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Taliesin Prop Fd Ltd (TPF)

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Thursday 11 August, 2016

Taliesin Prop Fd Ltd

Half-year Report

RNS Number : 9632G
Taliesin Property Fund Limited
11 August 2016
 

Taliesin Property Fund Limited -  Half Yearly Report

 

 

TALIESIN PROPERTY FUND LIMITED

 

Unaudited half yearly report for the 6 months to 30 June 2016

 

 

 

·      Adjusted Net Asset Value (NAV)* per share increased by 11.8% to end the first half of 2016 at €35.15 (31 December 2015 €31.44). On an EPRA basis**, the NAV per share was €34.73 as at 30 June 2016 (31 December 2015 €31.10)

·      Property portfolio now valued at €289.2 million, an increase of 9.5% after adjusting for property sales in the first half of 2016

·      Per square metre (psqm) valuation of €2,440 (31 December 2015 €2,240)

·      Recently completed loan refinancing further reduces interest costs

·      Proposed further capital return to shareholders of €2 per share (171p per share)


*   The Adjusted NAV 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

 

This announcement contains inside information.

 

For further information, please contact:

Taliesin Property Fund Limited

Mark Smith, Director                                                                     01534 700 000

 

Stockdale Securities Limited

Alastair Moreton/ Rose Ramsden                                                 020 7601 6118


 

I am delighted to again be able to report on a strong half-year for Taliesin. The Group's Adjusted NAV per share increased by 11.8% in the first half of 2016 to €35.15 (31 December 2015 €31.44). The value of the Taliesin property portfolio as at 30 June 2016, following a valuation carried out by Jones Lang LaSalle (JLL), now stands at €289.2 million, an increase in the period of 9.5% after adjusting for property sales.

 

The value per square metre of the portfolio now stands at €2,440, an increase of 8.9% from 31 December 2015 (€2,240 psqm). Taliesin invested a further €2.1 million in selective property refurbishment projects during the period and has committed a similar amount for the rest of the year.

 

The ongoing investment programme continues to drive rental growth. Despite a smaller portfolio as a result of privatisation sales and static vacancy rates, overall rental revenue is growing strongly and in situ rents are growing in the region of 4-5% per annum.

 

Further commentary on the Berlin residential market is provided in the Investment Advisers' report but, in summary, the trends that have supported the market in recent years remain robust. The Berlin economy continues to prosper supported by healthy demographics as more people move to the city, adding to the problem of a scarcity of supply in the residential rental market. Strong growth in home ownership driven by record low borrowing costs is driving single apartment prices higher and further reducing the stock of residential property available for rent.

 

The increase in the value of Taliesin's portfolio demonstrates how well placed the Group is to take full advantage of these trends. In particular, the new valuation reflects the potential for further privatisations and better captures the premium prices achievable through apartment sales. Looking at valuations generally, the market is beginning to differentiate pricing much more depending on location, quality of building and potential (for privatisation, redevelopment etc.). This is a big step away from when Taliesin first started acquiring property, as there was very little in the way of price differentiation based on location and potential. As the market continues to mature, I would expect this trend to become stronger and for Taliesin to be an obvious beneficiary given the quality and location of its properties and their potential.

 

The ongoing collapse in interest rates and the slew of bonds offering negative yields in Germany has clearly been positive for the value of a predictable (and growing) yield portfolio such as ours. As discussed later in this report, we do not see this changing anytime soon. Of immediate benefit to Taliesin and its shareholders is the Group's ability to refinance maturing senior loans at much lower interest rates and higher principal amounts allowing for a further capital distribution of €2 per share (171p per share) by way of an issue and redemption of B shares, paid up out of the Company's stated capital account. The distribution will amount to €9,680,374 in aggregate and the Sterling equivalent of 171p per share will be paid on 26 August 2016 to those shareholders on the register at the close of business of 19 August 2016. The shares will be marked 'ex' on 18 August 2016.

 

The Berlin residential market continues to benefit from the positive trends mentioned in the Chairman's commentary. The economy remains strong and is outperforming the rest of Germany. For example, in the first quarter of 2016, employment rose by 2.7% (49,700 jobs), more than double the rate in Germany as a whole. Employment in Berlin has been growing faster than in any other state since 2009. Businesses continue to move to the city and the technology sector shows early signs of being a game-changer for Berlin. Championed by Chancellor Merkel, tech activity has ballooned in the city, establishing Berlin as the start-up capital of mainland Europe. The move by various large American/Israeli co-working space operators into the Mitte district recently highlights just how dynamic and space hungry this sector has become, having been virtually non-existent a few years ago. Combined with a strong requirement for space from any number of stand-alone tech companies, this has led to significant increases in commercial rents in central areas. To the extent that Taliesin has commercial space in these areas, this is clearly positive. However, the real benefit for the Group is in the shape of more demand for rental and ownership properties in central areas, particularly in Friedrichshain where a number of media and tech businesses are located and a large part of the Taliesin portfolio is located.

 

The tech sector is not alone in attracting newcomers to Berlin. As discussed extensively in previous updates, the city continues to attract significant numbers of new inhabitants working in the media, arts, government and education sectors amongst others.  Residential building, although picking up, is still lagging population growth. According to the Berlin Statistics Office, Berlin's population rose by 50,000 (1.4%) in 2015, ending the year at 3,520,000, the highest level since the Berlin Wall came down.  Meanwhile, in 2015, the housing stock rose by 10,877 units (0.6%) to 1,902,675 units. Not surprisingly, the resulting squeeze has led to a substantial increase in living costs in recent years.  However, residential accommodation remains very affordable. At current valuations, a typical newly refurbished, centrally located, 75 square metre (800 square foot) apartment is held on our balance sheet at €183,000. This is likely to sell for around €300,000 as a private apartment and rent for around €900-1000 per month. Leaving aside the issue of availability, this pricing would still seem to continue to offer exceptional value.

 

In addition to a strong local economy and positive demographic trends, it is also worth reflecting on the broader outlook. The macroeconomic backdrop remains subdued in the Eurozone, suggesting little chance of any tightening of monetary policy near term.  Growth was running at 1.6% per annum at mid-year, with annual inflation keeping low at 0.2% and some countries, such as Italy and Spain, still experiencing deflation. Germany recently became the first Eurozone country to issue bonds with a negative yield, although yields in the secondary market for German sovereign debt have been negative for some time. Although estimates of the macroeconomic impact of Brexit vary wildly, not least because the ultimate form of Britain's economic relationship with the EU remains unclear, there is little doubt that Brexit and its attendant uncertainties will dampen the outlook for the EU. In previous crises, the EU has responded by accelerating and deepening the process of EU integration. Moves are currently afoot to harmonise social security systems and insolvency law.  However, Brexit has emboldened several countries, notably former Warsaw Pact nations, to call for greater decentralisation, partly because they feel they have borne the brunt of Germany's basically unilateral implementation of an open door policy on immigration. With anti-EU sentiment growing throughout the Eurozone, any significant concessions made to the UK in the process of Brexit talks could encourage potentially irresistible demands for EU referenda in several countries. As Brexit negotiations are taking place ahead of and during the French presidential elections in April/May 2017 and German national elections in September 2017, the political barometer in the Eurozone is bound to rise. This will surely take its toll on investment spending and ensure that the ECB will keep rates lower for longer and semi-institutionalise QE. This bodes well for the outlook for real estate prices in Berlin and Taliesin's ability to continue to refinance maturing senior loans on preferential terms.

 

In our full year 2015 report, we flagged a re-financing of two senior loans maturing in 2016. The two maturing facilities totalled €17 million with an interest rate of 4.5% and we had indicated at the time of the full year report that we hoped to refinance with a new principal amount of €30 million and an interest rate of less than 1.5%. Given the improvement seen this year in the financing market, the actual amount of new principal loan is slightly higher at €30.5 million and the interest rate slightly lower at less than 1.25%. This refinancing was concluded and drawn-down at the end of July, i.e. post the balance sheet date for the interim results. As of the balance sheet date, the loan-to-value on the Taliesin portfolio declined again to 41%. The recently concluded refinancing will increase this ratio to around 46%. The cover ratio on the Group's ZDP shares also improved to 2.34x as at 30 June 2016 as a result of the portfolio revaluation. It is particularly pleasing for the Company to be able to fund a further capital distribution to shareholders as a result of this most recent refinancing. Looking at the future maturity schedule of senior loans, Taliesin has a significant number of loans maturing over the next two years. If current benign conditions persist, then this should allow the Group to continue to return money to shareholders and further reduce interest costs. Proceeds from further privatisation sales should also help facilitate future distributions.

 

Looking at the interim financial statements and following on from a change first made at year end 2015, Taliesin now shows an additional balance sheet line 'Assets classified as held for sale' representing those properties that are in the immediate process of privatisation. At year-end 2015 this line consisted entirely of unsold units in Warschauer Strasse, Taliesin's first foray into the privatisation market. A further property, Kavalierstrasse in Pankow, has been reclassified as 'held for sale' at the interim stage reflecting the Group's decision to push ahead with apartment sales in the property. This property is very different to Warschauer Strasse in that a full refurbishment programme was carried out some time ago meaning that very little additional investment is required ahead of apartment sales. Three apartments in this building have been agreed for sale with average sales prices of close to €3,900 psqm. These three apartments were all offered for sale as vacant units and further units in the property are being marketed in a similar fashion. Vacant apartments continue to fetch a premium over tenanted units when sold to private ownership. Taliesin's first privatisation project in Warschauer Strasse is now virtually complete with just one commercial unit left to sell. As we have highlighted in the past, virtually all of the Group's property portfolio has permissions in place to privatise or does not require them. Given the prices achieved through single apartment sales, we would hope to see the overall valuation applied to the portfolio continue to capture a greater privatisation premium.

 

As we noted in the full year review, the strengths of the Taliesin business have been discussed extensively. The Group does, however, remain vigilant to threats to the business, particularly due to the geographic concentration of the Taliesin portfolio.

 

We would reiterate those risks outlined in the full year report. The political environment remains fairly hostile to landlords in light of sizeable rent increases in recent years and an electorate made up predominantly of renters. Additional regulations/restrictions on property owners remain an ever present threat.

 

An additional area of uncertainty is the general difficulty in finding contractors, architects etc. to carry out projects given how tight the market has become. This also extends to uncertainties around gaining permissions from the authorities to carry out works. Often the infrastructure is not up to the task.

 

The economic risks have been covered in detail earlier in the report and we believe that the virtuous circle of lower interest rates and higher asset prices can persist in Germany. There can be no guarantee however that this can't change and a reversal in German interest rates could have a strongly negative impact on real estate prices.

 

The original premise of Taliesin was to acquire good quality, centrally located Berlin properties at a substantial discount to replacement cost. The vast bulk of the portfolio was acquired for prices around €1,000 psqm. Gross yield were also in the region of 7%. The Group had a strong conviction that medium term demographics were supportive of the residential market and that the economic outlook was far better than the consensus suggested. We felt that vacancy rates could decline quite quickly in the face of high net migration to Berlin and regarded the prospect of new supply hitting the market at prevailing price levels as close to zero. The properties that were acquired were also ones that we thought would be attractive to apartment buyers in the future as the assumption of higher future home ownership seemed logical.

 

The initial strategy was to invest heavily in the portfolio to improve the quality of our stock and allow us to command higher rents. Taliesin never committed to regular dividends due to the high cash requirements of improving the property portfolio and the outsize returns on those investments. It was always the aim of the Group to return capital to shareholders via proceeds of refinancing or asset sales and we are delighted to have reached this point.

 

The success of the initial strategy could be seen through substantial rental growth and, in turn, higher valuations for the portfolio. More recently, the economic and demographic trends which we hoped would occur have become strongly entrenched. The market has become substantially de-risked compared to when the Group started and new buyers have turned up in the market as a result with very different price expectations.

 

What we did not foresee when we first entered the market was the confluence of factors that has led to the current ultra-low interest rate environment. This has clearly been an additional support to the market in Berlin and Taliesin's ability to refinance loans and, in turn, return capital to shareholders.

 

The current valuation of the Group's portfolio of €2,440 psqm is a long way from the original purchase price, but a huge amount has changed in the Berlin market. As outlined in this report, these prices still represent good value. Absent a dramatic change in the global environment, we feel confident that the following themes will continue: Firstly, given the ongoing privatisation sales and the heavy maturity schedule of loans over the next two years, the Group can continue to return capital to shareholders. Secondly, given how entrenched the positive demographic and economic trends are, rents will continue to increase and lastly, that low interest rates will continue to drive single apartment prices higher and increase the attractiveness of a portfolio such as ours to any number of potential acquirers.

 

Directors' statement of responsibilities

 

The Directors are responsible for preparing the half-yearly financial statements in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

 

-     the condensed set of financial statements contained within the half-yearly financial report have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;
 

-     the half-yearly financial report provides a fair review of the information required by:

 

(a)  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed half-yearly financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year ending 31 December 2016; and

 

(b)  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could materially affect the financial position or performance of the entity.

 

Signed on behalf of the Board of Directors.

 

 

 

 


 

_____________________________                                           
Director                                                                                 
Nigel Le Quesne
 

11 August 2016

 

  

 

Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2016

30 June 2015

31 Dec 2015

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

 

 

Rental Income

 

5,240

5,042

10,156

Service charge receipts

 

1,406

1,363

2,617

 

 

 

 

 

Revenue

 

6,646

6,405

12,773

 

 

 

 

 

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

 

3,960

-

4,349

Carrying amount of investment property sold

 

(3,921)

-

(3,110)

 

 

 

 

 

Profit on disposal of investment property

 

39

-

1,239

Other operating income

 

169

228

399

 

 

 

 

 

Total operating revenues

 

6,854

6,633

14,411

 

 

 

 

 

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

 

23,212

13,789

53,138

Total operating expenses

11

(9,684)

(7,087)

(20,310)

 

 

 

 

 

Profit from operating activities

 

20,382

13,335

47,239

 

 

 

 

 

Gain on fair value of financial assets

 

888

472

1,806

Finance income

 

2

3

4

Finance expenses

 

(2,252)

(2,971)

(5,589)

Net foreign exchange differences

9

(166)

30

69

Interest rate swap instruments fair value adjustment

7

630

632

1,188

 

 

 

 

 

Net financing costs

 

(898)

(1,834)

(2,522)

 

 

 

 

 

 

 

 

 

 

Profit before income tax

 

19,484

11,501

44,717

 

 

 

 

 

Income tax charge

12

(4,207)

(2,657)

(9,422)

 

 

 

 

 

Total profit for the year

 

15,277

8,844

35,295

 

 

 

 

 

 

 

 

 

 

Profit and total comprehensive income attributable to:

 

 

 

 

Owners of the parent

 

14,314

8,326

33,315

Non-controlling interest

 

963

518

1,980

 

 

 

 

 

Total profit and total comprehensive income for the year

 

15,277

8,844

35,295

 

 

 

 

 

 

 

 

 

 

Basic earnings per ordinary share (€)

13

3.11

1.90

7.52

 

 

 

 

 

Diluted earnings per ordinary share (€)

13

3.11

1.90

7.17

 

 

 

 

 

 

 

Consolidated Statement of Financial Position

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2016

30 June 2015

31 Dec 2015

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

Investment properties

5

280,032

228,184

262,511

Other financial assets

 

4,940

2,717

4,052

 

 

 

 

 

Total non-current assets

 

284,972

230,901

266,563

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

875

2,097

4,078

Other financial assets

 

-

1,761

16

Trade and other receivables and prepayments

 

8,326

7,483

7,581

Assets classified as held for sale

6

9,140

-

5,220

 

 

 

 

 

Total current assets

 

18,341

11,341

16,895

 

 

 

 

 

 

 

 

 

 

Total assets

 

303,313

242,242

283,458

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS`EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Stated capital account

8

59,061

57,009

48,041

Shares to be issued

 

-

-

6,643

Capital reserve

 

56

56

56

Retained earnings

 

81,801

42,498

67,487

 

 

 

 

 

Equity attributable to equity holders of parent

13

140,918

99,563

122,227

 

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

5,346

2,921

4,383

 

 

 

 

 

 

 

 

 

 

Total equity

 

146,264

102,484

126,610

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2016

30 June 2015

31 Dec 2015

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Interest bearing loans and borrowings

10

87,608

95,431

90,390

Financial liabilities at fair value through profit or loss

7

952

2,509

1,161

Deferred tax liabilities

12

25,896

15,285

21,906

 

 

 

 

 

Total non-current liabilities

 

114,456

113,225

113,457

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

10

26,386

18,830

30,634

Financial liabilities at fair value through profit or loss

7

371

-

792

Other liabilities and payables

 

11,372

7,703

9,969

Liabilities directly associated with assets classified as held for sale

 

4,464

-

1,996

 

 

 

 

 

Total current liabilities

 

42,593

26,533

43,391

 

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

303,313

242,242

283,458

 

 

 

 

 

 

 

 

 

 

Net asset value per ordinary share (€)

13

29.11

22.21

27.26

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors on 11 August 2016 and signed on its behalf by:



 

 

_____________________________                                           
Director

Nigel Le Quesne                                                              

 

 

Consolidated Statement of Changes in Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stated capital account

Stated capital account

Shares to

Capital

Treasury

Retained

Equity before

Non-controlling

Total

 

ordinary shares

b-shares

be issued

reserve

shares

earnings

Non-controlling interests

interests

equity

 

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity at 1 January 2016

48,041

  -

6,643

56

  -

67,487

122,227

4,383

126,610

 

 

 

 

 

 

 

 

 

 

Profit for the year

 -

 -

 -

 -

 -

14,314

14,314

963

15,277

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

   -

  -

  -

  -

  -

14,314

14,314

963

15,277

Transaction with owners

 

 

 

 

 

 

 

 

 

Issue of shares

11,020

  -

(6,643)

  -

  -

  -

4,377

  -

4,377

Issue of b-shares

  -

  -

  -

  -

  -

  -

  -

  -

  -

Redemption of b-shares

   -

   -

  -

  -

  -

  -

   -

  -

   -

Cancellation of b-shares

   -

  -

  -

  -

  -

  -

  -

  -

  -

Shares to be issued for services received

   -

   -

   -

 -

 -

  -

  -

 -

  -

 

 

 

 

 

 

 

 

 

 

Total transaction with owners

11,020

  -

   -

  -

  -

  -

4,377

  -

4,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity at 30 June 2016

59,061

  -

   -

56

  -

81,801

140,918

5,346

146,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Issue of shares

4,197

  -

  -

  -

  -

  -

4,197

  -

4,197

Issue 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

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2016

30 June 2015

31 Dec 2015

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

Profit from operating activities

 

20,381

13,335

47,239

Net change in fair value of investments properties

 

(23,212)

(13,789)

(53,138)

Changes in working capital:

 

 

 

 

Decrease/(Increase) in receivables

 

(105)

(1,020)

199

Increase in payables

 

5,162

1,116

9,395

 

 

 

 

 

 

 

2,226

(358)

3,695

 

 

 

 

 

 

 

 

 

 

Tax paid

 

(533)

(135)

(178)

 

 

 

 

 

 

 

 

 

 

Net cash generated from / (used in) operating activities

 

1,693

(493)

3,517

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

Capital expenditure on properties held

5

(2,150)

(2,279)

(5,586)

Sale of property

 

3,593

-

3,376

Interest received

 

2

3

4

 

 

 

 

 

Net cash generated from / (used in) investing activities

 

1,445

(2,276)

(2,206)

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

-

3,864

29,243

Loan repayments

 

(3,394)

(2,507)

(19,665)

Interest paid

 

(1,644)

(1,839)

(3,772)

Capital return to owners

 

-

-

(8,967)

Margin deposit

 

(1,300)

-

-

Realised currency gain

 

-

-

581

Costs of ZDP issue

 

-

-

-

Sale of treasury shares

 

-

-

-

 

 

 

 

 

Net cash used in financing activities

 

(6,338)

(482)

(2,580)

 

 

 

 

 

Foreign exchange gains on bank accounts

 

(2)

224

223

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(3,200)

(3,251)

(1,269)

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at start of year

 

4,078

5,124

5,124

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

876

2,097

4,078

 

 

 

 

 

Cash and cash equivalents comprise:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at bank

 

876

2,097

4,078

 

 

 

 

 

  

 

1. Reporting entity

 

Taliesin Property Fund Limited (the "Company") is a company domiciled in Jersey and was incorporated on 17 November 2005. The condensed consolidated interim financial statements of the Company for the 6 months ended 30 June 2016 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group invest in primarily residential property in Berlin and the former German Democratic Republic.


The audited consolidated financial statements of the Group as at and for the year ended 31 December 2015 are available upon request from the Company`s registered office at P.O. Box 1075, Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4 2QP.

 

2. Statement of compliance

 

These condensed consolidated interim financial statements have been prepared in accordance with international Accounting Standard (IAS) 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2015.


The condensed consolidated interim financial statements were approved by the Board of Directors on 11 August 2016.

 

3. Significant accounting policies

 

The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2015. The Group has had a revaluation of its property portfolio at 30 June 2016.


The financial information for the 6 months to 30 June 2016 and 30 June 2015 has been extracted from the accounting records of the Group. The balances as at 31 December 2015 and the results for the year then ended have been extracted from the audited financial statements. The auditor´s report on those financial statements was unqualified.

 

4. Segment Reporting

 

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.

 

 

 

 

Segment by activity

Income statement

 

 

 

 

total

rental portfolio

sale of units

 

30 June 2016

30 June 2016

30 June 2016

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Rental Income

5,240

5,213

27

Service charge receipts

1,406

1,406

-

 

 

 

 

Revenue

6,646

6,619

27

Sale of investment properties

3,960

-

3,960

Sold properties book value

(3,921)

-

(3,921)

 

 

 

 

Profit on sale of investment properties

39

-

39

Other operating income

169

164

5

 

 

 

 

Total operating revenues

6,854

6,783

71

Net change in fair value of investment properties

23,212

22,973

239

Total operating expenses

(9,684)

(9,576)

(108)

 

 

 

 

Profit from operating activities

20,382

20,180

202

Net financing costs

(898)

(841)

(57)

 

 

 

 

Profit before income tax

19,484

19,339

145

Income tax charge

(4,207)

(4,228)

21

 

 

 

 

Total profit for the year

15,277

15,111

166

 

 

 

 

 

5. Investment properties

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Book cost brought forward at 1 January

155,674

150,415

150,415

 

 

 

 

Fair value adjustments brought forward

113,587

61,701

61,701

 

 

 

 

Valuation brought forward at 1 January

262,511

212,116

212,116

 

 

 

 

Capital expenditure on properties held

2,150

2,279

5,586

 

 

 

 

Reclassification to assets held for sale

(7,570)

-

(6,750)

 

 

 

 

Property sold during the period

-

-

(327)

 

 

 

 

 

257,091

214,395

210,625

 

 

 

 

Revaluation (fair value adjustments)

22,941

13,789

51,886

 

 

 

 

Valuation as at 30 June 2016

280,032

228,184

262,511

 

 

 

 

 

 

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 using recognised valuation techniques and the principles of IFRS 13. The Directors ensure that they are satisfied 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 to current and market-derived future income streams with appropriate adjustments for income voids arising from vacancies or rent-free periods. These capitalisation yields and future income streams 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.

 

The fair value of investment properties is based on valuations experts, Jones Lang LaSalle (JLL), using recognised valuation techniques and the principles of IFRS 13. 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 are 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, rental income and privatization potential of investment properties (ie 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.

 

 

All of the investment properties owned by the Group have been pledged as security for the Group`s financial liabilities. (See note 10). Other than capital expenditure on existing properties held, there have been no property acquisitions in the period to 30 June 2016.

 

 

 

6. Assets held for sale

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Valuation brought forward at 1 January

-

-

-

 

 

 

 

Reclassification from Investment properties

7,570

-

6,750

 

 

 

 

Apartments sold

(3,921)

-

(2,782)

 

 

 

 

Valuation gain on apartments held for sale

5,491

-

1,252

 

 

 

 

 

9,140

-

5,220

 

 

 

 

 

An investment property is reclassified as an asset held for sale when a number of criteria have been satisfied in order to commence with the privatisation of that property. Warschauer Strasse was reclassified as an asset held for sale in the second half of 2015, with 4 unsold apartments remaining as held for sale as at 30 June 2016. Kavalierstrasse has been reclassified in the first half of 2016 and 22 remaining apartments in that property are held for sale as at 30 June 2016.

 

 

7. Financial liabilities at fair value through profit or loss

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Liabilities at valuation at start of period / year

(1,953)

(3,141)

(3,141)

Fair value adjustment taken to consolidated

 

 

 

statement of comprehensive income

630

632

1,188

 

 

 

 

Liabilities at valuation at end of period / year

(1,323)

(2,509)

(1,953)

 

 

 

 

 

 

 

 

Maturity of derivative financial liabilities

 

 

 

Within one year

(371)

-

(792)

After more than one year

(952)

(2,509)

(1,161)

 

 

 

 

 

(1,323)

(2,509)

(1,953)

 

 

 

 

 

 

The above table represents the fair value of interest swap arrangements which the German subsidiaries entered into with their bankers in order to manage their exposure to upward movements in interest rates. These arrangements were entered into along with the loan agreements with the banks detailed in note 10. 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 value was 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 following table summarises the swap facilities in existence as at 30 June 2016.

 

 

 

 

Expiry date

 

 

Amount

Fair value

of interest

 

 

of Swap

of Swap

swap

Fixed

Bank

in €(000)

in €(000)

agreement

rate

 

 

 

 

 

 

 

 

 

 

Hypothekenbank Frankfurt

8,682

(113)

31 Oct 2016

3.50%

 

 

 

 

 

Hypothekenbank Frankfurt

3,453

(45)

31 Oct 2016

3.50%

 

 

 

 

 

Hypothekenbank Frankfurt

4,890

(369)

03 Apr 2018

3.92%

 

 

 

 

 

DZ BANK

11,412

(213)

30 Dec 2016

3.385%

 

 

 

 

 

DZ BANK

8,514

(583)

29 Mar 2018

3.585%

 

 

 

 

 

 

36,951

(1,323)

 

 

 

 

 

 

 

 

  

8. Stated capital account

 

Ordinary shares of no par value

6 month to 30 June 2016

Year ended 31 Dec 2015

 

(unaudited)

(audited)

 

Number

€(000)

Number

€(000)

 

 

 

 

 

 

 

 

 

 

Stated capital account - Issued and fully paid

 

 

 

 

 

 

 

 

 

At start of period / year

4,483,672

48,041

4,315,103

52,812

 

 

 

 

 

Shares issued

356,515

11,020

168,569

4,197

 

 

 

 

 

Shares buyback

 -

 -

 -

(8,968)

 

 

 

 

 

At end of period / year

4,840,187

59,061

4,483,672

48,041

 

 

 

 

 

 

 

 

 

 

Shares to be issued

 

 

 

 

 

 

 

 

 

At start of period / year

 -

 -

 -

 -

 

 

 

 

 

Provision for shares to be issued

 -

 -

 -

6,643

 

 

 

 

 

At the end of period / year

 -

 -

 -

6,643

 

 

 

 

 

 

On 29 April 2016, 356,515 Ordinary shares were issued at a price of € 30,91 per share to Taliesin Management Limited and JJ Investment Management Limited, the Investment Advisers to the Group, as consideration for part of the performance fee due for the year ended 31 December 2015. The full amount of the performance fee was charged in the consolidated income statement for the year ended 31 December 2015.

 

9. Net foreign exchange differences

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Realised loss/gain on settlement of currency forward contracts

(1,080)

 -

749

 

 

 

 

Unrealised loss/gain on fair value of currency forward contracts

(1,388)

1,475

16

 

 

 

 

Foreign exchange loss/gain on bank accounts

(2)

223

223

 

 

 

 

Foreign exchange gain/loss on ZDP valuation

2,318

(1,811)

(995)

 

 

 

 

Foreign exchange loss/gain on margin collateral

(14)

143

76

 

 

 

 

Net foreign exchange differences

(166)

30

69

 

 

 

 

 

The principal operating currency of the Group is Euros. The Group has, however, issued Zero Dividend Preference Shares denominated in Pounds Sterling. In order to hedge this future Pound Sterling liability, The Group has entered into forward foreign currency contracts on that portion of the ZDP proceeds that has been converted into Euros. The foreign exchange 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 £ 1,684,780 as margin collateral with the brokerage firm, which is providing forward foreign currency services to the Group.

 

 

10. Financial liabilities

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Due within one year

26,386

18,830

30,634

 

 

 

 

Liabilities directly associated with assets classified as held for sale

4,464

-

1,820

 

 

 

 

Due after more than one year

88,222

95,431

91,145

 

 

 

 

 

119,072

114,261

123,599

 

 

 

 

Zero Dividend Preference Share Deferred issue costs

(614)

(896)

(755)

 

 

 

 

 

118,458

113,365

122,844

 

 

 

 

 

The above financial liabilities represent loans from banks for the purpose of purchasing property for the Group which are secured on all of the properties owned by the Group and a five year 7,5% p.a. Zero Dividend Preference Share (ZDP) of €20,667,000 (December 2015: €22,488,000) which was issued by Taliesin Property Fund Limited in September 2013.

 

The total amounts of loans drawn down under all loan facilities, including the ZDP, as at 30 June 2016 was €119,072,000 (30 June 2015: €114,261,000, December 2015: €123,599,000), represented in these accounts at their fair value of €119,072,000 (30 June 2015: €114,261,000, December 2015: €122,844,000).

 

11. Operating expenses

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Service charge expenses

1,458

1,448

3,032

Property maintenance costs

644

565

1,408

Administrative costs

274

234

441

Investment advisory and performance fees

6,407

3,942

13,523

Directors`fees

56

22

49

Legal and professional fees

160

199

479

Other operating expenses

522

532

1,094

Provision for bad debts

77

66

126

Auditor´s remuneration

86

79

158

 

 

 

 

Total operating expenses

9,684

7,087

20,310

 

 

 

 

 

 

 

 

The Group paid the following fees to its Auditor:

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

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

57

67

133

Tax compliance services

29

-

25

Corporate finance and advisory

-

12

-

 

 

 

 

Total

86

79

158

 

 

 

 

 

12. Income tax expense

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Current tax on profits

(252)

(238)

(220)

Prior year corporate tax income / expense

35

1

(161)

Deferred tax charge

(3,990)

(2,420)

(9,041)

 

 

 

 

Total income tax expense for the period / year

(4,207)

(2,657)

(9,422)

 

 

 

 

 

 

 

 

The net tax liability at the end of the period comprises:

 

 

 

 

 

 

 

Deferred tax asset

3,463

3,549

3,563

Deferred tax liabiltity

(29,359)

(18,834)

(25,469)

 

 

 

 

 

(25,896)

(15,285)

(21,906)

 

 

 

 

 

Taxes on profits of the Group arising in Germany are computed using the tax rate of 15,83 % (2015: 15,83%), both for current and deferred tax. Taxable income arising in Cyprus is taxed at 12,5% (2015: 12,5%).

 

The applicable tax rate in Jersey is 0%.

 

All taxation charges and credits are recognised in the statement of comprehensive income.

 

13. Earnings per ordinary share and net asset value per ordinary share

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

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

14,317

8,326

33,315

Weighted average number of ordinary shares

4,607,081

4,373,776

4,429,176

 

 

 

 

Basic earnings per share (€)

3.11

1.90

7.52

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares including shares to be issued

4,607,081

4,373,776

4,644,090

 

 

 

 

 

 

 

 

Diluted earnings per share (€)

3.11

1.90

7.17

 

 

 

 

 

 

 

 

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

140,918

99,563

122,227

Ordinary shares at reporting date                 note 8                                                      

4,840,187

4,483,672

4,483,672

 

 

 

 

Net asset value per share (€)

29.11

22.21

27.26

 

 

 

 

 

 

 

 

Ordinary shares and shares to be issued at period / year end

4,840,187

4,483,672

4,698,586

 

 

 

 

 

 

 

 

Net asset value per share (€)

29.11

22.21

26.01

 

 

 

 

 

Adjusted Net Asset Value 

 

In addition to the net asset values disclosed above, which are based on the net consolidated assets attributable to Ordinary shareholders as stated in the financial statements ("Accounting NAV"), the Directors monitor the performance of the Group as measured by a Key Performance Indicator ("KPI") known as the Adjusted Net Asset Value ("Adjusted NAV").

 

This KPI is defined as the Accounting NAV of the Group as adjusted by adding any portfolio premium not already reflected in the accounts, the gross deferred tax liability from which the Accounting NAV is derived and deducting any goodwill shown as an asset in such accounts.

 

These adjustments and the calculations are as shown below:

 

 

6 months to

6 months to

Year ended

 

30 June 2016

30 June 2015

31 Dec 2015

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Net consolidated assets attributable to Ordinary shareholders

140,918

99,563

122,227

Gross deferred tax liabiltity

29,359

18,833

25,469

Plus: Capital return to owners

-

-

8,968

Less: Shares to be issued

-

-

(6,643)

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

(152)

(48)

(106)

 

 

 

 

Adjusted Net Assets attributable to Ordinary shareholders

170,125

118,348

149,915

Number of Ordinary shares outstanding at 30 June

4,840,187

4,483,672

4,483,672

 

 

 

 

Adjusted Net Assets Value per Ordinary share (€)

35.15

26.40

33.44

 

 

 

 

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

170,125

118,348

140,947

 

 

 

 

 

 

 

 

Adjusted Net Assets Value per Ordinary share (€)

35.15

26.40

31.44

 

 

 

 

 

 

14. Commitments and contingencies

 

As at 30 June 2016, the Group had authorised capital investments of €2,334,000 (December 2015: €1,130,000).

 

15. 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 the 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 €89,000 (2015: €221,000) to the Group during the half year, of which €43,000 (2015: €8,000) was outstanding as at 30 June 2016. JTC (Luxembourg) S.A. provides administrative services to the Company´s Luxembourg subsidiaries. JTC (Luxembourg) S.A. charged fees totalling €75,600 (2015: €124,000) to the Group during the half-year of which €nil (2015: €nil) was outstanding at 30 June 2016.

 

Mark Smith is a director and shareholder of TML and JJIM, the Investment Advisers of the Group, which charged investment advisory fees totalling €1,549,755 (50% JJIM / 50% TML) (2015: €2,452,000) to the Group during the half-year, of which €413,417 (2015: €625,000) was outstanding as at 30 June 2016. TML and JJIM together made a provision for performance fee of €4,978,916 (75% JJIM / 25% TML) (2015: €11,071,000) to the Group during the half-year, all of which was outstanding as at 30 June 2016.

 

As at the balance sheet date Mark Smith, together with his wife, owns 75,62% of TML which holds 615,946 shares in the Group, representing 12.73 per cent of the outstanding shares. These shares were issued in respect of previous performance fees. In addition, Mark Smith holds 403,449 ordinary shares in the Group (including the ordinary shares issued to JJIM, which is wholly owned by Mark Smith), representing 8.34 per cent of the outstanding shares.

 

There were no other related party transactions with the Company or the Group other than remuneration payable to the Directors, who are the only key management personnel.

 

There are no employee benefits accrued by directors or key management personnel in the current half-year (2015: €nil).

 

16. Events since the balance sheet date

 

In July, the Group completed the refinancing of two maturing senior loans with a new loan provided by DG Hyp. The new loan is for an aggregate amount of 30.5 million, replacing a maturing loan amount of 17.4 million. The funds from the new facility were released to the Group in July.


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