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| Name | Symbol | Market | Type |
|---|---|---|---|
| Acorn P2. 24 | LSE:77WZ | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
From Jan 2020 to Jan 2025
TIDM77WZ
RNS Number : 2834P
Acorn Project (Two) LLP
15 October 2021
Please click on the below link to view the signed announcement.
http://www.rns-pdf.londonstockexchange.com/rns/2834P_1-2021-10-15.pdf
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
ANNUAL REPORT
AND
FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
CONTENTS PAGE
Partnership Information 1
Report of the Managing Partner
2-3
Statement of Managing Partner's Responsibilities
4
Report of the Independent Auditors
5 - 6
Financial Statements:
Partnership Statement of Financial Position
7
Consolidated Statement of Financial Position
8
Partnership Statement of Profit or Loss and Other Comprehensive Income
9
Consolidated Statement of Profit or Loss and Other Comprehensive Income
10
Statement of Changes in Partners' Equity
11
Partnership Statement of Cash Flows
12
Consolidated Statement of Cash Flows
13
Notes to the Financial Statements
14 - 36
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP INFORMATION
FOR THE YEARED 31 DECEMBER 2020
PRINCIPAL PLACE OF BUSINESS AND REGISTERED OFFICE
Acorn House, 2(nd) Floor
97 James Gichuru Road
Lavington
P.O. Box 13759, 00100
Nairobi
BANKERS
Stanbic Bank Kenya Limited
Chiromo Branch
P.O Box 72833-00200
Nairobi
SOLICITORS
Triple OK Law Advocates
ACK Garden House, 5th Floor, Wing C
First Ngong Avenue, off Bishop Road
P.O Box 43170-00100
Nairobi
AUDITORS
Ernst & Young LLP
Kenya-Re Towers, Upper Hill
3 Ragati Close
P.O. Box 44286 - 00100
Nairobi
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
REPORT OF THE MANAGING PARTNER
FOR THE YEARED 31 DECEMBER 2020
The Managing Partner submits the annual report and the audited financial statements for the year ended 31 December 2020, which show the state of affairs of Acorn Project (Two) LLP ("the partnership") and its subsidiaries (together, "the group").
1. PRINCIPAL ACTIVITIES
The principal activity of the partnership is that of being a holding partnership with subsidiaries operating at different levels of the value chain in the real estate sector .
2. RESULTS
The results of the partnership and the group for the year are set out on pages 9 to 10.
3. PARTNERS' EQUITY
The partners' equity is set out in page 11.
4. BOARD OF RE PRESENTATIVES
The representatives who served during the year and to the date of this report were:
Name Representing Edward Kirathe Managing Partner Peter Njenga Managing Partner 5. BUSINESS REVIEW
The entity is a limited liability partnership established under the Limited Liability Partnerships Act, 2011 of the laws of Kenya with Registration Number LLP-EL1BLM and whose registered office is at Acorn House, 97 James Gichuru, Nairobi, Kenya.
The key objective of the entity is to acquire and hold properties and raise financing for its subsidiaries within the real estate sector. The subsidiaries are Acacia Vale Properties LLP, Rowan Properties LLP, Spruce Properties LLP, Linden Properties LLP, Beech Properties LLP, Mahogany Creek LLP, Hemlock Properties LLP, Ashvale LLP and Scotchpine Properties LLP.
In 2019 Acorn Project 2 successfully raised KES 4.3 billion through the floating of the first ever green bond to be listed in Kenya. To date it has drawn down 4 tranches of funds totaling KES 2.029 billion. The financial performance is outlined on pages 7-13 of these financials and these are underpinned by the activities undertaken during the period. Despite a difficult 2020 due to the pandemic, the subsidiaries of Acorn Project (Two) LLP were able to continue development of the various properties and meet interest payment obligations.
In the course of its business operations, the Partnership faces key threats in meeting its business objectives. The key threats relate to regulatory risk, which include the attainment of timely approvals or an unexpected change in regulations, construction risk, which include contractor management, construction worker availability, Health Safety & Environment Standards and procurement of materials and equipment, Health and safety risk and finally, liquidity risk, which is concerned with the availability of sufficient funds to cater for development expenditure and financing obligations.
The Partnership has adopted various risk mitigation strategies including timely information and regular presentations to statutory authorities to ensure approvals are received as per projected timelines, appointment of Grade A contractors to ensure that projects are delivered on time, within budget and within quality parameters, the insourcing of HSES staff to ensure HSES compliance and finally advanced cash and procurement planning to manage liquidity concerns.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
REPORT OF THE MANAGING PARTNER
FOR THE YEARED 31 DECEMBER 2020
5. BUSINESS REVIEW (continued)
On 16th March 2020, following a government directive issued on 15th March 2020 where all universities were ordered to close, and a gathering of large numbers was discouraged, we made a decision to close down all operating properties on 20th March for a period due to the COVID-19 pandemic.
We offered students the choice to retain their deposits with us so that they can return as soon as their learning institutions re-opened. In August 2020 upon the address of the President and re-opening of movement we re-opened our properties. In spite of the initial impact, we are happy to observe that as at end of year all the properties were at 90% and above occupancy. This is with regards to Acacia Vale which is currently the only operating property in AP2. On the projects side, we closed the sites initially for a period of 2 weeks in order to conform with the Government and WHO directive of large groups congregating. In keeping with regulations however we had a partial reopen of our sites on 6th of April maintaining the numbers at no more than 50 and keeping within the health guidelines of social distancing, maintaining hygiene and having safety protocols to ensure compliance to the directives.
It is important to note that all local and imported supplies needed for the active projects had already been sourced and therefore not significant impact on procurement. Further funding from MTN continued during the period and as such the projects construction was not significantly impacted.
Further we have in early 2021 successfully been licensed to operate a Development REIT, the Acorn DREIT that provides a tax optimal vehicle that will provide equity financing for the projects while providing optimal returns to the investor.
In the financial year ended 31 December 2020, Acorn Project (Two) LLP recorded a profit of KShs.2,465,657,329 against prior period profit of KShs.238,109,000.
At the Consolidated level, Acorn Project (Two) LLP recorded a profit of KShs.2,592,011,047 against prior year profit of KShs.237,696,000. This was mainly attributed to uplift from valuation gains on the properties.
6. STATEMENT AS TO DISCLOSURE TO THE COMPANY'S AUDITOR
With respect to each director at the time this report was approved:
a) there is, so far as the person is aware, no relevant audit information of which the company's auditor is unaware; and
b) the person has taken all the steps that the person ought to have taken as a director so as to be aware of any relevant audit information and to establish that the company's auditor is aware of that information.
Terms of appointment of the auditor
Ernst & Young LLP continues in office. The Managing Partner monitors the effectiveness, objectivity and independence of the auditor. The Managing Partner also approves the annual audit engagement contract which sets out the terms of the auditor's appointment and the related fees. The agreed auditor's remuneration has been charged to profit or loss in the year.
Managing Partner's representative
............................................
Date
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
STATEMENT OF MANAGING PARTNER'S RESPONSIBILITIES
FOR THE YEARED 31 DECEMBER 2020
The Managing Partner is required by the partnership deed to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the group and the partnership as at the end of the financial year and of its operating results for that year. The partnership deed also requires the Managing Partner to ensure the group and the partnership keeps proper accounting records that disclose, with reasonable accuracy, the financial position. The Managing Partner is also responsible for safeguarding the assets of the group and the partnership.
The Managing Partner accepts responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the partnership deed. The Managing Partner is of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the group and the partnership and of its operating results.
The Managing Partner further accepts responsibility for the maintenance of accounting records, which may be relied upon in the preparation of the financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the Managing Partner to indicate that the group and the partnership will not remain a going concern for at least the next twelve months from the date of this report.
The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that the group and the partnership will continue to receive the support of its Managing Partner and that the realization of assets and settlement of liabilities will occur in the ordinary course of business.
................................................
Managing Partner's representative
REPORT OF THE INDEPENT AUDITORS
TO THE MEMBERS OF
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
REPORT ON THE AUDIT OF THE CONSOLIDATED AND PARTNERSHIP FINANCIAL STATEMENTS
Opinion
We have audited the accompanying financial statements of Acorn Project (Two) LLP ("the partnership") and its subsidiaries (together, "the group") , set out on pages 7 to 36, which comprise the consolidated and partnership statement of financial position as at 31 December 2020, and the consolidated and partnership statement of profit or loss and other comprehensive income, statement of changes in partners equity, consolidated and partnership statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the group and the partnership as at 31 December 2020, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in a manner required by the Partnership Deed.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). 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 group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing the audits of financial statements in Kenya. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current year. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated and separate financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
Hot Features
Premium
Key Audit Matter How the matter was addressed in
the audit
Intercompany Loans
------------------------------------------------------------------
As at 31 December 2020 the Partnership Our procedures in relation to the
had related party loans amounting intercompany loans included:
to KShs 2.03 billion (2019: 709 million) * Understanding the processes for managing, recording
advanced to the subsidiaries to finance and accounting for intercompany loans .
their construction projects.
The balances are set out in note
6 of these financial statements.
We considered this as a key audit * Considering the application of accounting policies to
matter owing to the significance the intercompany loans .
of the loans to the financial statements.
We also considered the disclosures
on related party transactions and
borrowings to be important to the * Evaluating the valuation and completeness of the
users' understanding of the financial intercompany loans through evaluation of
statements. reconciliations, source documents, and confirmations
from related parties.
* Obtaining loan confirmations and agreeing the terms
and conditions of the borrowings, including amounts
and tenure.
* Recomputing the interest accrued on the borrowings.
Assessing the adequacy of the disclosures
in the financial statements.
------------------------------------------------------------------
Valuation of investment property
------------------------------------------------------------------
As at 31 December, 2020, the carrying
amount of the Group's investment * The audit procedures included the following:
property was Kshs.7 billion (2019:Kshs.
2.7 billion) as disclosed in note
4 to the Group financial statements. * Evaluating the objectivity and independence of the
The investment property is measured external valuer.
at fair value in accordance with
International Accounting Standard
(I AS) 40 Investment Property. * Assessing whether the underlying assumptions applied
The group's policy is to revalue in the determination of the fair value were supported
the investment property annually in the context of the industry and nature of the
using an external valuer. investment property.
The fair value of investment property
in Acacia Vale Properties LLP has
been determined using the income
capitalization method, while the * Assessing whether the valuation methodologies and
fair value of the investment properties assumptions adopted in determining the fair values of
in the other LLPs has been determined the investment property were in accordance with IFRS.
using the Discounted Cash Flow methodology.
Given that the fair value of investment
property involves significant estimation * Evaluating whether the determined fair values were
and assumptions, such as comparative comparable to the market values for similar property
active market prices and adjustments in similar locations.
for differences in the nature, location
or condition of the property, and
the importance of the Disclosures * Assessing the adequacy of the group's disclosures in
in Notes 4 and 16 relating to the respect of the methodology and assumptions used in
assumptions used in the valuation, valuation.
l considered this as a key audit
matter.
------------------------------------------------------------------
Other Information
The Managing Partner is responsible for the other information. The other information comprises the Managing Partner's Report and Statement of Managing Partner's Responsibilities. The other information does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or 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, 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.
Responsibilities of the Managing Partner's for the Consolidated and Partnership Financial Statements
The Managing Partner is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and in a manner required by the Partnership Deed and for such internal control as the Managing Partner determines 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 Managing Partner is responsible for assessing the group and the partnership'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 group and the partnership either intends to liquidate the or to cease operations, or has no realistic alternative but to do so.
The Managing Partner is responsible for overseeing the Partnership's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated and Partnership 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 International Standards on Auditing 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.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control.
-- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Managing Partner.
-- Conclude on the appropriateness of the Managing Partner's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Partnership's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Partnership to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated and the partnership's financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Managing Partner regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Managing Partner with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or related safeguards applied.
From the matters communicated with the Managing Partner, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Matters Prescribed by the Kenyan Companies Act, 2015
As required by the Kenyan Companies Act, 2015 we report to you, based on our audit, that:
i) in our opinion, the information given in the report of the Managing Partner on pages 2 to 3 is consistent with the consolidated and separate financial statements; and,
ii) in our opinion, the auditable part of directors' remuneration report on pages ..... to ...... has been properly prepared in accordance with the Kenyan Companies Act, 2015 .
The engagement partner responsible for the audit resulting in this independent auditor's report is CPA Allan Gichuhi - practicing certificate number 1899.
For and on behalf of Ernst & Young LLP
Certified Public Accountants
Nairobi, Kenya
................................. 2021
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
2020 2019
ASSETS Note KShs 000 KShs 000
NON-CURRENT ASSETS
Investment in subsidiaries 7 4,599,573 1,909,915
Intercompany loan 6 1,252,308 709,729
5,851,881 2,619,644
CURRENT ASSETS
Trade and other receivables 5 27 85,813
Intercompany loan 6 776,531 -
Due from related party 11 (a) 210,152 -
Bank balances and cash 8 72,301 34,077
1,059,011 119,890
TOTAL ASSETS 6,910,892 2,739,534
EQUITY AND LIABILITIES
PARTNERS' EQUITY
Partners' capital account 4,753,035 1,936,670
NON-CURRENT LIABILITIES
Borrowing 10 1,252,000 786,000
CURRENT LIABILITIES
Trade and other payables 9 42,998 16,864
Borrowing 10 777,000 -
Due to Related Party 11 (b) 85,859 -
905,857 16,864
TOTAL EQUITY AND LIABILITIES 6,910,892 2,739,534
The financial statements were approved by the Partners on...............................................2021 and signed on their behalf by:
................................................................. )
)
) Partners' representatives
)
................................................................. )
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
2020 2019
ASSETS Note KShs 000 KShs 000
NON-CURRENT ASSETS
Investment property 4 7,035,940 2,651,000
CURRENT ASSETS
Trade and other receivables 5 71,432 216,180
Bank balances and cash 8 269,158 200,434
340,590 416,614
TOTAL ASSETS 7,376,530 3,067,614
EQUITY AND LIABILITIES
PARTNERS' EQUITY
Partners' capital account 4,753,035 1,936,670
Non-controlling interest 227,803 95,157
4,980,838 2,031,827
NON-CURRENT LIABILITIES
Borrowing 10 1,252,000 786,000
CURRENT LIABILITIES
Trade and other payables 9 234,088 249,787
Borrowing 10 777,000 -
Due to related parties 11 (b) 132,604 -
1,143,692 249,787
TOTAL EQUITY AND LIABILITIES 7,376,530 3,067,614
The financial statements were approved by the Partners on...............................................2021 and signed on their behalf by:
................................................................. )
)
) Partners' representatives
)
................................................................. )
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
2020 2019*
Note KShs 000 KShs 000
INCOME
Other Income 13 240,107 -
EXPENSES
Administration 14 (2,052) (547)
Finance costs 15 (239,718) -
OPERATING PROFIT/LOSS (1,663) (547)
Share of profit in subsidiaries 7 2,467,320 238,656
PROFIT FOR THE YEAR 2,465,657 238,109
*The share of profit in the subsidiaries does not correspond to the 2019 financial statements and reflects an immaterial adjustment of KShs 78,000.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
2020 2019*
Note KShs 000 KShs 000
INCOME
Revenue 12 28,856 -
Fair value gain on revaluation of investment
properties 4 2,700,282 246,977
Other income 13 8,311 4,020
2,737,449 250,997
EXPENSES
Administration 14 (37,466) (13,301)
Finance costs 15 (107,972) -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,592,011 237,696
Total comprehensive income for the year is
attributable to:
Managing Partner 2,465,657 238,109
Non-controlling interests 126,354 (413)
2,592,011 237,696
*The total comprehensive income for the year attributable to the Managing Partner does not correspond to the 2019 financial statements and reflects an immaterial adjustment of KShs 78,000.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
STATEMENT OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARED 31 DECEMBER 2020
Partnership Managing Managing
partner partner
2020 2019
KShs 000 KShs 000
At 1 January 1,936,670 -
Capital contribution 350,708 1,698,561
Profit for the year 2,465,657 238,109
At 31 December 4,753,035 1,936,670
Consolidated
Managing Non-controlling
Interest (Other
Partner* partner) Total
KShs 000 KShs 000 KShs 000
Capital contribution 1,698,561 95,570 1,794,131
Share of profit/(loss)
for the year 238,109 (413) 237,696
At 31 December 2019 1,936,670 95,157 2,031,827
At 1 January 2020 1,936,670 95,157 2,031,827
Prior period adjustment - - -
Capital contribution 350,708 6,292 357,000
Share of profit for the
year 2,465,657 126,354 2,592,011
At 31 December 2020 4,753,035 227,803 4,980,838
*The share of profit in the subsidiaries does not correspond to the 2019 financial statements and reflects an immaterial adjustment of KShs 78,000 made to the share of profit in the subsidiaries.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
2020 2019*
OPERATING ACTIVITIES Note KShs 000 KShs 000
Profit for the year 2,465,657 238,109
Adjustments for:
Interest income 13 (240,107) (80,960)
Interest expense 15 239,718 80,060
Share of profit in subsidiary (2,467,320) (238,734)
Operating loss before working capital changes (2,052) (625)
Decrease/(increase) in other receivables 85,786 (85,813)
Increase in trade and other payables 26,134 16,864
Increase in amounts due from related parties (210,152) -
Increase in amounts due to related parties 85,859 -
Net cash flows used in operating activities (14,425) (69,574)
Interest received 13 284,174 -
Interest paid 15 (283,785) -
Net cash flows used in operating activities (14,036) (69,574)
INVESTING ACTIVITIES
Intercompany loan advanced (1,319,110) (709,729)
Investment in subsidiaries 7 (222,338) (1,671,181)
Net cash flows used in investing activities (1,541,448) (2,380,910)
FINANCING ACTIVITIES
Proceeds from borrowings 10 1,243,000 786,000
Capital contributions from the partners 350,708 1,698,561
Net cash flows generated from financing activities 1,593,708 2,484,561
Net increase in cash and cash equivalents 38,224 34,077
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 34,077 -
CASH AND CASH EQUIVALENTS AT THE OF THE YEAR 8 72,301 34,077
* Certain amounts shown here do not correspond to the 31 December 2019 financial statements and reflect reclassifications made.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
Note 2020 2019*
KShs 000 KShs 000
OPERATING ACTIVITIES
Profit for the year 2,592,011 237,696
Adjustment for:
Interest income 13 (8,311) (84,080)
Interest expense 108,072 80,060
Fair value gain on revaluation of investment property 4 (2,700,282) (246,977)
Operating (loss)/profit before working capital changes (8,510) 13,301
Decrease/(increase) in other receivables and prepayments 144,748 (216,180)
(Decrease)/increase in trade and other payables (15,699) 249,787
Increase in due to related parties 132,604 -
Net cash flows generated from operating activities 253,143 20,306
Interest paid (188,132) -
Interest received 88,371 4,020
Net cash flows generated from operating activities 153,382 24,326
INVESTING ACTIVITIES
Changes in investment property-construction costs incurred 4 (1,684,658) (2,404,023)
Net cash flows used in investing activities (1,684,658) (2,404,023)
FINANCING ACTIVITIES
Proceeds from borrowings 10 1,243,000 786,000
Capital contributions from the Managing Partners 350,708 1,698,561
Capital contributions from the Minority Interest 6,292 95,570
Net cash flows generated from financing activities 1,600,000 2,580,131
Net increase in cash and cash equivalents 68,724 200,434
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 200,434 -
CASH AND CASH EQUIVALENTS AT THE OF THE YEAR 8 269,158 200,434
* Certain amounts shown here do not correspond to the 31 December 2019 financial statements and reflect reclassifications made.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
1. GENERAL INFORMATION
Acorn Project (Two) LLP ('the Partnership') is a limited liability partnership registered on 1 November 2017.
The registered office and principal place of business of the partnership is Acorn house, 2(nd) floor, 97 James Gichuru Road, Lavington, Nairobi. The Managing Partner of the partnership is Acorn Holdings Limited. The Managin//g Partner is responsible for day to day management of the business of the LLP and management of assets and the contributed land and conduct of the business and shall otherwise have full power and authority to do all things necessary to carry out the purpose of the LLP. The Managing Partner has delegated most of the day to day management activities to Acorn Management Services Limited ('the Project Manager'). This includes but is not limited to communicating to consultants the requirements of project brief; monitoring the design of work and achievement of the functions referenced to the project brief; monitoring and regulating the program and progress; monitoring and using his best endeavors to coordinate the efforts of all consultants, advisors, contractors and suppliers directly connected to the project; monitoring the cost and financial rewards of the project. Whilst this delegation exists, the Managing Partner remains responsible for approving all actions taken as a result of these activities.
The objectives of the partnership are: construction and development of the construction land for purpose of developing the contributed land as commercial property ('The project'); procure financing for the project in order to undertake the project; undertake such activities that would be necessary to realize the objectives of the LLP and maximize capital appreciation including (i) reducing risk profile of the project (ii) improving the project's business outlook and (iii) achieving the preferred IRR.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below.
(a) Basis of preparation
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and interpretation of those standards and in the manner required by the Partnership Deed. The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kenyan Shillings and all values are rounded to the nearest thousand (KShs 000), except where otherwise indicated.
(b) Statement of compliance
The financial statements of the Partnership have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
(c) Basis of consolidation
The consolidated financial statements comprise the financial statements of the partnership and its subsidiaries, as at 31 December 2020. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continues to be consolidated until the date when such control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (c) Basis of consolidation (continued)
Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee), exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns. The Group consolidates an investee and present in its consolidated financial statements the investee's assets, liabilities, equity, income, expenses and cash flows, if the Group has the current ability to direct those activities of the investee that significantly affect the investee's returns and can benefit by using that ability.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Partnership loses control over a subsidiary, it derecognises the related assets, liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
(d) Significant accounting judgments, estimates and assumptions
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on the Managing Partner's best knowledge of current events and actions, actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.
-- Other disclosures relating to the Partnerships exposure to risks and uncertainties include:-Financial risk management ( note 17), and
-- Capital risk management (note 17)
The most significant use of judgment, estimates and assumptions are as follows:
Valuation of Investment property
The fair value of investment property is determined by real estate valuation experts using recognised valuation techniques and the principles of IFRS 13 Fair Value Measurement. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in notes 4 and 16.
(e) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued)
(e) Financial instruments (continued)
Financial assets (continued)
Initial recognition and measurement (continued)
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Partnership's business model for managing them. The Partnership initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Partnership's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Partnership commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
-- Financial assets at amortised cost (debt instruments)
-- Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
-- Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
-- Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt instruments)
This category is the most relevant to Acorn Project (Two) LLP The Partnership measures financial assets at amortised cost if both of the following conditions are met:
-- The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and,
-- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Partnership's financial assets at amortised cost includes loans to cash and bank balances, receivables and amounts due from related parties.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (e) Financial instruments (continued)
Financial assets (continued)
Impairment of financial assets
Overview of ECL principles
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and intercompany receivables, the Partnership applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Partnership has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
There were no expected credit losses on the other financial instruments. This is since cash and bank and other receivables are short-term, thus the fair value does not materially differ from the cost.
Derecognition
A financial asset is derecognized when:
-- The rights to receive cash flows from the asset have expired
-- The Partnership has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement ; and either:
(a) the Partnership has transferred substantially all the risks and rewards of the asset, or
(b) the Partnership has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
When the Partnership has transferred its rights to receive cash flows from an asset or has entered a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the Partnership continues to recognize the transferred asset to the extent of the Bank's continuing involvement. In that case, the Bank also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Partnership has retained.
Write-offs
Financial assets are written off either partially or in their entirety only when the Partnership has stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to credit loss expense.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (e) Financial instruments (continued)
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings or other liabilities, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Partnership's financial liabilities include tenant deposits, other payables, borrowings, interest payable and amounts due to related
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Partnership has not designated any financial liability as at fair value through profit or loss.
Loans and borrowings
This is the category most relevant to the Partnership. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit or loss.
This category generally applies to:
Borrowings: Interest bearing loans are recorded at the proceeds received. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (f) Taxes
Value added tax
Expenses and assets are recognized net of the amount of value added tax, except:
-- When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable
-- When receivables and payables are stated with the amount of sales tax included
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
(g) Provisions
Provisions are recognized when the Partnership has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Partnership expects some or all a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement.
(h) Investment property
Investment property comprises property under construction that is held to earn rentals or for capital appreciation or both.
Investment property is measured initially at cost, including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise, including the corresponding tax effect. See note 2(i) below for the accounting policy on fair value measurement and note 16 on fair value measurement disclosures.
Investment properties are derecognised either when they have been disposed of (i.e., at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss in the period of derecognition. In determining the amount of consideration from the derecognition of investment property the Partnership considers the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the buyer (if any). Refer to note 4 for the carrying amounts of the investment properties.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (i) Fair value measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability 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 or transfer the liability takes place either:
-- In the principal market for the asset or liability
Or
-- In the absence of a principal market, in the most advantageous market for the asset or liability
The Partnership must be able to access the principal or the most advantageous market at the measurement date.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset 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 Partnership uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs.
(j) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. In the instance of specific funding being obtained, the net borrowing costs capitalised is the actual borrowing cost incurred on the amount borrowed specifically to finance the asset less any investment income earned on surplus funds. In the case of general borrowings, the capitalised borrowing cost is determined using the overall weighted average cost of all the general borrowings outstanding during the year and applying this rate to the costs incurred on the qualifying asset. The amount capitalised can never exceed the borrowing costs incurred. Capitalisation of borrowing costs ceases when all activities to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised in the profit or loss in the year in which they are incurred.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (k) Revenue recognition
The entity recognises revenue from the following major source:
Rental income
Rental income comprises direct lets to students and to commercial tenants. This revenue is recognised in the profit or loss over the length of the tenancy period as the Partnership provides the services to its customers. Included in the rental contract is the use of broadband facilities and room cleaning services.
Leases in which the Partnership does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.
Interest income
Interest income is recognised as it accrues using the effective interest rate (EIR) method. The EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in finance income in the statement of profit or loss.
(l) Business combination and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value at each reporting date with the changes in fair value recognised in profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (j) Investments in subsidiaries
The Partnership's investment in subsidiaries is accounted for using the equity method. Under the equity method, the investment in a subsidiary is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Partnership's share of profit or loss of the subsidiary since the acquisition date.
The statement of profit or loss reflects the Partnership's share of the results of operations of the subsidiary. Any change in OCI of the subsidiaries is presented as part of the Partnership's OCI. In addition, when there has been a change recognised directly in the equity of the subsidiary, the Partnership recognises its share of any changes, when applicable, in the statement of changes in equity.
The financial statements of the subsidiaries are prepared for the same reporting period as
the Partnership.
After application of the equity method, the Partnership determines whether it is necessary to recognise an impairment loss on its investment in its subsidiary. At each reporting date, the Partnership determines whether there is objective evidence that the investment in the subsidiary is impaired. If there is such evidence, the Partnership calculates the amount of impairment as the difference between the recoverable amount of the subsidiary and its carrying value, and then recognises the loss within 'Share of profit/loss of a subsidiary' in profit or loss.
Upon loss of control over the subsidiary, the Partnership measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the subsidiary upon loss of significant influence, and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
(n) Impairment of non-financial assets
The Partnership assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Partnership estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Partnership estimates the asset's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at
a revalued amount, in which case, the reversal is treated as a revaluation increase.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
3. NEW AND AMED STANDARDS AND INTERPRETATIONS
New standards, amendments and interpretations adopted by the Partnership
The below amendments and interpretations apply for the first time in 2020, but do not have an impact on the financial statements of the Partnership. The Partnership has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
The following new standards and amendments became effective as of 1 January 2020:
-- Definition of a Business - Amendments to IFRS 3
-- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7
-- The Conceptual Framework for Financial Reporting
-- Definition of Material - Amendments to IAS 1 and IAS 8
The following new standards and amendments became effective as of 1 June 2020:
-- Covid-19-Related Rent Concessions - Amendment to IFRS 16
New standards, amendments and interpretations adopted by the Partnership (continued)
Standards issued but not yet effective (continued)
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Partnership's financial statements are listed below.
New standards or amendments Effective for
annual period
beginning or after
Interest Rate Benchmark Reform - Phase 2 - Amendments 1 January 2021
to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Reference to the Conceptual Framework (Amendments 1 January 2022
to IFRS 3)
Property, Plant and Equipment: Proceeds before 1 January 2022
Intended Use (Amendments to IAS 16)
Onerous Contracts Cost of Fulfilling a Contract 1 January 2022
(Amendments to IAS 37)
AIP IFRS 1 First-time Adoption of International 1 January 2022
Financial Reporting Standards - Subsidiary as
a first-time adopter
AIP IFRS 9 Financial Instruments - Fees in the 1 January 2022
'10 per cent' test for derecognition of financial
liabilities
AIP IAS 41 Agriculture - Taxation in fair value 1 January 2022
measurements
IFRS 17 Insurance Contracts 1 January 2023
Classification of liabilities as current or non-current 1 January 2023
(Amendments to IAS 1)
Sale or Contribution of Assets between an Investor To be determined
and its Associate or Company (Amendments to IFRS
10 and IAS 28)
None of the standards and interpretations listed above is expected to have a significant impact on the Partnership's financial statements when they become effective.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
4. INVESTMENT PROPERTY Group Group
2020 2019
KShs 000 KShs 000
At 1 January 2,651,000 -
Construction costs incurred 1,684,658 2,404,023
Changes in fair value gain on revaluation
of investment property 2,700,282 246,977
At 31 December 7,035,940 2,651,000
The fair value of investment property in Acacia Vale Properties
LLP has been determined using the income capitalization method,
while the fair value of the investment properties in the other
LLPs has been determined using the Discounted Cash Flow methodology
as described in note 16.
The valuations for the investment property in Acacia Vale was
performed by Knight Frank, while investment properties in the
other subsidiaries were valued by Tysons Ltd, both accredited
independent valuers with a recognised and relevant professional
qualification and immense local experience in the category of
the investment property being valued. These valuation models
are consistent with the principles in IFRS 13.
All investment property is classified as Level 3 in the fair
value hierarchy (see note 16).
5. TRADE AND OTHER RECEIVABLES
Partnership Group Partnership Group
2020 2020 2019 2019
KShs 000 KShs 000 KShs 000 KShs 000
Trade debtors - 393 - -
Expected credit loss - (64) - -
- 329 - -
VAT recoverable - 9,197 5,753 5,753
Accrued income - - 80,060 80,060
Advance payments 27 61,906 - 12,166
Deposit and prepayments - - - 118,201
27 71,432 85,813 216,180
6. INTERCOMPANY LOAN Partnership Partnership
2020 2019
KShs 000 KShs 000
Acacia Vale Properties
LLP 776,531 661,422
Linden Properties LLP 589,276 48,307
Rowan Properties LLP 364,300 -
Beech Properties LLP 298,732 -
2,028,839 709,729
Amount due within 12
months 776,531 -
Amount due after 12 months 1,252,308 709,729
2,028,839 709,729
The Partnership has advanced intercompany loans to Acacia Vale
Properties LLP, Linden Properties LLP, Rowan Properties LLP and
Beech Properties LLP through drawdowns to the Medium-Term Note
(MTN) by Acorn Project (Two) LLP, which is unsecured. These loans
are used to finance the construction of rental property on LR
No. 209/11654 Nairobi Kenya, LR No.8393/26, IR 41709 and IR No
222287 respectively. Interest charged on the MTN is payable within
the 5 years at 12.25% per annum.
Subsequent to year end, Rowan Properties LLP, Linden Properties
LLP and Ashvale Properties LLP have been transferred to the Development
Real Estate Trusts (D-REIT) at the fair values of their investment
properties. Refer to note 19 on subsequent events. Once the investment
properties have been fully developed and the operations of the
entities stabilized, the DREITs will be transferred to an Income
Real Estate Trusts (I-REITs) in 2022, which is fully deleveraged.
Any residual capital after repaying the debt will be recycled
back into the D-REIT to originate other assets. Therefore, the
intercompany loans are considered to have minimal credit risk.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
7. INVESTMENT IN SUBSIDIARIES
Share of Changes
At 1 January profit in At 31 December
2020 or loss Investment 2020
KShs 000 KShs 000 KShs 000 KShs 000
Acacia Vale Properties
LLP 711,045 71,408 125,613 908,066
Rowan Properties LLP 376,337 322,084 (117,738) 580,682
Linden Properties LLP 62,120 595,187 23,119 680,426
Beech Properties LLP 310,545 451,105 (73,169) 688,481
Spruce Properties LLP 324,627 296,403 16,117 637,147
Mahogany Creek Properties
LLP 26,990 (609) 2,595 28,976
Ashvale Properties LLP 98,239 731,793 245,705 1,075,737
Hemlock Properties LLP 6 (51) 54 9
Scotchpine Properties
LLP 6 - 42 48
1,909,915 2,467,320 222,338 4,599,573
Share of Changes
At 1 January profit in At 31 December
2019 or loss Investment 2019
KShs 000 KShs 000 KShs 000 KShs 000
Acacia Vale Properties
LLP 337,622 381,129 (7,706) 711,045
Rowan Properties LLP 99,562 (1,554) 278,329 376,337
Linden Properties LLP 93,143 (67,165) 36,142 62,120
Beech Properties LLP 333,591 (55,645) 32,599 310,545
Spruce Properties LLP - (17,003) 341,630 324,627
Mahogany Creek Properties
LLP - (504) 27,494 26,990
Ashvale Properties LLP - (516) 98,755 98,239
Hemlock Properties LLP - (4) 10 6
Scotchpine Properties
LLP - (4) 10 6
863,918 238,734 807,263 1,909,915
The values of the LLPs are based on their net asset values which have underlying properties valued with reference to the market valuation.
The share of profits/losses for all the subsidiaries for the reporting period excluding the non-controlling interest recognised in the partnership income statement represents the 100% share as reported in the profit/loss for each subsidiary.
Below is a summary of the subsidiaries, held by the Partnership
at 31 December 2019 and 2020.
Ownership Voting Country of
% rights incorporation Activity
Acacia Vale Properties
LLP 100% 100% Kenya Student Accommodation
Rowan Properties LLP 50% 50% Kenya Student Accommodation
Linden Properties
LLP 100% 100% Kenya Student Accommodation
Beech Properties LLP 100% 100% Kenya Student Accommodation
Spruce Properties
LLP 100% 100% Kenya Student Accommodation
Mahogany Creek Properties
LLP 100% 100% Kenya Student Accommodation
Ashvale Properties
LLP 100% 100% Kenya Student Accommodation
Hemlock Properties
LLP 100% 100% Kenya Student Accommodation
Scotchpine Properties
LLP 100% 100% Kenya Student Accommodation
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
7b. NON-CONTROLLING INTEREST
Rowan Properties LLP with its principal place of business Acorn House, 2(nd) Floor, 97 James Gichuru Road, Lavington is a joint venture with proportion of ownership held by non-controlling interests which is determined by the amount contributed by the other partner also known as landowner to the business against the total capital contributions. The proportion ration between both Managing partner and other partner is used to share the profit or loss for the period which is classified into Partner's capital contributions.
8. BANK BALANCES AND CASH Partnership Group Partnership Group
2020 2020 2019 2019
KShs 000 KShs 000 KShs 000 KShs 000
Cash at bank and on hand 72,301 269,158 34,077 200,434
9. TRADE AND OTHER PAYABLES
Trade payables 6,356 93,776 2,116 23,625
Accruals 36,618 47,602 14,748 153,565
Other liabilities 24 - - -
Retention - 92,710 - 72,597
42,998 234,088 16,864 249,787
Partnership Partnership
2020 2019
10. BORROWINGS KShs 000 KShs 000
At 1 January 786,000 -
Addition for the year 1,243,000 786,000
At 31 December 2,029,000 786,000
Amount due within 12 months 777,000 -
Amount due after 12 months 1,252,000 786,000
2,029,000 786,000
The partnership issued Medium Term Note that were subscribed up to KShs 4.3 billion. The
notes
were issued through a restricted public offer to professional investors. The purpose of
the
loan is to finance construction of purpose-built student accommodation in Nairobi and its
environs . The loan is secured by (i) a composite debenture over all the assets of the
issuer
and the project entities, (ii) a legal charge over each title of land held by the project
entities over which the project development will be constructed, (iii) 50% guarantee from
GuarantCo on principal and interest payments, (iv) corporate guarantee by Acorn Holdings
Ltd,
(v) pledge in respect of the partnership interest of Acorn Holdings Limited in the Issuer
and the partnership interest of the Issuer in each of the project entities including
various
subordination agreements, (vi) charge over each collection account and the debt service
reserve
account.
The principal amount is repayable over a term of 5 years with yearly redemption clause at
issuer's option. The interest rate is at a fixed rate of 12.25% per annum. The drawdown
will
be in 14 quarterly tranches as actual project development progresses. The interest
repayment
will be made quarterly from the first drawdown.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
11. RELATED PARTY BALANCES Partnership Group
2020 2020
KShs 000 KShs 000
(a) AMOUNTS DUE FROM RELATED
PARTIES
Acacia Vale Properties 75,790 -
LLP
Rowan Properties LLP 48,097 -
Linden Properties LLP 29,249 -
Beech Properties LLP 35,035 -
Spruce Properties LLP 565 -
Mahogany Creek Properties LLP 8,027 -
Ashvale Properties 13,389 -
LLP
210,152 -
These amounts relate to MTN interest and MTN costs and have
been settled in the subsequent year.
(b) AMOUNTS DUE TO RELATED PARTIES
Partnership Group Partnership Group
2020 2020 2019 2019
KShs 000 KShs 000 KShs 000 KShs 000
MTN related liabilities
Acacia Vale Properties 77,921 - - -
LLP
Rowan Properties LLP 2,838 - - -
Beech Properties LLP 2,321 - - -
Linden Properties LLP 2,779 - - -
Recharges
Acorn Management Services
Limited - 132,418 - -
Others - 186 - -
85,859 132,604 - -
(c) Transactions with related parties
(i) Partnership
MTN set up costs
2020 2019
KShs 000 KShs 000
Acacia Vale Properties LLP 111,292 25,118
Beech Properties LLP 37,095 12 119
Rowan Properties LLP 58,312 8,501
Linden Properties LLP 32,342 15,022
Ashvale Properties LLP 543 11,850
Mahogany Creek LLP - 7,450
Spruce Properties LLP 234 -
239,818 80,060
(ii) Group
Services rendered by Project Property Marketing Other recharges
Acorn Management Services management management fees
Limited fees fees
KShs KShs 000 KShs 000 KShs 000 KShs 000
000
2020
Acacia Vale Properties
LLP 15,540 1,545 1,748 125 18,958
Beech Properties LLP 3,609 - 13,213 - 16,822
Rowan Properties LLP 15,042 - 12,057 - 27,099
Linden Properties LLP 6,651 - 10,522 - 17,173
Ashvale Properties LLP 13,799 - 1,497 - 15,296
Mahogany Creek LLP 5,010 - 1,667 - 6,677
Spruce Properties LLP 18,920 - 28,684 - 47,604
78,571 1,545 67,640 125 149,629
2019
Acacia Vale Properties
LLP 11,378 - - 977 12,355
Beech Properties LLP 10,523 - - - 10,523
Rowan Properties LLP 14,928 - - - 14,928
Linden Properties LLP 9,637 - - - 9,637
Ashvale Properties LLP 3,343 - - - 3,343
Mahogany Creek LLP 3,343 - - - 3,343
Spruce Properties LLP 3,000 - - - 3,000
56,151 - 977 57,128
12. REVENUE Group Group
2020 2019
KShs 000 KShs 000
Rental income derived from investment 28,856 -
properties
This relates to rental income from the investment property
held by Acacia Vale Properties LLP, which became operational
in the year.
13. OTHER INCOME Partnership Partnership Group Group
2020 2019 2020 2019
KShs 000 KShs 000 KShs 000 KShs 000
Interest income* 289 - 8,311 4,020
MTN Costs recharges** 239,818 - - -
240,107 - 8,311 4,020
*Interest income relates to amounts held in the current bank
account which is a fixed deposit account generating interest.
** These relate to borrowing costs on the bond recharged to
the subsidiaries. At Group level, borrowing costs for the
operating property is recognized in the profit or loss and
the borrowing costs for the projects were capitalized in investment
property.
These were classified under administration expenses in the
year ended 31 December 2019.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
14. ADMINISTRATION AND ESTABLISHMENT Partnership Partnership Group Group
2020 2019 2020 2019
KShs 000 KShs 000 KShs 000 KShs 000
Auditor's remuneration 538 538 3,174 4,072
Bank Charges 71 - 718 -
Payroll processing fees - - 3,436 4,215
Central Costs - - 2,148 -
Staff Costs - - 9,670 -
Consumables - - 1,798 -
Marketing and Sales - - 869 -
Compliance - - 2,195 -
Utilities and maintenance - - 6,192 -
costs
Customer Experience - - 1,542 -
Salaries and benefits - - 3,113 2,742
Tax consultancy fees 189 - 1,311 -
Professional fees 1,254 - 1,254 2,098
Forex Exchange gain/loss - - 46 4
Other costs - 9 - 170
2,052 547 37,466 13,301
15. FINANCE COSTS
MTN costs* 239,718 - 107,972 -
239,718 - 107,972 -
* These are borrowing costs related to the medium term note of the partnership.
16. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY
An external valuer is responsible for the external valuations of the entities' investment properties for the annual financial statements on an annual basis. The selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. In the current year, Knight Frank Ltd valued the investment property in Acacia Vale Properties LLP and Tysons Ltd valued the other investment properties.
At each reporting date, the Managing Partner analyses the movements in the properties' values. For this analysis, the Managing Partner analyzes major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts (e.g., rent amounts in leases), market reports (e.g., market rent, cap rates in property market reports) and other relevant documents. In addition, the accuracy of the computation is tested on a sample basis.
16.1 Changes in valuation techniques
The fair value was previously determined based on market comparable and cost approach methods. With the proposed transfer of the real estate assets into the Acorn Student Accommodation D-REIT (development projects) and Acorn Student Accommodation I-REIT (operational properties), it is important to follow valuation methodologies in compliance with the REIT Regulations of the Capital Markets Authority. The valuation methodologies specified in the REIT Regulations are based on global standards of valuation approaches and in line with guidelines set by the Royal Institution of Chartered Surveyors.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
16. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY (continued) 16.1 Changes in valuation techniques (continued)
In the case of operational properties such as Acacia Vale Properties LLP, the favored valuation methodology is the income capitalization approach for properties that are deemed to have achieved steady-state operations.
In the case of development projects, a discounted cash flow method was preferred to factor in the differing cash flows per project and the different risk factors (reflected by discount rates) applicable based on the stage of the development cycle per project.
Other than as described above, there were no other changes in valuation techniques during the year.
16.2 Highest and best use
Given the location of the investment properties, the current use of the properties is considered the highest and best use.
16.3 Fair value hierarchy
The following tables show an analysis of the fair values of investment property recognized in the statement of financial position by level of the fair value measurement hierarchy (as disclosed in note 2):
Fair value measurement using
Total gain
Quoted for the
year in
prices Significant Significant the
in active Observable unobservable statement
of profit
markets Inputs inputs or
(Level (Level
1) 2) (Level 3) Total loss
KShs 000 KShs 000 KShs 000 KShs 000 KShs 000
31 December 2020 - - 7,035,940 7,035,940 2,700,282
Investment property
31 December 2019
Investment property - - 2,651,000 2,651,000 246,977
Transfers between hierarchy levels
There were no transfers between Levels 1, 2 or 3 during 2020.
Profits recorded in profit or loss for recurring fair value measurements categorized within Level 3 of the fair value hierarchy amount to KShs 2,663,552,000 (2019: KShs 246,977,000) and are presented in the statement of profit or loss in line item 'Fair value gain on revaluation of investment property'.
Gains and losses recorded in profit or loss for recurring fair value measurements categorized within Level 3 of the fair value hierarchy are attributable to changes in unrealized gains or losses relating to investment property held at the end of the reporting year.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
16. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY (continued)
Valuation techniques used to derive Level 3 fair values
The table below summarizes the assumptions made in valuation of the investment property.
Fair value Range
Investment properties Valuation (weighted
KShs '000 technique Key unobservable inputs average)
Acacia Vale Properties
LLP 1,680,000 Income capitalization
Estimated Rental Value (p.a)
LR 209/11654 (KShs '000) 69,345
Projected Occupancy rate 93.5%
Outgoings 28%
Net yield p.a. 8.5%
Rowan Properties
LLP DCF
Projected Revenues (KShs
LR 9509/44 1,453,693 '000) 71,623
Projected Occupancy rate 93.5%
Outgoings 28%
Net yield p.a 8%
Linden Properties
LLP 940,009 DCF
Projected Revenues (KShs
LR 8393/26 '000) 80,731
Projected Occupancy rate 93.5%
Outgoings 28%
Net yield p.a 8%
Beech Properties
LLP 1,149,595 DCF
Projected Revenues (KShs
LR 209/5663/2 '000) 109,780
Projected Occupancy rate 93.5%
Outgoings 28%
Net yield p.a 8%
Spruce Properties
LLP 685,174 DCF
Projected Revenues (KShs
LR 7820/1 '000) 133,925
Projected Occupancy Rate 93.5%
Outgoings 32%
Net yield p.a 8%
Ashvale Properties 1,127,469
LLP DCF
Projected Revenues (KShs
'000) 133,925
Projected Occupancy Rate 93.5%
Outgoings 32%
Net yield p.a 8%
Total 7,035,940
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
16. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY (continued)
Fair value Range
Investment properties Valuation (weighted
KShs 000 technique Key unobservable inputs average)
2019
Acacia Vale
Properties LLP Income capitalization
Estimated Rental Value (p.a)
LR 209/11654 1,329,000 KShs 000 167,148
Occupancy rate 92%
Outgoings 30%
Net yield p.a. 8%
Rowan Properties
LLP Market comparable
LR 9509/44 537,000 Average % of completion 47%
Plinth area (sq. ft) 145,016
Avg cost per sq. ft 4,200
Apportioned professional fees
(KShs 000) 28,269
Land value (KShs 000) 120,000
Linden Properties
LLP Market comparable
LR 8393/26 120,000 Average % of completion 4.5%
Plinth area (sq. ft) 122,793
Avg cost per sq. ft 5,000
Apportioned professional fees
(KShs 000) 15,840
Land value (KShs 000) 85,000
Beech Properties
LLP Market comparable
LR 209/5663/2 340,000 Plinth area (sq. ft) 20,575
Avg cost per sq. ft 500
Apportioned professional fees
(KShs 000) 29,500
Land value (KShs 000) 280,000
Spruce Properties
LLP Market comparable
LR 7820/1 325,000 Acre 5
Market rate per acre (KShs
000) 65,000
Total 2,651,000
Significant increases (decreases) in estimated rental value (ERV), net rent per square feet per month and occupancy rate in isolation would result in a significantly higher (lower) fair value of the property.
Significant increases (decreases) in the net initial yield rate, construction costs to completion and development profit in isolation would result in a significantly lower (higher) fair value.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
16. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY (continued)
Sensitivity analysis:
Sensitivity 2020 -Investment properties
Impact on valuation of 5% change in nominal Impact on valuation of 5% change in
equivalent yield estimated occupancy
-------------------------------------------- ---------------------------------------------
Increase Decrease Increase Decrease
--------------------- --------------------- --------------------- ----------------------
KShs 000 KShs 000 KShs 000 KShs 000
--------------------- --------------------- --------------------- ----------------------
Acacia Vale Properties
LLP (70,000) 77,000 6,000 (7,000)
--------------------- --------------------- --------------------- ----------------------
Sensitivity 2019 -Investment properties
Acacia Vale Properties
LLP (70,000) 77,000 6,000 (7,000)
--------------------- --------------------- --------------------- ----------------------
Impact on valuation of 5% change in
cost
Increase Decrease
2020 KShs 000 KShs 000
Rowan Properties LLP 21,000 (21,000)
Linden Properties LLP 1,000 (2,000)
Beech Properties LLP 2,000 (2,000)
Spruce Properties LLP 16,000 (16,000)
2019
Rowan Properties LLP 21,000 (21,000)
Linden Properties LLP 1,000 (2,000)
Beech Properties LLP 2,000 (2,000)
Spruce Properties LLP 16,000 (16,000)
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
17. FINANCIAL RISK MANAGEMENT
The Partnership's and Group's principal financial liabilities comprise borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group and Partnership's operations. The Group's principal financial assets comprise bank balances and cash. The Partnership's principal financial assets comprise intercompany loan and bank and cash balances that derive directly from its operations.
The Group is exposed to market risk, credit risk and liquidity risk. Risk management is carried out by the finance department under policies approved by the Managing Partner. Finance department identifies and evaluates financial risks. The policies lay down principles for overall risk management, as well as those covering specific areas such as foreign exchange risk, interest rate risk, credit risk and investing any excess liquidity.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. The Financial instruments affected by market risk are loans and borrowings which are mainly exposed to currency risk.
(i) Foreign currency risk
The Group operates wholly within Kenya and its assets and liabilities are reported in the local currency.
The Group had minimal foreign currency denominated assets or liabilities as at 31 December 2020 such that the sensitivity analysis borne of the foreign exchange rate would not be representative of the inherent risk associated with changes in exchange rate.
(ii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair value of financial instruments. Interest rate risk to the Group is the risk of changes in market interest rates reducing the overall return or increasing the cost of finance. The financial instruments held by the Group are all denominated in Kenyan Shillings, are at a fixed rate of 12.25% and carried at amortised cost. Therefore, the group is not exposed to market risks for the borrowings and intercompany loans.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2020
17. FINANCIAL RISK MANAGEMENT (continued)
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk mainly arises from financial assets and is managed on a group-wide basis.
Credit risk on financial assets with banking institutions is managed by dealing with institutions with good credit ratings and placing limits on deposits that can be held with each institution.
The majority of the Group's income comprise rental income payable in advance; credit risk associated with tenants is managed, in the case of individuals, by basic financial checks before accepting a tenant and by prompt follow up of any arrears. For commercial tenants' leases are only entered into with parties where the assessment of credit risk is satisfactory and again is further controlled through prompt follow up of arrears. Credit risk on other trade receivables is managed by ensuring that credit is extended to customers with an established credit history. The credit history is determined by considering the financial position, past experience and other relevant factors.
The maximum exposure of the Group to credit risk as at the reporting date is as follows:
Group Group
2020 2019
KShs 000 KShs 000
Trade receivables 393
-
The amount that best represents the Partnership's maximum exposure to credit risk for the year ended 31 December 2020 is made up as follows:
Partnership Partnership
2020 2019
KShs 000 KShs 000
Intercompany loan 2,028,839 709,729
Amounts due from related parties 210,152 -
Trade and other receivables - 80,060
Bank and cash balances 72,301 34,077
2,311,292 823,866
The carrying amount of the medium term note approximates the fair value as the interest rate was competitively determined by market participants and is expected to be held to maturity by all investors. The intercompany loan which is drawn down from the medium term note is advanced at similar terms, therefore carrying amount is considered to approximate fair value.
Set out below is the information about the credit risk exposure on the Group's trade receivables and contract assets using a provision matrix.
31 -
Trade debtors 0 - 30 60 61 - 90 91 - 120 >120 Total
2020
Expected credit loss 16%
rate - - - -
Estimated total gross
carrying amount at KShs KShs
default KShs 000 000 KShs 000 KShs 000 000
Residential 322 - - - - 322
Retail 71 - - - - 71
393 - - - - 393
Expected credit loss (64) - - - - (64)
Additional disclosures are made in note 5.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2020
17. FINANCIAL RISK MANAGEMENT (continued)
Liquidity risk
Liquidity risk concerns the ability of the Group to fulfill its financial obligations as they become due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
Partnership
On Less than 3 to 12 Over
Demand 3 months months one year Total
KShs 000 KShs 000 KShs 000 KShs 000 KShs 000
Financial liabilities
Trade payables - 6,356 - - 6,356
Accruals - - 625 - 625
Borrowings - 25,378 903,890 1,923,568 2,852,836
At 31 December 2020 - 31,734 904,515 1,923,568 2,859,817
Financial liabilities
Trade payables - 2,116 - - 2,116
Accruals - - 14,748 - 14,748
Borrowings - 10,149 23,940 1,251,378 1,282,780
At 31 December 2019 - 12,265 36,001 1,251,378 1,299,644
Consolidated
On Less than 3 to 12 Over
demand 3 months months one year Total
KShs 000 KShs 000 KShs 000 KShs 000 KShs 000
Financial liabilities
Trade payables 93,776 93,776
Accruals 11,609 11,609
Retention payable 92,710 92,710
Borrowings - 25,378 903,890 1,923,568 2,852,836
At 31 December 2020 - 119,154 1,008,209 1,923,568 3,050,931
Financial liabilities
Trade payables - 23,625 - - 23,625
Accruals - - 153,565 153,565
Retention payable 72,597 72,597
Borrowings - 10,149 21,253 1,277,782 1,309,184
At 31 December 2019 - 33,774 174,818 1,350,379 1,558,971
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2020
18. CAPITAL RISK MANAGEMENT
For the purpose of the Group's capital management, capital includes partners' capital and all other capital attributable to the partners. The primary objective of the Partnership's capital management is to maximise the partners' value.
The Partnership manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Partnership may adjust the partners' distributions and receive or repay partnership capital. The Partnership monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, interest bearing loans and borrowings, less cash and short-term deposits, excluding discontinued operations.
Group Group
2020 2019
KShs 000 KShs 000
Interest bearing loans and borrowings (Note 10) 2,029,000 786,000
Less: Bank and cash balances (Note 8) (269,158) (200,434)
Net debt 1,759,842 585,566
Equity 4,980,836 2,031,827
Capital and debt ratio 6,740,678 2,617,393
Gearing ratio 26% 22%
19. EVENTS AFTER THE REPORTING DATE
In line with The Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013, Acorn Holdings Limited, the ultimate parent of the Group, sponsored the launch of two Real Estate Investment Trusts (REITs) on 8 February 2021, to enable it access capital to sustain and grow its business model in the next phase of long-term strategic growth. The Co-operative Bank of Kenya Limited was appointed as the trustee while Acorn Holdings Limited became the promoter of the REITs.
The Acorn D-REIT will focus on developing rental housing projects for the young people in Kenya, initially in the purpose-built student accommodation space and then shortly moving into young professionals' accommodation. The Acorn Student Accommodation I-REIT will subsequently hold the income-generating operational assets.
The partners are not aware of any other events after the reporting date, as defined by IAS 10 Events after the Reporting Period, that require disclosure in or adjustments to the financial statements as at the date of this report.
20. CONTINGENCIES AND COMMITMENTS
Legal claim contingency
There were no contingencies arising out of legal claims as at 31 December 2020 (2019: nil).
Commitments
The Group had no capital commitments as at 31 December 2020 (2019: nil).
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END
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October 15, 2021 10:46 ET (14:46 GMT)
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