Annual Report and Accounts 2016
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Investing
in Berlin
Introduction
Phoenix Spree Deutschland is an
investment company founded in
2007 and listed on the London Stock
Exchange. It offers shareholders
exposure to the German residential
market, particularly Berlin, where
75% of assets are located.
Over the past ten years, the Company
has assembled an attractive portfolio
of real estate assets which the
Directors believe offers investors
the potential for both reliable
income as well as capital growth.
PMM Partners acts as the Property
Advisor. It has an experienced team
of property professionals with long-
standing experience of the German
residential property market.
Strategic Report
Highlights of the Year
At a Glance
Chairman’s Statement
Strategy
Business Model
Operational Review
Our Investment Proposition
Key Performance Indicators
Berlin
Nuremberg & Fürth
Northern Germany
Acquisitions
Condominiums
Principal Risks
Directors’ Report
Board of Directors
Directors’ Report
Corporate Governance
Statement
Audit and Risk Committee
Report
Directors’ Remuneration
Report
Statement of Directors’
Responsibilities
Financial Statements
Independent Auditor’s Report
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
1
2
4
6
7
8
12
13
14
16
17
18
20
22
24
25
28
33
36
37
38
40
41
42
43
Notes to the Financial Statements 44
Professional Advisors
68
www.phoenixspree.com
Highlights of the Year
2016 was the first full financial year since Phoenix Spree Deutschland successfully
listed on the Main Market of the London Stock Exchange. The Group capitalised on
the platform that this provided by issuing new equity, raising £38 million (before costs)
in March 2016. The Group has been actively deploying the proceeds on selective
acquisitions to grow its Portfolio of residential properties in Berlin, where the Board
sees the most potential for future market rental growth and yield compression in the
years ahead.
Strong financial performance
• Pre-exceptional profit before tax up 148%
to €48.9 million (31 December 2015:
€19.7 million).
• Portfolio value increased by 49.5% to
€423.8 million during the year
(31 December 2015: €283.6 million),
or 19.4% on a like-for-like basis.
• EPRA NAV per share grew by 19.7%
to €2.73 (£2.33) (31 December 2015:
€2.28 (£1.67)).
• EPRA total return per share of 22.5%,
(31 December 2015: 17.5%).
• Strong letting performance, as rent
per sqm increased by 1.4% to €7.6
(31 December 2015: €7.5) and 5.3%
on a like-for-like basis.
• Rent on new lettings of €9.6 per sqm,
a 7.8% increase over 2015, and a new
Group record.
• EPRA Vacancy reaches all-time low
of 2.6% (31 December 2015 3.9%).
• Final dividend per share of €4.3 cents
(GBP: 3.7p), giving a total dividend per
share of €6.3 cents (GBP: 5.3p) for the
financial year 2016 (2015: €5.8 cents
(GBP: 4.2p)).
Continued momentum in
scale and quality of Portfolio
• Share placing proceeds used to fund
attractive pipeline of acquisition
opportunities: Notarisation of ten Berlin
property packages during the year, for an
aggregate consideration of €78.3 million.
These are expected to increase the
Group’s rental income by c.17.5%.
• Active Portfolio management: Disposal
of non-core properties during the year
for aggregate consideration of €3.8 million.
• Significant non-core disposal post
year-end: 17 properties located in
Nuremberg and Fürth notarised for
€35.25 million, an 11% premium to the
31 December 2016 book value, increasing
the pro-forma Berlin exposure to 81.9%
of the Group’s Portfolio by value.
• Substantial premium achieved on
condominium sales: Third project, in
Boxhagenerstrasse, commenced in Q4
2016, achieved an average value per sqm
of €4,110, a 59.0% premium to the 2015
acquisition price of €2,585 per sqm.
• Active balance sheet management: New
debt of €101.4 million signed during H2
2016. Overall average debt maturity now
exceeds six years and average interest rate
has been reduced to 2.0%. During past
24 months, over 90% of Fund’s debt has
been refinanced.
Outlook
• Outlook for the German residential
market, particularly Berlin, remains
positive with further scope for rental
growth and yield compression.
• Rising demand for property expected
to continue, driven by population growth,
job creation and the ongoing process
of urbanisation.
• Supply of Berlin rental housing expected
to remain constrained by lack of land for
development, limited number of building
permits and high cost of construction
relative to in-place housing stock.
• Strong reversionary rental potential
embedded within Portfolio; Berlin new
leases signed at 35.6% premium to in
place rents.
• Further new condominium projects and
sales are planned for the year ahead.
• Group continues to see attractive pipeline
of acquisitions that meet its strict return
criteria, and expects to deploy further
capital during the remainder of 2017.
EPRA NAV/share
€2.73
+19.7%
2016
2015
2014
2013
Portfolio value
€423.8m
+49.5%
Dividend per share p
5.3p
2.73
2016
423.8
(3.7p final/1.6p interim)
2.28
2.06
1.92
2015
2014
2013
283.6
245.3
233.1
Phoenix Spree Deutschland
Annual Report and Accounts 2016
1
Financial StatementsDirectors’ ReportStrategic Report At a Glance
Since 2008, the value of the combined
Portfolio of PSD and PSPF has grown
by 153% to €423.8 million.
Berlin now represents more than three-
quarters of the portfolio by value, and
this focus is expected to increase in 2017.
Properties by location in Germany
Residential
Commercial
Kiel
Rendsburg
SCHLESWIG-HOLSTEIN
MECKLENBURG
Lubeck
Luneburg
The Company acquires and manages
residential property in Berlin and other
selected German secondary cities. The
aggregate value of the Portfolio (including the
assets of PSPF) has risen from €167.8 million
in 2008 to €423.8 million in 2016, with each
year seeing an increase. This equates to an
average value per sqm of €1,965, ranging
from €1,198 in Central and Northern Germany
to €2,320 in Berlin.
Since listing on the Main Market of the London
Stock Exchange in June 2015, the Company
has increased the Berlin residential focus of
the Portfolio through a combination of
carefully selected Berlin acquisitions and
disposals of buildings deemed to be non-core.
As at 31 December 2016, Berlin represents
more than 75% of the Portfolio value and this
focus is expected to increase during 2017.
The Portfolio mainly consists of classic ‘Altbau’
properties which were built before 1914.
Typically, these five-storey buildings contain
between 20 and 40 units, consisting of one to
three-bedroom apartments, often with shops
on the ground floor. The majority of the
Portfolio was acquired by the Company or PSPF
during the period 2006 to 2008 and, as a result,
the properties have benefitted from significant
investment and active asset management by
the Property Advisor, PMM Partners.
Reported property portfolio valuation 2009-2016 €m
+49.5% 2016
Bremen
Winsen Luhe
Oldenburg
Verden
NIEDERSACHSEN
Hannover
Hildesheim
NORDRHEIN-WESTFALEN
SAXONY-ANHALT
BRANDENBURG
Berlin
SACHSEN
THURINGIA
HESSEN
RHINELAND-PFALZ
SAARLAND
Nuremberg & Fürth
Pforzheim
BAYERN
Holzgerlingen
BADEN-WÜRTTEMBERG
€450
€400
€350
€300
€250
€200
€150
€100
€50
€0
.
8
3
2
4
.
3
0
7
1
9
0
0
2
1
.
6
8
1
0
1
0
2
.
3
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9
1
1
1
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1
2
2
1
0
2
.
6
3
8
2
1
.
3
3
2
.
3
5
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2
Residential
Commercial
3
1
0
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1
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5
1
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6
1
0
2
2
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Kiel
Rendsburg
SCHLESWIG-HOLSTEIN
MECKLENBURG
Lubeck
Luneburg
Bremen
Winsen Luhe
Oldenburg
Verden
NIEDERSACHSEN
Hannover
Hildesheim
NORDRHEIN-WESTFALEN
SAXONY-ANHALT
THURINGIA
HESSEN
RHINELAND-PFALZ
SAARLAND
Pforzheim
BAYERN
Holzgerlingen
BADEN-WÜRTTEMBERG
Residential
Commercial
BRANDENBURG
Riemannstrasse – local cafe life
Berlin
SACHSEN
Property by location (31 Dec 2016)
Floor space by usage (31 Dec 2016)
Property by age (31 Dec 2016)
3%
7%
15%
16%
15%
17%
Nuremberg & Fürth
Berlin
Central & North
Germany
Nuremberg & Fürth
Baden-Wurttemberg
Residential
Commercial
Before 1949
1950 to 1990
After 1990
75%
84%
68%
Properties
130
Residential units
2,785
Usable space (sqm)
216k
Commercial units
237
Phoenix Spree Deutschland
Annual Report and Accounts 2016
3
Financial StatementsDirectors’ ReportStrategic Report Chairman’s Statement
The financial year 2016 has been another
year of achievements and growth.
“We have continued to deliver
against our strategy of actively
managing and growing our
high-quality portfolio.”
Robert Hingley
Chairman
26 April 2017
4
Phoenix Spree Deutschland
Annual Report and Accounts 2016
It is pleasing to see that, in its first full financial
year since listing on London Stock Exchange,
the Group has had another year of
achievements and growth. It has continued
to deliver on its strategy, having enhanced the
portfolio through a significant programme
of property acquisitions, concluded selective
portfolio disposals, capitalised on the stock
market listing through the issuance of new
equity and delivered another positive set
of financial results.
FINANCIAL RESULTS
The financial results for the year to
31 December 2016 reflect strong operating
trends. Positive market fundamentals
continued to drive growth in demand for
rental apartments, while supply remained
constrained. These trends, combined with
our active asset management strategy,
delivered growth in rents and property values.
The portfolio value increased by 49.5% to
€423.8 million, or 19.4% on a like-for-like basis
excluding the impact of acquisitions and
disposals, whilst EPRA NAV per share rose
by 19.7% to €2.73. During the year, new leases
were signed at an average 27.0% premium
to in-place rents and this, combined with
the significant premium achieved on our
condominium sales, demonstrates the strong
reversionary potential that exists within the
Portfolio. The EPRA vacancy rate improved,
ending the year well below 3%, and the period
closed with a strong balance sheet, showing
a net loan to value of 39.4% and cash
balances of €18.5 million.
Increase in share price during the financial
year 2016
+49.5%
SHARE PRICE AND DIVIDEND
The year to 31 December 2016 saw the share
price rise from 156 to 232 pence per share,
representing an increase of 49.5% during the
period, significantly outperforming the FTSE
All Share Index, into which the Company
gained inclusion in May 2016. While no
guarantees can be provided as to future
share price performance, it is nonetheless
pleasing to see shareholders rewarded for
their support during a period which saw
considerable economic and stock market
uncertainty in the periods leading up to
and after the Brexit vote in June 2016.
The Company aims to provide its
shareholders with a secure and progressive
dividend over the medium term, paid from
recurring net operating cashflows, and
subject to the distribution requirements
pertaining to Non-Mainstream Pooled
Investments. Accordingly, the Board is
pleased to have declared a final dividend
of €4.3 cents per share (GBP 3.7 pence per
share), taking the full year dividend to €6.3
cents per share (GBP 5.3 pence per share),
representing an 8.4% increase on the 2015
full year Euro-denominated dividend. This is
expected to be paid on or around 30 June
2017 to shareholders on the register at
9 June 2017.
SHARE PLACING AND DEBT REFINANCING
The Stock Market listing has provided the
Fund with better access to capital markets
and the Group successfully issued new
equity in March 2016 by way of an Offer for
2016 Increase in EPRA NAV
+19.7%
Subscription and Share Placing, raising a total
of £38 million before costs. The Group has
also been successful in securing new debt
facilities during 2016 and continues to
refinance existing debt on more favourable
terms, thus reducing the overall interest rate
while simultaneously extending the maturity
of the debt pool. Combined, these actions
have provided the Group with the financial
platform to grow the Portfolio through a
series of carefully targeted acquisitions.
PROPERTY ADVISOR
2016 has been another busy year for
PMM Partners, the Group’s Property Advisor.
PMM Partners has combined its day-to-day
asset management activities with a successful
capital raising in the first quarter of the year,
a busy acquisition and disposal pipeline,
and a significant debt refinancing programme.
The Board would like to thank PMM Partners
for its ongoing contribution to the Group’s
performance.
ACQUISITIONS & DISPOSALS
The Group grew the Portfolio, having
completed or notarised a further €78.3 million
of acquisitions, all of which were located in
Berlin. The criteria for new acquisitions are
rigorous, and it is pleasing that the Group
continues, in a competitive marketplace, to
source acquisitions that are capable of meeting
or exceeding the Group’s target returns.
During the financial year, the Group
successfully sold several properties outside
Berlin that had been identified as non-core. In
April 2017, a portfolio of 17 properties located
in Nuremberg and Fürth was notarised for sale
at a significant premium to book value. On
completion, the combined impact of these
transactions will increase the contribution of
Berlin to 81.9% of the Portfolio by value, leaving
the Group better positioned to capitalise on
the relatively more favourable market dynamics
that the Board believe Berlin offers.
CONDOMINIUMS
The Group has also continued to divide and
resell a small number of carefully selected
apartment blocks as condominiums in order
to monetise the arbitrage that exists between
the value of an apartment block and the
value of the same property sold as single
apartments. During the year to 31 December
2016, the average achieved price per square
metre for condominiums sold or notarised
represented a 62% premium to the average
valuation per square metre for the Fund’s
Berlin portfolio, demonstrating the potential
that exists to unlock value by pursuing
a targeted condominium strategy.
CORPORATE GOVERNANCE
High standards of corporate governance are
vital if the Group is to deliver its strategy and
safeguard the interests of our shareholders
and other valued stakeholders. The Directors
are committed to ensuring that the Group
complies with best practice standards for the
business it carries out. As the shares are listed
on the premium segment of the Official List,
Listing Rule 9.8.6(5)R requires the Group to
apply the provisions of the UK Corporate
Governance Code (the ‘Code’).
The Board has considered the principles and
recommendations of the Code and is pleased
to confirm that the Group complies with the
provisions of the Code where applicable.
OUTLOOK
German residential market dynamics remain
positive, particularly in Berlin, where demand
for rental property continues to outstrip
supply significantly and prices of existing
housing stock compare favourably with
new-build construction costs. Berlin’s
population continues to rise and job creation
trends remain strong, further adding to rental
property demand. The Directors believe these
market forces have the potential to deliver
further rent growth and yield compression in
the year ahead. Combined with the Property
Advisor’s active asset management strategies
and additional condominium programmes
that are either planned or underway, the
outlook for 2017 remains positive.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
5
Financial StatementsDirectors’ ReportStrategic Report Strategy
The Group believes that German residential property,
particularly in Berlin, is undergoing a period of
structural change. It aims to capitalise on the
reversionary potential within this market to drive
capital growth and increase shareholder value.
Riemannstrasse, Berlin – Exterior
STRUCTURAL CHANGE
Although residential property prices in
Germany have risen significantly during the
past decade, demand continues to outstrip
supply significantly, particularly in our core
market, Berlin. The Board believes that this
change is structural, rather than cyclical,
and that the supply-demand imbalance
will remain in the medium term. A lack
of development land and relatively high
new-build construction costs continue to
limit supply of new housing stock. Factors
which continue to place upward pressure on
demand include high levels of job creation,
net inward migration, low interest rates and
favourable affordability metrics.
REVERSIONARY POTENTIAL
These positive structural tailwinds have
created a strong reversionary dynamic in
both the rental and owner-occupier markets.
For rental properties in most urban areas,
high demand and limited supply typically
ensure that new rental contracts are priced
at a significant premium to average passing
rents. Limited supply and positive affordability
metrics have similarly affected the owner-
occupier market, where a premium can be
derived from splitting freeholds in rental
blocks and reselling as individual apartments.
This has, in turn, had an upward effect on the
values of investment properties held for rental.
This reversionary potential is particularly
evident in Berlin, where the Group has actively
sought to increase its exposure to this market
since listing on the London Stock Exchange.
PMM Partners, the Group’s Property Advisor,
aims to maximise the reversionary potential
that exists in the Group’s core markets.
6
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Business Model
The Group’s business model is to acquire, renovate,
optimise and monetise properties. PMM Partners has
significant experience in generating rental and capital
growth through innovative asset management, value-
added investment and condominium sales.
REINVESTMENT
Acquire
Properties with
potential in Berlin
Renovate
Targeted and
value-added
investment
Optimise
Increase lettable
area and rental
income
Monetise
Properties
revalued or sold as
condominiums
ACQUIRE
The Group focuses on apartment buildings
which offer the potential for medium-term
value creation. For example, properties may
be rented at rates well below current market
levels, have development capacity, or have
the potential to be resold profitably as
condominiums. Single properties, packages
and portfolios are considered.
RENOVATE
A business plan is formulated for each
property which analyses medium-term
investment requirements and the potential
return on investment. Apartments occupied
by long-standing tenants are considered
for modernisation and vacant attic space is
reviewed for conversion to residential space.
A single apartment generally costs between
€20,000 and €30,000 to renovate, while an
entire building renovation might cost up to
€2 million.
Reinvestment
OPTIMISE
For properties considered to be core
rental buildings, vacant units are re-let after
refurbishment at the prevailing market rent.
In the case of Berlin, this can be substantially
above the level paid by previous tenants.
Tenant lists are reviewed carefully and, where
appropriate, rent increases are applied for,
either where tenants are paying less than
the statutory rent level (Mietspiegel), where
modernisation has been undertaken (and
these costs are allowed to be recouped),
or where the lease contains provisions
for indexation.
MONETISE
The properties within the portfolio are
revalued each year. The increased rental
income following renovation and optimisation
is reflected in an uplift in property values
which, in turn, generates NAV growth. This
enables the renovation investment to be
recouped through additional bank lending
if required. Condominium properties are
sold on a unit-by-unit basis at a premium
to rental property values. The cash flow
from refinancing and condominium sales
is used to facilitate further acquisitions
and to pay dividends.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
7
Financial StatementsDirectors’ ReportStrategic Report Operational Review
The Group delivered another positive set of financial results
for the year to 31 December 2016. Positive market fundamentals,
combined with our active asset management strategy, delivered
growth both in rents and property values.
PORTFOLIO VALUE RISES BY 19.4%
During 2016, the Portfolio value grew by
49.5% from €283.6 million to €423.8 million.
On a like-for-like basis, property values
rose by 19.4% (31 December 2015: 10.6%).
The portfolio is now valued at €1,965 per
sqm (31 December 2015: €1,635) which
represents a gross fully occupied yield of
4.8% (31 December 2015: 5.7%) and a net
yield, using EPRA methodology, of 4.2%
(31 December 2015: 4.7%).
All geographic markets registered valuation
gains during the period, with Berlin seeing the
largest like-for-like increase at 24.3%, followed
by Nuremberg & Fürth at 12.0% and Central
and North Germany 10.4%.
The principal drivers behind the like-for-like
growth in the Portfolio value were:
• strong growth in like-for-like rental income
within the Portfolio;
• a further decline in market yields, driven
by the low interest rate environment;
• continued high levels of investor interest
•
in the Berlin property market; and
further development of the condominium
market, with single apartment prices
in Berlin experiencing another year
of double-digit growth, thus helping
to drive prices for apartment blocks.
EPRA NAV INCREASES BY 19.7%
EPRA NAV per share increased by 19.7% in the
period to €2.73 (£2.33) compared to €2.28
Rent sqm growth by region 2013 to 2016
FINANCIAL HIGHLIGHTS
€ million (unless otherwise stated)
Gross rental income
Profit before tax
Pre-exceptional profit before tax
Reported EPS (€)
Investment property value
Net debt
Net LTV
EPRA NAV per share (€)
EPRA NAV per share (£)
Dividend per share (€ cents)
Dividend per share (£ pence)
EPRA NAV per share total return for period (€%)
EPRA NAV per share total return for period (£%)
(£1.67) as at 31 December 2015. Taking into
account the dividends paid during 2016, EPRA
total return per share was 22%, approaching
twice that achieved in 2015. The return for 2016
compares favourably to the Group’s target
return of 8-10% per annum. Non-recurring
costs relating to the share placing in March
2016, reduced EPRA NAV by around 0.6%.
RENTAL INCOME INCREASED BY 28%.
VACANCY RATE AT AN ALL-TIME LOW
Annual net rental income increased to €18.0
million in the period to 31 December 2016,
an increase of 27.8% compared with the year
to 31 December 2015. On a like-for-like basis,
rental income grew by 5.2% compared with
2015. Headline average in place rent per
sqm stood at €7.6 as at 31 December 2016,
10%
8%
6%
4%
2%
0%
2013
Berlin
2014
2015
2016
Nuremberg & Fürth
Central & North
31 Dec 2016
31 Dec 2015
15.9
48.9
48.9
0.42
423.8
167.1
39.4%
2.73
2.33
6.3
5.3
22.5%
41.7%
12.1
13.0
19.7
0.14
283.6
121.0
42.8%
2.28
1.67
5.8
4.2
17.5%
10.7%
compared with €7.5 as at 31 December 2015.
On a like-for-like basis, rent per sqm grew
by 5.3% compared with 2015. Berlin saw a
like-for-like increase in rent per sqm of 6.1%,
compared to 4.4% in Central and North
Germany, with Nuremberg and Fürth
recording highs of 7.5%.
Reported vacancy as at 31 December
2016 stood at 9.1%, down from 10.1% as at
31 December 2015. On an EPRA basis, which
adjusts for units undergoing redevelopment
or reserved for resale, vacancy stood at an
all-time low of 2.6% as at 31 December 2016,
compared to 3.9% as at 31 December 2015.
This reflects a strong rental market as well
as efforts by the asset manager to reduce
the time associated with re-letting.
RECENT LETTING PRICES ACHIEVE NEW
HIGHS FOR THE GROUP
The Group enjoyed another strong letting
performance in 2016. A total of 437 new
leases were signed, representing 14.5% of
the average units owned during the period.
In Berlin, average new letting prices grew by
3.1% to €10.6 per sqm (2015: €10.3 per sqm),
while Nuremberg & Fürth also witnessed
growth, with new letting prices rising by
7.0% to €9.5 per sqm.
Notwithstanding growth in rental prices, the
Portfolio continues to demonstrate significant
reversionary potential. During the final quarter
of 2016, new lettings were signed at an
8
Phoenix Spree Deutschland
Annual Report and Accounts 2016
PORTFOLIO REGIONAL OVERVIEW
Market
Berlin (incl. Greater Area)
Central & North Germany
Nuremberg & Fürth
Baden-Wurttemberg
% of fund
by value
75%
15%
7%
3%
Buildings
Resi units Comm units
Total units
Total sqm
('000)
Total
Gross rent
(€m)
Valuation
(€m)
Value per
sqm (€)
69
42
17
2
1,773
805
189
18
129
46
38
24
1,902
851
227
42
137.4
50.3
19.6
8.4
11.6
4.0
1.5
0.8
318.7
63.3
31.8
10.0
2,320
1,259
1,622
1,198
Fully
occupied
gross yield
% Vacancy %
4.1%
6.8%
5.8%
8.6%
9.7%
5.7%
14.7%
5.1%
EPRA
vacancy %
2.2%
3.6%
3.3%
2.4%
Total
100%
130
2,785
237
3,022
215.7
17.9
423.8
1,965
4.8%
9.1%
2.6%
Portfolio valuations by region €m
16.0
22.8
54.1
140.2
9.9
25.3
55.5
154.5
10.0
29.1
57.3
187.2
10.0
31.8
63.3
318.7
2013
2014
2015
2016
Berlin
Central & North
Nuremberg & Fürth
Other
average premium of 30.6% to passing rents
and 36.8% in Berlin. The Group believes this
reversionary gap should underpin rental
growth in the medium term, providing
a buffer against any potential slow-down
in market rental growth.
FURTHER INVESTMENT IN THE PORTFOLIO
The Group continued with its programme
of renovations and modernisations, investing
€2.2 million during 2016 across 215 units,
representing an average outlay of €232 per
sqm. The average premium achieved on
re-letting these units was 40.7%. Additionally,
€2.0 million was invested in the infrastructure
of properties for items such as heating system
upgrades. All of these categories were
recorded as capital expenditure. A further
€1.1 million spent on repairs and maintenance
was expensed through the profit and loss
account, compared to €0.9 million in the
period to 31 December 2015.
TARGETED ACQUISITIONS
The Group has supplemented its organic
growth with a number of targeted acquisitions.
In total 634 units (596 residential and 38
commercial) were notarised during 2016 for
an aggregate purchase price of €78.3 million,
at an average value per sqm of €1,888 and
annual fully occupied rent of €3.4 million.
All the acquired properties are located in
Berlin and complement the Group’s existing
portfolio. Combined, they will add 17.5% to
rental income, and by value they increase
exposure to the Berlin region from 70.5% to
76.3%. As at 31 December 2016 €58.4 million
of the notarised acquisitions had completed,
with the remainder expected to complete
in the first quarter of 2017. Acquisitions
have been financed using a combination
of debt and equity, with a target net
loan to value ratio of approximately 50%.
In the 18-month period between listing on
the London Stock Exchange in June 2015
and the December 2016 financial year-end,
the Group has acquired properties with
an aggregate valuation of €114.1 million.
Properties that had completed by December
2016 were revalued by Jones Lang LaSalle
(‘JLL’) in December 2016 at an average
18.6% premium to purchase prices.
The Group intends to continue with its
strategy of growing the Portfolio through
selective acquisitions and, as at 1 April 2017,
a further 74 units in Berlin had been notarised
for an aggregate value of €12.3 million,
representing a value per sqm of €1,780.
NON-CORE DISPOSALS INCREASE
BERLIN FOCUS
The Group has also sold or notarised for
sale a number of properties located outside
Berlin which have been classified as non-core.
These disposals represent a profitable
exit and release capital which is expected
to be re-deployed to increase exposure
to the Berlin market.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
9
Financial StatementsDirectors’ ReportStrategic Report Operational Review continued
In November 2016, the Group notarised for
sale a mixed-use property which had a high
commercial component and is located in
Teltow, Brandenburg. The sale proceeds of
€3.8 million represented an 18.8% premium
to June 2016 book value. The sale completed
in April 2017.
In April 2017, the Group notarised for
sale a portfolio of 17 properties, located
in Nuremberg and Fürth, for an aggregate
consideration of €35.25 million. These
properties were acquired in 2007 and 2008
for an aggregate purchase price of €13.9
million and the sale proceeds represent an
11% premium to the December 2016 book
value. Following completion of this portfolio
disposal, and including acquisitions and
disposals which were notarised in 2016 but
had yet to complete by the financial year-end,
Berlin will represent approximately 82% of the
Group’s portfolio value.
CONDOMINIUM SALES
During 2016, the Group continued with
its strategy of crystallising the potential
reversionary value within the portfolio
through the selective sale of individual units
as condominiums at significant premiums
to book values. The Group’s existing two
sales programmes in Kreuzberg, Berlin were
supplemented by the launch of a further sales
programme in Friedrichshain, also in Berlin,
in the final quarter of 2016.
A total of 22 individual units were notarised
for sale in 2016, representing an aggregate
sales value of €5.7 million and an average
of €3,874 per sqm. As at 31 December 2016,
a total of 31 units, representing proceeds
of €7.5 million, had completed since the
condominium project began in mid-2015.
The sales comprise a combination of vacant
and occupied units. It is expected that all units
in the two projects in Kreuzberg will be sold
during 2017 and the Group expects to launch
further condominium sales programmes
in 2017.
FINANCIAL RESULTS
The financial results for 2016 are for the first
full period of consolidation of Phoenix Spree
Property Fund, which was acquired in March
2015. Reported revenue for the period was
32.0% higher at €15.9 million (31 December
2015: €12.1 million). Profit before taxation
(‘PBT’) grew to €48.9 million (31 December
2015: €13.0 million). The results include a
significant net valuation gain of €55.2 million
(31 December 2015: €18.1 million). The
costs of the share placing in 2016 totalled
€1.6 million and have been charged to equity.
Reported earnings per share for the period
were €0.42c (31 December 2015: €0.14c).
The Board is pleased to have declared
a final dividend of €4.3 cents per share
(GBP 3.7 pence per share), (31 December
2015: €3.9 cents) (GBP 2.9 pence per share),
which is expected to be paid on or around
30 June 2017 to shareholders on the register
at close of business on 9 June 2017, with an
ex-dividend date of 8 June 2017. Taking into
account the interim dividend paid in October
2016, the declared dividend for the financial
year to 31 December 2016 is €6.3 cents
per share (GBP 5.3 pence per share),
(31 December 2015: €5.8 cents per share)
(GBP 4.2 pence per share).
FINANCING
As at December 31 2016, the Group
had gross borrowings of €185.6 million
(31 December 2015: €133.8 million) and
cash balances of €18.5 million (31 December
2015: €12.8 million) equating to a net
debt of €167.1 million (31 December 2015:
€121.0 million) and a net loan to value on
the portfolio of 39.4%. These loans have fixed
interest rates and, at 31 December 2016, the
blended rate of all loans across the Portfolio
was 2.0%. The average remaining duration
of the loan book at 31 December 2016 was
6.3 years (31 December 2015: 5.4 years).
As of March 2017, over 90% of the Group’s
debt has been refinanced within the previous
24 months.
drawn. In August 2016, the Group entered into
a €9.3 million ten-year loan facility, of which
€1.0 million was undrawn as at 31 December
2016. The remaining €1.0 million was
subsequently drawn in March 2017. In
September 2016, the Group entered into
an €81.5 million eight-year loan agreement.
This facility refinanced existing debt, as well
as releasing equity, which was applied to
acquisitions and value-added investment.
As at 31 December 2016, €79.5 million of this
facility had been drawn with the remaining
€2.0 million also drawn in March 2017.
In July 2016, the Group acquired 94.8% of the
shares in Laxpan and Invador, two companies
owning properties in Berlin. The companies
were acquired with existing debt in place and,
as at 31 December 2016, this combined debt
amounted to €11.3 million. In February 2017,
the Group entered into a €17.5 million ten-
year loan facility to refinance this debt, the
balance in excess of the debt repayment
being an equity release to the Group.
In December 2016, the Group entered
into a €10.6 million two-year loan facility.
While none of the facility was drawn at
31 December 2016, €9.9 million was drawn
in February 2017. This facility was used to
finance newly acquired properties and is
designed to improve lead-times to loan
disbursements. In due course, this shorter
duration loan will be refinanced into longer-
term debt.
The Group’s strategy is to take advantage
of current favourable debt markets to lock
in lower rates of interest on its debt, while
also extending the maturity of its loan book.
In March 2016, the Group successfully
completed a share placing, issuing
22.6 million shares at a price of 168p, raising
£38 million before costs. The proceeds
of the placing were used to fund further
property acquisitions and to invest in the
existing portfolio.
In January 2016, the Group entered into
a €16.7 million six-year loan facility to finance
newly acquired properties. As at 31 December
2016, the whole of this facility had been
Although currently well-funded, the Group
will continue to assess its funding options
for growth, including further debt, equity
and joint ventures.
10
Phoenix Spree Deutschland
Annual Report and Accounts 2016
MARKET OUTLOOK
Although German ten-year bund yields have
again moved into positive territory, they remain
at historically low levels and, with Eurozone
growth forecast to remain below 2.0% for
2017-2018, bond and interest rates are likely to
remain low. The Directors believe that this
provides a favourable backdrop for 2017.
Market dynamics remain particularly attractive
in our core market, Berlin. Despite the above
trend rental growth in recent years, affordability
comparisons with other German cities are still
favourable, with Berlin ranking 13th in terms of
property prices, and outside the top 30 for rent
levels. Positive demographic trends remain,
with demand for housing stock significantly
outstripping supply.
Inward migration, high job creation levels,
falling unemployment and growth in Berlin’s
tourist and technology industries continue
to fuel population growth. Between 2010
and 2015, the population grew by an average
of almost 50,000 inhabitants per annum,
accelerating to 43,000 in the first half of
2016 alone, and the city forecasts further
substantial population growth over the next
decade. By contrast, supply of housing stock
remains limited, constrained by lack of
available land for development and new-build
construction costs that exceed the value
of existing housing stock in most locations.
These market tailwinds have been evident
within the Group’s own portfolio during 2016,
with record property values, vacancy at an
all-time low and new letting prices at an
all-time high. High new letting prices create
a significant reversionary opportunity for the
future and, given that recent new leases in
our Berlin portfolio have been signed at an
average 35.6% premium to in-place rents,
the Board believes that significant opportunity
remains to improve rental incomes through
active asset management strategies. The
Board believes that this, combined with
further carefully selected Portfolio acquisitions
and a continuation of our condominium sales
programme, leaves the Group well placed for
the year ahead.
Boxhagenerstrasse
– acquired December 2015
Phoenix Spree Deutschland
Annual Report and Accounts 2016
11
Financial StatementsDirectors’ ReportStrategic Report Our Investment Proposition
The Group provides investors with exposure to a
diversified portfolio of German residential real estate
assets that offer potential for reliable income and
capital growth.
• Yield compression: Although German
ten-year bund rates have risen in the latter
part of 2016, they still remain at historically
low levels and further property yield
compression is possible, particularly in
Berlin, given supply/demand imbalance.
• Condominium profits: Each year a part
of the portfolio will be sold as single
apartments. Sales prices are currently at a
significant premium to rental values, which
enables the Group to unlock value from
its portfolio.
NAV per share
€2.73
Average adjusted NAV CAGR since 2011
17.3% per annum
The Directors are targeting a total annual
return equivalent to 8-10% of EPRA NAV,
with a progressive dividend policy. The Group
generates its investment returns through
a number of streams:
• Rental income: The EPRA net rental yield
on the investment portfolio in 2016 was
4.2%, which compares favourably to an
average cost of debt of 2.0%.
• Rental growth: Due to a combination
of market growth and active asset
management, like-for-like rent per sqm
has grown by an average of 5.1% per
annum over the last three years. This is
one of the main drivers of capital growth.
Albertinenstrasse – acquired in February 2008
12
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Key Performance Indicators
The Group has chosen a number of Key Performance
Indicators (‘KPIs’) which the Board believes are relevant
to help investors understand the performance of both
the Group and the underlying property portfolio.
In 2016, the value of the property portfolio
grew by 19.4% on a like-for-like for basis.
This increase was driven by an increase in
like-for-like average rent per let sqm of 5.3%
(2015: 4.8%) and a decline in EPRA vacancy
to 2.6% (2015: 3.9%).
The Group continued with its targeted
condominium programme, agreeing sales
of €5.7 million in the year to 31 December
2016 (2015: €4.7 million). EPRA NAV per
share increased by 19.7% to €2.73, while
the declared dividend for the year 2016
was €6.3 cents per share (GBP 5.3 pence
per share), an increase of 8.4% in Euro
terms versus 2015.
Like-for-like property portfolio value
growth 2016 %
19.4%
2016
2015
2014
10.7
8.6
Like-for-like portfolio rent per sqm 2016 €
EPRA vacancy 2016 %
€8.0
2.6%
19.4
2016
8.0
2016
2.6
2015
2014
7.4
7.1
2015
2014
3.9
4.1
Condominium sales 2016 €m
€5.7m
EPRA NAV per share 2016 €
€2.73
Dividend per share p
5.3p
2016
2015
2014
5.7
4.7
2016
2015
2014
2.73
2016
5.3
2.28
2.06
2015
2014
4.2
Phoenix Spree Deutschland
Annual Report and Accounts 2016
13
Financial StatementsDirectors’ ReportStrategic Report Berlin
The Berlin portfolio reported
its best year to date.
During 2016, the Berlin portfolio value grew
by 24.3% on a like-for-like basis, an excellent
rate of growth which demonstrates strong
market fundamentals, underpinned by
favourable demographics and a lack of
new-build supply. The lack of supply can
be explained by a combination of factors
including lack of available land, tight planning
controls and market values which are still
below construction costs.
In the 11 months to November 2016,
building permits were issued for some
19,100 new-build apartments in Berlin and
JLL estimate that the total number of permits
issued in 2016 as a whole is expected to
reach 21,000. However, construction activity
remains well below the current demand
for more than 20,000 residential units
per annum. This is because a significant
proportion of building permits do not lead
to completions given uncertainty surrounding
building and planning policies and the fact
that approval processes can take several
years to complete. To illustrate the disparity
between building permits granted and units
completed, in 2015, building permits were
granted for almost 18,000 new residential
units in Berlin, but the number of completions
was only 8,700.
The Group’s portfolio is valued at €2,320
per sqm on average. With all-in new-build
construction costs averaging around €3,000
per sqm, the Board believes that property
prices in Berlin have further to grow before
the supply and demand imbalance is rectified.
The growth in property values was
underpinned by further increases in rental
levels and a reduction in voids. Like-for-like
rental growth in the period was 6.1%, and
new leases were signed at an average rent
of €10.6 per sqm, a premium of 35.6% to the
average in-place rent. Meanwhile, the EPRA
vacancy rate fell to a new low of 2.2%
compared with 3.4% in 2015.
In 2016, the asset manager focused on
integrating acquisitions made in the latter
half of 2015 and during 2016. Business plans
for these assets have been produced and
a programme of investment and active asset
management is underway which should
yield increases in rents and property values
during 2017.
Like-for-like portfolio value growth
24.3%
Portfolio value €m and rent per sqm €
Like-for-like rent per sqm growth
350
300
250
200
150
100
50
0
319
187
140
155
2013
2014
2015
2016
Portfolio value
Rent/sqm
6.1%
EPRA vacancy rate
2.2%
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
14
Phoenix Spree Deutschland
Annual Report and Accounts 2016
“During 2016, the Berlin portfolio
value grew by 24.3% on a like-for-like
basis, an excellent rate of growth which
demonstrates strong market fundamentals,
underpinned by favourable demographics
and a lack of new-build supply.”
Rent per sqm €
12.0
10.0
8.0
6.0
2011
2012
2013
2014
2015
2016
PSD Berlin average new leases*
JLL Berlin average asking rent per sqm
PSD Berlin average rent per sqm
Chapter One Coffee,
Mittenwalderstrasse
*
2016 includes impact of acquisitions acquired at lower initial rent per sqm
than Berlin portfolio average.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
15
Financial StatementsDirectors’ ReportStrategic Report Nuremberg
& Fürth
The Nuremberg and Fürth region produced
another year of pleasing performance in 2016.
Rent per sqm saw a 7.5% like-for-like annual
increase. This uplift was again driven by the
significant premium achieved on new lettings,
when compared to passing rents, of 27.8%
in 2016. Property values also benefitted from
strong market conditions, rising 12.0% during
the year. EPRA vacancy increased slightly to
3.3% (31 December 2015: 1.5%).
The past 12 months have seen a significant
increase in investor interest in the region and,
following a strategic review of the Group’s
presence in Nuremberg and Fürth, it was
announced in April 2017 that contracts had
been exchanged to sell the entire portfolio
of properties to a single buyer. These properties
were acquired in 2007 and 2008 for an
aggregate purchase price of €13.9 million and
the aggregate sale proceeds of €35.25 million
represent an 11% premium to the 31 December
2016 valuation.
Portfolio value €m and rent per sqm €
Like-for-like portfolio value growth
12.0%
Like-for-like rent per sqm growth
7.5%
EPRA vacancy rate
3.3%
35
30
25
20
15
10
5
0
32
29
25
23
2013
2014
2015
2016
Portfolio value
Rent/sqm
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
16
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Northern
Germany
Growth in the Northern Germany portfolio, which
consists of the cities and surrounding areas of Bremen,
Hanover and Kiel, picked up significantly in 2016.
Property values increased by 10.4%, up from
3.2% in 2015, while average rent per sqm rose
by 4.4%. With EPRA vacancy at an all-time low
of 3.6%, and a final quarter lettings’ premium
of 26.3% to passing rents, the Group hopes
to continue 2016’s positive trend in 2017.
Like-for-like portfolio value growth
10.4%
Like-for-like rent per sqm growth
4.4%
Portfolio value €m and rent per sqm €
EPRA vacancy rate
3.6%
70
60
50
40
30
20
10
0
54
56
57
63
2013
2014
2015
2016
Portfolio value
Rent/sqm
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
Phoenix Spree Deutschland
Annual Report and Accounts 2016
17
Financial StatementsDirectors’ ReportStrategic Report Acquisitions: Investing in Berlin
During 2016, the Group grew its Berlin portfolio
with a number of targeted acquisitions. In total,
596 residential and 38 commercial units were
notarised during the period, for an aggregate
purchase price of €78.3 million, and with annual
fully occupied rent of €3.4 million.
The majority of properties acquired were
‘Altbau’, constructed at the turn of the 20th
century and located in developing areas of
central Berlin. The properties were acquired
in single asset deals or small packages of
up to four buildings, in line with the Group’s
strategy of selectively acquiring buildings
that meet its strict return criteria. The Group’s
external valuers, Jones Lang LaSalle (‘JLL’),
have since revalued acquisitions that had
been notarised and completed during 2016
at an average premium of 15.1% to their
original purchase price.
Including acquisitions that had been notarised
but had yet to complete as at 31 December
2016, the percentage of the Group’s assets
located in Berlin is forecast to increase from
75.2% to 76.3%, rising to 81.9% of the Group’s
portfolio by value on completion of disposal
of the Group’s Nuremberg and Fürth portfolio,
which was notarised after the financial year-end.
During 2017, the Group intends to make further
acquisitions in Berlin and, as of 31 March 2017,
has notarised three further properties for an
aggregate investment of €12.3m.
ACQUISITION SUMMARY
Purchase price (€)
Sqm
Purchase price/sqm (€)
Fully Occupied Yield
2015 Notarisations
2016 Notarisations
Total notarisations
as at 31 December
2016
35,760,000
18,217
1,963
4.4%
78,305,000
41,481
1,888
4.3%
114,065,000
59,698
1,911
4.4%
18
Phoenix Spree Deutschland
Annual Report and Accounts 2016
2016 Notarisations by district
14%
4% 2%
4%
11%
19%
46%
Friedrichshain – €3.1m
Gesundbrunnen – €1.7m
Lichtenberg – €3.0m
Mariendorf – €8.7m
Tempelhof – €15.1m
Wedding – €35.5m
Weißensee – €11.2m
Phoenix Spree Deutschland
Annual Report and Accounts 2016
19
Financial StatementsDirectors’ ReportStrategic Report Condominiums
2016 saw the Group launch its third condominium
sales project, for a property in Boxhagenerstrasse,
in Berlin-Friedrichshain.
Unlike the first two sales projects, where
the assets had been owned by the Group for
a decade, Boxhagenerstrasse was acquired
in 2015. The project commenced during the
fourth quarter 2016, achieving sales values
averaging €4,110 per sqm, a 59% premium
to the acquisition price of €2,585 per sqm.
As at 31 March 2017, nine units had been
notarised for sale out of a total of 67 units.
Across the Group’s three condominium
projects, a total of 22 units were notarised
for sale in 2016, with an aggregate sales value
of €5.7 million, and representing a 30.3%
premium to book value. This represents an
average value per sqm of €3,762, or €3,874
excluding commercial units. The average
price achieved per sqm for notarised
condominiums represents a 62.2% premium
to the average valuation per sqm for
properties in the Berlin portfolio as at
31 December 2016.
As at 31 December 2016, 31 units representing
proceeds of €7.5 million had completed since
condominium sales commenced in mid-
2015. These sales constitute a combination
of vacant and occupied units. It is expected
that the remaining units of the first two
projects will be sold during 2017 and the
Group will continue to identify and prepare
additional properties suitable for future
condominium sales projects.
Units sold
22
Sales value
€5.7m
Achieved sales premium to value of
properties in the Berlin portfolio
62%
Riemannstrasse, Berlin. Acquired February 2007
20
Phoenix Spree Deutschland
Annual Report and Accounts 2016
“Across the Group’s three
condominium projects, a total
of 22 units were notarised for
sale in 2016, with an aggregate
sales value of €5.7 million.”
Example property
BOXHAGENERSTRASSE
BERLIN-FRIEDRICHSHAIN
• 6,194 sqm Berlin multi-family house built in 1996.
• 62 residential and five commercial units.
• Acquired in 2015 at average price per sqm
of 2,585.
• Located in Berlin-Friedrichshain, an area favoured
by buyers and tenants.
• During 2016 six apartments and one commercial
unit sold at an average price of €4,110 per sqm.
• Achieved sales values represent 59% premium
to acquisition price.
• Estimated premium of 77% compared to PSD’s
Berlin property values.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
21
Example interior – Riemannstrasse
Financial StatementsDirectors’ ReportStrategic Report Principal Risks
The Board recognises that effective risk evaluation and
management needs to be foremost in the strategic planning
and the decision-making process. In conjunction with the
Property Advisor, key risks and risk mitigation measures are
reviewed by the Board on a regular basis and discussed
formally during Board meetings.
RISK TREND
Increasing
Unchanged
Decreasing
RISK
IMPACT
MITIGATION
MOVEMENT
DECLINE IN
PROPERTY
VALUATION
Economic, political, fiscal and legal issues can
have a negative effect on property valuations.
A decline in Group property valuations could
negatively affect the valuation of the Portfolio
and the ability of the Group to sell properties
within the portfolio at valuations which satisfy
the Group’s investment objective.
The Property Advisor believes German
housing affordability metrics remain
favourable relative to other European
countries and that German residential
supply-demand dynamics are supportive,
with limited supply of rental stock in urban
locations putting upward pressure on rents.
ADVERSE INTEREST
RATE MOVEMENTS
Future interest rate rises could increase
the borrowing cost to the Group which,
in turn, could negatively affect the Group’s
financial performance.
The Property Advisor has a record of securing
financing across the Portfolio. The Group
mitigates its exposure to adverse interest rate
movements through the use of interest rate
swaps. New debt of €101.4 million has been
signed during H2 2016; with an average debt
maturity exceeding six years; and average
interest rate reduced to 2.0%. During the
past 24 months, more than 90% of the
Group's debt has been refinanced.
AVAILABILITY OF
NEW DEBT
Inability to negotiate new debt facilities on
satisfactory terms could restrict the Group’s
ability to make future investment in new
properties or refinance existing debt facilities
as they reach maturity.
The Property Advisor regularly monitors debt
funding requirements for future acquisitions
as well as existing debt facilities as they reach
maturity and is in ongoing discussions with
a number of debt providers with a view to
securing future debt on acceptable terms.
BREACH OF
COVENANT
REQUIREMENTS
Should any fall in revenues result in the Group
breaching financial covenants given to any
lender, the Group may be required to repay
such borrowings in whole or in part, together
with any related costs.
The Group does not have any loan to value
covenants. The Property Advisor regularly
monitors all debt service coverage covenants
and would seek to take remedial measures
in advance of any covenant being breached.
INSUFFICIENT
CAPITAL TO
SUPPORT
EXPANSION
Lack of capital may restrict the ability
of the Group to pursue future investment
opportunities consistent with the overall
investment objectives.
INSUFFICIENT
INVESTMENT
OPPORTUNITY
Availability of potential investments which
meet the Group’s investment objective can
be negatively affected by supply and demand
dynamics within the market for German
residential property and the state of the
German economy and financial markets
more generally.
In March 2016 the Group raised gross
proceeds of £38 million by way of a Firm
Placing and Offer for Subscription at 168
pence per new share demonstrating the
ability of the Group to raise equity.
The Property Advisor has been active in
the German residential property market
since 2004. It has specialised acquisition
personnel and an extensive network of
industry contacts including property agents,
industry consultants and the principals of
other investment funds. It is expected that
future acquisitions will be sourced from
these channels.
22
Phoenix Spree Deutschland
Annual Report and Accounts 2016
RISK
IMPACT
MITIGATION
MOVEMENT
CHANGES TO
PROPERTY AND
TENANT LAW
Property laws remain under constant review
by the coalition government in Germany
and future changes to property regulation
and rent controls for new tenancies
could negatively affect rental values
and property valuations.
OCCUPANCY AND
TENANT RISK
Unexpected vacancy and tenant default
trends across the Portfolio could lead
to a rental income shortfall which, in turn,
may adversely impact Group profitability
and investment returns.
The Property Advisor regularly monitors the
impact that existing and proposed regulation
could have on future rental values and
property planning applications. In order to
reduce the dependency upon statutory rent
increases, the majority of the new leases
signed within the Portfolio include annual
indexation (or ‘Staffel’) increases.
The Property Advisor implements strict
vetting and screening processes to improve
tenant quality across the Portfolio. Where
appropriate, apartments becoming vacant
are renovated and modernised and then
re-let at rents which are at a significant
premium to that paid by outgoing tenants.
RELIANCE ON THE
PROPERTY
ADVISOR AND ITS
KEY PERSONNEL
The Group’s future performance depends on
the success of the Property Advisor’s strategy,
skill, judgement and reputation. The departure
of one or more key employees may have
an adverse effect on the performance of the
Group and any diminution in the Property
Advisor’s reputation may have an adverse
effect on the Group’s performance.
Since Listing on the London Stock Exchange,
the Property Advisor has expanded headcount
through the recruitment of several additional
experienced Berlin-based personnel.
Additionally, senior Property Advisor personnel
and their families retain a stake in the Group,
aligning their interests with other key
stakeholders.
REPUTATIONAL
RISK
Adverse publicity and inaccurate media
reporting could reflect negatively on
stakeholders’ perception of the Group,
its strategy and its key personnel.
MACRO ECONOMIC
ENVIRONMENT
A deterioration in economic growth and
a recessionary environment could adversely
affect tenant demand and vacancy, leading
to a reduction in rental and property values.
NON-COMPLIANCE
WITH NEW
REGULATORY
ACCOUNTING
AND TAXATION
LEGISLATION
Failure to identify and respond to the
introduction of new financial regulation
in a timely manner. Risk of reputational
damage, penalties or fines.
The Group has retained an external public
relations consultancy and press releases are
approved by the Board prior to release. The
Group maintains regular communication with
key shareholders and conducts presentations
and roadshows to provide investors with
relevant information on the Group, its strategy
and key personnel.
Although the Board and Property Advisor
cannot control external macroeconomic
risks, economic indicators are constantly
monitored by both the Board and
Property Advisor and Group strategy
is tailored accordingly.
The Group employs external compliance
and corporate governance advisor to
provide updates and boardroom briefings
on regulatory changes likely to impact the
Group. The Group works closely with external
accountants and tax advisors to keep up
to date with changes to financial regulation
in both UK and Germany.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
23
Financial StatementsDirectors’ ReportStrategic Report Board of Directors
The Company has an experienced Non-executive Board,
chaired by Robert Hingley. The Directors have a wealth
of experience in real estate, corporate finance, investment
funds and the capital markets.
ROBERT HINGLEY
NON-EXECUTIVE DIRECTOR
AND CHAIRMAN
Robert Hingley acts as an independent
Non-executive Director and Chairman
of the Company. He is currently a partner
at Ondra Partners LLP. He joined the
Association of British Insurers as Director,
Investment Affairs in September 2012 and,
following the merger of ABI’s investment
affairs with the Investment Management
Association, acted as a consultant to the
enlarged IMA until the end of 2014. From
2010 until January 2015, he was a Managing
Director, and later Senior Advisor, at Lazard.
He was previously Director General of The
Takeover Panel from December 2007, on
secondment from Lexicon Partners, where
he was Vice Chairman. Prior to joining
Lexicon Partners in 2005, he was Co-Head
of the Global Financial Institutions Group
and Head of German Investment Banking
at Citigroup Global Capital Markets, which
acquired the investment banking business
of Schroders in 2000. He joined Schroders
in 1985 after having qualified as a solicitor
with Clifford Chance in 1984.
RICHARD PROSSER
NON-EXECUTIVE DIRECTOR
Non-executive Director Richard Prosser
is a Director of Estera Fund Administrators
(Jersey) Limited (formerly known as Appleby
Fund Administrators (Jersey) Limited). Richard
qualified as a chartered accountant in 1989.
Since June 2000, Richard has been a Director
of Estera Trust (Jersey) Limited (previously
Appleby Trust (Jersey) Limited) and a partner
of the Appleby Group until a management
buyout in December 2015. He is a fellow
of the Institute of Chartered Accountants
in England and Wales, a member of the
Society of Trust and Estate Practitioners
and a member of the Institute of Directors.
He has been involved in the trust industry in
Jersey for over 25 years and has extensive
experience in dealing with offshore structures
for high net worth families based throughout
the world. He travels extensively to meet with
settlors and beneficiaries. Richard is listed as
a Citywealth Leader 2017 following his 2016,
2015 and 2014 recognitions. He was also
recognised in the 50 Most Influential list in
24
Phoenix Spree Deutschland
Annual Report and Accounts 2016
2017 by ePrivate Client. This annual list aims
to highlight the best of those individuals
working in the wealth management sector.
He is on the Board of a number of companies
quoted in London and elsewhere, including
property companies, hedge funds and
investment management companies. He is
Chairman of Threadneedle Investments (C.I.)
Limited, Manager of the Threadneedle
Property Unit Trust and Chairman of the
Aberdeen Latin American Income Fund
Limited, quoted in London, and Damille
Investments II Limited, a closed-ended
investment company listed on the Specialist
Fund Market of the London Stock Exchange.
MATTHEW NORTHOVER
NON-EXECUTIVE DIRECTOR
Matthew holds a Master’s degree in
Economics from Cambridge University.
After qualifying as a Chartered Accountant
with Ernst & Young, he worked as an
analyst in AstraZeneca’s strategy department.
Matthew subsequently moved to The City
where, over a ten-year period, he held a
number of senior analyst and sales positions
at a number of investment banks including
JP Morgan Chase and UBS. During this
time he won a number of industry awards.
Immediately prior to founding PMM Partners
LLP, he headed up the corporate consultancy
team at Hargreaves Lansdown, one of the
UK’s leading financial services providers.
Matthew has been actively investing in
Berlin property since 2004, as well as having
investments in residential property in the
UK and Europe. Matthew’s role within
PMM covers the finance, tax, legal and
administration functions. Matthew is one
of the founding members of the Property
Advisor, a Director of PSD. He is also a
founding partner of PMM Advisers LLP
which acts as an investment advisor
to a number of UK property debt funds.
QUENTIN SPICER
NON-EXECUTIVE DIRECTOR
Non-executive Director Quentin is a resident of
Guernsey. He qualified as a Solicitor in England
and Wales in 1968 with Wedlake Bell in London,
where he became head of the Property
department. He moved to Guernsey in 1996
to become Senior Partner of Wedlake Bell
Guernsey until retiring in 2011. He specialised
in commercial property transactions including
funding for non-UK tax residents and associated
low tax jurisdiction structures. He was
Chairman of F&C UK Real Estate Investments
Limited, standing down in November 2015.
He is currently Chairman of Alternative Liquidity
Fund Limited, both are LSE listed companies;
Guernsey Housing Association LBG; and is a
Non-executive Director of a number of other
funds including Summit Germany Limited.
He is a member of the Institute of Directors.
ANDREW WEAVER
NON-EXECUTIVE DIRECTOR
Andrew is a resident of Jersey, a partner
of the Jersey law firm, Appleby, and a
member of Appleby Group. He was, until
31 December 2015, also a Director of Appleby
Fund Administrators (Jersey) Limited (now
Estera Fund Administrators (Jersey) Limited).
Andrew was a solicitor with Simmons &
Simmons in London and Addleshaw Booth
& Co (now Addleshaw Goddard) between
1993 and 1998. From 1998 to 2001, Andrew
worked as an attorney-at-law in the Cayman
Islands with Hunter & Hunter (now Appleby)
and between 2001 and 2005 as legal advisor
in Jersey. Having been admitted as an
advocate in Jersey in 2003, Andrew has been
active within the Appleby Group since 2005
and became a partner in 2006. Andrew has
worked as a lawyer on corporate matters for
over 20 years and has extensive experience
in the structuring and formation of investment
funds and advising on the regulation and
corporate governance of such structures.
A substantial part of his legal practice involves
advising clients on the establishment,
acquisition and disposal of real estate
investment vehicles and private equity
investment structures. Andrew regularly
advises on listed vehicles, especially those on
the Channel Islands Securities Exchange, the
London Stock Exchange and the London Stock
Exchange’s Alternative Investment Market.
Directors’ Report
The Directors are pleased to present their report and the
audited consolidated financial statements for the year ended
31 December 2016.
GENERAL INFORMATION
The Company is a public limited company and incorporated in Jersey, Channel Islands under the Companies (Jersey) Law 1991. The Company
was admitted to the premium segment of the Main Market of the London Stock Exchange on 15 June 2015.
The Group’s objective is to generate an attractive return for shareholders through the acquisition and active management of high quality pre-let
properties in Germany. The Group is primarily invested in the residential market, supplemented with selective investments in commercial
property. The majority of commercial property within the portfolio is located within residential and mixed-use properties.
DIVIDENDS
The Directors recommend a final dividend of €4.3 cents (2015: €3.9 cents) per Ordinary Share to be paid on or around 30 June 2017 to ordinary
shareholders on the register on 9 June 2017.
The Directors declared a dividend of €1.9 cents per share on 22 September 2016, paid on 10 October 2016 to ordinary shareholders on the
register on 30 September 2016 (2015: €1.8 cents).
DIRECTORS
The Directors who served throughout the year were as follows:
Name of Director
R Hingley
R Prosser
M Northover
Q Spicer
A Weaver
Independent Non-executive Director, Chairman
Non-executive Director
Non-executive Director
Independent Non-executive Director
Non-executive Director
DIRECTORS’ INDEMNITIES
The Company has made third party indemnity provisions for the benefit of its Directors which were in place throughout the year and remain in
force at the date of this report.
SUBSTANTIAL SHAREHOLDINGS
As at 27 April 2017, the Company has received the following notifications under chapter 5 of the Disclosure and Transparency Rules
of shareholdings of more than 3% of the Company’s share capital:
Name of holder
Woodford Investment Management LLP
Bracebridge Capital, LLC
Percentage of voting rights
No. of Ordinary Shares
21%
6.5%
20,006,946
6,038,503
Phoenix Spree Deutschland
Annual Report and Accounts 2016
25
Financial StatementsStrategic ReportDirectors’ Report Directors’ Report continued
REQUIREMENTS OF THE LISTING RULES
The following table provides references to where the information required by the Listing Rule 9.8.4R is disclosed.
Listing Rule requirement
A statement of the amount of interest capitalised by the Group during the period under review with an
indication of the amount and treatment of any related tax relief.
Any information required by LR 9.2.18 R (Publication of unaudited financial information).
Details of any long-term incentive schemes as required by LR 9.4.3 R.
Details of any arrangements under which a Director of the Company has waived or agreed to waive any
emoluments from the Company or any subsidiary undertaking. Where a Director has agreed to waive future
emoluments, details of such waiver together with those relating to emoluments which were waived during
the period under review.
Not applicable
Not applicable
Not applicable
No such waivers
Details required in the case of any allotment for cash of equity securities made during the period under review
otherwise than to the holders of the Company’s equity shares in proportion to their holdings of such equity
shares and which has not been specifically authorised by the Company’s shareholders.
No such share allotments
Where a listed company has listed shares in issue and is a subsidiary undertaking of another company, details
of the participation by the parent undertaking in any placing made during the period under review.
Not applicable
Details of any contract of significance subsisting during the period under review:
(a) to which the listed company, or one of its subsidiary undertakings, is a party and in which a director of the
listed company is or was materially interested; and
(b) between the listed company, or one of its subsidiary undertakings, and a controlling shareholder.
a) Notes 29,35 to the
accounts
b) No controlling
shareholder, not
applicable
Details of contracts for the provision of services to the Company or any of its subsidiary undertakings by the
controlling shareholder
No controlling shareholder,
not applicable
Details of any arrangement under which a shareholder has waived or agreed to waive any dividends, where
a shareholder has agreed to waive future dividends, details of such waiver together with those relating to
dividends which are payable during the period under review.
No such agreements
Board statement in respect of relationship agreement with the controlling shareholder.
No controlling shareholder,
not applicable
CORPORATE GOVERNANCE
The Directors have prepared a statement on how the UK Corporate Governance Code has been applied, which is set out on pages 28 to 32.
FINANCIAL INSTRUMENTS
Details of the financial risk management objectives and policies followed by the Directors can be found on pages 22 to 23.
POST BALANCE SHEET EVENTS
The Group exchanged contracts for the acquisition of three properties in Berlin with an aggregate consideration of €12.3 million. These three
properties are still awaiting completion.
The Group had exchanged contracts for the acquisition of three properties in Berlin with an aggregate purchase price of €19.9 million prior to the
balance sheet date, which as at the balance sheet date had not yet completed. Two of these properties to the value of €15.4 million completed in
Q1 2017, and the third property with a purchase price €4.5 million is expected to complete in the second quarter.
The Group exchanged contracts for the sale of 11 condominiums in Berlin with an aggregate consideration of €2.4 million. Three of these
condominium sales have subsequently completed at a value of €0.7 million. The remaining eight are expected to complete during the second quarter.
The Group had exchanged contracts for the sale of ten condominiums in Berlin with an aggregate sales price of €2.9 million prior to the balance
sheet date, which as at the balance sheet date had not yet completed. Eight of these condominium sales have subsequently completed in Q1
2017 at a value of €2.6 million. The remaining two are due to complete in Q2 2017.
The Group has notarised for sale all the properties held by a subsidiary fund, which are located in the Nürnberg and Fürth area, for a gross
consideration of €35.3 million. The initial approach was made by buyers in January 2017 and the transaction is expected to complete in July 2017.
The Group had notarised for sale a property in Teltow prior to the balance sheet date for €3.8 million which had yet to complete at the balance
sheet date. It subsequently completed in April 2017.
26
Phoenix Spree Deutschland
Annual Report and Accounts 2016
In February 2017 the Group drew down €9.9 million euros of debt from a €10.6 million short-term loan facility.
In February 2017 the Group refinanced the remaining €11.3 million of debt held against the buildings acquired as part of the Laxpan and
Invador share deals in 2016. A new facility of €17.5 million was signed of which €9.6 million is currently drawn.
The Group drew down the final €1 million of the €9.3 million facility signed in August 2016 after exceeding a required annualised net rent
of the properties secured under the loan.
The Group drew down the final €2.0 million of the €81.5 million facility signed in 2016 on two buildings in Kiel and Luneberg.
The Group has signed for a €13 million loan secured against the properties notarised for acquisition in 2017; €11.1 million of this loan has
been dispersed.
AUDITOR
Each of the Directors at the date of approval of this Annual Report has taken all the steps that he ought to have taken as a Director in order
to make himself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. The Directors
are not aware of any relevant audit information which has not been disclosed to the auditor.
RSM UK Audit LLP has expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the
forthcoming Annual General Meeting.
VIABILITY STATEMENT
The Directors have assessed the viability of the Group over a three-year period, which is significantly longer than the 12-month period from the
date of approval of the financial statements that was previously considered for going concern purposes. The Directors have chosen three years
because that is the period over which the Group has sufficiently robust forecasts as part of its business plan. The Viability Statement is based
on a robust assessment of those risks that would threaten the business model, future performance, solvency or liquidity of the Group. For the
purposes of the Viability Statement the Directors have considered, in particular, the impact of the following factors affecting the projections of
cash flows for the three-year period ending 31 December 2019:
a) the potential operating cash flow requirement of the Group;
b) seasonal fluctuations in working capital requirements;
c) property vacancy rates;
d) rent arrears and bad debts;
e) capital and administration expenditure (excluding potential acquisitions as set out below) during the period; and
f) condominium sales proceeds.
The Directors recognise that the projections of cash flows do not include the impact of further potential property acquisitions over the three-year
period as these acquisitions are ad hoc and discretionary in nature. In this respect, the Directors have resolved to complete a formal review of the
working capital headroom of the Group for each potential acquisition.
On the basis of the above, and assuming the principal risks are managed or mitigated as expected, the Directors have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.
REGISTERED OFFICE
13-14 Esplanade
St Helier
Jersey
JE1 1EE
Channel Islands
The Directors’ Report was approved by the Board of Directors and authorised for issue and signed as follows:
On behalf of the Board
Richard Prosser
Director
26 April 2017
Phoenix Spree Deutschland
Annual Report and Accounts 2016
27
Financial StatementsStrategic ReportDirectors’ Report Corporate Governance Statement
The Directors are committed to maintaining high standards
of corporate governance. Insofar as the Directors believe it
to be appropriate and relevant to the Company, it is their
intention that the Company should comply with best practice
standards for the business carried on by the Company.
This Corporate Governance Statement comprises pages 28 to 32 and forms part of the Directors’ Report.
To comply with the UK Listing Regime, the Company must comply with Listing Rule 9.8.6(5) R which requires the Company to apply the
principles of the UK Corporate Governance Code (‘the Code’) published on 17 September 2014 and explain to shareholders how they have
done so or explain any departures therefrom.
The Code is available for download from the Financial Reporting Council’s (‘FRC’) website www.frc.org.uk.
The Board has considered the principles and recommendations of the Code. With effect from Admission, the Company has complied with
all the provisions of the Code except as set out below:
•
the role of the Chief Executive;
• Executive Directors’ remuneration;
the internal audit function and
•
the composition of the Audit and Risk Committee.
•
The Board considers that the provisions relating to the Chief Executive and Executive Directors’ remuneration are not relevant to the Group,
being a smaller listed externally managed investment company with an entirely Non-executive Board.
All of the Group’s day-to-day functions are outsourced to third parties the Group does not have an internal audit function and this is explained
in the Audit and Risk Committee’s report. The Board believes that there is currently no requirement for an internal audit department, given the
Group’s current size. Once the Board determines the Group is of sufficient size, an internal auditor with suitable qualifications and experience
will be appointed and an internal audit department established and expanded over time. Ultimately this role will be widened to encompass
reviews of the efficiency of operations and to make recommendations on rationalisation of the business. Once established, the internal audit
function will report directly to the Audit and Risk Committee.
The members of the Audit and Risk Committee have been selected for their experience and expertise in relation to the risks, financial reporting
and internal controls relating to the Group. The members bring specific experience in relation to the property investment sector and externally
managed Groups which has been found to be invaluable to the Committee in identifying risks and assessing the mitigating controls which
have been established. As a consequence of their relationship with the Property Advisor and Administrator, both Matthew Northover and
Richard Prosser are considered to not be independent members of the Board.
LEADERSHIP
COMPOSITION, INDEPENDENCE AND ROLE OF THE BOARD
The Board currently comprises three Non-executive Directors and two independent Non-executive Directors, one of whom also acts as Chairman
of the Company. The Chairman is Robert Hingley. The Chairman of the Board must be independent for the purposes of Chapter 15 of the Listing
Rules. Mr Hingley is considered independent because he:
• has no current or historical employment with the Property Advisor; and
• has no current directorships in any other investment funds managed by the Property Advisor.
Quentin Spicer is the Senior Independent Non-executive Director. Mr Spicer is also considered independent for the same reasons listed above.
The Board has overall responsibility for maximising the Group’s success by directing and supervising the affairs of the business and meeting the
appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Group and also ensuring protection of investors.
The Board has determined that its role is to consider and determine the following principal matters which it considers are of strategic importance
to the Group:
•
•
•
the overall objectives of the Group as described under the sections ‘Strategy’ and ‘Business Model’ set out on pages 6 to 7 of this document
and the strategy for fulfilling those objectives within an appropriate risk framework in light of market conditions prevailing from time to time;
the appointment of the Property Advisor, administrator and other appropriately skilled service providers and to monitor their effectiveness
through regular reports and meetings; and
the key elements of the Group’s performance including NAV and EPRA NAV growth and the payment of dividends.
28
Phoenix Spree Deutschland
Annual Report and Accounts 2016
The Board is responsible to shareholders for the overall management of the Group and for preparing the Annual Report and Accounts. The Board
is satisfied that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group’s position and performance, business model and strategy. In seeking to achieve this, the Directors
have set out the Group’s investment objective and policy and have explained how the Board and its delegated Committees operate and how the
Directors review the risk environment within which the Group operates and set appropriate risk controls. Furthermore, throughout the Annual
Report and Financial Statements the Board has sought to provide further information to enable shareholders to understand the Group’s business
and financial performance better.
The Company holds a minimum of four Board meetings per year to discuss general management, structure, finance, corporate governance,
marketing, risk management, compliance, asset allocation and gearing, contracts and performance. The quarterly Board meetings are the
principal source of regular information for the Board enabling it to determine policy and to monitor performance, compliance and controls,
which are supplemented by communication and discussions throughout the year.
RE-ELECTION
There are provisions in the Company’s Articles of Association which require Directors to seek re-election on a periodic basis. There is no limit
on length of service, nor is there any upper age restriction on Directors.
The Board considers that there is significant benefit to the Group arising from continuity and experience among Directors, and accordingly does
not intend to introduce restrictions based on age or tenure. It does, however, believe that shareholders should be given the opportunity to review
membership of the Board on a regular basis.
In accordance with the Company’s Articles of Association, at each AGM all independent Directors who held office at the two previous Annual
General Meetings and did not retire shall retire from office and shall be available for re-election.
The Board are of the opinion that the Board members standing for re-election should be re-elected as they have the right skills and experience
to continue to manage the Group.
COMMITTEES OF THE BOARD
The Board has established various committees and approved their terms of reference which are available on its website at www.phoenixspree.com.
AUDIT AND RISK COMMITTEE
In accordance with the Code, the Audit and Risk Committee is chaired by Richard Prosser, with Robert Hingley, Quentin Spicer and Matthew
Northover as members. The Board considers that Richard’s experience makes him suitably qualified to chair the Audit and Risk Committee.
The Audit and Risk Committee meets no less than twice a year and, if required, meetings can also be attended by the Property Advisor, the
administrator and the auditor.
The Audit and Risk Committee is responsible for reviewing the half-year and annual financial statements before their submission to the Board.
In addition, the Audit and Risk Committee is specifically charged under its terms of reference to advise the Board on the terms and scope of the
appointment of the auditors, including their remuneration, independence, objectivity and reviewing with the auditors the results and effectiveness
of the audit.
PROPERTY VALUATION COMMITTEE
The Company has established a Property Valuation Committee, which is chaired by Quentin Spicer, with Richard Prosser as a member.
The Property Valuation Committee is responsible for reviewing the property valuations prepared by the valuer and any further matters relating
to the valuation of the Portfolio.
The Property Valuation Committee met twice during the year and reported to the Board on its duties, which are to:
•
•
•
•
•
•
•
•
review significant adjustments from the previous property valuation report;
review the individual valuations of each property;
receive any commentary from the Property Advisor and/or Directors following the review meeting held with the valuer;
register and discuss with the Property Advisor any asset specific issues highlighted by the valuers;
review material, unexplained, movements in the Group’s Net Asset Value and to recommend the release of the Net Asset Value
announcement following that review;
review compliance with applicable standards and guidelines including those issued by the Royal Institution of Chartered Surveyors and the
UKLA Listing Rules;
review the findings and any recommendations or statements made by the valuer;
review at least annually, consider and make recommendations to the Board, in relation to the appointment, remuneration, re-appointment
and removal of the Group’s external valuer. The Committee shall oversee the selection process for new valuers and if a valuer resigns the
Committee shall investigate the issues leading to this and decide whether any action is required; and
• consider any further matters relating to the valuation of the properties.
The Committee reported to the Board its findings on the property valuation and that the Committee was satisfied with the independent valuation
report and values associated with all properties of the Group.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
29
Financial StatementsStrategic ReportDirectors’ Report Corporate Governance Statement continued
MANAGEMENT ENGAGEMENT COMMITTEE
In accordance with the Code, the Management Engagement Committee has been established to review the performance of the Property
Advisor on an annual basis. It is chaired by Robert Hingley, with Richard Prosser and Quentin Spicer as members.
The Management Engagement Committee met twice during the year and reported to the Board on its duties, which are to:
•
• monitor and evaluate the Property Advisor’s investment performance and compliance with the terms of the Property Advisory Agreement and,
if necessary, provide appropriate guidance, which may include considering the merit of obtaining an independent appraisal of the Property
Advisor’s services on an annual basis;
review the terms of the Property Advisory Agreement from time to time to ensure that the terms thereof conform with market and industry
practice and remain in the best interests of shareholders and make recommendations to the Board on any variation to the terms of the
Property Advisory Agreement which it considers necessary or desirable;
review and making the appropriate recommendations to the Board as to whether the continuing appointment of the Property Advisor is
in the best interests of the Group and Shareholders, and the reasons for this recommendation;
review the level and method of remuneration, the basis on which the performance fees (if any) are calculated and the notice period of the
Property Advisor, giving due consideration to the competitive position of the Group against its peer group;
•
•
• consider whether the asset and estate management fee should be based on gross assets, net assets or market capitalisation;
• ensure that the basis of any performance fee or performance-related element does not encourage excessive risk and that it rewards
demonstrably superior performance by the Property Advisor in managing the portfolio against the Group’s stated objectives when compared
to a suitable benchmark or peer group;
• ensure that a sound system of risk management and internal control is maintained and reviewed annually in order to safeguard shareholders’
•
investment and the Group’s assets;
review, consider and recommend any amendments to the terms of the appointment and remuneration of providers of other services to the
Group; and
• consider any points of conflict which may arise between the providers of services to the Group.
The Committee keeps under review the performance of the Property Advisor and the level and terms of the management fee. In the opinion
of the Directors, the continuing appointment of the Property Advisor on the terms agreed is in the interests of shareholders as a whole.
NOMINATION AND REMUNERATION COMMITTEE
In accordance with the Code, the Nomination and Remuneration Committee is chaired by Quentin Spicer the Senior Independent Director,
with Robert Hingley and Andrew Weaver as members. The Nomination and Remuneration Committee met once during the year.
The Group has no employees. There are five Directors, all of whom are male. The Directors have agreed that appointments to the Board
should be made on the basis of the Group’s specific needs and should be based on merit, without reference to age, gender or religious belief.
The Board does not intend to apply targets for gender Board diversity at this time, given the size of the Board and its recent admittance to the
London Stock Exchange. However the Board will review the gender diversity of its make up as part of its succession planning.
BOARD AND COMMITTEE MEETINGS
The table below sets out the number of Board, Audit and Risk Committee, Property Valuation Committee, Management Engagement Committee
and Nomination and Remuneration Committee meetings held during the year ended 31 December 2016 and, where appropriate, the number
of such meetings attended by each Director.
R Hingley
R Prosser
M Northover
Q Spicer
A Weaver
Scheduled Board
Audit & Risk
Property Valuation
Management Engagement
Nomination & Remuneration
Held
Attend
Held
Attend
Held
Attend
Held
Attend
Held
Attend
4
4
4
4
4
4
4
4
4
4
3
3
3
–
–
3
3
3
–
–
–
2
–
2
–
–
2
–
2
–
2
2
–
2
–
2
2
–
2
–
1
–
–
1
1
1
–
–
1
1
Ad hoc meetings are held as required by the Board members to instruct on, and be kept informed of material matters relating to the running
of the Group.
INFORMATION AND SUPPORT FOR DIRECTORS
New Directors receive a full, formal and tailored induction on joining the Board in order to further inform them of the Group’s activities and
structure. All Directors are able to take independent professional advice at the Group’s expense in the furtherance of their duties, if necessary.
The Group purchases appropriate insurance in respect of legal action against its Directors and Officers.
30
Phoenix Spree Deutschland
Annual Report and Accounts 2016
RELATIONS WITH SHAREHOLDERS
The Board believes that the maintenance of good relations with both institutional and retail shareholders is important for the long-term prospects
of the Group. The Board receives feedback on the views of shareholders from its corporate broker. Through this process the Board seeks to
monitor the views of shareholders and to ensure an effective communication programme.
The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board and
encourages participation.
The Group regularly reviews the shareholder profile of the Group. Shareholders may contact the Company directly through the Investor section
of the Company’s website www.phoenixspree.com.
COMPANY SECRETARY
The Company Secretary is responsible for ensuring that Board procedures are complied with. Under the guidance of the Chairman, the Secretary
ensures that appropriate information flows between the Board, the Committees and to/from the Directors. It facilitates inductions to new
Directors and the provision of additional information where required and appropriate.
The Secretary is responsible for advising the Board on governance matters and is available to all Directors for advice and support as required.
NON-EXECUTIVE DIRECTORS
The Board considers its current Non-executive Directors to be of sufficient calibre and number that their views be of sufficient weight and
that no individual or small group can dominate the Board’s decision-making process. Their qualifications and experience are relevant to their
directorships and in their appointments to the Committees where applicable.
The Non-executive Directors’ terms and conditions of appointment are available for inspection at the Company’s registered office on request
and will be available at the forthcoming Annual General Meeting.
INDEPENDENCE OF NON-EXECUTIVE DIRECTORS
The Code states that it is for the Board to determine whether a Director is independent in character and judgement and to consider whether
there are any relationships or circumstances that are likely to affect a Director’s judgement.
In applying the Code, the Board has considered a number or factors in determining the independence of each Non-executive Director and sets
out the outcomes below.
Following assessment the Board considers each of the Non-executive Directors to be independent in both character and judgement, and that
there are no circumstances that give rise to question their respective judgements when considering matters put before the Board in 2016 or
in the future.
NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS
The Board has assessed that the holdings of the Directors are not significant and believes such levels of investment should not raise questions
regarding their independence. The Board considers that Directors owning shares in the Company directly aligns them with the interests of
the shareholders.
BOARD ASSESSMENT
In the past, annual appraisals by external investor research analysts have recommended that shareholders vote against, or abstain from, any
proposed re-election of Non-executive Directors due to a perceived non-compliance with the Code regarding the criteria quoted above.
The Code requires companies to ‘Comply or Explain’. We have continually and consistently met this requirement.
The structure of the Board and the membership of the standing Committees took into account the views expressed by our shareholders
together with issues of independence, diversity and the requisite skills to deliver our strategy.
PERFORMANCE EVALUATION
The Board has a process of formal evaluation for individual Directors, the Committees and the processes utilised by the Board itself. This is
undertaken by the Chairman and the Audit Committee. The Board areas evaluated include:
• Board organisation, structure and membership;
•
•
•
•
•
the conduct of meetings;
the responsibilities of the Board;
the performance of the Board and its processes;
the information provided to Non-executives; and
the effectiveness of the management process.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
31
Financial StatementsStrategic ReportDirectors’ Report Corporate Governance Statement continued
NON-EXECUTIVE DIRECTORS – PERFORMANCE EVALUATION
The process of performance evaluation is designed to consider all elements of performance including any perceived shortcomings, training
or development needs and unforeseen tasks and responsibilities that have arisen during the year.
While no KPIs are set for individual Non-executive Directors, the time, effort and application applied in the performance of their duties for
the Board and, where applicable, Committees is taken into account.
THE BOARD, THE COMMITTEES AND THE MANAGEMENT PROCESS – PERFORMANCE EVALUATION
In line with the requirements of the Code, the Company has carried out annual performance evaluations of the Board, the Committees
and the processes utilised by each forum. The aim of the evaluation is to recognise the strengths and address any weaknesses and consider
improvements to the management process. The evaluation is designed to ensure that the Board meets its objectives and effectiveness
is maximised.
The Chairman led the evaluation which focused on the following issues:
•
•
•
•
•
•
the frequency of meetings and the business transacted;
the workload of each forum;
the timing, level of detail and appropriateness of information put before meetings;
the reporting process from Committees to the Board and delegation process itself;
the levels of expertise available within the membership of the Committees and the need for, selection of and the use of external consultants; and
the effectiveness of internal controls following the review and report of the Audit Committee.
The Chairman is satisfied with the outcome of the evaluation.
32
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Audit and Risk Committee Report
This report provides details of the role of the Committee and the duties it has undertaken during the year under review.
SUMMARY OF THE ROLE OF THE AUDIT AND RISK COMMITTEE
The Audit and Risk Committee is responsible for reviewing the half-year and annual financial statements and recommends them to the Board
for approval. The role of the Audit Committee includes:
• Monitoring the integrity of the Annual Report and Financial Statements of the Group, covering:
– formal announcements relating to the Group’s financial performance;
– significant financial reporting issues and judgements;
– matters raised by the external auditors; and
– the appropriateness of accounting policies and practices.
• Reviewing and considering the Code and FRC Guidance on Audit Committees.
• Monitoring the quality and effectiveness of the independent external auditors, which includes:
– meeting regularly to discuss the audit plan and the subsequent audit report;
– considering the level of fees for both audit and non-audit work;
– reviewing independence, objectivity, expertise, resources and qualification; and
– making recommendations to the Board on the appointment, reappointment, replacement and remuneration of the external auditors.
• Reviewing the Group’s procedures for prevention, detection and reporting of fraud, bribery and corruption.
• Monitoring and reviewing the internal control and risk management systems of the service providers together with the need for an Internal
Audit function.
The Audit Committee’s full terms of reference can be obtained by contacting the Company’s administrator.
FINANCIAL REPORTING
The Audit and Risk Committee is responsible for reviewing the half-year and annual financial statements before their submission to the Board.
In addition, the Audit and Risk Committee is specifically charged under its terms of reference to advise the Board on the terms and scope of the
appointment of the auditors, including their remuneration, independence, objectivity and reviewing with the auditors the results and effectiveness
of the audit.
COMPOSITION OF THE AUDIT AND RISK COMMITTEE
The Audit and Risk Committee is chaired by Richard Prosser, with Robert Hingley, Quentin Spicer and Matthew Northover as members. The
Board considers that Richard Prosser’s experience makes him suitably qualified to chair the Audit and Risk Committee. The qualifications and
experience of the members of the Audit and Risk Committee are set out in their biographical details on page 24.
MEETINGS
The Audit and Risk Committee is scheduled to meet no less than twice a year and, if required, meetings can also be attended by the Property
Advisor, the administrator and the auditor.
SIGNIFICANT ISSUES RELATED TO THE FINANCIAL STATEMENTS
Valuation of investment property
Mitigation
A significant focus for the Audit Committee is the valuation of
the Group’s property portfolio carried out at half-year in June and
at the financial year end in December each year, as this is a key
determinant of the Group’s NAV, its profit or loss and the Property
Advisor’s remuneration.
The Group has appointed Jones Lang LaSalle (‘JLL’) to act as the
Independent Property Valuer. The Audit and Risk Committee is
satisfied that the valuer is independent and that it conducted its
work in accordance with the Royal Institution of Chartered Surveyors
Valuation Standards (‘RICS’).
The Property Valuation Committee reviews the valuer’s report, the
methodology followed and the assumptions incorporated to assess
the adequacy of the valuation.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
33
Financial StatementsStrategic ReportDirectors’ Report Audit and Risk Committee Report continued
EXTERNAL AUDIT
ASSESSING THE EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS
The Committee satisfied itself as to the effectiveness of the external audit process as follows:
THE AUDIT FIRM
The FRC’s overall report on the results of the Annual Audit Quality Reviews of Audit Firms and the separate report on the results for our auditors,
RSM UK Audit LLP, were reviewed to ensure that no issues of concern arose that might have a bearing on the audit appointment. No such
issues arose.
THE AUDIT PARTNER
Following the appointment of a new audit firm and audit partner in 2014, no additional rotation considerations were taken into account for
the current year. Following completion of the audit the Committee assessed the partner’s performance against expectations and found this
to be satisfactory.
THE AUDIT TEAM
Continuity of personnel was reviewed and found to be satisfactory. To supplement the Committee’s necessarily limited exposure to junior
members of the audit team, feedback was sought on the performance of the external audit team, in particular as regards their understanding
of the business, technical competence and attitude.
THE AUDIT PLAN
The scope of the audit was reviewed and debated by the Committee with the auditors prior to work being commenced. This was done in the
light of both the auditors’ and the Committee’s assessment of the key risks. The auditors explained materiality thresholds used in determining
their audit scope and the Committee confirmed that these were in accordance with normal audit practice.
The generality of the audit plan document was assessed and found to be satisfactory. Arrangements to identify, report and manage conflicts
of interest were satisfactory.
The Committee also considered whether it wished to commission further audit work to be conducted beyond which the auditor considered
necessary for the expression of their opinions on the Group and subsidiary accounts and concluded that it did not.
MATTERS ARISING FROM THE AUDIT
These were promptly and effectively communicated and addressed as appropriate. The robustness and perceptiveness of the auditors in their
handling of the key accounting and audit judgements were seen as appropriate. The detailed report received from the auditors following
completion of their work gave comfort as to the diligence of execution of that work.
ADDED VALUE
In appraising the overall performance of the auditors, the Committee considered whether they had provided useful feedback arising from their
work additional to their statutory responsibilities and concluded that they had.
INDEPENDENCE
In addition to receiving the auditors’ formal confirmation of their independence, the Committee considered whether this was demonstrated
through their general approach and attitude and were satisfied that this was the case.
NON-AUDIT SERVICES
It was debated and confirmed that Group policy on non-audit services provided by the audit firm (and set out below) remains appropriate and
was complied with. Fees additional to those for the statutory audit were particularly high this year due to the work required on the Circular to
shareholders for share placing. The Committee considered the auditors to be in the best position to conduct this work, given the timescales
and knowledge required. In the view of the Committee it did not compromise the independence of the audit of the financial statements.
The objectivity of the auditor was safeguarded by the use of completely separate teams for non-audit work.
AUDIT FEES
The level of audit fees was reviewed to ensure that it was sufficient for the work necessary but not excessive. In particular, changes in fees
from the previous year were considered in relation to changes in the Group and in risk assessments.
AUDIT TENDERING
The Committee considered whether the audit appointment should be put out to tender. In doing so, it considered both the performance
of the current auditors and the likely costs and potential benefits of change.
Following the above, the Audit Committee has recommended to the Board that RSM UK Audit LLP is reappointed.
Going forward, the Committee will continue to keep the audit appointment under review, having regard for the new EU requirements for
audit tendering.
34
Phoenix Spree Deutschland
Annual Report and Accounts 2016
GROUP POLICY ON THE PROVISION OF NON-AUDIT SERVICES BY THE AUDITOR
The Committee has an established policy for the commission of non-audit work from the Group’s auditor.
The external auditor is excluded from providing non-audit services to the Group where the objectives of such assignments are inconsistent
with the objectives of the audit. Additionally, no work is awarded to the auditor which would result in an element of self-review, either during
the work or via the audit itself.
The Committee will continue to approve all non-audit fees prior to the work commencing and review the non-audit fees in aggregate for
the year.
RISK MANAGEMENT AND INTERNAL CONTROL
The Committee reviews the adequacy and effectiveness of the Group’s internal financial controls and internal control and risk management
systems and review and approves the statements to be included in the Annual Report concerning internal controls and risk management.
The Committee is also responsible for oversight and advice to the Board on the current risk exposures and future risk strategy of the Group.
The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity. The result of this review, the potential impact of each type of risk identified and the mitigation
reasons put in place are set out in the ‘Principal Risks’ section of the Annual Report on pages 22 to 23. The Directors do not consider that there
are any significant problems facing the business in the coming year.
INTERNAL AUDIT
The Board believes that there is currently no requirement for an internal audit department, given the Group’s current size.
If and when the Board determines the Group is of sufficient size, an internal auditor with suitable qualifications and experience will be appointed
and an internal audit department established and expanded over time. Ultimately this role will be widened to encompass reviews of the efficiency
of operations and to make recommendations on rationalisation of the business. Once established, the internal audit function will report directly
to the Audit and Risk Committee.
The Committee considers at least once a year whether there is a need for an internal audit function.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
35
Financial StatementsStrategic ReportDirectors’ Report Directors’ Remuneration Report
INTRODUCTION
This report is on the activities of the Nomination and Remuneration Committee. The information provided in this part of the Directors’ Report
is not subject to audit.
REMUNERATION POLICY
The Nomination and Remuneration Committee comprises three Non-executive Directors and is chaired by Quentin Spicer, with Robert Hingley
and Andrew Weaver as members. The Group’s policy is that the remuneration of the Directors should reflect the experience of the Board as a
whole, the time commitment required, and be fair and comparable with that of other similar companies. Furthermore, the level of remuneration
should be sufficient to attract and retain the Directors needed to oversee the Group properly and to reflect its specific circumstances. There
were no changes to the policy during the year and it is intended that this policy will continue to apply for the year ending 31 December 2017.
DUTIES
The Committee is responsible for setting the Directors’ remuneration levels, in conjunction with the Chairman and with consideration
of the following:
levels of Directors’ remuneration should reflect the time commitment and responsibilities of the role;
•
• Non-executive Directors’ remuneration should not include share options or other performance-related elements;
• careful consideration should be given to what compensation commitments entail in the event of early termination of a Director’s
appointment;
• notice of contract periods should be set at one year or less; and
• no Director should be involved in deciding his or her own remuneration.
The Committee is also responsible for judging where to position the Group relative to other companies in relation to the level of Directors’
remuneration, but using such comparisons with caution in view of the risk of increased remuneration with no corresponding improvement
in performance; and considering and making the appropriate recommendations to the Board with regard to the need to appoint external
remuneration consultants.
The terms of reference of the Nomination and Remuneration Committee can be obtained by contacting the administrator.
For the years ended 31 December 2016 and 31 December 2015 Directors’ fees incurred were as follows:
R Hingley
R Prosser
M Northover
Q Spicer
A Weaver
2016
£
42,708
25,000
£Nil
32,500
25,000
2015
£
21,667
17,247
£Nil
23,065
17,427
Matthew Northover is a Director and shareholder of PMM Partners (UK) Limited, the Group’s appointed Property Advisor, and as such does not
receive any Directors’ fees. The terms of business and remuneration of PMM Partners (UK) Limited are disclosed in notes 29 and 35.
36
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Statement of Directors’ Responsibilities
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 year. The Directors are required under the Listing
Rules of the Financial Conduct Authority to prepare the financial statements in accordance with International Financial Reporting Standards
(‘IFRS’), as adopted by the European Union (‘EU’).
The financial statements are required by law and IFRS as adopted by EU to present fairly the financial position of the Group.
Under Jersey company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRS as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will
continue in business.
The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial
position of the Group and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are
also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors confirm that these financial statements comply with these requirements.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
•
•
•
the financial statements, prepared in accordance with the applicable set of accounting standards (as detailed above) and Company Law,
give a true and fair view of the assets, liabilities, financial position and profit and loss of the issuer and the undertakings included in the
consolidation taken as a whole;
the management report includes a fair review of the development and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face,
as well as the business model and strategy of the Group; and
the Annual Report and Accounts, as a whole, are fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s position, performance, business model and strategy.
For and on behalf of the Board
Richard Prosser
Director
26 April 2017
Phoenix Spree Deutschland
Annual Report and Accounts 2016
37
Financial StatementsStrategic ReportDirectors’ Report Independent Auditor’s Report to the members
of Phoenix Spree Deutschland Limited
OPINION ON FINANCIAL STATEMENTS
We have audited the Group financial statements (‘the financial statements’) on pages 40 to 67. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union.
In our opinion
•
the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of the Group’s profit for the
year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
the financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991 and Article 4 of the
IAS Regulation.
•
•
DIRECTORS’ ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE ENTITY
We have nothing material to add or to draw attention to in relation to:
•
the Directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity,
including those that would threaten its business model, future performance, solvency or liquidity;
the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated;
the Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period
of at least 12 months from the date of approval of the financial statements; and
the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the entity, over what period they have done so
and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will
be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
•
•
•
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
The risks set out below should be read in conjunction with the significant risk issues considered by the Audit Committee on page 33 and the
significant accounting policies disclosed in note 2 to the financial statements. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on those matters.
In arriving at our audit opinion on the financial statements as set out above, the risks of material misstatements that had the greatest impact
on our audit were as follows:
VALUATION OF INVESTMENT PROPERTIES HELD BY THE GROUP
Risk of material misstatement – The accounting policy in respect of investment properties is to hold them at fair value in the financial
statements, and to recognise the movement in the value in the accounting period in the Income Statement. The Directors’ assessment
of the value of investment properties both on acquisition, and at the year-end date, is considered a significant audit risk due to the magnitude
of the total amount, the potential impact of the movement in value on the reported results and the subjectivity of the valuation process.
Audit approach adopted – We carried out audit tests on the independent valuation of investment properties to ensure they had been prepared
on a consistent basis for all properties and are considered to be appropriate and correctly recorded in the financial statements in line with
Accounting Standards.
We carried out audit tests on the inputs provided by the Property Advisor to the valuer and ensured these reflected the correct inputs for
each property.
We obtained market data for a sample of properties and ensured this was consistent with the valuation report.
We discussed significant movements with the Property Advisor and the valuer and challenged where appropriate.
OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy we set certain thresholds which help us to determine the extent of our audit testing, designed
to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality
for the financial statements as a whole.
At the audit planning stage we determined a magnitude of uncorrected misstatements that we judge would be material for the financial
statements as a whole (‘FSM’). During planning FSM was calculated as €4.6 million (2015 €2.6 million) which was not changed during the course
of the audit. This figure was calculated by taking an average of a set percentage of the total for gross assets; the profit before tax for the year;
the level of rental income and the smallest disclosable item. We report to the Audit Committee all unadjusted misstatements in excess of €115,000
as well as misstatements below those thresholds that in our view warranted reporting on qualitative grounds.
38
Phoenix Spree Deutschland
Annual Report and Accounts 2016
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit scope covered 100% of Group’s revenue, Group’s profit and total Group assets, and was performed to the materiality levels set
out above.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
A description of the scope of an audit of financial statements is provided on the FRC’s website at http://www.frc.org.uk/auditscopeukprivate.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following:
Under the International Standards on Auditing (UK and Ireland) we are required to report to you if, in our opinion, information in the Annual
Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing
our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and
the Directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately
discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed.
Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion:
• proper accounting records have not been kept by the parent company; or
• proper 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; or
• we have not received all the information and explanations which, to the best of our knowledge and belief, was necessary for our audit.
Under the Listing Rules we are required to review:
•
•
the Directors’ statement, set out on page 25, in relation to going concern and longer-term viability; and
the part of the Corporate Governance Statement on pages 28 to 32 of the Annual Report relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code specified for our review.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As more fully explained in the Directors’ Responsibilities Statement set out on page 37, 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 (APB’s) Ethical Standards for Auditors.
We read the other financial and non-financial information contained in the Annual Report and consider the implications for our report if we
become aware of any material inconsistency with the financial statements or with knowledge acquired by us in the course of performing the
audit, or any material misstatement of fact within the other information. We also read the information in the Directors’ Report and consider the
implications for our report if we become aware of any material inconsistency with the financial statements.
This report is made solely to the Company’s members, as a body, in accordance with Article 113 A 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.
Euan Banks for and on behalf of RSM UK Audit LLP
Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
26 April 2017
Phoenix Spree Deutschland
Annual Report and Accounts 2016
39
Strategic ReportDirectors’ ReportFinancial Statements Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
Continuing operations
Revenue
Property expenses
Gross profit
Administrative expenses
Gain on disposal of investment property (including investment property held for sale)
Investment property fair value gain
Operating profit before exceptional costs
Exceptional items – transaction costs
Exceptional items – impairment of goodwill
Operating profit
Net finance charge
Gain on financial asset
Profit before taxation
Income tax expense
Profit after taxation
Other comprehensive income
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Earnings per share attributable to the owners of the parent:
From continuing operations
Basic (€)
Diluted (€)
Year ended
31 December
2016
€’000
Year ended
31 December
2015
€’000
Notes
6
7
8
10
11
12
13
14
15
15,934
(13,351)
2,583
(2,977)
799
55,226
55,631
–
–
55,631
(6,756)
–
48,875
(10,913)
37,962
–
37,962
36,998
964
37,962
12,070
(7,258)
4,812
(2,149)
670
18,148
21,481
(2,256)
(4,493)
14,732
(3,164)
1,395
12,963
(2,640)
10,323
–
10,323
9,721
602
10,323
32
32
0.42
0.40
0.14
0.14
40
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Consolidated Statement of Financial Position
As at 31 December 2016
ASSETS
Non-current assets
Investment properties
Property, plant and equipment
Deferred tax asset
Loans and receivables
Current assets
Investment properties – held for sale
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Current tax
Non-current liabilities
Borrowings
Derivative financial instruments
Other financial liabilities
Deferred tax liability
Total liabilities
Equity
Stated capital
Share-based payment reserve
Retained earnings
Equity attributable to owners of the parent
Non-controlling interest
Total equity
Total equity and liabilities
As at
31 December
2016
€’000
As at
31 December
2015
€’000
Notes
19
21
15
22
20
23
24
25
26
27
15
25
27
28
15
30
29
31
395,829
40
770
2,253
398,892
27,970
7,503
18,450
53,923
283,554
30
296
1,382
285,262
–
2,286
12,757
15,043
452,815
300,305
9,169
1,331
392
24
10,916
176,423
4,477
3,590
22,150
206,640
217,556
162,630
7,614
64,074
234,318
941
235,259
452,815
11,523
2,684
–
–
14,207
122,278
1,869
–
10,786
134,933
149,140
115,150
1,264
32,125
148,539
2,626
151,165
300,305
The financial statements on pages 40 to page 67 were approved by the Board of Directors and authorised for issue and signed on its behalf by:
Andrew Weaver
Director
26 April 2017
Richard Prosser
Director
Phoenix Spree Deutschland
Annual Report and Accounts 2016
41
Strategic ReportDirectors’ ReportFinancial Statements
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Balance at 1 January 2015
Comprehensive income:
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with owners – recognised directly in equity:
Issue of share capital
Dividends paid
Performance fee
Acquisition of subsidiary
Attributable to the owners of the parent
Stated
capital
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Non-
controlling
interest
€’000
Total
€’000
Total equity
€’000
67,708
8,949
23,640
100,297
(4)
100,293
–
–
–
–
–
–
9,721
–
9,721
9,721
–
9,721
602
–
602
10,323
–
10,323
39,052
–
8,390
–
–
–
(7,685)
–
–
(1,236)
–
–
39,052
(1,236)
705
–
–
–
–
2,028
39,052
(1,236)
705
2,028
Balance at 31 December 2015
115,150
1,264
32,125
148,539
2,626
151,165
Comprehensive income:
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with owners – recognised directly in equity:
Issue of share capital
Dividends paid
Performance fee
Recognition of redemption liability
Acquisition of subsidiaries
Cost related to share placing
Balance at 31 December 2016
–
–
–
–
–
–
36,998
–
36,998
–
36,998
36,998
964
–
964
37,962
–
37,962
49,080
–
–
–
–
(1,600)
162,630
–
–
6,350
–
–
–
7,614
–
(5,049)
–
–
–
–
49,080
(5,049)
6,350
–
–
(1,600)
–
–
–
(3,590)
941
–
49,080
(5,049)
6,350
(3,590)
941
(1,600)
64,074
234,318
941
235,259
The share-based payment reserve has been established in relation to the future issue of shares for the payment of the performance bonus
of the property manager.
Retained earnings are the undistributed reserves to be either reinvested within the Group or distributed to shareholders as dividends.
42
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Profit before tax
Adjustments for:
Net finance charge
Gain on disposal of investment property
Investment property revaluation gain
Gain on financial asset
Depreciation
Performance fee charge
Impairment of goodwill
Operating cash flows before movements in working capital
(Increase)/Decrease in receivables
(Decrease)/Increase in payables
Cash generated from operating activities
Income tax received
Net cash generated from operating activities
Cash flow from investing activities
Proceeds on disposal of investment property
Acquisition of subsidiary
Interest received
Capital expenditure on investment property
Property additions
Additions to property, plant and equipment
Loans to partners
Loans issued to minority shareholders
Net cash used in investing activities
Cash flow from financing activities
Interest paid on bank loans
Repayment of bank loans
Drawdown on bank loan facilities
Share issue
Cash-settled synthetic equity fee
Dividends paid
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at end of period
Year ended
31 December
2016
€’000
48,875
6,756
(799)
(55,226)
–
12
6,350
–
5,968
(3,808)
(1,353)
807
–
807
4,250
–
168
(4,189)
(72,808)
(22)
–
(806)
(73,407)
(3,173)
(6,040)
45,394
47,480
–
(5,049)
78,612
6,012
12,757
(319)
18,450
Year ended
31 December
2015
€’000
12,963
3,164
(670)
(18,148)
(1,395)
6
1,264
4,493
1,677
1,807
1,250
4,734
5
4,739
5,502
1,165
6
(3,934)
(17,413)
(23)
(1,365)
–
(16,062)
(3,978)
(46,000)
72,266
–
(559)
(1,236)
20,493
9,170
3,583
4
12,757
Property additions amounting to €84,235,000 (see note 19) are disclosed within Cash flow from investing activities as €72,808,000 having been
adjusted for non-cash flow items of €11,427,000 relating to the acquisition of the loans associated with properties within Laxpan Muller GmbH and
Invador Grundbesitz GmbH. This reduced cash on drawdown on bank loan facilities, as well as reduced the cash outflows on property additions.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
43
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements
For the year ended 31 December 2016
1. GENERAL INFORMATION
The Group consists of a Parent Company, Phoenix Spree Deutschland Limited (‘the Company’), incorporated in Jersey, Channel Islands and all its
subsidiaries (‘the Group’) which are incorporated and domiciled in and operate out of Jersey and Germany. Phoenix Spree Deutschland Limited
is listed on the premium segment of the Main Market of the London Stock Exchange.
The Group invests in residential and commercial property in Germany and, during the year, acquired Invador Grundbesitz GmbH and Laxpan
Mueller GmbH, companies with the same activities.
The registered office is at 13-14 Esplanade, St Helier, Jersey, JE1 1EE, Channel Islands.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted are set out below.
2.1 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International
Accounting Standards and interpretations (collectively, ‘IFRS’), International Financial Reporting Interpretation Committee (‘IFRIC’) interpretations,
as adopted by the European Union (‘IFRS as adopted by the EU’).
The financial statements are presented to the nearest €1,000.
The Group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (‘IASB’)
and the International Financial Reporting Interpretations Committee (‘IFRIC’) of the IASB, as they have been adopted by the European Union,
that are relevant to its operations and effective for accounting periods beginning on 1 January 2016.
The consolidated financial statements have been prepared on a going concern basis under the historical cost convention as modified by the
revaluation of investment property, and financial assets and liabilities at fair value through profit and loss.
The preparation of the consolidated financial statements requires management to exercise its judgement in the process of applying accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the
consolidated financial statements are disclosed in note 4.
2.2 GOING CONCERN
The Directors have prepared projections for the period to 31 December 2019. These projections have been prepared using assumptions which
the Directors consider to be appropriate to the current financial position of the Group as regards to current expected revenues and its cost base
and the Group’s investments, borrowing and debt repayment plans and show that the Group should be able to operate within the level of its
current resources and expects to comply with all covenants for the foreseeable future. The Group’s business activities together with the factors
likely to affect its future development and the Group’s objectives, policies and processes from managing its capital and its risks are set out in
the Strategic Report. After making enquiries the Directors have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated
financial statements.
2.3 BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries).
The Company controls an entity when the Group is exposed to, or has rights to, variable returns through its power over the entity. Subsidiaries are
fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Profit or loss and each component of other comprehensive income are attributable to the owners of the Company and to the non-controlling
interests. Total comprehensive income of the subsidiaries is attributable to the owners of the Company and to the non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
Accounting policies of subsidiaries which differ from Group accounting policies are adjusted on consolidation. All intra-Group transactions,
balances, income and expenses are eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders
that present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair
value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement
is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition,
the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share
of subsequent changes in equity. The non-controlling interest is computed on an EPRA basis.
44
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying
amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received
is recognised directly in equity and attributed to the owners of the Company.
2.4 BUSINESS COMBINATIONS
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary
is the fair value of the assets transferred to the Group, the liabilities incurred by the Group to the former owners of the acquiree and the equity
interests issued by the Group in exchange for control of the acquiree. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling
interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed in profit or loss as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the
acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such remeasurement are recognised in profit or loss.
Goodwill is measured as the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the total
of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase gain.
2.5 ASSET ACQUISITION
The Group applies the acquisition method to account for asset acquisitions. The consideration transferred for the acquisition of a subsidiary is the
fair value of the assets transferred to the Group, the liabilities incurred by the Group to the former owners of the acquiree and the equity interests
issued by the Group in exchange for control of the acquiree. The consideration transferred includes the fair value of any asset or liability resulting
from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in an asset acquisition
are measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-
controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed in profit or loss as incurred.
No goodwill is recognised on asset acquisitions where the nature of the acquisition on the subsidiary is to acquire the property held in the entity.
The consideration for the asset acquisition is attributed to the property as fair value at the acquisition date.
2.6 REVENUE RECOGNITION
Revenue includes rental income and excludes service charges and other amounts directly recoverable from tenants. Rental income from
operating leases is recognised in income on a straight-line basis over the lease term. When the Group provides incentives to its tenants,
the cost of incentives are recognised over the lease term, on a straight-line basis, as a reduction of rental income.
2.7 FOREIGN CURRENCIES
(A) FUNCTIONAL AND PRESENTATION CURRENCY
The currency of the primary economic environment in which the Company operates (‘the functional currency’) is the Euro (€). The presentational
currency of the financial statements is also the Euro.
(B) TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date.
Foreign exchange gains and losses resulting from such transactions are recognised in the consolidated statement of comprehensive income.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the
fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
2.8 SEGMENT REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified
as the Board of Directors.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
45
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
2.9 OPERATING PROFIT
Operating profit is stated before the Group’s gain on its financial assets and after the revaluation gains for the year in respect of investment
properties and after gains or losses on the disposal of investment properties.
2.10 ADMINISTRATIVE AND PROPERTY EXPENSES
All expenses are accounted for on an accruals basis and are charged to the consolidated statement of comprehensive income in the period in
which they are incurred. Service charge costs, to the extent that they are not recoverable from tenants, are accounted for on an accruals basis
and included in property expenses.
2.11 EXCEPTIONAL ITEMS
Exceptional items are disclosed separately in the financial statements where this provides further understanding of the financial performance
of the Group, due to their significance in terms of nature or amount.
2.12 PROPERTY ADVISOR FEES
The element of Property Advisor fees for management services provided are accounted for on an accruals basis and are charged to the
consolidated statement of comprehensive income as property expenses in the period in which they are incurred. Property Advisor performance
fees which are settled in shares are accounted for in accordance with the requirements of IFRS 2 Share Based Payments.
2.13 INVESTMENT PROPERTY
Property that is held for long-term rental yields or for capital appreciation, or both, and that is not occupied by the Group, is classified as
investment property.
Investment property is measured initially at cost, including related transaction costs. After initial recognition, investment property is carried
at fair value, based on market value.
The change in fair values is recognised in profit or loss for the year.
A valuation exercise is undertaken by the Group’s independent valuer, Jones Lang LaSalle GmbH (‘JLL’), at each reporting date in accordance
with the methodology described in note 19 on a building-by-building basis. Such estimates are inherently subjective and actual values can only
be determined in a sales transaction. The valuations have been prepared by JLL on a consistent basis at each reporting date.
Subsequent expenditure is added to the asset’s carrying amount only when it is probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance costs are charged to the consolidated statement
of comprehensive income during the financial period in which they are incurred. Changes in fair values are recorded in profit or loss for the year.
Purchases and sales of investment properties are recognised on legal completion.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future
economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset, where the carrying amount is the higher of cost or fair value) is
included in profit or loss in the period in which the property is derecognised.
2.14 NON-CURRENT ASSETS HELD FOR SALE
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather
than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available
for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition
as a completed sale within one year from the date of classification.
The Group will recognise an asset in this category once the Board has committed the sale of an asset and marketing has commenced.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified
as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former
subsidiary after the sale.
When the Group is committed to a sale plan involving disposal of an investment in an associate or, a portion of an investment in an associate,
the investment, or the portion of the investment in the associate that will be disposed of is classified as held for sale when the criteria described
above are met, and the Group discontinues the use of the equity method in relation to the portion that is classified a held for sale. Any retained
portion of an investment in an associate that has not been classified as held for sale continues to be accounted for using the equity method.
The Group discontinues the use of the equity method at the time of disposal when the disposal results in the Group losing significant influence
over the associate.
46
Phoenix Spree Deutschland
Annual Report and Accounts 2016
After the disposal takes place, the Group accounts for any retained interest in the associate in accordance with IAS 39 unless the retained
interest continues to be an associate, in which case the Group uses the equity method (see the accounting policy regarding investments
in associates above).
2.15 GOODWILL
Goodwill is the difference between the amount paid on the acquisition of the subsidiary undertakings and the aggregate fair value of their
separable identifiable assets acquired and liabilities assumed. Goodwill is capitalised as an intangible asset and in accordance with IAS 36
‘Impairments of Assets’ is not amortised but tested for impairment annually and when there are any indications that its carrying value is not
recoverable. As such, goodwill is stated at cost less any provision for impairment in value. For impairment testing purposes, goodwill is allocated
to cash-generating units (‘CGUs’). If a subsidiary undertaking is subsequently sold, goodwill arising on acquisition is taken into account in
determining the profit or loss on sale.
2.16 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation.
Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended
use. Depreciation is charged so as to write off the costs of assets to their residual values over their estimated useful lives, on the following basis:
Equipment, fixtures and vehicles – 4.50-25% per annum, straight-line.
The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in profit or loss.
2.17 BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
2.18 TENANT DEPOSITS
Tenant deposits are held off balance sheet in a separate bank account in accordance with German legal requirements, and the funds are not
accessible to the Group. Accordingly, neither an asset nor a liability is recognised.
2.19 FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised in the Group’s consolidated statement of financial position when the Group becomes party
to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial
asset expire or when the contractual rights to those assets are transferred. Financial liabilities are derecognised when the obligation specified in
the contract is discharged, cancelled or expired.
The Group classifies its financial assets as held at fair value through profit or loss, or loans and receivables. The classification depends on the
purpose for which the financial assets were acquired and is determined at initial recognition.
(A) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (‘FVTPL’)
Financial assets are classified as FVTPL when the financial asset is designated as FVTPL. A financial asset may be designated as FVTPL upon initial
recognition if:
• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
•
the financial asset forms part of a group of financial assets or financial liabilities, or both, which is managed and its performance is evaluated
on a fair value basis, in accordance with the Group’s documented risk management strategy, and information about the grouping is provided
internally on that basis.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. Fair value is
determined in the manner described in note 34.
(B) LOANS AND RECEIVABLES
The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents. Loans and receivables are recognised
initially at fair value and subsequently at amortised cost using the effective interest method.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
47
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
2.19 FINANCIAL INSTRUMENTS CONTINUED
(I) TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method
less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the consolidated statement of
comprehensive income when there is objective evidence that the assets are impaired. Interest income is recognised by applying the effective
interest rate, except for short-term trade and other receivables when the recognition of interest would be immaterial.
Service charges receivable from tenants are presented net of amounts paid on account by tenants.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty
or default or significant delay in payment) that the Group will be unable to collect all of the amounts due. For trade and other receivables, which
are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within property expenses in the
consolidated statement of comprehensive income. On confirmation that the trade and other receivables will not be collectable, the gross
carrying value of the asset is written off against the associated provision.
(II) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, cash at agents, demand deposits, and other short-term highly liquid investments that have
maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant risk
of changes in value.
(C) EQUITY INSTRUMENTS
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Group are recorded at the proceeds received, net of direct issue costs.
(D) TRADE AND OTHER PAYABLES
Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest method;
this method allocates interest expense over the relevant period by applying the ‘effective interest rate’ to the carrying amount of the liability.
(E) BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement
of comprehensive income over the period of the borrowings using the effective interest method.
(F) LEASES
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.
2.20 CURRENT AND DEFERRED INCOME TAX
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income,
except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised
in other comprehensive income or directly in equity, respectively.
(A) CURRENT TAX
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit 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. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the accounting date.
(B) DEFERRED TAX
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax is charged or credited in the consolidated statement of comprehensive income except when it relates to items credited or charged
directly in equity, in which case the deferred tax is also dealt with in equity.
Deferred tax is calculated at the tax rates and laws that are expected to apply to the period when the asset is realised or the liability is settled
based upon tax rates that have been enacted or substantively enacted by the accounting date.
The carrying amount of deferred tax assets is reviewed at each accounting date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
48
Phoenix Spree Deutschland
Annual Report and Accounts 2016
2.21 NEW STANDARDS AND INTERPRETATIONS
No new standards, amendments or interpretations effective for annual periods beginning on or after 1 January 2016 have had an impact on the Group.
The following relevant new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year
beginning on 1 January 2016, as adopted by the European Union, and have not been early adopted:
Title
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
As issued by the IASB, mandatory for accounting periods starting on or after
Accounting periods beginning on or after 1 January 2018
Accounting periods beginning on or after 1 January 2019
The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial
statements of the Group when the relevant standards and interpretations come into effect as a result of being a lessor of rental property and
its revenue recognition not having to take into account any bundled sales.
The following standards have been issued by the IASB but have not yet been adopted by the EU:
Title
As issued by the IASB, mandatory for accounting periods starting on or after
Disclosure Initiative (Amendments to IAS 7)
Recognition of Deferred Tax Assets for Unrealised Losses
Accounting periods beginning on or after 1 January 2017
Accounting periods beginning on or after 1 January 2017
(Amendments to IAS 12)
IFRS 9 – Financial Instruments
Classification and Measurement of Share-based Payment Transactions
Accounting periods beginning on or after 1 January 2018
Accounting periods beginning on or after 1 January 2018
(Amendments to IFRS 2)
While the above standards have not yet been adopted by the EU, the Group is currently assessing their impact.
FINANCIAL RISK MANAGEMENT
3.
3.1 FINANCIAL RISK FACTORS
The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group’s overall risk management
programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s
financial performance.
Risk management is carried out by the Audit and Risk Committee under policies approved by the Board of Directors. The Board provides
principles for overall risk management, as well as policies covering specific areas, such as interest rate risk, credit risk and investment of
excess liquidity.
3.2 MARKET RISK
Market risk is the risk of loss that may arise from changes in market factors such as foreign exchange rates, interest rates and general property
market risk.
(A) FOREIGN EXCHANGE RISK
The Group operates in Germany and is exposed to foreign exchange risk arising from currency exposures, primarily with respect to Sterling
against the Euro arising from the costs which are incurred in Sterling. Foreign exchange risk arises from future commercial transactions,
and recognised monetary assets and liabilities denominated in currencies other than the Euro.
The Group’s policy is not to enter into any currency hedging transactions.
INTEREST RATE RISK
(B)
The Group has exposure to interest rate risk. It has external borrowings at a number of different variable interest rates. The Group is also exposed
to interest rate risk on some of its financial assets, being its cash at bank balances. Details of actual interest rates paid or accrued during each
period can be found in note 27 to the financial statements.
The Group’s policy is to manage its interest rate risk by entering into interest rate swaps in order to limit exposure to borrowings at variable rates.
(C) GENERAL PROPERTY MARKET RISK
Through its investment in property, the Group is subject to other risks which can affect the value of property. The Group seeks to minimise
the impact of these risks by review of economic trends and property markets in order to anticipate major changes affecting property values.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
49
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
FINANCIAL RISK MANAGEMENT CONTINUED
3.
3.3 CREDIT RISK
The risk of financial loss due to counterparty’s failure to honour their obligations arises principally in connection with property leases and the
investment of surplus cash.
The Group has policies in place to ensure that rental contracts are made with customers with an appropriate credit history. Tenant rent payments
are monitored regularly and appropriate action taken to recover monies owed, or if necessary, to terminate the lease.
Cash transactions are limited to financial institutions with a high credit rating.
3.4 LIQUIDITY RISK
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans secured on the Group’s
properties. The terms of the borrowings entitle the lender to require early repayment should the Group be in default with significant payments for
more than one month.
3.5 CAPITAL MANAGEMENT
The prime objective of the Group’s capital management is to ensure that it maintains the financial flexibility needed to allow for value-creating
investments as well as healthy balance sheet ratios.
The capital structure of the Group consists of net debt (borrowings disclosed in note 25 after deducting cash and cash equivalents) and equity
of the Group (comprising stated capital, reserves and retained earnings).
When reviewing the capital structure the Group considers the cost of capital and the risks associated with each class of capital. The Group
reviews the gearing ratio which is determined as the proportion of net debt to equity. In comparison with comparable companies operating
within the property sector the Board considers the gearing ratios to be reasonable.
The gearing ratios for the reporting periods are as follows:
Borrowings
Cash and cash equivalents
Net debt
Equity
Net debt to equity ratio
As at
31 December
2016
€’000
As at
31 December
2015
€’000
(185,592)
18,450
(167,142)
235,259
71%
(133,801)
12,757
(121,044)
151,165
80%
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of consolidated financial statements in conformity with IFRS requires the Group to make certain critical accounting estimates and
judgements. In the process of applying the Group’s accounting policies, management has decided the following estimates and assumptions have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities recognised in the consolidated financial statements.
ESTIMATE OF FAIR VALUE OF INVESTMENT PROPERTIES
I)
The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the
Group determines the amount within a range of reasonable fair value estimates. In making its judgement, the Group considers information from
a variety of sources, including:
a) Current prices in an active market, and its third party independent experts, for properties of different nature, condition or location (or subject
to different lease or other contracts), adjusted to reflect those differences.
b) Recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date
of the transactions that occurred at those prices.
c) Discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other
contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition,
and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.
II) ACCOUNTING FOR ACQUISITIONS AS EITHER BUSINESS COMBINATION OR ASSET PURCHASE
The estimates and judgements inherent in accounting for acquisitions are to define if the acquisition is either a business combination or asset
purchase. The Group determines whether an acquisition is a business combination or asset acquisition based on the nature of the acquisition.
The judgement is made based on the level of assets and liabilities with in the acquisition and if the business is being acquired as going concern
or only to acquire the property asset within the asset.
50
Phoenix Spree Deutschland
Annual Report and Accounts 2016
5. SEGMENTAL INFORMATION
Information reported to the Board of Directors, which is the chief operating decision maker, for the purposes of resource allocation and
assessment of segment performance is focussed on the different revenue streams that exist within the Group. The Group’s principal reportable
segments under IFRS 8 are therefore as follows:
• Residential
• Commercial
All revenues are earned in Germany with property and administrative expenses incurred in Jersey and Germany.
31 December 2015
Goodwill
Investment property
Loans and receivables
Other assets
Liabilities
Net assets
Revenue
Property expenses
Administrative expenses
Gain on disposal of investment property
Investment property fair value gain
Operating profit
Exceptional costs
Impairment of goodwill
Net finance charge
Gain on financial asset
Income tax expense
Profit for the year
31 December 2016
Goodwill
Investment property
Loans and receivables
Assets held for sale
Other assets
Liabilities
Net assets
Revenue
Property expenses
Administrative expenses
Gain on disposal of investment property
Investment property fair value gain
Operating profit
Net finance charge
Income tax expense
Profit for the period
Residential
€’000
–
235,350
–
12,486
(113,283)
134,553
Commercial
€’000
Unallocated
€’000
–
48,204
–
2,557
(23,202)
27,559
–
–
1,382
326
(12,655)
(10,947)
Residential
€’000
Commercial
€’000
Unallocated
€’000
10,018
(6,024)
–
670
15,062
19,726
2,052
(1,234)
–
–
3,086
3,904
–
–
(2,149)
–
–
(2,149)
Residential
€’000
–
332,496
–
23,495
22,447
(179,711)
198,727
Commercial
€’000
Unallocated
€’000
–
63,333
–
4,475
4,276
(34,231)
37,853
–
–
2,253
–
40
(3,614)
(1,321)
Residential
€’000
Commercial
€’000
Unallocated
€’000
13,385
(11,215)
–
799
46,390
49,359
2,549
(2,136)
–
–
8,836
9,249
–
–
(2,977)
–
–
(2,977)
Total
€’000
–
283,554
1,382
15,369
(149,140)
151,165
Total
€’000
12,070
(7,258)
(2,149)
670
18,148
21,481
(2,256)
(4,493)
(3,164)
1,395
(2,640)
10,323
Total
€’000
–
395,829
2,253
27,970
26,763
(217,556)
235,259
Total
€’000
15,934
(13,351)
(2,977)
799
55,226
55,631
(6,756)
(10,913)
37,962
Phoenix Spree Deutschland
Annual Report and Accounts 2016
51
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
6. REVENUE
Rental income
The total future aggregated minimum rentals receivable under non-cancellable operating leases are as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
31 December
2016
€’000
31 December
2015
€’000
15,934
12,070
31 December
2016
€’000
31 December
2015
€’000
309
3,171
2,605
6,085
119
1,036
583
1,738
Revenue comprises rental income earned from residential and commercial property in Germany. There are no individual tenants that account
for greater than 10% of revenue during any of the reporting periods.
The leasing arrangements for residential property are with individual tenants, with one month notice for cancellation of the lease in most cases.
The commercial leases are non-cancellable, with an average lease period of three years.
7. PROPERTY EXPENSES
Property management expenses
Repairs and maintenance
Impairment charge – trade receivables
Other property expenses
Property advisors’ fees and expenses
Property advisors’ performance accrued fee (note 29)
8. ADMINISTRATIVE EXPENSES
Secretarial and administration fees
Legal and professional fees
Directors’ fees
Accountancy fees
Fees paid to the auditors
Bank charges
Loss/(Profit) on foreign exchange
Depreciation
Other income relating to cost recovery
31 December
2016
€’000
31 December
2015
€’000
1,100
1,102
88
1,324
3,387
6,350
13,351
942
921
153
1,404
2,574
1,264
7,258
31 December
2016
€’000
31 December
2015
€’000
658
1,494
150
445
141
32
319
12
(274)
2,977
400
1,386
108
319
156
39
(4)
6
(261)
2,149
The Group did not have any employees during any of the reporting periods and Directors do not receive any other emoluments.
Key management compensation – the functions of management are undertaken by external providers of professional services, as set out in note 35.
Further details of the Directors’ fees are set out in the Directors’ Remuneration Report on page 36.
52
Phoenix Spree Deutschland
Annual Report and Accounts 2016
9. AUDITOR’S REMUNERATION
An analysis of the fees charged by the auditor and its associates is as follows:
Fees payable to the Group’s auditor and its associates for the audit of the consolidated financial statements:
Fees payable to the Group’s auditor and its associates for other services:
– Corporate finance
– Audit-related assurance services
31 December
2016
€’000
31 December
2015
€’000
141
150
25
316
156
299
34
489
The non-audit fees for work performed in relation to the share placing amounting to €150,000 has been deducted from stated capital.
10. GAINS ON DISPOSAL OF INVESTMENT PROPERTY (INCLUDING INVESTMENT PROPERTY HELD FOR SALE)
Net proceeds
Book value of disposals
Disposal costs
31 December
2016
€’000
31 December
2015
€’000
4,250
(3,405)
(46)
799
5,502
(4,832)
–
670
Where there has been a partial disposal of a property, the net book value of the asset sold is calculated on a per square metre rate, based on the
prior period valuation.
11.
INVESTMENT PROPERTY FAIR VALUE GAIN
Investment property fair value gain
Further information on investment properties is shown in note 19.
12. EXCEPTIONAL ITEMS
Professional fees associated with stock market listing and acquisition of subsidiaries
31 December
2016
€’000
31 December
2015
€’000
55,226
18,148
31 December
2016
€’000
31 December
2015
€’000
–
–
2,256
2,256
Exceptional costs have been defined as those costs directly attributable to the listing on the London Stock Exchange and any costs directly
associated with the acquisition of subsidiaries.
13. NET FINANCE CHARGE
Interest income
Interest from partners’ loans
Loss/(Gain) on interest rate swap
Interest payable on bank borrowings
31 December
2016
€’000
31 December
2015
€’000
(113)
(55)
3,000
3,924
6,756
(6)
–
(808)
3,978
3,164
Phoenix Spree Deutschland
Annual Report and Accounts 2016
53
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Equity interest in Phoenix Spree Property Fund GmbH and Co.KG:
Balance at the beginning of the year
On acquisition of subsidiary
Gain on financial asset
31 December
2016
€’000
31 December
2015
€’000
–
–
–
–
36,859
(38,254)
1,395
–
Phoenix Spree Property Fund GmbH & Co.KG (‘PSPF’) is a partnership established in the form of a limited partnership which is subject to the
German Commercial Code and its principal activity is the holding of German investment properties until PSPF was acquired on 9 March 2015.
The Company’s interest in PSPF comprises two elements: i) an equity interest, and ii) a Variable Rate Loan (‘VRL’) capital sum.
The equity interest arose in 2013 when the Company obtained an equity interest in PSPF by becoming a limited partner for an initial contribution
of €100 and a capital contribution of €9,900. The initial contribution represented 0.03% of voting rights in PSPF. Up until 9 March 2015, PSPF was
subject to independent management and effective control and was not consolidated as part of the Group for the full year.
The purpose of putting in place the VRL was to implement the first step of equalising the two fund NAVs as a precursor to amalgamation of the
entities, which was completed by virtue of the acquisition PSPF.
The VRL capital loan amounting to €0.3 million (2015: €0.3 million) between the Company and PSPF was initially advanced in June 2009
as unsecured and non-interest-bearing. In accordance with the terms of the VRL, the Company revalued the loan at each reporting date such
that the ratio of the NAVs of the two entities (the Company and PSPF) was equal to their share of the combined NAV at the reporting date.
The movement required on the VRL in order to maintain this ratio is defined as the gain on the financial asset in the consolidated statement
of comprehensive income.
On acquisition of PSPF on 9 March 2015 the value of the VRL was determined to be €38,254,000 resulting in a fair value gain of €1,395,000
in respect of the period 1 January 2015 to 9 March 2015, which has been recognised in the consolidated statement of comprehensive
income. The respective asset and liability recognised by the Company and by PSPF is eliminated on consolidation as at 31 December 2016.
15. INCOME TAX EXPENSE
The tax charge for the period is as follows:
Current tax charge
Adjustment in respect of prior year
Deferred tax charge – origination and reversal of temporary differences
Total tax charge on profit on ordinary activities
31 December
2016
€’000
31 December
2015
€’000
24
(1)
10,890
10,913
(24)
–
2,664
2,640
The tax charge for the year can be reconciled to the theoretical tax charge on the profit in the income statement as follows:
Profit before tax on continuing operations
Tax at the German income tax rate of 15.8% (2015: 15.8%)
Income not taxable
Recognition of timing differences on acquisition
Tax effect of expenses that are not deductible in determining taxable profit
Total tax charge for the year
RECONCILIATION OF CURRENT TAX LIABILITIES
Balance at beginning of year
Tax received during the year
Current tax charge/(credit)
Balance at end of year
54
Phoenix Spree Deutschland
Annual Report and Accounts 2016
31 December
2016
€’000
31 December
2015
€’000
48,875
7,722
(126)
1,686
1,631
10,913
12,963
2,048
(220)
–
812
2,640
31 December
2016
€’000
31 December
2015
€’000
–
–
24
24
19
5
(24)
–
RECONCILIATION OF DEFERRED TAX
Balance at 1 January 2015
Acquisition of subsidiary
Charged to the statement of comprehensive income
Deferred tax (liability)/asset at 31 December 2015
Charged to the statement of comprehensive income
Deferred tax (liability)/asset at 31 December 2016
JERSEY INCOME TAX
The Group is liable to Jersey income tax at 0%.
Capital gains on
properties
€’000
(Liability)
Interest rate
swaps
€’000
Asset
(3,211)
(5,011)
(2,564)
(10,786)
(11,364)
(22,150)
237
159
(100)
296
474
770
Total
€’000
(Net liability)
(2,974)
(4,852)
(2,664)
(10,490)
(10,890)
(21,380)
GERMAN TAX
As a result of the Group’s operations in Germany, the Group is subject to German Corporate Income Tax (‘CIT’) – effective rate for Phoenix Spree
Deutschland Limited for 2016 was 15.8% (2015: 15.8%).
FACTORS AFFECTING FUTURE TAX CHARGES
The Group has accumulated tax losses of approximately €23.6 million (2015: €22.9 million) in Germany, which will be available to set against
suitable future profits should they arise, subject to the criteria for relief. No deferred tax asset is recognised in respect of losses of €2.2 million
(2015: €Nil) as there is insufficient certainty the losses can be utilised by Group entities.
16. DIVIDENDS
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2016 of €1.9 cents (1.6p) (2015: €1.8 cents (1.3p)) per share
Proposed final dividend for the year ended 31 December 2016 of €4.3 cents (3.7p) (2015: €3.9 cents (2.9p)) per
share
31 December
2016
€'000
31 December
2015
€'000
1,635
3,977
1,236
3,414
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in
these financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 9 June 2017. The total estimated
dividend to be paid is 3.7 pence per share. The payment of this dividend will not have any tax consequences for the Group.
17. GOODWILL
Cost:
1 January 2015
Acquisition of subsidiary
At 31 December 2015 and 31 December 2016
Accumulated impairment losses:
At 1 January 2015
Impairment charge for the year – exceptional item
At 31 December 2015
Impairment charge for the year
At 31 December 2016
Carrying amount:
At 31 December 2015
At 31 December 2016
€’000
193
4,493
4,686
(193)
(4,493)
(4,686)
(4,686)
–
–
Phoenix Spree Deutschland
Annual Report and Accounts 2016
55
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
18. SUBSIDIARIES
The Group consists of a Parent Company, Phoenix Spree Deutschland Limited, incorporated in Jersey, Channel Islands and a number
of subsidiaries held directly by Phoenix Spree Deutschland Limited, which are incorporated in and operated out of Jersey and Germany.
Further details are given below:
Phoenix Spree Deutschland I Limited
Phoenix Spree Deutschland II Limited
Phoenix Spree Deutschland III Limited
Phoenix Spree Deutschland IV Limited
Phoenix Spree Deutschland V Limited
Phoenix Spree Deutschland VII Limited
Phoenix Spree Deutschland IX Limited
Phoenix Spree Deutschland X Limited
Phoenix Spree Deutschland XI Limited
Phoenix Property Holding GmbH & Co.KG
Laxpan Mueller GmbH
Invador Grundbesitz GmbH
PSPF Holdings GmbH
PSPF General Manager GmbH
PSPF Acquisition Vehicle GmbH
PSPF Property GmbH & Co. KG
Phoenix Spree Property Fund Ltd & Co. KG
PSPF General Partner Limited
Country of incorporation
% Holdings
Nature of business
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
UK
100
100
100
100
100
100
100
100
100
100
94.9
94.9
100
100
99.64
94
94.8
100
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Finance vehicle
Investment property
Holding company
Investment property
Investment property
Holding company
Management of PSPF
Acquisition vehicle
Investment property
Investment property
Management of PSPF
The investments in PSPF General Manager GmbH, PSPF Acquisition Vehicle GmbH & Co. KG are all held via the investment is PSPF Holdings
GmbH, which was acquired on 7 September 2007. The other subsidiaries are held directly.
During the current year Laxpan Mueller GmbH and Invador Grundbesitz GmbH were acquired, the acquisitions were recognised as
asset acquisitions.
19. INVESTMENT PROPERTIES
Fair value
At 1 January 2015
Capital expenditure
Property additions
Additions on acquisition
Disposals
Fair value gain
Investment properties at fair value – as set out in the report by JLL
Properties notarised for sale not completed at year end
At 31 December 2015
Capital expenditure
Property additions
Reclassified as investment properties – held for sale
Disposals
Fair value gain
At 31 December 2016
€’000
115,192
3,934
17,413
132,907
(4,832)
18,148
282,762
792
283,554
4,189
84,235
(27,970)
(3,405)
55,226
395,829
The property portfolio was valued at 31 December 2016 by the Group’s independent valuers, Jones Lang LaSalle GmbH (‘JLL’), in accordance
with the methodology described below.
The valuation is performed on a building-by-building basis and the source information on the properties including current rent levels, void rates
and non-recoverable costs was provided to JLL by the Property Advisors PMM Partners (UK) Limited. Assumptions with respect to rental growth,
adjustments to non-recoverable costs and the future valuation of these are those of JLL. Such estimates are inherently subjective and actual
values can only be determined in a sales transaction.
56
Phoenix Spree Deutschland
Annual Report and Accounts 2016
Having reviewed the JLL report, the Directors are of the opinion that this represents a fair and reasonable valuation of the properties and have
consequently adopted this valuation in the preparation of the financial statements.
The valuations have been prepared by JLL on a consistent basis at each reporting date and the methodology is consistent and in accordance
with IFRS which requires that the ‘highest and best use’ value is taken into account where that use is physically possible, legally permissible and
financially feasible for the property concerned, and irrespective of the current or intended use.
All properties are valued as Level 3 measurements under the fair value hierarchy (see note 34) as the inputs which have a significant effect
on the recorded fair value are not observable for the discounted cash flow method.
The unrealised fair value gain in respect of investment property is disclosed in the Income Statement as ‘Investment Property fair value gain’.
Valuations are undertaken using the discounted cash flow valuation technique as described below and with the following inputs.
DISCOUNTED CASH FLOW METHOD (‘DCF’)
Under the DCF method, a property’s fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over
the asset’s life including an exit or terminal value. As an accepted method within the income approach to valuation 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 income stream associated with the real property.
The duration of the cash flow and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal
and related lease up periods, re-letting, redevelopment or refurbishment. The appropriate duration is typically driven by market behaviour that
is a characteristic of the class of real property. Periodic cash flow is typically estimated as gross income less vacancy, non-recoverable expenses,
collection losses, lease incentives, maintenance cost, agent and commission costs and other operating and management expenses. The series
of periodic net operating incomes, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted.
The frequency of inflows and outflows (monthly, quarterly, annually) are contract and market-derived.
An appropriate discount rate is then applied to the cash flow. If the frequency of the time points selected for the cash flow is, for example,
quarterly, the discount rate must be the effective quarterly rate and not a nominal rate. The DCF method assumes that cash outflows occur
in the same period that expenses are recorded. The exit yield is normally separately determined and differs from the discount rate.
Input
Market rent
Residential (€ per sqm p.m.)
Commercial (€ per sqm p.m.)
Parking (€ per unit p.m.)
Indexation (%)
Estimated rental value (‘ERV’)
ERV per year (€’000)
ERV (€ per sqm)
Costs
Management (€ per unit/year)
Management indexation (%)
Maintenance (€ per sqm p.a.)
Maintenance indexation (%)
Capital expenditure (€’000)
Vacancy
Tenancy fluctuation (% per year)
Stabilised residency vacancy (% per year)
Stabilised commercial vacancy (% per year)
Stabilised parking vacancy (% per year)
Financial rates
Discount rate (%)
Capitalisation rate (%)
Year ended
31 December
2016
Range
Year ended
31 December
2015
Range
5–13
1–29
10–80
0–2
6–12
1–25
16–92
0–2
25–1,014
5–13
33–907
1–12
250
1.39
2–9
2.38
0–266
10
2
0–4
0–4
4–8
3–8
240–280
1.39
2–9
2.18
0–500
10
2
0–4
0–5
5–8
4–8
The properties held for sale are also valued with the DCF method, but with a sales scenario (sale of all units within a defined period of time) based
on comparable sales prices for condominiums. The properties with the sales potential are valued using the same DCF method as with a rental
scenario, however, the sales potential is considered with a lower discount rate.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
57
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
19. INVESTMENT PROPERTIES CONTINUED
DISCOUNTED CASH FLOW METHOD (‘DCF’) CONTINUED
The total of properties under a sales scenario will not equal Investment property – held for sale due to the fact a property is being valued under
this scenario but will not be sold in the next 12 months.
The table below sets out the assets valued using both the discounted cash flow method using both scenarios:
Rental scenario
Sales scenario
Total
31 December
2016
€’000
31 December
2015
€’000
388,509
35,290
423,799
269,842
12,920
282,762
The Directors consider that the variable with the greatest potential impact on the valuation of investment property is the discount rate.
The impact on the valuation of the investment properties of a change in the discount rate of 0.5% (increase and decrease) is as follows:
Investment properties – adjusted market value
Percentage impact on reported fair value
20. INVESTMENT PROPERTIES – HELD FOR SALE
Fair value – held for sale investment properties
At 1 January
Reclassified from investment properties
At 31 December
Increase of 0.5%
in the discount
rates used
31 December
2016
€’000
Decrease of 0.5%
in the discount
rates used
31 December
2015
€’000
382,701
(9.7%)
475,501
12.2%
2016
€’000
–
27,970
27,970
2015
€’000
–
–
–
Investment properties are re-classified as current assets, and described as ‘held for sale’ when at the balance sheet date the Group has obtained
and implemented all relevant permissions required to sell individual units, and efforts are being made to dispose of the assets. The assets held
for sale are disclosed in the Segmental Information note 5.
Investment properties – held for sale are all expected to be sold within 12 months of the reporting date.
21. PROPERTY, PLANT AND EQUIPMENT
Cost or valuation
As at 1 January 2015
Acquisition of subsidiary
Additions
As at 1 January 2016
Additions
As at 31 December 2016
Accumulated depreciation and impairment
As at 1 January 2015
Charge for the year
As at 1 January 2016
Charge for the year
As at 31 December 2016
Carrying amount
As at 31 December 2015
As at 31 December 2016
58
Phoenix Spree Deutschland
Annual Report and Accounts 2016
€’000
–
13
23
36
22
58
–
6
6
12
18
30
40
22. LOANS AND RECEIVABLES
At 1 January
Loans issued – initial recognition at fair value
Loans issued to minority interest – initial recognition at fair value
Accrued interest
At 31 December
31 December
2016
€’000
31 December
2015
€’000
1,382
806
65
2,253
–
1,338
–
44
1,382
The Group entered into loan agreements with Mike Hilton and Paul Ruddle in connection with the acquisition of PSPF. The loans bear interest
at 4% per annum, and have a maturity of less than five years.
The Group also entered into a loan agreement with the minority interest (Blitz B16 – 210 GmbH) in relation to the acquisition of the assets
as share deals. This loan bears interest at 3% per annum, and was repaid in full in January 2017.
23. TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Less: Impairment provision
Net receivables
Prepayments and accrued income
Investment property disposal proceeds receivable
Sundry receivables
AGING ANALYSIS OF TRADE RECEIVABLES
Up to 12 months
Between 1 year and 2 years
Over 3 years
Movements in the impairment provision against trade receivables are as follows:
Balance at the beginning of the year
Impairment losses recognised
Utilisation of provision
Balance at the end of the year
24. CASH AND CASH EQUIVALENTS
Cash at bank
Cash at agents
Cash and cash equivalents
31 December
2016
€’000
31 December
2015
€’000
1,344
(383)
961
6,050
21
471
7,503
1,015
(295)
720
1,566
–
–
2,286
As at
31 December
2016
€’000
As at
31 December
2015
€’000
902
40
19
961
693
27
0
720
31 December
2016
€’000
31 December
2015
€’000
295
319
(231)
383
325
123
(153)
295
31 December
2016
€’000
31 December
2015
€’000
17,107
1,343
18,450
11,772
985
12,757
Phoenix Spree Deutschland
Annual Report and Accounts 2016
59
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
25. BORROWINGS
Current liabilities
Bank loans – Kreissparkasse Boblingen District Savings Bank
Bank loans – EuroHypo AG
Bank loans – Deutsche Hypothekenbank AG
Bank loans – Sparkasse Langenfeld
Non-current liabilities
Bank loans – Deutsche Genossenschafts–Hypothekenbank AG
Bank loans – Kreissparkasse Boblingen District Savings Bank
Bank loans – HypoVereinsbank
31 December
2016
€’000
31 December
2015
€’000
2,869
–
–
6,300
9,169
171,418
–
5,005
176,423
185,592
–
2,978
8,545
–
11,523
119,262
3,016
–
122,278
133,801
All borrowings are secured against the investment properties of the Group. As at the year end an amount of €13.6 million is available to be drawn
down, from three separate loan facilities. €2.0 million from a €81.5 million facility with interest rate 1.4%, €1 million from a €9.3 million facility with
interest rate 1.34% and €10.6 million undrawn, from a €10.6 million facility with interest rate 1.75%.
26. TRADE AND OTHER PAYABLES
Trade payables
Other payables
Other provisions and accrued liabilities
Deferred income
VAT
27. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps – carried at fair value through profit or loss
Balance at start of period
Additions on acquisition
Loss/(Gain) in movement in fair value through profit or loss
Balance at end of period
31 December
2016
€’000
31 December
2015
€’000
791
–
533
7
–
1,331
1,584
373
459
214
54
2,684
31 December
2016
€’000
31 December
2015
€’000
1,869
392
2,608
4,869
1,496
1,181
(808)
1,869
The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2016 were €175,932,000 (2015: €120,007,000).
At 31 December 2016 the fixed interest rates vary from 0.040% to 0.705% (2015: 0.040% to 0.895%) above the main factoring Euribor rate.
MATURITY ANALYSIS OF INTEREST RATE SWAPS
Less than 1 year
Between 1 and 2 years
Between 2 and 5 years
More than 5 years
60
Phoenix Spree Deutschland
Annual Report and Accounts 2016
31 December
2016
€’000
31 December
2015
€’000
392
–
–
4,477
4,869
–
–
1,102
767
1,869
28. OTHER FINANCIAL LIABILITIES
Balance at start of period
Recognition of redemption liability
Increase in profit attributable to NCI
Balance at end of period
31 December
2016
€’000
31 December
2015
€’000
–
2,626
964
3,590
–
–
–
–
The redemption liability relates to the put option held by the minority shareholders of PSPF for the purchase of the minority interest in PSPF. The
option period starts on 6 June 2020. The amount of the purchase price will be based on the EPRA NAV on the balance sheet date as well as the
movement in the EPRA NAV during the year and the proportion of EPRA NAV attributable to the non-controlling interest in PSPF. A portion of the
liability (€378k) is recognised to cover the tax charge of the minority in PSPF on the proceeds received if they choose to exercise their put option.
The recognition of the redemption liability has been accounted for as a reduction in the Non-Controlling Interest with the remainder of the
recognition against the Group’s retained earnings. Also see the Consolidated Statement of Changes in Equity for the recognition accounting.
Further information on the redemption liability treatment in the prior year can be seen in note 31.
29. SHARE-BASED PAYMENT RESERVE
Balance at 1 January 2015
Fee charge for the period
Equity settled during the period
Cash settled during the period
Balance at 31 December 2015
Fee charge for the period
Balance at 31 December 2016
Synthetic
equity fee
€’000
Performance
fee
€’000
Share-based
payment total
€’000
559
–
–
(559)
–
–
–
8,390
1,264
(8,390)
–
1,264
6,350
7,614
8,949
1,264
(8,390)
(559)
1,264
6,350
7,614
PROPERTY ADVISOR FEES
The Property Advisor is entitled to an asset and estate management performance fee, measured over consecutive three year periods, equal
to 20% of the excess by which the annual EPRA NAV total return of the Group exceeds 8% per annum, compounding (the ‘Performance Fee’).
The Performance Fee is subject to a high watermark, being the higher of:
(i) the most recently published EPRA NAV on 4 March 2016; and
(ii) the highest previously recorded EPRA NAV total return at the end of a performance period.
The Performance Fee will be settled through the payment of cash by the Group which then has to be used to subscribe for shares at the EPRA
NAV price per share.
Under the Property Advisory Agreement for providing property advisory services, the Property Advisor is also entitled to a Portfolio and Asset
Management Fee as follows:
(i) 1.50% of the EPRA NAV of the Group where the EPRA NAV of the Group is equal to or less than €250 million;
(ii) 1.25% of the EPRA NAV of the Group between €250 million and €500 million; and
(iii) 1% of the EPRA NAV of the Group greater than €500 million.
The Property Advisor is entitled to a capex monitoring fee equal to 7% of any capital expenditure incurred by any Subsidiary which the Property
Advisor is responsible for managing (the ‘Capex Monitoring Fee’).
Phoenix Spree Deutschland
Annual Report and Accounts 2016
61
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
29. SHARE-BASED PAYMENT RESERVE CONTINUED
PROPERTY ADVISOR FEES CONTINUED
The Property Advisor is entitled to receive a finance fee equal to:
(i) 0.1% of the value of any borrowing arrangement which the Property Advisor has negotiated and/or supervised; and
(ii) a fixed fee of £1,000 in respect of any borrowing arrangement which the Property Advisor has renegotiated or varied.
The Property Advisor is entitled to receive a transaction fee fixed at £1,000 in respect of any acquisition or disposal of property by any Subsidiary.
Details of the fees paid to the Property Advisor are set out in note 35.
30. STATED CAPITAL
Issued and fully paid:
40,522,364 participating shares of no par value, issued at a consideration of GBP1 each
5,896,369 participating shares of no par value, issued at a consideration of GBP1.11 each
19,237,484 participating shares of no par value, issued at a consideration of GBP1.46 each
4,216,080 participating shares of no par value, issued at a consideration of GBP1.44 each
22,619,047 participating shares of no par value, issued at a consideration of GBP1.68 each on 4 March 2016,
less costs of €1.6 million associated with placing
The number of shares in issue at 31 December 2016 was 92,491,344 (31 December 2015: 69,872,297).
31 December
2016
€’000
31 December
2015
€’000
60,027
7,681
39,052
8,390
47,480
162,630
60,027
7,681
39,052
8,390
–
115,150
31. NON-CONTROLLING INTEREST
PSPF Property GmbH & Co. KG
Invador Grundbesitz GmbH
Laxpan Mueller GmbH
Non-controlling
interest %
31 December
2016
31 December
2015
5.2%
5.1%
5.1%
–
467
474
941
2,626
–
–
2,626
The non-controlling interest relates to the subsidiaries Invador Grundbesitz GmbH and Laxpan Mueller GmbH.
During the current year the certainty over the put option crystallisation has increased to a level were the Directors has derecognised
the NCI associated with the option and recognised a financial liability to purchase the remaining 5.2% in PSPF Property GmbH & Co. KG.
32. EARNINGS PER SHARE
Earnings for the purposes of basic earnings per share being net profit attributable to owners of the parent (€’000)
Weighted average number of ordinary shares for the purposes of basic earnings per share (number)
Effect of dilutive potential ordinary shares (number)
36,998
88,587,235
2,829,885
9,721
69,872,297
638,818
Weighted average number of ordinary shares for the purposes of diluted earnings per share (number)
91,471,120
70,511,115
Earnings per share (€)
Diluted earnings per share (€)
0.42
0.40
0.14
0.14
31 December
2016
31 December
2015
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Phoenix Spree Deutschland
Annual Report and Accounts 2016
33. NET ASSETS VALUE PER SHARE AND EPRA NET ASSET VALUE
Net assets (€’000)
Number of participating Ordinary Shares
Net asset value per share (€)
EPRA net asset value
Net assets (€’000)
Add back deferred tax assets and liabilities, derivative financial instruments, goodwill and share-based
payment reserves
EPRA net asset value (€’000)
EPRA net asset value per share (€)
31 December
2016
31 December
2015
234,318
92,491,344
2.53
148,539
69,872,298
2.13
31 December
2016
31 December
2015
234,318
148,539
18,635
252,953
2.73
11,095
159,634
2.28
34. FINANCIAL INSTRUMENTS
The Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and processes of the
Group for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented
throughout this financial information.
PRINCIPAL FINANCIAL INSTRUMENTS
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• Financial assets
• Cash and cash equivalents
• Trade and other receivables
• Trade and other payables
• Borrowings
• Derivative financial instruments
The Group held the following financial assets at each reporting date:
Loans and receivables:
Trade and other receivables: Current
Cash and cash equivalents
Loans and receivables
The Group held the following financial liabilities at each reporting date:
Held at amortised cost:
Borrowings payable: Current
Borrowings payable: Non-current
Other financial liabilities
Trade and other payables
Fair value through profit or loss:
Derivative financial liability – interest rate swaps
31 December
2016
€'000
31 December
2015
€'000
1,453
18,450
2,253
22,156
720
12,757
1,382
14,859
31 December
2016
€'000
31 December
2015
€'000
9,169
176,423
3,590
1,331
190,513
11,523
122,278
–
2,630
136,431
4,869
4,869
1,869
1,869
195,382
138,300
Phoenix Spree Deutschland
Annual Report and Accounts 2016
63
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
34. FINANCIAL INSTRUMENTS CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
With the exception of the variable rate borrowings, the fair values of the financial assets and liabilities are not materially different to their carrying
values due to the short-term nature of the current assets and liabilities or due to the commercial variable rates applied to the long-term liabilities.
The interest rate swap was valued externally by the respective counterparty banks by comparison with the market price for the relevant date.
The interest rate swaps are expected to mature between November 2017 and August 2026.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly; and
Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
During each of the reporting periods, there were no transfers between valuation levels.
Group – Fair values
Financial liabilities
Interest rate swaps – Level 2
The valuation basis for the investment properties is disclosed in note 19.
Interest rate risk
FINANCIAL RISK MANAGEMENT
The Group is exposed through its operations to the following financial risks:
•
• Foreign exchange risk
• Credit risk
• Liquidity risk
The Group’s policies for financial risk management are outlined below.
31 December
2016
€'000
31 December
2015
€'000
(4,869)
(1,869)
INTEREST RATE RISK
The Group’s interest rate risk arises from certain of its borrowings. Borrowings issued at variable rates expose the Group to cash flow interest
rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group is also exposed to interest rate risk on cash
and cash equivalents.
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated
on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the cash flow exposures
on the issued variable rate debt held.
Sensitivity analysis has not been performed as all variable rate borrowings have been swapped to fixed interest rates and potential movements
on cash at bank balances are immaterial.
The Group gives careful consideration to interest rates when considering its borrowing requirements and where to hold its excess cash.
The Directors believe that the interest rate risk is at an acceptable level.
FOREIGN EXCHANGE RISK
The Group is exposed to foreign exchange risk on sales, purchases, and translation of assets and liabilities that are in a currency other than
the functional currency (Euros).
The Group does not enter into any currency hedging transactions and the Directors believe that the foreign exchange rate risk is at an
acceptable level.
64
Phoenix Spree Deutschland
Annual Report and Accounts 2016
The carrying amount of the Group’s foreign currency (non Euro) denominated monetary assets and liabilities are shown below, all the amounts
are for Sterling balance only:
Financial assets
Cash and cash equivalents
Financial liabilities
Trade and other payables
Net position
31 December
2016
€’000
31 December
2015
€’000
553
(204)
349
3,191
(156)
3,035
At each reporting date, if the Euro had strengthened or weakened by 10% against GBP with all other variables held constant, post-tax loss for the
year would have increased/(decreased) by:
31 December 2016
31 December 2015
Weakened
by 10% Increase/
(decrease) in
post-tax loss and
impact on equity
Strengthened
by 10% Increase/
(decrease) in
post-tax loss and
impact on equity
35
251
(35)
(251)
CREDIT RISK MANAGEMENT
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises
principally from the Group’s trade and other receivables and its cash balances. The Group gives careful consideration to which organisations it
uses for its banking services in order to minimise credit risk. The Group has an established credit policy under which each new tenant is analysed
for creditworthiness and each tenant is required to pay a two-month deposit.
At each reporting date the Group had no tenants with outstanding balances over 10% of the total trade receivables balance.
The Group uses the following banks: Barclays Private Clients International Jersey Ltd, Barclays Bank Plc Frankfurt and Deutsche Bank. The split
of cash held at each of the banks respectively at 31 December 2016 was 19%/63%/16% (December 2015: 28%/33%/39%) Barclays and Deutsche
Bank have A credit ratings.
The Group holds no collateral as security against any financial asset. The carrying amount of financial assets recorded in the financial information,
net of any allowances for losses, represents the Group’s maximum exposure to credit risk.
Details of receivables from tenants in arrears at each reporting can be found in note 23 as can details of the receivables that were impaired during
each period.
An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction
in the recoverability of the cash flows. Management considers the above measures to be sufficient to control the credit risk exposure.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned
by international credit-rating agencies.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum
exposure to credit risk as no collateral or other credit enhancements are held.
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity
risk is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or damage to the Group’s reputation.
The Directors manage liquidity risk by regularly reviewing cash requirements by reference to short-term cash flow forecasts and medium-term
working capital projections prepared by management.
The Group maintains good relationships with its banks, which have high credit ratings.
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed maturity periods.
The table has been drawn based on the undiscounted cash flows of the financial liabilities based on the earliest date on which the Group
can be required to pay. The tables include both interest payable and principal cash flows.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
65
Strategic ReportDirectors’ ReportFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2016
34. FINANCIAL INSTRUMENTS CONTINUED
MATURITY ANALYSIS FOR FINANCIAL LIABILITIES:
At 31 December 2016
Borrowings: Current
Borrowings: Non-current
Other financial liabilities
Trade and other payables
At 31 December 2015
Borrowings: Current
Borrowings: Non-current
Trade and other payables
Less than
1 year
€’000
Between
1 and 2 years
€’000
9,169
–
–
1,331
10,500
Less than
1 year
€’000
11,523
–
2,630
14,153
–
–
–
–
–
Between
1 and 2 years
€’000
–
3,016
–
3,016
Between
2-5 years
€’000
–
–
3,590
–
3,590
Between
2-5 years
€’000
–
38,612
–
38,612
More than
5 years
€’000
–
176,423
–
–
176,423
More than
5 years
€’000
–
80,650
–
80,650
Total
€’000
9,169
176,423
3,590
1,331
190,513
Total
€’000
11,523
122,278
2,630
136,431
35. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are as follows:
R Prosser is a director of Estera Fund Administrators (Jersey) Limited and Estera Trust (Guernsey) Limited, both of which provide administration
services to the Group.
A Weaver is a partner of the Jersey law firm, Appleby which provides legal services to the Group and a member of Appleby group.
During the year ended 31 December 2016, an amount of €657,751 (2015: €718,721) was payable to Estera Fund Administrators (Jersey) Limited
and Estera Trust (Guernsey) Limited for accounting, administration and secretarial services. At December 2016, €187,515 (2015: €125,671 Estera
Fund Administrators (Jersey) Limited only) was outstanding.
During the year ended 31 December 2016, an amount of €60,337 (2015: €375,595) was payable to Appleby, law firm for legal and professional
services. At December 2016 €9,495 (2015: €11,352) was outstanding.
M Northover is a Director and shareholder of PMM Partners (UK) Limited, the Group’s appointed Property Advisor. During the year ended
31 December 2016, an amount of €3,387,000 (2015: €2,574,000) was payable to PMM Partners (UK) Limited. At December 2016 €Nil (2015: €Nil)
was outstanding.
The Property Advisor is also entitled to an asset and estate management performance fee. The charge for the period in respect of the performance
fee was €6,350,000 (2015 €1,264,000). The fee is payable contingent on the Group achieving an 8% total return to the shareholders per annum.
In March 2015 the Group also entered into an option agreement to acquire the remaining 5.2% interest in Phoenix Spree Property Fund GmbH
& Co.KG from the remaining partners being M Hilton and P Ruddle, both Directors of PMM Partners (UK) Limited, the options are to be exercised
on the fifth anniversary of the majority interest acquisition for a period of three months thereafter at the fair value of the remaining interest.
The Group entered into an unsecured loan agreement with M Hilton and P Ruddle in connection with the acquisition of PSPF. At the period end
an amount of €704,500 (2015: €691,000) each was owed to the Group. The loans bear interest of 4% per annum.
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Phoenix Spree Deutschland
Annual Report and Accounts 2016
36. EVENTS AFTER THE REPORTING DATE
The Group exchanged contracts for the acquisition of three properties in Berlin with an aggregate consideration of €12.3 million.
These three properties are still awaiting completion.
The Group had exchanged contracts for the acquisition of three properties in Berlin with an aggregate purchase price of €19.9 million prior
to the balance sheet date, which as at the balance sheet date had not yet completed. Two of these properties to the value of €15.4 mIllion
completed in Q1 2017, and the third property with a purchase price €4.5 million is expected to complete in the second quarter.
The Group exchanged contracts for the sale of 11 condominiums in Berlin with an aggregate consideration of €2.4 million. Three of these
condominium sales have subsequently completed at a value of €0.7 million. The remaining eight are expected to complete during the
second quarter.
The Group had exchanged contracts for the sale of ten condominiums in Berlin with an aggregate sales price of €2.9 million prior to the balance
sheet date, which as at the balance sheet date had not yet completed. Eight of these condominium sales have subsequently completed in Q1
2017 at a value of €2.6 million. The remaining two are due to complete in Q2 2017.
The Group has notarised for sale all the properties held by a subsidiary fund, which are located in the Nurnberg and Fürth area, for a gross
consideration of €35.3 million. The initial approach was made by buyers in January 2017 and the transaction is expected to complete in
July 2017.
The Group had notarised for sale a property in Teltow prior to the balance sheet date for €3.8 million which had yet to complete at the balance
sheet date. It subsequently completed in April 2017.
In February 2017 The Group drew down €9.9 million euros of debt from a €10.6 million short-term loan facility.
In February 2017 The Group refinanced the remaining €11.3 million of debt held against the buildings acquired as part of the Laxpan and Invador
share deals in 2016. A new facility of €17.5 million was signed of which €9.6 million is currently drawn.
The Group drew down the final €1 million of the €9.3 million facility signed in August 2016 after exceeding a required annualised net rent
of the properties secured under the loan.
The Group drew down the final €2.0 million of the €81.5 million facility signed in 2016 on two buildings in Kiel and Luneberg.
The Group has signed for a €13 million loan secured against the properties notarised for acquisition in 2017; €11.1 million of this loan has
been dispersed.
Phoenix Spree Deutschland
Annual Report and Accounts 2016
67
Strategic ReportDirectors’ ReportFinancial Statements Professional Advisors
Property Advisor
PMM Partners (UK) Limited
47-48 Piccadilly
London W1J 0DT
Administrator
Company Secretary and
Registered Office
Registrar
Principal Banker
English Legal Advisor
Jersey Legal Advisor
German Legal Advisor as
to German property law
German Legal Advisor as
to German partnership law
Sponsor and Broker
Independent Property Valuer
Auditor
Estera Fund Administrators (Jersey) Limited
Estera Secretaries (Jersey) Limited
13-14 Esplanade
St Helier
Jersey JE1 1EE
Capita Registrars (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Barclays Private Clients International Limited
13 Library Place
St Helier
Jersey JE4 8NE
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Appleby
13-14 Esplanade
St Helier
Jersey JE1 1BD
Mittelstein Rechtsanwälte
Alsterarkaden 20
Hamburg 20354
Germany
Hogan Lovells International LLP
Untermainanlage 1
Frankfurt am Main 60329
Germany
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Jones Lang LaSalle
Rahel-Hirsch-Strasse 10
Berlin D-10557
Germany
RSM UK Audit LLP
25 Farringdon Street
London EC4A 4AB
68
Phoenix Spree Deutschland
Annual Report and Accounts 2016
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Phoenix Spree Deutschland Ltd
13-14 Esplanade
St. Helier
Jersey
JE1 1BD
phoenixspree.com