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RNS Number : 1221C
Taliesin Property Fund Limited
11 April 2017
Taliesin Property Fund Limited
Annual results for the year ended 31 December 2016
Taliesin Property Fund Limited and its subsidiaries ("Taliesin"
or the "Group"), the AIM quoted company focused on the Berlin
residential market, is pleased to announce its results for the year
ended 31 December 2016.
A full version of the annual report and accounts will be
available on the Company's website www.taliesinberlin.com.
For further information, please contact:
Taliesin Property Fund Limited
Mark Smith, Director 01534 700000
Stockdale Securities Limited
Robert Finlay/David Coaten 0207 601 6100
Key financial and operational highlights
-- Adjusted Net Asset Value (NAV)* per share rose 27.5% in 2016
to end the year at EUR37.53 (31 December 2015 EUR29.44 reflecting
the EUR2 per share return of capital to shareholders during the
period). On an EPRA basis**, NAV per share was EUR36.87 at the end
of 2016 (31 December 2015 EUR29.10)
-- Property portfolio now valued at EUR318 million, an increase
of 16.6% after adjusting for property disposals and capital
expenditure
-- Per square metre ("psqm") valuation of EUR2,700 (31 December 2015 EUR2,240)
-- Taliesin's first privatisation project, Warschauer Strasse,
completely sold at average prices of EUR3,750 psqm
-- Taliesin's second privatisation project, Kavalierstrasse,
sold four units in the period. An additional six units have been
either sold or contracted to sell in 2017 bringing average sales
prices to EUR4,000 psqm
-- Taliesin successfully refinanced maturing senior loans in
2016 at lower interest rates and higher principal amounts and
expects more of the same in 2017
-- Loan-to-value at year-end stood at 42.2% (2015 year-end 45.9%)
-- Proceeds of privatisation sales and debt refinancing funded
the second EUR2 per share return of capital to shareholders
-- Berlin property market continues to benefit from positive
changes in demographics and a strong local economy with rents and
prices also being driven higher by a scarcity of supply
*The Adjusted NAV per share takes the IFRS NAV and excludes
gross deferred tax liabilities.
**The EPRA NAV takes the IFRS NAV and excludes the cumulative
mark-to-market movements in Taliesin's interest rate swap contracts
and excludes net deferred tax liabilities
Chairman's Statement
I am delighted to be able to report on a memorable year for the
Group. A sizeable 16.60% (like-for-like) increase in the value of
the property portfolio led to a 27.5% increase in Taliesin's
Adjusted NAV per share to EUR37.53 (31 December 2015 EUR29.44)
reflecting the EUR2 per share return of capital to shareholders
during the period.
The Taliesin share price maintained its premium to the Group's
Adjusted NAV, closing 2016 at the equivalent of EUR41.20 per share.
This report provides an in depth analysis of the factors behind
this performance but I would like to highlight some of the notable
events during the year and the outlook for 2017.
Firstly, the Group was able to return a further EUR2 per share
of capital to shareholders. This followed a similar distribution
made in 2015. It is particularly pleasing that we have been able to
make these capital returns. Our decision not to pay dividends when
we were assembling the portfolio and instead channel income into
further acquisitions and capital investment has been vindicated by
the price appreciation of our portfolio.
Also of note in 2016 were the sales prices achieved for
Taliesin's apartment privatisations and the ongoing preparation of
the rest of the Group's portfolio to be eventually privatised.
Given the recent restrictions put in place by the Berlin
authorities on privatising apartments in certain areas of the city,
I believe the fact that we have pre-approvals in place for so many
of our properties to be tremendously value enhancing. Looking at
the valuation methodology applied by JLL when assessing our
portfolio, the potential uplift through privatisation is currently
only partially recognised. I believe that this potential will
continue to provide significant support for the value of the
Taliesin portfolio.
Nigel Le Quesne
Chairman
10 April 2017
Investment Advisers' Report
for the year ended 31 December 2016
Recent Market Developments and Outlook
2016 proved to be another strong year for the Berlin property
market with the value of the Group's portfolio (based on a
valuation by Jones Lang LaSalle (JLL)) increasing to EUR318.0
million. This valuation equates to EUR2,700 psqm, a 20.5% increase
from EUR2,240 psqm at the end of 2015. Apartment sales during 2016
amounted to EUR6.9 million with further sales occurring in 2017.
Recent apartment sales prices have exceeded EUR4,000 psqm.
In 2016, the Group's Adjusted NAV per share increased by 27.5%
to EUR37.53. On an EPRA basis the NAV per share increased to
EUR36.87. The period under review showed a continuation of the
positive trends that have been highlighted in these updates in
recent years.
Firstly, demographic and economic trends continue to support the
residential property market. According to the Amt für Statistik
Berlin Brandenburg and JLL, the Berlin population is forecast to
expand to close to 4 million inhabitants by 2030, representing an
increase of 9.3% from 2015, whilst the number of households is
forecast to grow by 12.3% in the same period. These estimates have
proved conservative in recent years and we would expect upward
revisions to take place. The significant number of new arrivals in
recent years has helped Berlin's economy grow faster than the rest
of Germany and employment to grow more rapidly. In the first nine
months of 2016, employment rose by 2.4%, more than double that of
Germany as a whole. Employment in Berlin has been rising faster
than in any other land for five consecutive years. The service
sector in particular is booming. Tourist visits topped 31 million
in 2016, with overnight stays rising 2.9% to 13 million. The
technology sector is also growing strongly: McKinsey forecast that
Berlin's start-up sector could provide 100,000 new jobs between
2013 and 2020. Financial and business services output now totals
$55 billion per annum, according to Oxford Economics: remarkably,
this is now not far short of that recorded by Frankfurt ($63
billion per annum). All this has helped begin to close the gap in
purchasing power between Berlin residents and those in other large
German cities. According to Berlin Hyp data, the number of
employees in Berlin subject to social security contributions grew
by 29% between 2010 and 2015. This data probably does not capture
the full impact of the technology sector on Berlin's economic
performance given what a recent phenomenon it is. We see plenty of
additional evidence to suggest that this sector is having a
significant impact, not least through the growth in co-working
spaces and the rapid growth in office rents.
Wider economic trends were supportive in 2016. German GDP rose
1.8%, driven by household and government spending, rather than by
net exports. Eurozone manufacturing and services PMIs have started
2017 at 6 year highs. With the ECB continuing to keep interest
rates extremely low and augmenting the stimulative effect of
monetary policy via its asset purchase programme, real interest
rates remained negative in Germany throughout 2016. Nominal bond
yields were also negative for much of 2016 and, although 10 year
bund yields rose to just over 0.2% by year end 2016, inflation also
accelerated to 1.9%, almost reaching the ECB's target of 2%. This
cheap money policy helped send residential property prices up by 8%
in Germany's main cities in 2016, leading the Bundesbank to warn
again of a property bubble.
Looking ahead, the special factors driving the Berlin property
market are unlikely to go away. In economic terms, Berlin is now
Germany's "growth pole", a primary destination for venture capital,
head-quartering and service industries. The upgrading of public
infrastructure also continues apace, far more so than in other
German cities.
The second trend is one of an ongoing scarcity of supply in the
residential rental market. Permissions to build new residential
properties have grown rapidly in recent years and completions are
accelerating but they still fall short of new demand by a
substantial margin. JLL forecast residential permits to be issued
in 2016 to build 18,600 units and for completions to be in the
range of 12-15,000 units. Population growth in 2015 was around
48,000 and reached 43,000 in the first half of 2016 according to
JLL. The Berlin Senate is keen to increase completions to at least
20,000 new units per year but planning remains a hurdle.
A further factor of support for the market has been the
continued plentiful availability of cheap financing for large
property buyers via the Pfandbrief market. As discussed in the
Chairman's commentary, despite a Trump induced wobble in the bund
market, yields have stabilised at a still extremely low level.
Taliesin's experience with apartment sales has been similar to the
overall market in that buyers are mainly cash buyers or require
minimal finance. This is confirmed by national data on mortgage
lending (the mortgage market is discussed further in the risks
section of this report). Whilst the search for yield is probably
not as pronounced as it was a year ago it remains a potent force in
the market. Brexit appears to have removed London from the most
favoured property investment destination to be replaced by, amongst
others, Berlin. Various industry studies have Berlin at or near the
top of institutional investors' preferred investment targets for
this year and whilst we are not particularly comfortable with a
consensus call, this may well continue to underpin the market in
the short run. Fears over a populist backlash in upcoming elections
in
France in particular have led to some sovereign bond spread
widening against Germany and will probably continue to divert
investment flows towards core Europe i.e. Germany. If political
risk manifests itself in the short term as a weaker Euro and lower
bund yields then Berlin asset prices will continue to be squeezed
higher. In the medium term, however, there could be adverse
outcomes which we discuss later in this report. For now, however,
financing remains cheap and readily available to large buyers.
Anecdotally and at the margin we are beginning to see some less
than sound lending take place and this is something that will
continue to be monitored.
The impact on the residential market of these trends has been
predictable. Firstly, prices have powered ahead. Price growth in
multifamily apartment buildings, especially those with
privatisation permissions such as ours, has been strongest. Our
increase of around 20% psqm for the year seems consistent with the
market. This growth further closes the price differential between
the price of single apartments and multi-family buildings. Single
apartment prices increased by 9.6% in 2016 according to JLL, with a
Berlin average selling price of EUR3,510 psqm. Taliesin's own
experience in central districts has been to achieve far higher
average selling prices (average sales prices in
Friedrichshain-Kreuzberg according to Berlin Hyp reached EUR3,926
psqm in 2016). The volume of apartment sales has continued to
expand with CBRE reporting EUR700 million of sales in the first 9
months of 2016, a higher total than the whole of 2015. Similarly,
record volumes are expected for total residential sales activity in
Berlin in 2016. Residential rents, though constrained by
Mietspiegel legislation, also increased. According to data from
Empirica, average residential re-let rents for previously vacant
apartments grew by 4.0% in 2016 to EUR9.80 psqm, whilst properties
available to rent in central districts all achieved well in excess
of EUR10 psqm. In Taliesin's case, overall rental growth was 4.4%.
Whilst there has been a marked increase in rent levels in Berlin in
recent years, it is instructive to look at this over a longer time
frame. According to JLL, residential rents in Berlin have grown at
a modest average nominal rate of 3.9% per annum since 2004.
Operational Review
Taliesin's portfolio benefited from a very strong underlying
market. Rents have been growing in the 4-5% range per annum and
vacancies remain low (adjusted for properties subject to
refurbishment). Adjusted residential vacancies stood at around 2.6%
at year end. In situ residential rents averaged EUR7.62 psqm in
2016 whereas average re-let rents exceeded EUR10 psqm,
demonstrating the strong long term rental potential of the
portfolio. This, alongside the potential capital uplift connected
with any assets that can be privatised, explains why investors are
prepared to acquire properties today with low initial yields.
Taliesin privatised a total of EUR6.9 million of apartments in
2016, an increase from EUR4.3 million the previous year. This
represented the sale of the remaining units in Warschauer Strasse
and the commencement of the sale of apartments in Kavalierstrasse.
As previously discussed, the average sale price achieved in
Warschauer Strasse was EUR3,750 psqm whereas, in line with market
developments, prices in the second project are currently exceeding
EUR4,000 psqm. Kavalierstrasse was a property acquired as part of a
portfolio purchase at an average price of around EUR750 psqm. The
property has been subject to a significant refurbishment but still
represents an extremely profitable project for the group. So far
ten apartments in the building have been either sold or contracted
to be sold out of a total of 24 units.
Taliesin has again engaged the agency services of its own
in-house agent, Raumerei, resulting in significant cost savings and
higher sales prices. The value of the unsold units in
Kavalierstrasse at year end 2016 are shown in the accounts as
'assets classified as held for sale' and totalled EUR7.1
million.
Within assets currently classified as investment properties a
significant number now have full permissions in place to privatise
apartments in the future. In particular, those properties in Berlin
in areas which are either restricted in privatising or face the
threat, we believe that around 85% of our apartments are, or
shortly will be, free to privatise. As demonstrated by the Group's
recent apartment sales activity, this remains an area which offers
significant potential.
The privatisation potential has contributed to the growth in the
value of the Taliesin portfolio and in turn allowed us to continue
to re-finance maturing senior debt facilities at lower interest
rates and higher principal amounts. Most recently, a maturing
EUR11.3 million facility was re-financed with a new EUR20.0 million
loan at an interest rate of 1.52% versus a maturing interest rate
of 4.865%. During 2016, maturing senior debts of EUR33.6 million
were re-financed with new loans totalling EUR46.5 million with
similar carry cost reductions. 2017 has a similar debt maturity
profile and, barring a significant change to prevailing market
conditions, we expect to be able to reduce interest costs on new
loans and increase loan amounts.
The release of funds from privatisation sales and re-financing
activity allowed Taliesin to return a further EUR2 per share to
shareholders in the period by way of a B share capital
distribution. This follows on from an initial distribution in 2015
in line with a long term commitment made to return capital to
shareholders. It remains the intention of the Group to continue
distributing capital in line with our ability to continue to
re-finance on favourable terms and to sell apartments at attractive
prices. Even though total debt (senior bank debt plus zero dividend
preference shares (ZDPs)) increased to EUR134.3 million in 2016
from EUR122.8 million in 2015, the Group's property portfolio
loan-to-value decreased to 42.2% from 45.9%. Likewise, the cover
ratio on the ZDPs improved to 2.37. Taliesin was able to fund
further capital expenditure on the portfolio of EUR4.9 million in
2016 and continuous improvement in the standard of the properties
remains a key part of our strategy.
Risks and Uncertainties
Taliesin's property portfolio is located almost entirely in
Berlin and therefore at risk from changes in the political and
economic environment that may have an impact on the city. As in
previous years, the Group remains vigilant to these twin threats to
the wellbeing of the business.
Following elections in 2016 Berlin now has a coalition
government comprising the Social Democrats, the Greens and the left
parties. These parties campaigned on a strongly pro tenant platform
and the early signs indicate that the operating environment for
landlords is going to become more complex. The Berlin authorities
are clearly intensifying their efforts to relieve pressure in the
rental market by, for example, threatening heavy fines for
apartments left intentionally vacant. Gaining permissions for rent
increases following refurbishment work in designated "preservation"
areas is also proving time consuming and delaying the turnaround of
vacant units. At the Federal level, the Ministry of Justice is
working on an overhaul of the current Mietspiegel (rental) law
which could prove detrimental to landlords and also weighing a
decision to shift the burden of estate agent fees away from the
buyer of properties onto the seller. This second point could be
significant for the market as most buyers are expected to pay heavy
agency fees when acquiring a property (6% plus VAT). In our case
the in-house agent, Raumerei, does not levy a commission on
apartment sales.
As regards politics in Germany itself, general elections
scheduled for September could see a resurgence of the Social
Democrats, whose stated policy is to decelerate rent increases and
attack what they see as the "irrational exuberance" of the German
property market. Tighter restrictions on rents and higher stamp
duty could ensue. Anti-immigration and anti-EU parties are also
expected to do well. Outside Germany, a number of countries are
witnessing a resurgence in anti-EU sentiment, while Greece and
other "Club Med" countries are struggling with austerity. Fissures
in the Eurozone could impact Germany negatively, not least because
under the Target 2 mechanism supervised by the ECB, the Bundesbank
is funding the weaker peripheral Eurozone countries on a record
scale, amounting to nearly EUR800 billion at the end of 2016 and
rising. Finally, Brexit negotiations and President Trump's stated
hostility to the EU could also knock confidence.
On the economic front in 2017 and beyond, it is very likely that
monetary policy will be, at least to a degree, normalised, barring
challenges from negative developments on the Eurozone's periphery.
Eurozone inflation reached 1.1% at the turn of the year and, while
that is still well below the 2% target set by the ECB, reflationary
trends have set in and will eventually prompt the ECB to tighten.
The US has already embarked on the path of monetary tightening,
with the yield on 10 year US Treasuries increasing dramatically
relative to German bund yields. That spread will have to close at
some stage, signalling a reversal of the monetary easing that has
been underway for so long. This will potentially take away some of
the fuel igniting the German property market.
Another potential dampener on the German property market is the
sharp deceleration in retail mortgage growth. Although investment
in property by German buyers has primarily represented a search for
yield in the face of historically low interest rates on bonds and
bank deposits, many Germans have availed themselves of low interest
rates to lever up on property purchases. Until 2016, mortgage
lending in Germany had been rising at double digit rates, albeit
from a very low base. Then, in March 2016, the German government
implemented their version of the EU Mortgage Credit Directive,
designed to give more protection to people taking out mortgages.
German savings banks' mortgage lending fell 10% in the first eight
months of 2016 versus the same period a year earlier. According to
the Bundesbank, total mortgage lending dropped by 13% in annual
terms in April 2016, the month after the law took effect and fell
by 20% in July. The supply of retail mortgage lending is now not
meeting the demand for it.
Strategy and Plans
In last year's report we reflected on the level of maturity
achieved in the Berlin residential property market over the past
several years. The price of property has increased markedly but the
market has also experienced a significant de-risking over the
period. The underlying support for any residential market comes
from a combination of demographics, supply and finance conditions.
Each of these factors has been discussed in detail in this
commentary but we would argue that the near term trend for each of
them should continue to be supportive of the market, even at higher
prices.
A more predictable market is clearly attracting new types of
institutional investors. German family offices in particular appear
to be more active in the market alongside international private
equity type buyers. Ten years ago the market was in some disarray
and assumptions over improving demographics and an eventual supply
constraint were merely assumptions. Today, the reality of a serious
supply constraint and strong demographics are self evident. We
expect the market to continue to mature in the following years and
to continue to attract investors with a more institutional
outlook.
The Taliesin portfolio has benefitted strongly over the past
several years from the alignment of the various factors discussed.
General yield compression has been dramatic in the last few years.
As discussed, we are of the view that some of those external
factors that have driven that compression are probably coming to an
end. The Group also recognises the rising political risks in 2017
and beyond and expects a more complicated operating environment as
a result. The portfolio, however, is valued at what the Directors
believe to be an attractive price given where the properties are
located and the outlook for Berlin, especially when compared to
other European cities. The reversionary rental pull of the
portfolio is significant with new lets achieving a premium over
in-situ rents. With tenant turnover remaining in the 10% per annum
range, this (combined with regular rent adjustments) is generating
4-5% rental growth per annum for the entire portfolio. A number of
the Taliesin properties also offer development potential in the
form of roof build outs or new build opportunities. We believe that
there is significant additional value particularly in the
undeveloped roof space as we are beginning to see a number of
transactions where developers are acquiring exactly these type of
projects for large prices. The Group has invested heavily in
improving the quality of the portfolio over the years and that is
translating into high prices for apartments privatisations in
particular. The majority of the Taliesin portfolio now has
permissions in place to privatise.
The Taliesin strategy in the short term will be to continue
drive rental growth through further investment in the portfolio, to
continue to privatise selective Group properties alongside
finalising outstanding permissions to privatise, to explore
development opportunities and to refinance maturing senior loans.
It is also the intention of the Group to continue to distribute the
proceeds of apartment sale profits and refinancing back to
shareholders.
Directors' Biographies
for the year ended 31 December 2016
Nigel Le Quesne (Chairman)
Nigel Le Quesne is group CEO and chairman of the JTC Group,
having joined in 1991 from Price Waterhouse. He was admitted as an
associate in 1989 and a fellow in 1999 of the Institute of
Chartered Secretaries and Administrators and is a fellow of the
Chartered Management Institute. He is also a member of the Society
of Trust and Estate Practitioners, the Jersey Taxation Society and
the Institute of Directors. Mr. Le Quesne has a number of
directorships of both publicly quoted and private companies and, in
particular, has extensive property experience including his roles
as a director of Watermark Holdings Limited, a privately owned
Jersey company with significant real estate assets in the UK and
Germany, and as a member of the supervisory board of IMW Immobilien
AG, a publicly quoted property holding company with substantial
property holdings primarily in the Berlin area. Mr. Le Quesne was
appointed a Director on 17 November 2005 and has served as a
Director since that date.
Stephen Burnett
Stephen Burnett was a shareholder and Group Director in JTC
Group, a large international corporate services company, until
2013. Mr. Burnett established the Funds division for JTC Group and
has sat on a number of boards of listed, non-listed companies and
funds engaged in a range of activities including property holding
and private equity. Currently Mr. Burnett is a Non-Executive
Director with JTC Group and sits on the Risk Committee together
with a small number of company and fund boards. Mr. Burnett joined
JTC Group in 1997 having trained as an accountant with BDO.
Nikolaus von Palombini
Nikolaus is a lawyer and financial consultant who lives in
Berlin. Nikolaus served as Chief Financial Officer for Taliesin
Deutschland GmbH, which provides advisory and property management
services to Taliesin in Germany, between September 2014 and April
2015. Before that he had various positions as Chief Financial
Officer for private equity as well as real estate firms. Nikolaus
started his professional career training at Arthur Andersen and
Ernst & Young where he qualified as a certified auditor in
2003.
Nicholas Mark Houslop
Mr. Houslop has over 30 years' experience in the property
investment market. He joined DTZ in 1973 and was appointed a
director when it publicly listed in 1987. His experience has
extended from the UK and European markets to the USA where he set
up and ran DTZ's New York office for five years, advising on major
transactions in New York, Los Angeles, Washington DC, and Denver.
In the UK he has advised on Central London properties including the
Lloyd's of London headquarters, the Berkley Square Estate, and the
Plaza shopping centre on Oxford Street. He is a fellow of the Royal
Institution of Chartered Surveyors. Mr. Houslop was appointed a
Director on 30 June 2007 and has served since that date.
Mark Smith
Mark Smith has over 25 years' experience in the investment
sector, including periods in both investment management and
investment banking. In the early 1990s he was a managing director
in the international equities group Bear Stearns International
Limited, specializing in developing markets, and was responsible
for institutional sales and research in addition to private equity
origination in the UK. More recently he held the same position at
ING Group and had various responsibilities including the management
of European equity sales and oversight of the company's hedge fund
business. Mr. Smith also has experience in asset management, having
worked at Worldinvest Limited where he shared responsibility for
managing large institutional equity funds prior to co-founding and
managing an emerging market equity hedge fund at Newman, Ragazzi
and Company in 1999. Mr. Smith was appointed a Director on 17
November 2005 and has served since that date.
Directors' Report
for the year ended 31 December 2016
The Directors present their report to the members together with
the financial statements for the year ended 31 December 2016.
INCORPORATION
The Company was incorporated in Jersey, Channel Islands, on 17
November 2005.
PRINCIPAL ACTIVITIES
The principal activity of the Company is that of a holding
company for the Group. The Group's principal activity is selective
investment in primarily residential property in Berlin, Potsdam and
Dresden. The ordinary shares of the Company are listed on the AIM
Market of the London Stock Exchange. The Company's Zero Dividend
Preference Shares are listed on the Official List for trading on
the London Stock Exchange.
BUSINESS REVIEW
The consolidated statement of comprehensive income for the year
is set out later in this report. A review of the development and
performance of the business has been set out in the Chairman's
Statement and Investment Advisers' report.
DIVIDS
The Directors do not recommend the payment of a dividend for the
year (2015: EURnil).
DIRECTORS AND DIRECTORS` INTERESTS IN SHARES
The Directors of the Company during the year, and subsequently,
together with the interests in the share capital of the Company of
those in office at the end of the year, were:
Ordinary shares
Nigel Anthony Le Quesne 5,200
Stephen Anthony Burnett -
Nicholas Mark Houslop -
Nikolaus von Palombini -
Mark Smith *124,720
* In addition, Mark Smith owns 75.62% of Taliesin Management
Limited (TML) which owns 615,946 ordinary shares. Mark Smith also
owns 100% of JJ Investment Management Limited (JJIM) which owns
278,729 ordinary shares.
SUPPLIER PAYMENT POLICY
The Company and the Group's policy concerning the payment of
trade payables is to:
-- settle the terms of payment with suppliers when agreeing the terms of each transaction;
-- ensure that suppliers are made aware of the terms of payment
by the inclusion of the relevant items in contracts; and
-- pay in accordance with the Group's contractual and other legal obligations.
On average, Group trade payables at the year-end represented 26
days (2015: 26 days) of total Group operating expenses. The Company
had no trade payables at either 31 December 2016 or 31 December
2015.
GOING CONCERN
The Group's business activities, its performance for the period,
and prospects for the business going forward are outlined in the
Chairman's Statement and Investment Advisers' report. The rental
demand for the Group's properties remains strong and the property
market in Berlin is buoyant. Preparation for privatisation together
with general refurbishment projects, have inevitably created (and
will continue to do so), heavy calls on cash for investment. There
is currently a good supply of financing available as interest rates
have declined sharply. The Group has a large senior loan maturing
in late 2017 and is confident, due to early negotiations with the
existing lender and other banks, of refinancing this loan on
favourable terms. The Group expects the majority of any performance
fee to be payable to the Investment Advisers in newly issued shares
rather than cash and the issued Zero Dividend Preference Shares
make no cash demands on the business until 2018. The directors
believe that the Group has access to sufficient financing to fund
any capital expenditure which may be undertaken. Therefore, the
directors are of the opinion that it is appropriate for the Group
to continue to adopt the going concern basis of accounting in
preparing these financial statements.
FINANCIAL RISK MANAGEMENT
An explanation of the Group's financial risk management
objectives, policies and strategies is set out in note 20.
AUDITOR
A resolution to re-appoint Mazars LLP as the Group's auditor,
and to authorise the Directors to determine their remuneration,
will be proposed at the forthcoming Annual General Meeting.
Each of the persons who are Directors at the time when this
Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit
information of which the Group`s auditor is unaware; and
-- that Director has taken all the steps that ought to have been
taken as a Director in order to be aware of any information needed
by the Group's auditor in connection with preparing its report and
to establish that the Group's auditor is aware of that
information.
CORPORATE GOVERNANCE
The Directors recognise the importance of, and are committed to,
high standards of corporate governance. During the course of the
current financial year the Board of Directors have continued to
assess the most appropriate corporate governance arrangements and
have decided to again adopt the Association of Investment Companies
Code of Corporate Governance (the "AIC Code") by reference to the
AIC Corporate Governance Guide for Investment Companies (the "AIC
Guide").
The Board considers the AIC Code, as explained by the AIC Guide,
to be the most appropriate for the Company as it allows the Company
to continue to adhere to the high standards of corporate governance
that it recognises as important to shareholders, whilst providing
an appropriate framework of corporate governance for an investment
company such as Taliesin.
As an externally managed investment company, all of the
Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no
executive directors, employees or internal operations. For the
reasons set out in the AIC Guide, the Company has therefore not
reported on:
-- the role of the chief executive;
-- executive directors remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions not relevant to the position of Taliesin, being an
externally managed investment company. The Company has therefore
not reported further in respect of these provisions.
The principles of the AIC Code
The AIC Code is made up of twenty-one principles which, together
with the Company's compliance approach, are detailed below:
The Board
The Chairman should be independent
Nigel Le Quesne is a shareholder in the JTC Group Limited of
which JTC (Jersey) Limited, JTC Trustees Limited and JTC Fund
Services Limited are wholly owned subsidiaries, he cannot be
considered wholly independent, but the Board considers this
acceptable given the size and structure of the Group.
The Board has not to date considered it necessary or appropriate
to undertake a formal evaluation of the Chairman, as recommended by
the AIC Code, due to the nature of the Company's activities and the
fact that the Board consists entirely of non-executive
Directors.
However, the Board resolved on 19 October 2016 that the
independence of directors would be reviewed annually by the
Remuneration and Nominations Committee. Further, the Board intends
to commence an annual self-assessment programme during 2017 due to
the continued growth of the Company. This will include an
assessment of the effectiveness of the Chairman.
The Board does not consider that a Director's tenure necessarily
reduces their ability to act independently, and believes that each
director is independent in character and judgement and there are no
relationships or circumstances which are likely to affect the
judgement of any Director.
The length of service as a Chairman is excluded from the
requirement for directors to be appointed annually after 9 years'
service in the Company's Articles of Association.
The Board has appointed the Chairman to be the point of contact
for all matters relating to the corporate governance of the
Group.
A majority of the Board should be independent of the Manager
The Company is led and controlled by a Board comprising five
non-executive Directors, who between them have wide commercial
experience and considerable expertise in real estate, including in
Berlin.
For the purposes of the AIC Code, the Board considers all of the
Directors other than Mark Smith (who is a Director of Taliesin
Management Limited (TML) and JJ Investment Management Limited
(JJIM) (together the "Investment Advisers") and Nikolaus von
Palombini (who, due to serving as Chief Financial Officer for
Taliesin Deutschland GmbH between September 2014 and April 2015, is
not regarded as independent of the Company's Investment Advisers)
free from any business or other relationship that could materially
interfere with the exercise of their independent judgement.
However, as Nigel Le Quesne is a shareholder in the JTC Group
Limited of which JTC (Jersey) Limited, JTC Trustees Limited and JTC
Fund Services Limited are wholly owned subsidiaries, he cannot be
considered wholly independent, but the Board considers this
acceptable given the size and structure of the Group.
Directors should be elected for a fixed term no more than three
years. Nomination for re-election should not be assumed but be
based on disclosed procedures.
The Articles of Association stipulate that one third (or nearest
number thereto but not exceeding one third) of the Directors shall
retire and offer themselves for reappointment at each following
Annual General Meeting. The retiring Directors will be made up of
those who have not been up for reappointment in the previous three
years. Any Director who has served for more than nine years,
excluding time spent as Chairman of the Board, shall also retire
and offer themselves for reappointment annually.
Three Directors and the Chairman have served on the Board for
nine years or more.
The Board subscribes to the view expressed within the AIC Code
that long-serving Directors should not be prevented from forming
part of an independent majority.
The Board does not consider that a Director's tenure necessarily
reduces their ability to act independently, and believes that each
director is independent in character and judgement and there are no
relationships or circumstances which are likely to affect the
judgement of any Director.
Stephen Burnett, Mark Houslop and Mark Smith have all served for
nine years or more. Nigel Le Quesne has been a director or Chairman
for nine years or more. The length of service as a Chairman is
excluded from the requirement for directors to be appointed
annually after nine years' service in the Company's Articles.
Mark Smith stands annually for reappointment as he is not
considered to be an Independent Director of the Group as he also
serves as a Director of the Investment Advisers.
Stephen Burnett and Mark Houslop were re-elected at the 2015
Annual General Meeting, respectively, and will stand annually for
re-election going forward. Nigel Le Quesne was re-elected at the
2016 Annual General Meeting and will continue to stand for
re-election every three years going forward whilst he remains
Chairman.
Likewise, Nikolaus von Palombini will stand for reappointment
annually.
Due to the size and nature of the Company's activities the Board
does not consider it appropriate to designate a Senior Independent
Director.
The Board should have a policy on tenure, which is disclosed in
the annual report
The Board have approved a Length of Service Independence Policy
on 19 October 2016 which states that "the Directors do not consider
that service of longer than 9 years necessarily compromised
independence and that the Board considered whether a Director was
independent in character and judgment and whether there were
relationships or circumstances, including those contained in the
AIC Code, which were likely to affect, or could appear to affect,
the Directors' judgment."
There should be full disclosure of information about the
Board.
Biographies of each Director can be found on the Company's
website and in the annual report and accounts.
The Board should aim to have a balance of skills, experience,
and length of service
Currently, all of the Company's Directors are male. The
Directors consider diversity when making appointments to the Board,
taking into account relevant skills, experience, knowledge and
gender. The Company has no employees and, therefore, there is
nothing further to report in respect of gender representation
within the Company.
The objectives of Board planning in terms of its composition and
succession are to ensure that the Board is comprised collectively,
of fit and proper individuals with the capability to direct the
Company in the best interest of its shareholders.
The Board believes that restricting its membership to five is
appropriate, given the Company's size, and enables collective
decisions to be made without undue delay.
The Board should undertake a formal and rigorous annual
evaluation of its own performance and that of its Committees and
individual Directors
The Board has not to date considered it necessary or appropriate
to undertake a formal evaluation of the Chairman, the Board, the
Audit Committee or individual Director's performance, as otherwise
recommended by the AIC Code, due to the nature of the Company's
activities and the fact that the Board consists entirely of
non-executive Directors.
The Chairman and members of the Board do, however, informally
discuss the composition and suitability of the Board on a regular
basis being mindful of the need to ensure that the best interests
of the Company and all stakeholders are considered and served at
all times.
Further, the Board intends to commence an annual self-assessment
programme during 2017 which will include an assessment of the
effectiveness of the Chairman, and the performance of the Board,
the Committees and individual Directors.
Director remuneration should reflect their duties,
responsibilities and the value of their time spent.
The Board's policy is that the remuneration of Directors should
reflect the experience of the Board as a whole, be fair and
comparable to companies that are similar in size, have a similar
capital structure and have similar investment objectives.
Each of the Directors has entered into a letter of appointment
with the Company which details their terms of appointment, their
anticipated time commitment to discharge their duties, details of
their role and responsibilities, arrangements for the review of
their performance and duration of appointment, the fees payable to
them, arrangements for the prior approval of their outside
interests and the treatment by them of confidential information.
These letters are available for inspection upon request to the
Company Secretary.
The most recent meeting of the Remuneration and Nomination
Committee was held on 5 January 2017. The Committee last set the
remuneration for all non-executive Directors including the Chairman
on 18 June 2015. It has not been felt necessary to appoint
independent external remuneration consultants on the basis that the
Board contains no executive directors. It has also, therefore, not
been felt necessary for the Chairman to remain in contact with the
larger shareholders regarding remuneration.
Details of Directors' remuneration are also published in the
annual report and accounts.
The independent Directors should take the lead in the
appointment of new Directors and the process should be disclosed in
the annual report
The Board plans for its own succession, with the assistance of
the Remuneration and Nomination Committee. This process ordinarily
involves the identification of the need for a new appointment, and
the preparation of a brief including a description of the role and
specification of the capabilities required.
The Board and the Remuneration and Nomination Committee has not
to date felt it appropriate to engage specialist recruitment
consultants, rather it has utilised the Board's own contacts and
its professional advisers when considering appointments.
Directors should be offered relevant training and induction
There is currently no formal induction training for Directors.
The Board have agreed to formalise induction training at the next
time a new director is appointed
Upon appointment, each Director is provided with a summary of
the responsibilities and duties of Directors, together with
relevant background information on the Company and assistance and
information from representatives of the Investment Advisers and the
Company Secretary.
Thereafter, Directors are encouraged to attend industry and
other seminars covering issues and developments relevant to
investment companies, and Board meetings regularly include agenda
items on recent developments in governance and industry issues.
The Chairman (and the Board) should be brought into the process
of structuring a new launch at an early stage
Whilst this principle is currently not relevant to the Company,
in the event that a new issue took place the Chairman and the Board
would be engaged at an appropriate stage.
Board meetings and relations with the Manager
Boards and Managers should operate in a supportive, cooperative
and open environment
The Board meets at least quarterly, with additional Committee
and ad-hoc meetings held as matters arise.
Regular communications between the Board, Investment Advisers
and the Company Secretary are held for specific operational and
other matters that may be required outside of the formal Board
meetings.
The primary focus at regular Board meetings should be a review
of investment performance and associated matters such as gearing,
asset allocation, marketing/investor relations, peer group
information and industry issues
The quarterly Board meetings follow a standing agenda with
reporting provided by the Company's functionaries; the Investment
Advisers, Administrator and Registrar.
Collectively, this reporting covers (i) investment related
information such as performance, gearing, asset allocation,
marketing, investor relations, peer group information and industry
issues, (ii) financial analysis such as adequacy of financial
resources, valuation, budget and cash flow, and (iii) operational
and regulatory matters.
When appropriate, the NOMAD will be invited to attend Board
meetings to advise the Board on specific matters relating to the
Company's stock exchange continuing obligations.
The Board also regularly monitors the share price of the Company
and formally reviews the level of premium or discount attached at
each quarterly Board meetings, where it considers, inter alia, ways
in which the performance might be enhanced.
A register of Directors and Committee members meeting attendance
is maintained by the Company Secretary and disclosed in the annual
report and accounts. A summary of the 2016 meetings is shown
below:
Board MEC N&RC Audit
------------------------ ------ ---- ----- ------
Nigel Le Quesne 5 1 0 n/a
------------------------ ------ ---- ----- ------
Mark Smith 6 n/a n/a n/a
------------------------ ------ ---- ----- ------
Mark Houslop 3 n/a n/a* n/a
------------------------ ------ ---- ----- ------
Stephen Burnett 6 1 0 3
------------------------ ------ ---- ----- ------
Nikolaus von Palombini 5 1 n/a 3
------------------------ ------ ---- ----- ------
* Mark Houslop became a member of the Nominations and
Remunerations Committee on 5 January 2017.
Additional reports are requested and received as required and
the Directors have access at all times to a professional Company
Secretary who assists the Board in ensuring that procedures, rules
and regulations are followed. The Directors may also, in
furtherance of their duties, take independent legal and financial
advice at the Company's expense.
Boards should give sufficient attention to overall strategy
The Board monitors progress on strategy and policy through
regular (at least quarterly) formal reports to the Board from the
Investment Advisers. The Board also receives regular key
performance data on the property portfolio and is fully involved in
all strategic decisions.
Directors also make visits to Berlin in order to review the
Investment Advisers' operations and make site visits to the
properties in the portfolio.
The Boards should regularly review the performance of, and
contractual arrangements with, the Manager (or executives of a
self-managed Company)
The Investment Advisers have Investment Advisory Agreements with
the Company and Taliesin Management Limited (TML) in turn has a
service contract with Taliesin Deutschland GmbH (TDL).
Under the terms of the Investment Advisory Agreements JJIM, TML
and TDL are responsible on behalf of the Company primarily for
portfolio management, financing related and other general real
estate related advisory services.
TML and TDL also provide advice and oversight to the Company in
relation to third party service providers such as the property
manager, architects, real estate agents etc. TDL also provides
bookkeeping and accounting services on behalf of the Company and
works together with third party accountants, tax advisers and legal
specialists in the preparation of more detailed accounts and
statutory filings.
The Board established a Management Engagement Committee (the
"Committee") on 14 November 2013 which currently comprises of Nigel
Le Quesne, Stephen Burnett (Chairman) and Nikolaus von Palombini to
review the performance of the Investment Advisers on an annual
basis.
As part of the annual review (last carried out in December
2016,) the Committee undertook the following tasks:
a. reviewed the terms of the Investment Advisory Agreement
between the Company and the Investment Advisers;
b. reviewed the performance of the Investment Advisers in its role as advisers to the Company;
c. considered the merit of obtaining an independent appraisal of
the services provided by the Investment Advisers;
d. reviewed the continued retention of the Investment Advisers' services;
e. reviewed the level and method of remuneration of the
Investment Advisers and the notice period included in the
Investment Advisory Agreements and made recommendations regarding
the mode and frequency of payment;
f. reviewed the Investment Advisers compliance with the terms
and provisions of the Investment Advisory Agreements and
investigated any breaches of agreed investment limits and any
deviation from the agreed investment policy and strategy and
g. reviewed the standard of service provided by the Investment
Advisers under the terms of the Investment Advisory Agreements.
The Boards should agree policies with the Manager covering key
operational issues
Although the Board has wide-ranging expertise in real estate,
including German real estate, it largely confines itself to the
making of strategic and broad policy decisions including budget
approval.
Day-to-day decisions and policies relating to the investments
are delegated to the Investment Advisers.
The Board is responsible for establishing and maintaining the
Company's system of internal control and reviewing its
effectiveness. The Board regularly reviews the internal controls of
the Investment Advisers and the Administrator who are responsible
for the operational aspects of the Company's business.
The Board is reliant upon the Investment Advisers' and the
Administrator's internal control systems including financial,
operational and compliance controls and risk management.
The Administrator has an administration agreement with the
Company and provides significant support functions with regards to
the Company's compliance with the applicable rules and regulations
of Jersey, as well as the Company's constitutional documentation,
continuing listing authority obligations and corporate governance
framework.
The Administrator also provides the Company with individuals to
act as Compliance Officer, Money Laundering Reporting Officer and
Money Laundering Compliance Officer who have unfettered access to
the Board, and who provide regular reporting to the Board in
respect of their roles.
Boards should monitor the level of the share price discount or
premium (if any) and, if desirable, take action to manage it
The Board regularly monitors the share price of the Company and
formally reviews the level of premium or discount attached at each
quarterly board meeting, where it considers, inter alia, ways in
which the performance might be enhanced.
The Board should monitor and evaluate other service
providers
The Management Engagement Committee and Audit Committee, in
respect of the Auditor appointment, meets annually to review the
continuing appointment of all service providers, to ensure their
terms remain competitive and in the best interests of shareholders,
and to discuss satisfaction with their performance and service
levels.
A recommendation from each Committee is provided to the Board
for consideration.
Shareholder communications
The Board should regularly monitor the shareholder profile of
the company and put in place a system for canvassing shareholder
views and for communicating the Board`s views to shareholders
The Group reports formally to shareholders twice a year, when
its semi-annual results are announced and an Annual Report is sent
to shareholders. The Annual Report includes notice of the Annual
General Meeting of the Company at which a presentation is given and
Directors are available to take questions, both formally during the
meeting and informally after the meeting.
The Directors are available for dialogue with shareholders on
the Group's plans and objectives and from time to time will meet
with them. Communication with the public and with shareholders is
the responsibility of the Board. All relevant promotional materials
and other communications are made available to the Board prior to
release by the Investment Adviser.
The Board should normally take responsibility for, and have
direct involvement in, the content of communications regarding
major corporate issues even if the Manager is asked to act as
spokesman
The Board is actively involved with, and takes responsibility
for, the content of all communications regarding major corporate
issues.
The Board should ensure that shareholders are provided with
sufficient information for them to understand the risk: reward
balance to which they are exposed by holding the shares
The Company places great importance on communication with
shareholders. It aims to provide shareholders with a full
understanding of the Company's activities and performance. It
reports formally to shareholders twice a year by way of the annual
report and the half-yearly report. The Company's website is also
regularly updated.
This is supplemented through news announcements and general
information on the London Stock Exchange.
FINANCIAL AND BUSINESS REPORTING
The directors consider the annual report and accounts, taken as
a whole, is fair, balanced and understandable.
Directors' Responsibilities Statement
for the year ended 31 December 2016
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Jersey Company law requires the Directors to prepare financial
statements for each financial period in accordance with generally
accepted accounting principles. The financial statements of the
Group are required by law to give a true and fair view of the state
of affairs of the Group for that year. In preparing these financial
statements the Directors should:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- specify which generally accepted accounting principles have
been adopted in their preparation, and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping accounting records
which are sufficient to show and explain its transactions and are
such as to disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
financial statements prepared by the Group comply with the
requirements of the Companies (Jersey) Law 1991. They are also
responsible for safeguarding the assets of the Group and hence for
taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Directors' responsibility statement under the Disclosure and
Transparency Rules 4.1.12
The Directors confirm that to the best of their knowledge and
belief:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Group; and
-- the management report includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that the Group faces.
By order of the Board
Registered office: Elizabeth House, 9 Castle Street, St Helier,
Jersey, JE4 2QP.
___________________________________________
Stephen Burnett
Director
10 April 2017
Independent Auditors' Report
for the year ended 31 December 2016
We have audited the financial statements of Taliesin Property
Fund Limited for the year ended 31 December 2016 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated
Statement of Financial Position, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the
related notes. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 18, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors. This report is made solely to the
company's members as a body in accordance with Article 113A of the
Companies (Jersey) Law 1991. Our audit work has been undertaken so
that we might state to the company's members those matters we are
required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company and the
company's members as a body for our audit work, for this report, or
for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual Report to
identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the group's affairs
as at 31 December 2016 and of the group's profit for the year then
ended;
-- have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
-- have been prepared in accordance with the requirements of the
Companies (Jersey) Law 1991.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Jersey) Law 1991 requires us to report to you
if, in our opinion:
-- proper accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- we have not received all the information and explanations we require for our audit.
______________________________________
Richard Metcalfe
for and on behalf of Mazars LLP
Chartered Accountants
Tower Bridge House
St Katharine's Way
London
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
2016 2015
Note EUR(000) EUR(000)
---------------------------------------- ----- --------- ---------
Continuing operations
Rental income 10,513 10,156
Service charge receipts 2,689 2,617
---------------------------------------- ----- --------- ---------
Revenue 13,202 12,773
Income from disposal of investment
property (including investment
property held for sale) 6,887 4,349
Carrying amount of investment property
sold (6,521) (3,110)
---------------------------------------- ----- --------- ---------
Profit on disposal of investment
property 366 1,239
Other operating income 262 399
---------------------------------------- ----- --------- ---------
Total operating revenues 13,830 14,411
Net change in fair value of investment
properties (including investment
property held for sale) 51,864 53,138
Total operating expenses 7 (20,573) (20,310)
---------------------------------------- ----- --------- ---------
Profit from operating activities 45,121 47,239
Gain on fair value of financial
assets 16 1,787 1,806
Finance income 10 1 4
Finance expenses 11 (4,995) (5,589)
Net foreign exchange differences 12 (1,392) 69
Change in fair value of derivative
financial instruments 21 1,526 1,188
---------------------------------------- ----- --------- ---------
Net financing costs (3,073) (2,522)
Profit before income tax 42,048 44,717
Income tax charge 13 (9,295) (9,422)
---------------------------------------- ----- --------- ---------
Total profit for the year 32,753 35,295
Profit and total comprehensive
income attributable to:
Owners of the parent 30,795 33,315
Non-controlling interest 1,958 1,980
---------------------------------------- ----- --------- ---------
Total profit and total comprehensive
income for the year 32,753 35,295
Basic earnings per ordinary share 14 6.52 7.52
Diluted earnings per ordinary share 14 6.31 7.17
The notes on pages 25 to 60 form an integral part of the
financial statements.
Consolidated Statement of Financial Position
for the year ended 31 December 2016
.
2016 2015
Note EUR(000) EUR(000)
--------------------------------------- ----- --------- ---------
ASSETS
Non-current assets
Investment properties 5 310,911 262,511
Other financial assets 16 5,885 4,052
--------------------------------------- ----- --------- ---------
Total non-current assets 316,796 266,563
Current assets
Cash and cash equivalents 6,348 4,078
Other financial assets 16 - 16
Trade and other receivables and
prepayments 17 5,775 7,581
Assets classified as held for sale 6 7,070 5,220
--------------------------------------- ----- --------- ---------
Total current assets 19,193 16,895
Total assets 335,989 283,458
SHAREHOLDERS`EQUITY AND LIABILITIES
Equity
Stated capital account 18 49,381 48,041
Shares to be issued 18 6,282 6,643
Capital reserve 56 56
Retained earnings 98,282 67,487
--------------------------------------- ----- --------- ---------
Equity attributable to equity holders
of parent 24 154,001 122,227
Non-controlling interests 24 6,342 4,383
Total equity 24 160,343 126,610
The notes on pages 25 to 60 form an integral part of the
financial statements.
2016 2015
Note EUR(000) EUR(000)
--------------------------------------- ----- --------- ---------
Non-current liabilities
Interest bearing loans and borrowings 19 100,781 90,390
Financial liabilities at fair value
through profit or loss 21 406 1,161
Deferred tax liablities 13 30,729 21,906
--------------------------------------- ----- --------- ---------
Total non-current liabilities 131,916 113,457
Current liabilities
Interest bearing loans and borrowings 19 29,714 30,634
Financial liabilities at fair value
through profit or loss 21 - 792
Other liabilities and payables 22 10,227 9,969
Liabilities directly associated
with assets classified as held
for sale 19 3,789 1,996
--------------------------------------- ----- --------- ---------
Total current liabilities 43,730 43,391
Total equity and liabilities 335,989 283,458
Net asset value per ordinary share
(EUR) 14 31.82 27.26
The notes on pages 25 to 60 form an integral part of the
financial statements.
The financial statements were approved by the Board of Directors
and authorised for issue on 10 April 2017 and were signed on its
behalf by:
________________________________
___________________________________
Nikolaus von Palombini Stephen Burnett
Director Director
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Stated Stated Equity
capital capital Shares before
account account to Capital Treasury Retained Non- Non-controlling Total
ordinary be controlling
shares b-shares issued reserve shares earnings interests interests equity
EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000)
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Equity at 1
January
2016 48,041 - 6,643 56 - 67,487 122,227 4,383 126,610
Profit for the
year - - - - - 30,795 30,795 1,958 32,753
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
comprehensive
income for
the year - - - - - 30,795 30,795 1,958 32,753
Transaction
with
owners
Issues of
shares 11,020 - (6,643) - - - 4,377 - 4,377
Issues of
b-shares (9,680) 9,680 - - - - - - -
Redemption of
b-shares - - - - (9,680) - (9,680) - (9,680)
Cancellation
of
b-shares - (9,680) - - 9,680 - - - -
Shares to be
issued
for services
received - - 6,282 - - - 6,282 - 6,282
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
transaction
with owners 1,340 - 6,282 - - - 979 - 979
Equity at 31
December
2016 49,381 - 6,282 56 - 98,282 154,001 6,342 160,343
Equity at 1
January
2015 52,812 - - 56 - 34,172 87,040 2,403 89,443
Profit for the
year - - - - - 33,315 33,315 1,980 35,295
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
comprehensive
income for
the year - - - - - 33,315 33,315 1,980 35,295
Transaction
with
owners
Issues of
shares 4,197 - - - - - 4,197 - 4,197
Issues of
b-shares (8,968) 8,968 - - - - - - -
Redemption of
b-shares - - - - (8,968) - (8,968) - (8,968)
Cancellation
of
b-shares - (8,968) - - 8,968 - - - -
Shares to be
issued
for services
received - - 6,643 - - - 6,643 - 6,643
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
transaction
with owners (4,771) - 6,643 - - - 1,872 - 1,872
Equity at 31
December
2015 48,041 - 6,643 56 - 67,487 122,227 4,383 126,610
The notes on pages 25 to 60 form an integral part of the
financial statements.
Consolidated Statement of Cash Flows
for the year ended 31 December 2016
2016 2015
Note EUR(000) EUR(000)
----------------------------------------- ----- --------- ---------
Profit from operating activities 45,121 47,239
Net change in fair value of investments
properties (51,864) (53,138)
Changes in working capital:
Decrease in receivables 780 199
Increase in payables 10,482 9,395
----------------------------------------- ----- --------- ---------
4,519 3,695
Tax paid (605) (178)
----------------------------------------- ----- --------- ---------
Net cash generated from operating
activities 3,914 3,517
Investing activities
Capital expenditure on properties
held 5 (4,907) (5,586)
Sale of property 6,887 3,376
Interest received 10 1 4
----------------------------------------- ----- --------- ---------
Net cash generated by / (used in)
investing activities 1,981 (2,206)
Financing activities
Proceeds from borrowings 46,500 29,243
Loan repayments (33,622) (19,665)
Interest paid (3,805) (3,772)
Capital return to owners 18 (9,680) (8,968)
Margin deposit increase (3,030) -
Realised currency gain - 582
----------------------------------------- ----- --------- ---------
Net cash used in financing activities (3,637) (2,580)
Foreign exchange gains on bank
accounts 12 12 223
Net increase / (decrease) in cash
and cash equivalents 2,270 (1,046)
----------------------------------------- ----- --------- ---------
Cash and cash equivalents at start
of year 4,078 5,124
Cash and cash equivalents at end
of year 6,348 4,078
Cash and cash equivalents comprise:
----------------------------------------- ----- --------- ---------
Cash at bank 6,348 4,078
The notes on pages 25 to 60 form an integral part of the
financial statements.
Notes to the Financial Statements
for the year ended 31 December 2016
Notes
1. General information
The Group is principally engaged in selective investing in
primarily residential property in Berlin, Dresden and Potsdam with
its operation focused on management of properties held for rent and
privatisation (see Note 5).
The Group's investment properties consist of 62 multi-tenant
buildings with a total of more than 1,500 rental units.
The Company's Ordinary shares are traded on AIM and the
Company's Zero Dividend Preference Shares are listed and traded on
the Main Market of the London Stock Exchange.
The consolidated financial statements of Taliesin Property Fund
Limited and its subsidiaries (the "Group") for the year ended 31
December 2016 were authorised for issue in accordance with a
resolution of the directors on 10 April 2017.
Taliesin Property Fund Limited (the "Company") is a limited
company incorporated and domiciled in Jersey. The registered office
is located at Elizabeth House, 9 Castle Street, St Helier, Jersey,
JE4 2QP.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs
and IFRIC interpretations) as adopted by the European Union.
The Group's financial statements have been prepared on a
historical cost basis, except for investment property and certain
financial instruments which have been measured at fair value. The
consolidated financial statements are presented in Euros and all
values are rounded to the nearest thousand (EUR000), except where
otherwise indicated.
The preparation of financial statements in accordance with IFRSs
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3.
New and amended standards and interpretations
With the exception of the adoption of newly published and
amended standards and interpretations, which are effective for
annual periods beginning on or after 1 January 2016 the Group's
accounting policies adopted are consistent with those of the
previous year.
The Group has adopted the following new and amended IFRSs,
including any consequential amendments to other standards,
effective for this Group as of 1 January 2016. The nature and the
impact of each new standard and amendment is described below.
- Amendment to IAS 1: Disclosure Initiative to improve the
concept of materiality of disclosures; it has been made explicit
that companies:
-- should disaggregate line items on the balance sheet and in
the statement of profit or loss and other comprehensive income
(OCI) if this provides helpful information to users; and
-- can aggregate line items on the balance sheet if the line
items specified by IAS 1 are immaterial.
This amendment is effective for reporting periods beginning on
or after 1 January 2016 and consistent with the Group`s continuous
aim to improve the concept of materiality and, thus, the
application of this amendment did not have any impact on the
Group's financial statements.
- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities:
Applying the Consolidation Exception: the amendments clarify which
subsidiaries of an investment entity are to be consolidated; the
exemption from preparing consolidated financial statements for an
intermediate parent of an investment entity; and the application of
the equity method by a non-investment entity investor to an
investment entity investee. The amendments, effective for annual
periods beginning on or after 1. January 2016 did not have an
impact on the Group's consolidated financial statements, as the
Group does not have any holding company or subsidiary that
qualifies as an investment entity.
- Amendment to IFRS 11 - Joint Operations: Accounting for
Acquisitions of Interests in Joint Operations: the amendment
clarifies the accounting for the acquisition of an interest in a
joint operation that constitutes a business and is effective for
annual periods beginning on or after 1. January 2016. As the Group
is not part of any joint operation, this amendment is not relevant
to the Group.
- Annual improvement to IFRS, which are effective for accounting
periods beginning on or after 1 January 2016.
IFRS 5 - Non Current Assets Held for Sale and Discontinued
Operations: a change of the method of disposal of an asset, i.e.
the reclassification of an asset from held for sale to held for
distribution and vice versa is considered a continuation of the
original plan of disposal and requires the continuation of held for
sale or held for distribution accounting; an asset ceased to be
held for distribution is accounted the same way as an asset ceased
to be held for sale.
IFRS 7 - Financial Instruments- Disclosures: a servicing
contract is deemed to have a continuing involvement in a
transferred asset and therefore needs to be disclosed, if the
servicer has an interest in the performance of the transferred
asset.
IFRS 19 - Employee Benefits - the amendments clarify that the
rate used to discount post-employment benefit obligations should be
determined by market yields of high quality corporate bonds or
government bonds issued in the same currency in which the benefits
are to be paid.
IFRS 34 - Interim Financial Reporting - clarification that
certain disclosures, if not included in notes to the interim
financial statements may be disclosed elsewhere in the interim
financial report.
The application of these amendments had no impact on the Group's
consolidated financial statements.
- Amendments to IAS 16 Property, Plant and Equipment and IAS 38
Intangible Assets: Clarification of acceptable Methods of
Depreciation and Amortization; clarification of the use of a
depreciation or amortization method that is based on revenue that
is generated by an activity that includes the use of an asset. As
the Group does neither account for property, plant and equipment
nor for intangible assets the amendments, effective for annual
periods beginning on or after 1. January 2016, were not relevant to
the Group.
- Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants are
in the scope of IAS 16; as the Group is not engaged in agricultural
activities these amendments do not apply.
Other amendments to certain standards apply for the first time
in 2016. However, adoption of these revised standards and
interpretations did not have any material effect on the financial
statements of the Group.
Accounting Standards and interpretations not yet adopted
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial
statements are disclosed below. The Group intends to adopt these
standards, if applicable, when they become effective.
- IFRS 9: Financial Instruments and Subsequent Amendments (Hedge
Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39 as well as
Amendments to IFRS 9/IFRS 7: Mandatory Effective Date and
Transition Disclosures)
- IFRS 15: Revenue from Contracts with Customers
- IFRS 16: Leases
- Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
- Amendments to IAS 7: Disclosure Initiative to improve the Statement of Cash Flows
- Amendment to IAS 40: Transfers of Investment Property,
effective for reporting periods on or after 1. January 2018.
- Amendment to IAS 12: Recognition of deferred tax assets for unrealised losses.
- Amendments to IFRS 10 and IAS 28: Sale of Contribution of
Assets between an Investor and its Associate or Joint Venture
IFRS 9
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments which reflects all phases of the financial
instruments project and replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
IFRS 9 brings together all three aspects of the accounting of
financial instruments: classification and measurement, impairment
and hedge accounting.
The standard introduces solely two classes of financial assets:
assets measured at fair value and assets measured at amortised
costs. For financial liabilities the requirements of IAS 39
basically remain. There are merely changes in the recognition of
changes in value of financial liabilities measured at fair
value.
IFRS 9 is effective for annual periods beginning on or after 1
January 2018, with early application permitted. Retrospective
application is required, but comparative information is not
compulsory. The Group plans to adopt the new standard on the
effective date. During 2016, the Group has performed a high level
impact assessment based on currently available information, and may
be subject to changes arising from further detailed analysis or
information in the future. Overall, the Group expects no
significant impact on its balance sheet and equity.
IFRS 15
The new revenue recognition standard replaces all guidance on
revenue recognition that currently exists. Entities will apply a
five-step model to determine when to recognise revenue, and at what
amount. The model specifies that revenue should be recognised when
(or as) an entity transfers control of goods or services to a
customer at the amount to which the entity expects to be entitled.
Depending on whether certain criteria are met, revenue is
recognised overtime, in a manner that best reflects the entity's
performance, or at a point in time, when control of the goods or
services is transferred to the customer. The new standard provides
application guidance on numerous related topics, including
warranties and licenses and when to capitalise the costs of
obtaining a contract and some costs of fulfilling a contract. The
new standard is effective for annual periods beginning on or after
1 January, 2018, when the Group plans to adopt it.
During 2016, the Group performed a preliminary assessment of
IFRS 15, which is subject to changes arising from a more detailed
ongoing analysis. Overall however, the Group expects no significant
impact on its consolidated financial statements.
IFRS 16
In January 2016 the IASB issued the new standard IFRS 16 Leases,
which sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a
contract, i.e. the customer ('lessee') and the supplier ('lessor')
and replaces the previous Standard, IAS 17 Leases, and related
Interpretations. According to the new standard assets and
liabilities for all leases are to be recognised in the balance
sheet and depreciation on lease assets recognised separately from
interest on lease liabilities in the income statement. The new
standard is mandatory for annual periods beginning on or after1.
January 2019. The impact of IFRS 16 is currently being
assessed.
IFRS 2
The amendments address:
-- The measurement of cash-settled share-based payment
transactions with vesting and non-vesting conditions;
-- The classification of share-based payment transactions with
net settlement features for withholding tax obligations
-- The accounting for a modification to the terms and conditions
of a share-based payment transaction that changes its
classification from cash-settled to equity-settled.
The amendments are effective for annual reporting periods
beginning on or after 1 January 2018, when the Group plans to adopt
it. The impact to Group's financial statements is expected to be
immaterial.
IAS 7
The amendments require disclosures that enable users of
financial statements to evaluate changes in liabilities arising
from financing activities, including both changes arising from cash
flows and non-cash changes. The amendments are effective for annual
periods beginning on or after 1 January 2017, but are yet to be
endorsed. We do not expect any material impact on the Group's
financial statements.
IAS 12
The amendments clarify the accounting for deferred tax assets
for unrealised losses on debt instruments measured at fair value.
The amendments are effective for annual periods beginning on or
after 1 January 2017, but are yet to be endorsed. We do not expect
any material impact on the Group's financial statements.
IFRS 10 and IAS 28
The endorsement process is postponed, the effective date is
deferred indefinitely. Such transactions are not accounted for in
the Group's consolidated financial statements.
2. Principal accounting policies
The principal accounting policies are set out below:
Basis of Consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 31 December
2016. Where the company has the power, either directly or
indirectly, to govern the financial and operating policies of
another entity or business so as to obtain benefits from its
activities, it is classified as a subsidiary. Consolidation of a
subsidiary begins when the Company obtains control over the
subsidiary and ceases when the group loses control of the
subsidiary. The financial statements of the subsidiaries are
prepared for the same reporting period as the parent company. All
intra-Group transactions and balances are eliminated in full.
Non-controlling interests represent the portion of profit or
loss and net assets not held by the Group and are presented
separately in the income statement and within equity in the
consolidated statement of financial position, separately from
parent shareholders' equity.
Business combinations and goodwill
The Group acquires subsidiaries that own real estate. At the
time of acquisition, the Group considers whether each acquisition
represents the acquisition of a business or the acquisition of an
asset. The Group accounts for an acquisition as a business
combination where an integrated set of activities is acquired in
addition to the property.
The consolidated financial statements incorporate the results of
business combinations using the purchase method. In the
consolidated statement of financial position, the purchaser's
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition
date.
In a business combination, where the fair value of net assets
acquired is less than the fair value of the consideration, that
excess will be recognised as goodwill in the statement of financial
position. Where the fair value of the net assets acquired exceeds
the fair value of the consideration, that excess will be recognised
as negative goodwill in the statement of comprehensive income.
When the acquisition of subsidiaries does not represent a
business, it is accounted for as an acquisition of a group of
assets and liabilities. The cost of the acquisition is allocated to
the assets and liabilities acquired based upon their relative fair
values, and no goodwill or deferred tax is recognised.
Investment properties
Properties held for long-term rental yields or for capital
appreciation or both are classified as investment properties and
the provisions of IAS 40 "Investment Property" apply.
Investment properties comprise undeveloped land, land and rights
equivalent to land with buildings, and land with third party
hereditary building rights. Investment properties are measured
initially at cost including related transaction costs. After
initial recognition, investment properties are measured at their
fair values, with subsequent changes in fair values recognised in
the consolidated statement of comprehensive income.
The property portfolio, which is carried in the balance sheet at
fair value, is valued six-monthly by professionally qualified
external valuers and the Directors must ensure that the valuation
of the Group's properties is appropriate for the accounts.
Investment properties are valued by adopting the 'investment
method' of valuation. This approach involves applying
market-derived capitalisation yields based on current and future
income streams that are derived from comparable property and
leasing transactions and are considered to be the key inputs in the
valuation. Other factors that are taken into account in the
valuations include the tenure of the property, tenancy details and
ground and structural conditions.
Transfers to, or from, investment property are made when there
is a change in use. Therefore, the property's deemed cost for
subsequent measurement is its fair value at that date.
Investment property is derecognised when it has been disposed.
The difference between the net disposal proceeds and the carrying
amount of the asset would result in either gains or losses at
disposal of investment property. Any gains The principal accounting
policies are set out below:
Assets classified as held for sale
Investment properties and directly associated liabilities are
classified as current assets held for sale, if notary sale
contracts have been executed as at the balance sheet date but
transfer of ownership is outstanding. Current assets classified as
held for sale are measured at the lower of their carrying value and
fair value less costs to sell. Assets and liabilities classified as
held for sale are presented separately as current items in the
consolidated statement of financial position. On re-classification,
investment property that is measured at fair value continues to be
so measured.
Other financial assets
As other financial assets the Group holds non-derivative
structured loan notes and derivative financial assets such as
forward currency contracts (Note 16). Each are initially recognised
on the transaction date and classified at fair value through profit
or loss. Directly attributable transaction costs are recognised in
profit or loss as incurred.
The underlying financial assets of these Structured Loan Notes
are equity investments held by the note issuer. The fair value
assessment of each note is determined by the net asset values of
each share on each reporting date. The notes have a five year
maturity after which the notes can be renewed or repaid. Repayment
proceeds would come from the sale of the underlying shares.
Forward currency contracts entered into by the Group to hedge
the Pound Sterling liability on the Group's Zero Dividend
Preference Shares are also measured at fair value. These
derivatives are carried as assets when the fair value is positive
and as liabilities when the fair value is negative.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all of the risks and rewards of ownership of
the financial asset are transferred.
Financial assets and financial liabilities are offset and the
net amount presented in the statement of financial position when,
and only when, the Group has a legal right to offset the amounts
and intends either to settle them on a net basis or to realise the
asset and settle the liability simultaneously.
Changes in the value of financial assets designated at fair
value through profit or loss and gains and losses on disposal,
together with interest income, are recognised in the consolidated
statement of comprehensive income as "Gain/loss on fair value of
financial assets".
Trade and other receivables and prepayments
Trade and other receivables and prepayments predominantly
consist of rent receivables, collected rents that are held in
escrow accounts at the property manager, prepaid property expenses
that are allocated to tenants, a margin deposit held at a foreign
exchange broker and collected property sales proceeds held in a
notary escrow account. These assets are initially recognised at
fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at amortised
cost using the effective interest method.
Rent and other receivables are recognised at their original
invoiced value. Where there is objective evidence that the asset is
impaired, its carrying value is adjusted as necessary for any
estimated irrecoverable amounts and the adjustment is recognised in
the consolidated statement of comprehensive income. Adjustments to
impaired receivables are made through an allowance account/bad debt
provision. Balances are written off when the probability of
recovery is assessed as being remote. When the asset is settled the
necessary adjustments will be processed through the consolidated
statement of comprehensive income and the statement of financial
position.
Cash and cash equivalents
The Group classifies as cash and cash equivalents cash at bank,
short term deposits held at call with banks and other short-term
highly liquid investments with original maturities of three months
or less.
Equity instruments
An instrument is an equity instrument if it includes no
contractual obligation to transfer cash or other assets to the
holder. Such instruments issued by the Group are recorded at the
proceeds received. Direct expenses relating to the raising of
equity share capital are deducted from the proceeds of any equity
issued.
Shares to be issued
The Company has entered into an arrangement with its investment
adviser, Taliesin Management Limited (TML), under which TML may be
paid a performance fee which may be settled, at the option of TML,
up to 40% in cash, with the balance being settled in ordinary
shares or options over ordinary shares, or any combination
thereof.
Following a request from Taliesin Management Limited, the Group
has agreed to appoint JJ Investment Management Limited (JJIM) as a
joint investment adviser alongside TML (together the Investment
Advisers) with effect from 23 November 2015. The terms of the
investment advisory agreement with JJIM mirror those of the
existing agreement with TML including rules with regard to the
performance fee.
Where TML and JJIM have given advance notices of their
intentions prior to year-end, the Company accounts for the
performance fee as follows. In the statement of financial position,
the components to be settled in cash are treated as a current
liability and included in other liabilities and payables and the
component to be settled in equity-based instruments, i.e. shares
and/or options, is included in shareholders' equity as provisions
for shares and/or options to be issued in the following financial
period, at the 20-day average share price prior to the 31 December
in the reporting period. The combined value of these components of
the performance fee is charged to profit and loss through the
consolidated statement of comprehensive income during the financial
period to which the performance fee relates. Where TML and JJIM
have not given advance notice of their intentions prior to the
year-end the whole fee is treated as a current liability and
included in other liabilities and payables and the whole amount is
charged to profit and loss through the consolidated statement of
comprehensive income during the financial period to which the
performance fees relate.
Financial liabilities
The Group classifies financial liabilities as non-derivative and
derivative financial liabilities.
Non-derivative financial liabilities are initially recognised at
fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured
at amortised cost using the effective interest method.
Non-derivative financial liabilities are classified as interest
bearing loans and borrowings and comprise all bank loans and zero
dividend preference shares. Amortised costs are included in finance
expense in the income statement.
The redemption premium of the Zero Dividend Preference shares,
which are mandatorily redeemable on a specific date, is calculated
using the effective interest rate method and is recognised in the
consolidated statement of comprehensive income as a finance
expense.
The Group classifies derivative financial liabilities such as
interest rate swaps as financial liabilities at fair value through
profit or loss. The Group uses interest rate swaps to hedge its
risks associated with upward movements in interest rates as well as
forward currency contracts to hedge its foreign currency risk. Such
derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into
and are subsequently re-valued at fair value at the end of each
financial reporting period. Derivatives are carried as assets when
the fair value is positive and as liabilities when the fair value
is negative. Gains or losses are taken directly to the consolidated
statement of comprehensive income as part of net financing
costs.
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled, or expire.
Other Liabilities and payables
Other liabilities and payables are initially recognised at fair
value and subsequently measured at amortised cost using the
effective interest method. Gains or losses are taken directly to
the consolidated statement of comprehensive income when liabilities
are derecognised or amortised.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation and the amount can
be reliably estimated. Provisions are measured at the Directors'
best estimate of the expenditure required to settle the obligation
at the end of the financial period and are discounted to present
value where the effect is material.
Revenue recognition
Rental income from operating leases is recognised on a straight
line basis over the term of the lease, net of any sales-related
taxes, at the fair value of the consideration receivable. Tenant
lease incentives are recognised as a reduction of rental revenue on
a straight line basis over the term of the lease.
Service charge revenue is accounted for on an accruals basis,
and is based on property expenses expected to be recovered by
occupants.
Sale of property
Profit or loss on the sale of property is recognised when the
significant risks and rewards of the ownership of the sold
properties have been transferred to the buyer and no material
rights to the sold properties remain with the Group.
Corporate income tax expense
The corporate income tax expense represents the sum of the tax
currently payable and deferred tax. The tax currently payable is
based on taxable profit for the year. Taxable profit may differ
from net profit as reported in the consolidated statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, the deferred income tax
is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither
accounting nor taxable profit nor loss.
Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantively enacted by the end of the
financial period and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax
liability is settled. Deferred tax assets and liabilities are
offset against one another where both assets and liabilities arise
within individual taxable entities to the extent that only overall
amounts payable or recoverable are carried in the statement of
financial position.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised.
Deferred tax assets on losses, temporary differences and
property valuation differences have been recognised in respect of
the German subsidiaries to the extent that it is sufficiently
probable that they will be realised in the future against taxable
profits, reversals in underlying temporary differences and
appreciations in property valuations prior to any disposals of
subsidiaries.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group and
it is probable that the temporary difference will not reverse in
the foreseeable future.
Foreign exchange
I. Functional and presentation currency
The financial statements are presented in Euros as this is the
primary currency of the economic environment in which the entity
operates, and in which the material transactions of the Group are
undertaken.
II. Transactions and balances
Transactions undertaken in foreign currencies are translated
into Euros at the rate ruling on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are translated into Euros at the rate ruling at the end of the
financial period. Non-monetary items measured at fair value in a
foreign currency are translated using the exchange rates at the
date when the fair value is determined. Profits and losses on
exchange are taken directly to the statement of comprehensive
income.
Expenditure and other operating income
Expenditure and other operating income are accounted for on an
accruals basis.
Finance income
Finance income is recognised using the effective interest rate
(EIR) method. EIR is the rate that exactly discounts estimated
future cash flows through the expected life of the financial
instrument to the net carrying amount of the financial asset or
liability.
3. Critical accounting estimates and judgements
The preparation of the financial statements requires the
Directors to make estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities, and
disclosures of contingencies as at the end of the financial period.
If, in the future, such estimates and assumptions, which are based
on the Directors' best judgement at the end of the financial
period, deviate from the actual circumstances, the original
estimates and assumptions will be modified, as appropriate, in the
period in which the circumstances change. The following policies
are considered to be of greater complexity and/or particularly
subject to the exercise of judgement.
Critical accounting estimates
Valuation of property
The fair value of investment properties is based on valuations
performed by real estate valuation experts, JLL, using recognised
valuation techniques and the principles of IFRS 13.
The Directors remain ultimately responsible for ensuring that
the valuers are adequately qualified, competent and base their
results on reasonable and realistic assumptions.
Fair value is the price that would be received to sell a
property in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset takes place
either in the principal market for the property or in the absence
of a principal market, in the most advantageous market at the
measurement date.
The fair value of an investment property is measured using the
assumptions that market participants would use when pricing the
property, assuming to act in their economic best interest. Thus the
fair valuation takes into account a market participant's ability to
generate economic benefits by using the property in its highest and
best use or by selling it to another market participant that would
use the asset in its highest and best use.
The Group operates in large cities in Germany where there is a
well-developed and active property market for which sufficient data
is available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs.
Such inputs include current and recent sale prices of similar
properties, and rents based on current market rates with which to
calculate discounted cash flows based on reliable estimates of
future rental income and discount rates that reflect current market
assessments of uncertainties in the amount and timing of cash
flows. Estimates of the values of investment properties include
assumptions regarding vacancy rates, discount rates and rental
income as noted in note 5. The estimates also consider the
privatisation potential of investment properties (i.e. the value
potential in the split and separate sale of freeholds) and the
Group has established specific criteria relating to the progress of
the privatisation process that must be met for a property's
privatisation value to be considered.
As the valuation techniques applied derive from data that is
sometimes not widely publicly available and involve a degree of
judgement, the Group classified the valuation techniques for its
investment property portfolio as Level 3 as defined by IFRS 13,
meaning that the lowest level input that is significant to the fair
value measurement is unobservable.
Valuation of financial instruments
I. Financial assets
Investments designated at fair value comprise Structured Loan
Notes where the economic value is determined by reference to the
value of certain Group companies. The value of the financial assets
is determined by reference to the financial statements of those
companies.
II. Interest bearing loans and borrowings
In order to measure Interest bearing loans and borrowings
initially at fair value, the Directors make judgements based on
discounting future cash flows and on current market interest rates
and the likely trend in future market interest rates. To ensure
that loan obligations are met without default, the Directors'
forecast and monitor the Group's debt service coverage ability
based on net cash flows also taking into consideration that any
collateral requirements are permanently fulfilled.
III. Derivative financial assets and liabilities
Forward currency contracts to hedge the Group`s foreign currency
risk as well as interest rate swaps to hedge the Group`s interest
rate risks are valued in collaboration with the instrument
providers and other market counter-parties on a regular basis by
reference to relevant currency exchange rates and interest rate
movements as well as the credit status of the contracting parties.
The effectiveness of these hedge instruments is continuously
monitored in order to determine whether it is in the Group's
interest to maintain these arrangements, extend them, or close them
in part or in their entirety.
Critical accounting judgements
Income taxes
There are certain transactions and computations for which the
ultimate tax determination may be different from the initial
estimate. The Group recognises tax liabilities based on its
understanding of the prevailing tax laws and estimates of whether
such taxes will be due in the ordinary course of business. Where
the final outcome of these measures is different from the amounts
that were initially recognised, such difference will impact the
income tax and deferred tax provisions in the period in which such
determination is made.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it
is more likely than not that sufficient and suitable taxable
profits will be available in the future, against which the reversal
of temporary differences and losses can be deducted. Recognition,
therefore, involves judgement regarding the future financial
performance of the particular legal entity or tax group in which
the deferred tax asset has been recognised.
4. Segment information
The Group monitors its business of investing in primarily
residential property in Berlin, Potsdam and Dresden in two
segments:
First, the procurement and oversight of management of its rent
portfolio, which includes the modernisation and maintenance of the
Group's investment properties, the management of rent contracts,
caring for tenants and the marketing of apartments. The focus of
managing the rent units is to optimise rents. Therefore all capital
expenditures to the properties are analysed for rent improvement
potential. On the other hand service charges are sought to be
reduced and to be passed on to tenants.
The second segment is privatisation, the sale of individual
apartments. The Group started in fiscal year 2015 to sell a number
of apartments as a means to demonstrate to shareholders the value
potential in its property portfolio in privatisation. In 2016 the
Group sold a total of 19 units in its properties in Warschauer
Strasse and Kavalierstrasse.
For the purpose of IFRS 8, the chief operating decision makers
are the Directors and the Investment Advisers (see note 8). At the
meetings between the Directors and the Investment Advisers, the
income, expenditure, cash flows, assets and liabilities are
reviewed on a whole-group basis with additional information on the
development of the Group's rent portfolio and privatisation
business.
All of the Group's income and non-current assets are derived
from Germany. No single customer accounts for more than 10% of the
Group's income.
Internal and external reporting is on a consolidated basis, with
transactions between Group companies eliminated on consolidation.
The Group monitors the operating activities of its two business
units separately for the purpose of strategic decisions. Therefore
the financial information as set out in the consolidated statement
of comprehensive income is split among the two segments:
Income statement Segment by activity
------------------------------- ----------- --------------------------------
Total 2016 Rental portfolio Sale segment
EUR(000) EUR(000) EUR(000)
------------------------------- ----------- ----------------- -------------
Rental Income 10,513 10,427 86
Service charge receipts 2,689 2,699 (10)
------------------------------- ----------- ----------------- -------------
Revenue 13,202 13,126 76
Sale of investment properties 6,887 - 6,887
Sold properties book
value (6,521) - (6,521)
------------------------------- ----------- ----------------- -------------
Profit on sale of investment
properties 366 - 366
Other operating income 262 255 7
------------------------------- ----------- ----------------- -------------
Total operating revenues 13,830 13,381 449
Net change in fair value
of investment properties 51,864 51,063 801
Total operating expenses (20,573) (20,259) (314)
------------------------------- ----------- ----------------- -------------
Profit from operating
activities 45,121 44,185 936
Net financing costs (3,073) (2,979) (94)
------------------------------- ----------- ----------------- -------------
Profit before income
tax 42,048 41,206 842
Income tax (charge) /
credit (9,295) (9,330) 35
------------------------------- ----------- ----------------- -------------
Total profit for the
year 32,753 31,876 877
Income statement Segment by activity
------------------------------- ----------- --------------------------------
total 2015 rental portfolio sale segment
EUR(000) EUR(000) EUR(000)
------------------------------- ----------- ----------------- -------------
Rental Income 10,156 10,156 -
Service charge receipts 2,617 2,617 -
------------------------------- ----------- ----------------- -------------
Revenue 12,773 12,773 -
Sale of investment properties 4,349 500 3,848
Sold properties book
value (3,110) (327) (2,782)
------------------------------- ----------- ----------------- -------------
Profit on sale of investment
properties 1,239 173 1,066
Other operating income 399 399 -
------------------------------- ----------- ----------------- -------------
Total operating revenues 14,411 13,345 1,066
Net change in fair value
of investment properties 53,138 51,886 1,252
Total operating expenses (20,310) (20,048) (262)
------------------------------- ----------- ----------------- -------------
Profit from operating
activities 47,239 45,183 2,056
Net financing costs (2,522) (2,428) (94)
------------------------------- ----------- ----------------- -------------
Profit before income
tax 44,717 42,755 1,962
Income tax charge (9,422) (9,262) (160)
------------------------------- ----------- ----------------- -------------
Total profit for the
year 35,295 33,493 1,802
During 2016, the Group had classified two properties of the
portfolio as assets held for sale, Warschauer Strasse and
Kavalierstrasse. As all apartments of Warschauer Strasse were sold
and transferred during the year, there was only the asset
Kavalierstrasse still classified as an asset held for sale at year
end. The corresponding numbers in the balance sheet were an asset
in the amount of EUR7,070,000 and a liability in the amount of
EUR3,788,850.
5. Investment properties
2016 2015
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Book cost brought forward at 1
January 148,924 150,415
Fair value adjustments brought
forward 113,587 61,701
-------------------------------------- --------- ---------
Valuation brought forward at 1
January 262,511 212,116
Capital expenditure on properties
held 4,907 5,586
Reclassification to assets held
for sale (7,570) (6,750)
Property sold during the year - (327)
-------------------------------------- --------- ---------
259,848 210,625
Revaluation (fair value adjustments) 51,063 51,886
-------------------------------------- --------- ---------
Valuation as at 31 December 2016 310,911 262,511
The Group's investment properties consist of 62 multi-tenant
buildings with a total of 1,530 rental units with a total rental
area of 117,756 m(2). The majority of all rental units are
residential apartments (1,366), of which approximately 92% are
located in Berlin, the rest in Dresden (3%) and Potsdam (5%).
The fair values of the investment properties held at 31 December
2016 are based on valuations performed by an independent valuer,
JLL. These are in accordance with the appropriate sections of the
current Valuation Standards (VS) contained within the current
Appraisal and Valuation Standards, 8th Edition (the 'Red Book')
published by the Royal Institution of Chartered Surveyors (RICS) as
well as the standards contained within the TEGoVA European
Valuation Standards, and in accordance with IVSC International
Valuation Standard 1 (IVS1), the International Accounting Standards
(IAS), International Reporting Standards (IFRS) as well as the
current guidelines of the European Securities and Markets Authority
(ESMA) on the basis of Market Value. JLL has recent experience in
the location and category of the investment property being
valued.
For all investment property measured at fair value the current
use of the property is considered the highest and best use.
Rental income recognised in the consolidated statement of
comprehensive income was mostly received from investment
properties. Expenditure on investment properties capitalised during
the year, amounted to EUR4,907,000 (2015: EUR5,586,000) and related
to fundamental refurbishment and improvement of the investment
properties such as the renewal of layouts, heating and piping
systems of residential apartments. Direct operating expenditure on
investment properties charged to the consolidated statement of
comprehensive income during the year including maintenance,
property management and agent fees during the year amounted to
EUR1,392,000 (2015: EUR1,408,000).
The Group has no restrictions on the saleability of its
investment properties and no contractual obligations to purchase,
construct or develop investment properties or for repairs,
maintenance and enhancements.
The fair value of the investment properties is determined using
a discounted cash flow (DCF). As certain input assumptions rely on
unobservable data as also outlined in note 3 under critical
accounting estimates for property valuation, the valuation
technique applied for valuing the investment property portfolio is
classified as Level 3 as defined in IFRS 13 and in accordance with
EPRA`s (European Public Real Estate Association) guidance.
Residential Properties
Range
Range Year
Year ended ended
Valuation Significant Unobservable 31 Dec Weighted 31 Dec Weighted
Technique Inputs 2016 Average 2015 Average
------------ -------------------------- ------------ ---------- ------------ ----------
estimated rental
value per EUR6.50 EUR6.50
DCF method m(2) per month - EUR11.50 EUR9.68 - EUR12.50 EUR9.05
1.25% - 1.25%
rent growth p.a. 2.25% 1.98% - 2.30% 1.74%
--------------------------------------- ------------ ---------- ------------ ----------
Long-term vacancy 2.00% - 1.00%
rate 4.00% 2.05% - 5.00% 2.10%
4.00% - 4.00%
discount rate 6.00% 4.58% - 6.25% 4.88%
--------------------------------------- ------------ ---------- ------------ ----------
Commercial Properties
Range
Range Year
Year ended ended
Valuation Significant Unobservable 31 Dec Weighted 31 Dec Weighted
Technique Inputs 2016 Average 2015 Average
------------ -------------------------- ------------ ---------- ------------ ----------
estimated rental
value per m(2) per EUR3.67 EUR3.67
DCF method month - EUR25.41 EUR10.07 - EUR30.12 EUR9.71
rent growth p.a. 1.98% 1.98% 1.75% 1.75%
--------------------------------------- ------------ ---------- ------------ ----------
Long-term vacancy 2.00% - 2.00%
rate 4.00% 2.94% - 4.00% 2.87%
4.00% - 4.00%
discount rate 6.00% 4.58% - 6.25% 4.88%
--------------------------------------- ------------ ---------- ------------ ----------
Under the DCF method, a property's fair value is established
using explicit assumptions regarding the benefits and liabilities
of ownership over the asset's life including an exit or terminal
value. The DCF method involves the projection of a series of cash
flows on a real property interest. To this projected cash flow
series, an appropriate, market derived discount rate is applied to
establish the present value of the cash inflows associated with the
investment property. The property specific discount rate is based
on a rating that includes an assessment of the macro- and micro
location, the quality of the property and the cash flow and
privatisation potential of each property. The decrease of the
assumed weighted average discount rate in comparison to 2015 is
predominantly due to a yield compression in the Berlin real estate
market, which led to an improved macro and micro location rating of
the properties in comparison to 2015.
The duration of the cash flow and the specific timing of inflows
and outflows are determined by events such as rent reviews,
re-letting, redevelopment or refurbishment or, for example in cases
of privatisation, the anticipated timing of events of sale.
The periodic cash flows of the investment properties were
estimated as gross income less vacancy, non-recoverable expenses
such as property management and maintenance costs. The series of
periodic net cash flows, along with an estimate of the terminal
value based on the stabilised periodic net cash flows at the end of
a ten year period was then discounted.
Changes in vacancy by 1% would not result in a material
difference to the fair value assessment. In the directors' view
rental increases are based on empiric values over recent years and
so the directors do not expect significant fluctuation in the
rental revenues. An increase of 0.5% in the discount rate would
reduce the fair value by EUR8.5 million and a decrease of 0.5% in
the discount rate would increase the fair value by EUR13.5
million.
Although JLL calculate property valuations based on usage
(residential or commercial), the Group does not split valuations by
usage as it regards commercial space to be incidental to the
overall residential focus of the property portfolio.
All other factors remaining constant, an increase in rental
income would increase valuations, whilst increases in nominal
equivalent yield and discount rate would result in a fall in values
and vice versa. However, there are interrelationships between
unobservable inputs as they are determined by market conditions.
The existence of an increase of more than one unobservable input
would augment the impact on the valuation. The impact on the
valuation would be mitigated by the interrelationship between
unobservable inputs moving in opposite directions. For example, an
increase in rents may be offset by an increase in yield, resulting
in no net impact on the valuation.
Following the successful entire privatisation of its property
Warschauer Strasse in Berlin-Friedrichshain during the year the
Group decided to also privatise all remaining freehold apartments
of its property Kavalierstrasse in Berlin-Pankow. As a consequence
the Group reclassified the asset Kavalierstrasse from investment
properties to assets held for sale. The reclassification amount of
EUR7,570,000 represents the fair value of Kavalierstrasse as at 31
December 2015 (see also Note 6).
All of the properties owned by the Group have been pledged as
security for the Group's financial liabilities.
The movement in the fair value of the investment properties is
included in the statement of comprehensive income within the net
change in fair value of investment properties. The net change in
fair value of properties amount to EUR51,864,000 is divided into
investment properties (EUR51,063,000) and property held for sale
(EUR801,000).
Operating lease income
The German subsidiaries rent out residential and commercial real
estate within the framework of operating leases. Whereas the
renting of residential real estate can be terminated by the tenant
with a statutory notice period of three months, commercial real
estate is rented predominantly for a fixed contractual term of up
to twenty years. The minimum rental payments for residential real
estate on the basis of the statutory notice period of three months
amount to EUR2,192,000 (2015: EUR2,781,000).
The future minimum lease payments under non-cancellable
operating (i.e. commercial) leases receivable by the Group for each
of the following periods are as follows:
Future minimum lease payments
2016 2015
EUR(000) EUR(000)
------------------------- --------- ---------
Amounts receivables in:
up to one year 1,009 1,576
one to five years 2,246 900
more than five years 34 2,495
------------------------- --------- ---------
3,289 4,971
6. Assets classified as held for sale
2016 2015
EUR(000) EUR(000)
--------------------------------------------- --------- ---------
Valuation brought forward at 1 January 5,220 -
Reclassification from investment properties 7,570 6,750
Apartments sold (6,521) (2,782)
Valuation gain on apartments held
for sale 801 1,252
--------------------------------------------- --------- ---------
7,070 5,220
Following the sale of freehold apartments in Warschauer Strasse
prior year the Group decided to privatise also its asset
Kavalierstrasse entirely and therefore reclassified the
Kavalierstrasse from investment properties to assets held for sale
at the last fair value as at 31 December 2015. During 2016 the
Group sold and transferred ownership of 15 remaining freehold
apartments in Warschauer Strasse and also four freehold apartments
in Kavalierstrasse for a cumulative purchase price of EUR6,887,000.
As the combined book value of these 19 apartments as of their last
fair valuation before transfer of ownership was EUR6,521,000 the
Group realised a profit of EUR366,000, representing an average
sales price of approx. 3,700 per m(2).
The valuation gain on apartments in assets held for sale is
mostly due to the new fair valuation of the remaining 20
privatisation units of Kavalierstrasse as at the balance sheet
date. In the reporting period the Group entered into notarial
privatisation contracts for five of these units with a transfer of
ownership anticipated in 2017.
The liabilities associated with the assets held for sale
constitute an interest bearing loan in the amount of EUR3,789,000.
(note 19).
7. Operating expenses
2016 2015
Note EUR(000) EUR(000)
------------------------------------- ----- --------- ---------
Service charge expenses 2,870 3,032
Property maintenance costs 1,392 1,408
Administrative costs 542 441
Investment advisory and performance
fees 8 13,724 13,523
Directors` fees 9 109 49
Legal and professional fees 315 479
Other operating expenses 1,333 1,094
Provision for bad debts 20 152 126
Auditor's remuneration (see below) 136 158
------------------------------------- ----- --------- ---------
Total operating expenses 20,573 20,310
Other operating expenses include compensation payments to
tenants, legal and public registry fees in connection with the
split of multi tenant buildings into freehold apartments as well as
accounting expenses for the preparation of the consolidated
financial statements.
The Group paid the following fees to its Auditor:
2016 2015
EUR(000) EUR(000)
-------------------------------------------- --------- ---------
Fees payable to the Group's Auditor
for the audit of the Group's consolidated
annual accounts 114 133
Tax compliance services 22 25
--------------------------------------------- --------- ---------
136 158
8. Investment advisory and performance fees
2016 2015
EUR(000) EUR(000)
----------------------------- --------- ---------
Investment advisory fees 3,254 2,452
Performance fee (see below) 10,470 11,071
----------------------------- --------- ---------
13,724 13,523
Taliesin Management Limited and JJ Investment Management Limited
act as Investment Advisers to the Group for which they receive an
advisory fee and a performance fee. Both of these fees are
calculated based on the Group's Adjusted Net Asset Value as defined
in note 14. The increase of the advisory fee during the period is
related directly to the large increase in the value of the Group's
portfolio and hence the Adjusted Net asset Value per share.
The advisory fee is calculated semi-annually based on the
Group's Adjusted Net Asset Value (excluding any accrual for
advisory fees or performance fees from this number) and is charged
at a rate of 0.875% (the equivalent of 1.75% annually).
The performance fee is also calculated based on the Group's year
end Adjusted Net Asset Value (excluding any accrual for advisory
fees or performance fees from this number) and entitles the
Investment Advisers to a 20% share in the increase from the
previous year end's Adjusted Net Asset Value (including the
deduction of advisory and performance fees) during the year which
is in excess of the 12-month Euribor rate on the first day of the
calendar year ("the Hurdle rate"). No performance fee will be
charged unless the Adjusted Net Asset Value per share is higher
than the last level at which a performance fee was charged,
adjusted by the annual Hurdle rate ("the High Water Mark").
For the purpose of calculating the performance fee due to the
Investment Advisers, any capital returned to shareholders during
the calendar year will be considered to form part of the Group's
Adjusted Net Asset Value until the next performance fee charging
date.
Under the terms of the Investment Advisory Agreements, up to 40%
of the performance fee due to the Investment Advisers can be
settled in cash and the balance in newly issued ordinary shares.
The Investment Advisers have agreed to accept a minimum of 60% of
this year's performance fee in new shares.
9. Directors' fees
2016 2015
EUR(000) EUR(000)
----------------------------------- --------- ---------
Parent Company Directors:
Nigel A Le Quesne 28 7
Philip H Burgin (retired from the
Board on 7/10/2015) - 7
Stephen A Burnett 28 7
Nicholas M Houslop 19 21
Nikolaus von Palombini 34 7
Mark Smith - -
----------------------------------- --------- ---------
109 49
Nigel Le Quesne is a shareholder and director and Stephen
Burnett is a non-executive directors of JTC Group Limited. Mark
Smith is a director and shareholder of both Taliesin Management
Limited and JJ Investment Management Limited, the Investment
Advisers of the Group. Nikolaus von Palombini is the former CFO of
Taliesin Deutschland GmbH, the German subsidiary of TML.
See note 25 Related party transactions for further details.
10. Finance income
2016 2015
EUR(000) EUR(000)
--------------------- --------- ---------
Interest receivable 1 4
11. Finance expense
2016 2015
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Interest on bank loans 3,891 3,838
Interest on Zero Dividend Preference
Shares (ZDP) 978 1,625
Other interest 126 126
-------------------------------------- --------- ---------
Total finance expense 4,995 5,589
12. Net foreign exchange differences
2016 2015
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Realised (loss) / gain of currency
forward contracts (4,080) 749
Unrealised (loss) / gain on fair value
of currency forward contracts (76) 16
Foreign exchange gains on bank accounts 12 223
Foreign exchange gain / (loss) on
ZDP valuation 2,761 (995)
Foreign exchange (loss) / gain on
margin collateral (9) 76
----------------------------------------- --------- ---------
Net foreign exchange differences (1,392) 69
The principal operating currency of the Group is Euros. The
Group has, however, issued Zero Dividend Preference Shares
denominated in Pounds Sterling. In order to hedge this future Pound
Sterling liability, the Group has entered into forward foreign
currency contracts on that portion of the ZDP proceeds that has
been converted into Euros. The foreign exchange gain on the ZDPs in
the period reflect the depreciation of the Pound Sterling against
the Euro. However, realised and unrealised losses on forward
foreign currency contracts also reflect the depreciation of the
Pound Sterling against the Euro during the year and also stem from
timing differences with respect to the settlement and entering of
forward foreign currency contracts.
The Group provided an amount of GBP849,000 / EUR992,000 (2015:
GBP1,500,000 / EUR2,033,000) as margin collateral with the
brokerage firm, which is providing forward foreign currency
services to the Group.
13. Taxation
Taxes on profits of the Group arising in Germany are computed
using the tax rate of 15.83% (2015: 15.83%), both for current and
deferred tax. Taxable income arising in Cyprus is taxed at 12.5%
(2015: 12.5%). The applicable tax rate in Jersey is 0%.
All taxation charges and credits are recognised in the statement
of comprehensive income. The total tax credit for the year is
detailed below:
2016 2015
EUR(000) EUR(000)
----------------------------------- --------- ---------
Current tax on profits 443 220
Prior year corporate tax income /
expense 29 161
Deferred tax charge 8,823 9,041
----------------------------------- --------- ---------
Tax charge for the year 9,295 9,422
The tax expense for the financial year differs from the amount
calculated on the profit. The differences are reconciled as
follows:
2016 2015
EUR(000) EUR(000)
---------------------------------------------- --------- ---------
Profit before tax 42,048 44,717
Luxembourg, Jersey and Cyprus non-deductible
expenses 15,317 13,780
---------------------------------------------- --------- ---------
Profits due to German taxes 57,365 58,497
Tax charge on profit at the German
tax rate of 15,83% (2015:15,83%) 9,081 9,260
Previous years adjustments to deferred
tax liability / asset (12) (135)
Trade tax 197 278
Taxes payable 29 19
---------------------------------------------- --------- ---------
Tax charge for the year 9,295 9,422
Deferred tax
Deferred tax assets/(liabilities) are broken down by statement
of financial position item as follows:
2016 2015
EUR(000) EUR(000)
---------------------------- --------- ---------
Property value differences (34,145) (25,462)
Losses carried forward 3,351 3,254
Interest rate swaps 64 309
Interest rate caps 2 -
Loan interest adjustments (1) (7)
---------------------------- --------- ---------
(30,729) (21,906)
The following are the major deferred tax assets and liabilities
recognised by the Group with movements thereon during the year.
Deferred tax assets and liabilities are shown gross and then offset
against one another where both assets and liabilities arise within
individual taxable entities to the extent that only overall amounts
payable or recoverable are carried in the statement of financial
position. Deferred tax assets displayed above are anticipated to be
utilised due to taxable profits in future periods.
Deferred tax assets
2016 2015
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Gross totals as at 1 January 3,563 3,686
Prior year tax adjustment - (8)
Losses carried forward 97 73
Interest rate swaps (245) (188)
----------------------------------------- --------- ---------
Gross totals as at 31 December 3,415 3,563
Offset against deferred tax liabilities
at individual taxable entitiy level (3,415) (3,563)
----------------------------------------- --------- ---------
Net totals as at 31 December - -
Deferred tax liabilities
2016 2015
EUR(000) EUR(000)
------------------------------------ --------- ---------
Gross totals as at 1 January 25,469 16,551
Property value differences 8,683 8,938
Loan interest adjustments (8) (20)
------------------------------------ --------- ---------
Gross totals as at 31 December 34,144 25,469
Offset against deferred tax assets (3,415) (3,563)
------------------------------------ --------- ---------
Net totals as at 31 December 30,729 21,906
Reconciliation of movement in deferred tax during the year:
2016 2015
EUR(000) EUR(000)
------------------------------ --------- ---------
At 1 January 21,906 12,865
Charged to profit or loss 8,823 9,041
------------------------------ --------- ---------
Net totals as at 31 December 30,729 21,906
14. Earnings per Ordinary share and net asset value per Ordinary
share
2016 2015
EUR(000) EUR(000)
----------------------------------------- ---------- ----------
Profit and total comprehensive income
attributable to owners of the parent
(EUR000) 30,795 33,315
Weighted average number of ordinary
shares 4,724,271 4,429,176
----------------------------------------- ---------- ----------
Basic earnings per share (EUR) 6.52 7.52
----------------------------------------- ---------- ----------
Weighted average number of ordinary
shares including shares to be issued 4,880,165 4,644,090
----------------------------------------- ---------- ----------
Diluted earnings per share (EUR) 6.31 7.17
----------------------------------------- ---------- ----------
Net asset value attributable to holders
of ordinary shares (EUR000) 154,001 122,227
Ordinary shares at 31 December (note
18) 4,840,187 4,483,672
----------------------------------------- ---------- ----------
Net asset value per share (EUR) 31.82 27.26
Ordinary shares and shares to be issued
at 31 December 4,996,071 4,698,586
Net asset value per share (EUR) 30.82 26.01
Adjusted Net Asset Value
In addition to the net asset values disclosed above, which are
based on the net consolidated assets attributable to Ordinary
shareholders as stated in the financial statements ("Accounting
NAV"), the Directors monitor the performance of the Group as
measured by a Key Performance Indicator ("KPI") known as the
Adjusted Net Asset Value ("Adjusted NAV").
This KPI is defined as the Accounting NAV of the Group as
adjusted by adding any portfolio premium not already reflected in
the accounts, the gross deferred tax liability from which the
Accounting NAV is derived.
These adjustments and the calculations are as shown below:
2016 2015
EUR(000) EUR(000)
------------------------------------------- ---------- ----------
Net consolidated assets attributable
to Ordinary shareholders 154,001 122,227
Gross deferred tax liability (note
13) 34,146 25,469
Plus: Capital return to owners 9,680 8,968
Less: Shares to be issued (6,282) (6,643)
Less: Gross deferred tax liability
attributable to non-controlling interest (216) (106)
------------------------------------------- ---------- ----------
Adjusted Net Assets attributable to
Ordinary shareholders 191,329 149,915
Number of Ordinary shares outstanding
at 31 December 4,840,187 4,483,672
------------------------------------------- ---------- ----------
Adjusted Net Asset Value per Ordinary
share (EUR) 39.53 33.44
Adjusted Net Assets attributable to
Ordinary shareholders deducting
capital return to owners 181,649 140,947
------------------------------------------- ---------- ----------
Adjusted Net Asset Value per Ordinary
share (EUR) 37.53 31.44
15. Group information - information about subsidiaries
The details of the subsidiaries are as follows:
Proportion Proportion
of of
capital voting
held power
by the held
Group by the
Country (ordinary
Date of of Principal shares) Company
Name acquisition incorporation activity % %
---------------------------------- ------------- --------------- ----------- ----------- -----------
13. Aug.
Taliesin Limited 2007 Jersey HC 94.0 -
Taliesin Holdings 9. Dec.
Limited 2005 Cyprus HC 94.0 94.0
24. Feb.
Taliesin I GmbH ** 2006 Germany PI 94.0 94.0
Taliesin Managing-Partner 10. Jul.
GmbH ** 2007 Germany PI 94.0 94.0
Taliesin II GmbH 1. Oct.
**** 2006 Germany PI 88.4 88.4
Taliesin Potsdam 10. Jul.
1 GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 1 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 2 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 3 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 4 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin III GmbH 15. Aug.
& Co.KG *** 2007 Germany PI 94.0 94.0
Phoenix B2 - Glatzerstrasse 27. Dec.
***** 2012 Luxembourg PI 86.9 86.9
Phoenix D1 - Hohenstaufenstrasse 27. Dec.
***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
H ***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
I ***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
J ***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
K ***** 2014 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
N ***** 2014 Luxembourg PI 86.9 86.9
Phoenix III Mixed 27. Dec.
O ***** 2014 Luxembourg PI 86.9 86.9
---------------------------------- ------------- --------------- ----------- ----------- -----------
** 100% owned by Taliesin HC = Holding
Holdings Limited company
*** 100% owned by Taliesin PI = Property
I GmbH investment
**** 94% owned by Taliesin
I GmbH
***** 92,4% owned by
Taliesin III GmbH &
Co. KG
The voting shares of Taliesin Limited are held outside the
Group. Taliesin Limited is consolidated into the Group based on
economic interest held by the Group. Taliesin Limited holds 6% of
the ordinary shares of Taliesin Holdings Limited.
The financial year end of all subsidiary undertakings is 31
December.
16. Other financial assets
2016 2015
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Non Current
Structured loan notes
At 1 January 4,052 2,246
Gain on financial assets at fair value 1,787 1,806
----------------------------------------- --------- ---------
At 31 December 5,839 4,052
Cap financial instrument 46 -
At 31 December 5,885 4,052
Current
Forward contract
At 1 January 16 286
Settlement of forward contract (16) (286)
----------------------------------------- --------- ---------
- -
Unrealised gain on new forward contract
(see note 12) - 16
----------------------------------------- --------- ---------
At 31 December - 16
Other Financial Assets comprise:
Non-current:
Structured Loan Notes whose return is linked to the value of an
asset at the end of a specified term.
The notes entitle the Group to benefit from the rise in the
value of the asset, whilst also being exposed to any potential
decrease in the value of the asset and are designated at fair value
through profit or loss. The underlying financial assets of the
notes are equity investments held by the note issuer. The valuation
of the notes include certain unobservable inputs including the
value of the underlying assets. The fair value assessment of each
note is determined by the valuation agent which is the board of
directors of the issuer by reference to the net asset values of
each share on each reporting date. The notes have a five year
maturity expiring on 30 April 2017 after which the notes can be
renewed or repaid by mutual consent. Repayment proceeds would come
from the sale of the underlying shares. The gain (or loss) in the
fair value in the Structured Note is shown in the Statement of
Consolidated Income as "Gain or loss on fair value of financial
assets".
The Group entered into two interest rate cap agreements with an
aggregated nominal amount of EUR11,000,000 (prior year
EUR5,000,000) to limit the Group's exposure to the risk of changes
of market interest rates relating to long-term debt obligations
with floating interest rates. The group will be compensated by the
counterparty banks if interest rates rise above strike rates of
0,31% and 2,5% (prior year 2,5%). The derivative interest rate cap
agreements are initially recognised at fair value on the date on
which they are entered into and subsequently re-measured at fair
value.
The Group enters into these agreements with established German
banks so that the risk of counterparty default is not material.
Current:
Unrealised gain on forward currency contract entered into in
prior year measured at fair value. Prior realised gains together
with unrealised gains have been charged to foreign exchange related
differences (Note 12). Forward currency contracts have been entered
into by the Group to hedge the Pound Sterling liability on the
Group's Zero Dividend Preference Shares.
17. Trade and other receivables and prepayments
2016 2015
EUR(000) EUR(000)
--------------------------------------- --------- ---------
Trade receivables 243 230
Rents held in escrow accounts 800 1,078
Prepaid expenses 2,755 2,916
Income and other taxation recoverable 34 22
Margin deposit (see note 12) 992 2,033
Sales proceds held on escrow account 594 973
Other receivables and prepayments 357 329
--------------------------------------- --------- ---------
5,775 7,581
Sales proceeds held on escrow account reflect purchase prices
for the sale of apartments that are due for release to the Group by
the notary since the transfer of ownership of the apartments has
occurred already in the reporting period.
All trade and other receivables are due within one year. For
disclosures on the bad debt allowances please refer to note 20.
18. Stated capital account and treasury shares
2016 2015
Number EUR(000) Number EUR(000)
-------------------------- ---------- --------- ---------- ---------
Stated capital account
- Issued and fully paid
As at 1 January 4,483,672 48,041 4,315,103 52,812
Shares issued 356,515 11,020 168,569 4,197
Shares buyback - (9,680) - (8,968)
-------------------------- ---------- --------- ---------- ---------
As at 31 December 4,840,187 49,381 4,483,672 48,041
Shares to be issued
As at 1 January - 6,643 - -
Shares issued - (6,643) - -
Provision for shares
to be issued - 6,282 - 6,643
-------------------------- ---------- --------- ---------- ---------
As at 31 December - 6,282 - 6,643
Under the Memorandum of Association, the Company is authorised
to issue an unlimited number of ordinary shares of no par
value.
The Memorandum and Articles of Association of the Company were
amended, following the adoption of a Special Resolution at an EGM
held on 11 August 2016, to provide for a new class of redeemable B
Shares to be issued, fully paid up, from amounts standing to the
credit of the Company's stated capital account from time-to-time to
Ordinary Shareholders entitled to such distributions. Upon issue
such B Shares will be compulsorily redeemed and cancelled. The
second such distribution, in the amount of EUR2 per Ordinary Share
(4,840,187 B shares issued and redeemed, amounting to approximately
EUR9.68 million in aggregate), was made on 26 August 2016 and
displayed above as shares buyback.
Prior to year end the Investment Advisers have given written
notice to the Board of Directors that for 2016 a minimum of 60% of
the performance fee the Investment Advisers are entitled to
according to the Investment Advisory Agreements shall be settled in
shares. The Group has thus recognised shares to be issued of
EUR6,282,000 representing 60% of the performance fee of
EUR10,470,000 (Note 8).
19. Interest bearing loans and borrowings
2016 2015
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Due within one year 29,714 30,634
Liabilities directly associated with
assets classified as held for sale 3,789 1,820
Due after more than one year 100,781 90,390
-------------------------------------- --------- ---------
134,284 122,844
The following interest bearing loans and borrowings are stated
at amortised cost:
2016 2015
EUR(000) EUR(000)
--------------------------------- --------- ---------
DGHyp 74,420 56,845
Hypothekenbank Frankfurt - 17,358
Pfandbriefbank 38,801 24,333
Berliner Volksbank - 1,820
Zero Dividend Preference Shares 21,536 23,243
--------------------------------- --------- ---------
134,757 123,599
Deferred issue costs (473) (755)
--------------------------------- --------- ---------
134,284 122,844
All bank loans have been drawn in connection with purchases of
the Group's properties. All of the Group's properties have been
pledged as security for the loans.
The total amount drawn down under all loan facilities (including
the Zero Dividend Preference Shares) as at 31 December 2016 was
EUR134,757,000 (2015: EUR123,599,000).
Under the provisions of IAS 32 the Zero Dividend Preference
Shares are classified as a liability and an interest accrual of
EUR978,000 (2015: EUR1,625,000 ) has been charged against income.
The redemption amount of the Zero Dividend Preference Shares, due
on 30 September 2018, is GBP20,711,000 (EUR24,198,732 at the year
end rate of 1.1684 EUR/GBP).
Bank loans relating to assets held for sale amount to
EUR3,789,000 (see note 6) and are included above in the "due within
one year" figure.
20. Financial risk management
The Group's principal financial liabilities are interest bearing
bank loans and Zero Dividend Preference Shares. The main purpose of
the Group's loans and ZDPs is to finance the acquisition and
development of the Group's property portfolio. The Group has rent
and other receivables, trade and other payables and cash and cash
equivalents that arise directly from its operations.
The Group is exposed to market risk (including interest rate
risk, real estate risk (see note 5 investment properties) and
currency risk)), credit risk, equity risk and liquidity risk.
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
policies. The Group's risk management policies are established to
identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls and to monitor risks and
adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the
Group's activities. The Board of Directors oversees the management
of these risks and reviews and agrees policies for managing each of
these risks, which are summarised below.
Market risk
Market risk is the risk that the fair values of financial
instruments will fluctuate because of changes in market prices -
such as foreign exchange rates, interest rates and equity prices.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
optimising the return.
The Group uses derivatives to manage certain market risks.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates. The Group's exposure to the risk of changes in
market interest rates relates primarily to its long-term debt
obligations with floating interest rates.
To manage its interest rate risk, the Group enters into interest
rate swaps as well as interest rate caps. With interest rate swaps
the Group agrees to exchange the difference between fixed and
variable rate interest amounts calculated by reference to an
agreed-upon notional principal amount. With interest rate caps the
group is entitled to compensation by a counterparty bank if
interest rates rise above certain agreed upon strike rates. These
interest rate swaps and caps are designed to hedge the German
subsidiaries' underlying debt obligations. At 31 December 2016 and
after taking into account the effect of interest rate swaps as well
as caps, 95,5% of the Group's borrowings are either hedged or fixed
rate (2015: 100% hedged).
Equity risk
Equity risk is the risk that the value of the structured loan
notes (see note 16) will fluctuate due to changes in the value the
properties underlying these notes (see note 5). The Group does not
attempt to mitigate this risk.
The increase in the value of the structured loan notes in 2016
reflects the strong operating performance of the underlying
property owning subsidiaries, particulary the increase in property
values. Future movements in the value of the structured loan notes
will be similarly influenced by movements in the value of the
underlying properties to which the notes relate, due to the impact
on the value of the underlying financial assets referred to in note
16.
The interest rate profile of the Group's interest-bearing
financial instruments as reported to the management of the Group is
as follows:
2016 2015
Financial Assets EUR(000) EUR(000)
------------------------------------ --------- ---------
Cash - variable interest 243 153
Cash - non-interest bearing 6,105 3,925
Other - non-interest bearing 10,245 10,561
------------------------------------ --------- ---------
Total 16,593 14,639
Financial Liabilities
------------------------------------ --------- ---------
Liabilities fixed rate interest 99,318 85,184
Liabilities variable rate interest 34,966 37,660
------------------------------------ --------- ---------
Total 134,284 122,844
The durations of the variable rate loans range between 1 and 5
years, with an average duration of 3.35 years (2015: 2.68 years)
and the total of the fair values of all loans, based on discounting
cash flows at prevailing market rates of interest, is
EUR134,284,000 (2015: EUR122,844,000).
The carrying value of the financial liabilities measured at
amortised cost set out above equate to the fair value of these
liabilities except for the value of the Zero Dividend Preference
Shares. The book value measured at net present value of the Zero
Dividend Preference Shares as noted above is EUR20,987,000 (2015:
EUR22,488,000) and the fair value of all issued ZDP shares as of
the balance sheet date is EUR22,810,000 (2015: EUR24,953,000),
measured as the quoted price of the shares, resulting in them being
level 1 in the fair value hierarchy.
On a Group basis, an increase of 100 basis points in interest
rates would result in a beneficial change in the interest rate swap
fair value adjustment in the Consolidated Statement of
Comprehensive Income of EUR86,000 (2015: EUR437,000) and an overall
increase in the charge to deferred German tax of EUR14,000 at the
marginal rate of 15.83% (2015: EUR69,000 at the marginal rate of
15.83%).
Similarly, a decrease of 100 basis points in interest rates
would result in a decrease in the interest rate swap fair value
adjustment in the Consolidated Statement of Comprehensive Income of
EUR87,000 (2015: EUR140,000) and an overall decrease in the charge
to deferred German tax of EUR14,000 at the marginal rate of 15.83%
(2015: EUR22,000 at the marginal rate of 15.83%).
With regards to the interest rate caps an increase of 100 basis
points in interest rates would result in a beneficial change in the
fair value adjustment in the Consolidated Statement of
Comprehensive Income of EUR136,000 and an overall increase in the
charge to deferred German tax of EUR22,000 at the marginal rate of
15.83%.
Similarly, a decrease of 100 basis points in interest rates
would result in a decrease in the interest rate cap fair value
adjustment in the Consolidated Statement of Comprehensive Income of
EUR38,000 and an overall decrease in the charge to deferred German
tax of EUR6,000 at the marginal rate of 15.83%.
As at the balance sheet date the Group had EUR243,000 of
interest bearing deposits (2015: EUR153,000). Overall the Group is
not exposed to significant interest rate risk.
Currency exchange risk
The assets, liabilities, income and expenditure of the Company
and the Group are denominated in the Euro except for the Zero
Dividend Preference Shares which are denominated in Pounds
Sterling. The Company reduces its currency exchange risk by
contracting hedging instruments for those proceeds of the Zero
Dividend Preference Share converted to Euro. Proceeds which are
lodged in Pounds Sterling deposits are not hedged since they are
held in the same currency as the ultimate liability and therefore
not deemed to be an exchange risk (see also Note 12).
A 10% change in the Pound Sterling/Euro exchange rate would have
the following effect on the book values of the Zero Dividend
Preference Shares and the unrealised Forward Exchange Contract:
-- Zero Dividend Preference Shares increase/decrease in profit
and equity EUR2,099,000 (2015: EUR2,324,000)
-- Forward Exchange Contract increase/decrease in profit and
equity EUR1,992,000 (2015: EUR2,002,000).
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity
to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
As property investments are relatively illiquid, there can be no
assurance that the Group will not encounter difficulty in realising
assets or otherwise raising funds to meet financial commitments. It
is therefore the Group's intention to mitigate such risk by
investing in desirable properties in prime locations. The group
mitigates any day to day liquidity risk by receiving prepayments of
service charge from tenants in advance and uses these funds to pay
utilities and other rechargeable items at the appropriate time. The
Structured Loan Notes (Note 16) may have limited liquidity and it
may not be possible to realise these in circumstances of limited
market liquidity. The Group has a risk over its ability to service
its loans which is managed by management regularly producing cash
flow forecasts and by using interest rate swap and interest rate
cap arrangements.
Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risks
from both its leasing activities and financing activities,
including deposits with banks and financial institutions and
derivatives.
The maximum exposure of the Group to credit risk at the
reporting date is the carrying value of each class of financial
asset.
Trade and other receivables
The Group's exposure to credit risk is influenced by the
individual characteristics of each customer. However, management
also considers the factors that may influence the credit risk of
its customer base, including the default risk of the industry in
which customers operate.
The Group's credit risk is monitored on an on-going basis. The
management believe that the concentration of credit risk is limited
due to on-going evaluations of all customers and the wide spread of
customers. All trade receivables fall due within one year. The
allowance for doubtful debts stood at EUR245,000 as at 31 December
2016 (2015: EUR210,000).
At 31 December 2016 trade and other receivables except rents
were not past due. Rent receivables are monitored and written off
when required.
2016 2015
Movement in bad debt provision EUR(000) EUR(000)
-------------------------------- --------- ---------
As at 1 January 210 274
Utilisation of provision (69) (145)
Release of bad debt provison (48) (45)
Increase in provision 152 126
-------------------------------- --------- ---------
As at 31 December 245 210
All other classes of current assets do not include any impaired
assets.
Cash and cash equivalents
The Group held cash and cash equivalents of EUR6,348,000 at 31
December 2016 (2015:EUR4,078,000). The cash and cash equivalents
are held with reputable banks and financial institutions
counterparties.
Financial instruments by category
The carrying amount of each of the categories of financial
instruments as per the statement of financial position are as
follows:
2016 2015
EUR(000) EUR(000)
---------------------------------------- --------- ---------
Financial assets:
Financial assets at fair value through
profit or loss 5,885 4,068
Cash and cash equivalents 6,348 4,078
Loans and receivables 4,360 6,493
---------------------------------------- --------- ---------
16,593 14,639
Loans and receivables include all trade and other receivable
balances, except for prepayments.
2016 2015
EUR(000) EUR(000)
------------------------------------- --------- ---------
Financial liabilities:
Financial liabilities at fair value
through profit or loss 406 1,953
Financial liabilities at amortised
cost 140,913 129,276
------------------------------------- --------- ---------
141,319 131,229
Financial liabilities at amortised cost include other
liabilities and payables in the amount of EUR6,629,000 (prior year
EUR6,432,000).
Financial assets and liabilities - Numerical Information
Maturity of financial assets
The carrying value of financial assets are realisable as
follows:
Book Book
value value
2016 2015
EUR(000) EUR(000)
--------------------------------------- --------- ---------
In one year or less 10,708 10,587
In more than two years but not more
than three years 5,839 4,052
In more than three years but not more
than four years 46 -
--------------------------------------- --------- ---------
16,593 14,639
Maturity of financial liabilities
The carrying value of contractual financial liabilities
including interest are repayable as follows:
Book Book
value value
2016 2015
EUR(000) EUR(000)
------------------------------ --------- ---------
In one year or less 44,458 43,765
In more than one year but
not more than two years 49,231 28,979
In more than two years but
not more than three years 8,528 47,845
In more than three years but
not more than four years 5,749 268
In more than four years but
not more than five years 43,350 19,115
-------------------------------- --------- ---------
151,316 139,972
Less interest (10,403) (10,696)
-------------------------------- --------- ---------
Financial liabilities (see
note 19) 140,913 129,276
Fair value hierarchy
Under IFRS 13: "Fair Value Measurement", the Group classifies
fair value measurements using a three-level fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following
levels:
(a) Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
(b) Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the assets or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
(c) Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The following table shows how financial instruments measured at
fair value are grouped into the fair value hierarchy:
Level Level Level
1 2 3 Total
Group: As at 31 December
2016 EUR(000) EUR(000) EUR(000) EUR(000)
-------------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or
loss:
Structured loan notes - - 5,839 5,839
Interest rate cap instrument - 46 - 46
-------------------------------- --------- --------- --------- ---------
- 46 5,839 5,885
Financial liabilities at
fair value through profit
or loss
Interest rate swap instruments - (406) - (406)
-------------------------------- --------- --------- --------- ---------
Level Level Level
1 2 3 Total
Group: As at 31 December
2015 EUR(000) EUR(000) EUR(000) EUR(000)
-------------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or
loss:
Structured loan notes - - 4,052 4,052
Foreign exchange contact - 16 - 16
-------------------------------- --------- --------- --------- ---------
- 16 4,052 4,068
Financial liabilities at
fair value through profit
or loss
Interest rate swap instruments - (1,953) - (1,953)
-------------------------------- --------- --------- --------- ---------
See note 16 for details of the structured loan notes and the
foreign exchange contracts.
21. Financial liabilities at fair value through profit or
loss
2016 2015
EUR(000) EUR(000)
------------------------------- --------- ---------
Liabilities as at 1 January 1,953 3,141
Fair value adjustment taken
to consolidated
statement of comprehensive
income swap (1,547) (1,188)
--------------------------------- --------- ---------
Liabilities as at 31 December 406 1,953
The above table represents the fair value of interest swap
arrangements which the German subsidiaries entered into with their
bankers in order to manage their exposure to upward movements in
interest rates. These arrangements were entered into along with the
loan agreements with the banks detailed in note 19. They require
that the Group pays interest on any loans drawn down at the
contractual EURIBOR rate plus the contractual margin and to receive
(or pay) the difference between this EURIBOR rate and the fixed
interest swap rate specified in the swap agreement.
In addition to interest rate swaps the Group entered into
interest rate cap agreements to manage its interest rate risk (see
note 16). The combined fair value adjustment for the interest rate
swap and for the interest rate cap taken to consolidated statement
of comprehensive income is EUR1,526,000.
The fair values of the interest swap arrangements represent the
price at which one party would assume the rights and obligations of
the counterparty. The fair values were determined by discounting
the anticipated future cash flows. For this purpose, the market
interest rates applicable for the remaining term of the contract
are used as a basis.
The liabilities as at 31 December 2016 above are only
non-current EUR406,000.
The following table summarises the swap facilities in existence
as at 31 December 2016:
Expiry
date
of
Fair
value Amount interest
of of swap
Swap Swap Fixed
Bank in EUR(000) in EUR(000) agreement rate
--------- ------------- ------------- ---------- -------
29 Mar
DZ BANK (406) 8,410 2018 3.585%
The following table summarises the swap facilities in existence
as at 31 December 2015:
Expiry
date
of
Fair
value Amount interest
of of swap
Swap Swap Fixed
Bank in EUR(000) in EUR(000) agreement rate
-------------------------- ------------- ------------- ---------- -------
31 Oct
Hypothekenbank Frankfurt (271) 8,796 2016 3.50%
31 Oct
Hypothekenbank Frankfurt (108) 3,498 2016 3.50%
03 Apr
Hypothekenbank Frankfurt (452) 4,923 2018 3.92%
30 Dec
DZ BANK (413) 11,551 2016 3.385%
29 Mar
DZ BANK (709) 8,617 2018 3.585%
-------------------------- ------------- ------------- ---------- -------
(1,953) 37,385
22. Other liabilities and payables
2016 2015
EUR(000) EUR(000)
------------------------------------- --------- ---------
Trade payables 1,079 1,338
Other taxation 179 210
Investment advisory fees 1,327 625
Performance fee payable 4,188 4,428
Other payables 4 4
Rent received in advance 304 291
Other advance payments from tenants 3,115 3,036
Administration accruals 31 37
------------------------------------- --------- ---------
10,227 9,969
23. Commitments and contingencies
As at 31 December 2016 the Group had binding commitments on
capital investment of EUR3,040,000 (2015: EUR1,130,000) regarding
ongoing refurbishment projects.
24. Capital management policies and procedures
The Group's capital management objectives are:
(i) to ensure that the Group and all of the companies within it
are able to continue as a going concern, and
(ii) to maintain an optimal capital structure which maximises
returns for shareholders whilst minimising the cost of capital.
In order to achieve objective (ii) above, the Group may alter
its financial structure by varying future dividend paying policy,
re-financing existing borrowings, selling assets to repay
borrowings, issuing new shares, purchasing shares for cancellation
or purchasing shares to be held as treasury shares. The ordinary
shares of the parent undertaking of the Group are listed on the AIM
market and the Zero Dividend Preference Shares of the parent
undertaking are listed on the main market of the London Stock
Exchange and this provides additional flexibility in achieving
objective (ii) by providing fixed rate, cash flow beneficial
financing to the Group.
It is the Group's policy to finance most property acquisitions
by bank borrowings, using the acquired properties as security. The
Group has mitigated its exposure to the risk that bank loan
interest costs increase above the level at which they are covered
by the Group's net revenues by entering into interest rate swap
arrangements. Further details are contained in note 21.
The Investment Advisers and administrator of the Group work
together to supply the Board with adequate accounting information
on a quarterly basis which includes key financial performance
indicators designed to assist the Board in monitoring the effect of
the Group's funding structure, possible changes in funding
requirements and the effects of alternative funding strategies on
potential developments.
The Group monitors the ratio of net debt (total financial
liabilities less swap instruments offset by cash) to shareholders'
equity (including minority interests). In the medium to long-term,
the Group intends to operate with a capital structure comprising
70% debt and 30% equity. This represents a gearing ratio (i.e. net
debt divided by equity) of approximately 2.33:1. The Group's
gearing ratio is as follows:
2016 2015
EUR(000) EUR(000)
--------------------------------------- --------- ---------
Net debt
Loans and borrowings - non current 100,781 90,390
Loans and borrowings - current 33,503 32,454
Cash and cash equivalents (6,348) (4,078)
--------------------------------------- --------- ---------
127,936 118,766
Equity
Equity attributable to equity holders
of parent 154,001 122,227
Minority interests 6,342 4,383
--------------------------------------- --------- ---------
160,343 126,610
Gearing ratio (net debt divided by
equity) 0.798 0.938
There have been no breaches in any covenants imposed in
compliance with banking facilities.
25. Related party transactions
Nigel Le Quesne is a shareholder and director of JTC Group
Limited, of which JTC (Jersey) Limited and JTC (Luxembourg) S.A.
are wholly owned subsidiaries. Stephen Burnett is a non-executive
director of JTC Group Limited. JTC (Jersey) Limited is the
Secretary to the Company and provider of administration services to
the Company and its subsidiaries. JTC (Jersey) Limited charged fees
totalling EUR258,000 (2015: EUR221,000) to the Group during the
year, of which EUR66,000 (2015: EUR8,000) was outstanding as at 31
December 2016. JTC (Luxembourg) S.A provides administrative
services to the Company's Luxembourg subsidiaries. JTC (Luxembourg)
S.A charged fees totalling EUR153,000 (2015: EUR124,000) to the
Group during the year of which EUR23,000 (2015: EURnil) was
outstanding at 31 December 2016.
Mark Smith is a director and shareholder of TML and JJIM, the
Investment Advisers of the Group, which charged investment advisory
fees totalling EUR3,254,000 (50% JJIM / 50% TML) (2015:
EUR2,452,000) to the Group during the year, of which EUR1,328,000
(2015: EUR625,000) was outstanding as at 31 December 2016. TML and
JJIM together charged a performance fee of EUR10,470,000 (75% JJIM
/ 25% TML) (2015: EUR11,071,000) to the Group during the year, all
of which was outstanding as at 31 December 2016, see note 8 for
further details. In addition, TDL, through its German subsidiary
Raumerei GmbH, provides estate agency services at preferential
rates to the Group in Berlin.
As at the balance sheet date Mark Smith owns 75.62% of TML which
holds 615,946 shares in the Company, representing 12.7%. These
shares were issued in respect of previous performance fees. In
addition, Mark Smith holds 124,720 ordinary shares, representing
2.6% of the Company's voting rights and also owns 100% of JJ
Investment Management Limited (JJIM), which owns 278,729 ordinary
shares, representing 5.8%.
There were no other related party transactions with the Company
or the Group other than remuneration payable to the Directors,
disclosed in note 9, who are the only key management personnel.
There are no employee benefits accrued by directors or key
management personnel in the current year (2015: EURnil).
26. Post balance sheet events
During the first quarter of 2017 the Group sold five apartments
in its property Kavalierstrasse in Berlin Pankow, which were
classified as assets held for sale as at 31 December 2016. The
cumulative sales price was EUR2,413,000, representing an average of
EUR4,132 psqm.
Also during the first quarter of 2017 the Group agreed to extend
the Structured Loan Notes (the "Loan Notes") (see note 16) at the
prevailing terms and conditions for a period of five years.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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