TALIESIN PROPERTY FUND LIMITED 
By ?
Taliesin Property Fund Limited ("Taliesin" or the "Company" or the "Group")
Unaudited interim results for the 6 months to 30 June 2013
Key financial and operational highlights
· Value of the Taliesin portfolio increased by 3.6% in the first half of 2013 to ?181.2 million following the maiden interim valuation carried out by Jones Lang LaSalle.
· Adjusted NAV per share increased by 6.8% to ?19.04 at 30 June 2013 (?17.83 at 31 December 2012).
· Earnings per share of ?1.41 in the half-year (-?0.05 1H 2012).
· Rental income increased by 49% from the first half of 2012 including the contribution from the newly acquired portfolio. Underlying rental income from the existing portfolio rose by 4.1%.
· Recent issue of Zero Dividend Preference shares raised the Group £11.6 million gross and allows for the repayment of the junior loan and an acceleration of investment plans.
· Newly acquired properties provide opportunity for Taliesin to start selling apartments as well as to increase rents significantly.
· Availability of bank finance improves considerably.
· Although a number of candidates at the upcoming national elections are calling for greater rent controls, we expect that sense will prevail and that property owners will continue to enjoy reasonable flexibility in setting rents.
For further information, please contact:
Taliesin Property Fund Limited
Mark Smith, Director 01534 700 000
Westhouse Securities Limited
Alastair Moreton 020 7601 6100
Darren Vickers
TALIESIN PROPERTY FUND LIMITED
Chairman's statement
I am delighted to present the first half 2013 interim results for Taliesin. Following on from my full year update at end-2012, trends in the Berlin property market have continued on a positive path. The Group's property portfolio was valued at ?181,206,000 as at 30 June 2013. This is the first time that Jones Lang LaSalle has carried out a mid-year valuation and represents an increase in the value of the portfolio of 3.6% compared to 31 December 2012. Taliesin's decision to conduct a valuation at the interim point is intended to give investors a more accurate and timely overview of the Berlin market and the Group's portfolio.
As a result primarily of the revaluation the Adjusted NAV per share increased by 6.8% to ?19.04 in the first six months of the year. An increase in market interest rates also resulted in lower accumulated swap losses. Accumulated swap losses have now been reduced to ?1.03 per share. Again, as a result of these factors, the Group posted earnings per share in the first half of ?1.41 versus a small loss at the interim stage in 2012.
Rental income increased by 49% in the first half versus 2012 largely as a result of our 2012 acquisition, which is discussed later on in this statement. As I outlined in my full year 2012 statement, the Group's portfolio has increased in size by close to 50% as a result of the purchase. The existing (pre-acquisition) portfolio has continued to perform strongly. Rents increased by 4.1% from a year ago and the overall vacancy rate stayed low at 3.4%. Significantly higher rents achieved on newly rented apartments continue to drive overall rental growth albeit with a continued moderation in the rate of tenant turnover. Average residential rents increased again to ?6.68 per sqm but still represent a discount to the Berlin average.
Refinancing Update
Taliesin's loan-to-value (LTV) declined to 56% at 30 June 2013 from 57% at 31 December 2012. This number included the ?6 million bridge financing that was taken on to finance the recent acquisition. As I mentioned in my 2012 Chairman's statement, a critical task for the Group is to manage and invest in the newly acquired portfolio in order to raise rents and improve valuations. I signalled our intention of raising fresh finance to facilitate both this investment and further refurbishment projects on the existing portfolio as well as to repay the bridge finance.
I am very pleased that the Group has been able to achieve its short term objective of repaying the bridge loan and boosting its cash position via the successful issuance of Zero Dividend Preference shares (ZDPs). These shares have been issued by Taliesin Property Fund Limited, are listed on the official list of the London Stock Exchange and sit between the senior lenders and the regular equity in the capital structure. ZDPs have certain tax benefits for UK resident investors.
The Group was able to raise £11.6 million gross in the first closing and has a tap-like facility enabling it to increase this to a total of £30 million over the next twelve months, subject to certain conditions set out in the recently published prospectus. As the issue was priced in Sterling, Taliesin intends to hedge the foreign exchange exposure. The initial amount raised clearly gives the Group the ability to move forward confidently with its investment plans.
The ZDPs have a five year life and were priced to provide a gross redemption yield of 7.5% per annum. Investors receive this effective yield at maturity. From Taliesin's perspective this deferred yield payment works particularly well from a cash flow perspective. The Group has a strong track record of optimizing property and increasing values and subsequently refinancing and increasing the senior loans. Taliesin expects to be able to use the net proceeds of the ZDP issue to achieve more of the same, especially given the potential in the newly acquired portfolio. The Group sees numerous opportunities across the portfolio to invest and enhance values significantly given what is happening in the property market in Berlin.
The Group explored a number of options when it came to raising fresh finance. We felt that issuing ZDPs at a gross redemption yield of 7.5% was regarded as attractive for a number of reasons. Firstly, it gives Taliesin a more flexible capital structure providing another option alongside equity and senior secured debt. The Group's average cost of debt increases to a still low 4.5% per annum and (based on the half-year balance sheet) the pro forma LTV to a modest 60% following the initial ZDP issue. The cash flow benefits via the deferred yield payment are also obvious when the Group has significant investments to make in the near term. Given how strong the outlook is for the Berlin property market, the issue of ZDPs was felt to be particularly attractive versus the issuance of new equity. Property prices have moved upward again in the period and I remain convinced that replicating the Group's portfolio in today's market would require paying a significant premium over current valuations and the incurrence of large transaction costs. An additional benefit to shareholders is the fact that unlike fresh equity, the ZDPs do not attract an advisory fee.
Whilst on the subject of advisory fees, as announced on 13 August the Group's Investment Adviser, Taliesin Management Limited (TML) has agreed a fee reduction to 1.75% per annum in its advisory fee and a permanent elimination of certain other fees which they were entitled to charge the Group but which had been waived for a number of years. In return, Taliesin has agreed to extend the notice period on TML's Investment Advisory Agreement to twelve months.
Acquisition Update
As detailed in my full year 2012 update, Taliesin was involved through most of last year in protracted and complicated negotiations to acquire a portfolio of sixteen new properties. The acquisition was successfully concluded at year-end and the potential in the newly bought properties has become increasingly evident as the Group has progressively taken full control.
The transition from the previous property manager to our partner, CoreImmobilien, was effected reasonably smoothly and was completed in late April. There was no further deterioration in the operating performance during this period, suggesting that the properties were acquired at their absolute low point. Taliesin began to implement its investment plans in May of this year and the outlook for improvements in both the short and longer term is positive. The properties were acquired with average residential rents of around ?5.50 per sqm per month, a greater than 20% discount to the prevailing rents in the rest of the Taliesin portfolio. Vacancies stood at over 14% in a market where vacant residential space is increasingly rare.
Taliesin has adopted a three part strategy to optimize the new properties:
Firstly, increase rents for in situ tenants where regulations allow. A recent round of rent increases should translate into a modest increase in overall rents and further increases are planned.
Secondly, the Group has identified those vacant apartments that will remain as rental units and initiated a refurbishment programme targeting these units. There are currently over 40 apartments (from a total of 411) that are vacant and in various stages of refurbishment. Taliesin expects these units to be let out over the next few months and, once let, for these apartments to increase the overall residential rents by more than 17%. This is as a result of significantly higher rents that can be achieved in today's market versus rents of in situ tenants. Taliesin has a conservative assumption that these apartments will be re-let at an average rent of around ?8.50 per sqm per month compared to the current average of ?5.50 for the new portfolio. These refurbished units alone will increase the total rent roll of the new portfolio by around 10% and highlight the extraordinary value in vacant residential space in Berlin.
Lastly and potentially most profitably, the Group has chosen certain properties from the new portfolio for future privatization. This will be the Group's first foray into single apartment sales with the aim of exploiting the substantial premium currently being achieved in the market for the sale of single apartments. Three properties have been prioritized for redevelopment and those buildings currently contain 22 vacant apartments (from a total of 120) measuring a total of approximately 3,000 square metres. Taliesin intends to maintain and ideally expand the number of empty units in these buildings as the redevelopment is carried out. These properties were acquired for less than ?1,100 per sqm on average versus an average sale price for single apartments in Berlin last year of over ?2,400 per sqm. These three chosen properties are in prime locations and the Group's price expectations for the eventual sale price of the units suggest a significant premium over the city average.
Extensive preparatory work has been done ahead of appointing contractors to proceed with building works. In particular, obtaining legal and planning consents has been time consuming and complicated. Taliesin is in the final stages of this process and expects works to begin in the second half of this year. Plans involve an extensive overhaul and redevelopment of all three buildings. This will include the addition of roof space, expanding the apartment count by around 10%, the remodeling of existing units, the refurbishment of communal areas such as staircases, the replacement and insulation of facades and the addition of balconies. The Group carried out a similar redevelopment project at Kavalierstrasse in 2010/11. It is expected that eventual sales will commence in late 2014 and Taliesin is exploring various options to handle the sales process including the potential to pre-sell units.
In summary, the Group was aware when it purchased the new portfolio that there was significant potential to enhance values through investment and re-lets at higher prevailing rents. Taliesin now has a strong track record in this kind of property optimization. What the market has provided, however, is further opportunity for profit via privatization. The re-let of the selected vacant units is expected to increase the overall rent role conservatively by 10%. The additional vacant space which has been chosen for sale would be likely to add a similar additional amount to rents should it be re-let given the larger size of the units and superior locations. Instead, the Group believes that a higher return can be achieved through the conversion of these properties into units for individual sale and that this policy is consistent with the intention to generate distributable profits in the future.
Summary and Strategy
In my full year 2012 statement I gave an extensive commentary on the outlook for the Berlin residential market and the reasons for the Group's optimistic outlook. Events in the first half of 2013 have further reinforced this positive outlook. As evidenced by the first interim revaluation carried out by Jones Lang LaSalle on the Taliesin portfolio, market prices have strengthened further and this has translated into a positive set of interim results.
The availability of bank finance in the Berlin market has shown further signs of improvement and this bodes particularly well for further price rises. Buyers of single properties and portfolios are getting increasingly aggressive with their bidding as the Berlin story gets better appreciated.
As the market develops, the group has been presented with further opportunities to enhance the portfolio especially through the sale of single apartments. I am delighted that the recent ZDP fund raising has given the Group the means to accelerate the investment programmeto achieve these unit sales. Taliesin also intends to build out roof space across the portfolio with a view to either eventual sale or renting of new space.
Taliesin has significant work to do in order to maximize the value of its property portfolio and I feel good progress has been made in the first half. The ability to sell single apartments is expected to generate distributable profits in the future and the increase in values in the residential market moves the Group closer to the option of an eventual wholesale exit. In the short term, there are some obstacles to navigate, including political pressures on landlords due to rising rents ahead of the September 22nd elections. Also, we face decelerating tenant turnover as rents rise. However, I believe that property owners will still retain more than adequate flexibility on setting rents after the elections. While declining tenant turnover is an issue - as rent increases on re-lets are not restricted in the way that they are with sitting tenants - our stock of unoccupied property and our privatization plans should ensure that we continue to extract value for our investors from our asset base even if underlying rent rises become harder to achieve.
TALIESIN PROPERTY FUND LIMITED
Condensed consolidated statement of comprehensive income for the 6 months to 30 June 2013 | ||||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | ||
(unaudited) | (unaudited) | (audited) | ||
Note | ? | ? | ? | |
Continuing operations | ||||
Rental income | 4,832,228 | 3,243,793 | 6,500,365 | |
Service charge receipts | 1,380,146 | 889,472 | 1,999,689 | |
Other operating income | 116,199 | 113,810 | 302,435 | |
Total operating revenues | 6,328,573 | 4,247,075 | 8,802,489 | |
Negative goodwill | - | - | 2,383,386 | |
Net change in fair value of investment properties | 5 | 5,547,851 | - | 10,378,838 |
Service charge expenses | (1,447,393) | (962,488) | (2,108,191) | |
Other operating expenses | 10 | (2,172,253) | (1,178,854) | (6,327,482) |
Results from operating activities | 8,256,778 | 2,105,733 | 13,129,040 | |
Gain on fair value of financial assets | 162,014 | - | 589,879 | |
Finance income | 602 | 5,152 | 63,349 | |
Finance costs on debt secured on property | (2,000,911) | (1,610,258) | (3,214,225) | |
Finance costs on short term debt contracted by parent company | (420,000) | |||
Interest rate swap instruments, fair value adjustment | 6 | 1,046,582 | (611,261) | (755,889) |
Net financing costs | (1,211,713) | (2,216,367) | (3,316,886) | |
Profit/(Loss) before income tax | 7,045,065 | (110,634) | 9,812,154 | |
Income tax charge | 12 | (1,262,170) | (57,952) | (1,137,506) |
Total comprehensive income/(expense) for the period | 5,782,895 | (168,586) | 8,074,648 | |
Total comprehensive income/(expense) attributable to: | ||||
Owners of the parent | 5,598,034 | (168,586) | 7,835,257 | |
Non-controlling interest | 184,861 | - | 239,391 | |
Total comprehensive income/(expense) for the period | 5,782,895 | (168,586) | 8,074,648 | |
Basic and diluted earnings/(loss) per Ordinary share (?) | 4 | 1.41 | (0.05) | 2.15 |
The notes on pages 11 to 17 form an integral part of the financial statements. | ||||
TALIESIN PROPERTY FUND LIMITED Condensed consolidated statement of financial position as at 30 June 2013 | ||||
Notes | As at 30 June 2013 (unaudited) ? | As at 30 June 2012 (unaudited) ? | As at 31 December 2012 (audited) ? | |
ASSETS | ||||
Non-current assets | ||||
Investment properties | 5 | 181,206,000 | 113,347,000 | 174,807,000 |
Property acquisitions and enhancements yet to complete | 5 | - | 129,981 | 101,266 |
Other financial assets | 1,305,803 | 1,143,789 | ||
Trade and other receivables | - | 6,628 | 3,571 | |
Total non-current assets | 182,511,803 | 113,483,609 | 176,055,626 | |
Current assets | ||||
Cash and cash equivalents | 1,180,148 | 7,220,972 | 2,778,489 | |
Trade and other receivables | 5,909,192 | 3,561,975 | 4,596,294 | |
Total current assets | 7,089,340 | 10,782,947 | 7,374,783 | |
Total assets | 189,601,143 | 124,266,556 | 183,430,409 | |
SHAREHOLDERS´EQUITY AND LIABILITIES | ||||
Equity | ||||
Stated capital account | 7 | 50,462,490 | 42,947,808 | 47,244,875 |
Capital reserve | 8 | 55,870 | 241,825 | 55,870 |
Treasury shares | 7 | (98,623) | (98,623) | (98,623) |
Retained earnings | 17,692,476 | 4,587,038 | 12,590,881 | |
Equity attributable to equity holders of parent | 68,112,213 | 47,678,048 | 59,793,003 | |
Non-controlling interest | 1,375,077 | - | 1,190,215 | |
Total equity | 69,487,289 | 47,678,048 | 60,983,218 | |
Non-current liabilities | ||||
Financial liabilities | 9 | 98,760,869 | 53,023,042 | 60,082,947 |
Financial liabilities at fair value through profit or loss | 6 | 4,328,773 | 4,986,727 | 5,289,555 |
Deferred tax liabilities | 12 | 8,556,911 | 2,520,521 | 7,323,304 |
Total non-current liabilities | 111,646,553 | 60,530,290 | 72,695,806 | |
Current liabilities | ||||
Financial liabilities | 9 | 2,140,918 | 11,332,432 | 39,838,256 |
Financial liabilities at fair value through profit or loss | 6 | - | 244,000 | 85,800 |
Other liabilities and payables | 6,326,383 | 4,481,786 | 9,827,328 | |
Total current liabilities | 8,467,301 | 16,058,218 | 49,751,384 | |
Total equity and liabilities | 189,601,143 | 124,266,556 | 183,430,409 | |
Net asset value per Ordinary share (?) | 4 | 16.28 | 13.16 | 15,13 |
The financial statements were approved by the Board of Directors on 10 September 2013.
TALIESIN PROPERTY FUND LIMITED | |||||||
Condensed consolidated statement of changes in equity | |||||||
6 months to 30 June 2013 (unaudited) | |||||||
Stated Capital Account | Capital reserve | Treasury shares | Retained Earnings | Equity before non-controlling interests | Non-Controlling Interests | Total Equity | |
? | ? | ? | ? | ? | ? | ? | |
Balances as at 1 January 2013 | 47,244,875 | 55,870 | (98,623) | 12,590,881 | 59,793,003 | 1,190,215 | 60,983,218 |
Business combination costs adjustment IFRS 3.45 | (496,439) | (496,439) | (496,439) | ||||
Total comprehensive income for the period | |||||||
Profit for the period | - | - | - | 5,598,034 | 5,598,034 | 184,861 | 5,782,895 |
Transactions with owners, recorded directly in equity | |||||||
Contributions by and distributions to owners | |||||||
Issue of shares | 3,217,615 | - | - | - | 3,217,615 | - | 3,217,615 |
Balances as at 30 June 2013 | 50,462,490 | 55,870 | (98,623) | 17,692,476 | 68,112,213 | 1,375,076 | 69,487,289 |
TALIESIN PROPERTY FUND LIMITED | |||||||
Condensed consolidated statement of changes in equity (continued) | |||||||
6 months to 30 June 2012 (unaudited) | Stated Capital Account | Capital reserve | Treasury shares | Retained Earnings | Equity before non-controlling interests | Non-Controlling Interests | Total Equity |
? | ? | ? | ? | ? | ? | ? | |
Balances as at 1 January 2012 | 35,220,295 | 55,870 | (87,676) | 4,755,624 | 39,944,113 | 754,790 | 40,698,903 |
Total comprehensive income (expense) for the period | |||||||
Loss for the period | - | - | - | (168,586) | (168,586) | (168,586) | |
Transactions with owners, recorded directly in equity | |||||||
Contributions by and distributions to owners | |||||||
Issue of shares | 7,727,513 | 7,727,513 | 7,727,513 | ||||
Elimination of non-controlling interest | 185,955 | 185,955 | (754,790) | (568,835) | |||
Adjustment to prior year | - | - | (10,947) | - | (10,947) | - | (10,947) |
Total transactions with owners | 7,727,513 | 185,955 | (10,947) | 7,902,521 | (754,790) | 7,147,731 | |
Balances as at 30 June 2012 | 42,947,808 | 241,825 | (98,623) | 4,587,038 | 47,678,048 | 47,678,048 | |
Year ended 31 December 2012 (audited) | |||||||
Balances at 1 January 2012 | 35,220,295 | 55,870 | (87,676) | 4,755,624 | 39,944,113 | 754,790 | 40,698,903 |
Total comprehensive income for the year | |||||||
Profit for the year | - | - | - | 7,835,257 | 7,835,257 | 239,391 | 8,074,648 |
Total comprehensive income for the year | - | - | - | 7,835,257 | 7,835,257 | 239,391 | 8,074,648 |
Transactions with owners | |||||||
Share issues | 12,200,763 | 12,200,763 | 12,200,763 | ||||
Purchases of own shares | (10,947) | (10,947) | (10,947) | ||||
Placing commission fees | (176,183)- | - | - | - | |||
Minority share of acquisitions | - | - | - | 196,034 | 196,034 | ||
Total transactions with owners | 12,024,580 | - | (10,947) | - | 12,013,633 | 196,034 | 12,209,667 |
Balances at 31 December 2012 | 47,244,875 | 55,870 | (98,623) | 12,590,881 | 59,793,003 | 1,190,215 | 60,983,218 |
TALIESIN PROPERTY FUND LIMITED | |||
Condensed consolidated cash flow statement for the 6 months to 30 June 2013 | |||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | |
(unaudited) | (unaudited) | (audited) | |
? | ? | ? | |
Results from operating activities | 8,418,792 | 2,105,733 | 13,718,919 |
Changes in working capital | (1,026,752) | (36,382) | 2,053,370 |
Adjustment for non-cash items: | |||
Net change in fair value adjustments | (5,709,865) | - | (10,968,717)) |
Negative goodwill on business combination | - | (2,383,386) | |
1,682,175 | 2,069,351 | 2,420,186 | |
Tax paid | (28,245) | (221) | (10,496) |
Net cash from operating activities | 1,653,930 | 2,069,130 | 2,409,690 |
Investing activities | |||
Purchase and enhancements of investment properties | (749,883) | (2,052,168) | (1,201,162) |
Interest received | 602 | 5,238 | 63,349 |
Acquisition of shares and loans | (30,399,829) | ||
Cash acquired through business combination | - | 1,336,132 | |
Net cash used in investing activities | (31,149,110) | (2,046,930) | 198,320 |
Financing activities | |||
Proceeds from share placement | - | 7,727,513 | 11,646,853 |
Share issue costs | - | (176,183) | |
Costs of raising loans | (87,066) | ||
Proceeds from borrowing | 40,513,500 | 7,286,483 | |
Loan repayments | (10,299,624) | (992,633) | (17,432,798) |
Interest paid | (2,229,971) | (1,361,657) | (2,979,425) |
Net cash from/used in financing activities | 27,896,837 | 5,373,223 | (1,655,070) |
Net increase/(decrease) in cash and cash equivalents | (1,598,341) | 5,395,423 | 952,940 |
Cash and cash equivalents at start of period/year | 2,778,489 | 1,825,549 | 1,825,549 |
Cash and cash equivalents at end of period/year | 1,180,148 | 7,220,972 | 2,778,489 |
TALIESIN PROPERTY FUND LIMITED
Notes to the condensed consolidated interim financial statements for the 6 months to 30 June 2013 | |
1. | Reporting entity |
Taliesin Property Fund Limited (the "Company") is a company domiciled in Jersey and was incorporated on 17 November 2005. The condensed consolidated interim financial statements of the Company as at and for the 6 months ended 30 June 2013 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group invests in primarily residential property in Berlin and the former German Democratic Republic. The audited consolidated financial statements of the Group as at and for the year ended 31 December 2012 are available upon request from the Company's registered office at P.O. Box 1075, Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4 2QP. | |
2. | Statement of compliance |
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2012. These condensed consolidated interim financial statements were approved by the Board of Directors on 10 September 2013. | |
3. | Significant accounting policies |
The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2012. The Group has had a revaluation of its property portfolio at 30 June 2013. This is the first time that the Group has had a revaluation for the interim accounting period. The financial information for the 6 months to 30 June 2013 and 30 June 2012 has been extracted from the accounting records of the Group. The balances as at 31 December 2012 and the results for the year then ended have been extracted from the audited financial statements. The auditor's report on those financial statements was unqualified. | |
4. | Earnings/loss per Ordinary share and net asset value per Ordinary share |
The calculation of basic earnings per Ordinary share for the 6 months to 30 June 2013 was based on the profit attributable to Ordinary shareholders of ?5,598,034 and a weighted average number of Ordinary shares in issue of 3,981,703 | |
The calculation of basic earnings per Ordinary share for the 6 months to 30 June 2012 was based on the loss attributable to Ordinary shareholders of ?168,586 and a weighted average number of Ordinary shares in issue of 3,590,409. | |
The calculation of basic earnings per Ordinary share for the year ended 31 December 2012 was based on the profit attributable to Ordinary shareholders of ?7,835,257 and a weighted average number of Ordinary shares in issue of 3,952,288. | |
The calculation of net asset value per Ordinary share as at 30 June 2013 was based on the net consolidated assets attributable to Ordinary shareholders of ?68,112,213 and 4,183,771 Ordinary shares, being the number of such shares in issue and not held in treasury as at 30 June 2013 (see note 7). | |
The calculation of net asset value per Ordinary share as at 30 June 2012 was based on the net consolidated assets attributable to Ordinary shareholders of ?47,678,048 and 3,622,398 Ordinary shares, being the number of such shares in issue and not held in treasury as at 30 June 2012. | |
The calculation of net asset value per Ordinary share as at 31 December 2012 was based on the net consolidated assets attributable to Ordinary shareholders of ?59,793,003 and the 3,952,288 Ordinary shares in issue as at 31 December 2012. | |
TALIESIN PROPERTY FUND LIMITED
Notes to the condensed consolidated financial statements for the 6 months to 30 June 2013 (continued)
5. | Investment properties | ||||||||
(a) Investment properties | 6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | ||||||
(unaudited) | (unaudited) | (audited) | |||||||
? | ? | ? | |||||||
Book cost at start of period/year | 145,392,326 | 93,689,058 | 93,614,164 | ||||||
Fair value adjustments brought forward | 29,414,674 | 18,960,942 | 19,035,836 | ||||||
Valuation at start of period/year | 174,807,000 | 112,650,000 | 112,650,000 | ||||||
Properties acquired through business combination | - | 50,577,000 | |||||||
Capital expenditure on property portfolio | 851,149 | 697,000 | 1,201,162 | ||||||
175,658,149 | 113,347,000 | 164,428,162 | |||||||
Revaluation (fair value adjustments) | 5,547,851 | - | 10,378,838 | ||||||
Valuation at end of period/year | 181,206,000 | 113,347,000 | 174,807,000 | ||||||
The fair value of investment properties held at 30 June 2013 are based on valuations performed by an independent valuer, Jones Lang LaSalle, as at that date in accordance with s.153 art. 1 BauGB, the German Regulations on Determination of Value (WertV) and the German Valuation Guidelines (WertR06). | |||||||||
According to section.194 BauGB, the fair value is defined as the value which would have been agreed between a willing buyer and a willing vendor as at the date of the valuation in the normal course of legally-conducted business, having regard to the location and condition of the property concerned. The fair value of properties held at 30 June 2013 was therefore determined as the net value calculated in accordance with WertV sections 15 to 20, under the assumptions of remaining useful economic lives of between 40 and 60 years, and discount rates of between 5.75% and 7.75%. | |||||||||
All of the investment properties owned by the group have been pledged as security for the Group's financial liabilities. (see note 9.). | |||||||||
Other than capital expenditure on existing properties held, there have been no property acquisitions in the period since 31 December 2012. On 7th June 2013 a group subsidiary signed a sale contract on Clayallee 58-60 for completion after land registry formalities. The property was purchased in 2008 for ?1,020,000. The 2012 year end valuation was ?1,070,000 and the purchase price is ?1,100,000 with all fees for the account of the buyer. Outstanding debt on the property is approximately ?800,000. | |||||||||
(b) Property acquisitions and enhancements yet to complete | |||||||||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | |||||||
(unaudited) | (unaudited) | (audited) | |||||||
? | ? | ? | |||||||
Book cost at start of period/year | 101,266 | 6,238 | 6,238 | ||||||
Enhancement expenditure on properties held by subsidiary undertakings | - | - | 101,266 | ||||||
Property acquisitions yet to complete | - | 129,981 | - | ||||||
Property enhancements completed | (101,266) | ||||||||
Amounts written off | - | (6,238) | (6,238) | ||||||
Book cost at end of period/year | - | 129,981 | 101,266 | ||||||
TALIESIN PROPERTY FUND LIMITED
Notes to the condensed consolidated financial statements for the 6 months to 30 June 2013 (continued)
6. | Derivative financial liabilities | ||||||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | |||||
(unaudited) | (unaudited) | (audited) | |||||
? | ? | ? | |||||
Liabilities at valuation at start of period/year | (5,375,355) | (4,619,466) | (4,619,466) | ||||
Fair value adjustment taken to consolidated statement of comprehensive income | 1,046,582 | (611,261) | (755,889) | ||||
Liabilities at valuation at end of period/year | (4,328,773) | (5,230,727) | (5,375,355) | ||||
Maturity of derivative financial liabilities | ||||
Within one year | - | (244,000) | (85,800) | |
After more than one year | (4,328,773) | (4,986,727 | (5,289,555) | |
(4,328,773) | (5,230,727) | (5,375,355) | ||
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 9. They require that the Taliesin Group company pays interest on any loans drawn down at the contractual EURIBOR rate plus the contractual margin and to receive (or pay) the difference between this EURIBOR rate and the fixed interest swap rate specified in the swap agreement.
The fair values of these interest swap arrangements represent the price at which one party would assume the rights and obligations of the counterparty. The fair 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 following table summarises the swap facilities in existence as at 30 June 2013.
Bank | Amount of swap | Fair Value of Swap | Expiry date of interest swap agreement | Capped rate (when applicable) |
Hypothekenbank Frankfurt | ?11,128,000 | (1,001,045) | 31 October 2016 | 3.50% |
Hypothekenbank Frankfurt | ?4,936,000 | (444,029) | 31 October 2016 | 3.50% |
Hypothekenbank Frankfurt | ?5,200,000 | (727,646) | 3 April 2018 | 3.92% |
DZ Bank | ?12,600,000 | (1,047,298) | 30 December 2016 | 3.385% |
DZ Bank | ?9,400,000 | (1,274,810) | 29 March 2018 | 3.585% |
TALIESIN PROPERTY FUND LIMITED
Notes to the condensed consolidated financial statements for the 6 months to 30 June 2013 (continued)
7. | Stated capital account | |||||||||||||
Ordinary shares of no par value | 6 months to 30 June 2013 | Year ended 31 December 2012 | ||||||||||||
(unaudited) | (audited) | |||||||||||||
Number | ? | Number | ? | |||||||||||
Issued and fully paid | ||||||||||||||
At start of period/year | 3,962,288 | 47,244,875 | 3,060,020 | 35,220,295 | ||||||||||
Shares issued | 231,483 | 3,217,614 | 902,268 | 12,200,763 | ||||||||||
Share issue costs | (176,183) | |||||||||||||
At end of period/year | 4,193,771 | 50,462,489 | 3,962,288 | 47,244,875 | ||||||||||
Treasury shares | ||||||||||||||
At start of period/year | (10,000) | (98,623) | (10,000) | (87,676) | ||||||||||
Shares purchased for treasury | - | - | ||||||||||||
Purchase of own shares | - | - | (10,947) | |||||||||||
At the end of period/year | (10,000) | (98,623) | (10,000) | (98,623) | ||||||||||
10,000 shares were purchased for holding in treasury on 5 May 2011 and were still held as at 30 June 2013. On 12 June 2013, 231,483 ordinary shares were issued at a price of ?13.90 per share to Taliesin Management Limited, the Investment Adviser to the Group, as consideration for the performance fee due for the year ended 31 December 2012. The full amount of the performance fee was charged in the consolidated income statement for the year ended 31 December 2012. | ||||||||||||||
8. | Capital Reserve | |||||||||||||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | ||||||||||||
(unaudited) | (unaudited) | (audited) | ||||||||||||
? | ? | ? | ||||||||||||
At start of period/year | 55,870 | 55,870 | 55,870 | |||||||||||
Acquisition of non-controlling interest | - | 185,955 | - | |||||||||||
At end of period/year | 55,870 | 241,825 | 55,870 | |||||||||||
TALIESIN PROPERTY FUND LIMITED
Notes to the condensed consolidated financial statements for the 6 months to 30 June 2013 (continued)
9. | Financial liabilities | |||||||
As at 30 June 2013 | As at 30 June 2012 | As at 31 December 2012 | ||||||
(unaudited) | (unaudited) | (audited) | ||||||
? | ? | ? | ||||||
Due within one year | 2,140,918 | 11,322,432 | 39,838,256 | |||||
Due after more than one year | 98,760,869 | 53,023,042 | 60,082,947 | |||||
100,901,787 | 64,355,474 | 99,921,203 | ||||||
The above financial liabilities represent loans from banks and others for the purpose of purchasing property for the Group and with the exception of ?5,999,983 of loans contracted by Taliesin Property Fund Limited are secured on all of the properties owned by the Group. The total amounts of loans drawn down under all loan facilities as at 30 June 2013 was ?100,901,787 (30 June 2012: ?64,355,474, 31 December 2012: ?99,921,203) (represented in these accounts at their fair value of ?100,901,787 (30 June 2012: ?64,355,474, 31 December 2012: ?99,921,203). | ||||||||
10. | Other operating expenses | |||||||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | ||||||
(unaudited) | (unaudited) | (audited) | ||||||
? | ? | ? | ||||||
Property maintenance and management costs | 597,950 | 266,138 | 822,739 | |||||
TALIESIN PROPERTY FUND LIMITED
Notes to the condensed consolidated financial statements for the 6 months to 30 June 2013 (continued)
12. | Income tax expense | |||||||
6 months to 30 June 2013 | 6 months to 30 June 2012 | Year ended 31 December 2012 | ||||||
(unaudited) | (unaudited) | (audited) | ||||||
? | ? | ? | ||||||
Current tax on profits | (28,245) | (788) | (6,313) | |||||
Prior year corporate tax expense | (318) | - | (4,183) | |||||
Deferred tax charge | (1,233,607) | (57,164) | (1,727,010) | |||||
Total income tax expense for the period/year | (1,262,170) | (57,952) | (1,737,506) | |||||
The net tax liability at the end of each period comprises: | ||||||||
Deferred tax asset | 3,484,399 | - | 3,583,236 | |||||
Deferred tax liability | (12,041,310) | (2,520,521) | (10,906,540) | |||||
Corporation tax refundable | - | - | - | |||||
Corporation tax payable | - | - | - | |||||
(8,556,911) | (2,520,521) | (7,323,304) | ||||||
Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period. With effect from 1 January 2009, Jersey abolished the exempt company regime for existing companies. At the same time the standard rate of income tax for companies moved from 20% to 0%. The rate of tax in Jersey applicable to the company and the group is 0%. Taxes on profits of the Group arising in Germany are computed using the tax rate of 15.83% (2012: 15.83%), both for current and deferred tax. Taxable income arising in Cyprus is taxed at 11% (2012: 11%). | ||||||||
13. | 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 (the "Accounting NAVs"), the Directors monitor the performance of the Group as measured by a Key Performance Indicator (KPI) known as the Adjusted Net Asset Value. The net assets on which this KPI is based is defined as the net asset value of the Group as adjusted by adding any portfolio premium not already reflected in the accounts, the gross deferred tax liability from which the net asset value is derived and deducting any goodwill shown as an asset in such accounts. | |||||||
These adjustments and the calculations are as shown below: | ||||||||
Group as at | Group as at | |||||||
30 June 2013 | 31 Dec 2012 | |||||||
14. | Commitments and contingencies | |||
As at 30 June 2013, the Group had authorised capital investments of ?350,000 (December 2012: ?375,000) towards the enhancement of properties already owned in pursuance of its objectives. | ||||
15. | Related party transactions | |||
Nigel Le Quesne, Philip Burgin and Stephen Burnett are all shareholders and directors of JTC Group Limited of which JTC (Jersey) Limited (formerly JTC Management Limited) is a wholly-owned subsidiary. JTC (Jersey) Limited is the Secretary of the Company and a provider of administration services to the Company and its subsidiaries and charged fees totalling ?201,315 to the Group during the period to 30 June 2013 (year ended 31 December 2012: ?263,379), of which ?nil was outstanding as at 30 June 2013 (31 December 2012: ?nil). In December 2012 the Company obtained a number of 2 year loans which total ?5,999,983 at an interest rate of 14% p.a. The principal lender, Hillside Limited required the participation of directors and officers of Taliesin Management Limited in order to proceed. Michael Milbourn and Paul Luke, both shareholders and directors of Taliesin Management Limited, have therefore lent ?500,000 and ?249,983, respectively on the terms and conditions noted. This loan was outstanding on 30 June 2013. | ||||
Mark Smith is a director and shareholder of Taliesin Management Limited (TML), the investment manager of the Company, which charged investment advisory fees totalling ?804,799 to the Group during the period to 30 June 2013 (year ended 31 December 2012: ?1,223,370), of which ?661,987 was outstanding as at 30 June 2013 (31 December 2012: ?276,227). | ||||
Mark Smith, together with his wife, owns 70.76% of Taliesin Management Limited which holds 288,259 shares in the Company. These shares were issued in respect of previous performance fees
16. | Events since the balance sheet date | |
As mentioned in note 5, on 7th June 2103 a group subsidiary signed a sale contract on Clayallee 58-60 for completion after land registry formalities The transaction is expected to complete by end September 2013. The company announced on 9 July 2013 that it intends to undertake a placing of zero dividend preference shares to raise gross proceeds of up to £15 million. The Company published a prospectus setting out the terms of the proposed issue on 13th August 2013 and following an Extraordinary General Meeting on 3rd September, announced that £11,637,268 had been subscribed and would be issued and paid 5th September 2013. | ||
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