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Taliesin Prop Fd Ltd (TPF)

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Monday 14 August, 2017

Taliesin Prop Fd Ltd

Half-year Report

RNS Number : 8412N
Taliesin Property Fund Limited
14 August 2017
 

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

 

TALIESIN PROPERTY FUND LIMITED

 

Unaudited half yearly report for the 6 months to 30 June 2017

 

Key financial and operational highlights

 

·     

·     

·     

·     

 
*   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

 

For further information, please contact:

Taliesin Property Fund Limited

Mark Smith, Director                                                                         01534 700 000

 

Stockdale Securities Limited

Robert Finlay/David Coaten                                                              020 7601 6100

I am pleased to be able to report on another strong half year for the Group. Taliesin's Adjusted NAV per share increased by 17.6% in the first six months of 2017 to €44.14 (31 December 2016 €37.53). The value of the Group's portfolio as at 30 June 2017, following a valuation carried out by Jones Lang LaSalle (JLL), stood at €359.7 million, an increase of 14.1% in the period after adjusting for property sales.

 

The value per square metre of the portfolio now stands at €3,070, an increase of 13.7% from 31 December 2016 (€2,700 psqm). The Group continued to invest in the property portfolio during the six month period under review, with a further €2.1 million spent on maintenance and improvements. A similar amount has been committed for the second half of the year.

 

The privatisation potential of the Taliesin portfolio is beginning to be better reflected in the overall portfolio valuation. Further apartment sales were made in the first half at prices significantly above the current valuation level and I expect further momentum in the second half of 2017. Rents continue to increase in line with the trend of recent years as the availability of residential space continues to lag behind demand.

 

The virtuous circle in Berlin residential real estate continues apace. A low interest rate environment combined with higher property valuations is allowing the Group to re-finance maturing senior debt facilities at lower interest rates and higher principal amounts. Lower borrowing rates have played a large part in the yield compression seen in the portfolio valuation but equally important, I would argue, has been the ongoing price growth in individual apartment sales, the elevated level of market rents versus in situ rents and the still cheap absolute price of Berlin residential property.

 

In the last couple of years, Taliesin has been able to deliver on its long held aim of distributing capital to shareholders. This distribution has been possible due to the attractive re-financing market and, to a lesser extent, proceeds from the privatisation process in place. The Group has a further large senior loan maturing at the end of 2017 and is in discussions with various lenders regarding re-financing. A successful outcome should facilitate a further capital distribution within the next six months.

 

 

Investment Advisers' Report

 

The first six months of 2017 showed an acceleration of the price trends experienced in Berlin in 2016. The value of the Group's property portfolio (based on a valuation by JLL) increased to 359.7 million. This valuation equates to 3,070 psqm, an increase of 13.7% from 2,700 psqm at the end of 2016. Apartment sales during the period amounted to 3.2 million with recent apartment sales prices approaching 4,500 psqm. In the first half of 2017, the Group's Adjusted NAV per share increased by 17.6% to 44.14.

 

The Berlin residential property market continues to benefit from a number of positive factors which have been discussed in detail in previous updates. Of particular note in the recent valuation carried out by JLL is the greater recognition of the privatisation uplift potential in the Taliesin portfolio. This is a subject that we have spoken about extensively in recent years (the difference between single apartment sale prices and whole building valuations) and it is encouraging that this price differential is beginning to be recognised in higher whole building valuations. The single apartment market continues to power ahead driven primarily by local buyers but with a growing international participation. Our own experience with apartment sales, which is covered in more depth later in this report, has shown a similarly strong price trajectory.

 

What has become increasingly evident recently is that, in the wake of Brexit and changes to the tax regime, especially in relation to foreign purchasers, the UK has ceded its status as a 'safe haven' for property investors to Germany. With America retreating somewhat from its international commitments, Germany, along with China, is filling the political vacuum and taking the mantle of global leadership. Germany's dominant position in Europe appears truly unassailable, as the EU continues to muddle through with the help of the German tax payer, the Greek problem now satisfactorily contained and the Italian banking system slowly recapitalising. Berlin is now the preeminent city of Europe, yet property prices are less than half those prevailing in Moscow, Stockholm, Paris or Vienna: prices are far closer to those prevailing in Kiev than to London.

 

Angela Merkel is the clear political beneficiary of Germany's current strength. No political party, including her own, has been able to find a challenger to her in the upcoming Federal elections. Her CDU party is well ahead in opinion polls with Martin Schulz' SPD trailing far behind. Four other parties are polling between 6 and 8% each and look set to be the junior partners in an eventual coalition government. The current most likely outcome is a coalition of the CDU and FDP (economically liberal party), a combination which achieved election success recently in Schleswig-Holstein (together with the Green party) and Nordrhein Westfalen. Unlikely is another grand coalition, especially from the perspective of the leftist SPD party - their popularity has plummeted whilst they have participated in the current coalition government. Interesting to note is that the CDU/FDP coalition appears ready to push back against certain rent regulations, in particular the Mietpreisbremse and favours instead encouraging home ownership through subsidies. Berlin continues to be governed by a left/communist/green coalition. The operating environment remains challenging and we provide more commentary in the risks section of this report.

 

Berlin is the capital of a country which is growing the strongest amongst the G7. According to recent data from Destatis, unemployment in Germany declined to 3.9% in May and the number of employed persons hit a post reunification high of 44.1 million. Real wage growth looks set to grow strongly as peak employment approaches. Recent ifo Business Survey data describes sentiment among German businesses as 'euphoric'. The Business Climate Index rose to 116.0 points in July, hitting a record high for a third successive month. Companies' satisfaction with their current business situation also reached a post reunification high. The ifo construction index rose to a record high and contractors expressed optimism about the outlook for the sector.

 

Increasing property prices combined with a robust economy have led to further record property transaction volumes in both Germany and Berlin. As a snapshot of overall activity, large residential portfolio transaction volumes increased by 22% in Germany in the first six months of 2017 to €5.9 billion according to CBRE. Over 80% of the buying came from German investors. Berlin accounted for close to 30% of total portfolio transactions in the six months, with volumes up by a third from a year earlier to 1.7 billion. Nationwide, there was a significant increase in transaction volume related to development and new build. This sector showed a year-on-year increase of around 40% and reflects the current lack of housing and strong urbanisation trend. This catapulted average selling prices higher to 1,980 across Germany, an increase of 29% from a year ago according to CBRE.

 

In the face of record demand, residential property supply continues to be an issue. Although construction activity is picking up in Germany, in the first five months of 2017, only 121,234 residential building permits were issued, compared with 295,000 in France (Federal Statistics Bureau, Ministre de L'ecologie du Developpement). In Berlin, the supply issue appears even more acute. According to a recent report from BFW Landesverband BB, the current political situation in Berlin is dissuading developers from pursuing new residential projects. They report an 8.5% reduction in building permit applications in the first quarter of 2017 compared to a year earlier. In the same period, the number of permits granted for multi-family dwellings in Brandenburg (the 'Land' that surrounds Berlin) increased by 132%. Any further contraction in the supply of new residential stock will inevitably pressure prices further. Some of the constraint on supply could be eased by a number of recent court rulings in Berlin which appear to pave the way for significantly higher residential development density in central districts. This could be especially beneficial for Taliesin given how many centrally located properties are in the portfolio and should accelerate the planning process for roof developments in particular.

 

Operational Highlights

 

Taliesin's latest privatisation project, Kavalierstrasse, progressed strongly during the period under review. Seven additional apartments were sold in the first half and a further one notarised for sale beyond the reporting date. Average sales prices exceeded €4,200 psqm for the seven sold units, amounting to a total sales value of €3.2 million and close to €4,500 psqm for the most recently notarised unit. Achieved sales prices continue to represent a significant premium over the accounting valuation of the remaining units in the property, which currently stands at €3,710 psqm. Interestingly, Kavalierstrasse is the only property in the portfolio which has been reclassified as an 'asset held for sale' and therefore valued at an implied privatisation price. The project provides a good insight into the potential for further valuation uplift across the Group's portfolio. There remain eleven unsold units in the building and we expect the strong price momentum to continue in the second half of the year.

 

The Group has taken advantage of the benign financing environment in recent years and managed to reduce the interest cost on its senior loans by a significant margin. As we highlighted in the full year 2016 report, Taliesin has a maturing €25.3 million debt facility to re-finance later this year and has been in discussions with a number of local banks regarding terms for a new facility. The market for new loans remains extremely borrower friendly. The existing senior secured loan started out as a €30 million facility and has been amortised down over the last five years to the current amount. The rate of amortisation of the existing loan had been increased due to the sale of a property. The current interest rate stands at 2.69%. Indicative terms for a replacement loan point to a principal amount of approximately €60 million with an interest rate of around 1.5% per annum for a five year term.

 

The Group has historically relied almost entirely on the local Pfandbrief market for its borrowing. Strong relationships have been built with a number of local banks which has been beneficial in facilitating the rollover of maturing senior loans. It is interesting to note, however, how many property investors are now issuing bonds directly to re-finance existing loans or to raise new capital and just how competitive the terms have become. Recent large unsecured bonds have been issued with interest rates below 1.5% and durations of seven years plus. Investor demand for any bond which offers (relative to Bunds) an attractive yield appears insatiable. The availability of this lower cost financing will have a predictable impact on the demand for property in Berlin.

 

Additional funds released from maturing loan facilities together with the proceeds of profitable apartment sales should allow the Group to make a further B share capital distribution within the next six months. The aforementioned large re financing is scheduled to take place at year end and it is currently the intention of the Group to complete this re financing ahead of making a further distribution. This should allow Taliesin to consider making a larger distribution, depending on both the successful replacement of the existing loan and other demands on capital.

 

Risks and Uncertainties

 

Taliesin's property portfolio is located almost entirely in Berlin and therefore at risk from developments in the political and economic environment that may have an impact on the city. As in previous years, the Group remains vigilant to these twin threats to the wellbeing of the business.

 

We have discussed the upcoming Federal elections and the potential for a more constructive environment in the future for landlords on a national level. Locally, however, the operating environment remains challenging. As we mentioned earlier in this report, housing starts in Berlin appear to be moving in the wrong direction which is further exacerbating the scarcity of supply in the residential market and further heightening political tensions. Routine refurbishment approvals and planning consents are taking a considerable time to complete resulting in a much slower turnaround for vacant apartments. We also face the prospect of further restrictions and regulations on the rental market.

 

On the economic front, the ongoing improvement in the outlook for the German and European economies will inevitably lead to higher interest rates at some point. There has been a small back up in Bund yields recently and we would expect a further move higher as and when quantitative easing is withdrawn. Although there is no evidence of any kind of leverage binge in Germany and real yields on property remain attractive currently versus government bond yields, there exists the risk of a reversal at some point.

 

 

 

 

 

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
 


 

 

Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2017

30 June 2016

31 Dec 2016

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

 

 

Rental income

 

5,324

5,240

10,513

Service charge receipts

 

1,486

1,406

2,689

 

 

 

 

 

Revenue

 

6,810

6,646

13,202

 

 

 

 

 

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

 

3,203

3,960

6,887

Carrying amount of investment property sold

 

(2,786)

(3,921)

(6,521)

 

 

 

 

 

Profit on disposal of investment property

 

417

39

366

Other operating income

 

238

169

262

 

 

 

 

 

Total operating revenues

 

7,465

6,854

13,830

 

 

 

 

 

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

 

42,614

23,212

51,864

Total operating expenses

11

(14,362)

(9,684)

(20,573)

 

 

 

 

 

Profit from operating activities

 

35,717

20,382

45,121

 

 

 

 

 

Gain on fair value of financial assets

 

1,405

888

1,787

Finance income

 

-

2

1

Finance expenses

 

(2,090)

(2,252)

(4,995)

Net foreign exchange differences

9

(141)

(166)

(1,392)

Change in fair value of derivative financial instruments

 

161

630

1,526

 

 

 

 

 

Net financing costs

 

(665)

(898)

(3,073)

 

 

 

 

 

 

 

 

 

 

Profit before income tax

 

35,052

19,484

42,048

 

 

 

 

 

Income tax charge

12

(7,223)

(4,207)

(9,295)

 

 

 

 

 

Total profit for the year

 

27,829

15,277

32,753

 

 

 

 

 

 

 

 

 

 

Profit and total comprehensive income attributable to:

 

 

 

 

Owners of the parent

 

26,291

14,314

30,795

Non-controlling interest

 

1,538

963

1,958

 

 

 

 

 

Total profit and total comprehensive income for the year

 

27,829

15,277

32,753

 

 

 

 

 

 

 

 

 

 

Basic earnings per ordinary share (€)

13

5.33

3.11

6.52

 

 

 

 

 

Diluted earnings per ordinary share (€)

13

5.33

3.11

6.31

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2017

30 June 2016

31 Dec 2016

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

Investment properties

5

355,322

280,032

310,911

Other financial assets

 

7,288

4,940

5,885

 

 

 

 

 

Total non-current assets

 

362,610

284,972

316,796

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

8,933

875

6,348

Trade and other receivables and prepayments

 

6,482

8,326

5,775

Assets classified as held for sale

6

4,390

9,140

7,070

 

 

 

 

 

Total current assets

 

19,805

18,341

19,193

 

 

 

 

 

 

 

 

 

 

Total assets

 

382,415

303,313

335,989

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS`EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Stated capital account

8

59,851

59,061

49,381

Shares to be issued

 

-

-

6,282

Capital reserve

 

56

56

56

Retained earnings

 

124,573

81,801

98,282

 

 

 

 

 

Equity attributable to equity holders of parent

13

184,480

140,918

154,001

 

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

7,880

5,346

6,342

 

 

 

 

 

 

 

 

 

 

Total equity

 

192,360

146,264

160,343

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2017

30 June 2016

31 Dec 2016

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Interest bearing loans and borrowings

10

85,095

87,608

100,781

Financial liabilities at fair value through profit or loss

7

-

952

406

Deferred tax liabilities

12

37,557

25,896

30,729

 

 

 

 

 

Total non-current liabilities

 

122,652

114,456

131,916

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

10

47,416

26,386

29,714

Financial liabilities at fair value through profit or loss

7

243

371

-

Other liabilities and payables

 

16,452

11,372

10,227

Liabilities directly associated with assets classified as held for sale

 

3,292

4,464

3,789

 

 

 

 

 

Total current liabilities

 

67,403

42,593

43,730

 

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

382,415

303,313

335,989

 

 

 

 

 

 

 

 

 

 

Net asset value per ordinary share (€)

13

36.17

29.11

31.82

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors on 11 August 2017 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 2017

49,381

  -

6,282

56

  -

98,282

154,001

6,342

160,343

 

 

 

 

 

 

 

 

 

 

Profit for the year

 -

 -

 -

 -

 -

26,291

26,291

1,538

27,829

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

   -

  -

  -

  -

  -

26,291

26,291

1,538

27,829

Transaction with owners

 

 

 

 

 

 

 

 

 

Issue of shares

10,470

  -

(6,282)

  -

  -

  -

4,188

  -

4,188

Issue of b-shares

  -

  -

  -

  -

  -

  -

  -

  -

  -

Redemption of b-shares

   -

   -

  -

  -

  -

  -

   -

  -

   -

Cancellation of b-shares

   -

  -

  -

  -

  -

  -

  -

  -

  -

Shares to be issued for services received

   -

   -

   -

 -

 -

  -

  -

 -

  -

 

 

 

 

 

 

 

 

 

 

Total transaction with owners

10,470

  -

   (6,282)

  -

  -

  -

4,188

  -

4,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity at 30 June 2017

59,851

  -

   -

56

  -

124,573

184,480

7,880

192,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity at 1 January 2016

48,041

  -

6,643

56

  -

67,487

122,227

4,383

126,610

 

 

 

 

 

 

 

 

 

 

Profit for the year

 -

 -

 -

 -

 -

30,795

30,795

1,958

32,753

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

   -

  -

  -

  -

  -

30,795

30,795

1,958

32,753

Transaction with owners

 

 

 

 

 

 

 

 

 

Issue of shares

11,020

  -

(6,643)

  -

  -

  -

4,377

  -

4,377

Issue of b-shares

(9,680)

9,680

  -

  -

  -

  -

  -

  -

  -

Redemption of b-shares

   -

   -

  -

  -

(9,680)

  -

(9,680)

  -

(9,680)

Cancellation of b-shares

   -

(9,680)

  -

  -

9,680

  -

  -

  -

  -

Shares to be issued for services received

   -

   -

6,282

 -

 -

  -

6,282

 -

6,282

 

 

 

 

 

 

 

 

 

 

Total transaction with owners

1,340

  -

6,282

  -

  -

  -

979

  -

979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity at 31 December 2016

49,381

  -

6,282

56

  -

98,282

154,001

6,342

160,343

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

6 months to

6 months to

Year ended

 

 

30 June 2017

30 June 2016

31 Dec 2016

 

 

(unaudited)

(unaudited)

(audited)

 

Note

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

 

 

Profit from operating activities

 

35,717

20,381

45,121

Net change in fair value of investments properties

 

(42,614)

(23,212)

(51,864)

Changes in working capital:

 

 

 

 

Decrease/(Increase) in receivables

 

(413)

(105)

780

Increase in payables

 

9,367

5,162

10,482

 

 

 

 

 

 

 

2,057

2,226

4,519

 

 

 

 

 

 

 

 

 

 

Tax paid

 

(44)

(533)

(605)

 

 

 

 

 

 

 

 

 

 

Net cash generated from operating activities

 

2,013

1,693

3,914

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

Capital expenditure on properties held

5

(1,902)

(2,150)

(4,907)

Sale of property

 

2,672

3,593

6,887

Interest received

 

-

2

1

 

 

 

 

 

Net cash generated by investing activities

 

770

1,445

1,981

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

4,000

-

46,500

Loan repayments

 

(2,877)

(3,394)

(33,622)

Interest paid

 

(1,321)

(1,644)

(3,805)

Capital return to owners

 

-

-

(9,680)

Margin deposit increase

 

-

(1,300)

(3,030)

 

 

 

 

 

Net cash used in financing activities

 

(198)

(6,338)

(3,637)

 

 

 

 

 

Foreign exchange gains / (loss) on bank accounts

 

-

(2)

12

 

 

 

 

 

Net decrease in cash and cash equivalents

 

2,585

(3,200)

2,270

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at start of year

 

6,348

4,078

4,078

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

8,933

876

6,348

 

 

 

 

 

Cash and cash equivalents comprise:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at bank

 

8,933

876

6,348

 

 

 

 

 

 

 

 

 

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 2017 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 2016 are available upon request from the Company`s registered office at P.O. Box 1075, JTC House, 28 Esplanade, 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 2017.

 

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 2016. The Group has had a revaluation of its property portfolio at 30 June 2017.


The financial information for the 6 months to 30 June 2017 and 30 June 2016 has been extracted from the accounting records of the Group. The balances as at 31 December 2016 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 segment

 

30 June 2017

30 June 2017

30 June 2017

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Rental Income

5,324

5,269

55

Service charge receipts

1,486

1,483

3

 

 

 

 

Revenue

6,810

6,752

58

Sale of investment properties

3,203

-

3,203

Sold properties book value

(2,786)

-

(2,786)

 

 

 

 

Profit on sale of investment properties

417

-

417

Other operating income

238

238

-

 

 

 

 

Total operating revenues

7,465

6,990

475

Net change in fair value of investment properties

42,614

42,561

53

Total operating expenses

(14,307)

(14,224)

(83)

 

 

 

 

Profit from operating activities

35,772

35,327

445

Net financing costs

(665)

(651)

(14)

 

 

 

 

Profit before income tax

35,107

34,676

431

Income tax charge

(7,265)

(7,274)

9

 

 

 

 

Total profit for the year

27,842

27,402

440

 

 

 

 

 

 

 

Segment by activity

 

 

 

 

 

Total

Rental portfolio

Sale segment

 

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 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Book cost brought forward at 1 January

146,261

148,924

148,924

 

 

 

 

Fair value adjustments brought forward

164,650

113,587

113,587

 

 

 

 

Valuation brought forward at 1 January

310,911

262,511

262,511

 

 

 

 

Capital expenditure on properties held

1,902

2,150

4,907

 

 

 

 

Reclassification to assets held for sale

-

(7,570)

(7,570)

 

 

 

 

Property sold during the period

-

-

-

 

 

 

 

 

312,813

257,091

259,848

 

 

 

 

Revaluation (fair value adjustments)

42,509

22,941

51,063

 

 

 

 

Valuation as at 30 June 2017

355,322

280,032

310,911

 

 

 

 

 

 

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 privatisation 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 2017.

 

 

6. Assets held for sale

 

6 months to

6 months to

Year ended

 

30 June 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

Valuation brought forward at 1 January

7,070

-

5,220

Reclassification from Investment properties

-

7,570

7,570

Apartments sold

(2,786)

(3,921)

(6,521)

Valuation gain on apartments held for sale

106

5,491

801

 

 

 

 

 

4,390

9,140

7,070

 

 

 

 

 

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. Kavalierstrasse was reclassified as an asset held for sale in the first half of 2016 and 12 remaining apartments in that property are held for sale as at 30 June 2017.

 

 

7. Financial liabilities at fair value through profit or loss

 

6 months to

6 months to

Year ended

 

30 June 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

Liabilities at valuation at start of period / year

(406)

(1,953)

(1,953)

Fair value adjustment taken to consolidated

 

 

 

statement of comprehensive income

163

630

1,547

 

 

 

 

Liabilities at valuation at end of period / year

(243)

(1,323)

(406)

 

 

 

 

 

 

 

 

Maturity of derivative financial liabilities

 

 

 

Within one year

(243)

(371)

(406)

After more than one year

-

(952)

-

 

 

 

 

 

(243)

(1,323)

(406)

 

 

 

 

 

 

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 2017.

 

 

 

 

Expiry date

 

 

Amount

Fair value

of interest

 

 

of Swap

of Swap

swap

Fixed

Bank

in €(000)

in €(000)

agreement

rate

 

 

 

 

 

 

 

 

 

 

DZ BANK

8,302

(243)

29 Mar 2018

3.585%

 

 

 

 

 

 

8,302

(243)

 

 

 

 

 

 

 

 

 

 

8. Stated capital account

 

Ordinary shares of no par value

6 month to 30 June 2017

Year ended 31 Dec 2016

 

(unaudited)

(audited)

 

Number

€(000)

Number

€(000)

 

 

 

 

 

 

 

 

 

 

Stated capital account - Issued and fully paid

 

 

 

 

 

 

 

 

 

At start of period / year

4,840,187

49,381

4,483,672

48,041

 

 

 

 

 

Shares issued

259,806

10,470

356,515

11,020

 

 

 

 

 

Shares buyback

 -

 -

 -

(9,680)

 

 

 

 

 

At end of period / year

5,099,993

59,851

4,840,187

49,381

 

 

 

 

 

 

 

 

 

 

Shares to be issued

 

 

 

 

 

 

 

 

 

At start of period / year

 -

6,282

 -

6,643

Shares issued

 -

(6,282)

 -

(6,643)

Provision for shares to be issued

 -

 -

 -

6,282

 

 

 

 

 

At the end of period / year

 -

 -

 -

6,282

 

 

 

 

 

 

On 29 April 2017, 259,806 Ordinary shares were issued at a price of € 40,30 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 2016. The full amount of the performance fee was charged in the consolidated income statement for the year ended 31 December 2016.

 

 

9. Net foreign exchange differences

 

 

6 months to

6 months to

Year ended

 

30 June 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Realised loss on settlement of currency forward contracts

(222)

(1,080)

(4,080)

 

 

 

 

Unrealised loss on fair value of currency forward contracts

(356)

(1,388)

(76)

 

 

 

 

Foreign exchange loss/gain on bank accounts

-

(2)

12

 

 

 

 

Foreign exchange gain on ZDP valuation

437

2,318

2,761

 

 

 

 

Foreign exchange loss on margin collateral

-

(14)

(9)

 

 

 

 

Net foreign exchange differences

(141)

(166)

(1,392)

 

 

 

 

 

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 £612,948 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 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Due within one year

47,416

26,386

29,714

 

 

 

 

Liabilities directly associated with assets classified as held for sale

3,292

4,464

3,789

 

 

 

 

Due after more than one year

85,426

88,222

101,254

 

 

 

 

 

136,134

119,072

134,757

 

 

 

 

Zero Dividend Preference Share Deferred issue costs

(331)

(614)

(473)

 

 

 

 

 

135,803

118,458

134,284

 

 

 

 

 

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 €21,329,000 (December 2016: €20,987,000) 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 2017 was €136,430,000 (30 June 2016: €119,072,000, December 2016: €134,757,000), represented in these accounts at their fair value of €136,430,000 (30 June 2016: €119,072,000, December 2016: €134,284,000).

 

 

11. Operating expenses

 

 

6 months to

6 months to

Year ended

 

30 June 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Service charge expenses

1,572

1,458

2,870

Property maintenance costs

640

644

1,392

Administrative costs

303

274

542

Investment advisory and performance fees

10,892

6,407

13,724

Directors`fees

56

56

109

Legal and professional fees

127

160

315

Other operating expenses

580

522

1,333

Provision for bad debts

121

77

152

Auditor´s remuneration

71

86

136

 

 

 

 

Total operating expenses

14,362

9,684

20,573

 

 

 

 

  

 

 

 

The Group paid the following fees to its Auditor:

6 months to

6 months to

Year ended

 

30 June 2017

30 June 2016

31 Dec 2016

 

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

61

57

114

Tax compliance services

10

29

22

 

 

 

 

Total

71

86

136

 

 

 

 

 

 

12. Income tax expense

 

 

6 months to

6 months to

Year ended

 

30 June 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Current tax on profits

(460)

(252)

(443)

Prior year corporate tax income / expense

                  56

35

(29)

Deferred tax charge

(6,819)

(3,990)

(8,823)

 

 

 

 

Total income tax expense for the period / year

(7,223)

(4,207)

(9,295)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Deferred tax asset

3,427

3,463

3,415

Deferred tax liabiltity

(40,984)

(29,359)

(34,144)

 

 

 

 

 

(37,557)

(25,896)

(30,729)

 

 

 

 

 

Taxes on profits of the Group arising in Germany are computed using the tax rate of 15,83 % (2016: 15,83%), both for current and deferred tax. Taxable income arising in Cyprus is taxed at 12,5% (2016: 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 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

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

26,291

14,317

30,795

Weighted average number of ordinary shares

4,930,617

4,607,081

4,724,271

 

 

 

 

Basic earnings per share (€)

5.33

3.11

6.52

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares including shares to be issued

4,930,617

4,607,081

4,880,165

 

 

 

 

 

 

 

 

Diluted earnings per share (€)

5.33

3.11

6.31

 

 

 

 

 

 

 

 

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

184,480

140,918

154,001

Ordinary shares at reporting date                 note 8                                                      

5,099,993

4,840,187

4,840,187

 

 

 

 

Net asset value per share (€)

36.17

29.11

31.82

 

 

 

 

 

 

 

 

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

5,099,993

4,840,187

4,996,071

 

 

 

 

 

 

 

 

Net asset value per share (€)

36.17

29.11

30.82

 

 

 

 

 

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 2017

30 June 2016

31 Dec 2016

 

Group

Group

Group

 

(unaudited)

(unaudited)

(audited)

 

€(000)

€(000)

€(000)

 

 

 

 

 

 

 

 

Net consolidated assets attributable to Ordinary shareholders

184,480

140,918

154,001

Gross deferred tax liabiltity

40,984

29,359

34,146

Plus: Capital return to owners

-

-

9,680

Less: Shares to be issued

-

-

(6,282)

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

(327)

(152)

(216)

 

 

 

 

Adjusted Net Assets attributable to Ordinary shareholders

225,137

170,125

191,329

Number of Ordinary shares outstanding at 30 June

5,099,993

4,840,187

4,840,187

 

 

 

 

Adjusted Net Assets Value per Ordinary share (€)

44.14

35.15

39.53

 

 

 

 

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

225,137

170,125

181,649

 

 

 

 

 

 

 

 

Adjusted Net Assets Value per Ordinary share (€)

44.14

35.15

37.53

 

 

 

 

 

14. Commitments and contingencies

 

As at 30 June 2017, the Group had authorised capital investments of €1,550,000 (December 2016: €3,040,000).

 

15. Related party transactions

 

Nigel Le Quesne is a shareholder and director of JTC Group Limited of which JTC (Jersey) Limited and JTC (Luxembourg) S.A. are wholly owned subsidiaries. Stephen Burnett is a non-executive director for the JTC Group. 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 €126,000 (2016: €89,000) to the Group during the half year, of which €45,000 (2016: €43,000) was outstanding as at 30 June 2017. JTC (Luxembourg) S.A. provides administrative services to the Company´s Luxembourg subsidiaries. JTC (Luxembourg) S.A. charged fees totalling €117,000 (2016: €75,600) to the Group during the half-year of which €67,000 (2016: €nil) was outstanding at 30 June 2017.

 

Mark Smith is a director and shareholder of TML and JJIM, the Investment Advisers of the Group, which charged investment advisory fees totalling €2,064,898 (55% JJIM / 45% TML) (2016: €1,549,755) to the Group during the half-year, of which €1,777,732 (2016: €413,417) was outstanding as at 30 June 2017. TML and JJIM together made a provision for performance fee of €8,773,181 (71.3% JJIM / 28.7% TML) (2016: €4,978,916) to the Group during the half-year, all of which was outstanding as at 30 June 2017.

 

As at the balance sheet date Mark Smith owns 75.62% of TML which holds 680,897 shares in the Group, representing 13.35%. These shares were issued in respect of previous performance fees. In addition, Mark Smith holds 598,304 ordinary shares in the Group (including the ordinary shares issued to JJIM which is wholly owned by Mark Smith), representing 11.73% 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, who are the only key management personnel.

 

There are no employee benefits accrued by directors or key management personnel in the current half-year (2016: €nil).

 

 

 


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