Phoenix Spree D Regulatory News (PSDL)

28 August 2015

Phoenix Spree Deutschland Limited

Interim results for the half year to 30 June 2015

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company specialising in German residential real estate ("Phoenix Spree"), is pleased to announce its maiden results for the six months ended 30 June 2015.

Highlights

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

"I am pleased to announce the interim unaudited consolidated results for Phoenix Spree Deutschland Limited ("Company") for the period from 31 December 2014 to 30th June 2015.

This has been an exceptionally busy period for the Company, during which it successfully refinanced a large part of its longer term borrowings, acquired its sister fund Phoenix Spree Property Fund Ltd and Co KG ("PSPF") and transitioned its listing to the Main Market of the London Stock Exchange. These are significant milestones for the Company and the premium listing provides both a platform for future growth, and the prospect of greater liquidity for existing shareholders.

The first half of the year demonstrated continuing operational progress, with both rents and property values growing in line with expectations resulting in growth of 6.3% in EPRA NAV (8.1% before exceptional and non-recurring items). It is clear that there is growing embedded value within the portfolio, as demonstrated by the fact that, during the period, new leases were signed at an average 24.6% premium to in place rents, and the significant premium achieved by our first condominium sales.

The market outlook remains very strong. Transaction activity in the German residential market reached record breaking levels in the first half of 2015. Prices in the markets where the Company operates continue to benefit from lack of supply and growing demand from both owner occupiers and investors. The board remains confident that the Company is well positioned to take advantage of the strong market and to deliver capital growth and dividends to its investors.

The Board is pleased to declare a dividend of 1.3p per share for the first half, which is expected to be paid on or around 9 October 2015. "

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Operating and financial review

The Company has delivered a strong set of interim results, demonstrating growth in rents and property values and delivering its target returns.

1 Debt less cash as a proportion of value of investment property.

2 Exchange rate of 1.41 at 30 June 2015, 1.25 at 30 June 2014, 1.29 at 31 December 2014.

Portfolio valuation grows by 5.3%

The reported property portfolio valuation rose from €115.2 million at 31 December 2014 to €258.3 million at 30 June 2015. On a pro-forma basis the property portfolio valuation rose by 5.3% to €258.3 million in the first half of 2015 (31 December 2014: €245.3 million), representing a value per sqm of €1,523 and a gross fully occupied yield of 5.9%. Using EPRA methodology, the net yield at as at 30 June was 4.64% (December 2014: 4.85%). All regions showed an increase in value, with the residential properties Nuremberg & Furth, and Berlin showing the largest increases at 7.5% and 6%, respectively.

EPRA NAV increases by 6.3%

EPRA NAV per share rose by 6.3% in the first half of 2015 to €2.19 (£1.55) (31 December 2014: €2.06 (£1.60)).

NAV growth in the first half of 2015 was impacted by a number of exceptional items relating to the acquisition of PSPF, the refinancing of long-term debt facilities and the listing on the London Stock Exchange. Excluding these one off items EPRA NAV per share grew by 8.1% to €2.23 (£1.58).

Financial results

The financial results for the period include the consolidation of PSPF from the date of its acquisition. PSPF was acquired in a cash and share transaction for €41.5 million on 9 March 2015. During the period the Company also refinanced the majority of its long-term borrowings, releasing an additional €18.5 million of cash to fund further acquisitions and investment into the portfolio.

On an IFRS basis, profit before taxation for the period to June 2015 was €9.1 million (June 2014: €4.9 million). The results were positively affected by a revaluation gain of €9.0 million (June 2014: €1.96 million). Excluding the revaluation, the Company reported a profit before tax of €0.2 million (gain of €2.9 million in June 2014) on an IFRS basis. The profit before taxation is after charging exceptional items relating to the acquisition of PSPF and subsequent stock market listing of €1.7 million (6 months to June 2014: €0 million). Further one-off costs of €0.99 million relating the early cancellation of loans as part of the wider Company refinancing were recorded as finance charges.

Reported earnings per share for the period were 13c (June 2014: 9c).

Balance sheet

As at 30 June 2015, the Company had borrowings of €121.8 million and cash balances of €16.9 million giving net debt of €104.9 million and a net loan to value of 40.6%. In February 2015, the Company entered into a €68 million seven-year loan facility with DG Hyp at a fixed interest rate of 1.8%, of which €65.8 million has been drawn. The majority of the proceeds were used to refinance existing borrowing facilities.

On 17 August 2015, the Company drew an additional €14.7 million of debt against properties within its PSPF subsidiary under the terms of an additional loan facility signed in May 2015. Interest rates were fixed for seven years using swap contracts at a rate of 1.92%. Following the drawdown, the Company currently has approximately €32 million of cash balances, with further undrawn banking facilities of €2.2 million. Cash balances will be used to finance further acquisitions and upgrade existing buildings. 

Dividend

The Board has declared a dividend of 1.3p per share, which is expected to be paid on or around 9 October 2015 to shareholders on the register at close of business on 18 September 2015, with an ex-dividend date of 17 September 2015

Operational performance

Rental income grew by 68% compared to H2 2014, with the majority of the increase reflecting the acquisition of PSPF in March 2015. Excluding this acquisition, rental growth was 2%, with increases in rent per sqm being offset by higher vacancies due to the ongoing apartment upgrade programme. On a pro forma basis, as at 30 June 2015 rent per let sqm stood at €7.23, up 4% compared to June 2014.

Using EPRA methodology, which excludes properties that are undergoing redevelopment (or identified for sale as condominiums), the vacancy rate as at June 2015 was 5.6%, this compares to a reported vacancy rate of 10.3%.

Operational data included in the subsequent paragraphs is calculated on a pro-forma basis (i.e. as if PSPF was fully owned for the entire period under review) unless otherwise stated. The Directors believe this gives a better assessment of the operational performance of the property portfolio.

Regional overview

Berlin experienced strong rental growth, with average rent per let sqm increasing by 4.3% over the last 12 months. The majority of this growth was driven by a strong re-letting performance, with new leases signed in the first half of 2015 achieving a 35% premium to average in place rents.

Since the 1 June 2015, individual administrative regions across Germany have had the right to implement a rent cap ('Mietpreisbremse') on the maximum rent that may be charged by landlords on new tenancies. The law allows landlords to charge either the rent paid by the previous tenant, or a rent of a maximum of 10% over the local rent reference tables ('Mietspiegel').

The cap is designed to alleviate the rising costs of rental accommodation for German tenants and has been adopted by the Berlin Senate on a city-wide basis. Importantly, units which have been comprehensively modernised are exempt from the new rent controls and PSD believes that the majority of its refurbishments fall into this category. In May and June, we witnessed a slight market slowdown in new letting activity, with some tenants awaiting the effect of the new legislation.

As a result the EPRA vacancy rate rose to 4.1% compared with 2.5% in December 2014. After this initial period of uncertainty, rental activity has normalised and new lettings during the last two months have been encouraging. However, it is too early to judge the overall impact on the market and we continue to monitor developments in this area.

Like Berlin, Nuremberg represents a significant reversionary rental story. The region produced the strongest rental performance, with new leases also signed at an average of a 35% premium to in place rents. Average rent per sqm grew by 8.3% over the 12-month period. EPRA vacancy rose to 9.0% from 7.9% in December 2014, reflecting the fact that a number of newly refurbished apartments were brought to the market at the end of June which have been subsequently re-let.

Approximately 10% of the portfolio's lettable space in this region is either undergoing refurbishment or reserved for resale, and during the period planning consent was achieved to convert a former commercial property into residential. We are now in the process of costing the work and a decision will then be taken whether to sell the property or build out. On 25 June it was announced that the Mietpreisbremse was to be implemented in this region with effect from 1 August 2015. As with the Berlin region, it is too early to assess the impact on the market. However, units which have undergone substantial refurbishment will be exempt from the new rental controls.

Central and North Germany includes Kiel and Oldenburg and also the university cities of Bremen and Hannover. Occupier demand was healthy with more than 70 new leases signed across the region (8% of units). The portfolio experienced some reversionary rent inflation, with new lettings signed at an average of €7.43 per sqm, a 15% premium to in place rents. However, this did not translate into material rental growth across the portfolio with rent per sqm increasing by just 1.8% on an annual basis and EPRA vacancy showing an increase from 6.2% in December 2014 to 8%.

Baden-Württemberg includes a mixed-use property in Pforzheim and an office building in Holzgerlingen. Rent per sqm grew by 1.3% year-on-year to €9. EPRA vacancy stood at 0.9%. The property in Holzgerlingen is now fully let and a lease extension was signed with a significant tenant. The market continues to improve and we believe these properties still offer significant scope for yield compression given they are independently valued on approximately 12 times rental income. Although these properties are regarded as non-core by the Company, we expect market prices to improve and in the meantime they offer an attractive return on equity and high cash generation.

Value-added strategies

The core strategy of the Company is to upgrade its existing property stock and re-let at higher rents. In the period, 168 units (7.2% of units) were re-let across the portfolio, with average achieved re-letting rent of €8.91 per sqm, a 25% premium to the average in place rents. In Berlin, 70 units (6% of units) were re-let at an average rent per sqm of €10.14, a 35% premium to existing rents.

In the first half, €1.3 million was spent on refurbishments. Prior to its acquisition PSPF spent €0.8 million on refurbishments, taking the total investment on a pro-forma basis in the first half of 2015 to €2.2 million

Berlin published its biannual Mietspiegel (rent table) in May 2015. The table governs the reference rent which landlords can charge existing tenants. The increase since 2013 was calculated to be 5.4% on average, a rate of growth which is considerably below published market growth rates and which can be explained by the fact that the City of Berlin takes a very narrow sample of leases.

The legitimacy of the index was recently successfully challenged in a Berlin court, but the decision was later overturned on appeal. During the period, around 150 statutory rent increases were sent to PSD tenants in the period, with an average increase of €400 per annum.

During the period 200sqm of commercial space was converted to residential use. Planning consent has been granted for over 2,400sqm of new space within the attics of the existing Berlin portfolio and planning applications to create a further 2,000sqm are underway. Two projects are due to commence in the first half of 2016 following a tender process, which is expected to conclude by the end of the year. The projects are located in Wilmersdorf and Prenzlauerberg and will create six new apartments with a combined living space of 730sqm and a gross development value of approximately €2.2 million.

Condominium sales

Over the past two years, the Company has laid the foundations for a programme of selectively reselling apartment blocks as individual units. The strategy is designed to take advantage of the significant arbitrage that exists in the market between the average value of a Berlin apartment block of around €1,800 per sqm and the resale value of an individual apartment at between €2,500 and €5,000 per sqm.

Marketing of the first two condominium projects commenced in June 2015. In the first phase 14 of the 47 units were offered for sale. Both projects are located in Berlin, Kreuzberg and were acquired by PSPF in 2006.

We are pleased to report that the sales response has been excellent. Since 30 June all apartments released for sale in the first phase have been either reserved or notarised for sale, and just one commercial unit remains available. The average sale price for the apartments is €3,838 per sqm, a significant premium to both book value and the average value per sqm for the Berlin portfolio of €1,840, generating potential sales revenue of €3.7 million. A second phase will be placed on the market in September and it is expected that all the remaining units of the two properties will be sold by mid-2017. The estimated aggregate net proceeds of these two projects is approximately €10 million and, as the properties are unlevered, all sales proceeds can be used to fund further investment in the portfolio.

Two further condominium projects have been identified. The first property, Berlichingen/Wittstockerstrasse is located in Berlin Mobait and has been comprehensively modernised over the past two years. Currently, 35 of the 40 apartments are vacant and we expect to offer them to the market in early 2016. Total sale proceeds from the project are expected to be in the region of €7 million. The other project is at an earlier stage and it is expected to be brought to market during 2017.

Acquisitions and disposals

Acquisitions will be made in areas which have potential to meet the Company's target of achieving an IRR of 8% to 10% through a combination of income and capital growth. Following the refinancing in February 2015, the Company had approximately €30 million of equity which was available to finance acquisitions. When matched with debt, this should give capacity to acquire around €60 million of property.

On 29 July the Company announced that it had exchanged contracts on an apartment complex located in Berlin, Friedrichshain. The consideration was €16 million, excluding acquisition costs. This represented a prospective gross yield of 4.8% and it is expected to increase the Company's rental income by approximately 6%. The property is located in one of Berlin's most 'in-demand' locations: Boxhagener 'Kiez'.

The land registry has already been split into individual condominiums which are ready for sale to owner occupiers or investors. PMM believes that in this desirable location units can be sold over the medium term at a premium to the acquisition price. This transaction is expected to complete in the Autumn, following which the Company's Berlin properties will represent approximately 66% of gross assets.

The property was constructed in 1996, has c.6,200 sqm of net leasable area representing 63 residential units and four commercial units, the largest of which is occupied by denn's Biomarkt, a national supermarket chain. The acquisition will initially be financed by existing cash resources, but it is expected that the Company will refinance the acquisition and it has received indicative offers of finance from German lending banks.

The Company also completed the disposal of commercial property Hünxerstrasse 155, Dinslaken. The property was sold for €1.44 million and the majority of proceeds will be used to repay loans outstanding on the property. The disposal value was in line with book value.

Market outlook

The outlook for the German residential market remains strong, supported by low interest rates, a robust economic backdrop and limited supply of new build property.

Despite the relative fragility of the political and economic environment in parts of Europe and Asia, Germany's economy has remained relatively robust, with a combination of low interest rates and weaker exchange rates proving to be supportive factors. Unemployment remains at 4.7%, its lowest level since 1981 and GDP is expected to grow by around 1.5% in 2015. The Bundesbank recently predicted a solid second half of the year with growth fuelled by external and domestic demand.

The residential market has experienced a record six months in terms of transaction levels according to Jones Lang LaSalle. More than €17.5 billion of deals were concluded in the first half, a level higher than any full year since 2006 and close to the value of apartments traded during the whole of 2014. Average prices per unit were up 12.3% from €56,700 to €63,600, and 22% of all transactions were in Berlin (16.7% in H1 14). Overall, the Bundesbank estimated property prices grew an average of 7% last year in the 7 largest cities versus 3% country wide.

The positive market trends have also translated into rising demand from individual owner-occupiers and private investors looking to purchase single apartments or condominiums. According to the Association of German Mortgage Banks it is estimated that prices in Berlin for individual apartments grew to an average of €3,400 per sqm in 2014 (7% annual increase). This represents around €240k for a 70sqm apartment in a central part of the city. Other regions such as Nuremberg and Furth have seen a similar price development.

There is also further evidence of a growing supply and demand imbalance in urban areas. For example recent data shows that in 2014 Berlin's population grew by an estimated 44,000 as the process of urbanisation and net inward migration gained pace. This contrasts to an annual increase of just 8,637 homes according to the Berlin-Brandenburg statistical office.

In particular, Berlin's popularity amongst younger people continues to grow, reflecting relatively low rents and increasing opportunities for employment especially in the media and technology sectors. Although population increases have in turn led to rising rents, affordability still remains good. According to The Economist, an average of around 23% of take home pay is spent on housing in Germany, one of the lowest levels in any developed economy and a figure which has remained relatively unchanged during the past 20 years.

Investment proposition and investment case

Phoenix Spree provides investors with exposure to a diversified portfolio of German residential real estate assets that offer the potential for both stable income returns as well as capital growth. Our portfolio has a property value of €258.3m and an average NAV CAGR of 13% p.a. has been achieved since 2011.

The Directors are targeting an 8%-10% total annual shareholder return, of which 2.5% is expected to be in the form of dividends.

The highlights of the investment case are:

Significant structural growth potential within German residential real estate

· Demand outstripping supply and low absolute price of property

Diversified high-quality portfolio with embedded potential for value creation

· Berlin focused with potential for medium-term rental and capital growth

Significant potential to create value through reversionary letting and condominium sales

· Premium for lettings and individual apartment sales highlight embedded value in portfolio

Clear strategy to deliver increases in rental income and capital growth

· Value-added strategy led by investment and hands-on approach

Strong balance sheet and capacity to grow through acquisitions

· Significant cash and undrawn facilities, low loan-to-value at 40.6%

Experienced management with a track record of delivering value for shareholders

· Highly experienced team managing portfolio since 2006

Diversified portfolio with embedded potential for value creation

As at 30 June 2015, the Company's portfolio consisted of 114 properties containing 2,322 rental units across Berlin and secondary cities in Germany, 82% of which are residential properties (by lettable area). The portfolio was valued at €258.3 million, reflecting a gross running yield of 5.1%, a gross fully occupied yield of 5.8% and an EPRA net initial yield of 4.6%. From 30 June 2014 to 30 June 2015, the values of the properties in the portfolio rose by 9.7%, driven by a combination of rental growth and yield compression.

The Directors believe that the portfolio is underpinned by a stable and growing rental income stream. As at 30 June 2015, the annual arrears rate was 0.8% and, since 2011, rent per sqm has increased by 14.3%. Taking the residential portion of the portfolio only, rent per sqm has grown by 18.0% since 2011. New rentals in H1 2015 represented a 25% premium to the existing rents, highlighting the significant reversionary potential within the portfolio.

Additionally, the Directors believe there is scope for further rental growth and yield compression through the portfolio's exposure to a structurally attractive German real estate market as well as the opportunity to improve rental incomes through asset management.

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2015

Condensed consolidated statement of financial position

As at 30 June 2015

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2015

Condensed consolidated statement of cash flows

For the six months ended 30 June 2015

Notes to the condensed consolidated financial statements

For the six months ended 30 June 2015

1. General information

Phoenix Spree Deutschland Limited is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in Jersey, and operating out of Jersey and Germany. The Group's principal activity is the holding of investment properties located in Germany. The Company's ordinary shares were admitted to trading on the London Stock Exchange on 15 June 2015.

The registered office of the company is 13-14 Esplanade, St. Helier, Jersey JE1 1BD.

2. Basis of preparation

The interim condensed set of consolidated financial statements has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union.

The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2014.

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2014.

The comparative figures for the financial year ended 31 December 2014 are extracted from, but do not comprise, the Group's annual financial statements for that financial year.

The condensed interim financial statements were authorised and approved for issue on 27 August 2015.

The condensed interim financial statements are neither audited nor reviewed.

Identification of business risks

The Group's principal risks and uncertainties are consistent with those noted in the Annual Report for the year ended 31 December 2014 being compliance with financial covenants on bank borrowing, tenant default, liquidity, interest rate hedging instruments and interest rate movements on bank borrowings. The Directors consider that the significant areas of judgement made by management that have significant effect on the Group's performance and estimates with a significant risk of material adjustment in the second half of the year are unchanged from those identified in the Annual Report for the year ended 31 December 2014.

Going concern

The interim condensed financial statements have been prepared on a going concern basis which assumes the Group will be able to meet its liabilities as they fall due for the foreseeable future. The directors have prepared cash flow forecasts which show that the cash generated from operating activities will provide sufficient cash headroom for the foreseeable future.

3. New accounting policies

Goodwill

The Group will apply the principles of IFRS 3 (Business Combinations) and IAS 36 (Impairment) to Goodwill for the first time following the recognition of Goodwill on acquisition of Phoenix Spree Property Fund Limited and Co.KG

Goodwill will be tested annually for impairment (as at 31 December) and when circumstances indicate the carrying value may be impaired. The Group's impairment test for goodwill will be based on value in use calculations.

Exceptional costs

Exceptional costs have been defined as those costs directly attributable to the listing on the London Stock Exchange and any costs directly associated with the acquisition of subsidiaries.

4. Critical accounting judgements and estimates

The preparation of condensed consolidated financial statements in conformity with IFRS requires the Group to make certain critical accounting estimates and judgements. In the process of applying the Group's accounting policies, management has decided the following estimates and assumptions have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities recognised in the condensed consolidated financial statements.

i) Estimate of fair value of investment properties

The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair value estimates. In making its judgement, the Group considers information from a variety of sources including:

a) Current prices in an active market, and its third party independent experts, for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences.

b) Recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices.

c) Discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

ii) Principal assumptions for management's estimation of fair value of investment property

If information on current or recent prices or assumptions underlying the discounted cash flow approach is not available, the fair values of investment properties are determined using discounted cash flow techniques. The Group uses its third party independent experts and assumptions that are mainly based on market conditions existing at each reporting date.

The principal assumptions underlying management's estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions by the Group and those reported by the market. The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.

5. Segmental information

Information reported to the Board of Directors, which is the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance is focussed on the different revenue streams that exist within the Group. The Group's principal reportable segments under IFRS 8 are therefore as follows:

Residential

Commercial

All revenues are earned in Germany with property and administrative expenses incurred in Jersey and Germany.

31 December 2014 (audited)

30 June 2014 - (unaudited)

30 June 2015 (unaudited)

6. Revenue

7. Property expenses

8. Administrative expenses

9. Exceptional costs

Exceptional costs has been defined as those costs directly attributable to the listing on the London Stock Exchange and any costs directly associated with the acquisition of subsidiaries, in the accounts for the year ended 31 December 2014 these costs were disclosed as part of Administrative expenses and amounted to €390,000.

10. Net finance charge

11. Financial asset

12. Taxation

The movement in respect of deferred taxation is

as follows:

13. Dividends

14. Business combination

On 9 March 2015 the group acquired 94.8% of Phoenix Spree Property Fund Limited and Co.KG ('PSPF'), a partnership incorporated in Germany, for a fair value consideration of €41.5 million. This consideration was made up of €2.4 million paid in cash and €39.1 million in shares of the Company valued on the day of the acquisition.

In addition to the 94.8% acquired, the group also entered into an option agreement to acquire the remaining 5.2% interest in PSPF from the remaining partners. The options are to be exercised on the fifth anniversary of the majority interest acquisition for a period of three months thereafter.

The consideration for the options are equal to the remaining partners' proportion of the EPRA NAV of PSPF based on the most recent interim or full year accounts plus any tax liabilities incurred in connection with the disposal.

The fair value of the net assets acquired is detailed below.

Goodwill arises from the expected benefit of the merger of the two property portfolios and from the embedded potential of value creation in the acquired portfolio.

Compared to the previously published table, the provisional fair values include proportional property gains from 1 January to the date of acquisition, deferred tax arising on the acquisition and the variable rate loan liability.

PSPF contributed revenue of €1.56 million and operating profit of €4.85 million to the results of the Group since acquisition. If the acquisition had been completed at the beginning of the year, management estimate that Group revenue for the period would have been €6.48 million and Group operating profit would have been €9.04 million.

15. Investment properties

The property portfolio was valued at 30 June 2015 by Jones Lang LaSalle GmbH on a basis consistent with that disclosed in the group's annual financial statements. Full details will be given in the next annual financial statements.

16. Borrowings

During the period the group re-financed its bank borrowings and drew down €65,833,000 in the period. The terms of the loan are interest paid at a rate of three-month EURIBOR plus a margin and the final maturity date is on 31 January 2022. Interest rate risk is hedged by the use of interest rate swaps.

17. Derivative financial instruments

18. Share-based payment reserves

19. Share capital

20. Earnings per share

21. Net asset value per share and EPRA net asset value

22. Financial instruments

Fair value of financial instruments

With the exception of the variable rate borrowings, the fair values of the financial assets and liabilities are not materially different to their carrying values due to the short term nature of the current assets and liabilities or due to the commercial variable rates applied to the long term liabilities.

The interest rate swap was valued externally by the respective counterparty banks by comparison with the market price for the relevant date. The interest rate swaps are expected to mature between December 2015 and March 2022.

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

During each of the reporting periods, there were no transfers between valuation levels.

23. Re-statement of the results for the six months ended 30 June 2014

The results for the six months ended 30 June 2014 have been restated for the following reasons:

i) The obligation for the performance management fee due to PMM was previously only disclosed as a contingent liability. The obligation falls to be recognised as a share based payment however, because the obligation relates to services provided to the Group calculated by reference to a measure of equity;

ii) The Directors have reviewed the treatment of the Synthetic Equity Participation Fee and considered it appropriate to recognise the obligation as a share based payment; and

iii) The scope of IAS 12, 'Income Taxes' is wider than the corresponding UK GAAP standards, and requires deferred tax to be provided on all temporary differences rather than just timing differences under UK GAAP. As a result, a deferred tax liability has been recognised in respect of the difference between the carrying amount of the investment properties in the statement of financial position and their tax base and the difference between the carrying amount of the derivate financial instruments (in relation to the interest rate swaps) in the statement of financial position and their tax base.

Under IAS 12 current income tax payable is disclosed on the face of the consolidated statement of financial position.

The effect of the re-statements was as follows:

24. Related party transactions

Related party transactions not disclosed elsewhere are as follows:

R Prosser and A Weaver are directors of Appleby Fund Administrators (Jersey) Limited and Appleby Securities (Channel Islands) Limited. R Prosser and A Weaver are also ultimate owners of Appleby Fund Administrators (Jersey) Limited. A Weaver is a partner at Appleby, law firm.

During the six month period ended 30 June 2015, an amount of €432,160 (June 2014: €124,344 and December 2014: €263,038) was payable to Appleby Fund Administrators (Jersey) Limited for accounting, administration and secretarial services. At June 2015, €370,680 (June 2014: €47,040 and December 2014: €170,991) was outstanding.

During the six month period ended 30 June 2015, an amount of €348,770 (June 2014: €Nil and December 2014: €6,114) was payable to Appleby, law firm for legal and professional services. At June 2015 €Nil (June 2014: €Nil and December 2014: €Nil) was outstanding. M Northover is a Director and shareholder of PMM Partners (UK) Limited, the Company's appointed Property Advisor. During the six month period ended 30 June 2015, an amount of €1,072,000 (June 2014: €574,027 and December 2014: €1,670,349) was payable to PMM Partners (UK) Limited. At June 2015 €Nil (June 2014: €271,438 and December 2014: €247,088) was outstanding.

The Group also entered into an option agreement to acquire the remaining 5.2% interest in PSPF from the remaining partners being M Hilton and P Ruddle both Directors of PMM Partners (UK) Limited, the options are to be exercised on the fifth anniversary of the majority interest acquisition for a period of three months thereafter.

The Group entered into a loan agreement with M Hilton and P Ruddle in connection with the acquisition of PSPF. At the period end an amount of €677,500 each was owed to the Group. The loans bear interest of 4% per annum.

25. Subsequent events

On 29 July 2015, the Group announced the exchange of contracts on an apartment complex located in Friedrichshain, Berlin for consideration of €16 million excluding acquisition cost. It is expected that the deal will complete in the autumn.

On 17 August 2015 the Group drew down an additional €14.7 million of debt against properties within the PSPF subsidiary under the terms of an additional facility signed in May 2015. Interest rates were fixed for 7 years using swap contracts at a rate of 1.92%.