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Taliesin Prop Fd Ltd (TPFZ)

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Monday 30 April, 2018

Taliesin Prop Fd Ltd

Annual results for year ended 31 December 2017

RNS Number : 6293M
Taliesin Property Fund Limited
30 April 2018
 

 

Taliesin Property Fund Limited

Annual results for the year ended 31 December 2017

 

Taliesin Property Fund Limited and its subsidiaries ("Taliesin" or the "Group"), a company quoted on the Official List and focused on the Berlin residential market, is pleased to announce its results for the year ended 31 December 2017.

 

A full version of the annual report and accounts will be available on the National Storage Mechanism (http://www.morningstar.co.uk/uk/NSM) and the Company's website (www.taliesinberlin.com).

 

For further information, please contact:

 

Taliesin Property Fund Limited

Jean-François Bossy, Director                                    +352 266 456 303



 

 

 

 

 

 

 

TALIESIN PROPERTY FUND LIMITED

 

Registered number: 91744

 

Annual Report and Financial Statements

 

for the year ended 31 December 2017



 

 

 

Contents                                                                                                                                                                                   Page

 

 

Advisers                                                                                                                                                                                           3

 

Result Highlights                                                                                                                                                                           4

 

Chairman's Statement                                                                                                                                                                  5

 

Investment Adviser's Report                                                                                                                                                        6

 

Directors' Biographies                                                                                                                                                                  9

 

Directors' Report                                                                                                                                                                          10

 

Directors Responsibilities Statement                                                                                                                                     17

 

Independent Auditor's Report                                                                                                                                                   18

 

Consolidated Statement of Comprehensive Income                                                                                                           23

 

Consolidated Statement of Financial Position                                                                                                                      24

 

Consolidated Statement of Changes in Equity                                                                                                                     26

 

Consolidated Statement of Cash Flows                                                                                                                                 27

 

Notes to the Financial Statements                                                                                                                                           28

 

 




 

TALIESIN PROPERTY FUND LIMITED

 

Advisers

for the year ended 31 December 2017

 

 

Company Secretary and Administrator                                         JTC (Jersey) Limited

                                                                                                              28 Esplanade

St Helier

Jersey JE4 3QA

 

Nominated Adviser and Broker                                                      Stockdale Securities Limited

Beaufort House

15 St. Botolph Street

London EC3A 7BB

 

Auditor                                                                                                 Mazars LLP

Tower Bridge House

St Katharine`s Way

London E1W 1DD

 

Investment Advisers                                                                         Taliesin Management Limited

Bridge House

25 Fiddlebridge Lane

Hatfield AL10 OSP

 

JJ Investment Management Limited

8th Floor, Union House

Union Street

St Helier

Jersey JE2 3RF

 

Lawyer                                                                                                 Ogier

Ogier House

The Esplanade

St Helier

Jersey JE4 9WG

 

Registrar                                                                                             Capita Registrars (Jersey) Limited

12 Castle Street

St Helier

Jersey JE2 3RT

 

 

 

 

 

 

 

 

 

 


TALIESIN PROPERTY FUND LIMITED

 

Result Highlights

for the year ended 31 December 2017

 

Key financial and operational highlights

 

·        Adjusted Net Asset Value (NAV)* per share rose 25% in 2017 to €47.00 at the end of the year (31 December 2016: €37.53 after reflecting the €2 per share return of capital to shareholders during the period).

·        Property portfolio now valued at €383 million (31 December 2016: €318 milion)

·        Per square metre ("psqm") valuation of €3,280 (31 December 2016: €2,700)

·        Taliesin's (the "Group") second privatisation project, Kavalierstrasse, has realized or contracted to sell an additional eight units in 2017 (vs. four units sold in 2016) at an average sales price of €4,226 psqm

·        The Berlin property market continues to benefit from positive changes in demographics and a strong local economy with rents and prices also being driven higher by a scarcity of supply

·        On 26 February 2018 all of the ordinary shares of no par value in Taliesin were acquired by affiliates of The Blackstone Group L.P. at a price of €51 per share by means of a Jersey law governed court-sanctioned scheme of arrangement.

·        The zero dividend preference shares did not form part of the scheme of arrangement but now that it has been completed, Taliesin is required under its articles to initiate a process of offering an early repurchase of the zero dividend preference shares.

·        On 9 March 2018 Taliesin announced an offer to buy back the zero dividend preference shares of no par value in Taliesin at a price of £138.42 per share.

·        The offer period expired on 10 April 2018 and as of such date, shareholders in respect of 90,000 zero preference dividend shares representing 0.63% of the total share capital elected to tender their zero preference dividend shares. Taliesin settled the consideration in respect of such buy back on 24 April 2018.

·        The shareholders of zero preference dividend shares who did not elect to tender their shares will continue to hold such zero preference dividend shares subject to redemption on or within 14 days before 30 September 2018 in accordance with the articles of Taliesin.

*The Adjusted NAV per share takes the IFRS NAV and excludes gross deferred tax liabilities.

 

 

 

 

 

 

 

 

 

 


TALIESIN PROPERTY FUND LIMITED

 

Chairman's Statement

for the year ended 31 December 2017

 

I am delighted to be able to report on a memorable year for the Group. Taliesin's Adjusted NAV per share increased by 25% to €47.00 based on the year-end valuation (31 December 2016: €37.53). 

 


The Taliesin share price maintained its premium to the Group's Adjusted NAV followed by a jump towards the end of 2017 to 51 per share, in-line with the price that was offered to shareholders by means of a Jersey law governed court-sanctioned scheme of arrangement that became effective on 26 February and was followed by the de-listing of the Company on the 27th of February 2018. Taliesin`s ZDPs are still listed on the London Stock Exchange. The offer period for the repurchase of the ZDP shares is closed now.

 

Following the de-listing of the Company a restructuring was initiated which is disclosed in more detail in the Note 26 post balance sheet events.



 

Nigel Le Quesne

Chairman

30 April 2018

 

 

 

 


TALIESIN PROPERTY FUND LIMITED

 

Investment Adviser's Report

for the year ended 31 December 2017

 

Recent Market Developments and Outlook

The development of the Berlin property market was no different to previous years. Prices have risen sharply. Demographic and economic trends reported in the last annual reports continued and were accompanied by favourable circumstances.

 

Taliesin's portfolio value (based on a valuation by JLL) increased to €383M in 2017, which is an average sqm value of €3,280. This is an increase of €65M or 20.4% compared to 2016. Sales of condominiums in 2017 amounted to €3.7M. Recent apartment sales prices for former assets held for sales have exceeded €4,200.

 

The Group's adjusted NAV per share increased to €47.00 which is an improvement of 25% or almost €9.50.

 

This positive development - as stated in the introduction - is due to a couple of conditions:

First, the continuing population growth, which is forecasted to expand to 4M by 2030. According to the most recent numbers published by the Einwohnermeldeamt, the population has increased by 50,000 inhabitants per year over a period of 5 years. This makes the forecast for 2030 look very conservative since if population growth continues at a rate of 50,000 inhabitants per year, there would be 4M inhabitants by the end of 2023.

 

The economic growth of the city continues to be stable at a high level and the Federal Employment Office has announced yet another record year for higher employment and lower unemployment rates, despite the growing population. According to the Federal Employment Office the number of employed people grew by nearly 27% between 2009 and 2017. At the same time the unemployment rate has gone down. From being over 10% for more than 25 years, it went below 10% in 2016 and down to 8.4% in 2017. Such a figure was last achieved in 1984. The positive employment data has also had a positive effect on purchasing power which is, however, still below the German average but is catching up. GFK, a well-known research Company, reports that in 2018 Berlin will climb from rank 11 up by one position and now commands 91.5% of the German average purchasing power.

 

Even though population and property prices are rising, new build numbers lag far behind demand. According to CBRE, less than 9000 units were finished in 2016 and expected numbers for 2017 do not seem to be higher. New developments are slowed down not only by reasons, such as lack of builders and high plot / estate prices, but also by a mentality on behalf of both the government and population, of "not in my backyard". This keeps the numbers of new homes at an insufficient level and increases the pressure on the property market. Today vacancy rates are around 1% compared to a stable 5% for a sustained time just a couple of years ago.

 

This has also led to higher market rents. According to CBRE offered market rents were just below €10 psqm in Berlin at the end of 2017. This makes Berlin still the cheapest city of the top 7 cities in Germany. Just Duesseldorf and Cologne are similarly cheap. Offered market rents in Munich are above €16 on average and in Frankfurt / Main just below €13. No surprise that these two cities have a more efficient ratio of building permission to finalised buildings, which is 1.3, compared to Berlin and Duesseldorf, which are at 1.83 and 1.78 respectively (DB, 2018).

 

Another reason for scarcity of supply and pressure on market rents is the restrictive German tenant law which impedes unit churn. The gap between in-situ rents and market rents is increasing year-to-year. While the Mietspiegel shows yearly rent increases of 4.6%, market rents - according to CBRE - were at 8.8%. Therefore, tenants are less willing to terminate an old lease contract for a new lease, leading to a shortage in supply. Inefficient space distribution is the consequence.

 

We do not expect a reversal in the property market due to the beforementioned reasons. Other global and economic circumstances which could have a negative effect on the German real estate market are not anticipated. Interest rates have stayed low and the banks' ability to provide financing is still high. With the formation of the new federal government in March 2018, political stability has been secured.

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational Review

Taliesin received a take-over approach from the Blackstone Group. On 20 December 2017 the boards of directors of Taliesin Property Fund Limited ("Taliesin"), Wren Bidco Limited ("Bidco 1") and Canary Bidco Limited ("Bidco 2" and together, the "Bidcos"), were pleased to announce that they had reached agreement on the terms and conditions of a recommended all cash acquisition of the entire issued ordinary share capital of Taliesin.

Under the terms of the acquisition, each Scheme Shareholder became entitled to receive for each Scheme Share 51 Euros in cash.

The take-over offer is a result of the successful development of Taliesin's prime portfolio, which benefited again from a very strong underlying market. In 2017 its average rent grew by more than 5% and in situ residential rents averaged just below €8.00. Average re-let rents rose by another 5% and are now at €10.50 psqm, demonstrating the ongoing strong long-term rental potential of the portfolio. It is very likely that rental market prices will continue to rise in the future. This, alongside the potential capital uplift connected with any assets that can be privatised, explains why investors, such as the Blackstone Group, are prepared to acquire properties today with low initial yields. 

 

The Company continued the preparation of its portfolio for individual sales. At year end, almost all its Berlin properties were - from a legal point of view - ready for condominium sale. As demonstrated by the Group's recent apartment sales activity, this remains an area which offers significant potential.

 

The Group privatised another 8 condominiums in Kavalierstrasse at an average price of more than €4,200 psqm, ranging from €3,850 - €4,800. The total revenue in 2017 was €3,738,000, and €4,409,000 for all sold units in Kavalierstrasse. Taliesin still owns 11 units in the block.  

 

Due to the smaller number of assets being held for sale, future sales are no longer being coordinated by the in-house agent, Raumerei. The agency has now been sold as the benefits from having an in-house broker are not expected to be as significant as in the past.

 

In 2017 no dividend was paid.

 

As part of the sales process, Taliesin delayed the refinancing of the Phoenix properties by three months which were maturing at year-end. The Group had already negotiated new financing, which was double as high as the existing financing.

Risks and Uncertainties

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

 

Following the elections in 2016 Berlin now has a coalition government comprising the Social Democrats, the Greens and the left parties. These parties campaigned on a strongly pro-tenant platform and the early signs indicate that the operating environment for landlords is going to become more complex. The Berlin authorities are clearly intensifying their efforts to relieve pressure in the rental market by, for example, threatening heavy fines for apartments left intentionally vacant. Gaining permissions for rent increases following refurbishment work in designated "preservation" areas is also proving time consuming and delaying the turnaround of vacant units. At the Federal level, the Ministry of Justice is working on an overhaul of the current Mietspiegel (rental) law which could prove detrimental to landlords.

 

As regards to the politics in Germany itself, the coalition between the conservatives and the Social Democrats has been finally formed after a 6-month negotiation period. The risk of tighter restrictions on rents and higher stamp duty however remain.

 

On the economic front in 2018 and beyond, it is very likely that monetary policy will be, at least to a degree, normalised, barring challenges from negative developments on the Eurozone's periphery. Eurozone inflation reached 1.4% at the turn of the year and, while that is still well below the 2% target set by the ECB, reflationary trends have set in and will eventually prompt the ECB to tighten. The US has already embarked on the path of monetary tightening, with the yield on 10 year US Treasuries has increased relative to German bund yields.

 

 

 

Strategy and Plans

In last year's report we reflected on the level of maturity achieved in the Berlin residential property market over the past several years. The price of property has increased markedly but the market has also experienced a significant de-risking over the period. The underlying support for any residential market comes from a combination of demographics, supply and finance conditions. We would argue that the near-term trend for each of them should continue to be supportive of the market, even at higher prices.

 

On 26 February 2018 all the ordinary shares of no par value in Taliesin were acquired by affiliates of The Blackstone Group L.P. at a price of €51 per share by means of a Jersey law governed court-sanctioned scheme of arrangement. On 27 February 2018 all the ordinary shares in Taliesin were de-listed. The zero dividend preference shares did not form part of the scheme of arrangement but now that it has been completed, Taliesin is required under its articles to initiate a process of offering an early repurchase of the zero dividend preference shares.

 

On 9 March 2018 Taliesin announced an offer to buy back the zero dividend preference shares of no par value in Taliesin at a price of £138.24 per share. The offer is being implemented by way of an off market repurchase of the zero dividend preference shares. Any zero dividend preference shares that are purchase pursuant to the offer will be cancelled.

 

The offer period expired on 10 April 2018 and as of such date shareholders in respect of 90,000 zero preference dividend shares representing 0.63% of the total share capital elected to tender their zero preference dividend shares. Taliesin settled the consideration in respect of such buy back on 24 April 2018.

 

The shareholders of zero dividend preference shares who did not elect to tender such zero dividend preference shares will continue to hold such zero dividend preference shares subject to redemption on or within 14 days before 30 September 2018 in accordance with the articles of Taliesin. On redemption of the zero dividend preference shares on or before 30 September 2018 the zero dividend preference shareholders will receive £144.28 per share.

In the context of the buyback process the restructuring has started and is part of the strategy and future as explained in the chairman`s statement.

 


TALIESIN PROPERTY FUND LIMITED

 

Directors' Biographies

for the year ended 31 December 2017

 

Nigel Le Quesne (Chairman)

Nigel Le Quesne is Group CEO of JTC PLC, having joined in 1991 from Price Waterhouse. He was admitted as an associate in 1989 and a fellow in 1999 of the Institute of Chartered Secretaries and Administrators and is a fellow of the Chartered Management Institute. He is also a member of the Society of Trust and Estate Practitioners, the Jersey Taxation Society and the Institute of Directors. Mr. Le Quesne has a number of directorships of both publicly quoted and private companies and, in particular, has extensive property experience including his roles as a director of Watermark Holdings Limited, a privately owned Jersey company with significant real estate assets in the UK and Germany, and as a member of the supervisory board of IMW Immobilien AG, a publicly quoted property holding company with substantial property holdings primarily in the Berlin area. Mr. Le Quesne was appointed a Director on 17 November 2005 and has served as a Director since that date.

Miranda Lansdwone

Miranda joined JTC in 2007, having worked in the financial services industry since 1998, becoming head of JTC Fund Services in Jersey, responsible for supervising the provision of services to several key private equity fund clients whilst holding a number of directorships in the funds sector. In 2014 Miranda was appointed as Managing Director of JTC Luxembourg, where she oversaw the management of the administration teams in our Luxembourg fund services division, as well as providing support to JTC's fund services teams in Guernsey, Jersey and the UK. Following her return to Jersey Miranda joined the CEO's office where her responsibilities include coordinating the recent admission to trading on the London Stock Exchange of JTC PLC and overseeing the Group's Company Secretariat function.

Jean Francois Bossy

Mr Bossy is the CFO of BRE Europe Real Estate Investment, the ultimate European holding platform of the BREP European Investments, leading the Luxembourg finance team and overseeing all reporting obligations of the various BREP European deals through Europe. Mr Bossy is also involved in tax structuring and compliance matters and also acts as a director of a number of BREP SPVs in Luxembourg and throughout Europe.

Before joining BRE Europe Real Estate Investment in 2004, Mr Bossy worked as a manager at Grant Thornton (4 years) and KPMG (2 years) specialized in services to commercial companies, private equity and real estate funds. Mr Bossy is a qualified certified accountant.

Anthony Beovich

Anthony W. Beovich is a Managing Director in the Real Estate Group. Since joining Blackstone in 1998, Mr. Beovich has worked in the financial reporting Group and is involved in tax research and tax compliance for all Blackstone Real Estate Partners (BREP) funds. Mr. Beovich has also been involved with tax matters relating to fund formation and BREP acquisitions and dispositions. Before joining Blackstone, Mr. Beovich was a Tax Manager at Deloitte & Touche, where he provided tax services to real estate investment trusts, opportunity funds and partnerships in the real estate industry. Mr. Beovich received a BS in Accounting from St. John's University and an MS in Taxation from Long Island University. He is a Certified Public Accountant.

Paul D. Quinlan

Mr Quinlan is a Managing Director and Chief Financial Officer of the Blackstone Real Estate Group. Mr. Quinlan was previously the CFO for Blackstone Real Estate Debt Strategies and Blackstone Mortgage Trust. Prior to this, he was a member of Blackstone Finance, where he served as Head of Financial Planning & Business Development, with oversight of management and public reporting, as well as strategic acquisitions such as Capital Trust/BXMT. Mr. Quinlan also served as the CFO for Blackstone Advisory Partners L.P. Prior to joining Blackstone in 2010, Mr. Quinlan worked at Bank of America Merrill Lynch, focusing on strategic corporate M&A and private equity investments. Mr. Quinlan received a BS in Finance cum laude from Georgetown University and an MBA with distinction from the NYU Stern School of Business.


TALIESIN PROPERTY FUND LIMITED

 

Directors' Report

for the year ended 31 December 2017

 

The Directors present their report to the members together with the financial statements for the year ended 31 December 2017.

 

INCORPORATION

 

The Company was incorporated in Jersey, Channel Islands, on 17 November 2005.

 

 

PRINCIPAL ACTIVITIES

 

The principal activity of the Company is that of a holding company for the Group. The Group's principal activity is selective investment in primarily residential property in Berlin, Potsdam and Dresden. The ordinary shares of the Company were delisted on the AIM Market of the London Stock Exchange on 27 February 2018. The Company's Zero Dividend Preference Shares are listed on the Official List for trading on the London Stock Exchange.

 

 

BUSINESS REVIEW

 

The consolidated statement of comprehensive income for the year is set out later in this report. A review of the development and performance of the business has been set out in the Chairman's Statement and Investment Advisers' report.

 

 

DIVIDENDS

 

The Directors do not recommend the payment of a dividend for the year (2016: €nil).

 

 

DIRECTORS AND DIRECTORS` INTERESTS IN SHARES

 

The Directors of the Company during the year, and subsequently, together with the interests in the share capital of the Company of those in office at the end of the year, were:

 


Ordinary shares

 

Resigned

Appointed

Nigel Anthony Le Quesne

5,200



Stephen Anthony Burnett 

-

26 February 2018


Nicholas Mark Houslop

-

26 February 2018


Nikolaus von Palombini

-

26 February 2018


Mark Smith          

*124,720

26 February 2018


Miranda Suzanne Helen Lansdowne

-


26 February 2018

Jean-Francois Bossy

-


26 February 2018

Paul Quinlan

-


26 February 2018

Anthony Beovich

-


26 February 2018

 

*In addition, Mark Smith owns 75.62% of Taliesin Management Limited (TML) which owns 680,897 ordinary shares. Mark Smith also owns 100% of JJ Investment Management Limited (JJIM) which owns 598,304 ordinary shares.

 

SUPPLIER PAYMENT POLICY

 

The Company and the Group's policy concerning the payment of trade payables is to:

 

•        settle the terms of payment with suppliers when agreeing the terms of each transaction;

•        ensure that suppliers are made aware of the terms of payment by the inclusion of the relevant items in contracts; and

•        pay in accordance with the Group's contractual and other legal obligations.

 

On average, Group trade payables at the year-end represented 26 days (2016: 26 days) of total Group operating expenses. The Company had no trade payables at either 31 December 2017 or 31 December 2016.



GOING CONCERN

The Group's business activities, its performance for the period, and prospects for the business going forward are outlined in the Chairman's Statement and Investment Advisers' report. As described in the Post Balance Sheet Events note on page 63, the Directors are intending to liquidate the Group which is left after the outlined post balance sheet events, after the fulfilment of the ZDP buyback. Therefore, the financial statements are prepared on a basis other than going concern. The directors have reviewed the balance sheet of the Company and have concluded, based on currently available data, that no adjustments are required to any of the assets and liabilities as a result of the proposed transfer and subsequent liquidation. The directors have also assessed the impact of preparing the financial statements on a basis other than going concern, and have noted that existing accounting policies for assets, liabilities, income and expenses as described in Note 2 to the financial statements, remain appropriate.

 

FINANCIAL RISK MANAGEMENT

 

An explanation of the Group's financial risk management objectives, policies and strategies is set out in note 20.

 

AUDITOR

 

Each of the persons who are Directors at the time when this Directors' report is approved has confirmed that:

•        so far as that Director is aware, there is no relevant audit information of which the Group`s auditor is unaware; and

•        that Director has taken all the steps that ought to have been taken as a Director in order to be aware of any information needed by the Group´s auditor in connection with preparing its report and to establish that the Group's auditor is aware of that information.

 

CORPORATE GOVERNANCE

 

The Directors recognise the importance of, and are committed to, high standards of corporate governance. During the course of the current financial year the Board of Directors have continued to assess the most appropriate corporate governance arrangements and have decided to again adopt the Association of Investment Companies Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide").

 

The Board considers the AIC Code, as explained by the AIC Guide, to be the most appropriate for the Company as it allows the Company to continue to adhere to the high standards of corporate governance that it recognises as important to shareholders, whilst providing an appropriate framework of corporate governance for an investment company such as Taliesin.

 

As an externally managed investment company, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. For the reasons set out in the AIC Guide, the Company has therefore not reported on:

 

•        the role of the chief executive;

•        executive director`s remuneration; and

•        the need for an internal audit function.

 

For the reasons set out in the AIC guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions not relevant to the position of Taliesin, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions.

 

 

 

 

 



The principles of the AIC Code

 

The AIC Code is made up of twenty-one principles which, together with the Company's compliance approach, are detailed below:

 

As a result of the changes in ownership the AIC code is not applicable anymore as of the effective date of the scheme of arrangement as described in the strategy and plans.

 

During the financial year 2017 the following practices had been in place.

 

The Board

 

The Chairman should be independent 

Nigel Le Quesne is the CEO of JTC PLC of which JTC (Jersey) Limited, JTC Trustees Limited and JTC Fund Services Limited are wholly owned subsidiaries, he cannot be considered wholly independent, but the Board considers this acceptable given the size and structure of the Group.

The Board has not to date considered it necessary or appropriate to undertake a formal evaluation of the Chairman, as recommended by the AIC Code, due to the nature of the Company's activities and the fact that the Board consists entirely of non-executive Directors.

The Board does not consider that a Director's tenure necessarily reduces their ability to act independently, and believes that each director is independent in character and judgement and there are no relationships or circumstances which are likely to affect the judgement of any Director.

The length of service as a Chairman is excluded from the requirement for directors to be appointed annually after 9 years' service in the Company's Articles of Association.

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

 

A majority of the Board should be independent of the Manager 

 

The Company is led and controlled by a Board comprising five non-executive Directors, who between them have wide commercial experience and considerable expertise in real estate, including in Berlin.

For the purposes of the AIC Code, the Board considers all of the Directors free from any business or other relationship that could materially interfere with the exercise of their independent judgement.

 

Directors should be elected for a fixed term no more than three years. Nomination for re-election should not be assumed but be based on disclosed procedures. 

The Articles of Association stipulate that one third (or nearest number thereto but not exceeding one third) of the Directors shall retire and offer themselves for reappointment at each following Annual General Meeting. The retiring Directors will be made up of those who have not been up for reappointment in the previous three years. Any Director who has served for more than nine years, excluding time spent as Chairman of the Board, shall also retire and offer themselves for reappointment annually.

The Chairman has served on the Board for nine years or more.

The Board subscribes to the view expressed within the AIC Code that long-serving Directors should not be prevented from forming part of an independent majority.

The Board does not consider that a Director's tenure necessarily reduces their ability to act independently and believes that each director is independent in character and judgement and there are no relationships or circumstances which are likely to affect the judgement of any Director.

Nigel Le Quesne has been a director or Chairman for nine years or more.  The length of service as a Chairman is excluded from the requirement for directors to be appointed annually after nine years' service in the Company's Articles.

Nigel Le Quesne was re-elected at the 2016 Annual General Meeting and will continue to stand for re-election every three years going forward whilst he remains Chairman.

Due to the size and nature of the Company's activities the Board does not consider it appropriate to designate a Senior Independent Director.

 

The Board should have a policy on tenure, which is disclosed in the annual report

The Board have approved a Length of Service Independence Policy on 19 October 2016 which states that "the Directors do not consider that service of longer than 9 years necessarily compromised independence and that the Board considered whether a Director was independent in character and judgment and whether there were relationships or circumstances, including those contained in the AIC Code, which were likely to affect, or could appear to affect, the Directors' judgment."

There should be full disclosure of information about the Board.

Biographies of each Director can be found on the Company's website and in the annual report and accounts.

 

The Board should aim to have a balance of skills, experience, and length of service

The Directors consider diversity when making appointments to the Board, taking into account relevant skills, experience, knowledge and gender. The Company has no employees and, therefore, there is nothing further to report in respect of gender representation within the Company.

The objectives of Board planning in terms of its composition and succession are to ensure that the Board is comprised collectively, of fit and proper individuals with the capability to direct the Company in the best interest of its shareholders.

The Board believes that restricting its membership to five is appropriate, given the Company's size, and enables collective decisions to be made without undue delay.  

 

The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its Committees and individual Directors

The Board has not to date considered it necessary or appropriate to undertake a formal evaluation of the Chairman, the Board, the Audit Committee or individual Director's performance, as otherwise recommended by the AIC Code, due to the nature of the Company's activities and the fact that the Board consists entirely of non-executive Directors.

The Chairman and members of the Board do, however, informally discuss the composition and suitability of the Board on a regular basis being mindful of the need to ensure that the best interests of the Company and all stakeholders are considered and served at all times.

Director remuneration should reflect their duties, responsibilities and the value of their time spent.

The Board's policy is that the remuneration of Directors should reflect the experience of the Board as a whole, be fair and comparable to companies that are similar in size, have a similar capital structure and have similar investment objectives.

Each of the Directors has entered into a letter of appointment with the Company which details their terms of appointment, their anticipated time commitment to discharge their duties, details of their role and responsibilities, arrangements for the review of their performance and duration of appointment, the fees payable to them, arrangements for the prior approval of their outside interests and the treatment by them of confidential information. These letters are available for inspection upon request to the Company Secretary.

The most recent meeting of the Remuneration and Nomination Committee was held on 19 July 2017.  The Committee last set the remuneration for all non-executive Directors including the Chairman on 18 June 2015. It has not been felt necessary to appoint independent external remuneration consultants on the basis that the Board contains no executive directors. It has also, therefore, not been felt necessary for the Chairman to remain in contact with the larger shareholders regarding remuneration.

Details of Directors' remuneration are also published in the annual report and accounts.

 

The independent Directors should take the lead in the appointment of new Directors and the process should be disclosed in the annual report

The Board plans for its own succession, with the assistance of the Remuneration and Nomination Committee. This process ordinarily involves the identification of the need for a new appointment, and the preparation of a brief including a description of the role and specification of the capabilities required.

The Board and the Remuneration and Nomination Committee has not to date felt it appropriate to engage specialist recruitment consultants, rather it has utilised the Board's own contacts and its professional advisers when considering appointments.

 

Directors should be offered relevant training and induction

There is currently no formal induction training for Directors.  The Board have agreed to formalise induction training at the next time a new director is appointed.

Upon appointment, each Director is provided with a summary of the responsibilities and duties of Directors, together with relevant background information on the Company and assistance and information from representatives of the Investment Advisers and the Company Secretary.

Thereafter, Directors are encouraged to attend industry and other seminars covering issues and developments relevant to investment companies, and Board meetings regularly include agenda items on recent developments in governance and industry issues.

 

The Chairman (and the Board) should be brought into the process of structuring a new launch at an early stage

 

Whilst this principle is currently not relevant to the Company, in the event that a new issue took place the Chairman and the Board would be engaged at an appropriate stage.

 

Board meetings and relations with the Manager

 

Boards and Managers should operate in a supportive, cooperative and open environment

The Board meets at least quarterly, with additional Committee and ad-hoc meetings held as matters arise.

Regular communications between the Board, Investment Advisers and the Company Secretary are held for specific operational and other matters that may be required outside of the formal Board meetings.

 

The primary focus at regular Board meetings should be a review of investment performance and associated matters such as gearing, asset allocation, marketing/investor relations, peer Group information and industry issues

The quarterly Board meetings follow a standing agenda with reporting provided by the Company's functionaries; the Investment Advisers, Administrator and Registrar.

Collectively, this reporting covers (i) investment related information such as performance, gearing, asset allocation, marketing, investor relations, peer Group information and industry issues, (ii) financial analysis such as adequacy of financial resources, valuation, budget and cash flow, and (iii) operational and regulatory matters.

When appropriate, the NOMAD will be invited to attend Board meetings to advise the Board on specific matters relating to the Company's stock exchange continuing obligations.  

The Board also regularly monitors the share price of the Company and formally reviews the level of premium or discount attached at each quarterly Board meetings, where it considers, inter alia, ways in which the performance might be enhanced.

A register of Directors and Committee members meeting attendance is maintained by the Company Secretary and disclosed in the annual report and accounts. A summary of the 2017 meetings is shown below:

 


Board

MEC

N&RC

Audit

Nigel Le Quesne

8

1

1

n/a

Mark Smith         

10

n/a

n/a

n/a

Mark Houslop

8

n/a

2*

n/a

Stephen Burnett

7

2

2

2

Nikolaus von Palombini

8

2

n/a

2

 

* Mark Houslop became a member of the Nominations and Remunerations Committee on 5 January 2017.

Additional reports are requested and received as required and the Directors have access at all times to a professional Company Secretary who assists the Board in ensuring that procedures, rules and regulations are followed. The Directors may also, in furtherance of their duties, take independent legal and financial advice at the Company´s expense.

 

Boards should give sufficient attention to overall strategy

The Board monitors progress on strategy and policy through regular (at least quarterly) formal reports to the Board from the Investment Advisers. The Board also receives regular key performance data on the property portfolio and is fully involved in all strategic decisions.

Directors also make visits to Berlin in order to review the Investment Advisers' operations and make site visits to the properties in the portfolio.

 



The Boards should regularly review the performance of, and contractual arrangements with, the Manager (or executives of a self-managed Company)

During the year the Investment Advisers had Investment Advisory Agreements with the Company and Taliesin Management Limited (TML) in turn had a service contract with Taliesin Deutschland GmbH (TDL). 

Under the terms of the Investment Advisory Agreements JJIM, TML and TDL are responsible on behalf of the Company primarily for portfolio management, financing related and other general real estate related advisory services.

TML and TDL also provide advice and oversight to the Company in relation to third party service providers such as the property manager, architects, real estate agents etc. TDL also provides bookkeeping and accounting services on behalf of the Company and works together with third party accountants, tax advisers and legal specialists in the preparation of more detailed accounts and statutory filings.

The Board established a Management Engagement Committee (the "Committee") on 14 November 2013 which currently comprises of Nigel Le Quesne, Stephen Burnett (Chairman) and Nikolaus von Palombini to review the performance of the Investment Advisers on an annual basis.

As part of the annual review (last carried out in December 2017,) the Committee undertook the following tasks:

a.      reviewed the terms of the Investment Advisory Agreement between the Company and the Investment Advisers;

b.      reviewed the performance of the Investment Advisers in its role as advisers to the Company;

c.      considered the merit of obtaining an independent appraisal of the services provided by the Investment Advisers;

d.      reviewed the continued retention of the Investment Advisers' services;

e.      reviewed the level and method of remuneration of the Investment Advisers and the notice period included in the Investment Advisory Agreements and made recommendations regarding the mode and frequency of payment;

f.      reviewed the Investment Advisers compliance with the terms and provisions of the Investment Advisory Agreements and investigated any breaches of agreed investment limits and any deviation from the agreed investment policy and strategy; and

g.      reviewed the standard of service provided by the Investment Advisers under the terms of the Investment Advisory Agreements.

The Boards should agree policies with the Manager covering key operational issues

Although the Board has wide-ranging expertise in real estate, including German real estate, it largely confines itself to the making of strategic and broad policy decisions including budget approval.

Day-to-day decisions and policies relating to the investments are delegated to the Investment Advisers.

The Board is responsible for establishing and maintaining the Company´s system of internal control and reviewing its effectiveness. The Board regularly reviews the internal controls of the Investment Advisers and the Administrator who are responsible for the operational aspects of the Company´s business.

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

The Administrator has an administration agreement with the Company and provides significant support functions with regards to the Company's compliance with the applicable rules and regulations of Jersey, as well as the Company's constitutional documentation, continuing listing authority obligations and corporate governance framework.

The Administrator also provides the Company with individuals to act as Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer who have unfettered access to the Board, and who provide regular reporting to the Board in respect of their roles.

Boards should monitor the level of the share price discount or premium (if any) and, if desirable, take action to manage it

The Board regularly monitors the share price of the Company and formally reviews the level of premium or discount attached at each quarterly board meeting, where it considers, inter alia, ways in which the performance might be enhanced.

The Board should monitor and evaluate other service providers

The Management Engagement Committee and Audit Committee, in respect of the Auditor appointment, meets annually to review the continuing appointment of all service providers, to ensure their terms remain competitive and in the best interests of shareholders, and to discuss satisfaction with their performance and service levels.

A recommendation from each Committee is provided to the Board for consideration.

 

Shareholder communications

 

The Board should regularly monitor the shareholder profile of the Company and put in place a system for canvassing shareholder views and for communicating the Board`s views to shareholders

The Group reports formally to shareholders twice a year, when its semi-annual results are announced, and an Annual Report is sent to shareholders. The Annual Report includes notice of the Annual General Meeting of the Company at which a presentation is given and Directors are available to take questions, both formally during the meeting and informally after the meeting.

The Directors are available for dialogue with shareholders on the Group´s plans and objectives and from time to time will meet with them. Communication with the public and with shareholders is the responsibility of the Board. All relevant promotional materials and other communications are made available to the Board prior to release by the Investment Adviser.

The Board should normally take responsibility for, and have direct involvement in, the content of communications regarding major corporate issues even if the Manager is asked to act as spokesman

The Board is actively involved with, and takes responsibility for, the content of all communications regarding major corporate issues.

The Board should ensure that shareholders are provided with sufficient information for them to understand the risk: reward balance to which they are exposed by holding the shares

The Company places great importance on communication with shareholders. It aims to provide shareholders with a full understanding of the Company's activities and performance. It reports formally to shareholders twice a year by way of the annual report and the half-yearly report. The Company's website is also regularly updated.

This is supplemented through news announcements and general information on the London Stock Exchange.

 

FINANCIAL AND BUSINESS REPORTING

 

The directors consider the annual report and accounts, taken as a whole, is fair, balanced and understandable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


TALIESIN PROPERTY FUND LIMITED

 

Directors' Responsibilities Statement

for the year ended 31 December 2017

 

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

 

Jersey Company law requires the Directors to prepare financial statements for each financial period in accordance with generally accepted accounting principles. The financial statements of the Group are required by law to give a true and fair view of the state of affairs of the Group for that year.  In preparing these financial statements the Directors should:

 

•        select suitable accounting policies and then apply them consistently;

 

•        make judgements and estimates that are reasonable and prudent;

 

•        specify which generally accepted accounting principles have been adopted in their preparation, and

 

•       prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. As explained in note 2 to the financial statements, the directors do not believe the going concern basis to be appropriate and these financial statements have not been prepared on that basis.

 

 

The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements prepared by the Group comply with the requirements of the Companies (Jersey) Law 1991.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Directors' responsibility statement under the Disclosure and Transparency Rules 4.1.12

The Directors confirm that to the best of their knowledge and belief:

 

•        the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

•        the management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces.

 

 

By order of the Board

Registered office: 28 Esplanade, St Helier, Jersey, JE2 3QA.

 

 

 

 

___________________________________________        

Miranda Lansdowne

Director

30 April 2018


TALIESIN PROPERTY FUND LIMITED

 

Independent Auditor's Report

for the year ended 31 December 2017

 

Independent Auditor's Report to the members of Taliesin Property Fund Limited

Opinion

We have audited the consolidated financial statements of Taliesin Property Fund Limited (the 'group') for the year ended 31 December 2017 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the financial statements:

·        give a true and fair view of the state of the group's affairs as at 31 December 2017 and of the group's profit for the year then ended;

·        have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·        the financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Use of the audit report

This report is made solely to the company's members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body for our audit work, for this report, or for the opinions we have formed.

Conclusions relating to going concern

These financial statements have not been prepared on a going concern basis for the reason set out in note 1 to the financial statements. We have nothing to report in respect of our conclusions relating to going concern as the accounts have been appropriately prepared on a basis other than going concern and the appropriate disclosures have been made. Our opinion is not modified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

 

Description of the risk

How we addressed this risk

Investment property valuation

The group has a significant portfolio of investment properties which is measured in accordance with IAS 40 'Investment property'. This valuation leads to a significant audit risk due to the estimates and judgements required to be made in ascertaining the value under IFRS 13.

 

 

Our audit procedures included, but were not restricted to:

 

·      Assessing the work completed by the third party property valuers, including whether the valuers have the correct expertise and whether the valuation has been completed using a fair value model suitable for Taliesin's properties;

 

·      Assessing the reasonableness of previous assumptions made by the valuers by checking for actual disposal made in the year;

 

·      Reviewing the key assumptions made and appraising these against available market data such as similar market transactions and forecasts for market yield and market growth; and

 

·      Reviewing the adequacy of the disclosure in the financial statements, including the valuation methodology, assumptions and fair value hierarchy used.

.

 

Revenue recognition, including the timing and treatment of rental income and recognition of property disposal proceeds

Management may exert pressure to distort revenue recognition which may result in the overstatement or deferral of revenues to assist in meeting current or future targets or expectations.

Our audit procedures over revenue recognition included but were not restricted to:

 

·      Testing controls, designed by the group to prevent and detect fraud and errors in revenue recognition, over the recognition of rental income;

 

·      Performing substantive analytical procedures over the recognition of rental income to assess whether revenue had been recognised in the appropriate accounting period;

 

·      Assessing the recoverability of amounts outstanding from tenants;

 

 

 

·      Assessing whether the revenue recognition policies adopted complied with IFRS as adopted by the European Union and are adequately disclosed in the financial statements; and

 

·      Testing a sample of properties and validating sale proceeds recognised during the year to contracts and cash to bank.

 

Use of the going concern assumption following the Acquisition by affiliates of The Blackstone Group L.P.

Following the acquisition by affiliates of The Blackstone Group L.P. on 26th February 2018, and as noted in note 2 to the financial statements, in line with the directors' report, it is the intention of directors to liquidate the Company in 2018.

As the liquidation is expected to be completed within 12 months of the financial statements being authorised for issue, management has decided that the financial statements should be prepared on a basis other than going concern.

Our audit procedures consist of:

 

·      Reviewing documents associated with the acquisition and announcements issued to shareholders; including the offer to ordinary shareholders, the company's de-listing from AIM and the buy-back offer to zero dividend preference shareholders;

 

·      Meeting with the Board of Directors to understand the future strategy for the group, including their consideration and future plans for re-finance; and

 

·      Assessing the appropriateness of preparing the financial statements on a basis other than going concern and that appropriate disclosures have been made.

 

 

Our application of materiality

We apply the concept of materiality in planning and performing our audit, in evaluating the effect of identified misstatements on the financial statements, and in forming our audit opinion. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of the financial statements.

We established materiality based on net assets which is considered appropriate as investors are interested in making a return on their investment, which is based on the share price of the company.  The share price is primarily based on its net asset value, which is driven by the value of the investment properties. We determined the financial statement materiality for the consolidated financial statements as a whole to be €6,121,000 (representing approximately 3% of the group's net assets) and performance materiality to be €4,284,000 (representing 70% of financial statement materiality).

We agreed with the Audit Committee that we would report to that committee all identified corrected and uncorrected audit differences in excess of €184,000 (representing 3% of financial statement materiality) together with differences below that threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our audit involved obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are discussed under "Key audit matters" within this report.

Our audit included an assessment of: whether accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify an information that is apparently incorrect, based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatement or inconsistencies we consider the implications for our report.

Our audit scope included an audit of the consolidated financial statements of Taliesin Property Fund Limited. The audit was scoped by obtaining an understanding of the group and its environment, including controls, and assessing the risks of material misstatement at the group level. Based on that assessment, all entities within the group were subject to full scope audit.

 

Other information

The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

 

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

·        Proper accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

·        the financial statements are not in agreement with the accounting records and returns; or

·        we have not received all the information and explanations we require for our audit.

 

 

Responsibilities of Directors

As explained more fully in the directors' responsibilities statement set out on page 17, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

 

 

Richard Metcalfe

for and on behalf of Mazars LLP

Chartered Accountants

 

 

Tower Bridge House

St Katharine's Way

London

E1W 1DD

Date: 30 April 2018

 


TALIESIN PROPERTY FUND LIMITED

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2017

 








2017


2016


Note

€(000)


€(000)






Continuing operations










Rental income


10,738


10,513

Service charge receipts


2,847


2,689






Revenue


13,585


13,202






Income from disposal of investment property

(including investment property held for sale)


3,738


6,887

Carrying amount of investment property sold


(3,227)


(6,521)






Profit on disposal of investment property


511


366






Other operating income


354


262






Total operating revenues


14,450


13,830






Net change in fair value of investment properties

(including investment property held for sale)


62,828


51,864

Total operating expenses

7

(24,464)


(20,573)






Profit from operating activities


52,814


45,121






Gain on fair value of financial assets

16

2,098


1,787

Finance income

10

1


1

Finance expenses

11

(4,185)


(4,995)

Net foreign exchange differences

12

(678)


(1,392)

Change in fair value of derivative financial instruments

21

314


1,526






Net financing costs


(2,450)


(3,073)











Profit before income tax


50,364


42,048

Income tax charge

13

(10,872)


(9,295)






Total profit for the year


39,492


32,753











Profit and total comprehensive income attributable to:










Owners of the parent


37,189


30,795

Non-controlling interest


2,303


1,958






Total profit and total comprehensive income for the year


39,492


32,753











Basic earnings per ordinary share

14

7.41


6.52






Diluted earnings per ordinary share

14

7.41


6.31






 

 

The notes on pages 28 to 65 form an integral part of the financial statements.

 


Consolidated Statement of Financial Position





for the year ended 31 December 2017


2017


2016


Note

€(000)


€(000)






ASSETS










Non-current assets










Investment properties

5

379,159


310,911

Other financial assets

16

7,971


5,855






Total non-current assets


387,130


316,796











Current assets










Cash and cash equivalents


3,062


6,348

Trade and other receivables and prepayments

17

4,552


5,775

Assets classified as held for sale

6

3,920


7,070






Total current assets


11,534


19,193











Total assets


398,664


335,989











SHAREHOLDERS`EQUITY AND LIABILITIES










Equity










Stated capital account

18

59,851


49,381

Shares to be issued

18

-


6,282

Capital reserve


56


56

Retained earnings


135,470


98,282






Equity attributable to equity holders of parent

24

195,377


154,001











Non-controlling interests

24

8,645


6,342











Total equity

24

204,022


160,343






 

 

The notes on pages 28 to 65 form an integral part of the financial statements.

 









2017


2016


Note

€(000)


€(000)






Non-current liabilities










Interest bearing loans and borrowings

19

67,658


100,781

Financial liabilities at fair value through profit or loss

21

-


406

Deferred tax liablities

13

41,085


30,729






Total non-current liabilities


108,743


131,916











Current liabilities










Interest bearing loans and borrowings

19

63,846


29,714

Financial liabilities at fair value through profit or loss

21

80


-

Other liabilities and payables

22

19,028


10,227

Liabilities directly associated with assets classified as held for sale

19

2,945


3,789






Total current liabilities


85,899


43,730











Total equity and liabilities


398,664


335,989











Net asset value per ordinary share (€)

14

38.31


31.82







 

 

The notes on pages 28 to 65 form an integral part of the financial statements. 

 

The financial statements were approved by the Board of Directors and authorised for issue on 30 April 2018 and were signed on its behalf by:

 

 

 

 

________________________________                                    ___________________________________

 

Nigel Le Quesne                                                                               Miranda Lansdowne

Director                                                                                               Director

 



Stated capital account

Stated capital account

Shares to

Capital

Treasury

Retained

Equity attributable

Non-controlling

Total


ordinary shares

b-shares

be issued

reserve

shares

earnings

to equity holders    of parent

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

  -

  -

  -

  -

  -

37,188

37,188

2,303

39,491











Total comprehensive income for the year

  -

  -

  -

  -

  -

37,188

37,188

2,303

39,491

Transaction with owners










Issues of shares

10,470

  -

(6,282)

  -

  -

  -

4,188

  -

4,188





















Total transaction with owners

10,470

   -

-

   -

 -

   -

4,188

 -

4,188




















Equity at 31 December 2017

59,851

  -

-

56

 -

135,470

195,377

8,645

204,022





















Equity at 1 January 2016

48,041

  -

6,643

56

  -

67,487

122,227

4,383

126,610

Profit for the year

  -

  -

  -

  -

  -

30,795

30,795

1,958

32,753











Total comprehensive income for the year

  -

  -

  -

  -

  -

30,795

30,795

1,958

32,753

Transaction with owners










Issues of shares

11,020

  -

(6,643)

  -

  -

  -

4,377

  -

4,377

Issues of b-shares

(9,680)

9,680

  -

  -

  -

  -

  -

  -

  -

Redemption of b-shares

  -

  -

  -

  -

(9,680)

  -

(9,680)

  -

(9,680)

Cancellation of b-shares

  -

(9,680)

  -

  -

9,680

  -

  -

  -

  -

Shares to be issued for services received

  -

  -

6,282

  -

  -

  -

6,282

  -

6,282











Total transaction with owners

(1,340)

   -

6,282

   -

 -

   -

979

 -

979





















Equity at 31 December 2016

49,381

  -

6,282

56

 -

98,282

154,001

6,342

160,343












The notes on pages 28 to 65 form an integral part of the financial statements. 









2017


2016


Note

€(000)


€(000)






Profit from operating activities


52,813


45,121






Net change in fair value of investments properties


(62,828)


(51,864)

Changes in working capital:





Decrease in receivables


373


780

Increase in payables


12,384


10,482








2,742


4,519






Tax paid


(512)


(605)






Net cash generated from operating activities


2,230


3,914











Investing activities










Capital expenditure on properties held

5

(5,497)


(4,907)

Proceeds from disposal of property


3,738


6,887

Interest received

10

1


1






Net cash (used in) / generated by investing activities


(1,758)


1,981











Financing activities










Proceeds from borrowings


4,000


46,500

Loan repayments


(4,848)


(33,622)

Interest paid


(2,520)


(3,805)

Capital return to owners

18

-


(9,680)

Margin deposit increase


(390)


(3,030)






Net cash used in financing activities


(3,758)


(3,637)











Foreign exchange gains on cash and cash equivalents

12

-


12






Net decrease in cash and cash equivalents


(3,286)


(2,270)






Cash and cash equivalents at start of year


6,348


4,078











Cash and cash equivalents at end of year


3,062


6,348






Cash and cash equivalents comprise:










Cash at bank


3,062


6,348






 

The notes on pages 28 to 65 form an integral part of the financial statements. 


Notes to the Financial Statements

for the year ended 31 December 2017

 

Notes

1.   General information

The Group is principally engaged in selective investment in primarily residential property in Berlin, Dresden and Potsdam with its operation focused on management of properties held for rent and privatisation (see Note 5).

 

The Group´s investment properties consist of 62 multi-tenant buildings with a total of more than 1,500 rental units.

 

The Company's Ordinary shares were traded until 27 February 2018 on AIM and the Company's Zero Dividend Preference Shares are listed and traded on the Main Market of the London Stock Exchange.

 

The consolidated financial statements of Taliesin Property Fund Limited and its subsidiaries (the "Group") for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of the directors on 30 April 2018.  

 

Taliesin Property Fund Limited (the "Company") is a limited company incorporated and domiciled in Jersey. The registered office is located at 28 Esplanade, St Helier, Jersey, JE2 3QA.

 

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by the European Union.

 

The Group´s financial statements have been prepared on a historical cost basis, except for investment property and certain financial instruments which have been measured at fair value. The consolidated financial statements are presented in Euros and all values are rounded to the nearest thousand (€000), except where otherwise indicated.

 

The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

 

As described in the Post Balance Sheet Events note on page 63, the management considers to liquidate the Group which is left after the outlined post balance sheet events, after the fulfilment of the ZDP buyback. Therefore, the financial statements are prepared on a basis other than going concern. The directors have reviewed the balance sheet of the Company and have concluded, based on currently available data, that no adjustments are required to any of the assets and liabilities as a result of the proposed transfer and subsequent liquidation.

 

New and amended standards and interpretations

Except for the adoption of newly published and amended standards and interpretations, which are effective for annual periods beginning on or after 1 January 2017, the Group´s accounting policies are consistent with those of the previous year.

 

The Group has adopted the following new and amended IFRSs, including any consequential amendments to other standards, effective for this Group as of 1 January 2017. The nature and the impact of each new standard and amendment is described below.

 

-       Amendments to IAS 7 Disclosure Initiative: These amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities, including both cash and non-cash changes, arising from financing activities.
The Group's liabilities arising from financing activities consist of bank loans and zero dividend preference shares. A reconciliation between the opening and closing balances of these items is provided in note 19. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 19, the application of these amendments has had no impact on the Group's consolidated financial statements.

-       Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses: These amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary difference.
The application of these amendments has had no impact on the Group's consolidated financial statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.

1.  General information (continued)

-       Annual Improvements to IFRSs 2014-2016 Cycle: The Group has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs 2014-2016 Cycle, for the first time in the current year. The other amendments included in this package are not yet mandatory and have not been early adopted by the Group.
IFRS 12 states that an entity need not provide summarised financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal Group that is classified), as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.
The application of these amendments has had no effect on the Group's consolidated financial statements as the Group doesn't hold any interests in entities that are classified, or included in a disposal Group that is classified, as held for sale.

 

Other amendments to certain standards apply for the first time in 2017. However, adoption of these revised standards and interpretations did not have any material effect on the financial statements of the Group.  

 

Accounting Standards and interpretations not yet adopted

 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group´s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

 

-        IFRS 9: Financial Instruments and Subsequent Amendments (Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39 as well as Amendments to IFRS 9/IFRS 7: Mandatory Effective Date and Transition Disclosures)

-        IFRS 15: Revenue from Contracts with Customers

-        IFRS 16: Leases

-        Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions

-        Amendment to IAS 40: Transfers of Investment Property, effective for reporting periods on or after 1. January 2018.

-        IFRIC 22 Foreign Currency Transactions and Advance Consideration

 

IFRS 9

 

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting of financial instruments: classification and measurement, impairment and hedge accounting.

 

The standard introduces just two classes of financial assets: assets measured at fair value and assets measured at amortised costs. For financial liabilities the requirements of IAS 39 basically remain. There are merely changes in the recognition of changes in value of financial liabilities measured at fair value.

 

IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Group plans to adopt the new standard on the effective date. Based on an analysis of the Group's financial assets and financial liabilities as at 31 December 2017, and the facts and circumstances that exist at that date, the Group expects all financial assets, and financial liabilities, will continue to be measured on the same bases as is currently adopted under IAS 39.

The Group does not anticipate that the application of the expected credit loss model of IFRS 9 will result in any earlier recognition of credit losses for the respective items, or in any increase of the amount of loss allowance recognised for these items.

The Group does not anticipate that the application of the IFRS 9 hedge accounting requirements will have a material impact on the Group's consolidated financial statements.

 

 

 

 

1.  General information (continued)

 

IFRS 15

 

The new revenue recognition standard replaces all current guidance on revenue recognition. A five-step model will be applied to entities to determine when to recognise revenue, and the amount. The model specifies that revenue should be recognised when, or as, an entity transfers control of goods or services to a customer and at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is either recognised over time, in a manner which best reflects the entity's performance, or at a point in time, when control of the goods or services is transferred to the customer. The new standard provides application guidance on numerous related topics, including warranties and licenses and when to capitalise the costs of obtaining a contract and some costs of fulfilling a contract. The new standard is effective for annual periods beginning on or after 1 January,2018, when the Group plans to adopt it.

 

The Group achieves revenue mainly from rental income, which is recognised over time as the performance obligation is satisfied, and - to a lesser extent - from the sale of apartments, which is recognised when control is transferred to the customer. 

The Group assessed that the methods currently used for revenue recognition will be appropriate under IFRS 15 and there is no significant impact on its consolidated financial statements to be expected.

 

 

IFRS 16

 

In January 2016 the IASB issued the new standard IFRS 16 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor') and replaces the previous standard IAS 17 Leases and related interpretations. According to the new standard the lessee shall recognise an asset that is identified as controlled by the customer in the balance sheet. The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. In contrast to lessee accounting, the IFRS lease liability is adjusted for interest and lease payments and therefore substantially carries forward the lessor accounting requirements in IAS 17. The new standard is mandatory for annual periods beginning on or after 1. January 2019.

The new requirement to recognise a right-of-use asset and a related lease liability is expected to have no impact on the amounts recognised in the Group's consolidated financial statements as the Group does not have any non-cancellable lease commitments as at 31 December 2017. In its core business of property rental the Group is the lessor. For lessor accounting the Group does not expect any significant impact by the application of IFRS 16 on the amounts recognised in the consolidated financial statements.

 

 

IFRS 2

 

The amendments address:

•       The measurement of cash-settled share-based payment transactions with vesting and non-vesting conditions;

•       The classification of share-based payment transactions with net settlement features for withholding tax obligations

•       The accounting for a modification to the terms and conditions of a share-based payment transaction that changes its classification from cash-settled to equity-settled.

 

The amendments are effective for annual reporting periods beginning on or after 1 January 2018, when the Group plans to adopt it. The impact to Group´s financial statements is expected to be immaterial.

 

 




1.  General information (continued)

IAS 40

The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in IAS 40 may evidence a change in use.

The amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted.

The Group assessed that the methods currently used to determine of whether a property meets, or has ceased to meet, the definition of investment property will be appropriate under the amendments to IAS 40 and there is no significant impact on its consolidated financial statements to be expected.

 

IFRIC 22

IFRIC 22 addresses how to determine the 'date of transaction' for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (e.g. a non-refundable deposit or deferred revenue). The interpretation specifies that the date of transaction is the date on which the entity initially recognises the non- monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

The Interpretation is effective for annual periods beginning on or after 1 January 2018 but has not yet been endorsed by the European Commission.

The directors of the Company do not anticipate that the application of the amendments in the future will have an impact on the Group's consolidated financial statements.

 

 



2.  Principal accounting policies

 

The principal accounting policies are set out below:

 

Basis of Consolidation

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2017. Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company. All intra-Group transactions and balances are eliminated in full.

 

Non-controlling interests represent the portion of profit or loss and net assets not held by the Group, and are presented separately in the income statement, and within equity in the consolidated statement of financial position, separately from the parent shareholders' equity. 

 

Business combinations and goodwill

 

The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

 

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the purchaser´s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.

 

In a business combination, where the fair value of net assets acquired is less than the fair value of the consideration, that excess will be recognised as goodwill in the statement of financial position. Where the fair value of the net assets acquired exceeds the fair value of the consideration, that excess will be recognised as negative goodwill in the statement of comprehensive income.

 

When the acquisition of subsidiaries does not represent a business, it is accounted for as an acquisition of a Group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is recognised.

 

 

Investment properties

 

Properties held for long-term rental yields or for capital appreciation or both are classified as investment properties and the provisions of IAS 40 "Investment Property" apply.

 

Investment properties comprise undeveloped land, land and rights equivalent to land with buildings, and land with third party hereditary building rights. Investment properties are measured initially at cost including related transaction costs. After initial recognition, investment properties are measured at their fair values, with subsequent changes in fair values recognised in profit or loss.

 

The property portfolio, which is carried in the balance sheet at fair value, is valued six-monthly by professionally qualified external valuers and the Directors must ensure that the valuation of the Group's properties is appropriate for the accounts. Investment properties are valued by adopting the 'investment method' of valuation. This approach involves applying market-derived capitalisation yields based on current and future income streams that are derived from comparable property and leasing transactions and are considered to be the key inputs in the valuation. Other factors that are taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.

 

Transfers to, or from, investment property are made when there is a change in use. Therefore, the property's deemed cost for subsequent measurement is its fair value at that date.

 

Investment property is derecognised when it has been disposed. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at disposal of investment property.

 

 

 

 

 

2.   Principal accounting policies (continued)

 

Assets classified as held for sale

 

Investment properties and directly associated liabilities are classified as current assets held for sale if notary sale contracts have been executed as at the reporting date but transfer of ownership is outstanding. Current assets classified as held for sale are measured at the lower of their carrying value and fair value, less costs to sell. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement of financial position. On re-classification, investment property that is measured at fair value continues to be so measured.

 

Other financial assets

 

As other financial assets the Group holds non-derivative structured loan notes and derivative financial assets such as forward currency contracts (Note 16). Each are initially recognised on the transaction date and classified at fair value through profit or loss. Directly attributable transaction costs are recognised in profit or loss as incurred.

 

The underlying financial assets of these Structured Loan Notes are equity investments held by the note issuer. The fair value assessment of each note is determined by the net asset values of each share on each reporting date. The notes have a five-year maturity after which the notes can be renewed or repaid. Repayment proceeds would come from the sale of the underlying shares.

 

Forward currency contracts entered into by the Group to hedge the Pound Sterling liability on the Group´s Zero Dividend Preference Shares are also measured at fair value. These derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

 

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred.

 

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

 

Changes in the value of financial assets designated at fair value through profit or loss and gains and losses on disposal, together with interest income, are recognised in profit or loss as "Gain/loss on fair value of financial assets".

 

Trade and other receivables and prepayments

 

Trade and other receivables and prepayments predominantly consist of rent receivables, collected rents that are held in escrow accounts at the property manager, prepaid property expenses that are allocated to tenants, a margin deposit held at a foreign exchange broker and collected property sales proceeds held in a notary escrow account. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

 

Rent and other receivables are recognised at their original invoiced value. Where there is objective evidence that the asset is impaired, its carrying value is adjusted as necessary for any estimated irrecoverable amounts and the adjustment is recognised in profit or loss. Adjustments to impaired receivables are made through an allowance account/bad debt provision. Balances are written off when the probability of recovery is assessed as being remote. When the asset is settled the necessary adjustments will be processed through profit or loss and the statement of financial position.

 

Cash and cash equivalents

 

The Group classifies as cash and cash equivalents cash at bank, short term deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

 

Equity instruments

 

An instrument is an equity instrument if it includes no contractual obligation to transfer cash or other assets to the holder. Such instruments issued by the Group are recorded at the proceeds received. Direct expenses relating to the raising of equity share capital are deducted from the proceeds of any equity issued.

 

 



 

2.   Principal accounting policies (continued)

 

 

Shares to be issued

 

The Company has entered into arrangements with its investment advisers, Taliesin Management Limited (TML) and JJ Investment Management Limited (JJIM), under which TML and JJIM may be paid a performance fee which may be settled, at the option of TML and JJIM, up to 40% in cash, with the balance being settled in ordinary shares or options over ordinary shares, or any combination thereof.

 

Where TML and JJIM have given advance notices of their intentions prior to year-end, the Company accounts for the performance fee as follows. In the statement of financial position, the components to be settled in cash are treated as a current liability and included in other liabilities and payables and the component to be settled in equity-based instruments, i.e. shares and/or options, is included in shareholders' equity as provisions for shares and/or options to be issued in the following financial period, at the 20-day average share price prior to the 31 December in the reporting period. The combined value of these components of the performance fee is charged to profit or loss during the financial period to which the performance fee relates. Where TML and JJIM have not given advance notice of their intentions prior to the year-end the whole fee is treated as a current liability and included in other liabilities and payables and the whole amount is charged to profit or loss during the financial period to which the performance fees relate.

 

Financial liabilities

 

The Group classifies financial liabilities as non-derivative and derivative financial liabilities.

 

Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

Non-derivative financial liabilities are classified as interest bearing loans and borrowings and comprise all bank loans and zero dividend preference shares. Amortised costs are included in finance expense in profit or loss.

 

The redemption premium of the Zero Dividend Preference shares, which are mandatorily redeemable on a specific date, is calculated using the effective interest rate method and is recognised in profit or loss as a finance expense.

 

The Group classifies derivative financial liabilities such as interest rate swaps as financial liabilities at fair value through profit or loss.  The Group uses interest rate swaps to hedge its risks associated with upward movements in interest rates as well as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-valued at fair value at the end of each financial reporting period. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Gains or losses are taken directly to profit or loss as part of net financing costs.

 

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.

 

Other Liabilities and payables

 

Other liabilities and payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains or losses are taken directly to profit or loss when liabilities are derecognised or amortised.

 

Provisions

 

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation and the amount can be reliably estimated. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the end of the financial period and are discounted to present value where the effect is material.


Retained Earnings

 

The retained earnings reserve represents profits and losses retained in previous and the current period.

 

 

 

 



 

2.   Principal accounting policies (continued)

 

 

Revenue recognition

 

Rental income from operating leases is recognised on a straight line basis over the term of the lease, net of any sales-related taxes, at the fair value of the consideration receivable. Tenant lease incentives are recognised as a reduction of rental revenue on a straight line basis over the term of the lease.

 

Service charge revenue is accounted for on an accruals basis, and is based on property expenses expected to be recovered by occupants.

 

Sale of property

 

Profit or loss on the sale of property is recognised when the significant risks and rewards of the ownership of the sold properties have been transferred to the buyer and no material rights to the sold properties remain with the Group.

 

Corporate income tax expense

 

The corporate income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit may differ from net profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

 

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss.

 

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the financial period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are offset against one another where both assets and liabilities arise within individual taxable entities to the extent that only overall amounts payable or recoverable are carried in the statement of financial position.

 

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

 

Deferred tax assets on losses, temporary differences and property valuation differences have been recognised in respect of the German subsidiaries to the extent that it is sufficiently probable that they will be realised in the future against taxable profits, reversals in underlying temporary differences and appreciations in property valuations prior to any disposals of subsidiaries.

 

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

 

Foreign exchange

 

I.           Functional and presentation currency

The financial statements are presented in Euros as this is the primary currency of the economic environment in which the entity operates, and in which the material transactions of the Group are undertaken.

 

II.          Transactions and balances

Transactions undertaken in foreign currencies are translated into Euros at the rate ruling on the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies are translated into Euros at the rate ruling at the end of the financial period. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Gains and losses on exchange are taken directly to profit or loss.

 

 

 

 

 

 

2.   Principal accounting policies (continued)

 

 

Expenditure and other operating income

 

Expenditure and other operating income are accounted for on an accruals basis.

 

Finance income

 

Finance income is recognised using the effective interest rate (EIR) method. EIR is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument to the net carrying amount of the financial asset or liability.



 

3.   Critical accounting estimates and judgements

 

The preparation of the financial statements requires the Directors to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosures of contingencies as at the end of the financial period. If, in the future, such estimates and assumptions, which are based on the Directors' best judgement at the end of the financial period, deviate from the actual circumstances, the original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following policies are considered to be of greater complexity and/or particularly subject to the exercise of judgement.

 

Critical accounting estimates

 

Valuation of property

 

The fair value of investment properties is based on valuations performed by real estate valuation experts, JLL, using recognised valuation techniques and the principles of IFRS 13.

 

The Directors remain ultimately responsible for ensuring that the valuers are adequately qualified, competent and base their results on reasonable and realistic assumptions.

 

Fair value is the price that would be received to sell a property in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset takes place either in the principal market for the property or in the absence of a principal market, in the most advantageous market at the measurement date.

 

The fair value of an investment property is measured using the assumptions that market participants would use when pricing the property, assuming to act in their economic best interest. Thus the fair valuation takes into account a market participant´s ability to generate economic benefits by using the property in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. 

 

The Group operates in large cities in Germany where there is a well-developed and active property market for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Such inputs include current and recent sale prices of similar properties, and rents based on current market rates with which to calculate discounted cash flows based on reliable estimates of future rental income and discount rates that reflect current market assessments of uncertainties in the amount and timing of cash flows. Estimates of the values of investment properties include assumptions regarding vacancy rates, discount rates and rental income as noted in note 5. The estimates also consider the privatisation potential of investment properties (i.e. the value potential in the split and separate sale of freeholds) and the Group has established specific criteria relating to the progress of the privatisation process that must be met for a property´s privatisation value to be considered.

 

As the valuation techniques applied derive from data that is sometimes not widely publicly available and involve a degree of judgement, the Group classified the valuation techniques for its investment property portfolio as Level 3 as defined by IFRS 13, meaning that the lowest level input that is significant to the fair value measurement is unobservable.

               

Valuation of financial instruments

 

I.      Financial assets

 

Investments designated at fair value comprise Structured Loan Notes where the economic value is determined by reference to the value of certain Group companies. The value of the financial assets is determined by reference to the financial statements of those companies.

 

II.     Interest bearing loans and borrowings

 

In order to measure Interest bearing loans and borrowings initially at fair value, the Directors make judgements based on discounting future cash flows and on current market interest rates and the likely trend in future market interest rates. To ensure that loan obligations are met without default, the Directors' forecast and monitor the Group´s debt service coverage ability based on net cash flows also taking into consideration that any collateral requirements are permanently fulfilled.

 

III.    Derivative financial assets and liabilities

Forward currency contracts to hedge the Group`s foreign currency risk as well as interest rate swaps to hedge the Group`s interest rate risks are valued in collaboration with the instrument providers and other market counter-parties on a regular basis by reference to relevant currency exchange rates and interest rate movements as well as the credit status of the contracting parties. The effectiveness of these hedge instruments is continuously monitored in order to determine whether it is in the Group's interest to maintain these arrangements, extend them, or close them in part or in their entirety.

3.   Critical accounting estimates and judgements (continued)

 

Critical accounting judgements

 

Income taxes

 

There are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these measures is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made.

 

Recognition of deferred tax assets

 

The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences and losses can be deducted.  Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax Group in which the deferred tax asset has been recognised.

 

 



 

4.   Segment information

 

The Group monitors its business of investing in primarily residential property in Berlin, Potsdam and Dresden in two segments:

 

First, the procurement and oversight of management of its rent portfolio, which includes the modernisation and maintenance of the Group´s investment properties, the management of rent contracts, caring for tenants and the marketing of apartments. The focus of managing the rent units is to optimise rents. Therefore all capital expenditures to the properties are analysed for rent improvement potential. On the other hand service charges are sought to be reduced and to be passed on to tenants. 

 

The second segment is privatisation, the sale of individual apartments. The Group started in fiscal year 2015 to sell a number of apartments as a means to demonstrate to shareholders the value potential in its property portfolio in privatisation. In 2016 the Group sold a total of 19 units in its properties in Warschauer Strasse and Kavalierstrasse. In 2017

another eight units were sold in Kavalierstrasse.  

 

For the purpose of IFRS 8, the chief operating decision makers are the Directors and the Investment Advisers (see note 8). At the meetings between the Directors and the Investment Advisers, the income, expenditure, cash flows, assets and liabilities are reviewed on a whole-Group basis with additional information on the development of the Group´s rent portfolio and privatisation business.

 

All of the Group's income and non-current assets are derived from Germany. No single customer accounts for more than 10% of the Group's income.

 

Internal and external reporting is on a consolidated basis, with transactions between Group companies eliminated on consolidation. The Group monitors the operating activities of its two business units separately for the purpose of strategic decisions. Therefore the financial information as set out in the consolidated statement of comprehensive income is split among the two segments:

 

Income statement



Segment by activity







Total 2017


Rental portfolio

Sale segment


€(000)


€(000)

€(000)






Rental Income

10,738


10,637

101

Service charge receipts

2,847


2,874

(27)






Revenue

13,585


13,511

74

Sale of investment properties

3,738


-

3,738

Sold properties book value

(3,227)


-

(3,227)






Profit on sale of investment properties

511


-

511

Other operating income

354


346

8






Total operating revenues

14,450


13,857

593

Net change in fair value of investment properties

62,828


62,751

77

Total operating expenses

(24,464)


(24,283)

(181)






Profit from operating activities

52,814


52,325

489

Net financing costs

(2,450)


(2,443)

(7)






Profit before income tax

50,364


49,882

482

Income tax (charge)

(10,872)


(10,723)

(149)






Total profit for the year

39,492


39,159

333






 


 

 

 

4.   Segment information (continued)

Income statement



Segment by activity







Total 2016


Rental portfolio

Sale segment


€(000)


€(000)

€(000)






Rental Income

10,513


10,427

86

Service charge receipts

2,689


2,699

(10)






Revenue

13,202


13,126

76

Sale of investment properties

6,887


-

6,887

Sold properties book value

(6,521)


-

(6,521)






Profit on sale of investment properties

366


-

366

Other operating income

262


255

7






Total operating revenues

13,830


13,381

449

Net change in fair value of investment properties

51,864


51,063

801

Total operating expenses

(20,573)


(20,259)

(314)






Profit from operating activities

45,121


44,185

936

Net financing costs

(3,073)


(2,979)

(94)






Profit before income tax

42,048


41,206

842

Income tax (charge) / credit

(9,295)


(9,330)

35






Total profit for the year

32,753


31,876

877






 

After all condominiums in Warschauer Str. 76 were sold in 2016, the Group had just classified the remaining apartments of the property Kavalierstrasse as an asset held for sale during 2017. The corresponding numbers in the balance sheet were an asset in the amount of €3,920,000 and a liability in the amount of €2,945,045. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.   Investment properties

 






2017


2016


€(000)


€(000)





Book cost brought forward at 1 January

146,261


148,924

Fair value adjustments brought forward

164,650


113,587





Valuation brought forward at 1 January

310,911


262,511

Capital expenditure on properties held

5,497


4,907

Reclassification to assets held for sale

-


(7,570)






316,408


259,848

Revaluation (fair value adjustments)

62,751


51,063





Valuation as at 31 December 2017

379,159


310,911





 

 

The Group´s investment properties consist of 62 multi-tenant buildings with a total of 1,532 rental units with a total rental area of 116,945 m². The majority of all rental units are residential apartments (1,362), of which approximately 92% are located in Berlin, the rest in Dresden (3%) and Potsdam (5%).   

 

The fair values of the investment properties held at 31 December 2017 are based on valuations performed by an independent valuer, JLL. These are in accordance with the appropriate sections of the current Valuation Standards (VS) contained within the current Appraisal and Valuation Standards, 8th Edition (the 'Red Book') published by the Royal Institution of Chartered Surveyors (RICS) as well as the standards contained within the TEGoVA European Valuation Standards, and in accordance with IVSC International Valuation Standard 1 (IVS1), the International Accounting Standards (IAS), International Reporting Standards (IFRS) as well as the current guidelines of the European Securities and Markets Authority (ESMA) on the basis of Market Value.  JLL has recent experience in the location and category of the investment property being valued.

 

For all investment property measured at fair value the current use of the property is considered the highest and best use.

 

Rental income recognised in profit or loss was mostly received from investment properties. Expenditure on investment properties capitalised during the year, amounted to €5,497,000 (2016: €4,907,000) and related to fundamental refurbishment and improvement of the investment properties such as the renewal of layouts, heating and piping systems of residential apartments. Direct operating expenditure on investment properties charged to profit or loss during the year including maintenance, property management and agent fees during the year amounted to €1,299,000 (2016: €1,392,000).

 

The Group has no restrictions on the saleability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

 

The fair value of the investment properties is determined using a discounted cash flow (DCF). As certain input assumptions rely on unobservable data as also outlined in note 3 under critical accounting estimates for property valuation, the valuation technique applied for valuing the investment property portfolio is classified as Level 3 as defined in IFRS 13 and in accordance with EPRA`s (European Public Real Estate Association) guidance.

 

 

 

 

 

 

 

 

 

5.   Investment properties (continued)

 

 

Residential Properties

 













Valuation
Technique

Significant Unobservable Inputs

Range
Year ended
31 Dec 2017


 Weighted Average

Range
Year ended
31 Dec 2016

 Weighted Average








DCF method

estimated rental value per
m² per month

€6.50 - €12.50


€10.39

€6.50 - €11.50

€9.68


rent growth p.a.

1.50% - 2.25%


2.21%

1.25% - 2.25%

1.98%









Long-term vacancy rate

2.00% - 4.00%


2.02%

2.00% - 4.00%

2.05%


discount rate 

3.50% - 5.75%


4.14%

4.00% - 6.00%

4.58%















Commercial Properties





















Valuation
Technique

Significant Unobservable Inputs

Range
Year ended
31 Dec 2017


 Weighted Average

Range
Year ended
31 Dec 2016

 Weighted Average








DCF method

estimated rental value per m² per month

€3.67 - €25.41


€10.04

€3.67 - €25.41

€10.07


rent growth p.a.

2.21%


2.21%

1.98%

1.98%









Long-term vacancy rate

2.00% - 4.00%


3.02%

2.00% - 4.00%

2.94%


discount rate 

3.50% - 5.75%


4.14%

4.00% - 6.00%

4.58%

 

 

Under the DCF method, a property´s fair value is established using explicit assumptions regarding the benefits and liabilities of ownership over the asset´s life including an exit or terminal value. The DCF method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, an appropriate, market derived discount rate is applied to establish the present value of the cash inflows associated with the investment property. The property specific discount rate is based on a rating that includes an assessment of the macro- and micro location, the quality of the property and the cash flow and privatisation potential of each property. The decrease of the assumed weighted average discount rate in comparison to 2016 is predominantly due to a yield compression in the Berlin real estate market, which led to an improved macro and micro location rating of the properties in comparison to 2016.

 

The duration of the cash flow and the specific timing of inflows and outflows are determined by events such as rent reviews, re-letting, redevelopment or refurbishment or, for example in cases of privatisation, the anticipated timing of events of sale.

 

The periodic cash flows of the investment properties were estimated as gross income less vacancy, non-recoverable expenses such as property management and maintenance costs. The series of periodic net cash flows, along with an estimate of the terminal value based on the stabilised periodic net cash flows at the end of a ten year period was then discounted.

 

Changes in vacancy by 1% would not result in a material difference to the fair value assessment. In the directors' view rental increases are based on empiric values over recent years and so the directors do not expect significant fluctuation in the rental revenues. An increase of 0.5% in the discount rate would reduce the fair value by €16.1 million and a decrease of 0.5% in the discount rate would increase the fair value by €16.6 million.

 

Although JLL calculate property valuations based on usage (residential or commercial), the Group does not split valuations by usage as it regards commercial space to be incidental to the overall residential focus of the property portfolio.

 

 

 

 

 

 

5.   Investment properties (continued)

 

 

All other factors remaining constant, an increase in rental income would increase valuations, whilst increases in nominal equivalent yield and discount rate would result in a fall in values and vice versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. The existence of an increase of more than one unobservable input would augment the impact on the valuation. The impact on the valuation would be mitigated by the interrelationship between unobservable inputs moving in opposite directions. For example, an increase in rents may be offset by an increase in yield, resulting in no net impact on the valuation.

 

All of the properties owned by the Group have been pledged as security for the Group's financial liabilities.

 

The movement in the fair value of the investment properties is included in profit or loss within the net change in fair value of investment properties. The net change in fair value of properties amount to €62,828,000 is divided into investment properties (€62,751,000) and property held for sale (€77,000).

 

Operating lease income

The German subsidiaries rent out residential and commercial real estate within the framework of operating leases.  Whereas the renting of residential real estate can be terminated by the tenant with a statutory notice period of three months, commercial real estate is rented predominantly for a fixed contractual term of up to twenty years. The minimum rental payments for residential real estate on the basis of the statutory notice period of three months amount to €2,902,000 (2016: €2,192,000).

 

The future minimum lease payments under non-cancellable operating (i.e. commercial) leases receivable by the Group for each of the following periods are as follows:

 

Future minimum lease payments

 






2017


2016


€(000)


€(000)





Amounts receivables in:




not later than one year

1,056


1,009

Later than one year and not later than five years

1,825


2,246

later than five years

29


34






2,910


3,289





 

 

 



 

6.   Assets classified as held for sale






2017


2016


€(000)


€(000)





Valuation brought forward at 1 January

7,070


5,220

Reclassification from investment properties

-


7,570

Apartments sold

(3,227)


(6,521)

Valuation gain on apartments held for sale

77


801






3,920


7,070





 

During 2017 the Group sold and transferred ownership of 8 freehold apartments in Kavalierstrasse for a cumulative purchase price of €3,738,000, leading to a realised profit of €511,000, as of their last fair valuation before transfer of ownership was €3,227,000. This is representing an average sales price of approx. €4,226 per m². As of the reporting date, 11 units remained in Kavalierstrasse unsold.

 

The liabilities associated with the assets held for sale constitute an interest bearing loan in the amount of €2,945,000.  (note 19). 

 

7.   Operating expenses








2017


2016


Note

€(000)


€(000)






Service charge expenses


3,047


2,870

Property maintenance costs


1,300


1,392

Administrative costs


570


542

Investment advisory and performance fees

8

17,292


13,724

Directors` fees

9

116


109

Legal and professional fees


758


315

Other operating expenses


1,114


1,333

Provision for bad debts

20

132


152

Auditor´s remuneration (see below)


135


136






Total operating expenses


24,464


20,573







Other operating expenses include compensation payments to tenants, legal and public registry fees in connection with the split of multi tenant buildings into freehold apartments as well as accounting expenses for the preparation of the consolidated financial statements.

 

The Group paid the following fees to its Auditor:








2017


2016



€(000)


€(000)






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


113


114

Tax compliance services


-


22








113


136






 

 

 

 

 

 

 

 

 

8.   Investment advisory and performance fees






2017


2016


€(000)


€(000)





Investment advisory fees

4,316


3,254

Performance fee (see below)

12,976


10,470






17,292


13,724





 

 

Taliesin Management Limited and JJ Investment Management Limited act as Investment Advisers to the Group for which they receive an advisory fee and a performance fee. Both fees are calculated based on the Group's Adjusted Net Asset Value as defined in note 14. The increase of the advisory fee during the period is related directly to the large increase in the value of the Group's portfolio and hence the Adjusted Net Asset Value per share.

 

The advisory fee is calculated semi-annually based on the Group's Adjusted Net Asset Value (excluding any accrual for advisory fees or performance fees from this number) and is charged at a rate of 0.875% (the equivalent of 1.75% annually).

 

The performance fee is also calculated based on the Group's year end Adjusted Net Asset Value (excluding any accrual for advisory fees or performance fees from this number) and entitles the Investment Advisers to a 20% share in the increase from the previous year end's Adjusted Net Asset Value (including the deduction of advisory and performance fees) during the year which is in excess of the 12-month Euribor rate on the first day of the calendar year ("the Hurdle rate"). No performance fee will be charged unless the Adjusted Net Asset Value per share is higher than the last level at which a performance fee was charged, adjusted by the annual Hurdle rate ("the High Water Mark").

 

For the purpose of calculating the performance fee due to the Investment Advisers, any capital returned to shareholders during the calendar year will be considered to form part of the Group's Adjusted Net Asset Value until the next performance fee charging date.

 

 

9.   Directors' fees






2017


2016


€(000)


€(000)





Parent Company Directors:




Nigel A Le Quesne

27


28

Stephen A Burnett

27


28

Nicholas M Houslop

18


19

Nikolaus von Palombini

44


34

Mark Smith

-


-






116


109





 

 

Nigel Le Quesne is a shareholder and director and Stephen Burnett is a non-executive director, of JTC Group Limited. Mark Smith is a director and shareholder of both Taliesin Management Limited and JJ Investment Management Limited, the Investment Advisers of the Group. Nikolaus von Palombini is the former CFO of Taliesin Deutschland GmbH, the German subsidiary of TML.

 

See note 25 Related party transactions for further details. 

 

 

 

 

 



10. Finance income

 






2017


2016


€(000)


€(000)





Interest receivable

1


1





 

11. Finance expense






2017


2016


€(000)


€(000)





Interest on bank loans

2,741


3,891

Interest on Zero Dividend Preference Shares (ZDP)

1,318


978

Other interest

126


126





Total finance expense

4,185


4,995









 

12. Net foreign exchange differences






2017


2016


€(000)


€(000)





Realised loss on currency forward contracts

(1,305)


(4,080)

Unrealised loss on fair value of currency forward contracts 

-


(76)

Foreign exchange gain on bank accounts

-


12

Foreign exchange gain on ZDP valuation

627


2,761

Foreign exchange loss on margin collateral

-


(9)





Net foreign exchange differences

(678)


(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 had originally entered into forward foreign currency contracts on that portion of the ZDP proceeds that has been converted into Euros. The foreign exchange gain on the ZDPs in the period reflect the depreciation of the Pound Sterling against the Euro. Due to the weak Pound Sterling and its development, the Group hasn't extended the hedging since August 2017.  

Therefore, the Group doesn't provide margin collateral with the brokerage firm (in 2016: £849,000 / €992,000), as the Group no longer receives foreign currency services.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



13.   Taxation

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 profit or loss. The total tax credit for the year is detailed below:






2017


2016


€(000)


€(000)





Current tax on profits

604


443

Prior year corporate tax (income) / expense

(88)


29

Deferred tax charge

10,356


8,823





Tax charge for the year

10,872


9,295





 

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






2017


2016


€(000)


€(000)





Profit before tax

50,364


42,048

Luxembourg, Jersey and Cyprus non-deductible expenses

18,681


15,317





Profits due to German taxes

69,045


57,365

Tax charge on profit at the German tax rate of 15,83% (2016:15,83%)

10,930


9,081

Previous years adjustments to deferred tax liability / asset

(12)


(12)

Trade tax

(65)


197

Taxes payable

19


29





Tax charge for the year

10,872


9,295





 


Deferred tax

 

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

 






2017


2016


€(000)


€(000)





Property value differences

(44,731)


(34,145)

Losses carried forward

3,631


3,351

Interest rate swaps

13


64

Interest rate caps

2


 2

Loan interest adjustments

-


(1)






(41,085)


(30,729)





 

The following are the major deferred tax assets and liabilities recognised by the Group with movements thereon during the year. Deferred tax assets and liabilities are shown gross and then offset against one another where both assets and liabilities arise within individual taxable entities to the extent that only overall amounts payable or recoverable are carried in the statement of financial position. Deferred tax assets displayed above are anticipated to be utilised due to taxable profits in future periods.

 

 

 

 



13.  Taxation (continued)

 

Deferred tax assets






2017


2016


€(000)


€(000)





Gross totals as at 1 January

3,415


3,563

Prior year tax adjustment

9


-

Losses carried forward

271


97

Interest rate swaps

(51)


(245)





Gross totals as at 31 December

3,644


3,415

Offset against deferred tax liabilities at individual taxable entitiy level

(3,644)


(3,415)





Net totals as at 31 December

 -


 -






Deferred tax liabilities






2017


2016


€(000)


€(000)





Gross totals as at 1 January

34,144


25,469

Property value differences

10,586


8,683

Loan interest adjustments

(1)


(8)





Gross totals as at 31 December

44,729


34,144

Offset against deferred tax assets

(3,644)


(3,415)





Net totals as at 31 December

41,085


30,729





 


Reconciliation of movement in deferred tax during the year:

 






2017


2016


€(000)


€(000)





At 1 January

30,729


21,906

Charged to profit or loss

10,356


8,823





Net totals as at 31 December

41,085


30,729





 



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






2017


2016


€(000)


€(000)





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

37,189


30,795

Weighted average number of ordinary shares

5,016,001


4,724,271





Basic earnings per share (€)

7.41


6.52





Weighted average number of ordinary shares including shares to be issued

5,016,001


4,880,165





Diluted earnings per share (€)

7.41


6.31





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

195,377


154,001

Ordinary shares at 31 December (note 18)

5,099,993


4,840,187





Net asset value per share (€)

38.31


31.82









Ordinary shares and shares to be issued at 31 December

5,099,993


4,996,071









Net asset value per share (€)

38.31


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 and the gross deferred tax liability from which the Accounting NAV is derived.

These adjustments and the calculations are as shown below:

 






2017


2016


€(000)


€(000)





Net consolidated assets attributable to Ordinary shareholders

195,377


154,001

Gross deferred tax liability (note 13)

44,729


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

(397)


(216)





Adjusted Net Assets attributable to Ordinary shareholders

239,709


191,329

Number of Ordinary shares outstanding at 31 December

5,099,993


4,840,187





Adjusted Net Asset Value per Ordinary share (€)

47.00


39.53









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

239,709


181,649





Adjusted Net Asset Value per Ordinary share (€)

47.00


37.53





 

 

 

 



15.   Group information - information about subsidiaries

The details of the subsidiaries are as follows:






Proportion of

Proportion of






capital held

voting power






by the Group

held by the


Date of

Country of


Principal

(ordinary shares)

Company

Name

acquisition

incorporation


activity

%

%








Taliesin Limited

13. Aug. 2007

Jersey

1

HC

94.0

-

Taliesin Holdings Limited

9. Dec. 2005

Cyprus

3

HC

94.0

94.0

Taliesin I GmbH **

24. Feb. 2006

Germany

4

PI

94.0

94.0

Taliesin Managing-Partner GmbH **

10. Jul. 2007

Germany

4

PI

94.0

94.0

Taliesin II GmbH ****

1. Oct. 2006

Germany

4

PI

88.4

88.4

Taliesin Potsdam 1 GmbH & Co. KG ***

10. Jul. 2007

Germany

4

PI

94.0

94.0

Taliesin Berlin 1 GmbH & Co. KG ***

15. Aug. 2007

Germany

4

PI

94.0

94.0

Taliesin Berlin 2 GmbH & Co. KG ***

15. Aug. 2007

Germany

4

PI

94.0

94.0

Taliesin Berlin 3 GmbH & Co. KG ***

15. Aug. 2007

Germany

4

PI

94.0

94.0

Taliesin Berlin 4 GmbH & Co. KG ***

15. Aug. 2007

Germany

4

PI

94.0

94.0

Taliesin III GmbH & Co.KG ***

15. Aug. 2007

Germany

4

PI

94.0

94.0

Phoenix B2 - Glatzerstrasse *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix D1 - Hohenstaufenstrasse *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix II Mixed H *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix II Mixed I *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix II Mixed J *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix II Mixed K *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix II Mixed N *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

Phoenix III Mixed O *****

27. Dec. 2012

Luxembourg

2

PI

86.9

86.9

 

** 100% owned by Taliesin Holdings Limited



HC = Holding company

*** 100% owned by Taliesin I GmbH



PI = Property investment

**** 94% owned by Taliesin I GmbH





***** 92,4% owned by Taliesin III GmbH & Co. KG





1) registered office: JTC Jersey Limited, 28 Esplanadet, St Helier, Jersey JE2 3QA

2) registered office: JTC Signes, 68-70 Boulevard de la Petrusse, L-2320 Luxembourg

3) registered office: 195 Arch. Markarios III Avenue, Neocleous House, 3030 Limassol, Cyprus

4) registered office: Reinhardtstr.7, 10117 Berlin

 

The voting shares of Taliesin Limited are held outside the Group. Taliesin Limited is consolidated into the Group based on the economic interest held by the Group. Taliesin Limited holds 6% of the ordinary shares of Taliesin Holdings Limited.

The financial year end of all subsidiary undertakings is 31 December.

On December 19, 2017 the German GmbH & Co. KG Taliesin Berlin 1, 2, 3, 4 and Potsdam 1 were integrated / collapsed into Taliesin I GmbH and had no impact on the consolidation.



16.   Other financial assets






2017


2016


€(000)


€(000)





Non Current




Structured loan notes




At 1 January

5,839


4,052

Gain on financial assets at fair value

2,098


1,787





At 31 December

7,937


5,839









Cap financial instrument

34


46









At 31 December

7,971


5,885









Current




Forward contract




At 1 January

-


16

Settlement of forward contract

-


(16)






-


-





At 31 December

-


-







Other Financial Assets comprise:

 

Non-current:

 

Structured Loan Notes whose return is linked to the value of an asset at the end of a specified term.

 

The notes entitle the Group to benefit from the rise in value of the asset, whilst also being exposed to any potential decrease in the value of the asset and are designated at fair value through profit or loss. The underlying financial assets of the notes are equity investments held by the note issuer. The valuation of the notes includes certain unobservable inputs including the value of the underlying assets. The fair value assessment of each note is determined by the valuation agent which is the board of directors of the issuer by reference to the net asset values of each share on each reporting date.

 

The Group has two interest rate cap agreements with an aggregated nominal amount of €11,000,000, closed 2016, to limit the Group´s exposure to the risk of changes of market interest rates relating to long-term debt obligations with floating interest rates. The group will be compensated by the counterparty banks if interest rates rise above strike rates of 0,31% and 2,5% (prior year 0,31% and 2,5%). The derivative interest rate cap agreements are initially recognised at fair value on the date on which they are entered into and subsequently re-measured at fair value.

 

The Group enters into these agreements with established German banks so that the risk of counterparty default is not material.     

 

Current:

 

Forward currency contracts, that had been entered into by the Group to hedge the Pound Sterling liability on the Group's Zero Dividend Preference Shares, were not extended after they expired on August 15, 2017. Unrealised gain on forward currency contract entered into in prior years measured at fair value. Prior realised gains together with unrealised gains have been charged to foreign exchange related differences (Note 12). 

 



17.   Trade and other receivables and prepayments






2017


2016


€(000)


€(000)





Trade receivables

111


243

Rents held in escrow accounts

899


800

Prepaid expenses

2,917


2,755

Income and other taxation recoverable

176


34

Margin deposit (see note 12)

-


992

Sales proceeds held on escrow account

6


594

Other receivables and prepayments

443


357






4,552


5,775





 

 

All trade and other receivables are due within one year. For disclosures on the bad debt allowances please refer to note 20.

 

18.  Stated capital account and treasury shares

 










2017




2016


Number


€(000)


Number


€(000)







Stated capital account - Issued and fully paid








As at 1 January

4,840,187


49,381


4,483,672


48,041

Shares issued

259,806


10,470


356,515


11,020

Shares buyback

 -


-


 -


(9,680)







As at 31 December

5,099,993


59,851


4,840,187


49,381















Shares to be issued








As at 1 January

 -


6,282


 -


6,643

Shares issued

 -


(6,282)


 -


 (6,643)

Provision for shares to be issued

 -


-


 -


6,282







As at 31 December

 -


-


 -


6,282









 

Under the Memorandum of Association, the Company is authorised to issue an unlimited number of ordinary shares of no par value.



19.  Interest bearing loans and borrowings






2017


2016


€(000)


€(000)





Due within one year

63,846


29,714

Liabilities directly associated with
assets classified as held for sale

2,945


3,789

Due after more than one year

67,658


100,781






134,449


134,284






Offsetting / Reconciliation of interest bearing loans and borrowings




cash changes


non-cash changes






loan

loan


interest

foreign

other

reclassi-




2016


raises

amortisation


accruals

exchange


fication


2017


€(000)


€(000)

€(000)


€(000)

€(000)

€(000)

€(000)


€(000)













Interest bearing loans and
borrowings - non-current

100,781


4,000

(2,081)


700

(437)

176

(35,481)


67,658













Interest bearing loans and
borrowings - current

29,714


-

(1,042)


750

(266)

90

34,600


63,846













Liabilities directly associated with
assets classified as held for sale

3,789


-

(1,725)


-

-

-

881


2,945

























Total liabilities from financial activities

134,284


4,000

(4,848)


1,450

(703)

266

-


134,449

 

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






2017


2016


€(000)


€(000)





DGHyp

72,908


74,420

Pfandbriefbank

39,581


38,801

Zero Dividend Preference Shares

22,150


21,536






134,639


134,757

Deferred issue costs

(190)


(473)






134,449


134,284





 

All bank loans have been drawn in connection with purchases of the Group´s properties. All of the Group´s properties have been pledged as security for the loans.

 

The total amount drawn down under all loan facilities (including the Zero Dividend Preference Shares) as at 31 December 2017 was €134,639,000 (2016: €134,757,000).

 

Under the provisions of IAS 32 the Zero Dividend Preference Shares are classified as a liability and an interest accrual of €1,318,000 (2016: €978,000) has been charged against income. The redemption amount of the Zero Dividend Preference Shares, due on 30 September 2018, is £20,711,000 (€23,318,515 at the year end rate of 1.1259 €/GBP).

 

Bank loans relating to assets held for sale amount to €2,945,000 (see note 6) and are included above in the "due within one year" figure.



20. Financial risk management

 

The Group´s principal financial liabilities are interest bearing bank loans and Zero Dividend Preference Shares. The main purpose of the Group´s loans and ZDPs is to finance the acquisition and development of the Group´s property portfolio. The Group has rent and other receivables, trade and other payables and cash and cash equivalents that arise directly from its operations.

 

The Group is exposed to market risk (including interest rate risk, real estate risk (see note 5 investment properties) and currency risk)), credit risk, equity risk and liquidity risk.

 

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management policies. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Board of Directors oversees the management of these risks and reviews and agrees policies for managing each of these risks, which are summarised below.

 

Market risk

 

Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices - such as foreign exchange rates, interest rates and equity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

 

The Group uses derivatives to manage certain market risks.

 

Interest rate risk

 

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group´s exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates.

 

To manage its interest rate risk, the Group enters into interest rate swaps as well as interest rate caps. With interest rate swaps the Group agrees to exchange the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. With interest rate caps the group is entitled to compensation by a counterparty bank if interest rates rise above certain agreed upon strike rates. These interest rate swaps and caps are designed to hedge the German subsidiaries' underlying debt obligations. At 31 December 2017 and after taking into account the effect of interest rate swaps as well as caps, 95.5% of the Group´s borrowings are either hedged or fixed rate (2016: 95.5% hedged or fixed rate).

 

Equity risk

 

Equity risk is the risk that the value of the structured loan notes (see note 16) will fluctuate due to changes in the value the properties underlying these notes (see note 5). The Group does not attempt to mitigate this risk.

 

The increase in the value of the structured loan notes in 2017 reflects the strong operating performance of the underlying property-owning subsidiaries, particularly the increase in property values. Future movements in the value of the structured loan notes will be similarly influenced by movements in the value of the underlying properties to which the notes relate, due to the impact on the value of the underlying financial assets referred to in note 16.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20. Financial risk management (continued)

 

The interest rate profile of the Group's interest-bearing financial instruments as reported to the management of the Group is as follows:






2017


2016

Financial Assets

€(000)


€(000)





Cash - variable interest

189


243

Cash - non-interest bearing

2,873


6,105

Other - non-interest bearing

11,598


10,245





Total

14,660


16,593









Financial Liabilities








Liabilities fixed rate interest

99,682


99,318

Liabilities variable rate interest

34,767


34,966





Total

134,449


134,284





 

 

The durations of the variable rate loans range between 1 and 5 years, with an average duration of 2.36 years (2016: 3.35 years) and the total of the fair values of all loans, based on discounting cash flows at prevailing market rates of interest, is €134,449,000 (2016: €134,284,000).

 

The carrying value of the financial liabilities measured at amortised cost set out above equate to the fair value of these liabilities except for the value of the Zero Dividend Preference Shares. The book value measured at net present value of the Zero Dividend Preference Shares as noted above is €21,960,000 (2016: €20,987,000) and the fair value of all issued ZDP shares as of the reporting date is €22,627,000 (2016: €22,810,000), measured as the quoted price of the shares, resulting in them being level 1 in the fair value hierarchy.

 

On a Group basis, an increase of 100 basis points in interest rates would result in a beneficial change in the interest rate swap fair value adjustment in profit or loss of (€80,000) (2016: €86,000) and an overall increase in the charge to deferred German tax of (€13,000) at the marginal rate of 15.83% (2016: €14,000 at the marginal rate of 15.83%).

 

Similarly, a decrease of 100 basis points in interest rates would result in a decrease in the interest rate swap fair value adjustment in profit or loss of (€80,000) (2016: €870,000) and an overall decrease in the charge to deferred German tax of (€13,000) at the marginal rate of 15.83% (2016: €14,000 at the marginal rate of 15.83%).

 

With regards to the interest rate caps an increase of 100 basis points in interest rates would result in a beneficial change in the fair value adjustment in profit or loss of €155,000 and an overall increase in the charge to deferred German tax of €25,000 at the marginal rate of 15.83%.

 

Similarly, a decrease of 100 basis points in interest rates would result in a decrease in the interest rate cap fair value adjustment in profit or loss of €3,000 and an overall decrease in the charge to deferred German tax of €500 at the marginal rate of 15.83%.

 

As at the reporting date the Group had €189,000 of interest bearing deposits (2016: €243,000). Overall the Group is not exposed to significant interest rate risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

20. Financial risk management (continued)

 

Currency exchange risk

 

The assets, liabilities, income and expenditure of the Company and the Group are denominated in the Euro except for the Zero Dividend Preference Shares which are denominated in Pounds Sterling. The Company is aware of its currency exchange risk and would contract hedging instruments for those proceeds of the Zero Dividend Preference Share converted to Euro. Due to the development of the exchange rate Pound Sterling to Euro, the management has decided not to extend the hedging.

Proceeds which are lodged in Pounds Sterling deposits are not hedged since they are held in the same currency as the ultimate liability and therefore not deemed to be an exchange risk (see also Note 12).

 

 

Liquidity risk

 

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

As property investments are relatively illiquid, there can be no assurance that the Group will not encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. It is therefore the Group's intention to mitigate such risk by investing in desirable properties in prime locations. The Group mitigates any day to day liquidity risk by receiving prepayments of service charge from tenants in advance and uses these funds to pay utilities and other rechargeable items at the appropriate time. The Structured Loan Notes (Note 16) may have limited liquidity and it may not be possible to realise these in circumstances of limited market liquidity. The Group has a risk over its ability to service its loans which is managed by management regularly producing cash flow forecasts and by using interest rate swap and interest rate cap arrangements.

 

Credit risk

 

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and financial institutions and derivatives.

 

The maximum exposure of the Group to credit risk at the reporting date is the carrying value of each class of financial asset.

 

Trade and other receivables

 

The Group's exposure to credit risk is influenced by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry in which customers operate.

 

The Group's credit risk is monitored on an on-going basis. The management believe that the concentration of credit risk is limited due to on-going evaluations of all customers and the wide spread of customers. All trade receivables fall due within one year. The allowance for doubtful debts stood at €277,000 as at 31 December 2017 (2016: €245,000).

 

At 31 December 2017 trade and other receivables except rents were not past due. Rent receivables are monitored and written off when required.

 

 

 

 

 

 

 



20. Financial risk management (continued)

 






2017


2016

Movement in bad debt provision

€(000)


€(000)





As at 1 January

245


210

Utilisation of provision

(70)


(69)

Release of bad debt provison

(30)


(48)

Increase in provision

132


152





As at 31 December

277


245





 

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

 

Cash and cash equivalents

 

The Group held cash and cash equivalents of €3,062,000 at 31 December 2017 (2016: €6,348,000). The cash and cash equivalents are held with reputable banks and financial institutions counterparties.

 

Financial instruments by category

The carrying amount of each of the categories of financial instruments as per the statement of financial position are as follows:






2017


2016


€(000)


€(000)





Financial assets:




Financial assets at fair value through profit or loss

7,971


5,885

Cash and cash equivalents

3,062


6,348

Loans and receivables

3,627


4,360






14,660


16,593






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






2017


2016


€(000)


€(000)





Financial liabilities:




Financial liabilities at fair value through profit or loss

80


406

Financial liabilities at amortised cost

134,449


140,913






134,529


141,319






Financial liabilities at amortised cost include other liabilities and payables in the amount of €15,473,000 (2016: €6,629,000).

 

 

 

 

 



20. Financial risk management (continued)

 

 

Financial assets and liabilities - Numerical Information

Maturity of financial assets

The carrying value of financial assets are realisable as follows:






Book value


Book value


2017


2016


€(000)


€(000)





In one year or less

6,689


10,708

In more than two years but not more than three years

7,937


5,839

In more than three years but not more than four years

34


46






14,660


16,593







Maturity of financial liabilities
 

 

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










Book value


Book value




2017


2016




€(000)


€(000)







In one year or less



69,820


44,458

In more than one year but not more than two years



2,836


49,231

In more than two years but not more than three years



21,330


8,528

In more than three years but not more than four years



47,709


5,749

In more than four years but not more than five years



-


43,350










141,695


151,316

Less interest



(7,246)


(10,403)







Financial liabilities (see note 19)



134,449


140,913









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20. Financial risk management (continued)

 

Fair value hierarchy

 

Under IFRS 13: "Fair Value Measurement", the Group classifies fair value measurements using a three-level fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

(b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

(c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The following table shows how financial instruments measured at fair value are grouped into the fair value hierarchy:


Level 1

Level 2

Level 3

Total

Group: As at 31 December 2017

€(000)

€(000)

€(000)

€(000)






Financial assets at fair value through profit or loss:





Structured loan notes

-

-

7,937

7,937







-

-

7,937

7,937











Financial liabilities at fair value through profit or loss





Interest rate swap instruments

-

(80)

-

(80)












Level 1

Level 2

Level 3

Total

Group: As at 31 December 2016

€(000)

€(000)

€(000)

€(000)






Financial assets at fair value through profit or loss:





Structured loan notes

-

-

5,839

5,839

Foreign exchange contact

-

46

-

46







-

46

5,839

5,885











Financial liabilities at fair value through profit or loss





Interest rate swap instruments

-

(406)

-

(406)

 

See note 16 for details of the structured loan notes and the foreign exchange contracts.

21.  Financial liabilities at fair value through profit or loss










2017


2016




€(000)


€(000)







Liabilities as at 1 January



406


1,953

Fair value adjustment interest swap






recognized in profit or loss



(326)


(1,547)







Liabilities as at 31 December



80


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 19. They require that the Group pays interest on any loans drawn down at the contractual EURIBOR rate plus the contractual margin and to receive (or pay) the difference between this EURIBOR rate and the fixed interest swap rate specified in the swap agreement.

 

In addition to interest rate swaps the Group entered into interest rate cap agreements to manage its interest rate risk (see note 16). The combined fair value adjustment for the interest rate swap and for the interest rate cap taken to profit or loss is €313,000.

 

The fair values of the interest swap arrangements represent the price at which one party would assume the rights and obligations of the counterparty. The fair values were determined by discounting the anticipated future cash flows. For this purpose, the market interest rates applicable for the remaining term of the contract are used as a basis.

 

The liabilities as at 31 December 2017 above are only non-current €80,000.

 

The following table summarises the swap facilities in existence as at 31 December 2017:

 






Expiry date of




Fair value of


Amount of


interest swap



Bank

Swap in €(000)


Swap in €(000)


agreement


Fixed rate









DZ BANK

(80)


8,193


29 Mar 2018


3.585%

















 

The following table summarises the swap facilities in existence as at 31 December 2016:

 






Expiry date of




Fair value of


Amount of


interest swap



Bank

Swap in €(000)


Swap in €(000)


agreement


Fixed rate









DZ BANK

(406)


8,410


29 Mar 2018


3.585%









 

 

 



22. Other liabilities and payables






2017


2016


€(000)


€(000)





Trade payables

1,393


1,079

Other taxation

291


179

Investment advisory fees

1,073


1,327

Performance fee payable

12,976


4,188

Other payables

1


4

Rent received in advance

239


304

Other advance payments from tenants

3,025


3,115

Administration accruals

30


31






19,028


10,227





 

23. Commitments and contingencies

 

As at 31 December 2017 the Group had binding commitments on capital investment of €3,400,000 (2016: €3,040,000) regarding ongoing refurbishment projects. As of the reporting date the Group had no contingent liabilities.



24. Capital management policies and procedures

 

The Group's capital management objectives are:

 

(i)      to ensure that the Group and all of the companies within it are able to continue as a going concern, and

 

(ii)     to maintain an optimal capital structure which maximises returns for shareholders whilst minimising the cost of capital.

 

In order to achieve objective (ii) above, the Group may alter its financial structure by varying future dividend paying policy, re-financing existing borrowings, selling assets to repay borrowings, issuing new shares, purchasing shares for cancellation or purchasing shares to be held as treasury shares. The ordinary shares of the parent undertaking of the Group were listed on the AIM market and the Zero Dividend Preference Shares of the parent undertaking are listed on the main market of the London Stock Exchange and this provides additional flexibility in achieving objective (ii) by providing fixed rate, cash flow beneficial financing to the Group.

 

It is the Group's policy to finance most property acquisitions by bank borrowings, using the acquired properties as security. The Group has mitigated its exposure to the risk that bank loan interest costs increase above the level at which they are covered by the Group's net revenues by entering into interest rate swap arrangements. Further details are contained in note 21.

 

The Investment Advisers and administrator of the Group work together to supply the Board with adequate accounting information on a quarterly basis which includes key financial performance indicators designed to assist the Board in monitoring the effect of the Group's funding structure, possible changes in funding requirements and the effects of alternative funding strategies on potential developments.

 

The Group monitors the ratio of net debt (total financial liabilities less swap instruments offset by cash) to shareholders' equity (including non-controlling interests). In the medium to long-term, the Group intends to operate with a capital structure comprising 70% debt and 30% equity. This represents a gearing ratio (i.e. net debt divided by equity) of approximately 2.33:1. The Group´s gearing ratio is as follows:

 






2017


2016


€(000)


€(000)





Net debt




Loans and borrowings - non current

67,658


100,781

Loans and borrowings - current

66,791


33,503

Cash and cash equivalents

(3,062)


(6,348)






131,387


127,936









Equity




Equity attributable to equity holders of parent

195,377


154,001

Non-controlling interests

8,645


6,342






204,022


160,343









Gearing ratio (net debt divided by equity)

0.644


0.798





 

 

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



25. Related party transactions

 

 

Nigel Le Quesne is a shareholder and director of JTC Group Limited, of which JTC (Jersey) Limited and JTC (Luxembourg) S.A. are wholly owned subsidiaries. Stephen Burnett is a non-executive director of JTC Group Limited. JTC (Jersey) Limited is the Secretary to the Company and provider of administration services to the Company and its subsidiaries. JTC (Jersey) Limited charged fees totalling €239,000 (2016: €258,000) to the Group during the year, of which €8,000 (2016: €66,000) was outstanding as at 31 December 2017. JTC (Luxembourg) S.A provides administrative services to the Company's Luxembourg subsidiaries. JTC (Luxembourg) S.A charged fees totalling €185,000 (2016: €153,000) to the Group during the year of which €nil (2016: €23,000) was outstanding at 31 December 2017.

 

Mark Smith is a director and shareholder of TML and JJIM, the Investment Advisers of the Group, which charged investment advisory fees totalling €4,316,000 (55% JJIM / 45% TML) (2016: €3,254,000) to the Group during the year, of which €1,073,000 (2016: €1,328,000) was outstanding as at 31 December 2017. TML and JJIM together charged a performance fee of €12,976,000 (75% JJIM / 25% TML) (2016: €10,470,000) to the Group during the year, all of which was outstanding as at 31 December 2017, see note 8 for further details. In addition, TDL, through its German subsidiary Raumerei GmbH, provides estate agency services at preferential rates to the Group in Berlin.

 

As at the reporting date Mark Smith owns 75.62% of TML which holds 680,897 shares in the Company, 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, disclosed in note 9, who are the only key management personnel.

 

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

 

 

26.   Post balance sheet events

 

On 20 December 2017 the boards of directors of Taliesin Property Fund Limited ("Taliesin") and Wren Bidco Limited ("Bidco 1") and Canary Bidco Limited ("Bidco 2" and together, the "Bidcos") were pleased to announce that they have reached agreement on the terms and conditions of a recommended all cash acquisition of the entire issued ordinary share capital of Taliesin. The announcement was as follows:

 

Under the terms of the Acquisition, each Scheme Shareholder will be entitled to receive:

 

for each Scheme Share: 51 Euros in cash

 

·    The price per Scheme Share represents a premium of approximately:

 

·    10 per cent. to the closing price of €46.31 per Taliesin Share on 19 December 2017 (being the last business day before the date of this Announcement);

 

·    16 per cent. to the volume-weighted average price of €44.15 per Taliesin Share for the three-month period ended 19 December 2017 (being the last business day before the date of this Announcement);

 

·    20 per cent. to the volume-weighted average price of €42.58 per Taliesin Share for the twelve-month period ended 19 December 2017 (being the last business day before the date of this Announcement); and

 

·    16 per cent. to the 30 June 2017 Adjusted NAV of €44.14 per Taliesin Share.

 

·    The Offer Price has been agreed by the boards of directors of Taliesin and the Bidcos on the basis that no final dividend for the financial year ended 31 December 2017 will be paid by Taliesin to Taliesin Shareholders. If Taliesin announces, declares, makes or pays any dividend or other distribution on or after the date of this Announcement and prior to the Effective Date, the Bidcos reserves their right to reduce the Offer Price by an amount equal to the amount of such dividend or distribution.

 

·    The Acquisition values Taliesin's entire issued ordinary share capital at approximately €260 million.

 

·    It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Article 125 of the Companies Law.

 

·    The Scheme Document will contain an updated portfolio valuation reported on in accordance with Rule 29 of the Code.

 

·    The Taliesin Directors, who have been so advised by Rothschild as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice, Rothschild has taken into account the commercial assessments of the Taliesin Directors.

 

·    Accordingly, the Taliesin Directors confirm they intend to recommend unanimously that the Taliesin Shareholders vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting (in the case of Mark Smith, other than in respect of the Resolution to approve the IM Transaction), as they have irrevocably undertaken  to do in respect of their own beneficial holdings which are under their control of:

 

·    in respect of the Scheme at the Court Meeting and the Resolutions to implement the Scheme, in aggregate, 129,920 Taliesin Shares representing approximately 2.5 per cent. of the issued ordinary share capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement); and

 

·    in respect of the Resolution to approve the IM Transaction, in aggregate, 5,200 Taliesin Shares representing approximately 0.1 per cent. of the Independent Voting Share Capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement).

 

·    The Investment Managers, Seumas Dawes, Georges Saier, Michael and Felicity Milbourn, Julian Adams, and Paul Luke have irrevocably undertaken to vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting to implement the Scheme (in the case of the Investment Managers and Paul Luke, other than the Resolution to approve the IM Transaction) in respect of their own beneficial holdings which are under their control of:

 

·    in respect of the Scheme at the Court Meeting and the Resolutions to implement the Scheme, in aggregate, 2,510,616 Taliesin Shares representing approximately 49.2 per cent. of the issued ordinary share capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement); and

 

·    in respect of the Resolution to approve the IM Transaction, 1,258,155 Taliesin Shares representing approximately 33.8 per cent. of the Independent Voting Share Capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement).

 

·    The Bidcos have therefore received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting to implement the Scheme (other than the Resolution to approve the IM Transaction) from Taliesin Shareholders holding 2,640,536 Taliesin Shares and representing approximately 51.8 per cent. of the issued ordinary share capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement) and 1,263,355 Taliesin Shares representing approximately 33.9 per cent. of Independent Voting Share Capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement) in respect of the Resolution to approve the IM Transaction. Further details of these undertakings, including the circumstances in which they cease to be binding are set out in Appendix 3.

 

·    The terms of the Acquisition will be put to the Taliesin Shareholders at the Court Meeting and the General Meeting (which is expected to immediately follow the Court Meeting). The Court Meeting and the General Meeting are required to enable Taliesin Shareholders to consider, and if thought fit, vote in favour of the resolutions to approve the Scheme and its implementation. In order to become Effective, the Scheme must be approved by a majority in number of Scheme Shareholders, present and voting at the Court Meeting, whether in person or by proxy, representing 75 per cent or more of the voting rights held by those Scheme Shareholders.

 

·    The Acquisition will be on the terms and subject to the Conditions set out in Appendix 1 to this Announcement. Full details of the Acquisition will be set out in the Scheme Document. It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and General Meeting, together with the Forms of Proxy, will be published as soon as practicable and, in any event, within 28 days of this Announcement (unless the Panel agrees otherwise). An expected timetable of principal events will be included in the Scheme Document.

 

·    The Acquisition is expected to become Effective in the first quarter of 2018, subject to satisfaction (or, where applicable, waiver) of the Conditions and further terms set out in Appendix 1 to this Announcement.

 

Taliesin Management Limited and JJ Investment Management Limited (the "Investment Managers") act as investment advisers to Taliesin pursuant to investment advisory agreements. The Bidcos have entered into a share purchase agreement with Mark Smith and certain other sellers under which the Investment Managers will be sold to the Bidcos (the "IM Transaction"), subject to the Acquisition becoming Effective. It is anticipated completion of the IM Transaction will occur immediately following the Acquisition becoming Effective. If the Acquisition does not become Effective, the IM Transaction will not occur. The consideration payable by Bidcos in respect of the IM Transaction will be €18 million, after taking into account the proceeds attributable to the Taliesin Shares held by the Investment Managers which will be transferred to the Bidcos on the Effective Date. For the purposes of Rule 16 of the Code, Rothschild has confirmed that, in its opinion, the terms of the IM Transaction are fair and reasonable so far as Independent Taliesin Shareholders are concerned. The IM Transaction is subject to the approval of Independent Taliesin Shareholders in accordance with Rule 16 of the Code.

 

·    Bidco 1 has entered into a share purchase agreement with JTC Trustees Limited under which Sophia Holdings Limited, an indirect holder of approximately 6 per cent. of Taliesin Holdings Limited (a subsidiary of Taliesin) will be sold to Bidco 1 (the "Sophia Transaction"), subject to the Acquisition becoming Effective. It is anticipated that completion of the Sophia Transaction will occur immediately following completion of the Acquisition. If the Acquisition does not become Effective, the Sophia Transaction will not occur. The consideration payable by Bidco 1 in respect of the Sophia Transaction will be €1.

 

·    Taliesin has in issue zero dividend preference shares of no par value which are listed on the Main Market of the London Stock Exchange (the "ZDP Shares"). As further described in this announcement, upon the Acquisition becoming Effective, Taliesin is required under the Articles to initiate a process of offering an early repurchase of the ZDP Shares in accordance with the provisions set out in the Articles which the holders of the ZDP Shares may either accept or reject.  Full details of the terms of the buyback offer and relevant documentation will be sent to holders of ZDP Shares following the Scheme becoming effective.

 

On 26 February 2018 the following was announced:

 

Scheme effective

 

Taliesin Property Fund Limited ("Taliesin") is pleased to announce that the acquisition by Wren Bidco Limited and Canary Bidco Limited, newly incorporated companies owned by entities advised by affiliates of The Blackstone Group L.P., of the entire issued ordinary share capital of Taliesin has become effective today, 26 February 2018.  This follows the delivery of the Court Order to the Registrar of Companies.

 

The consideration of 51 Euros (unless a Currency Election has been made, in which case such consideration shall be in pounds sterling) in cash per Scheme Share to be paid to or for the account of each Scheme Shareholder pursuant to the Scheme will be despatched (in the case of certificated holders of Scheme Shares) or settled in CREST (in the case of uncertificated holders of Scheme Share) by no later than 12 March 2018.

 

Dealings in Taliesin Shares have been disabled in CREST since 6:00 p.m. on 23 February 2018 and trading in Taliesin Shares on AIM has been suspended from 7:30 a.m. on the date of this announcement.  An application also has been made by the Company to cancel the admission to trading of Taliesin Shares on AIM and such cancellation is expected to occur with effect from 7:00 a.m. on 27 February 2018.

 

Capitalised terms and expressions used in this announcement have the same meanings as set out in the document relating to the Scheme dated 18 January 2018 (the "Scheme Document").

 

The Company`s common shares have been de-listed from AIM on the 27th of February 2018.

 

Following the effectiveness of the scheme described above, the Group was undergoing a restructuring. On 8th of March 2018 the Group Companies which holds the Investment Properties as described in Note 5 and 6 were transferred outside of the Group structure of Taliesin Property Fund Ltd. Therefore, as of the date of the transfer the Group will not generate sufficient income, which led to the Directors assessment outlined in the Section "Going Concern" on Page 11.


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