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Taliesin Prop Fd Ltd (TPF)

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Friday 15 April, 2016

Taliesin Prop Fd Ltd

Final Results

RNS Number : 3568V
Taliesin Property Fund Limited
15 April 2016
 

Taliesin Property Fund Limited

Annual results for the year ended 31 December 2015

 

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 2015.

 

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

Alastair Moreton                                                 0207 601 6100

 

Key financial and operational highlights

·              Adjusted Net Asset Value (NAV)* per share rose 42.9% in 2015 to end the year at €31.44 (31 December 2014 €22.00 reflecting the €2 per share return of capital to shareholders during the period). On an EPRA basis**, NAV per share was €31.10 at the end of 2015 (31 December 2014 €21.88)

·              Property portfolio now valued at €267.7 million, an increase of 27.9% after adjusting for property disposals and capital expenditure

·              Per square metre ("psqm") valuation of €2,240 (31 December 2014 €1,760)

·              Taliesin's first privatisation project, Warschauer Strasse, almost completely sold at average prices of  €3,750 psqm

·              Taliesin successfully refinanced maturing senior loans in 2015 at lower interest rates and higher principal  amounts and expects more of the same in 2016

·              Loan-to-value at year-end stood at 45.9%

·              Proceeds of privatisation sales and debt refinancing funded first €2 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

·              Significant decline in government bond yields across Europe and Bund yields in particular is driving strong investor demand for yields available in residential property


*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
for the year ended 31 December 2015

I am delighted to be able to report on a memorable year for the Group. A sizeable 27.9% (like-for-like) increase in the value of the property portfolio led to a 42.9% increase in Taliesin's Adjusted NAV per share to €31.44 (31 December 2014 €22.00 reflecting the €2 per share return of capital to shareholders during the period).

The Taliesin share price has, in recent years, traded at a premium to the Group`s Adjusted NAV, accurately reflecting the potential in the Berlin residential market. It is pleasing to see the shares continue to trade at a premium to this most recent Adjusted NAV.

A full operational update is provided in this report by the Investment Advisers, but I would like to highlight some of the key events and developments of the year.

Firstly privatisation. Taliesin's long held conviction that the Group`s properties have tremendous potential for realizing higher values via privatisation has been borne out in 2015. The Group`s first privatisation project, Warschauer Strasse, has been unusual in that the property was acquired in a fairly dilapidated condition and hence required complete refurbishment. Even after considerable investment in the property, the realised sales prices of around €3,750 psqm have proved profitable. The building is almost completely sold and all sales were handled by the in-house sales agent 'Raumerei'. This led to considerable cost savings on agents' fees compared with using a third party agent. The Group expects future privatisation projects to require much less investment and in turn to be more profitable, especially in light of the continued growth being witnessed in the sales prices of apartments. I also believe that achievable privatisation sales prices in the €3,500-4,000  psqm range demonstrate the continued value in the Taliesin portfolio even after the large uplift in 2015 (to €2,240 psqm).

The second theme worth highlighting is the marked improvement in the real estate financing market. This applies to both the available loan-to-value on buildings and to interest costs. The dramatic decline in prevailing interest rates and hence the mortgage banks' own cost of funds has transformed the market for borrowers such as Taliesin. A maturing senior debt was refinanced in the year at a higher principal amount and lower interest cost. This, and the success of the initial privatisation project, enabled the Group to return €2 per share to shareholders in October. Taliesin expects further maturing senior debt facilities to be refinanced in 2016 at similarly improved terms.

The initial foray into the Berlin residential market was predicated very much on the value proposition and a catalyst for change being improving demographics leading to a shortage of supply and ultimately higher prices. It is particularly pleasing to see this view become reality. What has also changed is the increased scarcity of high quality yielding assets, impacting what the market is prepared to pay for them and also what banks are ready to lend against them. Government bond markets no longer offer significant positive yields. At the end of 2015, €2.6 trillion of Euro area sovereign debt offered negative yields, representing over 40% of the total in issue. This would appear to be the 'new normal'. In the immediate term, I would expect this to allow Taliesin to continue to return capital to shareholders via the proceeds of privatisation sales and refinancing and also ultimately lead to a higher value for the Group's properties from any number of yield hungry buyers.

Nigel Le Quesne

Chairman

14 April 2016
 

Investment Adviser's Report
for the year ended 31 December 2015

Recent market developments and outlook

2015 proved to be a stellar year for Taliesin with the value of the Group`s property portfolio (based on a valuation by Jones Lang LaSalle (JLL)) increasing by 27.9% on a like-for-like basis to €267.7 million. This valuation equates to €2,240 psqm, a 27.3% increase from €1,760 psqm at the end of 2014. Apartment sales during the year amounted to €4.3million with further sales occurring in 2016. Apartment sales prices averaged €3,750 psqm.

In 2015, the Group`s Adjusted NAV per share increased by 42.9% to €31.44. On an EPRA basis the NAV per share increased to €31.10.

On the supply side of the Berlin market, the trends we have highlighted in the past have intensified. The city faces the largest shortfall in supply of new homes of all the major German cities. According to JLL, housing completions in Berlin amounted to 16,000 units between 2010 and 2013 whereas demand is forecast to grow by 58,000 units between 2013 and 2016. Estimates of future population growth have recently been revised higher in light of the influx of people into the city but still look conservative, especially given the number of asylum seekers now arriving in Berlin. Press reports suggest that over 10,000 asylum seekers are being accommodated temporarily in hotels in the city.

The acute shortage in the supply of residential space looks set to continue. Predictably, residential vacancy rates have declined further, with the CBRE-Empirica vacancy index declining to 1.5% in 2015. As a result of tighter supply in the market, residential rents increased again in 2015 with median residential rents in Berlin growing by 5.1% to €8.99 psqm per month. The district of Friedrichshain-Kreuzberg, where a number of Taliesin`s buildings are located, experienced even stronger growth of 5.9% with median rents reaching €11.00 psqm per month (average rents in this district were closer to €4 psqm per month when the Group started to buy in this district).

Taliesin`s own experience in 2015 with rental and vacancy development has shown similar trends to the overall market. Like-for-like rental growth increased by 4.8%. Average residential rents psqm reached €7.42 at year end, still well below the Berlin average and reflecting the further opportunity for increases in the coming years. The overall vacancy rate of the Group`s portfolio held steady at 2.6%, excluding those properties that are either in the process of being privatized or subject to refurbishment. The rate of turnover of tenants continued to decline, reaching 10.5% in the year. This decline is not unexpected but still represents a decent level of annual turnover, allowing Taliesin to continue to increase rents. Vacant apartments are still achieving a significant rent premium over average in-situ rent levels.

Where new residential apartments are coming onto the market, it is at a higher price point than the existing stock with median selling prices in the €4-4,500 psqm range according to JLL. The ongoing demand for development opportunities has led to a surge in land prices and has fundamentally altered property replacement cost calculations. In the past, Taliesin has approximated replacement costs based solely on build cost and factored in no land cost. That calculation has been rendered redundant by recent market developments. Prices of existing apartments sold in 2015 increased again by 11.6% according to JLL with median sale prices across Berlin of €3,170 psqm with central areas outperforming. In line with our own experience, median selling prices hit €3,604 psqm in Friedrichshain-Kreuzberg, an increase of 10.2%.

On the demand side, Berlin is attractive to the whole spectrum of investors, from institutions to individuals. Investment into residential property reached $20.9 billion in 2015 according to JLL, a ten year high. Berlin remains the most popular and liquid market in Germany for residential investment and is increasingly dominated by single apartment sales as home ownership increases and household size shrinks. Germany still has a high savings rate, with German household savings equivalent to 9.5% of GDP compared with 6.5% for the Euro area as a whole and 4.8% in the US (OECD data). In early 2016, short term interest rates in Germany fell to an all-time low and are deeply negative. The yields available on German property in general and Berlin in particular are still positive and are positive relative to inflation expectations. According to the ECB, German inflation is expected to reach 1.4% in 2016 and 1.8% per annum over the next five years. With short rates negative and ten year bonds yielding only 0.55% at the turn of the year, property is one of the few lower risk investment classes open to individual investment. These attractions are augmented by a favourable tax treatment for individuals: property held for over ten years is exempt from any taxes on capital gains. As has been the case for some time, Germans are not leveraging up significantly to purchase residential property so much as diverting savings. At the end of 2015, according to figures from the Bundesbank, bank mortgage debt to domestic enterprises and individuals was only 6% higher than when Taliesin first launched in 2006.

Of course, the low inflation environment impacts on the return scenario for other categories of investors. Whilst, as discussed, most German individuals see property as an alternative to a savings account and are not interested in leverage, for hedge funds and leveraged investors,5-year mortgage rates have slid further and ended 2015 at 1.8%.

With institutional investors facing negative real carry on bonds in many markets, this has tempted them into property and infrastructure. Sovereign Wealth Funds (SWFs) have been dipping their toes into Berlin property. In 2015, the South Korean wealth fund co-invested in the €1.3 billion purchase of 17 buildings in Potsdamer Platz. In 2015, SWFs were net buyers of $36.1 billion of real estate globally, increasing their holdings of property by 60% according to data compiled by Real Capital Analytics Inc. As many SWFs are oil exporters, they are in the process of liquidating positions in stocks and bonds to cover fiscal deficits. This sets alarm bells ringing for other institutional investors who are disinclined to hold equities after a long bull market when SWFs are selling. These institutional investors look at many metrics for assessing the attraction of portfolio investment, one of which is the Q ratio, which compares market capitalisation with the replacement cost of assets held by quoted companies. On this metric, stocks seem generously priced. By contrast, Berlin residential property prices are not expensive. Individual apartment costs are way below those in many European capitals. More importantly, at €2,240 psqm, Taliesin`s portfolio is valued at the lower end of estimates of replacement cost.

Operational Review

Taliesin`s long held aim of returning money to shareholders was finally realised in 2015. A dramatic improvement in financing conditions from German banks combined with a successful initial foray into the privatisation market facilitated a €2 per share capital distribution via a redeemable B share issue in October.

The primary source of funds to finance the B share issue came from a re-financing of a senior debt facility which matured in 2015. The maturing facility's principal amount of €14 million was increased to €24.5 million on re-financing and there was a reduction in the interest cost from 3.09% to below 2%. This, in Taliesin's view, is a good reflection of the increased appetite from German mortgage banks to lend against assets such as ours. In an environment of zero or negative interest rates, the appeal of a regular and growing yield from a portfolio of well-located residential buildings is ever greater. At the time of writing, the Group is negotiating the further re-financing of two maturing debt facilities with a total principal amount of approximately  17 million.

Ten banks initially offered competitive terms to re-finance and Taliesin is in the process of creating a short list of banks to proceed with. Indicative terms point toward an increased principal amount on the new loan of around €30 million on re-financing and an interest cost below 1.5%. Based on the successful completion of this re-financing round, Taliesin remains optimistic about the prospect of future capital returns to shareholders. Longer term, it would appear likely that the market will better value the privatisation potential in the Group's portfolio as further apartment sales are concluded. This, in turn, should facilitate further re-financing of maturing debts at higher principal amounts and allow for additional distributions.

The general scarcity of yield also benefitted the Group's Zero Dividend Preference Shares which rose slightly in price during the year, ending 2015 at 128p, representing a gross yield to maturity of 4.4%. Since year end, the pull to maturity has led to further price appreciation.

On the privatisation front, the Group`s initial project at Warschauer Strasse is close to completion. Only one residential unit remains unsold alongside two street-level commercial units. Average realised prices to date amount to €3,750 psqm. The development of Warschauer Strasse was unusual for Taliesin in that the building required extensive refurbishment, as evidenced by the capital expenditure incurred in 2014 and 2015. It was a dilapidated property that was acquired as part of a portfolio in 2012/3 and the opportunity was taken to add roof apartments during the complete refurbishment project and also to test the privatisation market for the first time. Given how low apartment sales prices still are relative to build costs, this project, whilst profitable, is probably less so than other privatisation opportunities across the portfolio due to their lower investment requirements. As discussed earlier, Friedrichshain-Kreuzberg (where the building is located) has experienced above average growth in apartment sale prices in recent years. This has been driven in large part by the growth in the media and technology sectors in this district. 'Altbau' properties such as that recently developed by the Group remain particularly in demand.  The availability of mortgage finance to individual apartment buyers has shown a similar dynamic to the wholesale market where the Group borrows, i.e. interest rates have declined markedly and the banks are keen to lend. This bodes well for further future price increases in the single apartment market.

What is especially pleasing for Taliesin in completing the privatisation of Warschauer Strasse is the success in using our own in-house estate agent. This has saved a considerable sum for shareholders and in turn helped maximise sales prices. It also shows the market`s obsession with paying third party agents huge fees (7-10%) to sell apartments to be unneccessary.

The Group continues to prepare many other properties in the portfolio for eventual privatisation. This involves getting legal approval in place to divide freeholds and allow for the ultimate sale of single apartments. As discussed in this and previous reports, legal restrictions have been put in place to restrict property owners from obtaining these approvals in certain areas of Berlin. Taliesin secured pre-approvals for virtually all of its properties in these areas prior to the law change. These pre-approvals hold significant value in the view of the Directors given the new restrictions. Planning continues to be a time consuming proposition in Berlin, particularly given how many landlords are applying for freehold splits. The Group is pleased that initial planning consent has been granted for another large portfolio project in Mehringdamm. This property was acquired in 2012/2013 alongside Warschauer Strasse and various remedial works have been done in the interim pending planning consent. Mehringdamm now has permission to be fully re-developed as a mixed residential/commercial building including the addition of new roof space.

Risks and Uncertainties

The strengths of the Taliesin business have been discussed extensively in this and previous reports. The Group, however, remains vigilant to threats to the business. The property portfolio is concentrated in one particular market and as such remains vulnerable to economic and political changes that may impact Berlin.

In last year's update, the introduction of further rent capping via the Mietpreisbremse was discussed. This legislation proposed a cap of 10% rent increases over prevailing rents for vacant apartments. The law was introduced in June 2015 and has, so far, had little impact on re-let rents. This has largely been due to the legal uncertainty surrounding the definition of prevailing rents and a lack of clarity over exemptions from the law (i.e. when carrying out substantial refurbishment to a property). In light of the muted impact of the proposed legislation, the Ministry of Justice has decided to overhaul the 'Mietspiegel' (rent control) law which could clarify the current uncertainties to the disadvantage of landlords.

The Ministry of Finance also intends to limit the allowable charge back to tenants of qualifying refurbishment works carried out by landlords from the current 11% down to 8%. Given the substantial ongoing investment in the portfolio carried out by Taliesin, this could clearly limit future allowable rent increases.

The Government also enacted legislation this year preventing landlords from splitting freeholds and privatising apartments in 'preservation' areas. Taliesin has invested a significant amount of time and money in recent years to get approvals and pre-approvals in place for properties that it owns in these areas. The vast majority of the Group´s properties in these areas have legal approvals in place to split freeholds whilst a handful are still in the pre-approval stage and subject to potential legal challenge.

The Group is also aware of the threat from the Green party to expropriate vacant properties to house immigrants. As stated in previous years, in light of the trajectory of rents in Berlin over the past several years and the preponderance of renters versus owners, Taliesin expects a continued political assault on property owners. The Group also expects to be able to continue to deal with these issues as it has successfully demonstrated to date.

As regards economic risks, the economic backdrop has so far proved benign for Taliesin. The current global deflation scare has translated into lower/negative interest rates in Germany and has translated into cheap liquidity for the mortgage banks which they are currently keen to lend on to the real estate sector. There can be no guarantee that this virtuous circle continues. The weakness of the Euro has clearly been a boon to the German export sector, as has the growth in the Chinese economy. Both of these pillars seem set to reverse and could have a detrimental impact on the German economy and hence, possibly, property prices.

Strategy and Plans

The Berlin residential property market has reached a level of maturity that is a far cry from where it stood when Taliesin began to invest in 2006.  Back then, it was a buyers' market, with international investors being able to pick and choose between portfolios being sold at distressed prices by the city government and by banks out of liquidations. Right now, much of that distress has been squeezed out of the market and prices are now at or around replacement cost, absent land cost, or, in the case of individual apartments, comfortably above.

Banks are no longer sellers of property but keen lenders against property collateral. We plan to take further advantage of this by refinancing our portfolio as earlier loans mature. The equity released in this process should permit us to return capital to shareholders in 2016, as we did in 2015. We will continue to spend on selective refurbishment where we deem the rate of return to be attractive.

We will continue with our privatisation programme following on from our success with Warschauer Strasse. As discussed, a number of properties are prepared for privatisation. We can see no let-up in the demand for individual apartments and, ergo, no threat to the premium that prevails over the price of whole apartment blocks. Our year end valuation only partly reflects the premium price we believe is warranted on segments of our portfolio that can be transformed into condominiums. 

We have a further development project to address, which is Mehringdamm. We purchased this somewhat dilapidated Kreuzberg property in 2012/2013. We applied for planning permission to convert the building into a mixture of residential and office space. Owing to delays from the planning authorities, we were unable to meet the deadline to immediately split the freehold as a precursor to privatisation. Nevertheless, we are encouraged by the potential for this building, as demand for flats and office space in Kreuzberg is strong. We are assessing the various options for this property, ranging from modest refurbishment and swiftly renting out units to more ambitious refurbishment, possibly co-developing it with a third party. 

Finally, given the growing shortage of attractive residential portfolios in Berlin, we believe that the Taliesin portfolio has growing appeal to any number of potential buyers. Given that virtually all our portfolio is eligible for privatisation, it has the potential to secure an appropriate privatisation premium. Moreover, we believe that there are significant tax advantages to our corporate structure, particularly as regards the selling of apartments. Meanwhile, we will continue to make our portfolio sweat, ensuring that rental income is maximized in a city where the demographic impetus is going to remain positive for the foreseeable future.

 


Directors' Biographies
for the year ended 31 December 2015

 

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 2015

 

The Directors present their report to the members together with the financial statements for the year ended 31 December 2015.

 

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.

 

DIVIDENDS

 

The Directors do not recommend the payment of a dividend for the year (2014: €nil).

 

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 

4,200

Philip Henry Burgin (retired from the Board on 7/10/2015)

-

Stephen Anthony Burnett  

-

Nicholas Mark Houslop

-

Nikolaus von Palombini (appointed to the Board on 6/10/2015)

-

Mark Smith           

*124,720

 

 

* In addition, Mark Smith, together with his wife, owns 75.62% of Taliesin Management Limited (TML) which owns 538,160 ordinary shares. Mark Smith also owns 100% of JJ Investment Management Limited (JJIM).

 

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 (2014: 63 days) of total Group operating expenses. The Company had no trade payables at either 31 December 2015 or 31 December 2014.

 

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 some senior loans maturing in 2016 and is confident, due to negotiations with banks, of increased loan amounts being available at lower interest rates on refinancing. In particular, the Group has term sheet offers from a number of banks for the re-financing of two maturing debt facilities which allow for an increase in the existing loan amounts from €17 million to €30 million, an amount in excess of the Group net current liabilities at year end. The Group expects the majority of any performance fee to be payable to the Investment Adviser 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.

 

THE BOARD

 

For the purposes of the AIC Code, the Board considers all the Directors other than Mark Smith (who is a Director of Taliesin Management Limited and JJ Investment Management Limited* (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.The Board considers Nicholas Mark Houslop to be an independent Non-Executive Director as he is neither employed by JTC (Jersey) Limited nor the Investment Advisers.

 

*During 2015, following a request from TML, the Group agreed to appoint JJ Investment Management Limited as a joint investment adviser alongside TML. The appointment results in no overall effect on the Group since the same individuals will continue to provide investment advisory services to Taliesin and the aggregate fees payable to TML and JJ Investment Management Limited will be the same as those previously paid to TML.

 

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. Details of the Directors are shown in the Directors' Biographies.

 

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 Board has appointed the Chairman to be the point of contact for all matters relating to the corporate governance of the Group.

 

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.

 

At the most recent Annual General Meeting of the Company held on 18 June 2015, Mark Houslop and Stephen Burnett retired as Directors by rotation and stood for reappointment. Mark Smith also stood 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. Accordingly, in compliance with the recommendations of the AIC Code, Mark Smith stands annually for reappointment. Likewise, Nikolaus von Palombini will in future stands for reappointment annually. Each reappointment was put as a separate resolution to the shareholders and each Director was unanimously reappointed. It should be noted that no Director has been designated as the Senior Independent Director. This is felt to be appropriate due to the size and nature of the Company.

 

The Board meets at least quarterly on a regular basis throughout the year to review the overall business of the Group and to consider matters specifically reserved for its review. At these meetings the Board monitors the performance of the Company through reports provided by the Investment Advisers. A total of 6 Board meetings were held in 2015, all of which were held in Jersey.  The summary of those meetings, detailed below, shows the number of meetings attended in person or by telephone by each of the Directors:

 

                                                                                                                            In Person                 By Telephone

 

Nigel Le Quesne                                                                                                   5                                            1

Mark Smith                                                                                                              5                                            1

Mark Houslop                                                                                                         0                                            6

Stephen Burnett                                                                                                     5                                            0

Philip Burgin (retired from the Board on 7/10/2015)                                       4                                            0

Nikolaus von Palombini (appointed to the Board on 6/10/2015)                 1                                            0

 

 

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.

 

The Board believes that restricting its membership to five is appropriate, given Taliesin's size, and enables collective decisions to be made without undue delay. 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 are delegated to the Investment Advisers. 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 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 required 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.

 

A Remuneration and Nomination Committee was established on 18 June 2015 comprising Nigel le Quesne and Stephen Burnett (Chairman). The Committee met on 18 June 2015 to consider and subsequently extend an invitation to Nikolaus von Palombini to be appointed to the Board. Following receipt of consent from the Jersey Financial Service Commission, Mr Palombini was appointed to the Board on 6 October 2015. It was not felt necessary to retain an external search company nor deploy open advertising for the Director position as Nikolaus von Palombini was extremely well known to the Board following his tenure as CFO for Taliesin Deutschland GmbH. The terms of reference of the Remuneration and Nomination Committee outlining its role and the authority delegated to it by the Board are available on request from the Group's secretary.

 

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 minutes accurately record the Directors discussions in the running of the Group and to date Philip Burgin retired from the Board on 7 October 2015 following receipt of consent from the Jersey Financial Service Commission.

 

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 reviews the independence and objectivity of the auditor.

 

AUDIT COMMITTEE

 

The Audit Committee comprised Stephen Burnett (Chairman) and Philip Burgin (until retiring from the Board on 7 October 2015). Following Philip's retirement from the Board Nikolaus von Palombini was appointed to the Audit Committee. The members of the Audit Committee met three times during the financial year to 31 December 2015 (being 13 April 2015, 14 August 2015 and 7 October 2015).

 

In addition to the information included in the Directors´ Biographies, Mr Burnett initially qualified as a Certified Accountant and whilst at JTC headed up the Accountancy Department and was appointed as Chief Financial Officer.  Mr Burnett has sat on a number of audit committees for clients of the JTC Group, which include European and Eastern European commercial and residential properties, and currently sits on an audit committee for one other listed company. Mr Palombini is a lawyer and financial consultant living in Berlin. Mr Palombini served as Chief Financial Officer for Taliesin Deutschland GmbH, which provides advisory 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. Mr Palombini started his professional career training at Arthur Andersen and Ernst & Young where he qualified as a certified auditor in 2003.

 

The Audit Committee has primary responsibility for reviewing and approving annual and semi-annual accounts and for monitoring quality of internal control and ensuring that the financial performance of the Group is properly measured and reported. The Committee also reviews reports from the Company´s auditor relating to accounting and internal controls.

 

In summary the Audit Committee undertakes the following functions:

 

a)    considers the appointment and terms of engagement of the external auditors, the auditor's remuneration and any question of resignation or dismissal of the auditors and make recommendations to the Board on the same;

b)    discusses with the auditors before the audit starts the nature and scope of the audit and ensure co-ordination where more than one firm of auditors is involved;

c)    keeps under review the scope and results of the audit and its cost effectiveness;

d)    keeps under review the independence and objectivity of the auditors and the effectiveness of the audit process, taking into consideration relevant United Kingdom professional  and regulatory requirements;

e)    keeps under review the nature and extent of non-audit services supplied by the auditors (where they supply a substantial volume of such services to the Group), seeking to balance the maintenance of objectivity and value for money;

f)     develops and implements policy on the engagement of the external auditors to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external auditors; and reports to the Board, identifying any matters in respect of which it considers that action or improvement is needed and makes recommendations as to the steps to be taken;

g)    reviews the half-year financial statements and annual accounts and reports to shareholders and any other public announcement concerning the Company's financial position which has not previously been reviewed by the Board or a committee of the Board before submission to the Board, focusing particularly on:

i.        any changes in accounting policies and practices;

ii.       any important areas where judgment is exercised;

iii.      significant adjustments resulting from the audit;

iv.      the going concern assumption;

v.       compliance with accounting standards; and

vi.      compliance with stock exchange and legal requirements;

h)    discusses problems and reservations arising from audits and any matters the auditors may wish to discuss (in the absence of executive directors, where necessary);

i)     submits the documents referred to in paragraph (g) to the Board for its approval and determines what information should be brought to the Board's attention in connection with that submission;

j)     reviews the external auditors' management letter and response;

k)    reviews the effectiveness of the Company's internal control system  and  reviews any statement on internal controls to be included in the directors' report before submission to the Board for its approval;

l)     coordinates between the Group's accounting function and the external auditors as necessary;

m)   reviews arrangements by which employees of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters and ensures that arrangements are in place for the proportionate and independent investigation of such matters with appropriate follow-up action;

n)    considers the major findings of internal investigations and management's response; and

o)    considers other topics, as requested by the Board.

 

The terms of reference of the Audit Committee outlining its role and the authority delegated to it by the board is available on request from the Company's Secretary.

 

SIGNIFICANT ISSUES

 

During its review of the Company's financial statements for the year ended 31 December 2015, the Audit Committee considered the following significant issue.

VALUATION OF INVESTMENTS

The group includes its investment properties on the balance sheet at their market value, in accordance with IAS 40: Investment Properties. Investment properties represent the vast majority of Group assets and the valuation of the investment property portfolio is therefore the most significant factor in relation to the accuracy of the financial statements. The Directors commission an external valuation exercise and are responsible for making appropriate judgements regarding the use of  this report. The external valuation exercise will itself rely on certain information and assumptions about the Berlin property market, and may take a sampling approach to physical verification of property information such as size and condition.

In accordance with IFRS 13: Fair Measurement, the Group is required to value its investments at their "highest and best use", based on the most advantageous market. In the prior year, management undertook an exercise to determine whether or not properties are able to be "split" to enable sales of individual units within properties. This resulted in an accounting policy being agreed in order to enable management to determine how to account for properties.

The external auditor addressed the risk that the stated market values of the investment properties were not materially correct. This was done by checking that the valuation methodology used by JLL was in accordance with IAS 40: Investment Properties, that the discount rate applied in the valuation calculation was appropriate and by conducting property inspections.

The external auditor discussed the approach to the audit with the audit committee. The results of the audit in this area were reported by the external auditor and there were no significant disagreements between the Board and the auditor's conclusions as to the carrying values of the properties

EFFECTIVENESS OF EXTERNAL AUDIT

The Audit Committee received a presentation of the audit plan prior to the commencement of the audit from the external auditor in addition to a presentation of the results of the audit following completion of the main audit testing.  The audit committee performs an ongoing review of the external auditor.  The review includes, amongst other things, a discussion of the audit process and the ability of the external auditor to fulfil its role with regard to its independence, the quality of audit work and their ability to resolve issues in a timely manner and the quality of people on the audit team including continuity and succession plans.  Following the review, the Audit Committee agreed that the re-appointment of the auditors should be recommended to the Board and shareholders of the Company.

Mazars LLP performed non-audit services via the provision of tax related services to the Group.

Mazars LLP was appointed as the external auditor to the Group for the year ended 31 December 2007 and has remained in office to date.

PROVISION OF NON-AUDIT SERVICES

 

The Board considers the supply of non-audit services provided by the external auditor on a case by case basis and may only be provided to the Group if the provision of such services is at a reasonable and competitive cost and does not constitute a conflict of interest or potential conflict of interest which would prevent the auditor from remaining objective and independent.

 

MANAGEMENT ENGAGEMENT COMMITTEE

 

The Board established a Management Engagement Committee (the "Committee") on 14 November 2013 comprising Nigel Le Quesne, Stephen Burnett (Chairman) and Philip Burgin to review the performance of the Investment Advisers on an annual basis. Following Philip Burgin's retirement from the Board Mr Nikolaus von Palombini was appointed as a member of the Management Engagement Committee of the Board. The Committee visit to Berlin for monitoring and evaluating the Investment Advisers' performance was completed on 3rd December 2015.

 

As part of the annual review carried out in December 2015, 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.

 

In summary, it was concluded that in the opinion of the Committee, the Investment Advisers had performed well in the year and acted in accordance with the terms of the Investment Advisory Agreements.

 

The terms of reference of the Management Engagement Committee are available on the Company's website www.taliesinberlin.com.

 

REMUNERATION AND NOMINATION COMMITTEE

 

The Remuneration and Nomination committee met on 18 June 2015 to set the remuneration for all non-executive Directors including the Chairman. 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.

 

INTERNAL CONTROL

 

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 who are responsible for the operational aspects of the Company´s business.

 

JTC (Jersey) Limited (the "Administrator"), has an administration agreement with the Company and provides significant support functions with regard 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.

 

This is further evidenced by the Company appointing a Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer from the Administrator, all of whom have unfettered access to the Board, and who provide regular reporting to the Board in respect of their roles.

 

The Board is reliant upon the Investment Advisers' and the Administrator's internal control systems including financial, operational and compliance controls and risk management.

 

Taliesin Management Limited and JJ Investment Management Limited have Investment Advisory Agreements with the Company and 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 Taliesin 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.

 

JJIM, TML and TDL have a limited number of staff but operate, within limitations dictated by size, a series of internal controls designed to monitor the Group's assets, prevent fraud, minimize errors, authenticate the accuracy and reliability of accounting and bookkeeping data, and promote the efficient operation of the business while ensuring that established management practices are followed.

 

As part of the annual review of the Investment Advisers by the Management Engagement Committee, the internal control and risk management processes in operation within the Investment Advisers were reviewed and considered to be operating effectively for the period under review.

 

DIRECTORS' SHARE DEALINGS POLICY

 

The Directors comply with Rule 21 of the AIM Rules relating to dealings in the Company's securities by the Directors and other applicable employees and, to that end, have adopted a code for directors' dealings appropriate for a company whose shares are admitted to trading on AIM and have taken all reasonable steps to ensure compliance by the Directors and any relevant employees. The form of this AIM Rule dealing code is substantially the same as the Model Code contained in the Listing Rules. Subsequent to the admission of the Company's Zero Dividend Preference Shares to a standard listing on the Official List, the Directors have also complied with the Model Code set out in the Listing Rules.

 

DIALOGUE WITH INSTITUTIONAL 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.

 

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 2015


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.

 

 

 

Nigel Le Quesne

Director

14 April 2016

 

 


Independent Auditors' Report

for the year ended 31 December 2015

 

We have audited the financial statements of Taliesin Property Fund Limited for the year ended 31 December 2015 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 21, 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 Directors' Report, Chairman's Statement and the Investment Advisers` Report to identify material inconsistencies with the audited financial statements. 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 2015 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

E1W 1DD

Date: 14 April 2016



Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015

 

 

 

2015

2014

 

Note

€(000)

€(000)

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

Rental income

 

10,156

9,894

Service charge receipts

 

2,617

3,554

 

 

 

 

Revenue

 

12,773

13,448

 

 

 

 

Income from disposal of investment property (including investment property held for sale)

 

4,349

2,875

Carrying amount of investment property sold

 

(3,110)

(2,773)

 

 

 

 

Profit on disposal of investment property

6

1,239

102

Other operating income

 

399

319

 

 

 

 

Total operating revenues

 

14,411

13,869

 

 

 

 

Net change in fair value of investment properties (including investment property held for sale)

5, 6

53,138

20,642

Total operating expenses

7

(20,310)

(13,148)

 

 

 

 

Profit from operating activities

 

47,239

21,363

 

 

 

 

Gain on fair value of financial assets

16

1,806

755

Finance income

10

4

40

Finance expenses

11

(5,589)

(5,407)

Net foreign exchange differences

12

69

(25)

Interest rate swap instruments fair value adjustment

21

1,188

644

 

 

 

 

Net financing costs

 

(2,522)

(3,993)

 

 

 

 

 

 

 

 

Profit before income tax

 

44,717

17,370

 

 

 

 

Income tax charge

13

(9,422)

(3,980)

 

 

 

 

Total profit for the year

 

35,295

13,390

 

 

 

 

 

 

 

 

Profit and total comprehensive income attributable to:

 

 

 

 

 

 

 

Owners of the parent

 

33,315

12,567

Non-controlling interest

 

1,980

823

 

 

 

 

Total profit and total comprehensive income for the year

 

35,295

13,390

 

 

 

 

 

 

 

 

Basic earnings per ordinary share (€)

14

7.52

2.95

 

 

 

 

Diluted earnings per ordinary share (€)

14

7.17

2.95

 

 

 

 

 

Consolidated Statement of Financial Position
for the year ended 31 December 2015

 

 

2015

2014

 

Note

€(000)

€(000)

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

Investment properties

5

262,511

212,116

Other financial assets

16

4,052

2,246

 

 

 

 

Total non-current assets

 

266,563

214,362

 

 

 

 

 

 

 

 

Current assets

 

 

 

Cash and cash equivalents

 

4,078

5,124

Other financial assets

16

16

286

Trade and other receivables and prepayments

17

7,581

6,320

Assets classified as held for sale

6

5,220

-

 

 

 

 

Total current assets

 

16,895

11,730

 

 

 

 

 

 

 

 

Total assets

 

283,458

226,092

 

 

 

 

 

 

 

 

SHAREHOLDERS`EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Equity

 

 

 

Stated capital account

18

48,041

52,812

Shares to be issued

18

6,643

-

Capital reserve

 

56

56

Retained earnings

 

67,487

34,172

 

 

 

 

Equity attributable to equity holders of parent

24

122,227

87,040

 

 

 

 

 

 

 

 

Non-controlling interests

24

4,383

2,403

 

 

 

 

 

 

 

 

Total equity

24

126,610

89,443

 

 

 

 


 

 

 

2015

2014

 

Note

€(000)

€(000)

 

 

 

 

Non-current liabilities

 

 

 

Interest bearing loans and borrowings

19

90,390

94,777

Financial liabilities at fair value through profit or loss

21

1,161

3,141

Deferred tax liablities

13

21,906

12,865

 

 

 

 

Total non-current liabilities

 

113,457

110,783

 

 

 

 

Current liabilities

 

 

 

Interest bearing loans and borrowings

19

30,634

15,349

Financial liabilities at fair value through profit or loss

21

792

-

Other liabilities and payables

22

9,969

10,517

Liabilities directly associated with assets classified as held for sale

6

1,996

-

 

 

 

 

Total current liabilities

 

43,391

25,866

 

 

 

 

 

 

 

 

Total equity and liabilities

 

283,458

226,092

 

 

 

 

 

 

 

 

Net asset value per ordinary share (€)

14

27.26

20.17

 

 

 

 

 

The financial statements were approved by the Board of Directors and authorised for issue on 14 April 2016 and were signed on its behalf by:


 

 

Nigel Le Quesne

 

Stephen Burnett

Director 

 

Director

 

 

Consolidated Statement of Changes in Equity
for the year ended 31 December 2015


 

 

 

Stated capital account ordinary shares

Stated capital account b-shares

Shares to be issued

Capital reserve

Treasury shares

Retained earnings

Equity before Non-controlling interests

Non-controlling interests

Total equity

 

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Equity at 1 January 2014

50,463

-

  -

56

(99)

21,459

71,879

1,580

73,459

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

 

 

 

12,567

12,567

823

13,390

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

   -

-

  -

  -

  -

12,567

12,567

823

13,390

Transaction with owners

 

 

 

 

 

 

 

 

 

Issue of shares

2,349

 -

  -

  -

  -

  -

2,349

  -

2,349

 

 

 

 

 

 

 

 

 

 

Total transaction with owners

2,349

   -

   -

 -

  -

2,349

 -

2,349

 

 

 

 

 

 

 

 

 

 

Sale of treasury shares

 -

-

 -

 -

245

 -

245

  -

245

Transfer to retained earnings

 -

 

 -

 -

(146)

146

 -

 -

 -

 

 

 

 

 

 

 

 

 

 

Equity at 31 December 2014

52,812

 -

  -

56

 -

34,172

87,040

2,403

89,443

 

 

 

Consolidated Statement of Cash Flows
for the year ended 31 December 2015

 

 

2015

2014

 

 

Note

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

 

Profit from operating activities

 

47,239

21,363

 

Net change in fair value of investments properties

 

(53,138)

(20,642)

 

Changes in working capital:

 

 

 

 

Decrease/(increase) in receivables

 

199

(962)

 

Increase in payables

 

9,395

5,110

 

 

 

 

 

 

 

 

3,695

4,869

 

 

 

 

 

 

Tax paid

 

(178)

(4)

 

 

 

 

 

 

Net cash generated from operating activities

 

3,517

4,865

 

 

 

 

 

 

Investing activities

 

 

 

 

Capital expenditure on properties held

5

(5,586)

(6,080)

 

Sale of property

 

3,376

2,875

 

Interest received

10

4

41

 

 

 

 

 

 

Net cash used in investing activities

 

(2,206)

(3,164)

 

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from borrowings

 

29,243

566

 

Loan repayments

 

(19,665)

(4,062)

 

Interest paid

 

(3,772)

(3,647)

 

Capital return to owners

18

(8,967)

-

 

Issue of Zero Dividend Preference Shares (ZDP)

 

-

3,933

 

Realised currency gain

 

581

-

 

Costs of ZDP issue

 

-

(88)

 

Sale of treasury shares

 

-

245

 

 

 

 

 

Net cash used in financing activities                             

 

         (2,580)

(3,053)

 

 

 

 

 

 

Foreign exchange gains on bank accounts

12

223

176

 

 

 

 

 

Net decrease in cash and cash equivalents

                              (1,046)

(1,176)

 

Cash and cash equivalents at start of year

 

5,124

6,300

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

4,078

5,124

 

 

 

 

 

 

Cash and cash equivalents comprise:

 

 

 

 

Cash at bank

 

4,078

5,124

 

 

 

 

 

 

 

 

 

 

 

           

 

Notes to the Financial Statements

for the year ended 31 December 2015

 

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 63 multi-tenant buildings with a total of more than 1,600 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 2015 were authorised for issue in accordance with a resolution of the directors on 14 April 2016.  

 

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 (€000), 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 2015 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 2015. The nature and the impact of each new standard and amendment is described below.

 

-        IFRIC 21: Levies - Accounting For a Liability to Pay a Levy

-        A liability to pay a levy has to be recognised when the obligating event occurs. The German ground tax is a levy in accordance with IFRIC 21.4 and as such has to be recognised when it arises at the beginning of each year. This amendment is effective for annual periods beginning on or after 1 July 2014 and is consistent with the Group's current accounting policy and, thus, this amendment did not have any impact on the Group's financial statements.  

-        Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

-        IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. This amendment is effective for annual periods beginning on or after 1 July 2014. This amendment is not relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions from employees or third parties.

-        Annual improvement to IFRS, which are effective for accounting periods beginning on or after 1 July 2014.
IFRS 13 - fair value measurement: the possibility of a portfolio valuation extends also to other contracts. The Group does not apply the portfolio exception in IFRS 13.

-        IAS 24 - related party disclosures: clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This is consistent with the Group´s already practiced accounting policy and thus the amendment has no impact to the Group´s financial statements. 

-        IAS 40 - Investment Property - clarification that IFRS 3 and not the description of ancillary services in IAS 40 is used to determine if a transaction is the purchase of an asset or a business combination; In previous periods, the Group has relied on IFRS 3, not IAS 40, in determining whether an acquisition is of an asset or is a business acquisition. Thus, this amendment did not impact the accounting policy of the Group.

 

Other amendments to certain standards apply for the first time in 2015. 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 15: Revenue from Contracts with Customers

-        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)

-        Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interest in Joint Operations

-        Amendments to IFRS 10 and IAS 28: Sale of Contribution of Assets between an Investor and its Associate or Joint Venture

-        Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception

-        Amendments to IAS 1: Disclosure Initiative to improve the concept of materiality of disclosures effective for reporting periods beginning on or after 1 January 2016; the Group does not expect material changes neither from the adoption of the amendment to IAS 1 nor from the amendments to the other IFRS standards listed above.

-        IFRS 16: Leases

 

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.

 

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 adoption of IFRS 9 will have an effect on the classification and measurement of the Group´s financial assets. We have not yet assessed the impact on the Group´s financial statements.

 

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 with early adoption permitted.

 

The impact of IFRS 15 is currently being assessed.

 

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, ie the customer ('lessee') and the supplier ('lessor') and replaces the previous leases 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 after 1 January ,2019. The impact of IFRS 16 is currently being assessed.

 

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 2015. 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 shareholder´s 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.

 

Amounts payable to third parties in relation to a business combination are recognised in the statement of comprehensive income as incurred.

 

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 or losses are recognised in the income statement in the year of disposal.

 

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 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. 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 , 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 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 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 assets (investments in subsidiary companies and investments held at fair value through profit or loss) denominated in foreign currencies are translated into Euros at the rate ruling on the date of acquisition.  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 as it accrues 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 has 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.

 

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:

 

 

Segment by activity

Income statement

 

 

 

 

total

rental

sale

 

2015

portfolio

segment

 

€(000)

€(000)

€(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 2014, the Group was considered to be one single business segment. One property of the portfolio was reclassified as of 1 July 2015 as an asset held for sale. The corresponding numbers of the balance sheet were an asset in the amount of €5,220,000 and a liability in the amount of €1,996,000.

5. Investment properties

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Book cost brought forward at 1 January

150,415

146,672

 

 

 

Fair value adjustments brought forward

61,701

41,059

 

 

 

Valuation brought forward at 1 January

212,116

187,731

 

 

 

Capital expenditure on properties held

5,586

6,516

 

 

 

Reclassification to assets held for sale

(6,750)

-

 

 

 

Property sold during the year

(327)

(2,773)

 

 

 

 

210,625

191,474

 

 

 

Revaluation (fair value adjustments)

51,886

20,642

 

 

 

Valuation as at 31 December 2015

262,511

212,116

 

 

 

 

 

The Group´s investment properties consist of 63 multi-tenant buildings with a total of 1,661 rental units with a total rental area of 119,690 m². The majority of all rental units are residential apartments (1,381), 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 2015 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.

 

All rental income recognised in the consolidated statement of comprehensive income was received from investment properties. Expenditure on investment properties capitalised during the year, amounted to €5,586,000 (2014: €6,516,000) 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 €1,408,000 (2014: €1,270,000).

 

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

 

 

 

 

 

 

 

 

 

 


Valuation
Technique

Significant
Unobservable
Inputs

Range
Year ended
31 Dec 2015

 Weighted Average

Range
Year ended
31 Dec 2014

 Weighted Average

 

 

 

 

 

 

DCF method

estimated rental value per
m² per month

€6.50 - €12.50

€9.05

€6.00 - €12.50

€9.07

 

 

 

 

 

 

 

rent growth p.a.

1.25% - 2.30%

1.74%

1.25% - 2.00%

1.74%

 

 

 

 

 

 

 

Long-term vacancy rate

1.00% - 5.00%

2.10%

2.00% - 5.00%

2.11%

 

 

 

 

 

 

 

discount rate 

4.00% - 6.25%

4.88%

4.75% - 6.75%

5.93%

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Properties

 

 

 

 

 

 

 

 

 

 


Valuation
Technique

Significant
Unobservable
Inputs

Range
Year ended
31 Dec 2015

 Weighted Average

Range
Year ended
31 Dec 2014

 Weighted Average

 

 

 

 

 

 

DCF method

estimated rental value per m² per month

€3.67 - €30.12

€9.71

€3.67 - €30.12

€9.77

 

 

 

 

 

 

 

rent growth p.a.

1.75%

1.75%

1.50%

1.50%

 

 

 

 

 

 

 

Long-term vacancy rate

2.00% - 4.00%

2.87%

2.00% - 4.00%

3.27%

 

 

 

 

 

 

 

discount rate 

4.00% - 6.25%

4.88%

4.75% - 6.75%

5.93%

 

 

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 2014 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 2014.

 

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 €29.1 million and a decrease of 0.5% in the discount rate would increase the fair value by €37.3 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 administrative approval to split its Warschauer Str. 76 property in Berlin-Friedrichshain into freehold apartments, the Group started the privatisation by entering notarial sales contracts of apartments in the second half of 2015 and as a consequence reclassified the asset Warschauer Str. from investment properties to assets held for sale. The reclassification amount of €6,750,000 represents the fair value of Warschauer Str. 76 as at 30 June 2015 (see also Note 6).

 

In addition and as a means to prove the portfolio´s privatisation potential the Group decided to sell a first floor apartment in its property Kavalierstr. in Berlin-Pankow for a sales price of €500,000 with the previous book value representing the fair value as at 30 June 2015 was €327,000 resulting in a profit on the sale of €173,000. The corresponding outstanding debt for this apartment will be repaid in 2016.

 

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 €53,138,000 is divided into investment properties (€51,886,000) and property held for sale (€1,252,000).

 

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 amounts to €2,781,000 (2014: €2,063,000).

 

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

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Amounts receivables in:

 

 

up to one year

1,576

962

one to five years

900

866

more than five years

2,495

2,090

 

 

 

 

4,971

3,918

 

 

 

 

6. Assets Held for Sale

 

2015

2014

 

€(000)

€(000)

 

 

 

Valuation brought forward at 1 January

-

-

Reclassification from investment properties

6,750

-

Apartments sold

(2,782)

-

Valuation gain on apartments held for sale

1,252

-

 

 

 

 

5,220

-

 

 

 


Following the receipt of the legal authorisation to privatise freehold apartments the Group reclassified all of its 27 units in Warschauer Str. 76 from investment properties to assets held for sale at the last fair value as at 30 June 2015. In the second half of 2015 the Group privatised 12 apartments in Warschauer Str. 76 with transfer of ownership for a cumulative purchase price of €3,848,000. As the book value of these apartments as of the last fair valuation as at 30 June  2015 was €2,782,000 the Group realised a profit of €1,066,000. Together with the sale of one investment property apartment in Kavalierstrasse (see note 5) for €500,000 the Group sold assets for a total of €4,349,000 realising a profit of €1,239,000 which is shown in the consolidated statement of comprehensive income as profit on disposal of investment property.

 

The valuation gain on apartments in held for sale is due to the new fair valuation of the remaining 15 privatisation units of Warschauer Str. 76 as at the balance sheet date. In the reporting period the Group entered into notarial privatisation contracts for nine of these units with a transfer of ownership anticipated in 2016.

 

The liabilities associated with the assets held for sale amount to €1,996,000 and include an interest bearing loan of €1,820,000 (note 19). 

 

7. Operating expenses

 

 

 

2015

2014

 

 

Note

€(000)

€(000)

 

 

 

 

 

 

Service charge expenses

 

3,032

3,377

 

Property maintenance costs

 

1,408

1,270

 

Administrative costs

 

441

305

 

Investment advisory and performance fees

8

13,523

6,335

 

Directors` fees

9

49

42

 

Legal and professional fees

 

479

650

 

Other operating expenses

 

1,094

845

 

Provision for bad debts

20

126

134

 

Auditor´s remuneration (see below)

 

158

190

 

 

 

 

 

 

Total operating expenses

 

20,310

13,148

 

 

 

 

 

 

 

 

 

 


 The Group paid the following fees to its Auditor:

 

2015

2014

 

€(000)

€(000)

 

 

 

Fees payable to the Group´s Auditor for the audit of the Group´s consolidated annual accounts

133

141

Tax compliance services

25

25

Corporate finance and advisory

-

24

 

 

 

 

158

190

 

 

 

 

8. Investment advisory and performance fees

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Investment advisory fees

2,452

1,791

Performance fee (see below)

11,071

4,544

 

 

 

 

13,523

6,335

 

 

 

 

 

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 significant increase in both fees 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

 

 

2015

2014

€(000)

€(000)

 

 

 

Parent Company Directors:

 

 

Nigel A Le Quesne

7

7

Philip H Burgin

7

7

Stephen A Burnett

7

7

Nicholas M Houslop

21

21

Nikolaus von Palombini

7

-

Mark Smith

-

-

 

 

 

 

49

42

 

 

 

 

 

Nigel Le Quesne and Philip Burgin are shareholders and directors, 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. During the reporting period Nikolaus von Palombini, the former CFO of Taliesin Deutschland GmbH, the German subsidiary of TML, replaced Philip H. Burgin as non-executive director.  

 

See note 25 Related party transactions for further details. 

 

10. Finance income

 

 

2015

2014

€(000)

€(000)

 

 

 

Interest receivable

4

40

 

 

 

 

 

 


11. Finance expense

 

2015

2014

 

€(000)

€(000)

 

 

 

Interest on bank loans

3,838

4,002

Interest on Zero Dividend Preference Shares (ZDP)

1,625

1,279

Other interest

126

126

 

 

 

Total finance expense

5,589

5,407

 

 

 

 


12. Net foreign exchange differences

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Realised gain on settlement of currency forward contracts

749

497

Unrealised gain on fair value of currency forward contracts 

16

286

Foreign exchange gains on bank accounts

223

176

Foreign exchange loss on ZDP valuation

(995)

(1,070)

Foreign exchange gain on margin collateral

76

85

 

 

 

Net foreign exchange differences

69

(25)

 

 

 

 

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 losses on the ZDPs in the period reflect the appreciation of the Pound Sterling against the Euro. The offsetting items represent the realised and unrealised gains on the forward foreign currency contracts and the translation gains on the Pound Sterling bank balances at the reporting date.

 

The Group provided an amount of £1,500,000 / €2,033,000 (2014: £700,000 / €1,503,000) 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% (2013: 15.83%), both for current and deferred tax. Taxable income arising in Cyprus is taxed at 12.5% (2013: 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:

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Current tax on profits

220

101

Prior year corporate tax income / expense

161

(97)

Deferred tax charge

9,041

3,976

 

 

 

Tax charge for the year

9,422

3,980

 

 

 

 


The tax expense for the financial year differs from the amount calculated on the profit. The differences are reconciled as follows:

 

Profit before tax

44,717

17,370

Luxembourg, Jersey and Cyprus non-deductible expenses

13,780

6,724

Other non-deductible expenses

 -

145

Profits due to German taxes

58,497

24,239

Tax charge on profit at the German tax rate of 15.83% (2014:15.83%)

9,260

3,837

Previous years adjustments to deferred tax liability / asset

(135)

138

Trade tax

278

 -

Taxes payable

19

5

 

 

 

Tax charge for the year

9,422

3,980

 

 

 

 

Deferred tax

 

Deferred tax assets/(liabilities) are broken down by statement of financial position item as follows:

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Property value differences

(25,462)

(16,524)

Losses carried forward

3,254

3,189

Interest rate swaps

309

497

Loan interest adjustments

(7)

(27)

 

 

 

 

(21,906)

(12,865)

 

 

 

 

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

 

2015

2014

 

€(000)

€(000)

 

 

 

Gross totals as at 1 January

3,686

3,626

Prior year tax adjustment

(8)

102

Losses carried forward

73

174

Interest rate swaps

(188)

(102)

Business combination costs

 -

(114)

 

 

 

Gross totals as at 31 December

3,563

3,686

Offset against deferred tax liabilities at individual taxable entity level

(3,563)

(3,686)

 

 

 

Net totals as at 31 December

 -

 -

 

 

 

 

Deferred tax liabilities

 

2015

2014

 

€(000)

€(000)

 

 

 

Gross totals as at 1 January

16,551

12,515

Property value differences

8,938

4,065

Loan interest adjustments

(20)

(29)

 

 

 

Gross totals as at 31 December

25,469

16,551

Offset against deferred tax assets

(3,563)

(3,686)

 

 

 

Net totals as at 31 December

21,906

12,865

 

 

 

 


Reconciliation of movement in deferred tax during the year:

 

 

2015

2014

 

€(000)

€(000)

 

 

 

At 1 January

12,865

8,889

Charged to profit or loss

9,041

3,976

 

 

 

Net totals as at 31 December

21,906

12,865

 

 

 

 

 

14. Earnings per Ordinary share and net asset value per Ordinary share

 

 

2015

2014

 

 

 

Profit and total comprehensive income attributable to owners of the parent (€000)

33,315

12,567

Weighted average number of ordinary shares

4,429,176

4,254,400

 

 

 

Basic earnings per share (€)

7.52

2.95

 

 

 

Weighted average number of ordinary shares including shares to be issued

4,644,090

4,254,400

Diluted earnings per share

7.17

2.95

Net asset value attributable to holders of ordinary shares (€000)

122,227

87,040

Ordinary shares at 31 December ( note 18)

4,483,672

4,315,103

 

 

 

Net asset value per share (€)

27.26

20.17

 

 

 

Ordinary shares and shares to be issued at 31 December

4,698,586

4,315,103

 

 

 

Net asset value per share (€)

26.01

20.17

 

 

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 and deducting any goodwill shown as an asset in such accounts.

 

These adjustments and the calculations are as shown below:

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Net consolidated assets attributable to Ordinary shareholders

122,227

87,040

Gross deferred tax liability ( note 13)

25,469

16,551

Plus: Capital return to owners

8,968

-

Less: Shares to be issued

(6,643)

-

Less: Gross deferred tax liability attributable to non-controlling interest

(106)

(33)

 

 

 

Adjusted Net Assets attributable to Ordinary shareholders

149,915

103,558

Number of Ordinary shares outstanding at 31 December

4,483,672

4,315,103

 

 

 

Adjusted Net Asset Value per Ordinary share (€)

33.44

24.00

 

 

 

 

 

 

Adjusted Net Assets attributable to Ordinary shareholders deducting capital return to owners

140,947

-

 

 

 

 

 

 

Adjusted Net Asset Value per Ordinary share (€)

31.44

24.00

 

 

 

 

 

15. Group information - information about subsidiaries

The details of the subsidiaries are as follows:

 

 

 

 

Proportion of

Proportion of

 

 

 

 

capital held

voting power

 

 

 

 

by the Group

held by the

 

Date of

Country of

Principal

(ordinary shares)

Company

Name

acquisition

incorporation

activity

%

%

 

 

 

 

 

 

Taliesin Limited

13 Aug. 2007

Jersey

HC

94.0

-

Taliesin Holdings Limited

9 Dec. 2005

Cyprus

HC

94.0

94.0

Taliesin I GmbH **

24 Feb. 2006

Germany

PI

94.0

94.0

Taliesin Managing-Partner GmbH **      

10 Jul. 2007

Germany

PI

94.0

94.0

Taliesin II GmbH ****

1 Oct. 2006

Germany

PI

88.4

88.4

Taliesin Potsdam 1 GmbH & Co. KG ***                  

10  Jul. 2007

Germany

PI

94.0

94.0

Taliesin Berlin 1 GmbH & Co. KG ***

15  Aug. 2007

Germany

PI

94.0

94.0

Taliesin Berlin 2 GmbH & Co. KG ***

15  Aug. 2007

Germany

PI

94.0

94.0

Taliesin Berlin 3 GmbH & Co. KG ***

15  Aug. 2007

Germany

PI

94.0

94.0

Taliesin Berlin 4 GmbH & Co. KG ***

15  Aug. 2007

Germany

PI

94.0

94.0

Taliesin III GmbH & Co.KG ***

15  Aug. 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 H *****

27  Dec. 2012

Luxembourg

PI

86.9

86.9

Phoenix II Mixed I *****

27  Dec. 2012

Luxembourg

PI

86.9

86.9

Phoenix II Mixed J *****

27  Dec. 2012

Luxembourg

PI

86.9

86.9

Phoenix II Mixed K *****

27  Dec. 2014

Luxembourg

PI

86.9

86.9

Phoenix II Mixed N *****

27  Dec. 2014

Luxembourg

PI

86.9

86.9

Phoenix III Mixed O *****

27  Dec. 2014

Luxembourg

PI

86.9

86.9

 

** 100% owned by Taliesin Holdings Limited

 

 

HC = Holding company

*** 100% owned by Taliesin I GmbH

 

 

PI = Property 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

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Non Current

 

 

Structured loan notes

 

 

At 1 January

2,246

1,491

Gain on financial assets at fair value

1,806

755

 

 

 

At 31 December

4,052

2,246

 

 

 

 

 

 

Current

 

 

Forward contract

 

 

At 1 January

286

90

Settlement of forward contract (see note 12)

(286)

(90)

 

 

 

 

-

-

Unrealised gain on new forward contract (see note 12)

16

286

 

 

 

At 31 December

16

286

 

 

 

 

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".

 

Current: Unrealised gain on forward currency contract entered into during the period 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

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Trade receivables

230

205

Rents held in escrow accounts

1,078

922

Prepaid expenses

2,916

3,235

Income and other taxation recoverable

22

67

Margin deposit (see note 12)

2,033

1,503

Sales proceeds held on escrow account

973

-

Other receivables and prepayments

329

388

 

 

 

 

7,581

6,320

 

 

 

 

Sales proceeds held on escrow account reflect purchase prices for the sale of two 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

 

 

 

2015

 

2014

 

Number

€(000)

Number

€(000)

 

 

 

 

 

Stated capital account - Issued and fully paid

 

 

 

 

As at 1 January

4,315,103

52,812

4,193,771

50,463

Shares issued

168,569

4,197

121,332

2,349

Shares buyback

 -

(8,968)

 -

 -

 

 

 

 

 

As at 31 December

4,483,672

48,041

4,315,103

52,812

 

 

 

 

 

 

 

 

 

 

Shares to be issued

 

 

 

 

As at 1 January

 -

 -

 -

 -

Provision for shares to be issued

 -

6,643

 -

 -

 

 

 

 

 

As at 31 December

 -

6,643

 -

 -

 

 

 

 

 

 

 

 

 

 

Treasury shares

 

 

 

 

As at 1 January

 -

 -

(10,000)

(99)

Sale of shares

 -

 -

10,000

245

Transfer to retained earnings

 -

 -

 -

(146)

 

 

 

 

 

As at 31 December

 -

 -

 -

 -

 

 

 

 

 

 

 

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 13 October 2015, 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 first such distribution, in the amount of €2 per Ordinary Share (4,483,672 B shares issued and redeemed, amounting to approximately €8.97 million in aggregate), was made on 23 October 2015 and displayed above as shares buyback.

 

Prior to year end the Investment Advisers have given written notice to the Board of Directors that for 2015 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 €6,643,000 representing 60% of the performance fee of €11,071,000 (Note 8). 


19. Interest bearing loans and borrowings

 

2015

2014

 

€(000)

€(000)

 

 

 

Due within one year

30,634

15,349

Liabilities directly associated with assets classified as held for sale

1,820

-

Due after more than one year

90,390

94,777

 

 

 

 

122,844

110,126

 

 

 

 

 

The following interest bearing loans and borrowings are stated at amortised cost:

 

 

2015

2014

 

€(000)

€(000)

 

 

 

DGHyp

56,845

72,992

Hypothekenbank Frankfurt

17,358

17,549

Pfandbriefbank

24,333

-

Berliner Volksbank

1,820

-

Zero Dividend Preference Shares

23,243

20,622

 

 

 

 

123,599

111,163

 

 

 

Deferred issue costs

(755)

(1,037)

 

 

 

 

122,844

110,126

 

 

 

 

 

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 2015 was €123,599,000 (2014: €111,163,000).

 

Under the provisions of IAS 32 the Zero Dividend Preference Shares are classified as a liability and an interest accrual of €1,625,000 (2014: €1,279,000 ) has been charged against income. The redemption amount of the Zero Dividend Preference Shares, due on 30 September 2018, is £20,711,000 (€28,071,689 at the year end rate of 1.3554 €/GBP).

 

Bank loans relating to assets held for sale amount to €1,820,000 (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, in which it agrees to exchange the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These interest rate swaps are designed to hedge the German subsidiaries' underlying debt obligations. At 31 December 2015, and after taking into account the effect of interest rate swaps, 100% of the Group´s borrowings are either hedged, fixed rate or capped rate (2014: 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 2015 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:

 

 

2015

2014

Financial Assets

€(000)

€(000)

 

 

 

Cash - variable interest

153

4,494

Cash - non-interest bearing

3,925

630

Other - non-interest bearing

10,561

5,617

 

 

 

Total

14,639

10,741

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Liabilities fixed rate interest

85,184

71,881

Liabilities variable rate interest

37,660

38,245

 

 

 

Total

122,844

110,126

 

 

 

 

The durations of the variable rate loans range between 1 and 5 years, with an average duration of 2.68 years (2014: 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 €122,844,000 (2014: €110,126,000).

 

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 €22,488,000 (2014: €19,585,000) and the fair value of all issued ZDP shares as of the balance sheet date is €24,953,000 (2014: €23,574,000), 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 €437,000 (2014:  €809,000) and an overall increase in the charge to deferred German tax of €69,000 at the marginal rate of 15.83% (2014: €128,000 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 €140,000 (2014: €415,000) and an overall decrease in the charge to deferred German tax of €22,000 at the marginal rate of 15.83% (2014: €66,000 at the marginal rate of 15.83%).

 

As at the balance sheet date the Group had €153,000 of interest bearing deposits (2014: €4,494,000). 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 €2,324,000 (2014: €2,062,000)

·      Forward Exchange Contract increase/decrease in profit and equity €2,002,000 (2014: €1,477,000).

 

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 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 €210,000 as at 31 December 2015 (2014: €274,000).

 

At 31 December 2015 trade and other receivables except rents were not past due. Rent receivables are monitored and written off when required.

 

 

2015

2014

Movement in bad debt provision

€(000)

€(000)

 

 

 

As at 1 january

274

325

Utilisation of provision

(145)

(151)

Release of bad debt provison

(45)

(34)

Increase in provision

126

134

 

 

 

As at 31 December

210

274

 

 

 

 

All other classes of current assets do not include any impaired assets.

 

Cash and cash equivalents

The Group held cash and cash equivalents of €4,078,000 at 31 December 2015 (2014:€5,124,000). The cash and cash equivalents are held with reputable bank and financial institution 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:

 

2015

2014

 

€(000)

€(000)

 

 

 

Financial assets:

 

 

Financial assets at fair value through profit or loss

4,068

2,532

Loans receivables

10,571

8,209

 

 

 

 

14,639

10,741

 

 

 

Loans and receivables include cash and all trade and other receivable balances, except for prepayments.

 

2015

2014

 

€(000)

€(000)

 

 

 

Financial liabilities:

 

 

Financial liabilities at fair value through profit or loss

1,953

3,141

Loans payables

122,844

110,126

 

 

 

 

124,797

113,267

 

 

 

 

Financial assets and liabilities - Numerical Information

Maturity of financial assets

The carrying value of financial assets are realisable as follows:

 

Book value

Book value

 

2015

2014

 

€(000)

€(000)

 

 

 

In one year or less

10,587

8,495

In more than two years but not more than three years

4,052

2,246

 

 

 

 

14,639

10,741

 

 

 

Maturity of financial liabilities 

The carrying value of contractual financial liabilities including interest are repayable as follows:

 

Book value

Book value

 

2015

2014

 

€(000)

€(000)

 

 

 

In one year or less

37,333

19,605

In more than one year but not more than two years

28,979

28,986

In more than two years but not more than three years

47,845

31,837

In more than three years but not more than four years

268

46,611

In more than four years but not more than five years

19,115

-

 

 

 

 

133,540

127,039

 

 

 

Less interest

(10,696)

(16,913)

 

 

 

Financial liabilities (see note 21)

122,844

110,126

 

 

 

 

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 1

Level 2

Level 3

Total

Group: As at 31 December 2015

€(000)

€(000)

€(000)

€(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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

Group: As at 31 December 2014

€(000)

€(000)

€(000)

€(000)

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

Structured loan notes

-

-

2,246

2,246

Foreign exchange contact

-

286

-

286

 

 

 

 

 

 

-

286

2,246

2,532

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

 

Interest rate swap instruments

-

(3,141)

-

(3,141)

 

 

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

 

 

 

 

2015

2014

 

 

 

€(000)

€(000)

 

 

 

 

 

Liabilities as at 1 January

 

 

3,141

3,785

Fair value adjustment taken to consolidated

 

 

 

 

statement of comprehensive income

 

 

(1,188)

(644)

 

 

 

 

 

Liabilities as at 31 December

 

 

1,953

3,141

 

 

 

 

 

 

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.

 

The fair values of these 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 2015 above split into current €792,000 and non-current €1,161,000.

 

The following table summarises the swap facilities in existence as at 31 December 2015:

 

 

 

Notional

Expiry date of

 

 

Fair value of

amount of

interest swap

 

Bank

Swap in €(000)

Swap in €(000)

agreement

Fixed rate

 

 

 

 

 

Hypothekenbank Frankfurt

(271)

8,796

31 Oct 2016

3.50%

Hypothekenbank Frankfurt

(108)

3,498

31 Oct 2016

3.50%

Hypothekenbank Frankfurt

(452)

4,923

03 Apr 2018

3.92%

DZ BANK (relating to DGHyp)

(413)

11,551

30 Dec 2016

3.385%

DZ BANK (relating to DGHyp)

(709)

8,617

29 Mar 2018

3.585%

 

 

 

 

 

 

(1,953)

37,385

 

 

 

 

 

 

 

 

 

The following table summarises the swap facilities in existence as at 31 December 2014:

 

 

 

Notional

Expiry date of

 

 

Fair value of

amount of

interest swap

 

Bank

Swap in €(000)

Swap in €(000)

agreement

Fixed rate

 

 

 

 

 

Hypothekenbank Frankfurt

(564)

9,014

31 Oct 2016

3.50%

Hypothekenbank Frankfurt

(224)

3,585

31 Oct 2016

3.50%

Hypothekenbank Frankfurt

(614)

4,987

03 Apr 2018

3.92%

DZ BANK (relating to DGHyp)

(775)

11,814

30 Dec 2016

3.385%

DZ BANK (relating to DGHyp)

(964)

8,814

29 Mar 2018

3.585%

 

 

 

 

 

 

(3,141)

38,214

 

 

 

 

 

 

 

 

 

22. Other liabilities and payables

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Trade payables

1,338

2,315

Other taxation

210

85

Investment advisory fees

625

303

Performance fee payable

4,428

4,544

Other payables

4

9

Rent received in advance

291

251

Other advance payments from tenants

3,036

2,941

Administration accruals

37

69

 

 

 

 

9,969

10,517

 

 

 

 

23. Commitments and contingencies

 

As at 31 December 2015 the Group had binding commitments on capital investment of €1,130,000 (2014: €1,604,000) 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 f8lexibility 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:

 

 

2015

2014

 

€(000)

€(000)

 

 

 

Net debt

 

 

Loans & borrowings  - non current

90,390

94,777

Loans & borrowings  - current

32,454

15,349

Cash and cash equivalents

(4,078)

(5,124)

 

 

 

 

118,766

105,002

 

 

 

 

 

 

Equity

 

 

Equity attributable to equity holders of parent

122,227

87,040

Minority interests

4,383

2,403

 

 

 

 

126,610

89,443

 

 

 

 

 

 

Gearing ratio (net debt divided by equity)

0.938

1.174

 

 

 

 

There have been no breaches in any covenants imposed in compliance with banking facilities.

 

 

25. Related party transactions

 

Nigel Le Quesne and Philip Burgin are shareholders and directors 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 €221,000 (2014: €211,000) to the Group during the year, of which €8,000 (2014: €43,000) was outstanding as at 31 December 2015. JTC (Luxembourg) S.A provides administrative services to the Company's Luxembourg subsidiaries. JTC (Luxembourg) S.A charged fees totalling €124,000 (2014: €78,000) to the Group during the year of which €nil (2014: €19,000) was outstanding at 31 December 2015.

 

Mark Smith is a director and shareholder of TML and JJIM, the Investment Advisers of the Group, which charged investment advisory fees totalling €2,452,000 (50% JJIM / 50% TML) (2014: €1,791,000) to the Group during the year, of which €625,000 (2014: €303,000) was outstanding as at 31 December 2015. TML and JJIM together charged a performance fee of €11,071,000 (75% JJIM / 25% TML) (2014 TML alone: €4,544,000) to the Group during the year, all of which was outstanding as at 31 December 2015, 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. An advance of €150,000 that the Group had made to TML in the prior year  to meet the start-up costs of Raumerei GmbH, has been repaid in full during the reporting period.

 

As at the balance sheet date Mark Smith, together with his wife, owns 75.62% of TML which holds 538,160 shares in the Company, representing 12 per cent. These shares were issued in respect of previous performance fees. In addition, Mark Smith holds 124,720 ordinary shares, representing 2.8 per cent of the Company´s voting rights.

 

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 (2014: €nil).

 

26. Post balance sheet events

 

During the first quarter of 2016 the Group sold 10 apartments in its Warschauer Strasse 76 property in Berlin Friedrichshain, which were classified as assets held for sale as at 31 December 2015. The cumulative sales price was €3,572,000. The corresponding bank loans of €1,820,000 have been repaid accordingly.


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