the Helms Burton Act and the restoration of full operations at the US embassy in Havana.  All of these and other initiatives to open the relationship between the two countries should have a very positive impact upon the Cuban economy and also on the Company's assets.

Dividend

It was decided in 2020 that, with the inherent uncertainty caused by the onset of the Covid pandemic, it was critical that the Company maintain sufficient cash to meet all of its existing and future undertakings. Accordingly, the Board took the decision to suspend the dividend policy and no dividend was paid during 2020.  The Board would very much like to reinstate the payment of dividends but seeing as there still remains considerable uncertainty as to how long it will take to see a return of normal tourism numbers it has decided to maintain the present position for another year so no dividend will be paid to shareholders in 2021. This stance will be very much kept under constant review with a strong desire to reinstate the dividend as soon as appropriate.

Convertible Bonds

On 31 March 2021, the Company raised €25million in new funds through the issue of 10.00% senior unsecured convertible bonds due 2026 (the "Bonds").  Further details of the Bonds are set out in note 21 to the accounts.  The proceeds from this fund raising significantly enhance the Company's financial position and will enable it to complete the development of the TosCuba hotel in a timely manner and also provide capital for additional investment opportunities as they arise.

25 Years Investing in Cuba

This year CEIBA celebrates 25 years of existence, all of it investing in the mostly uncharted investment territory of Cuba,and I believe that the Company has accomplished a great deal during this period.  From a modest start in 1996, and after some initial fine-tuning to the investment strategy, the long years of asset growth, solid performance and US$89 million in steady dividend payments to our shareholders have demonstrated the virtues of a stable, long-term perspective and an experienced team in confronting the many uncertainties and ups and downs of the fascinating and unique Cuban investment market.  Despite variable economic conditions on the island  and changing U.S. government policies, the Company and its investments have led the way in many respects and have flourished over these years.

I am obliged to the team for their long-standing dedication and professionalism, and to the Cuban and other partners in each of the investments of the Company for their collaboration.  Without their efforts, none of the many successes of the Company would have been possible.  As I mark this important milestone and recognise past accomplishments  I look ahead with optimism and trust that the Company still has a long and prosperous road ahead, with the best yet to come.

Board

I am grateful to the Board for their commitment and input during this challenging year.  It is the Board's policy to undertake a regular review of its own performance to ensure that it has the appropriate mix of relevant experience and skills to ensure the effective overall operation of the Company.

The Investment Manager

Aberdeen Standard Fund Managers Limited, a wholly owned subsidiary of Standard Life Aberdeen plc, has acted as manager of the Group's portfolio of assets throughout the year.  There has been no change in the underlying key operational management of the Company and this team continues to be headed by Sebastiaan Berger, who is exclusively focused on the Company's assets and business and has acted in this role for some 20 years.  The Board reviewed the work of the Investment Manager during the year and concluded that it was very satisfied with the performance of the Investment Manager and that it was in the best interests of shareholders that ASFML remain as manager of the portfolio.

The Board extends its sincere thanks to the Investment Manager and to the entire management team based in Cuba for their commitment and efforts on behalf of the Company in these very challenging and uncertain times.

John Herring 

Chairman

27 April 2021

STRATEGIC REPORT

INVESTMENT OBJECTIVE

The investment objective of the Company is to provide a regular level of income and substantial capital growth.

INVESTMENT POLICY

The Company is a country fund with a primary focus on Cuban real estate assets.  The Company seeks to deliver the investment objective primarily through investment in, and management of, a portfolio of Cuban real estate assets, with a focus on the tourism and commercial property sectors.  Cuban real estate assets may also include infrastructure, industrial, retail, logistics, residential and mixed-use assets (including development projects).

The Company may also invest in any type of financial instrument or credit facility secured by Cuba-related cash flows.

In addition, subject to the investment restrictions set out below, the Company may invest in other Cuba-related businesses, where such are considered by the Investment Manager to be complementary to the Company's core portfolio ("Other Cuban Assets").  Other Cuban Assets may include, but are not limited to, Cuba-related businesses in the construction or construction supply, logistics, energy, technology and light or heavy industrial sectors.

Investments may be made through equity investments, debt instruments or a combination of both.

The Company will invest either directly or through holdings in special purpose vehicles ("SPVs"), joint venture vehicles, partnerships, trusts or other structures.  The Cuban Foreign Investment Act (Law 118/2014) guarantees that the holders of interests in Cuban joint venture companies may transfer their interests, subject always to agreement between the parties and the approval of the Cuban government.

INVESTMENT RESTRICTIONS

The following investment limits and restrictions apply to the Company and its business which, where appropriate, will be measured at the time of investment:

·    the Company will not knowingly or intentionally use or benefit from confiscated property to which a claim is held by a person subject to U.S. jurisdiction;

·    the Company may invest in Cuban and non-Cuban companies, joint ventures and other entities that earn all or a substantial part of their revenues from activities outside Cuba, although such investments will, in aggregate, be limited to less than 10% of the Gross Asset Value;

·    save for Monte Barreto (please see the Investment Manager's Review for more information on this asset), the Company's maximum exposure to any one asset will not exceed 30 per cent. of the Gross Asset Value;

·    no more than 20 per cent. of the Gross Asset Value will be invested in Other Cuban Assets; and

·    no more than 20 per cent. of the Gross Asset Value will be exposed to "greenfield" real estate development projects, being new-build construction projects carried out on undeveloped land.

The Company will not be required to dispose of any asset or to re-balance the portfolio as a result of a change in the respective valuations of its assets.  The investment limits detailed above will apply to the Group as a whole on a look through basis, i.e. where assets are held through subsidiaries, SPVs, or equivalent holding vehicles, the Company will look through the holding vehicle to the underlying assets when applying the investment limits.

KEY PERFORMANCE INDICATORS ("KPIs")

The KPIs by which the Company measures its economic performance include:

·     Total income

·     Net income

·     Total net assets

·     Net asset value per share (NAV)*

·     Non IFRS net asset value per share*

·     Net asset value total return*

·     Market capitalisation

·     Premium / Discount to NAV*

·     Dividend yield*

·     Dividend per share

·     Gain/Loss per share

* These are considered Alternative Performance Measures. 

In addition to the above measures, the Board also regularly monitors the following KPIs of the joint venture companies in which the Company is invested and their underlying real estate assets, all of which are Alternative Performance Measures.

In the case of commercial properties, other KPIs include:

·      Occupancy levels

·      Average monthly rate per square meter (AMR)

·      Earnings before interest, tax, depreciation and amortisation (EBITDA)

·      Net income after tax

In the case of hotel properties, other KPIs include:

·      Occupancy levels

·      Average Daily Rate per room (ADR)

·      Revenue per available room (RevPAR)

·      EBITDA

·      Net income after tax

The Board also monitors the financial performance of the Cuban joint venture companies that own the commercial and hotel properties using these KPIs.  The Board and the Investment Manager seek to influence the management decisions of the Cuban joint venture companies through representation on their corporate bodies with the objective of generating reliable and growing cash flow for the Cuban joint venture companies, which in turn will be reflected in reliable and growing dividend streams in favour of the Company.

PRINCIPAL RISKS

PRINCIPAL RISKS & UNCERTAINTIES

Introduction

The Board, through the Audit Committee, is responsible for the management of risk and regularly carries out a robust assessment of the principal risks and uncertainties affecting the business, discusses how these may impact on operations, performance and solvency and what mitigating actions, if any, can be taken.  There are a number of risks which, if they occurred, could have a material adverse effect on the Company and its financial condition, performance and prospects.  As part of its risk process, the Board seeks to identify emerging risks to ensure that they are effectively managed as they develop.  In the event that an emerging risk has gained significant weight or importance, that risk is categorised and added to the Company's risk register and is monitored accordingly. 

Principal Risks and Uncertainties

The Company invests in Cuba, a frontier or pre-emerging market, which may increase the risk as compared to investing in similar assets in other jurisdictions.

In addition to general country-risk, the most significant risks currently facing the Company identified by the Board appear in the table below, together with a description of the possible impact thereof, mitigating actions taken by the Company and an assessment of how such risks are trending at the present time. 

A detailed description of the risks faced by the Company is contained in the Company`s Prospectus and should be read in conjunction with the risks described herein. 

The Board relies upon its external service providers to ensure the Company's compliance with applicable regulations and, from time to time, employs external advisers to advise on specific concerns. 

The financial risks associated with the Company include market risk, liquidity risk and credit risk, all of which are described in greater detail in note 16 to the Consolidated Financial Statements. 

Following the ongoing assessment of the principal and emerging risks facing the Company, and its current position, the Board is confident that the Company will be able to continue in operation and meet its liabilities as they fall due.

INVESTMENT MANAGER'S REVIEW

TWENTY-FIVE

25 years ago

I vividly remember my first visit to Havana in May 1996, twenty-five years ago.  It was evening.  Cuba's capital was dark, and although the Clinton administration had just strengthened the U.S.-Cuban embargo by implementing the extra-territorial Helms-Burton Act, there was a lot of energy, interest, hope and engagement - on all levels.  I felt similar sensations when Mick Jagger stayed in our Meliã Habana hotel, when President Obama was elected, re-elected, and visited Cuba, and when the U.S. and Cuba took the first significant steps towards rapprochement. 

By contrast, after four years of Donald Trump, a global pandemic that has profoundly impacted world-wide tourism markets, a struggling Cuban economy, and conflicting views regarding the best way forward, it is impossible to deny the serious challenges ahead.  However, my personal conviction remains that mutual respect, engagement and economic growth are the essential building blocks upon which the country will move forward and I believe that the Biden administration shares this view.  This reinforces my optimism that better times lie ahead of us.

2021 is likely to be an extremely important year for Cuba.  Economic recovery will in no small measure depend on the world's ability to control the Covid-19 pandemic, the restarting of international travel and the reopening of Cuba for tourism, but may also be boosted by recently-adopted measures aimed at the overhaul of Cuba's monetary system, the stimulation of national production and import substitution and the invigoration of the nascent private sector.

On the political front, an historic moment took place during the 8^th Congress of Cuba's Communist Party held in Havana between 16 and 19 April 2021 when Raul Castro (age 89 years) resigned as First Secretary of the Party and was replaced by Cuba's President, Miguel Díaz-Canel (age 61 years), making the latter the first non-Castro appointed to this important position since 1959.

Notwithstanding numerous statements made by President Biden during the campaign last year with respect to the U.S. Cuban embargo, and in particular his intention to "… promptly reverse the failed Trump policies regarding Cuba...", sadly it would appear that improving the relationship with Cuba is not amongst Biden's chief foreign policy priorities.  Although the restoration of international cooperation seems to be high on his government's agenda, it would appear that no immediate need is felt to ease the Cuba restrictions that are currently in place.

However, following a formal review, we expect the Biden administration to cancel the designation of Cuba as a "state sponsor of terrorism", and subsequently to adopt measures aimed at increasing remittances to Cuba, the easing of travel restrictions and the restoration of services and staffing at the U.S. embassy in Havana.  One may disagree with President Biden's careful pace, but gathering bipartisan support for a more substantial overhaul of the U.S.' Cuba policy may prove to be more sustainable in the long term.

25^th Anniversary

Following its start of operations in 1996, the Cuba-dedicated investment trust that is CEIBA today (originally named Beta Gran Caribe Fund Limited) raised approximately US$29 million in initial capital and began putting together its Cuban portfolio.  At the time, it was a pioneer and the first investment trust (originally listed on the Irish Stock Exchange) to benefit from the provisions of the new Foreign Investment Act adopted by Cuba on 5 September 1995 to pave the way for foreign investment in the country.  In 2001-2002, control of the Company passed to new shareholders, the present executive team was appointed and developed a new investment strategy, and net asset value, which had shrunk during the first five years of operation to approximately US$19 million, began to grow.  

This year, CEIBA Investments Limited celebrates its 25^th anniversary.

It is now listed on the Specialist Fund Segment of the London Stock Exchange, its present net asset value is approximately US$194 million / £142 million, and during the last 17 years it has distributed approximately US$89 million in dividends to its shareholders.  We are proud of all that has been achieved over the years, together with our Cuban partners and our Cuban assets, and this notwithstanding the US Cuban embargo legislation and many other challenging circumstances faced over the years.  We are also thankful for our Cuban employees, who have been essential in getting the Company where it is today.

2020 PERFORMANCE

The performance of the Company is largely dependent on the fair values of the properties in which it has an interest and the total amount of annual dividends distributed by the joint venture companies that own these properties.  The fair values of the properties in which the Company has an interest, which are located in a frontier market, are calculated by the independent RICS valuer Arlington Consulting - Consultadoria Imobiliaria Limitada, trading under the name Abacus ("Abacus") using discounted cash flow models.  As at 31 December 2020, the fair values of all of the assets in which CEIBA Investments has an interest decreased as a result of a fall in projected income levels.

The NAV Total Return for the year in US$ was (6.0%) (2019: (4.9%)), and in £ it was (9.4%) (2019: 0.8%).  As at 31 December 2020, the Net Asset Value of the Company was US$194,425,614 / £142,875,966 (2019: US$206,734,334 / £157,656,016). The loss on the change in the fair value of the equity investments was (US$41,914,276) / (£30,801,202) (2019: (US$14,658,562) / (£11,178,649)).  The total dividend income from the Cuban joint venture companies during the year ended 31 December 2020 was US$13,258,912 / £9,743,469 (2019: US$20,670,560 / £15,763,410). The net loss of the Company for the year ended 31 December 2020 attributable to the shareholders was (US$19,808,620) / (£14,556,599) (2019: net income of US$7,579,514 / £5,780,152).

During 2020, the hotel investments of the Company were harshly impacted by the Covid-19 pandemic, although the EBITDA of Miramar S.A. ("Miramar"), the owner of the Meliã Habana, Meliã Las Américas, Meliã Varadero and Sol Palmeras hotels (the "Hotels"), was still positive for the year at US$3.9 million (£2.9 million) as a result of the positive results generated during the first months of the year.  The pandemic also had a significant impact on the construction of the TosCuba hotel project at Trinidad, which incurred serious delays.

The principal factor that contributed negatively to the results was the decrease in the fair value of Miramar S.A. of US$24,703,820 / £18,153,895 (2019: decrease of US$26,742,193 / £20,393,650).  The performance of the hotels of Miramar was profoundly impacted by the ongoing Covid-19 pandemic and the resulting dramatic collapse in the worldwide tourism and travel industries from March 2020 onwards.  With two of its hotels closed from April 2020 onwards and the other two operating at minimal occupancy rates, the net loss after tax of Miramar was (US$3.5 million) / (£2.6 million) (2019: net income of US$17.9 million / £13.6 million).  The combined occupancy rate of the Hotels for 2020 was 24% compared to a combined occupancy rate of 78% in 2019.  This also resulted in lower dividend income earned by the Company from Miramar during the year of US$6,310,596 / £4,637,416 compared to US$11,537,327 / £8,798,388 in the prior year.

By contrast, the mixed-use office and retail centre of Inmobiliaria Monte Barreto S.A. ("Monte Barreto") had its best year ever, registering net income of US$14.4 million / £10.6 million (2019: US$13.5 million / £10.3 million).  However, there was a decrease in the fair value of Monte Barreto of (US$5,268,689) / (£3,871,759) (2019: increase of US$10,537,071 / £8,035,591) due to a more conservative approach being taken regarding revenue growth during the next few years considering the pandemic's impact on the economy.  Dividend income earned by the Company from Monte Barreto during the year was US$6,948,316 / £5,106,052 compared to US$9,133,233 / £6,965,022 in 2019.

CUBAN RESPONSE TO COVID-19 PANDEMIC

At the time of writing, Cuba has confirmed just over 100,000 total cases of the Covid-19 virus since the first case was registered in March 2020, and slightly more than 600 total deaths.

Cuba was very successful in defending against the virus from its first arrival in the country until the re-opening of flights in November 2020.  Although strict protocols were imposed, including PCR testing on arrival in the case of tourists staying at resorts and a second PCR test five days following arrival as well as a quarantine period in the case of residents and Cuban expats staying with family members, the virus appears to have been reintroduced in a renewed fashion by Cuban expats visiting family without strictly complying with the mandated self-isolation requirements, especially around the year-end holidays. 

In response to the relapse, authorities have reduced flights, introduced a new requirement that inbound travellers be able to show a negative PCR test before boarding and Havana was placed once again in a state of lockdown.  However, few significant problems seem to have been identified at the tourism resorts, where health measures appear to have worked as intended.

Throughout the year, Cuba has been working on a number of vaccines to be used against the virus.  The most promising of these vaccines, called Soberana 2, is presently in the final stage of phase 3 trials and showing positive results.  Final approval of the vaccine is expected imminently, following which it will be rapidly rolled out to the population at large.  The Finlay Institute, which developed Soberana 2, has announced a plan to produce up to 100 million doses before the end of 2021 and expects the entire Cuban population to be vaccinated during 2021, with a large excess of doses for export to other countries as part of Cuba's medical diplomacy efforts. 

It remains impossible to predict how quickly the Cuban tourism sector will recover from the worldwide disruption caused by the Covid-19 pandemic.  Although the Cuban Ministry of Tourism has not modified its projection of approximately 2.0-2.5 million visitors in 2021, it seems all but certain (given the circumstances in the principal outbound markets) that the first half of 2021 will disappoint.

Numerous Cuban tourism resort destinations are presently open, with a modest number of hotels under operation.  Visitors have been arriving and departing in accordance with available flights and travel restrictions in outbound markets, with no significant virus-related issues since reopening of the market in mid-November 2020.

Hotel operators have tentative plans for a gradual reopening of hotels during 2021, although the ability to implement such plans will depend on external circumstances as the world emerges from the present pandemic.

THE ELECTION OF PRESIDENT BIDEN AND THE POTENTIAL IMPACT ON THE U.S.-CUBAN EMBARGO

Joe Biden was inaugurated as President of the United States on 20 January 2021, which we hope will bring to a final close the highly toxic chapter of U.S.-Cuba relations dictated by the Trump administration over the last four years.  Regarding Cuba, President Biden stated during his campaign that he will:

"(…) promptly reverse the failed Trump policies that have inflicted harm on the Cuban people (…)" and "(…) immediately restore the Obama policy of engagement". 

We believe that this statement of intent represents excellent news for Cuba and for the Company.

In the waning days of the Trump presidency, following the steady adoption over the course of the preceding four years of ever-increasing aggressive measures against Cuba, the U.S. administration took numerous controversial final steps to further penalise the island and to complicate the efforts of the incoming Biden administration to reverse course on Cuba policy.  These included most notably the return of Cuba to the State Sponsor of Terrorism list, which may take time and effort to undo (since it will require a formal State Department review, a presidential certification to Congress and a 45-day waiting period).    

However, other than the Terrorism list, the vast majority of anti-Cuba measures adopted by the Trump administration over the last four years can be reversed by simple executive order, without the need for any act of Congress, and so a return to the Obama policy of engagement with Cuba (leaving intact the underlying embargo legislation, which can only be revoked through legislative action) should be attainable with relative ease.  We believe that the most likely first steps in such an effort could include:

1.    Increasing U.S. travel to Cuba through the reinstatement of the general licence for the people-to-people category of authorised travel, the full restoration of commercial flights and cruise ship travel, the elimination of the Cuba Restricted List and the Cuba Restricted Accommodations List of businesses that cannot be engaged with by U.S. persons, and the reversal of other similar measures imposed by the Trump administration;

2.    Increasing U.S. remittances to Cuba through the immediate removal of remittance limits;

3.    Facilitating U.S. agricultural, medical and other exports to Cuba;

4.    Facilitating U.S. financial transactions involving Cuba, including U-turn transactions whereby parties who are not subject to U.S. jurisdiction are allowed to use the U.S. financial system (and the U.S. dollar) for transactions related to Cuba that originate and terminate outside the U.S. and where no U.S. party is involved;

5.    Suspension of Title III of the Helms-Burton Act;

6.    Restoring full operations at the U.S. embassy in Havana (including the appointment of a U.S. ambassador); and

7.    Removing Cuba from the list of State Sponsors of Terrorism.

The timing of the hoped-for return to a more productive and sensible Cuba policy remains uncertain, given the large number of important domestic and international issues that the new administration will need to confront, and numerous ongoing issues could potentially play a role, such as the question of Venezuela and the still unsolved mystery of U.S. diplomats who suffered ill health effects while stationed in Havana some years ago. 

Moreover, with the newly restored Democratic control over both houses of Congress, it becomes possible once again to imagine a day when legislation fully rescinding the antiquated and counter-productive U.S. Cuban embargo can be introduced and have an honest chance of success.  With the introduction of a new bill entitled the U.S.-Cuba Trade Act of 2021 to the Senate on 4 February 2021, which aims to repeal all of the legislation making up the embargo and re-establish normal trade relations and travel to the island nation, it would appear that Congress will soon have the opportunity to make this happen.  

CUBA - MODERNISATION OF THE ECONOMY AND MONETARY REFORM

Modernisation of the Cuban Economy

Since 2011, the Cuban government has been pursuing a concerted effort to modernise the Cuban economy, with the principal goal of increasing efficiency within the economic sphere and elevating the levels of social and economic development of the country.  To this end, the Cuban Communist Party in 2011 adopted a series of guidelines (the "2011 Guidelines") on economic and social policy aimed at transforming all sectors of the economy and liberating the country's productive forces through the concession of greater management autonomy to businesses in the state sector, the development of complementary private sector activities and an increase in new foreign direct investment and finance.  The principles and actions outlined in the 2011 Guidelines were subsequently reiterated in later documents and programmes adopted by the Cuban government, such as its 2030 Development Plan.

However, implementation of the 2011 Guidelines has moved forward at a very cautious pace over the years since their adoption and came to a virtual standstill in the face of heightened aggression from the United States during the Trump administration.  The arrival of the Covid-19 pandemic earlier this year has further pressured the already bleak economic and liquidity positions of the country by bringing the Cuban tourism industry to an abrupt halt and paralysing numerous import activities, resulting in crippling shortages of food and other basic commodities as well as necessary inputs for local industry.

Reforms of 16 July 2020

In July 2020, after many years of start-and-stop progress, the Cuban government returned its economic modernisation strategy, as originally contemplated in the 2011 Guidelines, to the fore.  The measures adopted last summer were aimed at boosting hard currency income in the short term through an increase in exports and in the local production of food and other necessary products that can substitute imports, and through the creation of a new internal hard currency market for certain goods and services.  They also included measures meant to augment management control over corporate assets, financial resources and activities, and decrease government control over the economy and the centralised allocation of hard currency resources.  The increase of foreign direct investment in the country and stimulation of private sector activities are core goals of the recent reforms.

For the joint venture companies in which the Company has a participation, the most important of these measures was the adoption of Resolution 115 issued by the Ministry of Economy and Planning ("Resolution 115") on the allocation of hard currency resources within the economy, which is expected to provide a much greater degree of financial autonomy to the management of joint venture companies and to have a significant positive effect on their operations.

In mid-December 2020, the final piece of the reform puzzle was made public with the announcement that the long-planned currency unification and exchange rate harmonisation would be brought into effect on 1 January 2021.

Monetary Reforms

Monetary reform has long been called for by observers because for many years there have been numerous currencies circulating in parallel in the Cuban economy, with a variety of distinct, mandated (non-market based) exchange rates between them, depending on parties and circumstances, causing substantial distortions in the economy. 

The principal Cuban currency, the Cuban peso ("CUP"), has been officially pegged to the USD at the rate of 1USD : 1CUP since 1959 for financial transactions between Cuban entities, with the exception of joint venture companies and other foreign direct investment vehicles.  In practice, however, the retail exchange rate offered at State-owned currency exchange points (Cajas de Cambio or CADECA) has been 1USD : 24CUP for years.  In parallel to the CUP, a second Cuban currency, the convertible peso ("CUC"), has circulated in the economy (also at a fixed exchange rate of 1USD : 1CUC) for the last two decades for local transactions involving a hard currency component.  There were also numerous exchange rates between the CUC and the CUP.  And lastly, certain transactions - including certain retail sales and the operations of foreign investment vehicles - have historically been denominated and carried out in USD.

Since the publication of the 2011 Guidelines, monetary reform has been recognised as a key component of the planned modernisation process.  With little advance warning, the new measures constituting the reform were published in mid-December 2020 and came into effect on 1 January 2021.

The reform is directly applicable to foreign investment vehicles operating in the country, including joint venture companies, who will need to convert all of their accounting records to CUP and carry out all transactions in CUP going forward.  By contrast, all entities operating in the Special Development Zone of Mariel will continue to denominate and carry out their operations exclusively in USD.  We have included below, in the relevant sections dealing with our assets, comments regarding the expected impact of the new measures.

The principal goals of the reform are:

(i)        the unification of the two Cuban currencies through the elimination of the CUC and the continuation of the CUP,

(ii)       the harmonisation of exchange rates at 1USD : 24CUP,

(iii)      the reduction or removal of subsidies in the Cuban economy, and

(iv)      price and labour (salary, pension and social security) reforms aimed at correcting price levels.

The reform has been enacted through the adoption by different ministries of a large number of complex, interrelated resolutions and new measures continue to be adopted on a regular basis.  The measures taken to date include rules relating to the conversion to CUP of cash, bank deposits and other monetary assets, as well as non-monetary items such as accounting records, contractual obligations and other legal instruments. 

The reform will profoundly affect the pricing and payment of goods and services throughout the economy, including the foreign investment sector, as well as salaries, pension and social security payments.  In addition, changes have already been made to the new Resolution 115 system for the allocation of hard currency resources to harmonise the allocation of financial resources with monetary reform.  We expect further changes to be adopted in the coming months as problems arise and internal contradictions are discovered.

Amendments to Resolution 115: Allocation of Hard Currency Resources within the Economy

Prior to the adoption of Resolution 115, all allocations of hard currency for payments to be made outside the country (including the payment of dividends to foreign investors) were made centrally.  This resulted in an inefficient and unfair allocation and numerous delays, especially during regular periods of reduced liquidity in the country, when payments to foreign investors appeared at times to be of secondary importance compared to other public expenditures.

Resolution 115, as recently amended to take into account monetary reform, provides for the systemic allocation of a certain level of "liquidity" (the ability to transfer funds overseas without the requirement of a prior foreign exchange permit) to the operations of foreign investment vehicles and other entities.

Since the system is untested it is as yet unclear whether the criteria used to determine the liquid resources to be allocated will be sufficient, in practice, to cover all international payments (imports, payments of dividends to foreign shareholder, etc.), but since Resolution 115 also includes the possibility to request exceptions we are confident that in most cases the new system will be workable, especially since the general rule is that all joint ventures must have the necessary liquid funds to allow them to comply at all times with their international obligations, including the payment of dividends.

We believe that this is a very significant step forward for the operations of Cuban foreign investment vehicles and in line with the stated aim of "providing real financial autonomy to foreign investment vehicles" and thereby reducing their dependence on centralised foreign exchange decisions.  We expect that, following a transition period during which new working capital reserves will need to be accumulated, the new rules will provide a sound and predictable basis upon which joint venture companies will have the means to manage their international obligations in a timely fashion, including the payment of dividends to the foreign shareholder.

Conclusions

The corrective measures taken by the government to reduce the substantial distortions in the state sector of the Cuban economy caused by multiple exchange rates between the USD and the CUP, as well as between the CUC and the CUP, are necessary steps that are intended to return the Cuban monetary system to an internally coherent system for regulating and reporting transactions within the economy. 

Similarly, the new system for the allocation of hard currency reserves represents a significant step forward towards the goal of greater financial autonomy for foreign investment vehicles.  However, the scope and complexity of both of these projects is immense, with probable effects throughout the economy, and we expect the transition to be complicated and not without growing pains. 

In addition, by imposing the use of the CUP as functional and reporting currency for all foreign investment vehicles going forward, the Cuban government has introduced a new foreign exchange risk to the operations of these investment vehicles, and in particular to their foreign investors, since the CUP will likely be subject to future devaluations, which could impact investments in numerous ways.  Like in many other countries, this is an additional factor that will need to be properly managed by investors in order ensure success.

Areas of concern regarding the possible impacts of the above on the operations of the joint venture companies in which the Company has an interest have been identified and we have raised these with our Cuban partners and government officials.  We believe that these concerns will be properly addressed in due course, either through the obtention of exceptional treatment or through clarifications or changes to the applicable rules.

We believe that these reforms constitute significant transformations to the highly centralised economic model followed by the Cuban government to date, and that these represent a significant positive development for the operations of the joint venture companies in which the Company is invested, as well as presenting numerous opportunities for the future.  We are following these developments closely.  The Cuban government has very clearly stated that one of its core objectives, both in carrying out monetary reform and in creating the new system of hard currency autonomy, is to increase the attractiveness of the country for foreign investment and finance.  Therefore, we trust that this outcome will be borne out in the final result, notwithstanding the complicated transition process that is underway.

CUBA - ECONOMIC BACKDROP AND OTHER RECENT DEVELOPMENTS

At the year-end session of the Cuban National Assembly, Minister of Economy and Planning Alejandro Gil confirmed that the Cuban economy contracted by 11% in 2020, battered by the pandemic, increased U.S. sanctions and internal inefficiencies.  He forecasts growth of 6-7% in 2021 as tourism gradually recovers and monetary reforms create the conditions for new development.

The congress of the Cuban Communist Party that took place on 16-19 April 2021 focused on core issues relating to the country's economic and social life.  The further elaboration of the economic and social development model and the implementation of the 2011 Guidelines were central, although the stepping down of Raul Castro as First Secretary of the Party was the prime focus of the international press.

PORTFOLIO ACTIVITY

General

Overall, the performance of the Miramar Trade Centre, the office complex of Monte Barreto, in which the Company has a 49% interest, had its most profitable year ever - occupancy rates remained in the high nineties throughout the year.  Although revenues were similar to the previous year, net income increased by 6.2%, primarily as a result of savings in energy costs.

As a result of the Covid-19 pandemic and the resulting collapse of the worldwide travel industry, the Hotels faced an extremely challenging business environment, and the results reflect this.  While the Sol Palmeras and the Meliã Habana hotels were able to maintain services throughout most of the year, occupancy and room rates were inevitably very much affected, while the Meliã Las Americas and Meliã Varadero hotels were closed from 1 April 2020 until the end of the year.  At present, the Meliã Habana is one of the few hotels in Havana where arriving travellers can spend their obligatory isolation period.  The ability of the Hotels to reopen and return to a normal operating environment will depend upon numerous factors such as the success of vaccination campaigns in the tourists' home countries, the development and rollout of a Cuban vaccine, the availability of flights and others.  There is obviously a great deal of uncertainty connected with the performance of the hotel sector in 2021.

The Miramar Trade Centre / Monte Barreto

The Company holds a 49% interest in Monte Barreto, the Cuban joint venture company that owns and operates the Miramar Trade Centre.  Occupancy levels of the Miramar Trade Centre remained over 98% throughout 2020, notwithstanding the major disruption caused to the Cuban economy by the Covid-19 pandemic.  Although revenues were similar to the prior year, net income in 2020 reached US$14.4 million / £10.6 million for the year (2019: US$13.5 million / £10.3 million), representing a 6.2% increase over the prior year and making 2020 the most profitable year since incorporation of the joint venture.

The principal drivers of the excellent results for the year were (i) continued high occupancy levels throughout the year, and (ii) a substantial reduction in operating expenses, primarily as a result of reduced electricity, consumables, third party services and other expenses resulting from reduced tenant activities during the Covid-19 pandemic of 2020.

Demand for international-standard office accommodation in Havana currently continues to exceed supply, predominantly from multi-national companies, NGOs and foreign diplomatic missions.  Monte Barreto remains the dominant option in this market segment.  As a consequence, and notwithstanding the Covid-19 pandemic, the outlook for Monte Barreto in 2021 remains very encouraging, as we expect occupancy levels to remain in the high nineties and loss of rental income as a result of the pandemic to be modest.  In addition, further reductions to operating expenses are expected from the conversion of salaries, electricity and other local costs to Cuban Pesos, which undoubtedly is a positive outcome of the monetary reforms.  However, in light of the present disruption in the market, the joint venture has temporarily halted its general strategy of rental increases as leases are renewed, which has resulted in a decrease in its fair value.

In accordance with the new provisions of Resolution 115 dealing with the allocation of hard currency resources, we expect that Monte Barreto will receive sufficient liquid resources in 2021 to distribute all profits generated during the year and to gradually pay out the remaining outstanding dividends from past periods.  Commercial real estate activities have been excluded from some of the general rules relating to liquid payments, and consequently the local payments of many tenants of the joint venture will not be received with liquidity and conversely most local payments to be made by the joint venture will similarly not require liquidity.  As a result, the joint venture will operate under a mixed regime having reduced liquidity requirements, where certain liquid resources of the joint venture will be generated internally and certain resources will be allocated centrally.

We are presently working with the management team of the joint venture to calculate the comprehensive liquidity requirements of the joint venture as well as the expected sources of liquidity available to it in the coming period in order to ensure that there will be sufficient liquid resources to distribute all dividends generated in 2021 and to gradually pay out the remaining outstanding dividends from past periods.

In December 2020, Monte Barreto paid US$4 million / £2.9 million in dividends to CEIBA MTC Properties Inc. by transferring that amount to TosCuba.  These funds will be used by TosCuba in connection with the construction of the hotel and will be counted as disbursements under the construction facility as they are used (see below).

The valuation of Monte Barreto has been adjusted downward in the year by (US$5,268,689) / (£3,871,759), representing a 6% decline on the December 2019 valuation.  This was driven by a more conservative approach towards revenue growth during the next few years considering the impact of the pandemic on the Cuban economy and the resulting decision to halt rental increases temporarily as leases are renewed.

The Hotels of Miramar

Through its indirect ownership of a 32.5% interest in Miramar, the Group has interests in the following hotels:

-      the Meliã Habana Hotel, a 397-room international-category 5-star business hotel located on prime ocean-front property in Havana (directly opposite the Miramar Trade Centre);

-      the Meliã Las Americas Hotel, a 340-room international-category 5-star beach resort hotel located in Varadero;

-      the Meliã Varadero Hotel, a 490-room international-category 5-star beach resort hotel located in Varadero; and

-      the Sol Palmeras Hotel, a 607-room international-category 4-star beach resort hotel located in Varadero. 

The Hotels are operated by Meliã Hotels International S.A. ("Meliã Hotels International"), the Company's strategic partner in all of its hotel investments.  Meliã Hotels International has a 17.5% equity interest in Miramar and a 10% equity interest in TosCuba, and remains fully committed to Cuba as one of its principal destinations.

Performance of the Hotels

From arrival of the Covid-19 pandemic in Cuba in March 2020 through the end of the year the Hotels faced an extremely difficult operating environment.  With international borders closed and international flights grounded, all Cuban hotels were ordered to be closed.  The Sol Palmeras and the Meliã Habana hotels were able to maintain modest services throughout most of the year, but occupancy and room rates were at low levels.  The Meliã Las Americas and Meliã Varadero hotels remained closed from 1 April 2020 through the end of the year (and they remain closed at the date of writing). 

The Meliã Habana hotel is one of the few hotels in Havana where arriving travellers can spend their obligatory isolation period and the hotel is popular with flight crews and other essential travellers, so we expect that operations will continue at these levels until international travel markets recover later this year.  The Sol Palmeras is also expected to remain open in the coming months, with a modest number of guests from countries that have resumed flights to Cuba (such as Russia), but our expectation is that occupancy will remain at very low levels until the Canadian and European markets resume in earnest when their populations are fully vaccinated and regular flights from these important outbound markets resume. 

In general, the ability of the Hotels to return to normal operations will be dependent upon numerous factors such as the success of the vaccination campaigns in the principal outbound markets in Canada and Europe, the development and rollout of a Cuban vaccine, the availability of flights, the implementation by the Biden administration of a new, more positive Cuba policy, and others.  Like in many other places, there is obviously a great deal of uncertainty connected with the performance of the Cuban hotel sector in 2021 and we expect that the effects of the Covid-19 pandemic will continue to be felt throughout the first half of 2021, and possibly through the first three quarters of the year.

Once hotel operations return to normal as the world emerges from the Covid-19 pandemic and international travel and tourism markets recover from the disruption suffered over the last year, we expect the liquid resources directly generated by the operations of Miramar to be more than sufficient to allow Miramar to distribute all profits to be generated during the year and to gradually pay out the remaining outstanding dividends from past periods. This is because under the new liquidity rules international tourism income is treated as direct export income (of which 80% of the liquidity can be retained by the joint venture).  In addition, we anticipate that the adopted monetary reforms may have a positive impact on the cost structures (and potentially on the profitability) of the Hotels.

Confirming and Discounting Facility

In December 2019, HOMASI (the foreign shareholder of Miramar) executed a US$7 million confirming and discounting facility with Miramar for the purpose of confirming and discounting supplier invoices relating to the operations of the four hotels owned by the joint venture company.  The facility is financed in part by a €3.5 million credit line received by HOMASI from a Spanish bank for this purpose.  The facility has attractive economic terms and is secured by the offshore cash flows generated by the hotels.  Given the limited operations of the Hotels during the last three quarters of 2020, the operations financed under the facility during the year were largely aimed at resolving past issues with suppliers, rather than current operations.  We expect that confirming and discounting transactions under the facility will accelerate once again when the operations of the Hotels return to normal levels.

Planned Investments

The planned refurbishment and development plan of the Hotels has been delayed by the Covid-19 pandemic and by the implementation of the monetary reforms.  Miramar has profited from the hotel closures to proceed with maintenance and certain limited improvement works, as well as with the planning and permitting processes.  The board of the joint venture company will review the timing of the planned investments in the coming year as the tourism sector recovers and the full implications of the new monetary rules are clarified.

The TosCuba Project                                                                                                                                                                     

The Company has an 80% interest in Mosaico Hoteles S.A. ("Mosaico Hoteles"), representing a 40% indirect interest in TosCuba, the Cuban joint venture company that is constructing the 400 room Meliã Trinidad Península Hotel.  The remaining 20% interest in Mosaico Hoteles is held by Meliã Hotels International.  The Cuban shareholder in TosCuba is Cubanacán, with a 50% interest.

 As at the end of 2020, all structural works of the hotel were completed and the project had reached an overall completion level of approximately 60%.  Delays that had accumulated over the course of the project were exacerbated by the arrival of the Covid-19 pandemic in March 2020.  In response to the crisis, the joint venture company slowed the pace of construction considerably for the remainder of the year. 

During the first quarter of 2021, progress has been made at a modest pace on external finishing details and internal works, including doors, windows, flooring and other installations. 

The total cost of the project - including incorporation of the joint venture company, acquisition of surface rights, construction of the hotel, and start-up costs - is presently estimated at US$76 million.  Of this amount, US$16 million represents the share capital invested in TosCuba by its shareholders (CEIBA, US$6.4 million, Meliã Hotels International US$1.6 million and Cubanacán US$8 million) and approximately US$12 million represents grants received or to be received under the Spanish Cuban Debt Conversion Programme.  In accordance with the terms of the Spanish Cuban Debt Conversion Programme the funds granted should be used by the joint venture company to fund local purchases of goods and services delivered under the construction contract by Cuban suppliers, thereby reducing the external funding that would otherwise need to be provided. 

The remaining funds necessary to complete the project will be disbursed under the construction finance facility that was originally extended in April 2018 as a US$45 million facility to be disbursed under two tranches of US$22.5 million / £16.5 million each.  The first tranche (Tranche A) is presently being disbursed by CEIBA (80%) and Meliã (20%).  Disbursements under Tranche B will only begin once Tranche A is fully disbursed.  The construction finance facility is more fully described below.  The €25 million in new funds raised through the issue of the Bonds in March 2021 will ensure the availability of funding for Tranche B of the facility and therefore that that the construction of the project can now proceed to completion.

The final terms of amendments to Tranche B of the construction finance facility are presently being negotiated, together with the construction contract, to take into account the new circumstances caused by the Covid-19 delay and other factors.  Amended facility and construction agreements are expected to be executed shortly with a view to completing construction and start-up of the hotel before the start of the 2022-2023 high season.   

Grupo B.M. Interinvest Technologies Mariel S.L.

In December 2020, the Company formalised its participation in a new multi-phase industrial logistics project to be developed in the Special Development Zone of Mariel, Cuba by acquiring a 50% interest in Grupo B.M. Interinvest Technologies Mariel S.L., the Spanish company that is developing the project. 

Groundworks on the 11.3-hectare site for the construction of the first four warehouses of the project began in the first quarter of 2021.

The Company has paid an initial amount of US$303,175 / £222,792 for its 50% interest and is expected to invest a further US$1.5million / £1.1million during the course of 2021.

FINTUR and TosCuba Finance Facilities

FINTUR Facility

Since 2002, the Company has arranged and participated in numerous secured finance facilities extended to Casa Financiera FINTUR S.A. ("FINTUR"), the Cuban government financial institution for the tourism sector.  Under the most recent FINTUR Facility, originally executed in 2016 in the principal amount of €24 million and subsequently amended in 2019 through the addition of a second tranche in the principal amount of €12 million, the Company initially held a €4 million participation under Tranche A and a €2 million participation under Tranche B.

This facility generates an 8.00% interest rate and operated successfully without delay or default until the closure of all Cuban hotels in March 2020 as a result of the Covid-19 pandemic.  At that time, the income from the hotels that serve as the basis for payments under the FINTUR facility ceased and such income is not expected to resume until Cuba's international tourism operations recover in earnest.

With effect from 1 April 2020, the Company and FINTUR agreed to revise the remaining outstanding payments under the FINTUR facility (combining the two tranches into a new single tranche C) and to provide a one-year period of grace on the payment of principal, with a two-year principal payment period thereafter.  The first principal payment of the new Tranche C falls due on 30 June 2021.  Interest payments were suspended until 31 December 2020, at which time interest accumulated during the year became payable.

FINTUR transferred funds from other sources to the collection account under the Facility and made the required interest payments at 31 December 2020 and at 31 March 2021. 

As at 31 December 2020, the principal amount of US$2,110,795 / £1,551,143 was outstanding under the Company's participation in Tranche C of the Facility. 

Cuba has reopened its borders to international travel and the tourism industry has resumed operations, although arrivals remain very modest at present because of numerous travel restrictions in outbound markets related to the Covid-19 pandemic as well as limited airlift at the present time.  Operations are expected to gradually increase in the second half of 2021 and beyond as restrictions are lifted in outbound markets and airlines increase flights to the island.

All of the hotels granted as security for the repayment of the Facility remain closed at the present time. The Investment Manager meets regularly with FINTUR in order to gauge the speed with which the cash flows are likely return to acceptable levels and to determine whether any additional hotel security should be received.

TosCuba - Construction Finance Facility

CEIBA is the principal lender in the secured construction finance facility that was extended to TosCuba in 2018 in order to provide funding for the construction of the Meliã Trinidad Península Hotel.  Originally, the facility was to be disbursed in two equal tranches of US$22.5 million.  CEIBA (80%) and Meliã (20%) act as lenders under Tranche A.  CEIBA is presently the sole lender under Tranche B, the repayment of which is fully guaranteed by Cubanacán.

The first disbursement under the facility was made in November 2018 in the lead-up period to the formal construction start of the project in December 2018, and as at 31 December 2020 the principal amount of US$16,106,466 / £11,836,027 had been disbursed under the Company's participation in Tranche A.  The remainder of Tranche A of the facility is presently being disbursed.  In order to complete the construction and start-up of the hotel, CEIBA intends to increase the maximum principal amount of Tranche B of the facility to US$29 million and negotiations are presently ongoing in this respect. 

The facility may be syndicated and is secured by the future income of the hotel under construction.  Tranche B of the facility is further secured by a guarantee given by Cubanacán, backed by offshore tourism income from another Cubanacán hotel in Cuba.  Debt service under the facility is expected to start in 2023 and includes a repayment period of 9 years for Tranche A and 7 years for Tranche B.

OUTLOOK

We expect that, as a result of the Covid-19 pandemic, the very difficult economic circumstances faced by Cuba during 2020 will continue well into 2021, and that the local market conditions in which the Group operates will remain very challenging throughout a good part of the year.  The further accentuation of the liquidity challenges faced by the Cuban economy as a result of the pandemic and the U.S. Cuban embargo may also negatively impact the timing of dividend and other payments to the Company. 

However, as the world recovers from the pandemic, we expect that travel restrictions will start to be eased and that all of the Miramar hotels will re-open in 2021 and that all of our underlying Cuban real estate assets, the Cuban joint ventures in which we are invested and the loan facilities in which we participate will return to profitable trading. 

We expect that the new monetary reforms and liquidity rules adopted by the Cuban government during the year will over time have a strong positive effect on the Cuban economy as well as on the operations of the joint venture companies of the Company.  As a result of these new measures, and in particular the de-centralisation of decision-making that they mandate, management of the joint ventures is expected to have a much greater degree of control over the financial resources generated by their operations, which we expect to be largely beneficial for new investments, ongoing operations, performance and the ability to make timely distributions to shareholders.

In addition, the election of Joe Biden to the presidency of the United States brings a welcome sense of relief after the turbulent years of the Trump administration.  We look forward to a new era where U.S. policy towards Cuba is once again driven by policy experts in the State Department rather than the rough and tumble forces of election politics in Florida.  We expect that during the course of the coming year tensions will be lowered between the two countries and the new Biden administration will adopt numerous new measures that will gradually allow more U.S. travel to Cuba, more U.S. funds to flow to Cuba and ultimately a significant improvement to the foreign investment climate in the country, all of which will be very positive for the people of both countries, as well as for the Company and its assets.

Moreover, having successfully raised €25 million in new funds through the issuance of the Bonds at a very difficult time, demonstrating strong confidence on the part of our investors, for which we are grateful, we enter into an exciting new period of development for the Company.  With immediate deployment capacity, we are very strongly positioned to enhance our position in the Cuban market by driving ahead, with completion of the new hotel in Trinidad and construction of the first phase of the new industrial logistics project in Mariel.  We will also be on the lookout for new opportunities.

Sebastiaan A.C. Berger

Aberdeen Asset Investments Limited

27 April 2021

DIRECTORS' REPORT (EXTRACTS)

ANNUAL GENERAL MEETING

The Notice of the Annual General Meeting ("AGM") is included within the Annual Report and Consolidated Financial Statements.  The AGM will take place at the registered office of the Company, Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 2HT Channel Islands on 17 June 2021 at 2.00pm.  An explanation of each resolution to be proposed at the AGM is included in the Letter from the Chairman below.  All shareholders will have the opportunity to put questions to the Board or the Investment Manager at the Company's AGM.  Shareholders are encouraged to vote on the resolutions proposed in advance of the AGM and to submit questions to the Board and the Investment Manager by emailing CEIBA.Investments@aberdeenstandard.com. 

The Company Secretary is also available to answer general shareholder queries at any time throughout the year. 

In the event that the situation surrounding Covid-19 should affect the plans to hold the AGM on 17 June 2021 the Company will update shareholders through an announcement to the London Stock Exchange and will provide further details on the Company's website.  As noted above, the Board encourages all shareholders to exercise their votes, and submit any questions, in respect of the meeting in advance. This should ensure that your votes are registered in the event that attendance at the AGM might not be possible.

By order of the Board

27 April 2021

JTC Fund Solutions (Guernsey) Limited

Secretary

Ground Floor

Dorey Court

Admiral Park

St Peter Port

Guernsey GY1 2HT

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Consolidated Financial Statements, in accordance with applicable law and regulations.

The Companies (Guernsey) Law, 2008, as amended (the "Law") requires the Directors to prepare financial statements for each financial year.  Under the Law, the Directors have elected to prepare the Consolidated Financial Statements in accordance with IFRS.  Under the Law, the Directors must not approve the Consolidated Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these Consolidated Financial Statements, the Directors are required to:

·    select suitable accounting policies and then apply them consistently;

·    make judgments and estimates that are reasonable and prudent;

·    prepare the Consolidated Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business; and

·    state whether all applicable IFRS standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that it's Consolidated Financial Statements comply with the Law.  They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors listed, being the persons responsible, hereby confirm to the best of their knowledge that:

·    the Consolidated Financial Statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and all the undertakings included in the consolidation taken as a whole;

·    that in the opinion of the Directors, the Annual Report and Consolidated Financial Statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and

·    the General Information section and Directors' Report include a fair review of the development and performance of the business and the position of the Company and all the undertakings included in the consolidation taken as a whole, and the Principal Risks section provides a description of the principal risks and uncertainties that they face.

·    there is no additional information of which the Company's Auditor is not aware.

For CEIBA Investments Limited

John Herring

Chairman

27 April 2021