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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Taliesin Pty | LSE:TPF | London | Ordinary Share | JE00B3B3WB31 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 4,450.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMTPF TIDMTPFZ
RNS Number : 1221C
Taliesin Property Fund Limited
11 April 2017
Taliesin Property Fund Limited
Annual results for the year ended 31 December 2016
Taliesin Property Fund Limited and its subsidiaries ("Taliesin" or the "Group"), the AIM quoted company focused on the Berlin residential market, is pleased to announce its results for the year ended 31 December 2016.
A full version of the annual report and accounts will be available on the Company's website www.taliesinberlin.com.
For further information, please contact:
Taliesin Property Fund Limited
Mark Smith, Director 01534 700000
Stockdale Securities Limited
Robert Finlay/David Coaten 0207 601 6100
Key financial and operational highlights
-- Adjusted Net Asset Value (NAV)* per share rose 27.5% in 2016 to end the year at EUR37.53 (31 December 2015 EUR29.44 reflecting the EUR2 per share return of capital to shareholders during the period). On an EPRA basis**, NAV per share was EUR36.87 at the end of 2016 (31 December 2015 EUR29.10)
-- Property portfolio now valued at EUR318 million, an increase of 16.6% after adjusting for property disposals and capital expenditure
Hot Features
Premium
-- Per square metre ("psqm") valuation of EUR2,700 (31 December 2015 EUR2,240)
-- Taliesin's first privatisation project, Warschauer Strasse, completely sold at average prices of EUR3,750 psqm
-- Taliesin's second privatisation project, Kavalierstrasse, sold four units in the period. An additional six units have been either sold or contracted to sell in 2017 bringing average sales prices to EUR4,000 psqm
-- Taliesin successfully refinanced maturing senior loans in 2016 at lower interest rates and higher principal amounts and expects more of the same in 2017
-- Loan-to-value at year-end stood at 42.2% (2015 year-end 45.9%)
-- Proceeds of privatisation sales and debt refinancing funded the second EUR2 per share return of capital to shareholders
-- Berlin property market continues to benefit from positive changes in demographics and a strong local economy with rents and prices also being driven higher by a scarcity of supply
*The Adjusted NAV per share takes the IFRS NAV and excludes gross deferred tax liabilities.
**The EPRA NAV takes the IFRS NAV and excludes the cumulative mark-to-market movements in Taliesin's interest rate swap contracts and excludes net deferred tax liabilities
Chairman's Statement
I am delighted to be able to report on a memorable year for the Group. A sizeable 16.60% (like-for-like) increase in the value of the property portfolio led to a 27.5% increase in Taliesin's Adjusted NAV per share to EUR37.53 (31 December 2015 EUR29.44) reflecting the EUR2 per share return of capital to shareholders during the period.
The Taliesin share price maintained its premium to the Group's Adjusted NAV, closing 2016 at the equivalent of EUR41.20 per share. This report provides an in depth analysis of the factors behind this performance but I would like to highlight some of the notable events during the year and the outlook for 2017.
Firstly, the Group was able to return a further EUR2 per share of capital to shareholders. This followed a similar distribution made in 2015. It is particularly pleasing that we have been able to make these capital returns. Our decision not to pay dividends when we were assembling the portfolio and instead channel income into further acquisitions and capital investment has been vindicated by the price appreciation of our portfolio.
Also of note in 2016 were the sales prices achieved for Taliesin's apartment privatisations and the ongoing preparation of the rest of the Group's portfolio to be eventually privatised. Given the recent restrictions put in place by the Berlin authorities on privatising apartments in certain areas of the city, I believe the fact that we have pre-approvals in place for so many of our properties to be tremendously value enhancing. Looking at the valuation methodology applied by JLL when assessing our portfolio, the potential uplift through privatisation is currently only partially recognised. I believe that this potential will continue to provide significant support for the value of the Taliesin portfolio.
Nigel Le Quesne
Chairman
10 April 2017
Investment Advisers' Report
for the year ended 31 December 2016
Recent Market Developments and Outlook
2016 proved to be another strong year for the Berlin property market with the value of the Group's portfolio (based on a valuation by Jones Lang LaSalle (JLL)) increasing to EUR318.0 million. This valuation equates to EUR2,700 psqm, a 20.5% increase from EUR2,240 psqm at the end of 2015. Apartment sales during 2016 amounted to EUR6.9 million with further sales occurring in 2017. Recent apartment sales prices have exceeded EUR4,000 psqm.
In 2016, the Group's Adjusted NAV per share increased by 27.5% to EUR37.53. On an EPRA basis the NAV per share increased to EUR36.87. The period under review showed a continuation of the positive trends that have been highlighted in these updates in recent years.
Firstly, demographic and economic trends continue to support the residential property market. According to the Amt für Statistik Berlin Brandenburg and JLL, the Berlin population is forecast to expand to close to 4 million inhabitants by 2030, representing an increase of 9.3% from 2015, whilst the number of households is forecast to grow by 12.3% in the same period. These estimates have proved conservative in recent years and we would expect upward revisions to take place. The significant number of new arrivals in recent years has helped Berlin's economy grow faster than the rest of Germany and employment to grow more rapidly. In the first nine months of 2016, employment rose by 2.4%, more than double that of Germany as a whole. Employment in Berlin has been rising faster than in any other land for five consecutive years. The service sector in particular is booming. Tourist visits topped 31 million in 2016, with overnight stays rising 2.9% to 13 million. The technology sector is also growing strongly: McKinsey forecast that Berlin's start-up sector could provide 100,000 new jobs between 2013 and 2020. Financial and business services output now totals $55 billion per annum, according to Oxford Economics: remarkably, this is now not far short of that recorded by Frankfurt ($63 billion per annum). All this has helped begin to close the gap in purchasing power between Berlin residents and those in other large German cities. According to Berlin Hyp data, the number of employees in Berlin subject to social security contributions grew by 29% between 2010 and 2015. This data probably does not capture the full impact of the technology sector on Berlin's economic performance given what a recent phenomenon it is. We see plenty of additional evidence to suggest that this sector is having a significant impact, not least through the growth in co-working spaces and the rapid growth in office rents.
Wider economic trends were supportive in 2016. German GDP rose 1.8%, driven by household and government spending, rather than by net exports. Eurozone manufacturing and services PMIs have started 2017 at 6 year highs. With the ECB continuing to keep interest rates extremely low and augmenting the stimulative effect of monetary policy via its asset purchase programme, real interest rates remained negative in Germany throughout 2016. Nominal bond yields were also negative for much of 2016 and, although 10 year bund yields rose to just over 0.2% by year end 2016, inflation also accelerated to 1.9%, almost reaching the ECB's target of 2%. This cheap money policy helped send residential property prices up by 8% in Germany's main cities in 2016, leading the Bundesbank to warn again of a property bubble.
Looking ahead, the special factors driving the Berlin property market are unlikely to go away. In economic terms, Berlin is now Germany's "growth pole", a primary destination for venture capital, head-quartering and service industries. The upgrading of public infrastructure also continues apace, far more so than in other German cities.
The second trend is one of an ongoing scarcity of supply in the residential rental market. Permissions to build new residential properties have grown rapidly in recent years and completions are accelerating but they still fall short of new demand by a substantial margin. JLL forecast residential permits to be issued in 2016 to build 18,600 units and for completions to be in the range of 12-15,000 units. Population growth in 2015 was around 48,000 and reached 43,000 in the first half of 2016 according to JLL. The Berlin Senate is keen to increase completions to at least 20,000 new units per year but planning remains a hurdle.
A further factor of support for the market has been the continued plentiful availability of cheap financing for large property buyers via the Pfandbrief market. As discussed in the Chairman's commentary, despite a Trump induced wobble in the bund market, yields have stabilised at a still extremely low level. Taliesin's experience with apartment sales has been similar to the overall market in that buyers are mainly cash buyers or require minimal finance. This is confirmed by national data on mortgage lending (the mortgage market is discussed further in the risks section of this report). Whilst the search for yield is probably not as pronounced as it was a year ago it remains a potent force in the market. Brexit appears to have removed London from the most favoured property investment destination to be replaced by, amongst others, Berlin. Various industry studies have Berlin at or near the top of institutional investors' preferred investment targets for this year and whilst we are not particularly comfortable with a consensus call, this may well continue to underpin the market in the short run. Fears over a populist backlash in upcoming elections in
France in particular have led to some sovereign bond spread widening against Germany and will probably continue to divert investment flows towards core Europe i.e. Germany. If political risk manifests itself in the short term as a weaker Euro and lower bund yields then Berlin asset prices will continue to be squeezed higher. In the medium term, however, there could be adverse outcomes which we discuss later in this report. For now, however, financing remains cheap and readily available to large buyers. Anecdotally and at the margin we are beginning to see some less than sound lending take place and this is something that will continue to be monitored.
The impact on the residential market of these trends has been predictable. Firstly, prices have powered ahead. Price growth in multifamily apartment buildings, especially those with privatisation permissions such as ours, has been strongest. Our increase of around 20% psqm for the year seems consistent with the market. This growth further closes the price differential between the price of single apartments and multi-family buildings. Single apartment prices increased by 9.6% in 2016 according to JLL, with a Berlin average selling price of EUR3,510 psqm. Taliesin's own experience in central districts has been to achieve far higher average selling prices (average sales prices in Friedrichshain-Kreuzberg according to Berlin Hyp reached EUR3,926 psqm in 2016). The volume of apartment sales has continued to expand with CBRE reporting EUR700 million of sales in the first 9 months of 2016, a higher total than the whole of 2015. Similarly, record volumes are expected for total residential sales activity in Berlin in 2016. Residential rents, though constrained by Mietspiegel legislation, also increased. According to data from Empirica, average residential re-let rents for previously vacant apartments grew by 4.0% in 2016 to EUR9.80 psqm, whilst properties available to rent in central districts all achieved well in excess of EUR10 psqm. In Taliesin's case, overall rental growth was 4.4%. Whilst there has been a marked increase in rent levels in Berlin in recent years, it is instructive to look at this over a longer time frame. According to JLL, residential rents in Berlin have grown at a modest average nominal rate of 3.9% per annum since 2004.
Operational Review
Taliesin's portfolio benefited from a very strong underlying market. Rents have been growing in the 4-5% range per annum and vacancies remain low (adjusted for properties subject to refurbishment). Adjusted residential vacancies stood at around 2.6% at year end. In situ residential rents averaged EUR7.62 psqm in 2016 whereas average re-let rents exceeded EUR10 psqm, demonstrating the strong long term rental potential of the portfolio. This, alongside the potential capital uplift connected with any assets that can be privatised, explains why investors are prepared to acquire properties today with low initial yields.
Taliesin privatised a total of EUR6.9 million of apartments in 2016, an increase from EUR4.3 million the previous year. This represented the sale of the remaining units in Warschauer Strasse and the commencement of the sale of apartments in Kavalierstrasse. As previously discussed, the average sale price achieved in Warschauer Strasse was EUR3,750 psqm whereas, in line with market developments, prices in the second project are currently exceeding EUR4,000 psqm. Kavalierstrasse was a property acquired as part of a portfolio purchase at an average price of around EUR750 psqm. The property has been subject to a significant refurbishment but still represents an extremely profitable project for the group. So far ten apartments in the building have been either sold or contracted to be sold out of a total of 24 units.
Taliesin has again engaged the agency services of its own in-house agent, Raumerei, resulting in significant cost savings and higher sales prices. The value of the unsold units in Kavalierstrasse at year end 2016 are shown in the accounts as 'assets classified as held for sale' and totalled EUR7.1 million.
Within assets currently classified as investment properties a significant number now have full permissions in place to privatise apartments in the future. In particular, those properties in Berlin in areas which are either restricted in privatising or face the threat, we believe that around 85% of our apartments are, or shortly will be, free to privatise. As demonstrated by the Group's recent apartment sales activity, this remains an area which offers significant potential.
The privatisation potential has contributed to the growth in the value of the Taliesin portfolio and in turn allowed us to continue to re-finance maturing senior debt facilities at lower interest rates and higher principal amounts. Most recently, a maturing EUR11.3 million facility was re-financed with a new EUR20.0 million loan at an interest rate of 1.52% versus a maturing interest rate of 4.865%. During 2016, maturing senior debts of EUR33.6 million were re-financed with new loans totalling EUR46.5 million with similar carry cost reductions. 2017 has a similar debt maturity profile and, barring a significant change to prevailing market conditions, we expect to be able to reduce interest costs on new loans and increase loan amounts.
The release of funds from privatisation sales and re-financing activity allowed Taliesin to return a further EUR2 per share to shareholders in the period by way of a B share capital distribution. This follows on from an initial distribution in 2015 in line with a long term commitment made to return capital to shareholders. It remains the intention of the Group to continue distributing capital in line with our ability to continue to re-finance on favourable terms and to sell apartments at attractive prices. Even though total debt (senior bank debt plus zero dividend preference shares (ZDPs)) increased to EUR134.3 million in 2016 from EUR122.8 million in 2015, the Group's property portfolio loan-to-value decreased to 42.2% from 45.9%. Likewise, the cover ratio on the ZDPs improved to 2.37. Taliesin was able to fund further capital expenditure on the portfolio of EUR4.9 million in 2016 and continuous improvement in the standard of the properties remains a key part of our strategy.
Risks and Uncertainties
Taliesin's property portfolio is located almost entirely in Berlin and therefore at risk from changes in the political and economic environment that may have an impact on the city. As in previous years, the Group remains vigilant to these twin threats to the wellbeing of the business.
Following elections in 2016 Berlin now has a coalition government comprising the Social Democrats, the Greens and the left parties. These parties campaigned on a strongly pro tenant platform and the early signs indicate that the operating environment for landlords is going to become more complex. The Berlin authorities are clearly intensifying their efforts to relieve pressure in the rental market by, for example, threatening heavy fines for apartments left intentionally vacant. Gaining permissions for rent increases following refurbishment work in designated "preservation" areas is also proving time consuming and delaying the turnaround of vacant units. At the Federal level, the Ministry of Justice is working on an overhaul of the current Mietspiegel (rental) law which could prove detrimental to landlords and also weighing a decision to shift the burden of estate agent fees away from the buyer of properties onto the seller. This second point could be significant for the market as most buyers are expected to pay heavy agency fees when acquiring a property (6% plus VAT). In our case the in-house agent, Raumerei, does not levy a commission on apartment sales.
As regards politics in Germany itself, general elections scheduled for September could see a resurgence of the Social Democrats, whose stated policy is to decelerate rent increases and attack what they see as the "irrational exuberance" of the German property market. Tighter restrictions on rents and higher stamp duty could ensue. Anti-immigration and anti-EU parties are also expected to do well. Outside Germany, a number of countries are witnessing a resurgence in anti-EU sentiment, while Greece and other "Club Med" countries are struggling with austerity. Fissures in the Eurozone could impact Germany negatively, not least because under the Target 2 mechanism supervised by the ECB, the Bundesbank is funding the weaker peripheral Eurozone countries on a record scale, amounting to nearly EUR800 billion at the end of 2016 and rising. Finally, Brexit negotiations and President Trump's stated hostility to the EU could also knock confidence.
On the economic front in 2017 and beyond, it is very likely that monetary policy will be, at least to a degree, normalised, barring challenges from negative developments on the Eurozone's periphery. Eurozone inflation reached 1.1% at the turn of the year and, while that is still well below the 2% target set by the ECB, reflationary trends have set in and will eventually prompt the ECB to tighten. The US has already embarked on the path of monetary tightening, with the yield on 10 year US Treasuries increasing dramatically relative to German bund yields. That spread will have to close at some stage, signalling a reversal of the monetary easing that has been underway for so long. This will potentially take away some of the fuel igniting the German property market.
Another potential dampener on the German property market is the sharp deceleration in retail mortgage growth. Although investment in property by German buyers has primarily represented a search for yield in the face of historically low interest rates on bonds and bank deposits, many Germans have availed themselves of low interest rates to lever up on property purchases. Until 2016, mortgage lending in Germany had been rising at double digit rates, albeit from a very low base. Then, in March 2016, the German government implemented their version of the EU Mortgage Credit Directive, designed to give more protection to people taking out mortgages. German savings banks' mortgage lending fell 10% in the first eight months of 2016 versus the same period a year earlier. According to the Bundesbank, total mortgage lending dropped by 13% in annual terms in April 2016, the month after the law took effect and fell by 20% in July. The supply of retail mortgage lending is now not meeting the demand for it.
Strategy and Plans
In last year's report we reflected on the level of maturity achieved in the Berlin residential property market over the past several years. The price of property has increased markedly but the market has also experienced a significant de-risking over the period. The underlying support for any residential market comes from a combination of demographics, supply and finance conditions. Each of these factors has been discussed in detail in this commentary but we would argue that the near term trend for each of them should continue to be supportive of the market, even at higher prices.
A more predictable market is clearly attracting new types of institutional investors. German family offices in particular appear to be more active in the market alongside international private equity type buyers. Ten years ago the market was in some disarray and assumptions over improving demographics and an eventual supply constraint were merely assumptions. Today, the reality of a serious supply constraint and strong demographics are self evident. We expect the market to continue to mature in the following years and to continue to attract investors with a more institutional outlook.
The Taliesin portfolio has benefitted strongly over the past several years from the alignment of the various factors discussed. General yield compression has been dramatic in the last few years. As discussed, we are of the view that some of those external factors that have driven that compression are probably coming to an end. The Group also recognises the rising political risks in 2017 and beyond and expects a more complicated operating environment as a result. The portfolio, however, is valued at what the Directors believe to be an attractive price given where the properties are located and the outlook for Berlin, especially when compared to other European cities. The reversionary rental pull of the portfolio is significant with new lets achieving a premium over in-situ rents. With tenant turnover remaining in the 10% per annum range, this (combined with regular rent adjustments) is generating 4-5% rental growth per annum for the entire portfolio. A number of the Taliesin properties also offer development potential in the form of roof build outs or new build opportunities. We believe that there is significant additional value particularly in the undeveloped roof space as we are beginning to see a number of transactions where developers are acquiring exactly these type of projects for large prices. The Group has invested heavily in improving the quality of the portfolio over the years and that is translating into high prices for apartments privatisations in particular. The majority of the Taliesin portfolio now has permissions in place to privatise.
The Taliesin strategy in the short term will be to continue drive rental growth through further investment in the portfolio, to continue to privatise selective Group properties alongside finalising outstanding permissions to privatise, to explore development opportunities and to refinance maturing senior loans. It is also the intention of the Group to continue to distribute the proceeds of apartment sale profits and refinancing back to shareholders.
Directors' Biographies
for the year ended 31 December 2016
Nigel Le Quesne (Chairman)
Nigel Le Quesne is group CEO and chairman of the JTC Group, having joined in 1991 from Price Waterhouse. He was admitted as an associate in 1989 and a fellow in 1999 of the Institute of Chartered Secretaries and Administrators and is a fellow of the Chartered Management Institute. He is also a member of the Society of Trust and Estate Practitioners, the Jersey Taxation Society and the Institute of Directors. Mr. Le Quesne has a number of directorships of both publicly quoted and private companies and, in particular, has extensive property experience including his roles as a director of Watermark Holdings Limited, a privately owned Jersey company with significant real estate assets in the UK and Germany, and as a member of the supervisory board of IMW Immobilien AG, a publicly quoted property holding company with substantial property holdings primarily in the Berlin area. Mr. Le Quesne was appointed a Director on 17 November 2005 and has served as a Director since that date.
Stephen Burnett
Stephen Burnett was a shareholder and Group Director in JTC Group, a large international corporate services company, until 2013. Mr. Burnett established the Funds division for JTC Group and has sat on a number of boards of listed, non-listed companies and funds engaged in a range of activities including property holding and private equity. Currently Mr. Burnett is a Non-Executive Director with JTC Group and sits on the Risk Committee together with a small number of company and fund boards. Mr. Burnett joined JTC Group in 1997 having trained as an accountant with BDO.
Nikolaus von Palombini
Nikolaus is a lawyer and financial consultant who lives in Berlin. Nikolaus served as Chief Financial Officer for Taliesin Deutschland GmbH, which provides advisory and property management services to Taliesin in Germany, between September 2014 and April 2015. Before that he had various positions as Chief Financial Officer for private equity as well as real estate firms. Nikolaus started his professional career training at Arthur Andersen and Ernst & Young where he qualified as a certified auditor in 2003.
Nicholas Mark Houslop
Mr. Houslop has over 30 years' experience in the property investment market. He joined DTZ in 1973 and was appointed a director when it publicly listed in 1987. His experience has extended from the UK and European markets to the USA where he set up and ran DTZ's New York office for five years, advising on major transactions in New York, Los Angeles, Washington DC, and Denver. In the UK he has advised on Central London properties including the Lloyd's of London headquarters, the Berkley Square Estate, and the Plaza shopping centre on Oxford Street. He is a fellow of the Royal Institution of Chartered Surveyors. Mr. Houslop was appointed a Director on 30 June 2007 and has served since that date.
Mark Smith
Mark Smith has over 25 years' experience in the investment sector, including periods in both investment management and investment banking. In the early 1990s he was a managing director in the international equities group Bear Stearns International Limited, specializing in developing markets, and was responsible for institutional sales and research in addition to private equity origination in the UK. More recently he held the same position at ING Group and had various responsibilities including the management of European equity sales and oversight of the company's hedge fund business. Mr. Smith also has experience in asset management, having worked at Worldinvest Limited where he shared responsibility for managing large institutional equity funds prior to co-founding and managing an emerging market equity hedge fund at Newman, Ragazzi and Company in 1999. Mr. Smith was appointed a Director on 17 November 2005 and has served since that date.
Directors' Report
for the year ended 31 December 2016
The Directors present their report to the members together with the financial statements for the year ended 31 December 2016.
INCORPORATION
The Company was incorporated in Jersey, Channel Islands, on 17 November 2005.
PRINCIPAL ACTIVITIES
The principal activity of the Company is that of a holding company for the Group. The Group's principal activity is selective investment in primarily residential property in Berlin, Potsdam and Dresden. The ordinary shares of the Company are listed on the AIM Market of the London Stock Exchange. The Company's Zero Dividend Preference Shares are listed on the Official List for trading on the London Stock Exchange.
BUSINESS REVIEW
The consolidated statement of comprehensive income for the year is set out later in this report. A review of the development and performance of the business has been set out in the Chairman's Statement and Investment Advisers' report.
DIVIDS
The Directors do not recommend the payment of a dividend for the year (2015: EURnil).
DIRECTORS AND DIRECTORS` INTERESTS IN SHARES
The Directors of the Company during the year, and subsequently, together with the interests in the share capital of the Company of those in office at the end of the year, were:
Ordinary shares
Nigel Anthony Le Quesne 5,200
Stephen Anthony Burnett -
Nicholas Mark Houslop -
Nikolaus von Palombini -
Mark Smith *124,720
* In addition, Mark Smith owns 75.62% of Taliesin Management Limited (TML) which owns 615,946 ordinary shares. Mark Smith also owns 100% of JJ Investment Management Limited (JJIM) which owns 278,729 ordinary shares.
SUPPLIER PAYMENT POLICY
The Company and the Group's policy concerning the payment of trade payables is to:
-- settle the terms of payment with suppliers when agreeing the terms of each transaction;
-- ensure that suppliers are made aware of the terms of payment by the inclusion of the relevant items in contracts; and
-- pay in accordance with the Group's contractual and other legal obligations.
On average, Group trade payables at the year-end represented 26 days (2015: 26 days) of total Group operating expenses. The Company had no trade payables at either 31 December 2016 or 31 December 2015.
GOING CONCERN
The Group's business activities, its performance for the period, and prospects for the business going forward are outlined in the Chairman's Statement and Investment Advisers' report. The rental demand for the Group's properties remains strong and the property market in Berlin is buoyant. Preparation for privatisation together with general refurbishment projects, have inevitably created (and will continue to do so), heavy calls on cash for investment. There is currently a good supply of financing available as interest rates have declined sharply. The Group has a large senior loan maturing in late 2017 and is confident, due to early negotiations with the existing lender and other banks, of refinancing this loan on favourable terms. The Group expects the majority of any performance fee to be payable to the Investment Advisers in newly issued shares rather than cash and the issued Zero Dividend Preference Shares make no cash demands on the business until 2018. The directors believe that the Group has access to sufficient financing to fund any capital expenditure which may be undertaken. Therefore, the directors are of the opinion that it is appropriate for the Group to continue to adopt the going concern basis of accounting in preparing these financial statements.
FINANCIAL RISK MANAGEMENT
An explanation of the Group's financial risk management objectives, policies and strategies is set out in note 20.
AUDITOR
A resolution to re-appoint Mazars LLP as the Group's auditor, and to authorise the Directors to determine their remuneration, will be proposed at the forthcoming Annual General Meeting.
Each of the persons who are Directors at the time when this Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit information of which the Group`s auditor is unaware; and
-- that Director has taken all the steps that ought to have been taken as a Director in order to be aware of any information needed by the Group's auditor in connection with preparing its report and to establish that the Group's auditor is aware of that information.
CORPORATE GOVERNANCE
The Directors recognise the importance of, and are committed to, high standards of corporate governance. During the course of the current financial year the Board of Directors have continued to assess the most appropriate corporate governance arrangements and have decided to again adopt the Association of Investment Companies Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide").
The Board considers the AIC Code, as explained by the AIC Guide, to be the most appropriate for the Company as it allows the Company to continue to adhere to the high standards of corporate governance that it recognises as important to shareholders, whilst providing an appropriate framework of corporate governance for an investment company such as Taliesin.
As an externally managed investment company, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. For the reasons set out in the AIC Guide, the Company has therefore not reported on:
-- the role of the chief executive; -- executive directors remuneration; and -- the need for an internal audit function.
For the reasons set out in the AIC guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions not relevant to the position of Taliesin, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions.
The principles of the AIC Code
The AIC Code is made up of twenty-one principles which, together with the Company's compliance approach, are detailed below:
The Board
The Chairman should be independent
Nigel Le Quesne is a shareholder in the JTC Group Limited of which JTC (Jersey) Limited, JTC Trustees Limited and JTC Fund Services Limited are wholly owned subsidiaries, he cannot be considered wholly independent, but the Board considers this acceptable given the size and structure of the Group.
The Board has not to date considered it necessary or appropriate to undertake a formal evaluation of the Chairman, as recommended by the AIC Code, due to the nature of the Company's activities and the fact that the Board consists entirely of non-executive Directors.
However, the Board resolved on 19 October 2016 that the independence of directors would be reviewed annually by the Remuneration and Nominations Committee. Further, the Board intends to commence an annual self-assessment programme during 2017 due to the continued growth of the Company. This will include an assessment of the effectiveness of the Chairman.
The Board does not consider that a Director's tenure necessarily reduces their ability to act independently, and believes that each director is independent in character and judgement and there are no relationships or circumstances which are likely to affect the judgement of any Director.
The length of service as a Chairman is excluded from the requirement for directors to be appointed annually after 9 years' service in the Company's Articles of Association.
The Board has appointed the Chairman to be the point of contact for all matters relating to the corporate governance of the Group.
A majority of the Board should be independent of the Manager
The Company is led and controlled by a Board comprising five non-executive Directors, who between them have wide commercial experience and considerable expertise in real estate, including in Berlin.
For the purposes of the AIC Code, the Board considers all of the Directors other than Mark Smith (who is a Director of Taliesin Management Limited (TML) and JJ Investment Management Limited (JJIM) (together the "Investment Advisers") and Nikolaus von Palombini (who, due to serving as Chief Financial Officer for Taliesin Deutschland GmbH between September 2014 and April 2015, is not regarded as independent of the Company's Investment Advisers) free from any business or other relationship that could materially interfere with the exercise of their independent judgement.
However, as Nigel Le Quesne is a shareholder in the JTC Group Limited of which JTC (Jersey) Limited, JTC Trustees Limited and JTC Fund Services Limited are wholly owned subsidiaries, he cannot be considered wholly independent, but the Board considers this acceptable given the size and structure of the Group.
Directors should be elected for a fixed term no more than three years. Nomination for re-election should not be assumed but be based on disclosed procedures.
The Articles of Association stipulate that one third (or nearest number thereto but not exceeding one third) of the Directors shall retire and offer themselves for reappointment at each following Annual General Meeting. The retiring Directors will be made up of those who have not been up for reappointment in the previous three years. Any Director who has served for more than nine years, excluding time spent as Chairman of the Board, shall also retire and offer themselves for reappointment annually.
Three Directors and the Chairman have served on the Board for nine years or more.
The Board subscribes to the view expressed within the AIC Code that long-serving Directors should not be prevented from forming part of an independent majority.
The Board does not consider that a Director's tenure necessarily reduces their ability to act independently, and believes that each director is independent in character and judgement and there are no relationships or circumstances which are likely to affect the judgement of any Director.
Stephen Burnett, Mark Houslop and Mark Smith have all served for nine years or more. Nigel Le Quesne has been a director or Chairman for nine years or more. The length of service as a Chairman is excluded from the requirement for directors to be appointed annually after nine years' service in the Company's Articles.
Mark Smith stands annually for reappointment as he is not considered to be an Independent Director of the Group as he also serves as a Director of the Investment Advisers.
Stephen Burnett and Mark Houslop were re-elected at the 2015 Annual General Meeting, respectively, and will stand annually for re-election going forward. Nigel Le Quesne was re-elected at the 2016 Annual General Meeting and will continue to stand for re-election every three years going forward whilst he remains Chairman.
Likewise, Nikolaus von Palombini will stand for reappointment annually.
Due to the size and nature of the Company's activities the Board does not consider it appropriate to designate a Senior Independent Director.
The Board should have a policy on tenure, which is disclosed in the annual report
The Board have approved a Length of Service Independence Policy on 19 October 2016 which states that "the Directors do not consider that service of longer than 9 years necessarily compromised independence and that the Board considered whether a Director was independent in character and judgment and whether there were relationships or circumstances, including those contained in the AIC Code, which were likely to affect, or could appear to affect, the Directors' judgment."
There should be full disclosure of information about the Board.
Biographies of each Director can be found on the Company's website and in the annual report and accounts.
The Board should aim to have a balance of skills, experience, and length of service
Currently, all of the Company's Directors are male. The Directors consider diversity when making appointments to the Board, taking into account relevant skills, experience, knowledge and gender. The Company has no employees and, therefore, there is nothing further to report in respect of gender representation within the Company.
The objectives of Board planning in terms of its composition and succession are to ensure that the Board is comprised collectively, of fit and proper individuals with the capability to direct the Company in the best interest of its shareholders.
The Board believes that restricting its membership to five is appropriate, given the Company's size, and enables collective decisions to be made without undue delay.
The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its Committees and individual Directors
The Board has not to date considered it necessary or appropriate to undertake a formal evaluation of the Chairman, the Board, the Audit Committee or individual Director's performance, as otherwise recommended by the AIC Code, due to the nature of the Company's activities and the fact that the Board consists entirely of non-executive Directors.
The Chairman and members of the Board do, however, informally discuss the composition and suitability of the Board on a regular basis being mindful of the need to ensure that the best interests of the Company and all stakeholders are considered and served at all times.
Further, the Board intends to commence an annual self-assessment programme during 2017 which will include an assessment of the effectiveness of the Chairman, and the performance of the Board, the Committees and individual Directors.
Director remuneration should reflect their duties, responsibilities and the value of their time spent.
The Board's policy is that the remuneration of Directors should reflect the experience of the Board as a whole, be fair and comparable to companies that are similar in size, have a similar capital structure and have similar investment objectives.
Each of the Directors has entered into a letter of appointment with the Company which details their terms of appointment, their anticipated time commitment to discharge their duties, details of their role and responsibilities, arrangements for the review of their performance and duration of appointment, the fees payable to them, arrangements for the prior approval of their outside interests and the treatment by them of confidential information. These letters are available for inspection upon request to the Company Secretary.
The most recent meeting of the Remuneration and Nomination Committee was held on 5 January 2017. The Committee last set the remuneration for all non-executive Directors including the Chairman on 18 June 2015. It has not been felt necessary to appoint independent external remuneration consultants on the basis that the Board contains no executive directors. It has also, therefore, not been felt necessary for the Chairman to remain in contact with the larger shareholders regarding remuneration.
Details of Directors' remuneration are also published in the annual report and accounts.
The independent Directors should take the lead in the appointment of new Directors and the process should be disclosed in the annual report
The Board plans for its own succession, with the assistance of the Remuneration and Nomination Committee. This process ordinarily involves the identification of the need for a new appointment, and the preparation of a brief including a description of the role and specification of the capabilities required.
The Board and the Remuneration and Nomination Committee has not to date felt it appropriate to engage specialist recruitment consultants, rather it has utilised the Board's own contacts and its professional advisers when considering appointments.
Directors should be offered relevant training and induction
There is currently no formal induction training for Directors. The Board have agreed to formalise induction training at the next time a new director is appointed
Upon appointment, each Director is provided with a summary of the responsibilities and duties of Directors, together with relevant background information on the Company and assistance and information from representatives of the Investment Advisers and the Company Secretary.
Thereafter, Directors are encouraged to attend industry and other seminars covering issues and developments relevant to investment companies, and Board meetings regularly include agenda items on recent developments in governance and industry issues.
The Chairman (and the Board) should be brought into the process of structuring a new launch at an early stage
Whilst this principle is currently not relevant to the Company, in the event that a new issue took place the Chairman and the Board would be engaged at an appropriate stage.
Board meetings and relations with the Manager
Boards and Managers should operate in a supportive, cooperative and open environment
The Board meets at least quarterly, with additional Committee and ad-hoc meetings held as matters arise.
Regular communications between the Board, Investment Advisers and the Company Secretary are held for specific operational and other matters that may be required outside of the formal Board meetings.
The primary focus at regular Board meetings should be a review of investment performance and associated matters such as gearing, asset allocation, marketing/investor relations, peer group information and industry issues
The quarterly Board meetings follow a standing agenda with reporting provided by the Company's functionaries; the Investment Advisers, Administrator and Registrar.
Collectively, this reporting covers (i) investment related information such as performance, gearing, asset allocation, marketing, investor relations, peer group information and industry issues, (ii) financial analysis such as adequacy of financial resources, valuation, budget and cash flow, and (iii) operational and regulatory matters.
When appropriate, the NOMAD will be invited to attend Board meetings to advise the Board on specific matters relating to the Company's stock exchange continuing obligations.
The Board also regularly monitors the share price of the Company and formally reviews the level of premium or discount attached at each quarterly Board meetings, where it considers, inter alia, ways in which the performance might be enhanced.
A register of Directors and Committee members meeting attendance is maintained by the Company Secretary and disclosed in the annual report and accounts. A summary of the 2016 meetings is shown below:
Board MEC N&RC Audit
------------------------ ------ ---- ----- ------
Nigel Le Quesne 5 1 0 n/a
------------------------ ------ ---- ----- ------
Mark Smith 6 n/a n/a n/a
------------------------ ------ ---- ----- ------
Mark Houslop 3 n/a n/a* n/a
------------------------ ------ ---- ----- ------
Stephen Burnett 6 1 0 3
------------------------ ------ ---- ----- ------
Nikolaus von Palombini 5 1 n/a 3
------------------------ ------ ---- ----- ------
* Mark Houslop became a member of the Nominations and Remunerations Committee on 5 January 2017.
Additional reports are requested and received as required and the Directors have access at all times to a professional Company Secretary who assists the Board in ensuring that procedures, rules and regulations are followed. The Directors may also, in furtherance of their duties, take independent legal and financial advice at the Company's expense.
Boards should give sufficient attention to overall strategy
The Board monitors progress on strategy and policy through regular (at least quarterly) formal reports to the Board from the Investment Advisers. The Board also receives regular key performance data on the property portfolio and is fully involved in all strategic decisions.
Directors also make visits to Berlin in order to review the Investment Advisers' operations and make site visits to the properties in the portfolio.
The Boards should regularly review the performance of, and contractual arrangements with, the Manager (or executives of a self-managed Company)
The Investment Advisers have Investment Advisory Agreements with the Company and Taliesin Management Limited (TML) in turn has a service contract with Taliesin Deutschland GmbH (TDL).
Under the terms of the Investment Advisory Agreements JJIM, TML and TDL are responsible on behalf of the Company primarily for portfolio management, financing related and other general real estate related advisory services.
TML and TDL also provide advice and oversight to the Company in relation to third party service providers such as the property manager, architects, real estate agents etc. TDL also provides bookkeeping and accounting services on behalf of the Company and works together with third party accountants, tax advisers and legal specialists in the preparation of more detailed accounts and statutory filings.
The Board established a Management Engagement Committee (the "Committee") on 14 November 2013 which currently comprises of Nigel Le Quesne, Stephen Burnett (Chairman) and Nikolaus von Palombini to review the performance of the Investment Advisers on an annual basis.
As part of the annual review (last carried out in December 2016,) the Committee undertook the following tasks:
a. reviewed the terms of the Investment Advisory Agreement between the Company and the Investment Advisers;
b. reviewed the performance of the Investment Advisers in its role as advisers to the Company;
c. considered the merit of obtaining an independent appraisal of the services provided by the Investment Advisers;
d. reviewed the continued retention of the Investment Advisers' services;
e. reviewed the level and method of remuneration of the Investment Advisers and the notice period included in the Investment Advisory Agreements and made recommendations regarding the mode and frequency of payment;
f. reviewed the Investment Advisers compliance with the terms and provisions of the Investment Advisory Agreements and investigated any breaches of agreed investment limits and any deviation from the agreed investment policy and strategy and
g. reviewed the standard of service provided by the Investment Advisers under the terms of the Investment Advisory Agreements.
The Boards should agree policies with the Manager covering key operational issues
Although the Board has wide-ranging expertise in real estate, including German real estate, it largely confines itself to the making of strategic and broad policy decisions including budget approval.
Day-to-day decisions and policies relating to the investments are delegated to the Investment Advisers.
The Board is responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. The Board regularly reviews the internal controls of the Investment Advisers and the Administrator who are responsible for the operational aspects of the Company's business.
The Board is reliant upon the Investment Advisers' and the Administrator's internal control systems including financial, operational and compliance controls and risk management.
The Administrator has an administration agreement with the Company and provides significant support functions with regards to the Company's compliance with the applicable rules and regulations of Jersey, as well as the Company's constitutional documentation, continuing listing authority obligations and corporate governance framework.
The Administrator also provides the Company with individuals to act as Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer who have unfettered access to the Board, and who provide regular reporting to the Board in respect of their roles.
Boards should monitor the level of the share price discount or premium (if any) and, if desirable, take action to manage it
The Board regularly monitors the share price of the Company and formally reviews the level of premium or discount attached at each quarterly board meeting, where it considers, inter alia, ways in which the performance might be enhanced.
The Board should monitor and evaluate other service providers
The Management Engagement Committee and Audit Committee, in respect of the Auditor appointment, meets annually to review the continuing appointment of all service providers, to ensure their terms remain competitive and in the best interests of shareholders, and to discuss satisfaction with their performance and service levels.
A recommendation from each Committee is provided to the Board for consideration.
Shareholder communications
The Board should regularly monitor the shareholder profile of the company and put in place a system for canvassing shareholder views and for communicating the Board`s views to shareholders
The Group reports formally to shareholders twice a year, when its semi-annual results are announced and an Annual Report is sent to shareholders. The Annual Report includes notice of the Annual General Meeting of the Company at which a presentation is given and Directors are available to take questions, both formally during the meeting and informally after the meeting.
The Directors are available for dialogue with shareholders on the Group's plans and objectives and from time to time will meet with them. Communication with the public and with shareholders is the responsibility of the Board. All relevant promotional materials and other communications are made available to the Board prior to release by the Investment Adviser.
The Board should normally take responsibility for, and have direct involvement in, the content of communications regarding major corporate issues even if the Manager is asked to act as spokesman
The Board is actively involved with, and takes responsibility for, the content of all communications regarding major corporate issues.
The Board should ensure that shareholders are provided with sufficient information for them to understand the risk: reward balance to which they are exposed by holding the shares
The Company places great importance on communication with shareholders. It aims to provide shareholders with a full understanding of the Company's activities and performance. It reports formally to shareholders twice a year by way of the annual report and the half-yearly report. The Company's website is also regularly updated.
This is supplemented through news announcements and general information on the London Stock Exchange.
FINANCIAL AND BUSINESS REPORTING
The directors consider the annual report and accounts, taken as a whole, is fair, balanced and understandable.
Directors' Responsibilities Statement
for the year ended 31 December 2016
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Jersey Company law requires the Directors to prepare financial statements for each financial period in accordance with generally accepted accounting principles. The financial statements of the Group are required by law to give a true and fair view of the state of affairs of the Group for that year. In preparing these financial statements the Directors should:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- specify which generally accepted accounting principles have been adopted in their preparation, and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements prepared by the Group comply with the requirements of the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors' responsibility statement under the Disclosure and Transparency Rules 4.1.12
The Directors confirm that to the best of their knowledge and belief:
-- the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
-- the management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces.
By order of the Board
Registered office: Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4 2QP.
___________________________________________
Stephen Burnett
Director
10 April 2017
Independent Auditors' Report
for the year ended 31 December 2016
We have audited the financial statements of Taliesin Property Fund Limited for the year ended 31 December 2016 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities Statement set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. This report is made solely to the company's members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the group's affairs as at 31 December 2016 and of the group's profit for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
-- proper accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
-- the parent company financial statements are not in agreement with the accounting records and returns; or
-- we have not received all the information and explanations we require for our audit.
______________________________________
Richard Metcalfe
for and on behalf of Mazars LLP
Chartered Accountants
Tower Bridge House
St Katharine's Way
London
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
2016 2015
Note EUR(000) EUR(000)
---------------------------------------- ----- --------- ---------
Continuing operations
Rental income 10,513 10,156
Service charge receipts 2,689 2,617
---------------------------------------- ----- --------- ---------
Revenue 13,202 12,773
Income from disposal of investment
property (including investment
property held for sale) 6,887 4,349
Carrying amount of investment property
sold (6,521) (3,110)
---------------------------------------- ----- --------- ---------
Profit on disposal of investment
property 366 1,239
Other operating income 262 399
---------------------------------------- ----- --------- ---------
Total operating revenues 13,830 14,411
Net change in fair value of investment
properties (including investment
property held for sale) 51,864 53,138
Total operating expenses 7 (20,573) (20,310)
---------------------------------------- ----- --------- ---------
Profit from operating activities 45,121 47,239
Gain on fair value of financial
assets 16 1,787 1,806
Finance income 10 1 4
Finance expenses 11 (4,995) (5,589)
Net foreign exchange differences 12 (1,392) 69
Change in fair value of derivative
financial instruments 21 1,526 1,188
---------------------------------------- ----- --------- ---------
Net financing costs (3,073) (2,522)
Profit before income tax 42,048 44,717
Income tax charge 13 (9,295) (9,422)
---------------------------------------- ----- --------- ---------
Total profit for the year 32,753 35,295
Profit and total comprehensive
income attributable to:
Owners of the parent 30,795 33,315
Non-controlling interest 1,958 1,980
---------------------------------------- ----- --------- ---------
Total profit and total comprehensive
income for the year 32,753 35,295
Basic earnings per ordinary share 14 6.52 7.52
Diluted earnings per ordinary share 14 6.31 7.17
The notes on pages 25 to 60 form an integral part of the financial statements.
Consolidated Statement of Financial Position
for the year ended 31 December 2016
.
2016 2015
Note EUR(000) EUR(000)
--------------------------------------- ----- --------- ---------
ASSETS
Non-current assets
Investment properties 5 310,911 262,511
Other financial assets 16 5,885 4,052
--------------------------------------- ----- --------- ---------
Total non-current assets 316,796 266,563
Current assets
Cash and cash equivalents 6,348 4,078
Other financial assets 16 - 16
Trade and other receivables and
prepayments 17 5,775 7,581
Assets classified as held for sale 6 7,070 5,220
--------------------------------------- ----- --------- ---------
Total current assets 19,193 16,895
Total assets 335,989 283,458
SHAREHOLDERS`EQUITY AND LIABILITIES
Equity
Stated capital account 18 49,381 48,041
Shares to be issued 18 6,282 6,643
Capital reserve 56 56
Retained earnings 98,282 67,487
--------------------------------------- ----- --------- ---------
Equity attributable to equity holders
of parent 24 154,001 122,227
Non-controlling interests 24 6,342 4,383
Total equity 24 160,343 126,610
The notes on pages 25 to 60 form an integral part of the financial statements.
2016 2015
Note EUR(000) EUR(000)
--------------------------------------- ----- --------- ---------
Non-current liabilities
Interest bearing loans and borrowings 19 100,781 90,390
Financial liabilities at fair value
through profit or loss 21 406 1,161
Deferred tax liablities 13 30,729 21,906
--------------------------------------- ----- --------- ---------
Total non-current liabilities 131,916 113,457
Current liabilities
Interest bearing loans and borrowings 19 29,714 30,634
Financial liabilities at fair value
through profit or loss 21 - 792
Other liabilities and payables 22 10,227 9,969
Liabilities directly associated
with assets classified as held
for sale 19 3,789 1,996
--------------------------------------- ----- --------- ---------
Total current liabilities 43,730 43,391
Total equity and liabilities 335,989 283,458
Net asset value per ordinary share
(EUR) 14 31.82 27.26
The notes on pages 25 to 60 form an integral part of the financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 10 April 2017 and were signed on its behalf by:
________________________________ ___________________________________
Nikolaus von Palombini Stephen Burnett
Director Director
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Stated Stated Equity
capital capital Shares before
account account to Capital Treasury Retained Non- Non-controlling Total
ordinary be controlling
shares b-shares issued reserve shares earnings interests interests equity
EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000)
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Equity at 1
January
2016 48,041 - 6,643 56 - 67,487 122,227 4,383 126,610
Profit for the
year - - - - - 30,795 30,795 1,958 32,753
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
comprehensive
income for
the year - - - - - 30,795 30,795 1,958 32,753
Transaction
with
owners
Issues of
shares 11,020 - (6,643) - - - 4,377 - 4,377
Issues of
b-shares (9,680) 9,680 - - - - - - -
Redemption of
b-shares - - - - (9,680) - (9,680) - (9,680)
Cancellation
of
b-shares - (9,680) - - 9,680 - - - -
Shares to be
issued
for services
received - - 6,282 - - - 6,282 - 6,282
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
transaction
with owners 1,340 - 6,282 - - - 979 - 979
Equity at 31
December
2016 49,381 - 6,282 56 - 98,282 154,001 6,342 160,343
Equity at 1
January
2015 52,812 - - 56 - 34,172 87,040 2,403 89,443
Profit for the
year - - - - - 33,315 33,315 1,980 35,295
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
comprehensive
income for
the year - - - - - 33,315 33,315 1,980 35,295
Transaction
with
owners
Issues of
shares 4,197 - - - - - 4,197 - 4,197
Issues of
b-shares (8,968) 8,968 - - - - - - -
Redemption of
b-shares - - - - (8,968) - (8,968) - (8,968)
Cancellation
of
b-shares - (8,968) - - 8,968 - - - -
Shares to be
issued
for services
received - - 6,643 - - - 6,643 - 6,643
--------------- --------- --------- --------- --------- --------- --------- ------------ ---------------- ---------
Total
transaction
with owners (4,771) - 6,643 - - - 1,872 - 1,872
Equity at 31
December
2015 48,041 - 6,643 56 - 67,487 122,227 4,383 126,610
The notes on pages 25 to 60 form an integral part of the financial statements.
Consolidated Statement of Cash Flows
for the year ended 31 December 2016
2016 2015
Note EUR(000) EUR(000)
----------------------------------------- ----- --------- ---------
Profit from operating activities 45,121 47,239
Net change in fair value of investments
properties (51,864) (53,138)
Changes in working capital:
Decrease in receivables 780 199
Increase in payables 10,482 9,395
----------------------------------------- ----- --------- ---------
4,519 3,695
Tax paid (605) (178)
----------------------------------------- ----- --------- ---------
Net cash generated from operating
activities 3,914 3,517
Investing activities
Capital expenditure on properties
held 5 (4,907) (5,586)
Sale of property 6,887 3,376
Interest received 10 1 4
----------------------------------------- ----- --------- ---------
Net cash generated by / (used in)
investing activities 1,981 (2,206)
Financing activities
Proceeds from borrowings 46,500 29,243
Loan repayments (33,622) (19,665)
Interest paid (3,805) (3,772)
Capital return to owners 18 (9,680) (8,968)
Margin deposit increase (3,030) -
Realised currency gain - 582
----------------------------------------- ----- --------- ---------
Net cash used in financing activities (3,637) (2,580)
Foreign exchange gains on bank
accounts 12 12 223
Net increase / (decrease) in cash
and cash equivalents 2,270 (1,046)
----------------------------------------- ----- --------- ---------
Cash and cash equivalents at start
of year 4,078 5,124
Cash and cash equivalents at end
of year 6,348 4,078
Cash and cash equivalents comprise:
----------------------------------------- ----- --------- ---------
Cash at bank 6,348 4,078
The notes on pages 25 to 60 form an integral part of the financial statements.
Notes to the Financial Statements
for the year ended 31 December 2016
Notes
1. General information
The Group is principally engaged in selective investing in primarily residential property in Berlin, Dresden and Potsdam with its operation focused on management of properties held for rent and privatisation (see Note 5).
The Group's investment properties consist of 62 multi-tenant buildings with a total of more than 1,500 rental units.
The Company's Ordinary shares are traded on AIM and the Company's Zero Dividend Preference Shares are listed and traded on the Main Market of the London Stock Exchange.
The consolidated financial statements of Taliesin Property Fund Limited and its subsidiaries (the "Group") for the year ended 31 December 2016 were authorised for issue in accordance with a resolution of the directors on 10 April 2017.
Taliesin Property Fund Limited (the "Company") is a limited company incorporated and domiciled in Jersey. The registered office is located at Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4 2QP.
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by the European Union.
The Group's financial statements have been prepared on a historical cost basis, except for investment property and certain financial instruments which have been measured at fair value. The consolidated financial statements are presented in Euros and all values are rounded to the nearest thousand (EUR000), except where otherwise indicated.
The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.
New and amended standards and interpretations
With the exception of the adoption of newly published and amended standards and interpretations, which are effective for annual periods beginning on or after 1 January 2016 the Group's accounting policies adopted are consistent with those of the previous year.
The Group has adopted the following new and amended IFRSs, including any consequential amendments to other standards, effective for this Group as of 1 January 2016. The nature and the impact of each new standard and amendment is described below.
- Amendment to IAS 1: Disclosure Initiative to improve the concept of materiality of disclosures; it has been made explicit that companies:
-- should disaggregate line items on the balance sheet and in the statement of profit or loss and other comprehensive income (OCI) if this provides helpful information to users; and
-- can aggregate line items on the balance sheet if the line items specified by IAS 1 are immaterial.
This amendment is effective for reporting periods beginning on or after 1 January 2016 and consistent with the Group`s continuous aim to improve the concept of materiality and, thus, the application of this amendment did not have any impact on the Group's financial statements.
- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception: the amendments clarify which subsidiaries of an investment entity are to be consolidated; the exemption from preparing consolidated financial statements for an intermediate parent of an investment entity; and the application of the equity method by a non-investment entity investor to an investment entity investee. The amendments, effective for annual periods beginning on or after 1. January 2016 did not have an impact on the Group's consolidated financial statements, as the Group does not have any holding company or subsidiary that qualifies as an investment entity.
- Amendment to IFRS 11 - Joint Operations: Accounting for Acquisitions of Interests in Joint Operations: the amendment clarifies the accounting for the acquisition of an interest in a joint operation that constitutes a business and is effective for annual periods beginning on or after 1. January 2016. As the Group is not part of any joint operation, this amendment is not relevant to the Group.
- Annual improvement to IFRS, which are effective for accounting periods beginning on or after 1 January 2016.
IFRS 5 - Non Current Assets Held for Sale and Discontinued Operations: a change of the method of disposal of an asset, i.e. the reclassification of an asset from held for sale to held for distribution and vice versa is considered a continuation of the original plan of disposal and requires the continuation of held for sale or held for distribution accounting; an asset ceased to be held for distribution is accounted the same way as an asset ceased to be held for sale.
IFRS 7 - Financial Instruments- Disclosures: a servicing contract is deemed to have a continuing involvement in a transferred asset and therefore needs to be disclosed, if the servicer has an interest in the performance of the transferred asset.
IFRS 19 - Employee Benefits - the amendments clarify that the rate used to discount post-employment benefit obligations should be determined by market yields of high quality corporate bonds or government bonds issued in the same currency in which the benefits are to be paid.
IFRS 34 - Interim Financial Reporting - clarification that certain disclosures, if not included in notes to the interim financial statements may be disclosed elsewhere in the interim financial report.
The application of these amendments had no impact on the Group's consolidated financial statements.
- Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets: Clarification of acceptable Methods of Depreciation and Amortization; clarification of the use of a depreciation or amortization method that is based on revenue that is generated by an activity that includes the use of an asset. As the Group does neither account for property, plant and equipment nor for intangible assets the amendments, effective for annual periods beginning on or after 1. January 2016, were not relevant to the Group.
- Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants are in the scope of IAS 16; as the Group is not engaged in agricultural activities these amendments do not apply.
Other amendments to certain standards apply for the first time in 2016. However, adoption of these revised standards and interpretations did not have any material effect on the financial statements of the Group.
Accounting Standards and interpretations not yet adopted
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.
- IFRS 9: Financial Instruments and Subsequent Amendments (Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39 as well as Amendments to IFRS 9/IFRS 7: Mandatory Effective Date and Transition Disclosures)
- IFRS 15: Revenue from Contracts with Customers - IFRS 16: Leases - Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions - Amendments to IAS 7: Disclosure Initiative to improve the Statement of Cash Flows
- Amendment to IAS 40: Transfers of Investment Property, effective for reporting periods on or after 1. January 2018.
- Amendment to IAS 12: Recognition of deferred tax assets for unrealised losses.
- Amendments to IFRS 10 and IAS 28: Sale of Contribution of Assets between an Investor and its Associate or Joint Venture
IFRS 9
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting of financial instruments: classification and measurement, impairment and hedge accounting.
The standard introduces solely two classes of financial assets: assets measured at fair value and assets measured at amortised costs. For financial liabilities the requirements of IAS 39 basically remain. There are merely changes in the recognition of changes in value of financial liabilities measured at fair value.
IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Group plans to adopt the new standard on the effective date. During 2016, the Group has performed a high level impact assessment based on currently available information, and may be subject to changes arising from further detailed analysis or information in the future. Overall, the Group expects no significant impact on its balance sheet and equity.
IFRS 15
The new revenue recognition standard replaces all guidance on revenue recognition that currently exists. Entities will apply a five-step model to determine when to recognise revenue, and at what amount. The model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised overtime, in a manner that best reflects the entity's performance, or at a point in time, when control of the goods or services is transferred to the customer. The new standard provides application guidance on numerous related topics, including warranties and licenses and when to capitalise the costs of obtaining a contract and some costs of fulfilling a contract. The new standard is effective for annual periods beginning on or after 1 January, 2018, when the Group plans to adopt it.
During 2016, the Group performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Overall however, the Group expects no significant impact on its consolidated financial statements.
IFRS 16
In January 2016 the IASB issued the new standard IFRS 16 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor') and replaces the previous Standard, IAS 17 Leases, and related Interpretations. According to the new standard assets and liabilities for all leases are to be recognised in the balance sheet and depreciation on lease assets recognised separately from interest on lease liabilities in the income statement. The new standard is mandatory for annual periods beginning on or after1. January 2019. The impact of IFRS 16 is currently being assessed.
IFRS 2
The amendments address:
-- The measurement of cash-settled share-based payment transactions with vesting and non-vesting conditions;
-- The classification of share-based payment transactions with net settlement features for withholding tax obligations
-- The accounting for a modification to the terms and conditions of a share-based payment transaction that changes its classification from cash-settled to equity-settled.
The amendments are effective for annual reporting periods beginning on or after 1 January 2018, when the Group plans to adopt it. The impact to Group's financial statements is expected to be immaterial.
IAS 7
The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments are effective for annual periods beginning on or after 1 January 2017, but are yet to be endorsed. We do not expect any material impact on the Group's financial statements.
IAS 12
The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. The amendments are effective for annual periods beginning on or after 1 January 2017, but are yet to be endorsed. We do not expect any material impact on the Group's financial statements.
IFRS 10 and IAS 28
The endorsement process is postponed, the effective date is deferred indefinitely. Such transactions are not accounted for in the Group's consolidated financial statements.
2. Principal accounting policies
The principal accounting policies are set out below:
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2016. Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the group loses control of the subsidiary. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company. All intra-Group transactions and balances are eliminated in full.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated statement of financial position, separately from parent shareholders' equity.
Business combinations and goodwill
The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the purchaser's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.
In a business combination, where the fair value of net assets acquired is less than the fair value of the consideration, that excess will be recognised as goodwill in the statement of financial position. Where the fair value of the net assets acquired exceeds the fair value of the consideration, that excess will be recognised as negative goodwill in the statement of comprehensive income.
When the acquisition of subsidiaries does not represent a business, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is recognised.
Investment properties
Properties held for long-term rental yields or for capital appreciation or both are classified as investment properties and the provisions of IAS 40 "Investment Property" apply.
Investment properties comprise undeveloped land, land and rights equivalent to land with buildings, and land with third party hereditary building rights. Investment properties are measured initially at cost including related transaction costs. After initial recognition, investment properties are measured at their fair values, with subsequent changes in fair values recognised in the consolidated statement of comprehensive income.
The property portfolio, which is carried in the balance sheet at fair value, is valued six-monthly by professionally qualified external valuers and the Directors must ensure that the valuation of the Group's properties is appropriate for the accounts. Investment properties are valued by adopting the 'investment method' of valuation. This approach involves applying market-derived capitalisation yields based on current and future income streams that are derived from comparable property and leasing transactions and are considered to be the key inputs in the valuation. Other factors that are taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.
Transfers to, or from, investment property are made when there is a change in use. Therefore, the property's deemed cost for subsequent measurement is its fair value at that date.
Investment property is derecognised when it has been disposed. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at disposal of investment property. Any gains The principal accounting policies are set out below:
Assets classified as held for sale
Investment properties and directly associated liabilities are classified as current assets held for sale, if notary sale contracts have been executed as at the balance sheet date but transfer of ownership is outstanding. Current assets classified as held for sale are measured at the lower of their carrying value and fair value less costs to sell. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement of financial position. On re-classification, investment property that is measured at fair value continues to be so measured.
Other financial assets
As other financial assets the Group holds non-derivative structured loan notes and derivative financial assets such as forward currency contracts (Note 16). Each are initially recognised on the transaction date and classified at fair value through profit or loss. Directly attributable transaction costs are recognised in profit or loss as incurred.
The underlying financial assets of these Structured Loan Notes are equity investments held by the note issuer. The fair value assessment of each note is determined by the net asset values of each share on each reporting date. The notes have a five year maturity after which the notes can be renewed or repaid. Repayment proceeds would come from the sale of the underlying shares.
Forward currency contracts entered into by the Group to hedge the Pound Sterling liability on the Group's Zero Dividend Preference Shares are also measured at fair value. These derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Changes in the value of financial assets designated at fair value through profit or loss and gains and losses on disposal, together with interest income, are recognised in the consolidated statement of comprehensive income as "Gain/loss on fair value of financial assets".
Trade and other receivables and prepayments
Trade and other receivables and prepayments predominantly consist of rent receivables, collected rents that are held in escrow accounts at the property manager, prepaid property expenses that are allocated to tenants, a margin deposit held at a foreign exchange broker and collected property sales proceeds held in a notary escrow account. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.
Rent and other receivables are recognised at their original invoiced value. Where there is objective evidence that the asset is impaired, its carrying value is adjusted as necessary for any estimated irrecoverable amounts and the adjustment is recognised in the consolidated statement of comprehensive income. Adjustments to impaired receivables are made through an allowance account/bad debt provision. Balances are written off when the probability of recovery is assessed as being remote. When the asset is settled the necessary adjustments will be processed through the consolidated statement of comprehensive income and the statement of financial position.
Cash and cash equivalents
The Group classifies as cash and cash equivalents cash at bank, short term deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.
Equity instruments
An instrument is an equity instrument if it includes no contractual obligation to transfer cash or other assets to the holder. Such instruments issued by the Group are recorded at the proceeds received. Direct expenses relating to the raising of equity share capital are deducted from the proceeds of any equity issued.
Shares to be issued
The Company has entered into an arrangement with its investment adviser, Taliesin Management Limited (TML), under which TML may be paid a performance fee which may be settled, at the option of TML, up to 40% in cash, with the balance being settled in ordinary shares or options over ordinary shares, or any combination thereof.
Following a request from Taliesin Management Limited, the Group has agreed to appoint JJ Investment Management Limited (JJIM) as a joint investment adviser alongside TML (together the Investment Advisers) with effect from 23 November 2015. The terms of the investment advisory agreement with JJIM mirror those of the existing agreement with TML including rules with regard to the performance fee.
Where TML and JJIM have given advance notices of their intentions prior to year-end, the Company accounts for the performance fee as follows. In the statement of financial position, the components to be settled in cash are treated as a current liability and included in other liabilities and payables and the component to be settled in equity-based instruments, i.e. shares and/or options, is included in shareholders' equity as provisions for shares and/or options to be issued in the following financial period, at the 20-day average share price prior to the 31 December in the reporting period. The combined value of these components of the performance fee is charged to profit and loss through the consolidated statement of comprehensive income during the financial period to which the performance fee relates. Where TML and JJIM have not given advance notice of their intentions prior to the year-end the whole fee is treated as a current liability and included in other liabilities and payables and the whole amount is charged to profit and loss through the consolidated statement of comprehensive income during the financial period to which the performance fees relate.
Financial liabilities
The Group classifies financial liabilities as non-derivative and derivative financial liabilities.
Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.
Non-derivative financial liabilities are classified as interest bearing loans and borrowings and comprise all bank loans and zero dividend preference shares. Amortised costs are included in finance expense in the income statement.
The redemption premium of the Zero Dividend Preference shares, which are mandatorily redeemable on a specific date, is calculated using the effective interest rate method and is recognised in the consolidated statement of comprehensive income as a finance expense.
The Group classifies derivative financial liabilities such as interest rate swaps as financial liabilities at fair value through profit or loss. The Group uses interest rate swaps to hedge its risks associated with upward movements in interest rates as well as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-valued at fair value at the end of each financial reporting period. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Gains or losses are taken directly to the consolidated statement of comprehensive income as part of net financing costs.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
Other Liabilities and payables
Other liabilities and payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains or losses are taken directly to the consolidated statement of comprehensive income when liabilities are derecognised or amortised.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation and the amount can be reliably estimated. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the end of the financial period and are discounted to present value where the effect is material.
Revenue recognition
Rental income from operating leases is recognised on a straight line basis over the term of the lease, net of any sales-related taxes, at the fair value of the consideration receivable. Tenant lease incentives are recognised as a reduction of rental revenue on a straight line basis over the term of the lease.
Service charge revenue is accounted for on an accruals basis, and is based on property expenses expected to be recovered by occupants.
Sale of property
Profit or loss on the sale of property is recognised when the significant risks and rewards of the ownership of the sold properties have been transferred to the buyer and no material rights to the sold properties remain with the Group.
Corporate income tax expense
The corporate income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit may differ from net profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the financial period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are offset against one another where both assets and liabilities arise within individual taxable entities to the extent that only overall amounts payable or recoverable are carried in the statement of financial position.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Deferred tax assets on losses, temporary differences and property valuation differences have been recognised in respect of the German subsidiaries to the extent that it is sufficiently probable that they will be realised in the future against taxable profits, reversals in underlying temporary differences and appreciations in property valuations prior to any disposals of subsidiaries.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Foreign exchange
I. Functional and presentation currency
The financial statements are presented in Euros as this is the primary currency of the economic environment in which the entity operates, and in which the material transactions of the Group are undertaken.
II. Transactions and balances
Transactions undertaken in foreign currencies are translated into Euros at the rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Euros at the rate ruling at the end of the financial period. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Profits and losses on exchange are taken directly to the statement of comprehensive income.
Expenditure and other operating income
Expenditure and other operating income are accounted for on an accruals basis.
Finance income
Finance income is recognised using the effective interest rate (EIR) method. EIR is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument to the net carrying amount of the financial asset or liability.
3. Critical accounting estimates and judgements
The preparation of the financial statements requires the Directors to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosures of contingencies as at the end of the financial period. If, in the future, such estimates and assumptions, which are based on the Directors' best judgement at the end of the financial period, deviate from the actual circumstances, the original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following policies are considered to be of greater complexity and/or particularly subject to the exercise of judgement.
Critical accounting estimates
Valuation of property
The fair value of investment properties is based on valuations performed by real estate valuation experts, JLL, using recognised valuation techniques and the principles of IFRS 13.
The Directors remain ultimately responsible for ensuring that the valuers are adequately qualified, competent and base their results on reasonable and realistic assumptions.
Fair value is the price that would be received to sell a property in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset takes place either in the principal market for the property or in the absence of a principal market, in the most advantageous market at the measurement date.
The fair value of an investment property is measured using the assumptions that market participants would use when pricing the property, assuming to act in their economic best interest. Thus the fair valuation takes into account a market participant's ability to generate economic benefits by using the property in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group operates in large cities in Germany where there is a well-developed and active property market for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Such inputs include current and recent sale prices of similar properties, and rents based on current market rates with which to calculate discounted cash flows based on reliable estimates of future rental income and discount rates that reflect current market assessments of uncertainties in the amount and timing of cash flows. Estimates of the values of investment properties include assumptions regarding vacancy rates, discount rates and rental income as noted in note 5. The estimates also consider the privatisation potential of investment properties (i.e. the value potential in the split and separate sale of freeholds) and the Group has established specific criteria relating to the progress of the privatisation process that must be met for a property's privatisation value to be considered.
As the valuation techniques applied derive from data that is sometimes not widely publicly available and involve a degree of judgement, the Group classified the valuation techniques for its investment property portfolio as Level 3 as defined by IFRS 13, meaning that the lowest level input that is significant to the fair value measurement is unobservable.
Valuation of financial instruments
I. Financial assets
Investments designated at fair value comprise Structured Loan Notes where the economic value is determined by reference to the value of certain Group companies. The value of the financial assets is determined by reference to the financial statements of those companies.
II. Interest bearing loans and borrowings
In order to measure Interest bearing loans and borrowings initially at fair value, the Directors make judgements based on discounting future cash flows and on current market interest rates and the likely trend in future market interest rates. To ensure that loan obligations are met without default, the Directors' forecast and monitor the Group's debt service coverage ability based on net cash flows also taking into consideration that any collateral requirements are permanently fulfilled.
III. Derivative financial assets and liabilities
Forward currency contracts to hedge the Group`s foreign currency risk as well as interest rate swaps to hedge the Group`s interest rate risks are valued in collaboration with the instrument providers and other market counter-parties on a regular basis by reference to relevant currency exchange rates and interest rate movements as well as the credit status of the contracting parties. The effectiveness of these hedge instruments is continuously monitored in order to determine whether it is in the Group's interest to maintain these arrangements, extend them, or close them in part or in their entirety.
Critical accounting judgements
Income taxes
There are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these measures is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences and losses can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised.
4. Segment information
The Group monitors its business of investing in primarily residential property in Berlin, Potsdam and Dresden in two segments:
First, the procurement and oversight of management of its rent portfolio, which includes the modernisation and maintenance of the Group's investment properties, the management of rent contracts, caring for tenants and the marketing of apartments. The focus of managing the rent units is to optimise rents. Therefore all capital expenditures to the properties are analysed for rent improvement potential. On the other hand service charges are sought to be reduced and to be passed on to tenants.
The second segment is privatisation, the sale of individual apartments. The Group started in fiscal year 2015 to sell a number of apartments as a means to demonstrate to shareholders the value potential in its property portfolio in privatisation. In 2016 the Group sold a total of 19 units in its properties in Warschauer Strasse and Kavalierstrasse.
For the purpose of IFRS 8, the chief operating decision makers are the Directors and the Investment Advisers (see note 8). At the meetings between the Directors and the Investment Advisers, the income, expenditure, cash flows, assets and liabilities are reviewed on a whole-group basis with additional information on the development of the Group's rent portfolio and privatisation business.
All of the Group's income and non-current assets are derived from Germany. No single customer accounts for more than 10% of the Group's income.
Internal and external reporting is on a consolidated basis, with transactions between Group companies eliminated on consolidation. The Group monitors the operating activities of its two business units separately for the purpose of strategic decisions. Therefore the financial information as set out in the consolidated statement of comprehensive income is split among the two segments:
Income statement Segment by activity
------------------------------- ----------- --------------------------------
Total 2016 Rental portfolio Sale segment
EUR(000) EUR(000) EUR(000)
------------------------------- ----------- ----------------- -------------
Rental Income 10,513 10,427 86
Service charge receipts 2,689 2,699 (10)
------------------------------- ----------- ----------------- -------------
Revenue 13,202 13,126 76
Sale of investment properties 6,887 - 6,887
Sold properties book
value (6,521) - (6,521)
------------------------------- ----------- ----------------- -------------
Profit on sale of investment
properties 366 - 366
Other operating income 262 255 7
------------------------------- ----------- ----------------- -------------
Total operating revenues 13,830 13,381 449
Net change in fair value
of investment properties 51,864 51,063 801
Total operating expenses (20,573) (20,259) (314)
------------------------------- ----------- ----------------- -------------
Profit from operating
activities 45,121 44,185 936
Net financing costs (3,073) (2,979) (94)
------------------------------- ----------- ----------------- -------------
Profit before income
tax 42,048 41,206 842
Income tax (charge) /
credit (9,295) (9,330) 35
------------------------------- ----------- ----------------- -------------
Total profit for the
year 32,753 31,876 877
Income statement Segment by activity
------------------------------- ----------- --------------------------------
total 2015 rental portfolio sale segment
EUR(000) EUR(000) EUR(000)
------------------------------- ----------- ----------------- -------------
Rental Income 10,156 10,156 -
Service charge receipts 2,617 2,617 -
------------------------------- ----------- ----------------- -------------
Revenue 12,773 12,773 -
Sale of investment properties 4,349 500 3,848
Sold properties book
value (3,110) (327) (2,782)
------------------------------- ----------- ----------------- -------------
Profit on sale of investment
properties 1,239 173 1,066
Other operating income 399 399 -
------------------------------- ----------- ----------------- -------------
Total operating revenues 14,411 13,345 1,066
Net change in fair value
of investment properties 53,138 51,886 1,252
Total operating expenses (20,310) (20,048) (262)
------------------------------- ----------- ----------------- -------------
Profit from operating
activities 47,239 45,183 2,056
Net financing costs (2,522) (2,428) (94)
------------------------------- ----------- ----------------- -------------
Profit before income
tax 44,717 42,755 1,962 Income tax charge (9,422) (9,262) (160) ------------------------------- ----------- ----------------- ------------- Total profit for the year 35,295 33,493 1,802
During 2016, the Group had classified two properties of the portfolio as assets held for sale, Warschauer Strasse and Kavalierstrasse. As all apartments of Warschauer Strasse were sold and transferred during the year, there was only the asset Kavalierstrasse still classified as an asset held for sale at year end. The corresponding numbers in the balance sheet were an asset in the amount of EUR7,070,000 and a liability in the amount of EUR3,788,850.
5. Investment properties
2016 2015
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Book cost brought forward at 1
January 148,924 150,415
Fair value adjustments brought
forward 113,587 61,701
-------------------------------------- --------- ---------
Valuation brought forward at 1
January 262,511 212,116
Capital expenditure on properties
held 4,907 5,586
Reclassification to assets held
for sale (7,570) (6,750)
Property sold during the year - (327)
-------------------------------------- --------- ---------
259,848 210,625
Revaluation (fair value adjustments) 51,063 51,886
-------------------------------------- --------- ---------
Valuation as at 31 December 2016 310,911 262,511
The Group's investment properties consist of 62 multi-tenant buildings with a total of 1,530 rental units with a total rental area of 117,756 m(2). The majority of all rental units are residential apartments (1,366), of which approximately 92% are located in Berlin, the rest in Dresden (3%) and Potsdam (5%).
The fair values of the investment properties held at 31 December 2016 are based on valuations performed by an independent valuer, JLL. These are in accordance with the appropriate sections of the current Valuation Standards (VS) contained within the current Appraisal and Valuation Standards, 8th Edition (the 'Red Book') published by the Royal Institution of Chartered Surveyors (RICS) as well as the standards contained within the TEGoVA European Valuation Standards, and in accordance with IVSC International Valuation Standard 1 (IVS1), the International Accounting Standards (IAS), International Reporting Standards (IFRS) as well as the current guidelines of the European Securities and Markets Authority (ESMA) on the basis of Market Value. JLL has recent experience in the location and category of the investment property being valued.
For all investment property measured at fair value the current use of the property is considered the highest and best use.
Rental income recognised in the consolidated statement of comprehensive income was mostly received from investment properties. Expenditure on investment properties capitalised during the year, amounted to EUR4,907,000 (2015: EUR5,586,000) and related to fundamental refurbishment and improvement of the investment properties such as the renewal of layouts, heating and piping systems of residential apartments. Direct operating expenditure on investment properties charged to the consolidated statement of comprehensive income during the year including maintenance, property management and agent fees during the year amounted to EUR1,392,000 (2015: EUR1,408,000).
The Group has no restrictions on the saleability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
The fair value of the investment properties is determined using a discounted cash flow (DCF). As certain input assumptions rely on unobservable data as also outlined in note 3 under critical accounting estimates for property valuation, the valuation technique applied for valuing the investment property portfolio is classified as Level 3 as defined in IFRS 13 and in accordance with EPRA`s (European Public Real Estate Association) guidance.
Residential Properties
Range
Range Year
Year ended ended
Valuation Significant Unobservable 31 Dec Weighted 31 Dec Weighted
Technique Inputs 2016 Average 2015 Average
------------ -------------------------- ------------ ---------- ------------ ----------
estimated rental
value per EUR6.50 EUR6.50
DCF method m(2) per month - EUR11.50 EUR9.68 - EUR12.50 EUR9.05
1.25% - 1.25%
rent growth p.a. 2.25% 1.98% - 2.30% 1.74%
--------------------------------------- ------------ ---------- ------------ ----------
Long-term vacancy 2.00% - 1.00%
rate 4.00% 2.05% - 5.00% 2.10%
4.00% - 4.00%
discount rate 6.00% 4.58% - 6.25% 4.88%
--------------------------------------- ------------ ---------- ------------ ----------
Commercial Properties
Range
Range Year
Year ended ended
Valuation Significant Unobservable 31 Dec Weighted 31 Dec Weighted
Technique Inputs 2016 Average 2015 Average
------------ -------------------------- ------------ ---------- ------------ ----------
estimated rental
value per m(2) per EUR3.67 EUR3.67
DCF method month - EUR25.41 EUR10.07 - EUR30.12 EUR9.71
rent growth p.a. 1.98% 1.98% 1.75% 1.75%
--------------------------------------- ------------ ---------- ------------ ----------
Long-term vacancy 2.00% - 2.00%
rate 4.00% 2.94% - 4.00% 2.87%
4.00% - 4.00%
discount rate 6.00% 4.58% - 6.25% 4.88%
--------------------------------------- ------------ ---------- ------------ ----------
Under the DCF method, a property's fair value is established using explicit assumptions regarding the benefits and liabilities of ownership over the asset's life including an exit or terminal value. The DCF method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, an appropriate, market derived discount rate is applied to establish the present value of the cash inflows associated with the investment property. The property specific discount rate is based on a rating that includes an assessment of the macro- and micro location, the quality of the property and the cash flow and privatisation potential of each property. The decrease of the assumed weighted average discount rate in comparison to 2015 is predominantly due to a yield compression in the Berlin real estate market, which led to an improved macro and micro location rating of the properties in comparison to 2015.
The duration of the cash flow and the specific timing of inflows and outflows are determined by events such as rent reviews, re-letting, redevelopment or refurbishment or, for example in cases of privatisation, the anticipated timing of events of sale.
The periodic cash flows of the investment properties were estimated as gross income less vacancy, non-recoverable expenses such as property management and maintenance costs. The series of periodic net cash flows, along with an estimate of the terminal value based on the stabilised periodic net cash flows at the end of a ten year period was then discounted.
Changes in vacancy by 1% would not result in a material difference to the fair value assessment. In the directors' view rental increases are based on empiric values over recent years and so the directors do not expect significant fluctuation in the rental revenues. An increase of 0.5% in the discount rate would reduce the fair value by EUR8.5 million and a decrease of 0.5% in the discount rate would increase the fair value by EUR13.5 million.
Although JLL calculate property valuations based on usage (residential or commercial), the Group does not split valuations by usage as it regards commercial space to be incidental to the overall residential focus of the property portfolio.
All other factors remaining constant, an increase in rental income would increase valuations, whilst increases in nominal equivalent yield and discount rate would result in a fall in values and vice versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. The existence of an increase of more than one unobservable input would augment the impact on the valuation. The impact on the valuation would be mitigated by the interrelationship between unobservable inputs moving in opposite directions. For example, an increase in rents may be offset by an increase in yield, resulting in no net impact on the valuation.
Following the successful entire privatisation of its property Warschauer Strasse in Berlin-Friedrichshain during the year the Group decided to also privatise all remaining freehold apartments of its property Kavalierstrasse in Berlin-Pankow. As a consequence the Group reclassified the asset Kavalierstrasse from investment properties to assets held for sale. The reclassification amount of EUR7,570,000 represents the fair value of Kavalierstrasse as at 31 December 2015 (see also Note 6).
All of the properties owned by the Group have been pledged as security for the Group's financial liabilities.
The movement in the fair value of the investment properties is included in the statement of comprehensive income within the net change in fair value of investment properties. The net change in fair value of properties amount to EUR51,864,000 is divided into investment properties (EUR51,063,000) and property held for sale (EUR801,000).
Operating lease income
The German subsidiaries rent out residential and commercial real estate within the framework of operating leases. Whereas the renting of residential real estate can be terminated by the tenant with a statutory notice period of three months, commercial real estate is rented predominantly for a fixed contractual term of up to twenty years. The minimum rental payments for residential real estate on the basis of the statutory notice period of three months amount to EUR2,192,000 (2015: EUR2,781,000).
The future minimum lease payments under non-cancellable operating (i.e. commercial) leases receivable by the Group for each of the following periods are as follows:
Future minimum lease payments
2016 2015
EUR(000) EUR(000)
------------------------- --------- ---------
Amounts receivables in:
up to one year 1,009 1,576
one to five years 2,246 900
more than five years 34 2,495
------------------------- --------- ---------
3,289 4,971
6. Assets classified as held for sale
2016 2015
EUR(000) EUR(000)
--------------------------------------------- --------- ---------
Valuation brought forward at 1 January 5,220 -
Reclassification from investment properties 7,570 6,750
Apartments sold (6,521) (2,782)
Valuation gain on apartments held
for sale 801 1,252
--------------------------------------------- --------- ---------
7,070 5,220
Following the sale of freehold apartments in Warschauer Strasse prior year the Group decided to privatise also its asset Kavalierstrasse entirely and therefore reclassified the Kavalierstrasse from investment properties to assets held for sale at the last fair value as at 31 December 2015. During 2016 the Group sold and transferred ownership of 15 remaining freehold apartments in Warschauer Strasse and also four freehold apartments in Kavalierstrasse for a cumulative purchase price of EUR6,887,000. As the combined book value of these 19 apartments as of their last fair valuation before transfer of ownership was EUR6,521,000 the Group realised a profit of EUR366,000, representing an average sales price of approx. 3,700 per m(2).
The valuation gain on apartments in assets held for sale is mostly due to the new fair valuation of the remaining 20 privatisation units of Kavalierstrasse as at the balance sheet date. In the reporting period the Group entered into notarial privatisation contracts for five of these units with a transfer of ownership anticipated in 2017.
The liabilities associated with the assets held for sale constitute an interest bearing loan in the amount of EUR3,789,000. (note 19).
7. Operating expenses
2016 2015
Note EUR(000) EUR(000)
------------------------------------- ----- --------- ---------
Service charge expenses 2,870 3,032
Property maintenance costs 1,392 1,408
Administrative costs 542 441
Investment advisory and performance
fees 8 13,724 13,523
Directors` fees 9 109 49
Legal and professional fees 315 479
Other operating expenses 1,333 1,094
Provision for bad debts 20 152 126
Auditor's remuneration (see below) 136 158
------------------------------------- ----- --------- ---------
Total operating expenses 20,573 20,310
Other operating expenses include compensation payments to tenants, legal and public registry fees in connection with the split of multi tenant buildings into freehold apartments as well as accounting expenses for the preparation of the consolidated financial statements.
The Group paid the following fees to its Auditor:
2016 2015
EUR(000) EUR(000)
-------------------------------------------- --------- ---------
Fees payable to the Group's Auditor
for the audit of the Group's consolidated
annual accounts 114 133
Tax compliance services 22 25
--------------------------------------------- --------- ---------
136 158
8. Investment advisory and performance fees
2016 2015
EUR(000) EUR(000)
----------------------------- --------- ---------
Investment advisory fees 3,254 2,452
Performance fee (see below) 10,470 11,071
----------------------------- --------- ---------
13,724 13,523
Taliesin Management Limited and JJ Investment Management Limited act as Investment Advisers to the Group for which they receive an advisory fee and a performance fee. Both of these fees are calculated based on the Group's Adjusted Net Asset Value as defined in note 14. The increase of the advisory fee during the period is related directly to the large increase in the value of the Group's portfolio and hence the Adjusted Net asset Value per share.
The advisory fee is calculated semi-annually based on the Group's Adjusted Net Asset Value (excluding any accrual for advisory fees or performance fees from this number) and is charged at a rate of 0.875% (the equivalent of 1.75% annually).
The performance fee is also calculated based on the Group's year end Adjusted Net Asset Value (excluding any accrual for advisory fees or performance fees from this number) and entitles the Investment Advisers to a 20% share in the increase from the previous year end's Adjusted Net Asset Value (including the deduction of advisory and performance fees) during the year which is in excess of the 12-month Euribor rate on the first day of the calendar year ("the Hurdle rate"). No performance fee will be charged unless the Adjusted Net Asset Value per share is higher than the last level at which a performance fee was charged, adjusted by the annual Hurdle rate ("the High Water Mark").
For the purpose of calculating the performance fee due to the Investment Advisers, any capital returned to shareholders during the calendar year will be considered to form part of the Group's Adjusted Net Asset Value until the next performance fee charging date.
Under the terms of the Investment Advisory Agreements, up to 40% of the performance fee due to the Investment Advisers can be settled in cash and the balance in newly issued ordinary shares. The Investment Advisers have agreed to accept a minimum of 60% of this year's performance fee in new shares.
9. Directors' fees
2016 2015
EUR(000) EUR(000)
----------------------------------- --------- ---------
Parent Company Directors:
Nigel A Le Quesne 28 7
Philip H Burgin (retired from the
Board on 7/10/2015) - 7
Stephen A Burnett 28 7
Nicholas M Houslop 19 21
Nikolaus von Palombini 34 7
Mark Smith - -
----------------------------------- --------- ---------
109 49
Nigel Le Quesne is a shareholder and director and Stephen Burnett is a non-executive directors of JTC Group Limited. Mark Smith is a director and shareholder of both Taliesin Management Limited and JJ Investment Management Limited, the Investment Advisers of the Group. Nikolaus von Palombini is the former CFO of Taliesin Deutschland GmbH, the German subsidiary of TML.
See note 25 Related party transactions for further details.
10. Finance income
2016 2015
EUR(000) EUR(000)
--------------------- --------- ---------
Interest receivable 1 4
11. Finance expense
2016 2015
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Interest on bank loans 3,891 3,838
Interest on Zero Dividend Preference
Shares (ZDP) 978 1,625
Other interest 126 126
-------------------------------------- --------- ---------
Total finance expense 4,995 5,589
12. Net foreign exchange differences
2016 2015
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Realised (loss) / gain of currency
forward contracts (4,080) 749
Unrealised (loss) / gain on fair value
of currency forward contracts (76) 16
Foreign exchange gains on bank accounts 12 223
Foreign exchange gain / (loss) on
ZDP valuation 2,761 (995)
Foreign exchange (loss) / gain on
margin collateral (9) 76
----------------------------------------- --------- ---------
Net foreign exchange differences (1,392) 69
The principal operating currency of the Group is Euros. The Group has, however, issued Zero Dividend Preference Shares denominated in Pounds Sterling. In order to hedge this future Pound Sterling liability, the Group has entered into forward foreign currency contracts on that portion of the ZDP proceeds that has been converted into Euros. The foreign exchange gain on the ZDPs in the period reflect the depreciation of the Pound Sterling against the Euro. However, realised and unrealised losses on forward foreign currency contracts also reflect the depreciation of the Pound Sterling against the Euro during the year and also stem from timing differences with respect to the settlement and entering of forward foreign currency contracts.
The Group provided an amount of GBP849,000 / EUR992,000 (2015: GBP1,500,000 / EUR2,033,000) as margin collateral with the brokerage firm, which is providing forward foreign currency services to the Group.
13. Taxation
Taxes on profits of the Group arising in Germany are computed using the tax rate of 15.83% (2015: 15.83%), both for current and deferred tax. Taxable income arising in Cyprus is taxed at 12.5% (2015: 12.5%). The applicable tax rate in Jersey is 0%.
All taxation charges and credits are recognised in the statement of comprehensive income. The total tax credit for the year is detailed below:
2016 2015
EUR(000) EUR(000)
----------------------------------- --------- ---------
Current tax on profits 443 220
Prior year corporate tax income /
expense 29 161
Deferred tax charge 8,823 9,041
----------------------------------- --------- ---------
Tax charge for the year 9,295 9,422
The tax expense for the financial year differs from the amount calculated on the profit. The differences are reconciled as follows:
2016 2015
EUR(000) EUR(000)
---------------------------------------------- --------- ---------
Profit before tax 42,048 44,717
Luxembourg, Jersey and Cyprus non-deductible
expenses 15,317 13,780
---------------------------------------------- --------- ---------
Profits due to German taxes 57,365 58,497
Tax charge on profit at the German
tax rate of 15,83% (2015:15,83%) 9,081 9,260
Previous years adjustments to deferred
tax liability / asset (12) (135)
Trade tax 197 278
Taxes payable 29 19
---------------------------------------------- --------- ---------
Tax charge for the year 9,295 9,422
Deferred tax
Deferred tax assets/(liabilities) are broken down by statement of financial position item as follows:
2016 2015
EUR(000) EUR(000)
---------------------------- --------- ---------
Property value differences (34,145) (25,462)
Losses carried forward 3,351 3,254
Interest rate swaps 64 309
Interest rate caps 2 -
Loan interest adjustments (1) (7)
---------------------------- --------- ---------
(30,729) (21,906)
The following are the major deferred tax assets and liabilities recognised by the Group with movements thereon during the year. Deferred tax assets and liabilities are shown gross and then offset against one another where both assets and liabilities arise within individual taxable entities to the extent that only overall amounts payable or recoverable are carried in the statement of financial position. Deferred tax assets displayed above are anticipated to be utilised due to taxable profits in future periods.
Deferred tax assets
2016 2015
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Gross totals as at 1 January 3,563 3,686
Prior year tax adjustment - (8)
Losses carried forward 97 73
Interest rate swaps (245) (188)
----------------------------------------- --------- ---------
Gross totals as at 31 December 3,415 3,563
Offset against deferred tax liabilities
at individual taxable entitiy level (3,415) (3,563)
----------------------------------------- --------- ---------
Net totals as at 31 December - -
Deferred tax liabilities
2016 2015
EUR(000) EUR(000)
------------------------------------ --------- ---------
Gross totals as at 1 January 25,469 16,551
Property value differences 8,683 8,938
Loan interest adjustments (8) (20)
------------------------------------ --------- ---------
Gross totals as at 31 December 34,144 25,469
Offset against deferred tax assets (3,415) (3,563)
------------------------------------ --------- ---------
Net totals as at 31 December 30,729 21,906
Reconciliation of movement in deferred tax during the year:
2016 2015
EUR(000) EUR(000)
------------------------------ --------- ---------
At 1 January 21,906 12,865
Charged to profit or loss 8,823 9,041
------------------------------ --------- ---------
Net totals as at 31 December 30,729 21,906
14. Earnings per Ordinary share and net asset value per Ordinary share
2016 2015
EUR(000) EUR(000)
----------------------------------------- ---------- ----------
Profit and total comprehensive income
attributable to owners of the parent
(EUR000) 30,795 33,315
Weighted average number of ordinary
shares 4,724,271 4,429,176
----------------------------------------- ---------- ----------
Basic earnings per share (EUR) 6.52 7.52
----------------------------------------- ---------- ----------
Weighted average number of ordinary
shares including shares to be issued 4,880,165 4,644,090
----------------------------------------- ---------- ----------
Diluted earnings per share (EUR) 6.31 7.17
----------------------------------------- ---------- ----------
Net asset value attributable to holders
of ordinary shares (EUR000) 154,001 122,227
Ordinary shares at 31 December (note
18) 4,840,187 4,483,672
----------------------------------------- ---------- ----------
Net asset value per share (EUR) 31.82 27.26
Ordinary shares and shares to be issued
at 31 December 4,996,071 4,698,586
Net asset value per share (EUR) 30.82 26.01
Adjusted Net Asset Value
In addition to the net asset values disclosed above, which are based on the net consolidated assets attributable to Ordinary shareholders as stated in the financial statements ("Accounting NAV"), the Directors monitor the performance of the Group as measured by a Key Performance Indicator ("KPI") known as the Adjusted Net Asset Value ("Adjusted NAV").
This KPI is defined as the Accounting NAV of the Group as adjusted by adding any portfolio premium not already reflected in the accounts, the gross deferred tax liability from which the Accounting NAV is derived.
These adjustments and the calculations are as shown below:
2016 2015
EUR(000) EUR(000)
------------------------------------------- ---------- ----------
Net consolidated assets attributable
to Ordinary shareholders 154,001 122,227
Gross deferred tax liability (note
13) 34,146 25,469
Plus: Capital return to owners 9,680 8,968
Less: Shares to be issued (6,282) (6,643)
Less: Gross deferred tax liability
attributable to non-controlling interest (216) (106)
------------------------------------------- ---------- ----------
Adjusted Net Assets attributable to
Ordinary shareholders 191,329 149,915
Number of Ordinary shares outstanding
at 31 December 4,840,187 4,483,672
------------------------------------------- ---------- ----------
Adjusted Net Asset Value per Ordinary
share (EUR) 39.53 33.44
Adjusted Net Assets attributable to
Ordinary shareholders deducting
capital return to owners 181,649 140,947
------------------------------------------- ---------- ----------
Adjusted Net Asset Value per Ordinary
share (EUR) 37.53 31.44
15. Group information - information about subsidiaries
The details of the subsidiaries are as follows:
Proportion Proportion
of of
capital voting
held power
by the held
Group by the
Country (ordinary
Date of of Principal shares) Company
Name acquisition incorporation activity % %
---------------------------------- ------------- --------------- ----------- ----------- -----------
13. Aug.
Taliesin Limited 2007 Jersey HC 94.0 -
Taliesin Holdings 9. Dec.
Limited 2005 Cyprus HC 94.0 94.0
24. Feb.
Taliesin I GmbH ** 2006 Germany PI 94.0 94.0
Taliesin Managing-Partner 10. Jul.
GmbH ** 2007 Germany PI 94.0 94.0
Taliesin II GmbH 1. Oct.
**** 2006 Germany PI 88.4 88.4
Taliesin Potsdam 10. Jul.
1 GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 1 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 2 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 3 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin Berlin 4 15. Aug.
GmbH & Co. KG *** 2007 Germany PI 94.0 94.0
Taliesin III GmbH 15. Aug.
& Co.KG *** 2007 Germany PI 94.0 94.0
Phoenix B2 - Glatzerstrasse 27. Dec.
***** 2012 Luxembourg PI 86.9 86.9
Phoenix D1 - Hohenstaufenstrasse 27. Dec.
***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
H ***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
I ***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
J ***** 2012 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
K ***** 2014 Luxembourg PI 86.9 86.9
Phoenix II Mixed 27. Dec.
N ***** 2014 Luxembourg PI 86.9 86.9
Phoenix III Mixed 27. Dec.
O ***** 2014 Luxembourg PI 86.9 86.9
---------------------------------- ------------- --------------- ----------- ----------- -----------
** 100% owned by Taliesin HC = Holding
Holdings Limited company
*** 100% owned by Taliesin PI = Property
I GmbH investment
**** 94% owned by Taliesin
I GmbH
***** 92,4% owned by
Taliesin III GmbH &
Co. KG
The voting shares of Taliesin Limited are held outside the Group. Taliesin Limited is consolidated into the Group based on economic interest held by the Group. Taliesin Limited holds 6% of the ordinary shares of Taliesin Holdings Limited.
The financial year end of all subsidiary undertakings is 31 December.
16. Other financial assets
2016 2015
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Non Current
Structured loan notes
At 1 January 4,052 2,246
Gain on financial assets at fair value 1,787 1,806
----------------------------------------- --------- ---------
At 31 December 5,839 4,052
Cap financial instrument 46 -
At 31 December 5,885 4,052
Current
Forward contract
At 1 January 16 286
Settlement of forward contract (16) (286)
----------------------------------------- --------- ---------
- -
Unrealised gain on new forward contract
(see note 12) - 16
----------------------------------------- --------- ---------
At 31 December - 16
Other Financial Assets comprise:
Non-current:
Structured Loan Notes whose return is linked to the value of an asset at the end of a specified term.
The notes entitle the Group to benefit from the rise in the value of the asset, whilst also being exposed to any potential decrease in the value of the asset and are designated at fair value through profit or loss. The underlying financial assets of the notes are equity investments held by the note issuer. The valuation of the notes include certain unobservable inputs including the value of the underlying assets. The fair value assessment of each note is determined by the valuation agent which is the board of directors of the issuer by reference to the net asset values of each share on each reporting date. The notes have a five year maturity expiring on 30 April 2017 after which the notes can be renewed or repaid by mutual consent. Repayment proceeds would come from the sale of the underlying shares. The gain (or loss) in the fair value in the Structured Note is shown in the Statement of Consolidated Income as "Gain or loss on fair value of financial assets".
The Group entered into two interest rate cap agreements with an aggregated nominal amount of EUR11,000,000 (prior year EUR5,000,000) to limit the Group's exposure to the risk of changes of market interest rates relating to long-term debt obligations with floating interest rates. The group will be compensated by the counterparty banks if interest rates rise above strike rates of 0,31% and 2,5% (prior year 2,5%). The derivative interest rate cap agreements are initially recognised at fair value on the date on which they are entered into and subsequently re-measured at fair value.
The Group enters into these agreements with established German banks so that the risk of counterparty default is not material.
Current:
Unrealised gain on forward currency contract entered into in prior year measured at fair value. Prior realised gains together with unrealised gains have been charged to foreign exchange related differences (Note 12). Forward currency contracts have been entered into by the Group to hedge the Pound Sterling liability on the Group's Zero Dividend Preference Shares.
17. Trade and other receivables and prepayments
2016 2015
EUR(000) EUR(000)
--------------------------------------- --------- ---------
Trade receivables 243 230
Rents held in escrow accounts 800 1,078
Prepaid expenses 2,755 2,916
Income and other taxation recoverable 34 22
Margin deposit (see note 12) 992 2,033
Sales proceds held on escrow account 594 973
Other receivables and prepayments 357 329
--------------------------------------- --------- ---------
5,775 7,581
Sales proceeds held on escrow account reflect purchase prices for the sale of apartments that are due for release to the Group by the notary since the transfer of ownership of the apartments has occurred already in the reporting period.
All trade and other receivables are due within one year. For disclosures on the bad debt allowances please refer to note 20.
18. Stated capital account and treasury shares
2016 2015
Number EUR(000) Number EUR(000)
-------------------------- ---------- --------- ---------- ---------
Stated capital account
- Issued and fully paid
As at 1 January 4,483,672 48,041 4,315,103 52,812
Shares issued 356,515 11,020 168,569 4,197
Shares buyback - (9,680) - (8,968)
-------------------------- ---------- --------- ---------- ---------
As at 31 December 4,840,187 49,381 4,483,672 48,041
Shares to be issued
As at 1 January - 6,643 - -
Shares issued - (6,643) - -
Provision for shares
to be issued - 6,282 - 6,643
-------------------------- ---------- --------- ---------- ---------
As at 31 December - 6,282 - 6,643
Under the Memorandum of Association, the Company is authorised to issue an unlimited number of ordinary shares of no par value.
The Memorandum and Articles of Association of the Company were amended, following the adoption of a Special Resolution at an EGM held on 11 August 2016, to provide for a new class of redeemable B Shares to be issued, fully paid up, from amounts standing to the credit of the Company's stated capital account from time-to-time to Ordinary Shareholders entitled to such distributions. Upon issue such B Shares will be compulsorily redeemed and cancelled. The second such distribution, in the amount of EUR2 per Ordinary Share (4,840,187 B shares issued and redeemed, amounting to approximately EUR9.68 million in aggregate), was made on 26 August 2016 and displayed above as shares buyback.
Prior to year end the Investment Advisers have given written notice to the Board of Directors that for 2016 a minimum of 60% of the performance fee the Investment Advisers are entitled to according to the Investment Advisory Agreements shall be settled in shares. The Group has thus recognised shares to be issued of EUR6,282,000 representing 60% of the performance fee of EUR10,470,000 (Note 8).
19. Interest bearing loans and borrowings
2016 2015
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Due within one year 29,714 30,634
Liabilities directly associated with
assets classified as held for sale 3,789 1,820
Due after more than one year 100,781 90,390
-------------------------------------- --------- ---------
134,284 122,844
The following interest bearing loans and borrowings are stated at amortised cost:
2016 2015
EUR(000) EUR(000)
--------------------------------- --------- ---------
DGHyp 74,420 56,845
Hypothekenbank Frankfurt - 17,358
Pfandbriefbank 38,801 24,333
Berliner Volksbank - 1,820
Zero Dividend Preference Shares 21,536 23,243
--------------------------------- --------- ---------
134,757 123,599
Deferred issue costs (473) (755)
--------------------------------- --------- ---------
134,284 122,844
All bank loans have been drawn in connection with purchases of the Group's properties. All of the Group's properties have been pledged as security for the loans.
The total amount drawn down under all loan facilities (including the Zero Dividend Preference Shares) as at 31 December 2016 was EUR134,757,000 (2015: EUR123,599,000).
Under the provisions of IAS 32 the Zero Dividend Preference Shares are classified as a liability and an interest accrual of EUR978,000 (2015: EUR1,625,000 ) has been charged against income. The redemption amount of the Zero Dividend Preference Shares, due on 30 September 2018, is GBP20,711,000 (EUR24,198,732 at the year end rate of 1.1684 EUR/GBP).
Bank loans relating to assets held for sale amount to EUR3,789,000 (see note 6) and are included above in the "due within one year" figure.
20. Financial risk management
The Group's principal financial liabilities are interest bearing bank loans and Zero Dividend Preference Shares. The main purpose of the Group's loans and ZDPs is to finance the acquisition and development of the Group's property portfolio. The Group has rent and other receivables, trade and other payables and cash and cash equivalents that arise directly from its operations.
The Group is exposed to market risk (including interest rate risk, real estate risk (see note 5 investment properties) and currency risk)), credit risk, equity risk and liquidity risk.
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management policies. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Board of Directors oversees the management of these risks and reviews and agrees policies for managing each of these risks, which are summarised below.
Market risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices - such as foreign exchange rates, interest rates and equity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group uses derivatives to manage certain market risks.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates.
To manage its interest rate risk, the Group enters into interest rate swaps as well as interest rate caps. With interest rate swaps the Group agrees to exchange the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. With interest rate caps the group is entitled to compensation by a counterparty bank if interest rates rise above certain agreed upon strike rates. These interest rate swaps and caps are designed to hedge the German subsidiaries' underlying debt obligations. At 31 December 2016 and after taking into account the effect of interest rate swaps as well as caps, 95,5% of the Group's borrowings are either hedged or fixed rate (2015: 100% hedged).
Equity risk
Equity risk is the risk that the value of the structured loan notes (see note 16) will fluctuate due to changes in the value the properties underlying these notes (see note 5). The Group does not attempt to mitigate this risk.
The increase in the value of the structured loan notes in 2016 reflects the strong operating performance of the underlying property owning subsidiaries, particulary the increase in property values. Future movements in the value of the structured loan notes will be similarly influenced by movements in the value of the underlying properties to which the notes relate, due to the impact on the value of the underlying financial assets referred to in note 16.
The interest rate profile of the Group's interest-bearing financial instruments as reported to the management of the Group is as follows:
2016 2015
Financial Assets EUR(000) EUR(000)
------------------------------------ --------- ---------
Cash - variable interest 243 153
Cash - non-interest bearing 6,105 3,925
Other - non-interest bearing 10,245 10,561
------------------------------------ --------- ---------
Total 16,593 14,639
Financial Liabilities
------------------------------------ --------- ---------
Liabilities fixed rate interest 99,318 85,184
Liabilities variable rate interest 34,966 37,660
------------------------------------ --------- ---------
Total 134,284 122,844
The durations of the variable rate loans range between 1 and 5 years, with an average duration of 3.35 years (2015: 2.68 years) and the total of the fair values of all loans, based on discounting cash flows at prevailing market rates of interest, is EUR134,284,000 (2015: EUR122,844,000).
The carrying value of the financial liabilities measured at amortised cost set out above equate to the fair value of these liabilities except for the value of the Zero Dividend Preference Shares. The book value measured at net present value of the Zero Dividend Preference Shares as noted above is EUR20,987,000 (2015: EUR22,488,000) and the fair value of all issued ZDP shares as of the balance sheet date is EUR22,810,000 (2015: EUR24,953,000), measured as the quoted price of the shares, resulting in them being level 1 in the fair value hierarchy.
On a Group basis, an increase of 100 basis points in interest rates would result in a beneficial change in the interest rate swap fair value adjustment in the Consolidated Statement of Comprehensive Income of EUR86,000 (2015: EUR437,000) and an overall increase in the charge to deferred German tax of EUR14,000 at the marginal rate of 15.83% (2015: EUR69,000 at the marginal rate of 15.83%).
Similarly, a decrease of 100 basis points in interest rates would result in a decrease in the interest rate swap fair value adjustment in the Consolidated Statement of Comprehensive Income of EUR87,000 (2015: EUR140,000) and an overall decrease in the charge to deferred German tax of EUR14,000 at the marginal rate of 15.83% (2015: EUR22,000 at the marginal rate of 15.83%).
With regards to the interest rate caps an increase of 100 basis points in interest rates would result in a beneficial change in the fair value adjustment in the Consolidated Statement of Comprehensive Income of EUR136,000 and an overall increase in the charge to deferred German tax of EUR22,000 at the marginal rate of 15.83%.
Similarly, a decrease of 100 basis points in interest rates would result in a decrease in the interest rate cap fair value adjustment in the Consolidated Statement of Comprehensive Income of EUR38,000 and an overall decrease in the charge to deferred German tax of EUR6,000 at the marginal rate of 15.83%.
As at the balance sheet date the Group had EUR243,000 of interest bearing deposits (2015: EUR153,000). Overall the Group is not exposed to significant interest rate risk.
Currency exchange risk
The assets, liabilities, income and expenditure of the Company and the Group are denominated in the Euro except for the Zero Dividend Preference Shares which are denominated in Pounds Sterling. The Company reduces its currency exchange risk by contracting hedging instruments for those proceeds of the Zero Dividend Preference Share converted to Euro. Proceeds which are lodged in Pounds Sterling deposits are not hedged since they are held in the same currency as the ultimate liability and therefore not deemed to be an exchange risk (see also Note 12).
A 10% change in the Pound Sterling/Euro exchange rate would have the following effect on the book values of the Zero Dividend Preference Shares and the unrealised Forward Exchange Contract:
-- Zero Dividend Preference Shares increase/decrease in profit and equity EUR2,099,000 (2015: EUR2,324,000)
-- Forward Exchange Contract increase/decrease in profit and equity EUR1,992,000 (2015: EUR2,002,000).
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
As property investments are relatively illiquid, there can be no assurance that the Group will not encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. It is therefore the Group's intention to mitigate such risk by investing in desirable properties in prime locations. The group mitigates any day to day liquidity risk by receiving prepayments of service charge from tenants in advance and uses these funds to pay utilities and other rechargeable items at the appropriate time. The Structured Loan Notes (Note 16) may have limited liquidity and it may not be possible to realise these in circumstances of limited market liquidity. The Group has a risk over its ability to service its loans which is managed by management regularly producing cash flow forecasts and by using interest rate swap and interest rate cap arrangements.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and financial institutions and derivatives.
The maximum exposure of the Group to credit risk at the reporting date is the carrying value of each class of financial asset.
Trade and other receivables
The Group's exposure to credit risk is influenced by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry in which customers operate.
The Group's credit risk is monitored on an on-going basis. The management believe that the concentration of credit risk is limited due to on-going evaluations of all customers and the wide spread of customers. All trade receivables fall due within one year. The allowance for doubtful debts stood at EUR245,000 as at 31 December 2016 (2015: EUR210,000).
At 31 December 2016 trade and other receivables except rents were not past due. Rent receivables are monitored and written off when required.
2016 2015
Movement in bad debt provision EUR(000) EUR(000)
-------------------------------- --------- ---------
As at 1 January 210 274
Utilisation of provision (69) (145)
Release of bad debt provison (48) (45)
Increase in provision 152 126
-------------------------------- --------- ---------
As at 31 December 245 210
All other classes of current assets do not include any impaired assets.
Cash and cash equivalents
The Group held cash and cash equivalents of EUR6,348,000 at 31 December 2016 (2015:EUR4,078,000). The cash and cash equivalents are held with reputable banks and financial institutions counterparties.
Financial instruments by category
The carrying amount of each of the categories of financial instruments as per the statement of financial position are as follows:
2016 2015
EUR(000) EUR(000)
---------------------------------------- --------- ---------
Financial assets:
Financial assets at fair value through
profit or loss 5,885 4,068
Cash and cash equivalents 6,348 4,078
Loans and receivables 4,360 6,493
---------------------------------------- --------- ---------
16,593 14,639
Loans and receivables include all trade and other receivable balances, except for prepayments.
2016 2015
EUR(000) EUR(000)
------------------------------------- --------- ---------
Financial liabilities:
Financial liabilities at fair value
through profit or loss 406 1,953
Financial liabilities at amortised
cost 140,913 129,276
------------------------------------- --------- ---------
141,319 131,229
Financial liabilities at amortised cost include other liabilities and payables in the amount of EUR6,629,000 (prior year EUR6,432,000).
Financial assets and liabilities - Numerical Information
Maturity of financial assets
The carrying value of financial assets are realisable as follows:
Book Book
value value
2016 2015
EUR(000) EUR(000)
--------------------------------------- --------- ---------
In one year or less 10,708 10,587
In more than two years but not more
than three years 5,839 4,052
In more than three years but not more
than four years 46 -
--------------------------------------- --------- ---------
16,593 14,639
Maturity of financial liabilities
The carrying value of contractual financial liabilities including interest are repayable as follows:
Book Book
value value
2016 2015
EUR(000) EUR(000)
------------------------------ --------- ---------
In one year or less 44,458 43,765
In more than one year but
not more than two years 49,231 28,979
In more than two years but
not more than three years 8,528 47,845
In more than three years but
not more than four years 5,749 268
In more than four years but
not more than five years 43,350 19,115
-------------------------------- --------- ---------
151,316 139,972
Less interest (10,403) (10,696)
-------------------------------- --------- ---------
Financial liabilities (see
note 19) 140,913 129,276
Fair value hierarchy
Under IFRS 13: "Fair Value Measurement", the Group classifies fair value measurements using a three-level fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
(b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
(c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table shows how financial instruments measured at fair value are grouped into the fair value hierarchy:
Level Level Level
1 2 3 Total
Group: As at 31 December
2016 EUR(000) EUR(000) EUR(000) EUR(000)
-------------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or
loss:
Structured loan notes - - 5,839 5,839
Interest rate cap instrument - 46 - 46
-------------------------------- --------- --------- --------- ---------
- 46 5,839 5,885
Financial liabilities at
fair value through profit
or loss
Interest rate swap instruments - (406) - (406)
-------------------------------- --------- --------- --------- ---------
Level Level Level
1 2 3 Total
Group: As at 31 December
2015 EUR(000) EUR(000) EUR(000) EUR(000)
-------------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or
loss:
Structured loan notes - - 4,052 4,052
Foreign exchange contact - 16 - 16
-------------------------------- --------- --------- --------- ---------
- 16 4,052 4,068
Financial liabilities at
fair value through profit
or loss
Interest rate swap instruments - (1,953) - (1,953)
-------------------------------- --------- --------- --------- ---------
See note 16 for details of the structured loan notes and the foreign exchange contracts.
21. Financial liabilities at fair value through profit or loss
2016 2015
EUR(000) EUR(000)
------------------------------- --------- ---------
Liabilities as at 1 January 1,953 3,141
Fair value adjustment taken
to consolidated
statement of comprehensive
income swap (1,547) (1,188)
--------------------------------- --------- ---------
Liabilities as at 31 December 406 1,953
The above table represents the fair value of interest swap arrangements which the German subsidiaries entered into with their bankers in order to manage their exposure to upward movements in interest rates. These arrangements were entered into along with the loan agreements with the banks detailed in note 19. They require that the Group pays interest on any loans drawn down at the contractual EURIBOR rate plus the contractual margin and to receive (or pay) the difference between this EURIBOR rate and the fixed interest swap rate specified in the swap agreement.
In addition to interest rate swaps the Group entered into interest rate cap agreements to manage its interest rate risk (see note 16). The combined fair value adjustment for the interest rate swap and for the interest rate cap taken to consolidated statement of comprehensive income is EUR1,526,000.
The fair values of the interest swap arrangements represent the price at which one party would assume the rights and obligations of the counterparty. The fair values were determined by discounting the anticipated future cash flows. For this purpose, the market interest rates applicable for the remaining term of the contract are used as a basis.
The liabilities as at 31 December 2016 above are only non-current EUR406,000.
The following table summarises the swap facilities in existence as at 31 December 2016:
Expiry
date
of
Fair
value Amount interest
of of swap
Swap Swap Fixed
Bank in EUR(000) in EUR(000) agreement rate
--------- ------------- ------------- ---------- -------
29 Mar
DZ BANK (406) 8,410 2018 3.585%
The following table summarises the swap facilities in existence as at 31 December 2015:
Expiry
date
of
Fair
value Amount interest
of of swap
Swap Swap Fixed
Bank in EUR(000) in EUR(000) agreement rate
-------------------------- ------------- ------------- ---------- -------
31 Oct
Hypothekenbank Frankfurt (271) 8,796 2016 3.50%
31 Oct
Hypothekenbank Frankfurt (108) 3,498 2016 3.50%
03 Apr
Hypothekenbank Frankfurt (452) 4,923 2018 3.92%
30 Dec
DZ BANK (413) 11,551 2016 3.385%
29 Mar
DZ BANK (709) 8,617 2018 3.585%
-------------------------- ------------- ------------- ---------- -------
(1,953) 37,385
22. Other liabilities and payables
2016 2015
EUR(000) EUR(000)
------------------------------------- --------- ---------
Trade payables 1,079 1,338
Other taxation 179 210
Investment advisory fees 1,327 625
Performance fee payable 4,188 4,428
Other payables 4 4
Rent received in advance 304 291
Other advance payments from tenants 3,115 3,036
Administration accruals 31 37
------------------------------------- --------- ---------
10,227 9,969
23. Commitments and contingencies
As at 31 December 2016 the Group had binding commitments on capital investment of EUR3,040,000 (2015: EUR1,130,000) regarding ongoing refurbishment projects.
24. Capital management policies and procedures
The Group's capital management objectives are:
(i) to ensure that the Group and all of the companies within it are able to continue as a going concern, and
(ii) to maintain an optimal capital structure which maximises returns for shareholders whilst minimising the cost of capital.
In order to achieve objective (ii) above, the Group may alter its financial structure by varying future dividend paying policy, re-financing existing borrowings, selling assets to repay borrowings, issuing new shares, purchasing shares for cancellation or purchasing shares to be held as treasury shares. The ordinary shares of the parent undertaking of the Group are listed on the AIM market and the Zero Dividend Preference Shares of the parent undertaking are listed on the main market of the London Stock Exchange and this provides additional flexibility in achieving objective (ii) by providing fixed rate, cash flow beneficial financing to the Group.
It is the Group's policy to finance most property acquisitions by bank borrowings, using the acquired properties as security. The Group has mitigated its exposure to the risk that bank loan interest costs increase above the level at which they are covered by the Group's net revenues by entering into interest rate swap arrangements. Further details are contained in note 21.
The Investment Advisers and administrator of the Group work together to supply the Board with adequate accounting information on a quarterly basis which includes key financial performance indicators designed to assist the Board in monitoring the effect of the Group's funding structure, possible changes in funding requirements and the effects of alternative funding strategies on potential developments.
The Group monitors the ratio of net debt (total financial liabilities less swap instruments offset by cash) to shareholders' equity (including minority interests). In the medium to long-term, the Group intends to operate with a capital structure comprising 70% debt and 30% equity. This represents a gearing ratio (i.e. net debt divided by equity) of approximately 2.33:1. The Group's gearing ratio is as follows:
2016 2015
EUR(000) EUR(000)
--------------------------------------- --------- ---------
Net debt
Loans and borrowings - non current 100,781 90,390
Loans and borrowings - current 33,503 32,454
Cash and cash equivalents (6,348) (4,078)
--------------------------------------- --------- ---------
127,936 118,766
Equity
Equity attributable to equity holders
of parent 154,001 122,227
Minority interests 6,342 4,383
--------------------------------------- --------- ---------
160,343 126,610
Gearing ratio (net debt divided by
equity) 0.798 0.938
There have been no breaches in any covenants imposed in compliance with banking facilities.
25. Related party transactions
Nigel Le Quesne is a shareholder and director of JTC Group Limited, of which JTC (Jersey) Limited and JTC (Luxembourg) S.A. are wholly owned subsidiaries. Stephen Burnett is a non-executive director of JTC Group Limited. JTC (Jersey) Limited is the Secretary to the Company and provider of administration services to the Company and its subsidiaries. JTC (Jersey) Limited charged fees totalling EUR258,000 (2015: EUR221,000) to the Group during the year, of which EUR66,000 (2015: EUR8,000) was outstanding as at 31 December 2016. JTC (Luxembourg) S.A provides administrative services to the Company's Luxembourg subsidiaries. JTC (Luxembourg) S.A charged fees totalling EUR153,000 (2015: EUR124,000) to the Group during the year of which EUR23,000 (2015: EURnil) was outstanding at 31 December 2016.
Mark Smith is a director and shareholder of TML and JJIM, the Investment Advisers of the Group, which charged investment advisory fees totalling EUR3,254,000 (50% JJIM / 50% TML) (2015: EUR2,452,000) to the Group during the year, of which EUR1,328,000 (2015: EUR625,000) was outstanding as at 31 December 2016. TML and JJIM together charged a performance fee of EUR10,470,000 (75% JJIM / 25% TML) (2015: EUR11,071,000) to the Group during the year, all of which was outstanding as at 31 December 2016, see note 8 for further details. In addition, TDL, through its German subsidiary Raumerei GmbH, provides estate agency services at preferential rates to the Group in Berlin.
As at the balance sheet date Mark Smith owns 75.62% of TML which holds 615,946 shares in the Company, representing 12.7%. These shares were issued in respect of previous performance fees. In addition, Mark Smith holds 124,720 ordinary shares, representing 2.6% of the Company's voting rights and also owns 100% of JJ Investment Management Limited (JJIM), which owns 278,729 ordinary shares, representing 5.8%.
There were no other related party transactions with the Company or the Group other than remuneration payable to the Directors, disclosed in note 9, who are the only key management personnel.
There are no employee benefits accrued by directors or key management personnel in the current year (2015: EURnil).
26. Post balance sheet events
During the first quarter of 2017 the Group sold five apartments in its property Kavalierstrasse in Berlin Pankow, which were classified as assets held for sale as at 31 December 2016. The cumulative sales price was EUR2,413,000, representing an average of EUR4,132 psqm.
Also during the first quarter of 2017 the Group agreed to extend the Structured Loan Notes (the "Loan Notes") (see note 16) at the prevailing terms and conditions for a period of five years.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFDFMSFWSELL
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April 11, 2017 02:00 ET (06:00 GMT)
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