Real Estate Agent Profit PDF Details

As a real estate agent, it's important to keep track of your profits and expenses. The Real Estate Agent Profit Form can help you do just that. This form is easy to use and will help you keep track of your income and expenses throughout the year. Having accurate records will make tax time much easier! So, download the form today and get started on tracking your profits.

The listing provides specifics of the real estate agent profit. There, you'll discover the information regarding the form you intend to fill in, such as the approximate time for you to fill it out as well as other particulars.

QuestionAnswer
Form NameReal Estate Agent Profit
Form Length64 pages
Fillable?No
Fillable fields0
Avg. time to fill out16 min
Other namesreal estate income statement template, real estate profit and loss statement excel, profit and loss statement real estate agent, real estate agent profit and loss statement

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Good Real Estate Group (International) Limited

International GAAP®

Illustrative inancial statements for

the year ended 31 December 2012

Based on International Financial Reporting

Standards in issue at 30 September 2012

Fourth Edition 2012

By: EYGM Limited

© 2012 EYGM Limited. All rights reserved.

Disclaimer

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. Neither EYGM Limited nor any other member of the global Ernst & Young organisation can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any materials in the publication. On any specific matter, reference should be made to the appropriate advisor.

Contents

 

Introduction

3

General information

9

Independent Auditors' Report to the shareholders of Good Real Estate Group (International) Limited

10

Consolidated income statement

11

Consolidated statement of comprehensive income

12

Consolidated balance sheet

13

Consolidated statement of changes in equity

15

Consolidated cash flow statement

16

Notes to the consolidated financial statements

18

1.

Corporate information

18

2.

Basis of preparation

18

3.

Changes in accounting policies and disclosures

18

4.

Significant accounting judgements, estimates and assumptions

19

5.

Summary of significant accounting policies

22

6.

Standards issued but not yet effective

30

7.

Business combinations

32

8.

Revenue

33

9.

Operating leases Group as lessor

33

10.

Service charge and other property operating expenses

34

11.

Interest income

34

12.

Interest expense

34

13.

Segmental information

35

14.

Taxation

38

15.

Earnings per share

40

16.

Net asset value per share (NAV)

41

17.

Completed investment property

42

18.

Investment property under construction

44

19.

Investment property held for sale

45

20.

Goodwill

45

21

Joint venture

46

22.

Inventory property

47

23.

Rent and other receivables

48

24.

Cash and short-term deposits

49

25.

Share capital

49

26.

Interest-bearing loans and borrowings

49

27.

Trade and other payables

50

28.

Finance leases liabilities

50

29.

Share-based payments

50

Good Real Estate Group (International) Limited

1

30.

Transactions with related parties

52

31.

Financial risk management objectives and policies

54

32.

Hedging activities and derivatives

57

33.

Capital management

58

34.

Subsequent events

58

35.

Contingencies and commitments

58

2

Good Real Estate Group (International) Limited

Introduction

This publication contains an illustrative set of consolidated financial statements for Good Real Estate Group (International) Limited (the Group) prepared in accordance with International Financial Reporting Standards (IFRS). The Group is a fictitious group of real estate companies. The Group’s activities include the development and leasing of investment property together with the development and sale of residential property. The Group is located in “Estateland” (a fictitious country, with the euro as its functional currency).

Objective

This set of illustrative financial statements is one of many prepared by Ernst & Young to assist you in preparing your own financial statements. The illustration intends to reflect transactions, events and circumstances that we consider to be most common for companies in the real estate sector. Certain disclosures are included in these financial statements merely for illustrative purposes even though they may be regarded as items or transactions that are not material for the Group. As a general rule, these illustrative financial statements do not early-adopt standards or amendments before their effective date. Users of this publication are encouraged to prepare entity-specific disclosures while these illustrative statements may serve as a useful reference. Transactions and arrangements other than those addressed by the Group may require additional disclosures. It should be noted that the illustrative financial statements of the Group are not designed to satisfy any stock market or country specific regulatory requirements.

This publication is not intended to reflect disclosure requirements that apply mainly to regulated or specialised industries. We provide a number of industry-specific publications that you may consider. The entire series of illustrative financial statements comprises:

Good Group (International) Limited

Good Group (International) Limited — Illustrative interim condensed consolidated financial statements

Good First-time Adopter (International) Limited

Good Bank (International) Limited

Good Insurance (International) Limited

Good Investment Fund Limited (Equity)

Good Investment Fund Limited (Liability)

Good Real Estate Group (International) Limited

Good Construction Group (International) Limited

Good Mining (International) Limited

Good Petroleum (International) Limited

Good SME Limited

Notations shown on the right hand margin of each page are references to IFRS paragraphs that describe the specific disclosure requirements. Commentaries are provided to explain the basis for the disclosure or to address alternative disclosures not included in the illustrative financial statements. In case of doubt as to the IFRS requirements, it is essential to refer to the relevant source material and, where necessary, to seek appropriate professional advice.

International Financial Reporting Standards

The abbreviation IFRS is defined in paragraph 5 of the Preface to International Financial Reporting Standards to include ”standards and interpretations approved by the IASB, and International Accounting Standards (IASs) and Standing Interpretations Committee interpretations issued under previous Constitutions”. This is also noted in paragraph 7 of IAS 1 and paragraph 5 of IAS 8. Thus, when financial statements are described as complying with IFRS, it means that they comply with the entire body of pronouncements sanctioned by the IASB. This includes the IAS, IFRS and Interpretations originated by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee, IFRIC), or the former Standing Interpretations Committee (SIC).

International Accounting Standards Boards (IASB)

The IASB is the independent standard-setting body of the IFRS Foundation (an independent, not-for-profit private sector organisation working in the public interest). The IASB members (currently 15 full-time members) are responsible for the development and publication of IFRSs, including IFRS for Small and Medium Entities, and for approving Interpretations

of IFRS, as developed by the IFRS Interpretations Committee. In fulfilling its standard-setting duties, the IASB follows a due process, of which the publication of consultative documents, such as discussion papers and exposure drafts, for public comment is an important component.

3

Good Real Estate Group (International) Limited

The IFRS Interpretations Committee (Interpretations Committee)

The Interpretations Committee is a committee appointed by the IFRS Foundation Trustees that assists the IASB in establishing and improving standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial statements.

The Interpretations Committee addresses issues of reasonably widespread importance, rather than issues of concern to only a small set of entities. These include any newly identified financial reporting issues not addressed in IFRS. The Interpretations Committee also advises the IASB on issues to be considered in the annual improvements to IFRS project.

IFRS as at 30 September 2012

The standards applied in these illustrative financial statements are the versions that were in issue as at 30 September 2012 and effective for annual periods beginning on or before 1 January 2012. Standards issued, but not yet effective, as at 1 January 2012 have not been early adopted in these illustrative financial statements.

IFRS are illustrated across our various illustrative financial statements, as follows:

International Financial Reporting Standards (IFRS)

IFRS 1 First-time Adoption of International Financial Reporting Standards

IFRS 2 Share-based Payment

IFRS 3 Business Combinations (Revised in 2008)

IFRS 4 Insurance Contracts

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 6 Exploration for and Evaluation of Mineral Resources

IFRS 7 Financial Instruments: Disclosures

IFRS 8 Operating Segments

IFRS 9 Financial Instruments

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

Good Group

Good Group Interim

Good First-time Adopter

Good Bank

Good Insurance Good Investment Fund (Equity and Liability)

GOOD REAL ESTATE

Good Mining

Good Petroleum

Good Construction

  

    

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4

Good Real Estate Group (International) Limited

 

 

 

Good Group

Good Group Interim

Good First-time Adopter

Good Bank

Good Insurance Good Investment Fund

(Equity and Liability) GOOD REAL ESTATE Good Mining

Good Petroleum

Good Construction

 

 

 

 

 

 

 

 

 

 

 

 

International Accounting Standards (IAS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAS 1

Presentation of Financial Statements

        

IAS 2

Inventories

  

    

IAS 7

Statement of Cash Flows

  

     

IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

  

     

IAS 10

Events after the Reporting Period

  

     

IAS 11

Construction Contracts

 

   

 

IAS 12

Income Taxes

  

   

 

IAS 16

Property, Plant and Equipment



 



  

 

IAS 17

Leases



 



  

 

IAS 18

Revenue



 

   

 

IAS 19

Employee Benefits



 



  

 

IAS 20

Accounting for Government Grants and Disclosure of Government

  

   

 

 

 

Assistance

 

 

 

 

 

 

 

 

 

IAS 21

The Effects of Changes in Foreign Exchange Rates

         

IAS 23

Borrowing Costs

  

 

    

IAS 24

Related Party Disclosures

  

      

IAS 26

Accounting and Reporting by Retirement Benefit Plans

         

IAS 27

Consolidated and Separate Financial Statements (Revised in 2008)

    

    

IAS 28

Investments in Associates

  

 

  

 

IAS 29

Financial Reporting in Hyperinflationary Economies

 

 

 

 

 

 

 

 

 

IAS 31

Interests in Joint Ventures

  

    

IAS 32

Financial Instruments: Presentation

  



     

IAS 33

Earnings per Share

  



     

IAS 34

Interim Financial Reporting

         

IAS 36

Impairment of Assets

  

 

   

IAS 37

Provisions, Contingent Liabilities and Contingent Assets

  

      

IAS 38

Intangible Assets

  

 

    

IAS 39

Financial Instruments: Recognition and Measurement

  

      

IAS 40

Investment Property

  

 

  

 

IAS 41

Agriculture

    

    

Good Real Estate Group (International) Limited

5

Good Group

Good Group Interim

Good First-time Adopter

Good Bank

Good Insurance

Good Investment Fund (Equity and Liability)

GOOD REAL ESTATE

Good Mining

Good Petroleum

Good Construction

Interpretations

IFRIC 1

IFRIC 2 IFRIC 4

IFRIC 5

IFRIC 6

IFRIC 7

IFRIC 9 IFRIC 10 IFRIC 12 IFRIC 13

IFRIC 14

IFRIC 15 IFRIC 16 IFRIC 17 IFRIC 18 IFRIC 19 SIC 7

SIC 10

SIC 12

SIC 13

SIC 15 SIC 21

SIC 25

SIC 27

SIC 29 SIC 31 SIC 32

Changes in Existing Decommissioning, Restoration and Similar Liabilities

Members’ Shares in Co-operative Entities and Similar Instruments

Determining whether an Arrangement Contains a Lease

Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment

Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies

Reassessment of Embedded Derivatives

Interim Financial Reporting and Impairment

Service Concession Arrangements

Customer Loyalty Programmes

IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Agreements for the Construction of Real Estate

Hedges of a Net Investment in a Foreign Operation

Distributions of Non-cash Assets to Owners

Transfers of Assets from Customers

Extinguishing Financial Liabilities with Equity Instruments

Introduction of the Euro

Government Assistance — No Specific Relation to Operating Activities

Consolidation — Special Purpose Entities

Jointly Controlled Entities — Non-Monetary Contributions by Venturers

Operating Leases — Incentives

Income Taxes — Recovery of Revalued Non-Depreciable Assets

Income Taxes — Changes in the Tax Status of an Entity or its Shareholders

Evaluating the Substance of Transactions Involving the Legal Form of a Lease

Service Concession Arrangements: Disclosures

Revenue — Barter Transactions Involving Advertising Services

Intangible Assets — Web Site Costs

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This standard or interpretation is incorporated into these financial statements.

All standards and interpretations listed above incorporate all amendments effective on or before 1 January 2012, unless otherwise stated.

It is important to note that the IASB may issue new and revised standards and interpretations subsequent to 30 September 2012. Therefore, users of this publication are advised to verify that there has been no change in the IFRS requirements between 30 September 2012 and the date on which their financial statements are authorised for issue. In accordance with paragraph 30 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, specific disclosure requirements apply for standards and interpretations issued but not yet effective.

6

Good Real Estate Group (International) Limited

Changes in the 2012 edition of Good Real Estate Group (International) Limited Annual Financial Statements

These illustrative financial statements have changed since the 2011 edition due to standards and interpretations that have become effective for annual periods since 30 September 2011:

IAS 12 Income Taxes — Recovery of Underlying Assets

The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in

IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after 1 January 2012, but has not had any effect on the entity’s performance or on its disclosures.

IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure Requirements (Amendment)

The amendment requires additional disclosure about financial assets that have been transferred, but not derecognised, to enable the user of the Group’s financial statements to understand the relationship with their associated liabilities. In addition, the amendment requires disclosures about the entity´s continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The amendment did not have an impact on the Group’s financial position, performance or its disclosures.

IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendment)

When an entity’s date of transition to IFRS is on or after the functional currency normalisation date, the entity may elect to measure all assets and liabilities held before the functional currency normalisation date, at fair value on the date of transition to IFRS. This fair value may be used as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position. However, this exemption may only be applied to assets and liabilities that were subject to severe hyperinflation. The amendment is effective for annual periods beginning on or after 1 July 2011 with early adoption permitted. This amendment did not have an impact on the Group’s financial position, performance or its disclosures.

Allowed alternative treatments

In some cases, IFRS permits more than one accounting treatment for a transaction or event. Preparers of financial statements should select the treatment that is most relevant to their business as their accounting policy.

IAS 8 requires an entity to select and apply its accounting policies consistently for similar transactions, events and/or conditions, unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. Where an IFRS requires or permits such categorisation, an appropriate accounting policy is selected and applied consistently to each category. Therefore, once a choice of one of the alternative treatments has been made, it becomes an accounting policy and must be applied consistently. Changes in accounting policy should only be made if required by a standard or interpretation, or if the change results in the financial statements providing more reliable and relevant information.

In this publication, when a choice is permitted by IFRS, the Group has adopted one of the treatments as appropriate to the circumstances of the Group. In these cases, the commentary provides details of which policy has been selected, the reasons for this policy selection, and summarises the difference in the disclosure requirements.

Financial review by management

Many entities present a financial review by management that is outside the financial statements. IFRS does not require the presentation of such information, although paragraph 13 of IAS 1 gives a brief outline of what might be included in an annual report. The IASB issued an IFRS Practice Statement Management Commentary in December 2010, which provides a broad non-binding framework for the presentation of a management commentary that relates to financial statements prepared in accordance with IFRS. If a company decides to follow the guidance in the Practice Statement, management is encouraged to explain the extent to which the Practice Statement has been followed. A statement of compliance with the Practice Statement is only permitted if it is followed in its entirety. Furthermore, the content of a financial review by management is often determined by local market requirements or issues specific to a particular jurisdiction.

No financial review by management has been included for the Group.

Good Real Estate Group (International) Limited

7

Good Real Estate Group

(International) Limited

Consolidated financial statements

31 December 2012

8

Good Real Estate Group (International) Limited

8

GENERAL INFORMATION

Directors

A Buisman (Chairman)

M Williams (Chief Executive)

R Breyer

L van der Tas

Company Secretary

B H Lim

Registered Office

Brick House

Covenant Square

Estateland

Solicitors

Solicitors & Co.

7 Great Scott Street

Estateland

Bankers

Good Bank Limited

10 Capital Street

Estateland

Auditors

Professional Accountants & Co.

7 Bean Street

Estateland

Good Real Estate Group (International) Limited

9

Independent Auditors' Report to the Shareholders of Good Real Estate Group (International) Limited

We have audited the accompanying consolidated financial statements of Good Real Estate Group (International) Limited and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Professional Accountants & Co.

28January 2013

17 Euroville High Street

Euroville

Commentary

The auditors’ report has been prepared in accordance with ISA 700 (Redrafted) Forming an Opinion and Reporting on Financial Statements which is applicable for audits of financial statements for periods beginning on or after 15 December 2009. The auditors’ report may differ depending on the requirements of the relevant jurisdiction.

10

Good Real Estate Group (International) Limited

Consolidated income statement

for the year ended 31 December 2012

 

 

2012

 

2011

 

 

 

Notes

 

 

€000

 

€000

 

 

 

 

 

 

 

 

 

 

IAS 18.35 (c),

Rental income

8

22,470

 

24,333

 

IAS 40.75 (f) (i)

Service charge income

8

2,584

 

2,197

 

IAS 18.35 (b)(ii) (c)

Service charge expense

10

(2,654)

(2,254)

IAS 1.85

Other property operating expense

10

 

(2,118)

 

(3,149)

IAS 40.75(f)(ii), (iii)

Net rental income

 

20,282

 

21,127

 

 

Sales of inventory property

8

11,000

 

16,750

 

IAS 18.35(b) (i)

 

 

 

(7,000)

 

(17,000)

IAS 1.99, IAS 1.103, IAS

Cost of sales – inventory property

 

2.36(d)

Profit/(loss) on sale of inventory property

 

 

4,000

 

 

(250)

 

Administration expenses

 

(4,876)

(2,976)

IAS 1.103

Profit on disposal of investment property

17

2,000

 

 

IAS 18.35(b)(i)

Valuation gains from completed investment property

17

14,980

 

9,480

 

IAS 40.76(d)

Valuation gains from investment property under construction

18

 

3,920

 

 

2,005

 

IAS 40.76(d)

Net gains on investment property

 

 

20,900

 

 

11,485

 

 

Operating profit

 

 

40,306

 

 

29,386

 

IAS 1.84

Interest income

11

9,195

 

7,559

 

IAS 1.82(a)

Interest expense

12

(22,105)

(18,921)

IAS 1.82(b), IFRS 7.20

Share of profit of joint venture

21

 

3,250

 

 

 

IAS 1.82 (c), IAS 28.38

Profit before tax

 

 

30,646

 

 

18,024

 

IAS 1.103

Income tax expense

14

 

(7,298)

 

(3,597)

IAS 1.82(d) ,IAS 12.77

Profit for the year

 

23,348

 

14,427

 

IAS 1.84

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAS 1.83(a)(ii),

Equity holders of the parent

 

20,759

 

13,469

 

IAS 27.28

 

 

 

2,589

 

 

958

 

IAS 1.83(a)(i),

Non-controlling interests

 

 

 

IAS 27.28

 

 

23,348

 

14,427

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings, on profit for the year

15

 

0.11

 

 

0.07

 

IAS 33.66

Adjusted (EPRA) earnings per share

15

0.03

 

0.02

 

 

 

 

 

 

 

 

 

 

Commentary

IAS 1.82 describes the line items that should be included in the income statement. The Group has included revenue in two sections: Net rental income; and Profit/(loss) on sale of inventory property, which is accepted practice within the industry.

IAS 1.99 requires expenses to be analysed either by nature or by their function within the income statement, whichever provides information that is reliable and more relevant. If expenses are analysed by function, information about the nature of expenses (including depreciation, amortisation and employee benefits expense) must be disclosed in the notes. As the Group has presented the analysis of expenses by function it has made the additional disclosures in respect of employee benefits expense (it having no depreciation or amortisation) in the notes to the financial statements - see note 10.

The Group presents operating profit in the income statement; this is not required by IAS 1. However, in disclosing operating profit, an entity needs to ensure that the amount disclosed is representative of activities that would normally be regarded as operating activities and that it is relevant to the understanding of the financial statements.

IAS 40 does not require valuation gains/losses on completed investment property to be disclosed separately from those on investment property under construction, but, as they are generally subject to different sets of assumptions and accounting estimates, we consider this to be leading practice. This approach is also consistent with the separate presentation of investment property under construction in the balance sheet, which we also consider to be a leading practice.

There is no requirement in IFRS to provide adjusted earnings per share (EPS) in the financial statements. However, we have illustrated an adjusted EPS figure following the guidelines set out by the European Public Real Estate Association (EPRA) — see Note 15. The presentation of adjusted EPS per share in the financial statements may not be appropriate in all jurisdictions.

Good Real Estate Group (International) Limited

11

Consolidated statement of comprehensive income

for the year ended 31 December 2012

 

 

2012

 

 

2011

 

IAS 8.28

 

Notes

 

€000

€000

IAS 1.51(d),(e)

Profit for the year

 

23,348

 

 

14,427

 

IAS 1.82(f),(g)

 

 

 

 

 

 

 

 

Net gains (losses) on cash flow hedges arising during the year

 

13,589

 

 

(2,632)

IFRS 7.23(c)

 

 

 

 

 

 

 

 

IAS 1.92

Amounts reclassified to profit or loss in respect of cash flow hedges

 

(1,210)

 

732

 

IFRS 7.23(d)

 

 

 

 

 

 

 

 

IAS 1.90,

Income tax relating to net gains (losses) on cash flow hedges

14

(3,714)

 

570

 

IAS 12.81

Foreign currency translation reserve

 

 

(1,700)

 

(1,654)

 

Other comprehensive income (loss), net of tax

 

6,965

 

 

(2,984)

 

Total comprehensive income for the year, net of tax

 

30,313

 

 

11,443

 

IAS 1.82 (i)

Attributable to:

 

 

 

 

 

 

 

 

Equity holders of the parent

 

27,724

 

 

10,485

 

IAS 1.83(b)(ii)

Non controlling interests

 

 

2,589

 

 

958

 

IAS 1.83(b)(i),

 

 

30,313

 

 

11,443

 

 

 

 

 

 

 

 

 

 

 

Commentary

The Group has elected to present two statements, an income statement and a statement of comprehensive income, rather than a single statement of comprehensive income combining the two elements. If a two-statement approach is adopted, the income statement must be followed directly by the statement of comprehensive income.

The Group has elected to present the income tax effects gross on an individual basis, therefore, no additional note disclosure is required.

12

Good Real Estate Group (International) Limited

Consolidated balance sheet

as at 31 December 2012

 

Notes

Assets

 

Non-current assets

 

Goodwill

7, 20

Completed investment property

17

Investment property under construction

18

Investment in joint venture

21

Deferred tax assets

14

Current assets

 

Inventory property

22

Rent and other receivables

23

Prepayments

 

Cash and short-term deposits

24

Investment property held for sale

19/34

Total assets

 

Equity and liabilities

 

Issued share capital

25

Cash flow hedges

 

Foreign currency translation reserve

 

Retained earnings

 

Equity attributable to equity holders of the parent

 

Non-controlling interests

 

Total equity

 

Non-current liabilities

 

Interest bearing loans and borrowings

26

Deposits from tenants

 

Finance lease liabilities

28

Deferred tax liability

14

Derivative financial instruments

32

Current liabilities

 

Trade and other payables

27

Income tax payable

14

Finance lease liabilities

28

Total liabilities

 

Total equity and liabilities

 

Net Asset Value (NAV) per share

 

Basic and diluted NAV

16

Adjusted (EPRA) NAV

16

2012

2011

IAS 8.28

 

€000

€000

IAS 1.51(d)(e)

3,000

IAS 1.54(c)

452,991

388,620

IAS 1.54 (b)

30,146

30,896

IAS 1.54 (b)

103,250

IAS 1.54(e)

2,992 IAS 1.54(n), IAS 1.56

589,387 422,508

6,533

9,580

IAS 1.54(g)

14,560

22,860

IAS 1.54(h), IFRS 7.8(c)

9,929

14,588

IAS 1.55

78,038

34,618

IAS 1.54(i)

 

 

 

109,060

81,646

 

 

 

 

 

10,560

 

IAS 1.54(j)

709,007

504,154

 

 

 

 

 

233,700

193,700

IAS 1.78 (e)

(302)(8,967) IAS 1.54

(4,398) (2,698)

56,413

35,347

IAS 1.54, IAS 1.78(e)

 

 

 

285,413

 

217,382

IAS 1.54,

18,202

1,803

IAS 1.54(q), IAS 27.27

 

 

 

303,615

219,185

 

 

 

 

IAS 1.60, IAS 1.69

 

 

 

379,624

255,831

IAS 1.54(m)

3,634

2,285

IAS 1.55

1,559

1,550

IAS 1.54 (m), IAS 1.55

11,314

 

IAS 1.54(n), IAS 1.56

425

12,804

IAS 1.54(m), IFRS 7.8 (e)

 

 

 

396,556

272,470

IAS 1.60, IAS 1.69

 

 

 

 

6,536

10,019

IAS 1.54(k)

2,146

2,275

IAS 1.54(n)

154205 IAS 1.54(m), IAS 1.55

8,836 12,499

405,392 284,969

709,007 504,154

1.221.12

1.261.17

Good Real Estate Group (International) Limited

13

Consolidated balance sheet

Commentary

IAS 1 does not mandate use of the term statement of financial position. The Group therefore continues to use the traditional term balance sheet.

IAS 40 does not require completed investment property to be disclosed separately from investment property under construction, but as they are generally subject to different sets of assumptions and accounting estimates, we consider this to be a leading practice.

IAS 1 clarifies that financial instruments (including derivatives) not held for trading must be separated into current and non-current portions unless it is held primarily for trading. An entity separates such a derivative instrument based on an assessment of the facts and circumstances and classifies it accordingly.

When management holds a derivative as an economic hedge (and does not apply hedge accounting) or a derivative instrument that is a designated and effective hedging instrument for a period beyond 12 months after the end of the reporting period, the derivative shall be classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. However, the derivative instrument is separated into a current portion and non-current portion only if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments.

Entities will need to apply judgement in determining an appropriate split and that judgement should be applied consistently to like instruments.

In accordance with IAS 1.60, the Group has presented current and non-current assets, and current and non-current liabilities, as separate classifications in the statement of financial position. IAS 1 does not require a specific order of the two classifications, as such, the Group has elected to present non-current before current. IAS 1 allows entities to present assets and liabilities in order of liquidity when this is reliable and more relevant.

There is no requirement in IFRS to provide Net Asset Value (NAV) per share in the financial statements. However, this is a common metric in the real estate industry. Therefore, we have illustrated how this information may be provided. We have also illustrated an adjusted NAV figure following the guidelines set out by the European Public Real Estate Association (EPRA) — see Note 16. The presentation of per share NAV in the financial statements may not be appropriate in all jurisdictions.

14

Good Real Estate Group (International) Limited

Consolidated statement of changes in equity

for the year ended 31 December 2012

At 1 January 2011

Profit for the year

Other comprehensive income Total comprehensive income Share based payments

At 31 December 2011

Profit for the year

Other comprehensive income Total comprehensive income

Issue of share capital Share based payments Acquisition of subsidiary

At 31 December 2012

 

Attributable to equity holders of the parent

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

currency

 

Cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued

translation

 

flow

 

Retained

 

 

 

 

 

controlling

Total

 

 

capital

 

reserve

 

hedges

 

earnings

 

 

 

Total

 

interests

equity

IAS 1.106(d)

 

€000

 

€000

 

€000

 

€000

 

 

 

€000

 

€000

€000

IAS 1.51(d)(e)

193,700

(1,044)

(7,637)

21,580

 

206,599

 

845

 

207,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAS 1.106

 

 

 

13,469

 

13,469

 

958

 

14,427

 

(d)(i)

 

 

(1,654)

 

(1,330)

 

 

(2,984)

 

 

(2,984)

IAS 1.106

 

 

 

(d)(ii)

 

(1,654)

(1,330)

13,469

 

10,485

 

958

 

11,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

298

 

298

 

 

298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

193,700

(2,698)

(8,967)

35,347

 

217,382

 

1,803

 

219,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAS 1.106

 

 

 

20,759

 

20,759

 

2,589

 

23,348

 

(d)(i)

 

 

(1,700)

 

8,665

 

 

 

6,965

 

 

 

6,965

 

IAS 1.106

 

 

 

 

 

 

(d)(ii)

 

(1,700)

8,665

 

20,759

 

27,724

 

2,589

 

30,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAS 1.106

40,000

 

 

 

40,000

 

 

40,000

 

(d)(iii)

 

 

 

307

 

307

 

 

307

 

 

 

 

 

 

 

 

 

13,810

 

13,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

233,700

(4,398)

(302)

56,413

 

285,413

 

18,202

 

303,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commentary

For equity-settled share-based payment transactions, IFRS 2.7 requires entities to recognise an increase in equity when goods or services are received. However, IFRS 2 does not specify where in equity this should be recognised. The Group has chosen to recognise the credit in retained earnings. This avoids the need to transfer the amount from another reserve when the share options are exercised or expire.

Good Real Estate Group (International) Limited

15

Consolidated cash flow statement

for the year ended 31 December 2012

 

 

2012

 

 

2011

 

 

 

Notes

 

€000

€000

 

Operating activities

 

 

 

 

 

 

 

IAS 7.10, IAS 7.18 (b)

Profit before tax

 

30,646

 

 

18,024

 

 

Adjustments to reconcile profit before tax to net cash flows

 

 

 

 

 

 

 

 

Valuation gains on investment property

 

(18,900)

 

(11,485)

 

IAS 7.20(b)

Gain on disposal of investment property

 

(2,000)

 

IAS 7.20(b)

Share of profit in joint venture

 

(3,250)

 

IAS 7.20(b)

Share based payments

 

307

 

 

298

 

 

Interest income

 

(9,195)

 

(7,559)

 

IAS 7.20 (c)

Interest expense

 

 

22,105

 

 

18,921

 

 

 

 

19,713

 

 

18,199

 

 

Working capital adjustments

 

 

 

 

 

 

 

 

Decrease/ (increase) in rent and other receivables

 

8,900

 

 

(4,007)

 

IAS 7.20(a)

Decrease / (increase) prepayments and accrued income

 

4,659

 

 

(800)

 

IAS 7.20(a)

Decrease in inventory property

 

2,000

 

 

9,420

 

IAS 7.20(a)

(Decrease) / increase in trade, other payables and accruals

 

(4,900)

 

580

 

IAS 7.20(a)

Movements in tenant deposits

 

1,400

 

 

135

 

 

Income tax paid

 

 

(3,185)

 

(1,835)

 

IAS 7.35

Net cash flow from operating activities

 

28,587

 

 

21,692

 

IAS 7.10

Investing activities

 

 

 

 

 

 

 

IAS 7.10, IAS 7.21

 

 

 

 

 

 

 

Acquisition of businesses, net of cash acquired

7

(57,023)

 

IAS 7.39

Investments in joint venture

 

(100,000)

 

IAS 7.16(c)

Purchase of investment property

17

 

(71,425)

 

IAS 7.16(a)

Capital expenditure on completed investment property

17

(504)

 

(5,475)

 

IAS 7.16(a)

Expenditure on investment property under construction

18

(5,150)

 

(18,141)

 

IAS 7.16(a)

Proceeds from disposal of investment property

17

 

28,670

 

 

 

IAS 7.16(b)

Net cash flow from investing activities

 

(134,007)

 

(95,041)

 

IAS 7.10, IAS 7.21

Financing activities

 

 

 

 

 

 

 

IAS 7.10, IAS 7.21

Proceeds from borrowings

 

124,023

 

 

106,054

 

IAS 7.17(c)

Repayment of borrowings

 

(230)

 

(18,986)

 

IAS 7.17(c)

Proceeds from issue of share capital

25

40,000

 

 

IAS 7.17(a)

Repayment of finance lease liabilities

 

(38)

 

(130)

 

IAS 7.17(c)

Interest received

 

8,209

 

 

7,210

 

 

Interest paid

 

 

(23,124)

 

(19,346)

 

IAS 7.31

Net cash flow from financing activities

 

 

148,840

 

 

74,802

 

IAS 7.10

Net increase in cash and cash equivalents

 

43,420

 

 

1,453

 

 

Cash and cash equivalents at the beginning of the period

24

 

34,618

 

 

33,165

 

 

Cash and cash equivalents at 31 December

24

 

78,038

 

 

34,618

 

IAS 7.45

Non cash transactions

In 2011, the Group acquired leasehold properties for a total consideration of €25.0m, of which €23.0m was

IAS 7.43(a)

paid immediately in cash. The residual consideration with a present value of €2.0m remained outstanding as a

 

finance lease obligation.

 

16

Good Real Estate Group (International) Limited

Consolidated cash flow statement

Commentary

IAS 7.18 allows entities to report cash flows from operating activities using either the direct method or the indirect method. The Group presents its cash flow statement using the indirect method.

The Group has reconciled profit before tax to net cash flows from operating activities. However, a reconciliation from profit after tax is also acceptable under IAS 7.

The Group classifies interest received and paid as financing activities as they relate to the net cost of obtaining financial resources.

IAS 7.40 requires disclosure of certain cash flows for the acquisition and disposals of subsidiaries or other business units. The Group has interpreted this requirement as being relevant for those acquisitions and disposals of subsidiaries that have been accounted for as business combinations and disposals (see accounting policies for property and business combinations).

Good Real Estate Group (International) Limited

17

Notes to the consolidated financial statements

1. Corporate information

The consolidated financial statements of Good Real Estate Group (International) Limited and its subsidiaries (the Group) for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the directors on 28 January 2012. Good Real Estate Group (International) Limited (the Company) is a limited company incorporated and domiciled in Estateland whose shares are publicly traded. The registered office is located at Brick House, Covenant Square in Estateland.

IAS 1.138(a) IAS 10.17

The principal activities of the Group are described in Note 13.

IAS 1.138(b)

2. Basis of preparation

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

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

IAS 1.117(a) IAS 1.118, IAS 1.51 (d), (e)

IAS 1.16

Commentary

Companies in certain jurisdictions may be required to comply with IFRS-approved by local regulations, for example, listed companies in the European Union (EU) are required to comply with IFRS approved by the EU. These financial statements only illustrate compliance with IFRS as issued by the IASB.

3. Changes in accounting policies

New and amended standards and interpretations

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2012:

IAS 12 Income Taxes – Recovery of Underlying Assets

The amendment clarified the determination of deferred tax on investment property measured at fair value and introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. It implies the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after 1 January 2012, but will not have any effect in the entity’s performance or in its disclosures because the tax rate for these assets in the jurisdictions in which they are located does not differ if they are recovered by sale or use.

IFRS 7 Financial Instruments: DisclosureS — Enhanced Derecognition Disclosure Requirements

The amendment requires additional disclosures about financial assets that have been transferred but not derecognised to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognised assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The entity did not have any assets with these characteristics, so there has not been any effect in the presentation of its financial statements.

Commentary

In some jurisdictions, the adoption of IFRS for reporting purposes may be subject to a specific legal process (e.g., in the European Union or Australia). In those jurisdictions, the effective dates may therefore be different from the IASB's effective dates. Nevertheless, all new standards and interpretations issued by the IASB must be considered for disclosure, as IAS 8.30 requires disclosure of ‘standards issued but not yet effective’, irrespective of the legal process referred to above.

18

Good Real Estate Group (International) Limited

18

4. Significant accounting judgements, estimates and assumptions

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Judgements other than estimates

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:

Revenue recognition

When a contract for the sale of a property upon completion of construction is judged to be a construction contract (see revenue recognition policy for sales of property under development), revenue is recognised using the percentage-of-completion method as construction progresses. The percentage of completion is estimated by reference to the stage of the projects and contracts - determined based on the proportion of contract costs incurred to date and the estimated costs to complete.

Business combinations

The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether the acquisition represents the acquisition of a business. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property. More specifically, consideration is made of the extent to which significant processes are acquired and, in particular, the extent of ancillary services provided by the subsidiary (e.g., maintenance, cleaning, security, bookkeeping, hotel services, etc.).

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

Classification of property

The Group determines whether a property is classified as investment property or inventory property:

Investment property comprises land and buildings (principally offices, commercial warehouse and retail property) which are not occupied substantially for use by, or in the operations of, the Group, nor for sale in the ordinary course of business, but are held primarily to earn rental income and capital appreciation.

Inventory property comprises property that is held for sale in the ordinary course of business. Principally, this is residential property that the Group develops and intends to sell before or on completion of construction.

Operating lease contracts – the Group as lessor

 

The Group has entered into commercial property leases on its investment property portfolio. The Group has

 

determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the

 

significant risks and rewards of ownership of these property and so accounts for the leases as operating leases.

 

Taxes

 

The Group is subject to income and capital gains taxes in numerous jurisdictions. Significant judgement is

 

required to determine the total provision for current and deferred taxes.

 

The Group recognises liabilities for current taxes based on estimates of whether additional taxes will be due.

 

Where the final tax outcome of these matters is different from the amounts that were initially recorded, such

 

differences will impact the income and deferred tax provisions in the period in which the determination is made.

 

Deferred tax assets and liabilities are recognised on a net basis to the extent they relate to the same fiscal unity

 

and fall due in approximately the same period.

IAS 12.71

 

Good Real Estate Group (International) Limited

19

4. Significant accounting judgements, estimates and assumptions continued

Estimates

Estimation of net realisable value for inventory property

Inventory property is stated at the lower of cost and net realisable value (NRV).

NRV for completed inventory property is assessed with reference to market conditions and prices existing at the reporting date and is determined by the Group in the light of recent market transactions.

NRV in respect of inventory property under construction is assessed with reference to market prices at the reporting date for similar completed property, less estimated costs to complete construction and less estimated costs to complete construction and less an estimate of the time value of money to the date of completion.

Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

IAS 12.88 IAS 1.125

Valuation of property

The fair value of investment property is determined by independent real estate valuation experts using recognised valuation techniques. These techniques comprise both the Yield Method and the Discounted Cash Flow Method. In some cases, the fair values are determined based on recent real estate transactions with similar characteristics and location to those of the Group assets.

Investment property under construction is also valued at fair value as determined by independent real estate valuation experts, except if such values cannot be reliably determined. In one case, when a fair value cannot be reliably determined, the property is recorded at cost (see note 18). The fair value of investment properties under construction is determined using either the Discounted Cash Flow Method or the Residual Method.

The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants’ profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into consideration when determining the fair value of investment properties under construction. Future revenue streams comprise contracted rent (passing rent) and estimated rental income (ERV) after the contract period. In calculating ERV, the potential impact of future lease incentives to be granted to secure new contracts is taken into consideration. All these estimates are based on local market conditions existing at the reporting date.

Volatility in the global financial system is reflected in commercial real estate markets. There was a significant reduction in transaction volumes in 2011 and, to a lesser extent, into 2012. Therefore, in arriving at their estimates of market values as at 31 December 2011 and 31 December 2012, valuers used their market knowledge and professional judgement and did not rely solely on historical transactional comparables. In these circumstances, there was a greater degree of uncertainty in estimating the market values of investment property than would exist in a more active market.

The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in Notes 17 and 18.

IAS 1.125

IAS 40.75 (d),

(e)

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4. Significant accounting judgements, estimates and assumptions continued

Techniques used for valuing investment property

The Yield Method converts anticipated future cash flow benefits in the form of rental income into present value. This approach requires careful estimation of future benefits and the application of investor yield or return requirements. One approach to value the property on this basis is to capitalise net rental income on the basis of an Initial Yield, generally referred to as the All Risks Yield approach or Net Initial Yield approach, adjusting for any factors not included in net rental income, such as vacancy, lease incentives, refurbishment, etc.

The Discounted Cash Flow Method involves the projection of a series of periodic cash flows either to an operating property or a development property. To this projected cash flow series, an appropriate, market- derived discount rate is applied to establish an indication of the present value of the income stream associated with the property. The calculated periodic cash flow is typically estimated as gross rental income less vacancy and collection losses and less operating expenses/outgoings. A series of periodic net operating incomes, along with an estimate of the reversion/terminal/exit value (which uses the traditional valuation approach) anticipated at the end of the projection period, are discounted to present value. The aggregate of the net present values equals the market value of the property.

The Residual Method (or Hypothetical Development Approach) to estimating fair value is a combination of the Capitalisation (income) approach and a Cost approach (summation). The Residual Method is defined according to the Approved European Property Valuation Standards of TEGoVA (The European Group of Valuers’ Associations), as: “A method of determining the value of a property which has potential for development, redevelopment or refurbishment. The estimated total cost of the work, including fees and other associated expenditures, plus allowance for interest, developer’s risk and profit, is deducted from the gross value of the completed project. The resultant figure is then adjusted back to the date of valuation to give the residual value.”

Commentary

Detailed explanations of valuation techniques used are not specifically required by IFRS, but such explanations may be useful to the reader and some regulators have requested disclosure of such information. The Group therefore provides an explanation of just some of the common techniques. IFRS 13 Fair Value Measurement applies for accounting periods starting on or after 1 January 2013. IFRS 13 significantly expands the disclosure about methods and judgements in respect of fair value estimation. Forthcoming Ernst & Young publications are planned to will address these new requirements.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the goodwill by reference to the cash generating units to which the goodwill is allocated. Estimating the recoverable amount is by reference to the higher of fair value less costs to sell and ‘value in use’. A value in use calculation requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present values of those cash flows.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires the determination of the most appropriate valuation model, and is dependent on the terms and conditions of the grant. This estimate also requires the determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 29.

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5. Summary of significant accounting policies

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December each year. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continues to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

IAS 27.12

IAS 27.22 IAS 27.24, 26

IAS 27.20

Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are

IAS 27.27

presented separately in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders' equity.

Property acquisitions and business combinations

Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business. The basis of the judgement is set out in Note 4.

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, acquisitions are accounted for as business combinations.

Commentary

The business combination standard’s (IFRS 3) definition of a business refers to “… an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits ...” However, the standard goes on to say that a business need not include all of the inputs or processes that the seller used in operating that business if market participants are capable of acquiring the business and continuing to produce outputs, for example, by integrating the business with their own. The definition of a business is applied regardless of whether the entity purchases a property directly or via the shares in a single-asset entity.

IAS 40 notes, in relation to the need to distinguish investment property from owner-occupied property, that where certain ancillary processes exist in connection with an investment property they are often insignificant to the overall arrangement. Consequently, it was often thought that it may be appropriate to conclude that, whilst IAS 40 and IFRS 3 are not mutually exclusive and it not being the specific purpose of the standard’s observation about ancillary services, where such acquired processes are considered by IAS 40 to be insignificant, an investment property acquisition is within the scope of IAS 40 rather than IFRS 3.

However, at its February 2012 meeting the IASB noted that the judgement required to determine whether the acquisition of investment property is the acquisition of an asset or a business combination, is not based on the paragraphs in IAS 40 that relate to the need to distinguish investment property from owner-occupied property, but rather on the guidance in IFRS 3. It may, however, still be valid to conclude that, when applying the guidance in IFRS 3, where acquired processes are considered to be insignificant (whether by reference to guidance in IAS 40 or otherwise) an investment property acquisition is within the scope of IAS 40 rather than IFRS 3.

Business combinations

Business combinations are accounted for using the acquisition method. The acquisition is recognised at the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non- controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

IFRS 3.4 IFRS 3.18 IFRS 3.19

IFRS 3.15 IFRS 3.16

IFRS 3.42

IFRS 3.58

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5. Summary of significant accounting policies continued

Goodwill

Goodwill only arises upon a business combination and is initially measured as the residual cost of the business combination after recognising the acquiree's identifiable assets, liabilities and contingent liabilities. Subsequently, goodwill is not amortised, but is tested for impairment at least annually.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill is generated by the recognition, on the acquisition of a business, of deferred tax liabilities in excess of the fair value of such liabilities (deferred tax liabilities are measured on a nominal basis), the post-tax discount rate is adjusted in order to determine the appropriate pre-tax discount rate used to determine the value in use for impairment testing purposes (see Note 20). Therefore, the deferred tax liability in excess of its fair value, as determined at acquisition, is offset against the goodwill and the net amount tested to determine whether that goodwill is impaired.

To the extent that the deferred tax provision in excess of the fair value of that liability is subsequently reduced or eliminated, for example, through a change in the tax circumstances of the Group, the goodwill arising from the initial recognition of the deferred tax provision may become impaired.

Interests in jointly controlled entity

The Group has contractual arrangements with other parties which represent a joint venture. These take the form of agreements to share control over other entities.

Where a joint venture is established through an interest in a company (a jointly controlled entity), the Group recognises its interest in the entity’s assets and liabilities using the equity method of accounting. Under the equity method, the interest in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of its net assets, less distributions received and less any impairment in value of individual investments. The Group’s income statement reflects the share of the jointly controlled entity’s results after tax.

IFRS 3.32(b) IAS 36.80

IAS 1.117, IAS 31.57, IAS 31.30

Commentary

The Group accounts for its interest in the jointly controlled entity (JCE) using the equity method. IAS 31 also permits jointly controlled entities to be recognised using proportionate consolidation.

IFRS 11 replaces IAS 31 effective for annual periods beginning on or after 1 January 2013. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, joint arrangements that meet the definition of a Joint Venture in IFRS 11 must be accounted for using the equity method. Conversely, joint arrangements that meet the definition of a Joint Operation must be accounted for by recognising its (or its share) of the assets, liabilities, revenue and expenses.

Foreign currencies

The consolidated financial statements are presented in euros. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

The assets and liabilities, including goodwill, of foreign operations are translated into euros (the Group’s presentation currency) at the rate of exchange prevailing at the reporting date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the deferred cumulative amount recognised in other comprehensive income relating to that particular foreign operation is recognised in the income statement. On partial disposals, a proportionate share of the deferred cumulative amount is recognised in the income statement.

Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to profit or loss.

IAS 1.51(d)

IAS 1.117(b)

IAS 21.23(a)

IAS 21.28

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5. Summary of significant accounting policies continued

Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

Borrowing costs

Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

The interest capitalised is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amounts capitalised is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Interest is capitalised as from the commencement of the development work until the date of practical completion, i.e. when substantially all of the development work is completed. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. Interest is also capitalised on the purchase cost of a site of property acquired specifically for redevelopment, but only where activities necessary to prepare the asset for redevelopment are in progress.

IAS 21.23(b),(c) IAS 21.59

IAS 21.48

Commentary

IAS 23 does not require companies to capitalise interest in respect of assets that are measured at fair value (this includes assets measured at fair value through equity, albeit no such assets are presented in these illustrative financial statements). Consequently, entities holding investment property under construction that is carried at fair value have a policy choice in respect of this issue, which primarily impacts the presentation of borrowing costs in the income statement.

Investment property

Investment property comprises completed property and property under construction or re-development that is held to earn rentals or for capital appreciation or both. Property held under a lease is classified as investment property when the definition of an investment property is met.

IAS 40.7

IAS 40.75 (b)

Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.

IAS 40.75, IAS 40.20

Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the income statement in the year in which they arise. For the purposes of these financial statements, in order to avoid double accounting, the assessed fair value is:

Reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments

Increased by the carrying amount of any liability to the superior leaseholder or freeholder that has been recognised in the balance sheet as a finance lease obligation

Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of investment property are recognised in the income statement in the year of retirement or disposal.

IAS 40.33, IAS 40.35

IAS 40.66, 69

Gains or losses on the disposal of investment property are determined as the difference between net disposal

IAS 40.69

proceeds and the carrying value of the asset in the previous full period financial statements.

 

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5. Summary of significant accounting policies continued

Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end IAS 40.57 of owner occupation or commencement of an operating lease. Transfers are made from investment property

when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

Commentary

The Group has elected to measure investment property at fair value. IAS 40 also permits investment property to be measured using a cost model. These financial statements do not illustrate the latter approach.

The Group’s policy for calculating gains or losses on disposal is to use the carrying value of the asset in the previous full financial statements. This policy choice is primarily a matter of income statement presentation to the extent that an entity presents gains and losses on disposal separately from gains and losses on revaluation.

Non-current assets held for sale

Investment property is transferred to non-current assets held for sale when it is expected that the carrying amount will be recovered principally through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such property and its sale must be highly probable.

For the sale to be highly probable:

IFRS 5.7

IFRS 5.8

The Board must be committed to a plan to sell the property and an active programme to locate a buyer and complete the plan must have been initiated

The property must be actively marketed for sale at a price that is reasonable in relation to its current fair value

The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification

On re-classification, investment property that is measured at fair value continues to be so measured.

Rent and other receivables

Rent and other receivables are recognised at their original invoiced value. Where the time value of money is material, receivables are carried at amortised cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

Inventory property

Property acquired or being constructed for sale in the ordinary course of business, rather than to be held for rental or capital appreciation, is held as inventory property and is measured at the lower of cost and net realisable value.

Cost includes:

Freehold and leasehold rights for land

Amounts paid to contractors for construction

IFRS 5.5(d)

IAS 40.57

IAS 2.6, 9, 21

Borrowing costs, planning and design costs, costs of site preparation, professional fees for legal services, property transfer taxes, construction overheads and other related costs

Non refundable commissions paid to sales or marketing agents on the sale of real estate units are expensed when paid.

Net realisable value is the estimated selling price in the ordinary course of the business, based on market prices at the reporting date and discounted for the time value of money if material, less costs to completion and the estimated costs of sale.

The cost of inventory property recognised in profit or loss on disposal is determined with reference to the specific costs incurred on the property sold and an allocation of any non-specific costs based on the relative size of the property sold.

Cash and short term-deposits

Cash and short-term deposits in the balance sheet comprise cash at bank and short-term deposits with an original maturity of three months or less.

IAS 7.6 IAS 7.46

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5. Summary of significant accounting policies continued

Interest bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Tenant deposits

Tenant deposits liabilities are initially recognised at fair value and subsequently measured at amortised cost where material. Any difference between the initial fair value and the nominal amount is included as a component of operating lease income and recognised on a straight-line basis over the lease term.

Leases — Group as lessee

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

IAS 39.43, IAS 39.47

IAS 39.43, IAS 39.47

IAS 17.8, IAS 17.20,

Lease payments are apportioned between the finance charges and the reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement as they arise.

Other leases are classified as operating leases, unless they are leases of investment property (see investment property above). Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term, except for contingent rental payments which are expensed when they arise.

Revenue recognition

Rental income

Rental income receivable from operating leases except for contingent rental income which is recognised when it arises. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.

Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the income statement when the right to receive them arises.

Interest income

Interest income is recognised as it accrues using the effective interest rate method.

Service charges and expenses recoverable from tenants

IAS 17.25

IAS 17.50, 52 SIC 15.4

IAS 18.30(a)

IAS 18.20

Income arising from expenses recharged to tenants is recognised in the period in which the compensation becomes receivable. Service charges and other such receipts are included gross of the related costs in revenue, as the directors consider that the Group acts as principal in this respect.

Commentary

Arrangements where the lessor charges tenants for expenses such as utilities are commonplace. It is necessary to assess whether the entity is acting as a principal by reference to the indicators in IAS 18 Appendix paragraph 21. This requires judgement and consideration of all relevant facts and circumstances. Credit risk is a factor (although not, on its own, decisive) in determining whether service charges should be recognised gross or net. Also important is whether a landlord is responsible for ensuring that appropriate utilities are provided to the tenant.

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5. Summary of significant accounting policies continued

Sale of completed property

IAS 18.14

A property is regarded as sold when the significant risks and returns have been transferred to the buyer, which is normally on unconditional exchange of contracts. For conditional exchanges, sales are recognised only when all the significant conditions are satisfied.

Sales of property under development

IAS 18.14

Where property is under development and agreement has been reached to sell such property when construction is complete, the directors consider whether the contract comprises:

A contract to construct a property Or

A contract for the sale of a completed property

Where a contract is judged to be for the construction of a property, revenue is recognised using the percentage of completion method as construction progresses.

Where the contract is judged to be for the sale of a completed property, revenue is recognised when the significant risks and rewards of ownership of the real estate have been transferred to the buyer. If, however, the legal terms of the contract are such that the construction represents the continuous transfer of work in progress to the purchaser, the percentage-of-completion method of revenue recognition is applied and revenue is recognised as work progresses. Continuous transfer of work in progress is applied when:

The buyer controls the work in progress, typically when the land on which the development takes place is owned by the final customer

And

All significant risks and rewards of ownership of the work in progress in its present state are transferred to

the buyer as construction progresses, typically, when buyer cannot put the incomplete property back to the

Group

IFRIC 15.20

In such situations, the percentage of work completed is measured based on the costs incurred up until the end of the reporting period as a proportion of total costs expected to be incurred.

Commentary

IFRIC 15 Agreements for the Construction of Real Estate is relevant to real estate developers. It is common practice to market developments well before the start of construction and this activity then continues throughout the construction period. A typical off- plan arrangement will involve a buyer entering into a sales agreement with a developer to acquire a specific unit upon completion of construction.

IFRIC 15 provides guidance on how to determine whether the agreement is within the scope of IAS 11 or IAS 18. A key point of the interpretation is how real estate agreements that involve construction activities should be treated for revenue recognition.

The interpretation clarifies that the terms and conditions and the surrounding facts and circumstances of each agreement should be analysed very carefully and the agreements may have to be split into separate components, e.g., a sale of land and a construction component. The land component will typically be treated as a sale under IAS 18. The construction component is less straight forward; the key question being whether the arrangement meets the definition of a construction contract in accordance with IAS 11 or, if IAS 11 does not apply, the arrangement is for the rendering of services under IAS 18 or it is considered a sale of goods, whether, in the latter case, a continuous transfer of work in progress takes place under IAS 18.

Taxes

Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and it establishes provisions where appropriate.

IAS 12.46 IAS 1.117

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5. Summary of significant accounting policies continued

Deferred income tax

Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:

Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss

In respect of taxable temporary differences associated with investments in subsidiaries, joint ventures and associates where the timing of the reversal of the temporary differences can be controlled by the parent, venturer or investor, respectively, and it is probable that the temporary differences will not reverse in the foreseeable future

Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an investment property measured at fair value a rebuttable presumption exists that its carrying amount will be recovered through sale.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.

Derivatives and hedging

The Group uses interest rate swaps to hedge its risks associated with interest rates. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

IAS 12.39 IAS 12.44

IAS 12.24

IAS 12.56 IAS 12.37

IAS 12.47

IAS 12.61 A

IAS 39.43

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For the purpose of cash flow hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in profit or loss. Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs.

IFRS 7.22(a)

IFRS 7.22(b)

IAS 39.88

IAS 39.95 IAS 39.97

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in IAS 39.101 equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised

without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

When a derivative is held as an economic hedge for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments.

Share-based payments

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). Employees working in the business development group are granted share appreciation rights, which can only be settled in cash (cash-settled transactions).

Equity-settled transactions

The cost of equity-settled transactions is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in administrative costs.

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (further details are given in Note 29).

Cash-settled transactions

The cost of cash-settled transactions is measured initially at fair value at the grant date using a binomial model, further details of which are given in Note 29. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognised in administrative expenses.

Good Real Estate Group (International) Limited

29

6. Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.

IAS 1 Financial Statement Presentation — Presentation of Items of Other Comprehensive Income

The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment will have no impact on the Group’s financial position. The amendment becomes effective for annual periods beginning on or after 1 July 2012.

IFRS 9 Financial Instruments: Classification and Measurement

IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The completion of this project is expected by the end of 2012. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but is not expected to have any impact on classification and measurements of financial liabilities. The Group has chosen to defer a full impact analysis of the new standard until it is completed by inclusion of the still outstanding phases, and quantitative information of the effects of the new standard is therefore not available.

IFRS 10 Consolidated Financial Statements

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013, and management consider that an entity currently excluded from the consolidated financial statements will be included due to the existence of potential voting rights held within the Group. As at 1 January 2013 this would have had the effect of increasing the carrying value of property by €2,500,000 and debt by €2,000,000.

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, joint arrangements that meet the definition of a Joint Venture must be accounted for using the equity method. Otherwise joint arrangements are accounted for by recognizing the group’s share of the arrangements assets and liabilities.

The application of this new standard will not impact the financial position of the Group as the joint venture in Eastmeadow NV (see note 21) is already equity accounted for and management considers this accounting will continue under IFRS 11. IFRS 11 becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 12 Disclosure of Involvement with Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required including:

A requirement to disclose judgements made in determining if the Group controls, has joint control or significant influence over an entity

A requirement to disclose judgements made in determining the type of joint arrangement in which the Group has an interest

The Group will disclose its judgement in respect of the entity currently excluded from the consolidated financial statements that will be included due to the existence of potential voting rights held within the Group.

This standard becomes effective for annual periods beginning on or after 1 January 2013.

30

Good Real Estate Group (International) Limited

6. Standards issued but not yet effective continued

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group does not consider that the definition of fair value that is applied in IFRS 13 differs in a material way from its current approach and consequently anticipates there will not be any impact from this standard on its financial position. However, IFRS 13 does expand the disclosure requirements in respect of fair value measurement. In particular, the financial statements will in the future, as well as other disclosures, contain:

An analysis of the fair value hierarchy for investment property (as well as for financial instruments — see Note 31)

Information about the sensitivity of fair value measurements to changes in unobservable estimation inputs And

A detailed commentary on the Group’s valuations methods and procedures

IFRS 13 becomes effective for annual periods beginning on or after 1 January 2013.

Commentary

IAS 8.30 requires disclosure of when an entity has not applied a new standard or interpretation that has been issued but is not yet effective. In particular, the entity must disclose known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity's financial statements in the period of initial application.

The Group has provided details of the impact of such standards and interpretations to the extent they are expected to have a material impact on the Group. Detail of other standards and interpretations would be immaterial information.

Good Real Estate Group (International) Limited

31

7. Business combinations

On 1 April 2012, the Group acquired 80 % of the shares of Property Business Ltd, an unlisted company based in Estateland. Property Business Ltd holds a portfolio of retail and office buildings let under operating leases and the acquisition was made to give the Group access to those assets. The existing strategic management function and associated processes were acquired with the property and, as such, the Directors consider this transaction the acquisition of a business, rather than an asset acquisition.

The fair value of the identifiable assets and liabilities of Property Business Ltd as at the date of acquisition were:

IFRS 3.59,

IFRS 3.B64(a)

IFRS.3.B64(b)

IFRS 3.B64(c)

IFRS 3.B64(d)

 

Fair value recognised

 

 

on acquisition

 

 

€000

Investment property

75,000

 

Trade receivables

600

 

Cash and cash equivalents

375

 

 

 

 

 

 

75,975

 

 

 

 

 

Trade payables

575

 

Deferred tax liabilities

6,350

 

 

 

 

 

 

6,925

 

Total identifiable net assets at fair value

 

 

 

69,050

 

Non-controlling interest

 

 

 

(13,810)

 

Goodwill arising on acquisition

 

 

 

3,000

 

Total consideration

 

 

 

58,240

 

 

 

 

 

The total consideration of €58,240,000 for the 80% interest acquired consists of €57,398,000 cash and €842,000 contingent consideration.

The incidental costs of €1,750,000 incurred in connection with the acquisition have been expensed and are included in administrative expenses.

The Group has elected to measure the non-controlling interest in Property Business Ltd at the proportionate share of the acquiree's net identifiable assets.

From the date of acquisition, Property Business Ltd has contributed €1,289,000 to the profit after tax and €1,842,000 to revenues (revenue from Property Business Ltd is only attributable to rental income) of the Group. If the combination had taken place at the beginning of the year, the profit after tax for the Group would have been €25,314,000 and revenue (rental income) would have been €25,279,000.

The goodwill of €3,000,000 comprises €2,600,000 created by the existence of a deferred taxation liability that the Group considered to be in excess of its fair value and a portfolio premium arising from the acquisition of €400,000. None of the goodwill is expected to be deductible for tax purposes.

The fair value of the trade receivables equates to the gross contracted value receivable and is expected to be received within two months.

Contingent consideration

As part of the sale and purchase agreement, an amount of contingent consideration has been agreed. There will be additional cash payments due to the previous owners of Property Business Ltd of:

€500,000, if the entity generates more than €5,000,000 net rental income from acquisition date to 31 December 2012

Or

€1,000,000, if the entity generates more than €10,000,000 net rental income from acquisition date to 31 December 2012

As at the acquisition date, the fair value of the contingent consideration was estimated at €842,000. There were no measurement period adjustments and the contingent consideration remains unpaid as at 31 December 2012.

IFRS 3.B64(i) IAS 7.40 (d)

IAS 7.40 (c)

IFRS 3.B64(o)

IFRS 3.32

IFRS 3.B64(f)(i) IFRS 3.B64(f)(iii)

IFRS 3.B64(m)

IFRS 3.19 IFRS 3.B64(o)

IFRS 3.B64(q)(i) IFRS 3.B64(q)(ii)

IFRS 3.B64(e)

IFRS 3.B64(k)

IFRS 3.B64(h)

IFRS 3.B64(g)(ii)

IFRS 3.B64(g)(iii)

IFRS 3.B64(g)(i)

32

Good Real Estate Group (International) Limited

Commentary

The classification of a contingent consideration requires an analysis of the individual facts and circumstances. It may be classified either as equity or as a liability, each resulting in different initial recognition and subsequent measurement. The Group has assessed the nature of the contingent consideration and determined it as being a financial liability, as the Group incurred a contractual obligation to deliver cash to the seller (IAS 32.11). Consequently, the Group is required to remeasure that liability to fair value at the reporting date (IFRS 3.58(b) (i)).

8. Revenue

Rental income (excluding straight-lining of lease incentives) Straight-lining of lease incentives

Rental income Service charge income

Proceeds from the sale of inventory property (recognised on completion) Proceeds from sale of inventory property (recognised on a percentage of completion basis — see Note 22)

Interest income (Note 11)

Total revenue

Rental income includes contingent rental of €1,654,000 (2011: €1,375,000).

2012

2011

 

€000

€000

 

 

 

IAS 18.35

22,750

24,688

(c)(ii)

(280)(355)

22,470 24,333

2,584

2,197

IAS 18.35(b)(ii)

5,000

13,750

IAS 18.35(b)(ii)

 

 

 

IAS 18.35 (b)(i)

6,000

3,000

IFRIC 15.20

9,195

 

7,559

IFRS 7.20 (b)

45,249

50,839

 

 

 

 

 

IAS 17.56(b)

The Group has granted incentives such as rent-free periods to new tenants. The average number of months of rent-free periods granted is nine months. The total unamortised portion of rent-free periods is detailed as follows:

 

2012

2011

 

 

€000

 

€000

Gross amount of lease incentives not fully amortised

4,108

4,108

Cumulative amount recognised in profit or loss

 

(1,868)

 

(1,588)

Net amount of lease incentives not fully amortised

2,240

2,520

Commentary

Regulators in certain jurisdictions require entities holding investment property to disclose more detail about lease incentives, in particular rent-free periods, than is strictly required under IFRS. We have included illustrative disclosures of lease incentives and their impact on profit or loss in the period.

9. Operating leases – Group as lessor

The Group has entered into leases on its property portfolio. The commercial property leases typically have lease IAS 17.56(c) terms between five and 15 years and include clauses to enable periodic upward revision of the rental charge

according to prevailing market conditions. Some leases contain options to break before the end of the lease term.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are, as follows:

 

2012

2011

 

 

 

 

€000

 

€000 IAS 17.56(a)

Within 1 year

24,321

23,430

 

 

After 1 year, but not more than 5 years

74,080

72,320

 

 

More than 5 years

 

115,200

 

112,500

 

 

 

 

213,601

 

208,250

 

 

Good Real Estate Group (International) Limited

33

10. Service charge and other property operating expenses

Service charge expenses

Repairs, maintenance and utilities

Property insurance costs

Other

Other property operating expenses

Repairs, maintenance and utilities

Bad debt allowance

Property management expenses

Other

Total property operating expenses

Property expenses arising from investment property that generate rental income

Property expenses arising from investment property that did not generate rental income

Total property operating expenses

Employee benefits expense

Short-term employee benefits

Other long-term benefits

Termination benefits

Share-based payment transactions (note 29)

Total employee benefits expense

2012 2011

€000 €000

1,453 1,256

546538

655460

2,654 2,254

900 1,310

319364

443911

456564

2,118 3,149

4,772 5,403

2012

2011

 

€000

€000

 

4,105

4,510

IAS 40.75(f)(ii)

 

 

IAS 40.75(f)

667893 (iii)

4,772 5,403

2012

2011

 

 

 

€000

 

€000

 

 

1,910

1,975

 

 

198

165

 

 

32

 

 

 

412

492

 

 

 

 

 

 

 

2,552

2,632

IASIFRS1.1047.20(b)

 

 

 

 

 

 

11. Interest income

 

2012

2011

 

 

 

 

€000

 

€000

 

Bank interest

8,765

7,457

 

 

Other interest

 

430

 

102

 

 

Total interest income

9,195

7,559

 

IFRS 7.20(b)

 

 

 

 

 

 

 

12. Interest expense

Interest on bank loans Less: amounts capitalised

Total interest expense for financial liabilities not at fair value through profit or loss

Finance lease interest Net foreign exchange loss

Total interest expense

2012 2011

€000 €000

21,984 19,866

(360)(1,730)

21,624 18,136

55107

426678

22,105

 

18,921 IFRS 7.20(b)

 

 

 

 

The capitalisation rate used to determine the borrowings eligible for capitalisation is 5.5% (2011: 5.5%).

IAS 23.26(b)

34

Good Real Estate Group (International) Limited

13. Segmental information

For investment property, discrete financial information is provided on a property-by-property basis to the Executive Management Committee, which is the chief operating decision maker. The information provided is net of rentals (including gross rent and property expenses), valuations gains/losses, profit/loss on disposal of investment property and share of profit from the joint venture. The individual properties are aggregated into segments with similar economic characteristics such as nature of the property and the occupier market it serves. The Directors consider that this is best achieved by aggregating into retail, office and industrial segments.

Information on the residential development property segment provided to the Board is aggregated and is represented by revenue and profit from the sale of inventory property.

Consequently, the Group is considered to have four reportable operating segments, as follows:

Retail segment — acquires, develops and leases shopping malls

Office segment — acquires, develops and leases offices

Industrial segment — acquires, develops and leases warehouses and factories

Residential development segment — builds and sells residential property

IFRS 8.22

IFRS 8.23(b)

Group administrative costs, profit/loss on disposal of investment property, finance revenue, finance costs and income taxes are not reported to the Board on a segment basis. There are no sales between segments.

Segment assets for the investment property segments represent investment property (including those under construction) and the investment in the joint venture. Segment assets for the residential development segment represents unsold inventory property.

Segment liabilities represent loans and borrowing, as these are the only liabilities reported to the Board on a segmental basis.

Whilst segment liabilities include loans and borrowings, segment profit does not include related finance costs. If such finance costs were included in segment profit, the aggregate segment profit would be reduced by €22,105 (2011: €18,921).

IFRS 8.28 (c)

IFRS 8.28 (d)

Year ended

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

 

 

31 December 2012

 

 

Retail

Office

Industrial

development

Adjustments*

Total

 

 

 

€000

€000

€000

 

€000

€000

€000

Segment profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent and service

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

charge income

5,264

 

 

2,151

 

 

19,441

 

 

(1,802)

 

25,054

 

Property sales —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

inventory property

 

 

11,000

 

 

11,000

 

Property operating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expenses

(1,011)

 

(520)

 

(3,241)

 

(4,772)

Costs of sales —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

inventory property

 

 

(7,000)

 

 

(7,000)

Net valuation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gain/(loss) on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment property

5,600

 

 

3,100

 

 

10,200

 

 

18,900

 

Share of profit of a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

joint venture

3,250

 

 

 

3,250

 

Profit on disposal of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment property

 

 

2,000

 

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit

13,103

 

 

4,731

 

 

28,400

 

4,000

 

 

(1,802)

 

 

 

48,432

 

Administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expenses

(2,369)

 

(1,325)

 

(2,229)

(365)

 

1,412

 

 

 

(4,876)

Finance costs

(2,304)

 

(3,412)

 

(15,557)

(832)

 

(22,105)

Finance revenue

 

 

 

 

3,756

 

 

5,439

 

 

 

 

 

9,195

 

Profit before tax

 

8,430

 

 

3,750

 

 

16,053

 

2,803

 

 

(390)

 

30,646

 

IFRS 8.23(a)

IFRS 8.23(e)

IFRS 8.23(e)

IFRS 8.23(i)

IFRS 8.23(g)

IFRS 8.23(e)

IFRS 8.23

IFRS 8.21(c)

*The rental income information presented to the Board is in the form of the rent passing in the period rather than being spread on a straight-line basis over the lease term in the way prescribed by IAS 17. Consequently, the rent passing information presented to the Board is adjusted here to agree with rental income in the income statement.

Good Real Estate Group (International) Limited

35

13. Segmental information continued

Year ended

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

31 December 2012

 

 

Retail

 

 

Office

 

 

Industrial

 

 

development

 

 

Total

 

 

 

€000

 

 

€000

 

 

€000

 

 

€000

 

 

€000

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Completed investment property

73,646

47,940

331,405

 

 

452,991

 

Investment property under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

construction

 

 

30,146

 

 

 

 

30,146

 

Investment property held for sale

10,560

 

 

 

 

 

 

10,560

 

Inventory property

 

 

 

 

 

 

6,533

6,533

 

Investment in joint venture

 

103,250

 

 

 

 

 

 

 

103,250

 

Segment assets

 

187,456

 

78,086

 

331,405

 

6,533

 

603,480

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

Current assets (excluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

inventory property)

 

 

 

 

 

 

 

 

 

 

 

 

 

102,527

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

709,007

 

Segment liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and borrowings

 

129,414

 

65,200

 

185,010

 

 

 

379,624

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

16,932

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

8,836

 

Total liabilities

 

 

 

 

 

 

 

 

 

 

 

 

405,392

 

Additions to noncurrent assets

 

31,808

 

28,521

 

31,442

 

 

 

91,771

 

IFRS 8.24(a)

IFRS 8.23

IFRS 8.23

IFRS 8.24(b)

IFRS 8.21(d)

Additions to noncurrent assets consist of additions of investment property including assets from the acquisition of subsidiaries and investment property under construction.

Year ended

 

 

 

 

 

 

 

Residential

 

 

 

 

 

 

31 December 2011

 

Retail

Office

Industrial

development

Adjustments*

 

Total

 

 

€000

€000

€000

€000

 

€000

 

€000

Segment profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent and service

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

charge income

5,305

 

2,807

 

20,028

 

(1,610)

26,530

 

Property sales —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

inventory property

 

16,750

 

 

16,750

 

Property operating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expenses

(1,150)

(475)

(3,778)

 

(5,403)

Costs of sales —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

inventory property

 

(17,000)

 

(17,000)

Net valuation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gain/(loss) on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment property

 

2,510

 

3,225

 

5,750

 

 

 

11,485

 

Segment profit

6,665

 

5,557

 

22,000

 

(250)

(1,610)

32,362

 

Administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expenses

(635)

(567)

(2,754)

(367)

1,347

 

(2,976)

Finance costs

(23)

(3,365)

(14,701)

(832)

 

(18,921)

Finance revenue

 

2,092

 

5,467

 

 

 

7,559

 

Profit before tax

6,007

 

3,717

 

10,012

 

(1,449)

(263)

 

 

18,024

 

IFRS 8.23(a)

IFRS 8.23(e)

IFRS 8.23(e)

IFRS 8.23(i) IFRS 8.23

*The rental income information presented to the Board is in the form of the rent passing in the period rather than being spread on a straight-line basis over the lease term in the way prescribed by IAS 17. Consequently, the rent passing information presented to the Board is adjusted here to agree with rental income in the income statement.

36

Good Real Estate Group (International) Limited

13. Segmental information continued

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

Year ended 31 December 2011

 

Retail

 

 

 

Office

 

 

 

Industrial

 

development

 

 

Total

 

 

€000

 

 

 

€000

 

 

 

€000

 

 

€000

 

 

€000

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Completed investment property

51,156

25,014

312,450

 

 

388,620

 

Investment property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

under construction

 

30,896

 

 

 

 

 

30,896

 

Inventory property

 

 

 

 

 

 

 

 

9,580

 

9,580

 

Segment assets

51,156

55,910

312,450

9,580

429,096

 

Deferred tax

 

 

 

 

 

 

 

 

 

 

 

 

 

2,992

 

Current assets (excl. Inventory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

property)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72,066

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

504,154

 

Segment liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and borrowings

22,132

44,721

188,978

 

 

255,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

16,639

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,499

 

Total liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

284,969

 

Additions to noncurrent assets

 

10,102

 

 

26,832

 

 

58,107

 

 

 

 

95,041

 

Additions to noncurrent assets consist of additions of investment property including assets from the acquisition of subsidiaries and investment property under construction.

IFRS 8.23

IFRS 8.23

IFRS 8.24(b)

IFRS 8.21(d)

Geographical information

2012

2011

 

 

Revenues from external customers

 

€000

 

€000

IFRS 8.33(a)

Estateland (including revenue from sales of inventory property)

15,331

12,739

 

 

Germany

4,651

 

 

Luxembourg

3,306

15,623

 

 

France

 

12,766

 

14,918

 

 

Total

 

36,054

 

43,280

 

 

 

2012

2011

 

 

Carrying amount of investment property (including under construction and

 

€000

 

€000

IFRS 8.33(b)

held for sale), goodwill and investment in joint venture

 

 

 

 

 

 

Estateland

89,211

74,909

 

 

The Netherlands

103,250

 

 

Germany

91,450

72,211

 

 

Luxembourg

65,020

70,286

 

 

France

 

251,016

 

202,110

 

 

Total

 

599,947

 

419,516

 

 

There are no transactions with a single external customer that account for 10% or more of the Group’s total

IFRS 8.34

revenues.

 

 

 

 

 

 

Good Real Estate Group (International) Limited

37

14. Taxation

The major components of income tax expense for the years ended 31 December 2012 and 2011 are:

 

2012

2011

 

 

 

 

 

€000

 

 

€000

Consolidated income statement

 

 

 

 

 

 

 

 

Current income tax

 

 

 

 

 

 

 

 

Current income tax charge

3,056

2,267

 

 

Deferred income tax

 

 

 

 

 

 

 

 

Relating to origination and reversal of temporary differences

 

4,242

 

1,330

 

Income tax expense reported in the income statement

7,298

3,597

 

 

 

 

 

 

 

 

 

Consolidated statement of comprehensive income

 

 

 

 

 

 

 

 

Deferred income tax related to items charged or credited directly to equity

 

 

 

 

 

 

 

 

Net gains (losses) on revaluation of cash flow hedges

 

3,714

 

(570)

 

 

Income tax expense reported in other comprehensive income

 

3,714

 

(570)

 

 

IAS 12.79

IAS 12.80(a)

IAS 12.80(c)

IAS 12.81(a)

A reconciliation between tax expense and the product of accounting profit multiplied by Estateland’s tax rate for the years ended 31 December 2012 and 2011 is, as follows:

 

2012

2011

 

 

 

 

€000

 

€000 IAS 12.81(c)(i)

Profit before tax

 

30,646

 

18,024

 

 

At Estateland’s statutory tax rate of 30% (2011: 30%)

9,193

5,407

 

 

Non-deductible expenses

1,194

519

 

 

Non-taxable income

(156)

(781)

 

 

Effect of lower tax rates in other countries

 

(2,933)

 

(1,548)

 

 

Total tax expense reported in the income statement

 

7,298

 

3,597

 

 

Commentary

IAS 12 requires an explanation of the relationship between tax expense (income) and accounting profit in either or both of the following forms:

A numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed

A numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed

The Group has presented the former.

38

Good Real Estate Group (International) Limited

14. Taxation continued

 

 

 

Consolidated

 

Consolidated

 

 

balance sheet

income statement

 

2012

2011

 

 

2012

 

 

2011

 

 

 

€000

 

€000

€000

€000

Deferred tax liability

 

 

 

 

 

 

 

 

 

 

 

Revaluations of investment property to fair value

14,794

4,286

 

 

4,158

 

 

2,086

 

Adjustments relating to straight lining of lease

 

 

 

 

 

 

 

 

 

 

 

incentives

 

672

 

756

 

 

(84)

(106)

 

 

15,466

 

5,042

 

 

 

 

 

 

 

Deferred income tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation of an interest rate swap (cash flow hedge)

 

 

 

 

 

 

 

 

 

 

 

to fair value

123

3,837

 

 

Losses available for offset against future taxable

 

 

 

 

 

 

 

 

 

 

 

income

 

4,029

 

4,197

 

 

168

 

 

(650)

 

 

4,152

8,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income tax expense

 

 

 

 

 

 

4,242

 

 

1,330

 

Deferred tax liabilities/(assets) net

 

11,314

 

(2,992)

 

 

 

 

 

 

IAS 12.81(g)(i) IAS 12.81(g)(ii)

Reflected in the balance sheet as follows

 

 

 

 

Deferred tax assets

(2,992)

Deferred tax liabilities

11,314

 

 

Deferred tax liabilities/(assets) net

11,314

 

(2,992)

The temporary difference resulting from revaluation of investment property to fair value includes an amount of € 6,350,000 related to the purchase price allocation of Property Business Ltd (Note 7).

The Group has tax losses which arose in Estateland of €12,204,000 (2011: €12,204,000) that are available

IAS 12.81(e)

indefinitely for offset against future taxable profits of the companies in which the losses arose. Deferred tax

 

assets have not been recognised in respect of these losses as they may only be used to offset the taxable profits

 

of certain companies in the Group, and there is uncertainty whether these companies will generate taxable

 

profit in the future.

 

A temporary difference of €35.1m (2011: €35.8m) exists between the carrying amount of investment property

 

and their tax base for which no deferred taxation has been provided because of the initial recognition exemption

 

in IAS 12.

 

Commentary

IAS 12 does not require disclosure of temporary differences for which no deferred taxation has been provided because of the initial recognition exemption in IAS 12. However, we regard such disclosure as a leading practice.

Good Real Estate Group (International) Limited

39

15. Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

 

2012

2011

 

 

 

€000

 

€000

Net profit attributable to ordinary equity holders of the parent for

20,759

13,469

 

basic earnings

 

 

 

 

 

 

 

2012

2011

 

 

 

Thousands

 

Thousands

Weighted average number of ordinary shares

213,700

193,700

 

 

 

 

 

 

IAS 33.70(a)

IAS 33.70(b)

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

EPRA publishes guidelines for calculating adjusted earnings that represent earnings from the core operational activities. Therefore, it excludes the effect of movements in the fair value of, and results from sales of, investment property together with related deferred taxation.

For The Group, the EPRA EPS may be calculated as:

IAS 33.70(d)

 

2012

 

2011

 

 

 

€000

€000

Earning for basic EPS

20,759

 

13,469

 

Revaluation movements on investment property

(18,900)

(11,485)

Related deferred tax

4,158

 

2,086

 

Profit on disposal of investment property

(2,000)

Current tax on disposal of investment property

510

 

Non controlling interest in respect of the above

 

1,623

 

665

 

Earnings for EPRA EPS

6,150

 

4,735

 

 

 

 

 

 

 

 

€ per share

€ per share

EPRA EPS

 

0.03

 

0.02

 

Commentary

EPRA is neither an accounting body nor a valuation body, but it publishes Best Practice Recommendations (BPR) which aim to achieve uniform accounting and valuation principles amongst its members. Other industry organisations, such as the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), have their own net asset value per share (NAV) metrics. We have no preference for any of the alternatives, but highlight that EPRA NAV is principally followed by public companies, whereas INREV is focused on private entities.

We illustrate here the effect of the recommendations in the BPR dated August 2011 for calculating adjusted earnings per share (EPS) and NAV. The BPR contains other recommendations, but The Group does not necessarily illustrate all of these.

There is no requirement in IFRS to provide an adjusted EPS (following the EPRA principles or otherwise) in the financial statements. However, this is a common metric in the real estate industry, so we have illustrated how this information might be provided.

40

Good Real Estate Group (International) Limited

16. Net asset value per share (NAV)

Basic NAV per share amounts are calculated by dividing net assets in the balance sheet attributable to ordinary equity holders of the parent by the number of ordinary shares outstanding during the year. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical.

The following reflects the net asset and share data used in the basic and diluted NAV per share computations:

 

2012

2011

 

 

 

€000

 

€000

NAV attributable to ordinary equity holders of the parent

285,413

217,382

 

 

2012

2011

 

 

 

Thousands

 

Thousands

Number of ordinary shares at the reporting date

233,700

193,700

 

 

 

 

 

 

The EPRA publishes guidelines for calculating adjusted NAV. EPRA NAV represents the fair value of an entity’s equity on a long-term basis. Items that EPRA considers will have no impact on the long term, such as fair value of derivatives and deferred taxes on property fair values, are therefore excluded.

For the Group, the EPRA NAV per share takes into account the following adjustments:

The fair value of derivatives is excluded as these are effective hedges

Deferred taxation arising on revaluation of property to fair value is excluded

Goodwill which results from the provision of deferred taxation upon a business combination is excluded

Inventory property, which under IFRS is measured at the lower of cost and net realisable value, is increased to market value

 

2012

 

2011

 

 

 

€000

 

€000

Basic NAV

285,413

 

217,382

 

Fair value of derivatives

425

 

12,804

 

Deferred taxation

11,314

 

(2,992)

Goodwill caused by deferred taxation on a business combination

(2,600)

 

Adjustment to measure inventory property at fair value, otherwise held at cost

850

 

1,100

 

Non controlling interest in respect of the above

 

(899)

 

(873)

EPRA NAV

294,503

 

227,421

 

 

 

 

 

 

 

 

 

€ per share

 

€ per share

EPRA NAV

 

1.26

 

 

1.17

 

Commentary

There is no requirement in IFRS to provide a NAV in the financial statements. However, this is a common metric in the real estate industry so we have illustrated how this information may be provided. Other industry organisations also make recommendations for the calculation of NAV.

The presentation of NAV in the financial statements may not be appropriate in all jurisdictions.

Good Real Estate Group (International) Limited

41

17. Completed investment property

 

2012

2011

 

 

 

 

 

 

€000

 

 

€000

 

At 1 January

388,620

302,240

 

 

 

Acquisitions arising from business combinations

75,000

 

 

IAS 40.76(b)

Other acquisitions of property

 

 

71,425

 

 

IAS 40.76(a)

Capital expenditure on owned property

504

5,475

 

 

IAS 40.76(a)

Transfer from inventory property

1,047

 

 

 

Transfer from property under construction

10,070

 

 

 

Disposals

(26,670)

 

 

IAS 40.76(c)

Fair value adjustment

14,980

9,480

 

 

IAS 40.50

 

 

 

 

 

 

 

 

 

Total completed investment property

 

 

 

 

 

 

 

 

 

463,551

388,620

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: classified as held for sale

(10,560)

 

 

IAS 40.76(c)

At 31 December

 

 

 

 

 

 

 

 

 

452,991

388,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

2011

 

 

 

 

 

 

€000

 

 

€000

 

Market value as estimated by external valuer

453,518

389,385

 

 

IAS 40.77

Add: finance lease obligation recognised separately

1,713

1,755

 

 

 

Less: lease incentive balance included in prepayments

(2,240)

(2,520)

 

 

 

Fair value for financial reporting purposes

 

 

 

 

 

 

 

 

452,991

 

388,620

 

 

 

The fair value of completed investment property has been determined on a market value basis in accordance with International Valuation Standards (IVS), as set out by the IVSC. The valuation is prepared on an aggregated ungeared basis. As set out in Note 4, in arriving at their estimates of market values, the valuers have used their market knowledge and professional judgement and not only relied on historical transactional comparables.

The valuations were performed by Chartered Surveyors & Company, an accredited independent valuer with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being valued.

The significant assumptions made relating to valuations are set out below:

 

 

Luxembourg

 

Estateland

 

Germany

France

2012

 

 

 

 

 

 

 

 

 

Passing rent per sqm

 

€200

 

€150

 

€300

€360

Estimated rental value (market rent) per sqm

 

€200

 

€155

 

€295

€365

Average net initial yield

7.0%

7.5%

8.0%

8.0%

 

Reversionary yield

6.5%

7.2%

7.5%

7.8%

 

Inflation rate

3.5%

4.0%

3.0%

3.5%

 

Long-term vacancy rate

2.0%

3.0%

3.0%

2.0%

 

Long-term growth in real rental rates

3.5%

4.0%

4.0%

3.5%

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passing rent per sqm

 

€195

 

€145

 

€295

€345

Estimated rental value (market rent) per sqm

 

€198

 

€150

 

€290

€355

Average net initial yield

6.5%

6.5%

7.0%

7.0%

 

Reversionary yield

6.3%

6.2%

6.5%

6.5%

 

Inflation rate

4.0%

4.2%

3.2%

3.8%

 

Long-term vacancy rate

2.0%

4.0%

4.0%

3.0%

 

Long-term growth in real rental rates

4.0%

4.5%

4.5%

3.5%

 

 

 

 

 

 

 

 

 

 

 

IAS 40.75 (a)

IAS 40.75 (d)(e)

IAS 40.33, 36, 75 (a), 38

IAS 40.75(d)

IAS 40.75(d)

Commentary

IAS 40 requires disclosure of the significant assumptions made in the valuation of investment property. The above provides illustrative disclosures. We also recommend providing a definition or explanation of the significant assumptions – for example, to explain whether passing rent includes or excludes the effect of lease incentives.

42

Good Real Estate Group (International) Limited

17. Completed investment property continued

As at 31 December, property with an aggregate value of € 75m (2011: € 70m) are held under lease agreements. Future lease payments are presented in Note 28.

As at 31 December, the portfolio had the following vacancy rates, calculated based on Estimated Rental Values; along with the following estimates of when actual vacancy will equal the long term rate:

IAS 17.31, IAS 40.75

 

Luxembourg

Estateland

Germany

France

2012

 

 

 

 

Vacancy rate

3%

4%

3%

6%

Duration (months)

6

7

9

2011

 

 

 

 

Vacancy rate

4%

5%

4%

7%

Duration (months)

9

8

9

Commentary

Whilst not a specific IFRS requirement, regulators in some jurisdictions require disclosure of the vacancy rates of the entities’ property portfolio. EPRA recommends that entities disclose vacancy rates calculated as the Estimated Rental Value of vacant space divided by Estimated Rental Value of the whole portfolio. Vacancy Rate generally includes all completed properties (whether classified investment or trading) including their share of joint ventures’ vacancy, but excluding those properties which are under development.

Sensitivity analysis

The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of completed investment property.

IAS 1.129(b)

 

2012

2011

 

 

€000

 

€000

Increase in yield of 25bps

(4,300)

(3,500)

Increase in expected vacancy rates of1%

(1,100)

(1,200)

Decrease in forecast rental rates of 5%

(2,100)

(4,400)

 

 

 

 

Commentary

A sensitivity analysis is currently required only if there is risk of material adjustment to the carrying amount in the next financial year [IAS 1.x] but it may also be considered to be good practice. As noted previously, the introduction of IFRS 13 will make the provision of sensitivity analysis mandatory for certain valuations.

Good Real Estate Group (International) Limited

43

18. Investment property under construction

 

2012

2011

 

 

 

€000

 

€000

At 1 January

30,896

9,540

 

Capital expenditure

5,150

18,141

 

Interest capitalised

250

1,210

 

Transfer to completed investment property

(10,070)

 

Fair value adjustment during the year (including effect of

 

 

 

 

 

re-measuring investment property under construction from cost

 

 

 

 

 

to fair value as at 1 January 2011)

 

3,920

 

2,005

 

At 31 December

30,146

30,896

 

 

 

 

 

 

 

IAS 40.76

IAS 40.76(a)

IAS 40.76(c)

IAS 40.76

Unless stated at cost, the fair value of investment property under construction has been determined on a market value basis in accordance with International Valuation Standards, as set out by the IVSC. The valuation is prepared on an aggregated ungeared basis. As set out in Note 4, in arriving at their estimates of market values in 2011 and 2012, the valuers used their market knowledge and professional judgement and did not only rely on historical transactional comparables. The valuers made reference to Guidance Note 17 ‘The Valuation of Investment Property under Construction’ issued by the IVSC in February 2011.

The valuations were performed by Chartered Surveyors & Company, an accredited independent valuer with a recognised and relevant professional qualification and recent experience of the location and category of the investment property being valued.

As at 31 December 2012, one property development is carried at cost of €10m (2011: €8.5m) because its fair value could not be reliably measured due to the unique nature of the property and an absolute lack of transaction activity in that market. The directors estimate its fair value to be in the range of €10m and €12.5m (€8.5m to €9.5m) and on that basis no impairment is considered to have occurred.

The developments are all in Germany and the significant assumptions made relating to valuations are set out below:

 

2012

2011

 

Average initial yield on completion

9.5%

9.0%

 

Discount to completion in case of application of residual method

5.0%

5.0%

 

Inflation rate

3.5%

4.5%

 

Long-term vacancy rate

3.0%

4.0%

 

Long-term growth in real rental rates

3.5%

3.5%

 

Estimated average development profit on completion

15%

14%

 

Estimated average development profit recognised year to date

18%

18%

 

Estimated average percentage of completion

80%

50%

 

Estimated average percentage pre-let

70%

65%

 

Construction costs (€ per sq m)

 

€1,700

 

€1,500

 

 

 

 

 

IAS 40.75(d),(e) IAS 40.33, 36, 75 (a), 38

IAS 40.53,78

Commentary

IAS 40 requires disclosure of the significant assumptions made in the valuation of investment property. The above provides illustrative disclosures.

Sensitivity analysis

The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of investment property under construction.

IAS 1.129(b)

 

2012

2011

 

 

€000

 

€000

Increase in yield of 25bps

(830)

(800)

Increase in construction costs of 10%

(2,120)

(2,120)

Decrease in rental rates of 5%

(1,500)

(1,365)

Decrease in development profit of 1%

 

(315)

 

(287)

44

Good Real Estate Group (International) Limited

19. Investment property held for sale

As at 31 December 2012 the Group held two investment properties that were under offer from a third party. The assessed fair value of these properties as at 31 December 2012 was €10,560,000.

As set out in Note 33, these properties were disposed of in January 2012, realising, after taking into account attributable expenses, a loss on book value of €0.2m.

IFRS 5.6 IFRS 5.41

20. Goodwill

 

2012

2011

 

 

 

 

€000

 

€000 IAS 38.118(e)

Opening balance at 1 January

 

 

Arising on a business combination (Note 7)

3,000

 

 

 

 

 

 

 

Closing balance at 31 December

3,000

 

 

 

 

 

 

 

 

Goodwill was recognised on the acquisition of Property Business Ltd (see Note 7).

Goodwill is tested for impairment at least annually.

IAS 38.108

Goodwill may be created by the recognition of deferred taxation in excess of its fair value. Therefore, in undertaking an impairment test, the amount of such deferred tax is offset against the goodwill and the net amount tested to determine whether that goodwill is impaired.

Goodwill is therefore tested as follows:

 

2012

2011

 

 

 

€000

 

€000

Total goodwill

3,000

 

Residual balance of deferred tax liability, in excess of the fair value, initially

 

 

 

 

provided on acquisition

 

(2,600)

 

Goodwill tested for impairment

 

400

 

 

The goodwill tested for impairment is allocated to the group of cash-generating units that constitute Property Business Ltd and represents the portfolio premium paid on acquisition (that is, the amount paid in excess of the aggregate of the individual fair values of the portfolio). This reflects the cost saved by the Group were it to assemble such a portfolio itself.

Impairment of the goodwill is tested using a value in use method. The key assumption used in testing the goodwill for impairment is that, on a disposal, a portfolio premium would be achieved over the aggregate of the individual fair values. The directors base this assumption on their observations of premium achieved in recent market transactions.

Should the present value of the premium achieved be anticipated to be less than €400,000, then the recoverable amount would be less than the carrying amount of the goodwill assessed for impairment and an impairment charge be necessary.

Good Real Estate Group (International) Limited

IAS 36.134(a)

IAS 36.134(c)

IAS 36.134(f)

45

20.Goodwill continued

Commentary

It is sometimes argued that investment property entities that measure their property at fair value cannot have goodwill on their balance sheets since goodwill needs to be justified by future cash flows – and a property investor’s future cash flows are already built into the fair value of the investment property.

Under IFRS, this issue has become much more acute. On a business combination, deferred tax is provided in accordance with IAS 12 Income Taxes and this is usually far in excess of the fair value of the expected tax liability. As it is the fair value of the expected actual tax payment that is generally considered in setting the price for the business acquired, the requirements of IAS 12 tend to increase the amount of goodwill arising.

Whilst IAS 36 explicitly requires tax to be excluded from the estimate of future cash flows used to calculate any impairment, it is our view that it cannot have been the intention of IAS 36 to require an immediate impairment of such goodwill generated by the recognition of deferred tax liabilities in excess of their fair value. Rather, the post-tax discount rate needs to be adjusted in order to determine the appropriate pre-tax discount rate. In effect, this means that, on acquisition, the deferred tax liability in excess of its fair value may be offset against the goodwill and the net amount tested to determine whether that goodwill is impaired.

This is consistent with a view that goodwill can result from a measurement mismatch between two standards. The IASB acknowledged this can happen when, as noted above, it observed that goodwill could include “errors in measuring and recognising the fair value of either the cost of the business combination or the acquiree’s identifiable assets, liabilities or contingent liabilities, or a requirement in an accounting standard to measure those identifiable items at an amount that is not fair value”.

However, this approach can be used only when it is clear that the deferred tax provision arising from an acquisition of a business is in excess of the fair value of that liability.

It should be possible to continue to apply the above approach when testing the goodwill for impairment in subsequent years, but the entity will need to be able to track the deferred tax liability. Consequently, to the extent that the deferred tax provision in excess of the fair value of that liability is reduced or eliminated, perhaps through a change in the tax circumstances of the entity, the goodwill arising from the initial recognition of the provision may become impaired.

Only some of the required disclosures of IAS 36 are included in the note because, excluding the deferred tax effect, the goodwill balance is immaterial to the Group.

21. Joint venture

During 2012, the Group acquired a 50% interest in Eastmeadow NV, a jointly controlled entity which owns

 

 

IAS 31.56

shopping malls in The Netherlands. The following items represent the Group’s interest in the assets and

 

 

 

liabilities, revenues and expenses of the joint venture:

 

 

 

 

 

 

 

 

2012

 

 

2011

 

 

 

 

€000

€000

IAS 31.56

Share of the joint venture’s balance sheet

 

 

 

 

 

 

 

Current assets

2,600

 

 

 

Non-current assets

105,000

 

 

 

 

 

 

 

 

 

 

 

 

107,600

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

(1,350)

 

 

 

Non-current liabilities

(3,000)

 

 

 

 

 

 

 

 

 

 

 

 

(4,350)

 

 

 

 

 

 

 

 

 

 

 

Net assets

 

103,250

 

 

 

 

Rental income

7,178

 

 

 

Property expenses

(1,914)

 

 

 

Loss on valuation of investment property

(750)

 

 

 

 

 

 

 

 

 

 

 

Profit before income tax

4,514

 

 

 

Taxation

(1,264)

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

3,250

 

 

 

 

The Group has not incurred any contingent liabilities in relation to its interest in the joint venture, nor does the

IAS 31.54

joint venture itself have any contingent liabilities for which the Group is contingently liable.

 

 

 

The Group has not entered into any capital commitments in relation to its interest in the joint venture. The

IAS 31.55

Group’s share in the capital commitments of the joint venture itself is €5.2m.

 

 

 

 

 

 

 

46

Good Real Estate Group (International) Limited

22. Inventory property

The Group includes a division that develops residential property, which it sells in the ordinary course of business and has entered into contracts to sell certain of these properties on completion of construction.

The Group has considered the application of IFRIC 15 to these contracts and concluded that these pre- completion contracts were not, in substance, construction contracts. However, where the legal terms were such that the construction represented the continuous transfer of work in progress to the purchaser, the percentage of completion method of revenue recognition has been applied and revenue recognised as work progressed. Development expenditure incurred in respect of inventory property dealt with under the percentage of completion method is recognised in profit or loss in the period incurred.

Revenue from sales of residential property where the contracts are not in substance construction contracts and do not lead to a continuous transfer of work in progress, is recognised when both: (i) construction is complete; and (ii) either legal title to the property has been transferred or there has been an unconditional exchange of contracts. Construction and other expenditure attributable to such property is included in inventory property until disposal. During the year, the group transferred the remaining unsold units of a residential property to investment property, in conjunction with the commencement of operating lease of these units to a third party.

The amount recognised in costs of sales for the year in respect of inventory property is:

 

2012

2011

 

 

 

€000

 

€000

In respect of sales recognised on a percentage of completion basis

4,000

2,000

 

In respect of other inventory property sales

 

3,000

 

15,000

 

 

7,000

17,000

 

 

 

 

 

 

 

A summary of movement in inventory property is set out below.

IFRIC 15.20

IAS 2.36(d)

IFRIC 15.21

 

2012

2011

 

€000

€000

At 1 January

9,580

19,000

Construction costs incurred Interest capitalised

Transfer to completed investment property Disposals (recognised in cost of sales)

At 31 December

8905,060 IAS 11.40(a)

110520 IAS 23.26(a)

(1,047)

 

IAS 40.57(d)

(3,000)

(15,000)

 

 

 

 

 

 

6,533

 

9,580

 

 

 

 

 

 

 

 

Commentary

It is common for real estate developers to market their developments well before the start of any construction and this activity then continues throughout the construction period. A typical ‘off plan’ arrangement will involve a buyer entering into a sales agreement with a developer to acquire a specific unit upon completion of construction. The issue dealt with in IFRIC 15 is whether the developer is selling a product (goods), e.g. the completed apartment or house, or is selling a service, e.g. a construction service as a contractor engaged by the buyer. Revenue from selling products is normally recognised at delivery. Revenue from selling services is normally recognised on a percentage-of-completion basis as construction progresses.

Moreover, the interpretation introduces the concept of ‘continuous transfer’. When an agreement is for the sale of goods, it is possible for a developer to recognise revenue by reference to the stage of completion if the risks and rewards of ownership are transferred to the buyer and control over work-in-progress is transferred on a continuous basis. For example, if the agreement is terminated before construction is complete, but the buyer retains the work in progress and the entity has the right to be paid for the work performed, this might indicate that control over work in progress is transferred during construction. This would mean that the stage of completion principles in IAS 11 would apply.

IAS 2 does not require a table of movements in inventory. However, such a table is provided here to illustrate how this approach can be applied.

Good Real Estate Group (International) Limited

47

22. Inventory property continued

The following table provides information about such continuous transfer agreements that are in progress at the reporting date:

Aggregate costs incurred and expensed to date Profit (before tax) recognised to date Advances received

2012

2011

 

IFRIC 15.21

 

€000

 

€000

 

12,000

8,000

 

 

6,000

4,000

 

 

750

500

 

 

 

 

 

 

 

 

23. Rent and other receivables

 

2012

2011

 

 

 

 

€000

 

€000

 

Rent and service charge receivables

7,010

7,640

 

 

Amounts due in respect of inventory property sales recognised on a

 

 

 

 

 

 

percentage of completion basis

 

12,000

 

 

Receivables from related parties

4,630

1,810

 

 

Accrued income

2,920

1,410

 

 

 

 

 

 

 

 

 

 

14,560

22,860

 

IFRS 7.6

 

 

 

 

 

 

 

Rent and service charge receivables are non-interest bearing and are typically due within 30 days. For further information on related party receivables, refer to Note 30.

IFRS 7.34(a)

As at 31 December 2012, receivables with nominal value of € 2,105,000 (2011: € 1,800,000) were impaired

IFRS 7.37

and fully provided for due to tenant defaults. Movements in the provision for impairment of receivables were as

 

follows:

 

 

 

 

 

Provision for

 

 

 

impairment

 

 

of receivables

 

 

 

€000

 

At 1 January 2011

1,461

 

 

Charge for the year

364

 

 

Utilised

 

(25)

 

At 31 December 2011

1,800

 

 

Charge for the year

319

 

 

Utilised

 

(14)

 

At 31 December 2012

 

2,105

 

 

The table below provides information regarding the credit risk exposure of the Group according to the Group’s categorisation of counterparties by nature of tenant and by the Estateland Credit Agency’s credit rating.

 

2012

2011

 

 

 

€000

 

€000

Government and quasi-government tenants

640

510

 

Private tenants with a credit rating of A or above

3,514

4,100

 

Private tenants with a credit rating less than A

1,505

2,054

 

Tenants with no credit rating

1,351

976

 

 

 

 

 

 

 

 

7,010

7,640

 

 

 

 

 

 

 

IFRS 7.37(c)

IFRS 7.36(a)

IFRS 7.6

48

Good Real Estate Group (International) Limited

23. Rent and other receivables continued

As at 31 December, the analysis of rent receivables that were past due but not impaired is set out below.

 

 

IFRS 7.37

 

 

Neither past

 

Past due but not impaired

 

 

 

 

 

due nor

< 30

30–60

60–90

90–120

> 120

 

 

 

Total

impaired

days

days

days

days

days IFRS 7.37

 

€000

€000

€000

€000

€000

€000

€000

 

2012

7,010

4,410

600

800

560

400

240

 

 

2011

7,640

5,550

940

460

320

230

140

 

 

The Group holds no collateral in respect of these receivables.

IFRS 7.37(c)

24. Cash and short-term deposits

 

2012

2011

 

 

 

 

€000

 

€000

 

Cash at bank and on hand

35,135

23,576

 

 

Short-term deposits

 

42,903

 

11,042

 

 

 

78,038

34,618

 

IAS 7.45

 

 

 

 

 

IAS 7.50

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made

for varying periods of between one day and three months, depending on the immediate cash requirements of

 

the Group, and earn interest at the respective short-term deposit rates.

 

 

 

 

 

 

The Group has pledged a part of its short-term deposits in order to fulfil collateral requirements. Refer to Note 34 for further details.

25. Share capital

 

2012

2011

 

 

 

Thousands

 

Thousands

Authorised

 

 

 

 

 

Ordinary share of €1 each (issued and fully paid)

233,700

193,700

 

 

2012

2011

 

 

 

€000

 

€000

Ordinary shares issued and fully paid

 

 

 

 

 

At 1 January

193,700

193,700

 

Issued in the year

40,000

 

At 31 December

 

 

 

 

 

233,700

193,700

 

 

 

 

 

 

 

IAS 1.79(a)(i) IAS 1.79(a)(iii)

IAS 1.79(a)(iv)

26. Interest-bearing loans and borrowings

 

Effective

 

 

 

 

 

 

 

interest rate

Maturity

2012

2011

 

 

 

%

 

€000

 

€000

Non-current

 

 

 

 

 

 

IFRS 7.7

€150,500,000 bank loan

EURIBOR +0.45

1 November 2015

149,547

149,777

 

 

€85,500,000 bank loan

EURIBOR +0.55

1 April 2017

84,340

84,274

 

 

€147,500,000 bank loan

EURIBOR +0.55

1 March 2018

140,637

16,880

 

 

£4,000,000 bank loan

LIBOR +2.5

30 April 2017

5,100

 

4,900

 

 

 

 

 

379,624

 

255,831

 

 

The bank loans are secured by fixed and floating charges over the Group’s property portfolio.

Good Real Estate Group (International) Limited

49

27. Trade and other payables

 

2012

2011

 

 

 

 

€000

 

€000

 

Trade payables

5, 152

9,483

 

 

Cash settled share based payments (Note 29)

299

104

 

 

Unpaid contingent consideration (Note 7)

842

 

 

Accruals

243

432

 

 

 

 

 

 

 

 

 

 

6,536

10,019

 

IAS 7.45

Trade payables are non-interest bearing and are normally settled on 30-day terms.

 

 

 

 

 

IFRS 7.39

 

 

 

 

 

28. Finance lease liabilities

The Group acquired certain leasehold property that it classifies as investment property. The leases are

 

 

IFRS 7.31

accounted for as finance leases. These leases typically have lease terms between 20 and 100 years. Most are at

 

a fixed rental, but a minority contain an obligation to pay a contingent rental calculated by reference to a retail

 

price index.

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

 

2011

 

 

 

 

 

 

 

Minimum

 

 

 

Minimum

 

 

 

Present

 

lease

Present

lease

 

 

 

value

 

payments

value payments

 

 

 

€000

 

€000

€000

€000

 

Within 1 year

154

164

 

 

205

 

 

215

 

IFRS 7.39(a)

After 1 year but not more than 5 years

510

655

 

 

465

 

 

670

 

 

More than 5 years

 

1,049

 

1,156

 

 

1,085

 

 

1,110

 

 

 

1,713

1,975

 

 

1,755

 

 

1,995

 

 

Less: future interest costs

 

 

(262)

 

 

 

(240)

 

 

 

1,713

 

1,713

 

 

1,755

 

 

1,755

 

 

The amount recognised as an expense in the year in respect of contingent rental is €45,000 (2011: €42,000).

IAS 17.31(c)

29.Share-based payments

Senior Executive Plan

IFRS 2.45(a)

Under the Senior Executive Plan (SEP), share options of the parent are granted to senior executives of the parent with more than 12 months of service. The exercise price of the share options is equal to the market price of the underlying shares on the date of grant. The share options vest if and when the Group’s earnings per share amount increases by 10% three years from the date of grant and the senior executive is employed on such date. If this increase is not met, the share options do not vest.

The fair value of the share options is estimated at the grant date using a binomial option pricing model, taking into account the terms and conditions upon which the share options were granted.

The contractual term of each option granted is five years. There are no cash settlement alternatives. The Group does not have a past practice of cash settlement for these share options.

General Employee Share-option Plan

At its discretion, the Group may grant share options of the parent to other employees of the parent under the General Employee Share-option Plan (GESP), once they have been in service for two years. The vesting of the share options is dependent on the total shareholder return (TSR) of the Group as compared with a group of principal competitors. Employees must remain in service for a period of three years from the date of the grant. The fair value of share options granted is estimated at the date of the grant using a Monte-Carlo simulation model, taking into account the terms and conditions upon which the share options were granted. The model simulates the TSR and compares it against a group of principal competitors. It takes into account historical and expected dividends, and share price fluctuation covariance of the Group and its competitors to predict the distribution of relative share performance.

IFRS 2.46

IFRS 2.45(a)

IFRS 2.47(a)(iii)

The exercise price of the share options is equal to the market price of the underlying shares on the date of grant. IFRS 2.46 The contractual term of the share options is five years and there are no cash settlement alternatives for the employees. The Group does not have a past practice of cash settlement for these awards.

50

Good Real Estate Group (International) Limited

29. Share based payments continued

Share Appreciation Rights

Employees in the business development group are granted share appreciation rights (SARs), which can only be settled in cash. These SARs vest when a specified target number of new sales contracts are closed and the employee is employed at the vesting date. The contractual term of the SARs is six years. The fair value of the SARs is measured at each reporting date using a binomial option pricing model taking into account the terms and conditions upon which the instruments were granted and the current likelihood of achieving the specified target.

The carrying amount of the liability relating to the SARs at 31 December 2012 is €299,000 (2011: €104,000). No SARs had vested at 31 December 2012 and 31 December 2011.

IFRS 2.45(a) IFRS 2.46

IFRS 2.51(b)

The expense recognised for employee services received during the year is shown in the following table:

 

2012

2011

 

 

 

 

€000

 

 

€000

 

Expense arising from equity-settled share-based payment transactions

307

298

 

 

Expense arising from cash-settled share-based payment transactions

105

194

 

 

Total expense arising from share-based payment transactions

 

 

 

 

 

 

 

412

492

 

IFRS 2.51(a)

 

 

 

 

 

 

 

 

There have been no cancellations or modifications to any of the plans during 2012 or 2011.

Movements in the year

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options during the year (excluding SARs):

2012

2012

2011

2011

No.

WAEP

No.

WAEP

Outstanding at 1 January

575,000

 

 

€2.85

525,000

 

 

€2.75

Granted during the year

250,000

 

 

€3.85

155,000

 

 

€3.03

Forfeited during the year

(25,000)

 

€2.33

Exercised during the year

(75,000)2

€2.33

(65,000)1

€3.08

Expired during the year

(25,000)

 

€3.02

(15,000)

 

€2.13

Outstanding at 31 December

 

 

 

€3.24

 

 

 

€2.82

725,000

 

 

575,000

 

 

 

 

 

 

 

 

 

 

 

Exercisable at 31 December

110,000

 

 

€2.98

100,000

 

 

€2.51

1The weighted average share price at the date of exercise of these options was €4.09.

2The weighted average share price at the date of exercise of these options was €3.13.

IFRS 2.45(c)

IFRS 2.45(d)

IFRS 2.45(b)

IFRS 2.45(c)

The weighted average remaining contractual life for the share options outstanding as at 31 December 2012 is 2.94 years (2011: 2.60 years).

The weighted average fair value of options granted during the year was €1.32 (2011: €1.18).

The range of exercise prices for options outstanding at the end of the year was €2.33 to €3.85 (2011: €2.13 to €3.13).

Good Real Estate Group (International) Limited

IFRS 2.47(a)

IFRS 2.45(d)

51

29. Share based payments continued

The following tables list the inputs to the models used for the three plans for the years ended

31 December 2012 and 31 December 2011:

IFRS 2.47(a)(i)

 

2012

2012

2012

 

SEP

GESP

SAR

Dividend yield (%)

3.13

3.13

3.13

Expected volatility (%)

15.00

16.00

18.00

Risk–free interest rate (%)

5.10

5.10

5.10

Expected life of share options/SARs (years)

6.50

4.25

6.00

Weighted average share price (€)

3.10

3.10

3.12

Model used

Binomial

Monte Carlo

Binomial

 

2011

2011

2011

 

SEP

GESP

SAR

Dividend yield (%)

3.01

3.01

3.01

Expected volatility (%)

16.30

17.50

18.10

Risk–free interest rate (%)

5.00

5.00

5.00

Expected life of options/SARs (years)

3.00

4.25

6.00

Weighted average share price (€)

2.86

2.86

2.88

Model used

Binomial

Monte Carlo

Binomial

The expected life of the share options and SARs is based on historical data and current expectations and is not IFRS 2.47(a)(ii) necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that

the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

30. Transactions with related parties

The financial statements include the financial statements of the Group and the subsidiaries and joint venture. The Group’s significant investment in subsidiaries and joint venture are listed in the following table:

 

 

 

% equity interest

 

Country of incorporation

2012

2011

 

Subsidiary

 

 

 

 

 

 

Office portfolio 1 Sarl

Luxembourg

100%

100%

 

Office portfolio 2 Sarl

Luxembourg

100%

100%

 

Property Business Limited

Estateland

80%

 

Residential Trading Limited

Estateland

100%

100%

 

Single Asset Entity 1 GmbH

Germany

94.9%

94.9%

 

Single Asset Entity 2 GmbH

Germany

94.9%

94.9%

 

Single Asset Entity 3 GmbH

Germany

94.9%

94.9%

 

Single Asset Entity 4 GmbH

Germany

94.9%

94.9%

 

Single Asset Entity 5 GmbH

Germany

94.9%

94.9%

 

Single Asset Entity 6 GmbH

Germany

94.9%

94.9%

 

Single Asset Entity 7 GmbH

Germany

94.9%

94.9%

 

Une Property 1 SA

France

100%

100%

 

Une Property 2 SA

France

100%

100%

 

Une Property 3 SA

France

100%

100%

 

Une Property 4 SA

France

100%

100%

 

Une Property 5 SA

France

100%

100%

 

Joint venture

 

 

 

 

 

 

Eastmeadow NV

The Netherlands

 

50%

 

50%

 

The Group is the controlling party of the Group.

IAS 24.12

IAS 24.14

IAS 1.138(c)

52

Good Real Estate Group (International) Limited

30. Transactions with related parties continued

The following table provides the details of transactions that have been entered into with related parties for the relevant financial year.

Fees recharged to joint venture

 

 

Due from joint

 

Due to joint

 

 

 

venture at year

venture at year

 

 

Fees charged

 

end

 

end

 

 

€000

 

€000

 

€000

2012

 

750

 

50

 

 

2011

 

750

 

50

 

 

Terms and conditions of transactions with related parties

Outstanding balances at the year-end are unsecured, interest free and settlement occurs in cash. The Group did not record any impairment of receivables relating to amounts owed by related parties in either year. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates

IAS 24.21 IAS 24.17(b)

Compensation of key management personnel of the Group

 

 

 

 

 

 

2012

2011

 

 

 

€000

 

€000

Short-term employee benefits

810

775

 

Other long-term benefits

98

65

 

Termination benefits

32

 

Share-based payment transactions

 

10

 

10

 

 

950

850

 

 

 

 

 

 

 

Directors’ interests in the Senior Executive Plan

Share options held by executive members of the Board of Directors under the senior executive plan to purchase ordinary shares have the following expiry dates and exercise prices:

IAS 24.16(a)

IAS 24.16(c)

IAS 24.16(d)

IAS 24.16(e)

 

 

Exercise

 

 

 

 

 

 

Issue date

Expiry date

price

2012

2011

 

IAS 24.17(e)

 

 

 

 

Number

 

Number

 

 

 

 

outstanding

outstanding

 

2011

2013

€2.33

10,000

10,000

 

 

2011

2015

€3.13

83,000

83,000

 

 

2012

2015

€3.85

 

27,000

 

 

 

Total

 

 

 

120,000

 

93,000

 

 

No share options have been granted to the non-executive members of the Board of Directors under this scheme. Refer to Note 29 for further details on the scheme.

Commentary

Certain jurisdictions may require additional and more extensive disclosures, e.g., on remuneration and benefits of key management personnel and members of the Board of Directors.

Good Real Estate Group (International) Limited

53

31. Financial risk management objectives and policies

The Group’s principal financial liabilities, other than derivatives, are loans and borrowings. The main purpose of the Group’s loans and borrowings is to finance the acquisition and development of the Group’s property portfolio. The Group has rent and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.

The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk and liquidity risk.

The Group’s senior management oversees the management of these risks. As such, the Group’s senior management is supported by a financial risk committee that advises on financial risks and the appropriate financial risk governance framework for the Group. The financial risk committee provides assurance to the Group’s senior management that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with group policies for risk. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision.

The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Market risk

Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the derivative financial instruments.

INTEREST RATE RISK

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

To manage its interest rate risk, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 31 December 2012, after taking into account the effect of interest rate swaps, 100% of the Group’s borrowings are hedged (2011: 100%).

The analysis below describes reasonably possible movements in interest rates with all other variables held constant, showing the impact on profit before tax and equity. It should be noted that the impact of movement in the variable is not necessarily linear.

IFRS 7.33

IFRS 7.33

The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed-to-floating interest rates of the debt and derivatives are all constant and using the hedge designations in place at the reporting date:

The sensitivity of the income statement is the effect of the assumed changes in interest rates on the net interest income for one year, based on the floating rate financial liabilities held at the reporting date, including the effect of hedging instruments.

The sensitivity of equity is calculated by revaluing swaps designated as cash flow hedges, for the effects of the assumed changes in interest rates.

 

Increase/(decrease)

 

 

 

 

Effect on profit IFRS 7.40 (a)

 

 

in basis points

Effect on equity

 

 

before tax

 

 

 

€000

 

 

€000

 

 

€000

2012

 

 

 

 

 

 

 

 

 

 

 

Euribor

+15

(786)

 

 

Euribor

-15

875

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euribor

+10

(510)

 

 

Euribor

-10

602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There is no impact on profit before tax because the floating rate financial liabilities are 100% hedged with floating to fixed interest rate swaps.

The effect on equity is the aggregate effect of the impact of the fair value of the hedging derivatives.

54

Good Real Estate Group (International) Limited

31. Financial risk management objectives and policies continued

REAL ESTATE RISK

The Group has identified the following risks associated with the real estate portfolio:

The cost of the development schemes may increase if there are delays in the planning process. The Group uses advisers who are experts in the specific planning requirements in the scheme’s location in order to reduce the risks that may arise in the planning process.

A major tenant may become insolvent causing a significant loss of rental income and a reduction in the value of the associated property (see also credit risk below). To reduce this risk, the Group reviews the financial status of all prospective tenants and decides on the appropriate level of security required via rental deposits or guarantees.

The exposure of the fair values of the portfolio to market and occupier fundamentals.

Commentary

Although investment properties are not financial instruments, some entities have included real estate valuation in their financial risk disclosures. Therefore, we include an example of how such a voluntary disclosure may be provided.

Credit risk

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

Credit risk is managed by requiring tenants to pay rentals in advance. The credit quality of the tenant is assessed based on an extensive credit rating scorecard at the time of entering into a lease agreement. Outstanding tenants’ receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.

Tenant receivables

Tenants are assessed according to Group criteria prior to entering into lease arrangements.

Credit risks related to receivables resulting from the sale of inventory property

Customer credit risk is managed by requiring customers to pay advances before transfer of ownership, therefore, substantially eliminating the Group’s credit risk in this respect.

Credit risk related to financial instruments and cash deposit

Credit risk from balances with banks and financial institutions is managed by Group Treasury in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Group’s Finance Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure.

IFRS 7.33 IFRS 7.33

IFRS 7.36

Good Real Estate Group (International) Limited

55

31. Financial risk management objectives and policies continued

Liquidity risk

IFRS 7.33

 

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and loans.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.

IFRS 7.39(b)

 

 

 

 

Less

 

 

 

 

 

 

 

 

 

 

 

On

 

than 3

3 to 12

1 to 5

 

 

 

 

 

Year ended 31 December 2012

 

demand

 

months

months

years

> 5 years

Total

 

 

€000

 

€000

€000

€000

 

€000

€000

Interest-bearing loans and borrowings

 

3,250

 

9,751

 

52,008

 

408,790

 

473,799

 

Deposits from tenants

 

 

4,036

 

 

4,036

 

Finance leases

 

40

 

124

 

1,811

 

 

1,975

 

Financial derivatives

23

269

 

22

 

141

 

 

455

 

Trade and other payables

 

771

 

5,598

 

167

 

 

 

 

6,536

 

 

794

9,157

 

10,064

 

57,996

 

408,790

 

486,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

 

 

 

 

 

 

 

 

 

On

 

than 3

3 to 12

1 to 5

 

 

 

 

 

Year ended 31 December 2011

 

demand

 

months

months

years

> 5 years

Total

 

 

€000

 

€000

€000

€000

 

€000

€000

Interest-bearing loans and borrowings

 

2,183

 

6,550

 

34,931

 

280,003

 

323,667

 

Deposits from tenants

 

 

2,392

 

 

2,392

 

Finance leases

 

51

 

164

 

1,780

 

 

1,995

 

Financial derivatives

697

7,781

 

348

 

3,978

 

 

12,804

 

Trade and other payables

1,265

7,998

 

756

 

 

10,019

 

 

1,962

18,013

 

7,818

 

43,081

 

280,003

 

350,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 7.39(a)

IFRS 7.39(a)

The disclosed amounts for financial derivatives in the above table are the net undiscounted cash flows.

Fair values

Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the financial statements.

 

 

Carrying amount

Fair value

 

 

 

 

 

 

 

 

 

 

 

2012

2011

 

2012

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

€000

 

€000

€000

 

€000

Financial assets

 

 

 

 

 

 

 

 

 

Rent and other receivables

14,560

22,860

 

14,560

22,860

 

Cash and short-term deposits

78,038

34,618

 

78,038

34,618

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing loans and borrowings

379,624

255,831

 

377,876

258,761

 

Deposits from tenants

3,634

2,285

 

3,634

2,285

 

Finance leases

1,713

1,755

 

1,713

1,755

 

Derivatives

425

12,804

 

425

12,804

 

Trade and other payables

6,536

10,019

 

6,536

10,019

 

 

 

 

 

 

 

 

 

 

 

IFRS 7.25, IFRS 7.26

56

Good Real Estate Group (International) Limited

31. Financial risk management objectives and policies continued

The fair values of the financial assets and liabilities are included as an estimate of the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

Cash and short-term deposits, rent receivables, trade payables, and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments

The fair value of floating rate borrowings is estimated by discounting future cash flows using rates currently available for debt or similar terms and remaining maturities. The fair value approximates their carrying values gross of unamortised transaction costs

The fair values of the derivative interest rate swap contracts are estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument

The fair value of tenant deposits is estimated by discounting the nominal amount received to the expected date of repayment based on prevailing market interest rates

Fair value hierarchy

The following table shows an analysis of the fair values of financial instruments recognised in the balance sheet by level of the fair value hierarchy*:

IFRS 7.27

IAS 39.AG71 IAS 39.AG74 IFRS 7.27A

 

 

 

 

 

 

 

 

Total fair

31 December 2012

 

Level 1

 

Level 2

 

Level 3

 

value

 

 

€000

 

€000

 

€000

 

€000

Derivatives

 

 

425

 

 

425

 

IFRS 7.27A IFRS 7.27B(a)

 

 

 

 

 

 

 

 

Total fair

31 December 2011

 

Level 1

 

Level 2

 

Level 3

 

value

 

 

€000

 

€000

 

€000

 

€000

Derivatives

 

 

12,804

 

 

12,804

 

* Explanation of the fair value hierarchy:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2 — use of a model with inputs (other than quoted prices included in level 1) that are directly or indirectly observable market data

Level 3 — use of a model with inputs that are not based on observable market data

IFRS 7.27A IFRS 7.27B(a)

Commentary

IFRS 7 requires an entity to provide a quantitative analysis of fair values based on a three-level hierarchy in tabular format. This information must be given by ‘class’ of financial instrument, which is a level lower than categories such as ‘held for trading’ or ‘available for sale’. The level within which the fair value measurement is categorised must be based on the lowest level of input to the instrument’s valuation that is significant to the fair value measurement in its entirety. For instance, if the credit valuation adjustment made to a derivative value is based on non-observable inputs and the effect of this is significant to the instrument’s value, then the whole instrument is to be shown in level 3.

32. Hedging activities and derivatives

Cash flow hedges

IFRS 7.23(b)

The Group has entered into interest rate swap contracts with notional amounts of €380m (2011: €256m) whereby it pays a fixed rate of interest of between 5.25% and 5.75% and receives a variable rate based on EURIBOR on the notional amount. The swap is used to hedge the exposure to the variable interest rate payments on the variable rate secured loans (Note 26).

The loans and interest rate swaps have the same critical terms and are fully effective.

The aggregate fair value of the interest rate swaps at the end of the reporting period was a liability of €425,000 (2011: €12,804,000).

Good Real Estate Group (International) Limited

57

33. Capital management

The primary objective of the Group’s capital management is to ensure that it remains within its quantitative banking covenants and maintain a strong credit rating. No changes were made in the objectives, policies or processes during the years ending 31 December 2012 and 31 December 2011.

The Group monitors capital primarily using a loan to value ratio, which is calculated as the amount of outstanding debt divided by the valuation of the investment property portfolio. The Group’s policy is to keep the average loan to value ratio of the Group lower than 80%.

Banking covenants vary according to each loan agreement, but typically require that the loan-to-value ratio does not exceed 80% to 85%.

During the period, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements.

 

2012

2011

 

 

 

€000

 

€000

Carrying amount of interest-bearing loans and borrowings

379,624

255,831

 

Unamortised borrowing costs

 

2,376

 

949

 

Principal amount of interest-bearing loans and borrowings

382,000

256,780

 

External valuation of completed investment property

452,991

388,620

 

External valuation of investment property under construction

30,146

30,896

 

Total external valuation of investment property

 

 

 

 

 

 

483,137

 

419,516

 

Loan to value ratio

79%

61%

 

 

 

 

 

 

 

IAS 1.134

IAS 1.135

IFRS 7.18

IAS 1.135(b)

Commentary

IAS 1 requires entities to make qualitative and quantitative disclosures regarding their objectives, policies and processes for managing capital.

The IASB believes that the level of an entity’s capital and how it manages it are important factors for users to consider in assessing the risk profile of an entity and its ability to withstand unexpected adverse events. Furthermore, the level of capital might also affect the entity’s ability to pay dividends. For these reasons, IAS 1 requires disclosure of information that enables users of financial statements to evaluate an entity’s objectives, policies and processes for managing capital.

The original proposals were likely focused on financial institutions with regulated capital and, consequently, often have little meaning for other companies. However, the IASB did not feel able to restrict them to an industry sector and, therefore, imposed them universally.

The Group has disclosed a loan-to-property-value ratio as the measure it uses to monitor capital. Nevertheless, other measures may be more suitable for other entities.

34. Subsequent events

As at 31 December 2012, the Group held two retail investment properties that were under offer from a third

IAS 10.21

party. The assessed fair value of these properties as at 31 December 2012 was €10.56m. These properties were disposed of in January 2013 for €10.36m, after taking into account attributable expenses, realising a loss on book value of €0.2m.

35. Contingencies and commitments

As at 31 December 2012, the Group had agreed construction contracts with third parties and is consequently committed to future capital expenditure in respect of investment property under construction of €8.6m (2011: €15.2m). There are no contractual commitments in respect of completed investment property.

A previous tenant of the Group has commenced an action against the Group in respect of alterations to the leased property made during its tenancy. It has been estimated that the liability, should the action be successful, is €1.2m. A trial date has not yet been set. Therefore, it is not practicable to state the timing of any payment. The Group has been advised by legal counsel that it is possible, but not probable, the action will succeed and accordingly no provision for any liability has been made in these financial statements.

The Group has pledged a part of its short-term deposits as a requirement for the €147,500,000 bank loan. At 31 December 2012 and 2011, the fair value of the short-term deposit pledged was €15 million.

IAS 40.75(h)

IAS 37.86

58

Good Real Estate Group (International) Limited

Notes

Good Real Estate Group (International) Limited

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