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MSP - MAS plc - Annual Financial Statements For the year ended 28 February 2010
MAS plc
Previously Mergon Property Holdings Limited
(Incorporated in the Isle of Man)
(Registration number 2893V)
(Registered as an external company in the Republic of South Africa)
(Registration number 2010/000338/10)
JSE share code: MSP
SEDOL: B4LFGH0
ISIN: IM00B4LFGH00
("MAS plc" or "the Company" or "the Group")
Annual Financial Statements For the year ended 28 February 2010
Directors` and Investment Advisers Report
Introduction
The Group`s objective is to provide investors with a high dividend yielding
direct exposure to European commercial property. The Group`s current investment
focus is in Germany, Switzerland and prospectively the United Kingdom.
In August 2009 the Company listed on the Euro-MTF exchange in Luxembourg and
the AltX exchange of the JSE in Johannesburg, during which Euro 9,309,821 was
raised, primarily from the anchor investor in the Company.
Overview of the markets
While signs of recovery are evident in both the UK and European real estate
markets, the investment environment remains uncertain. Whilst it is
acknowledged that the world economy is recovering, important indicators give
mixed signals as to the rate, and indeed the sustainability, of the recovery.
Generally speaking, tenants that occupy commercial properties remain under the
same pressures as during the worst of the recessionary environment of the
previous two quarters. The challenges that face them include difficulty in
raising funding, the high cost of finance and weak consumer demand due to high
personal debt and high unemployment. This is now compounded by low public
spending which could hold back the pace of recovery. This may be contrasted
with the recent optimism and "hardening" of yields seen in the prime property
markets in our chosen jurisdictions, which is due largely to inward investment
by cash-rich sovereign and other institutional funds. This performance over
recent months has been fuelled by a turnaround in capital markets, and not by
an improvement in property fundamentals. This must raise questions as to
whether or not capital markets are correctly pricing risk going forward, and
increasing the possibility of several years of uncertain performance post 2010.
The divergence in value between prime and secondary property remains evident,
emphasising the importance of a focus on quality in terms of location, occupier
covenant and lease. A second divergence is evident between the costs of
financing acquisitions in continental Europe vs the UK. The directors intend to
continue to take advantage of the low cost of funding in Switzerland and
Germany, focussing on prime assets with strong tenants. Our view is that there
will likely be further hurdles to recovery in both Europe and the UK (for
example sovereign credit issues in the Euro zone and a new unproven coalition
government in the UK). Our aim is thus to secure assets with strong income
characteristics, that should be able to ride out the current economic and
political environment whilst delivering strong cash yields in the interim.
Although the environment remains challenging, we believe that our strategy of
focussing on quality commercial properties delivering stable income from strong
tenants will deliver strong total returns over the investment cycle. Although
we are buying into an uncertain economic environment, as the market improves we
expect to see the benefit of the careful acquisitions strategy paying dividends
in both income and capital returns.
Acquisitions
It is the Group`s intention to initially build up a portfolio of core
investments, with high quality tenants and long leases, before adding higher
yielding assets. In line with this strategy, the Group has invested the funds
raised in acquiring the following:
1. A prime logistics centre in Zurich, let to Dynamic Parcel Distribution (the
"DPD property")
2. A Prime portfolio of retail grocery stores let to Aldi in south western
Germany (the "Aldi portfolio")
1. DPD property
Dynamic Parcel Distribution ("DPD"), formerly Deutscher Paket Dienst, is a large
German parcel delivery company, with more than 500 depots in 40 countries.
Today the company ships 2 million parcels every day, and DPD is now majority
owned by GeoPost, a subsidiary of the French postal company La Poste.
DPD is one of Europe`s leading B2B parcel delivery services.
MAS plc has acquired a newly built office and logistics centre, purpose built
for DPD to consolidate their Swiss operations and establish their Swiss
headquarters. DPD have taken a fifteen year fully repairing and insuring lease
on the property, which comprises a 20,000 sq m plot of land, with planning
permission to build 15,000 sq m of property. The initial building has a net
lettable area of 5,699 sq m with room to expand to meet the requirements of the
tenant.
The lease is at an initial yield of 6.35% and escalates annually at 100% of the
Swiss CPI. In addition the Group has secured a 65% loan to value floating
interest rate facility on this property at a margin of 90 basis points above
Swiss Libor. Given the current low interest rate environment and the highly
visible and secure cash flow stream generated by this property, the directors
took the decision to hedge much of the interest rate risk arising from the
loan, and accordingly 70% of this debt has been hedged via a forward starting
interest rate swap with a strike of 2.76%. The forward start date of the swap
is in June 2010.
2. Aldi portfolio
The second portfolio is let to Aldi, one of Germany`s strongest and most
successful retail companies. Aldi, short for "ALbrecht DIscount", is a discount
supermarket chain based in Germany. Founded in 1913 Aldi Sud now has over 1,700
stores in western and southern Germany alone, and operates in countries
including the United States, Ireland, the United Kingdom, Hungary, Greece,
Switzerland, Austria, Slovenia (operating as Hofer in Austria and Slovenia) and
Australia. The lease agreement that MAS plc has secured with Aldi is "triple
net". A triple net lease (Net-Net-Net or NNN) is a lease agreement on a
property where the tenant or lessee agrees to pay all real estate taxes,
building insurance, and maintenance (the three `Nets`) on the property in
addition to any normal fees that are expected under the agreement. In such a
lease, the tenant or lessee is responsible for all costs associated with the
repair and maintenance of the property for the duration of the lease. The Group
thus only pays the annual municipal rates on the property.
In addition, the leases are for a fixed period of twenty years following which
Aldi has two further five year options to renew their occupancy. These choice
locations have excellent demographics and trading volumes. The Group has
negotiated a fixed rental uplift of 1.78% per annum from year six (but based on
a year one index) thus securing a certain income stream to the Group for the
next twenty years. This allows the Group to plan its revenue cash flows,
interest and debt amortisation payments with precision to maximise cash returns
to our Shareholders.
Importantly the Group has secured an 80% loan to value senior debt facility
against this transaction. This debt has been hedged with the following
instruments: 75% with a twenty year interest rate swap fixed at 4.2%; and 25%
via an interest rate cap with a strike of 4%, allowing MAS plc to benefit from
the current and any sustained low interest rate environment.
Annual valuation
Properties are valued annually by approved independent third party valuers. In
this regard, the DPD property was acquired for an amount of CHF 20,535,431, and
revalued only a couple of months after completion by Wuest and Partners (the
Swiss IPD partner) at CHF 21,600,000 (Euro 14,773,271). This gain represents the
encouraging yield pick-up that was achieved through the contracted purchase
negotiated prior to the start of the development of the premises. The Aldi
portfolio was acquired for an amount of Euro 10,462,300. However, these
properties are relatively unique in two aspects namely twenty year triple
net leases are very uncommon (the norm being fifteen year "dach and fach"
leases) and secondly that the leases contain a fixed annual uplift in rent
over the period of the lease (compared to a standard percentage of CPI uplift
scale). Thus, comparative information is hard to come by in the market which
makes the properties more difficult to value. Applying a conservative approach
in the current environment, the DTZ independent valuation assumes that the
property is worth Euro 10,000,000.
Interest rate hedges
The economic benefit of the interest rate hedges on the property is
substantial, as highly visible positive yield spreads are locked in over the
life of the investment. The yield spread is effectively the difference between
what is earned through rentals, less the interest expense on debt funding.
However, it is highlighted that extremely long leases, and hence very long
interest rate hedges, result in unusually substantial mark-to-market valuations
for the swap. The directors emphasise and remain focused on the cash generation
within the business, and not the volatility arising from the revaluation of
long-term financial hedging instruments. Nonetheless, it is worth noting that
the hedges were marked down by an amount of Euro 726,197 as a result of
declines in market interest rate expectations. Non-cash flow pricing (and thus
income statement) volatility resulting from the mark-to-market valuation of
these instruments will continue in years to come, but the directors` approach
remains focussed on the generation of cash-flows (the "real" element of return
to investors assuming the properties and hedges are held to their maturity
dates). Should interest rates start to increase, the value of these swaps will
increase substantially as they provide protection against upward moving
interest rates.
The directors believe that it is appropriate to manage interest rate exposure
on the basis of the actual cash-flow protection that the hedging instruments
provide, notwithstanding the non-cash flow volatility that might result in the
income statement, and will continue to do so with new investments as they are
made.
Accounting treatment
As discussed above, all properties are revalued annually at valuations
determined by independent third party valuers. Under IFRS, acquisition costs,
being costs directly attributable to the acquisition of a property, such as
stamp duties, real estate transfer taxes and legal fees, are required to be
capitalised. However, when fair valued at year-end, these acquisition costs are
effectively expensed through the fair value adjustments line in the income
statement, given that there was no appreciation.
Economically, the acquisition costs have been incurred in order to extract
future/long-term value from the property through the future cash flows that
will be generated. For analysis purposes, the Group takes the acquisition costs
discussed above and amortises these over the fixed lease term of the
investment. The director`s view is that this provides more sound representation
of the economic reality of the investment evaluation process.
As a result of the fair value adjustments required under IFRS, which
capitalises direct acquisition costs in the year of acquisition, the Group has
recognised an impairment loss for the year ended 28 February 2010.
Key performance metric
The key performance metric of the Group is Distributable Income, which is the
funds that have been generated by the business, as represented by the cash
rental received, less interest expenses, operating expenses and taxation paid,
that can be distributed to shareholders. In particular, the difference between
Distributable Income and normal accounting income or net profit relates to fair
value adjustments. Because such adjustments are not realised until the property
is disposed of, such profits or losses are not distributable and are stripped
out of income until realisation. In the current year, the Group made a loss of
Euro 573,165, which is in-line with expectation. This reflects the costs
incurred to establish the corporate structure, obtain the Group`s listings on
two exchanges, undertake the fundraising, and acquire the properties. The
directors are pleased that this work was completed at such a low overall cost.
The investment properties have been acquired very close to year-end, on
1 December and 15 January respectively, and hence have not yet had an
opportunity to generate meaningful Distributable Income.
Further capital raising
Given that the initial funds have been invested, the Group has sought further
funding after the year-end. In April of 2010, a further Euro 10 million of
investor capital was raised in order to take advantage of the numerous
investment opportunities across Europe. The Investment Adviser is currently
actively working at selecting further investments towards which to allocate
the freshly raised funds.
Investment Adviser
As announced by the Group on 23 February of this year, the Investment Adviser,
MAS Property Advisers Limited, concluded negotiations with Sanlam International
Investment Partners ("SIIP"), a division of the Sanlam Group, regarding their
introduction as a shareholder of the Investment Adviser.
Sanlam is a leading financial services and insurance company based in South
Africa with international operations in various jurisdictions. The Investment
Adviser believes that the addition of SIIP as a shareholder adds significant
value to the Group through SIIP`s expertise and capabilities in areas such as
distribution channels, governance, business strategy input, capital management
and leveraging service provider relationships. The directors believe that this
will have a positive influence on the Group`s prospects, ultimately benefiting
the Group`s shareholders.
Liquidity and tradability
Given the early stage of the Group`s lifecycle, liquidity in shares in MAS plc
remains low. This is to be expected during the initial investment phase. As an
asset class inherently suited to investors with a longer term investment
horizon, the low initial liquidity does not per se present any difficulty.
However, as the portfolio continues to grow and the Group commences its income
distribution to its shareholders, this will support increased liquidity in the
trading of the Group`s shares. In addition, the Investment Adviser is confident
that the introduction of Sanlam International Investment Partners to the
shareholding of the Investment Adviser and the influence of this on the Group
will further support the growth of the business and liquidity in the shares.
Prospects
The directors are pleased with the investments secured with the funds that were
initially raised, and locked-in strong positive cash flows from these
investments. With those funds now spent and having raised a further
Euro 10 million, the Group is in the process of negotiating on several
interesting opportunities in continental Europe. The Group is well placed to
take advantage of such opportunities and will announce the transactions it
completes to the market in due course.
Dividends
As the Group has completed the purchase of properties very close to year-end,
no Distributable Income is yet available for distribution and accordingly the
directors do not propose a dividend.
Lukas Nakos Ron Spencer
Chief Executive Officer Chairman
Registered Office: Registered Agent:
25 Athol Street Onyx Management Limited
Douglas, IM1 1LB
Isle of Man
Directors Date of Appointment
Lukas Nakos
Malcolm Levy
Gideon Oosthuizen
Ronald Spencer 16 July 2009
Jaco Jansen 16 July 2009
Secretary Date of Appointment
Helen Cullen 13 March 2009
Statement of Directors` responsibilities in respect of the Directors` report
and the financial statements
The directors are responsible for preparing the Directors` Report and the
financial statements in accordance with applicable law and regulations.
The directors have elected to prepare the financial statements in accordance
with International Financial Reporting Standards.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Group and of the loss of the Group for that period.
In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable International Financial Reporting Standards have
been followed, subject to any material departures disclosed and explained in
the financial statements; and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group will not continue in business.
The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Group. They have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Report of the Independent Auditors, KPMG Audit LLC, to the members of
MAS plc
We have audited the Group financial statements (the "financial statements") of
MAS plc for the year ended 28 February 2010 which comprise Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Cash Flow, Consolidated Statement of
Changes in Equity and the related notes. These financial statements have been
prepared under the accounting policies set out therein.
This report is made solely to the Group`s members, as a body. Our audit work
has been undertaken so that we might state to the Group`s members those matters
we are required to state to them in an auditor`s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group and the Group`s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors` responsibilities for preparing the financial statements in
accordance with applicable law and International Financial Reporting Standards
are set out in the Statement of Directors` Responsibilities on page 7.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view. We also report to you if, in our opinion, the Group has not kept
proper accounting records, or if we have not received all the information and
explanations we require for our audit.
We read the Directors` Report and any other information accompanying the
financial statements and consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
audited financial statements. Our responsibilities do not extend to any other
information.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are
appropriate to the Group`s circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view, in
accordance with International Financial Reporting Standards, of the state of
the Group`s affairs as at 28 February 2010 and of the Group`s loss for the year
then ended.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY 2010
(Note 13)
Year Period
Notes ended 28 ended 28
February February
2010 2009
Euro Euro
Income
Rent received 1 290,999 -
Expenses
Investment adviser fees (71,748) -
Operating expenses (825,676) (16,866)
Audit and accounting fees (52,251) -
Company administration expenses (58,327) (14,261)
Company secretarial expenses (81,079) -
Directors` fees (111,276) -
General expenses (38,147) (2,605)
Legal and professional expenses 2 (183,228) -
Listing expenses 3 (295,705) -
Sundry expenses (5,663) -
Exchange differences 4 82,123 23,504
Fair value adjustments 6 (2,114,785) -
Results from operating activities (2,639,087) 6,638
Net interest expense (48,863) (5,301)
(Loss) / profit before taxation (2,687,950) 1,337
Taxation - -
Total comprehensive (loss) / profit (2,687,950) 1,337
Basic and diluted earnings per share
(cents per share) (78.6) 1,337
Weighted average number of outstanding
shares 5 3,420,493 100
Distributable income 1 - 1,337
The directors consider that all results derive from continuing activities
The notes on pages 14 to 25 form part of these consolidated annual financial
statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 28 FEBRUARY 2010
28 February 28 February
2010 2009
Notes Euro Euro
Non-current assets
Investment Property 9 24,773,271 2,141,532
Current assets
Trade and other receivables 122,499 858
Cash and cash equivalents 1,528,306 21,291
1,650,805 22,149
Current liabilities (amounts falling
within one year)
Short term loans 7 (1,384,500) -
Trade and other payables (429,010) (123,271)
(1,813,510) (123,271)
Net current (liabilities) (162,705) (101,122)
Non Current Liabilities
Long term loans 7 (17,261,161) (2,038,973)
Financial instruments 8 (726,197) -
(17,987,358) (2,038,973)
Net Assets 6,623,208 1,437
Capital and reserves
Share capital 5 9,309,821 100
Retained (loss) / profit (2,686,613) 1,337
Shareholder equity 6,623,208 1,437
Net asset value (cents per share) 71.1 1,436.8
These financial statements were approved by the Board of Directors and signed
on their behalf by:
The directors consider that all results derive from continuing activities
The notes on pages 14 to 25 form part of these consolidated annual financial
statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 28 FEBRUARY 2010
(Note 13)
Year Period ended
ended 28 28 February
February 2010 2009
Euro Euro
OPERATING ACTIVITIES
(Loss) / profit before taxation (2,687,950) 1,337
Finance costs 48,863 5,301
Exchange differences (82,123) (23,504)
Fair value adjustments 2,114,785 -
(606,425) (16,866)
Changes in working capital 184,098 122,413
Net interest expense (48,863) (5,301)
Cash inflow from operating activities (471,190) 100,246
INVESTING ACTIVITIES
Investment properties (24,020,327) (2,141,532)
Cash generated from investing activities (24,020,327) (2,141,532)
FINANCING ACTIVITIES
Issuance of share capital 9,309,721 100
Proceeds from loan Facilities 16,606,688 2,038,973
Cash generated from financing activities 25,916,409 2,039,073
NET INCREASE / (DECREASE IN CASH AND
EQUIVALENTS) 1,424,892 (2,213)
Cash and equivalents at the beginning of the
period 21,291 -
Translation effect on revaluation of
monetary assets and liabilities 82,123 23,504
CASH AND EQUIVALENTS AT YEAR END 1,528,306 21,291
The notes on pages 14 to 25 form part of these consolidated annual financial
statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 28 FEBRUARY 2010
28 Feb-10 28 Feb-10 28 Feb-10
Share Retained
Capital Income Total
Euro Euro Euro
Opening balance at 3 July 2008
(date of incorporation) - - -
Issue of shares 100 - 100
Profit for period to 28 February
2009 - 1,337 1,337
Closing balance as at 28 February
2009 100 1,337 1,437
Loss for period to 28 February
2010 - (2,687,950) (2,687,950)
Issue of shares 9,309,721 - 9,309,721
Closing balance as at 28 February
2010 9,309,821 (2,686,613) 6,623,208
The notes on pages 14 to 25 form part of these consolidated annual financial
statements
Notes to the annual consolidated financial statements
1. Significant Accounting Policies
MAS plc has prepared its financial statements in accordance with International
Financial Reporting Standards ("IFRS"). IFRS comprise accounting standards
issued by the International Accounting Standards Board ("IASB") and its
predecessor body as well as interpretations issued by the International
Financial Reporting Interpretations Committee ("IFRIC") and its predecessor
body.
Basis of accounting
The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of fixed asset investments, and
in accordance with IFRS without exception.
The Group applies the revised standard IAS 1 Presentation of Financial
Statements (2007), which became effective as of 1 January 2009. As a result,
the Group presents in the consolidated statement of changes in equity all owner
changes in equity, whereas all non-owner changes in equity are presented in the
statement of comprehensive income. This presentation has been applied in these
financial statements as of and for the year ended 28 February 2010. Comparative
information has been re-presented so that it also is in conformity with the
revised standard.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 28 February 2010, and have not been applied
in preparing these consolidated financial statements:
New/Revised International Accounting Standards /
International Financial Effective date
Reporting Standards (IAS/IFRS) (accounting
periods
commencing
after)
IAS 1 Presentation of Financial Statements (Revised 2009) 1 January 2010
IAS 7 Statement of Cash Flows (Revised 2009) 1 January 2010
IAS 24 Related Party Disclosures - Revised definition of
related parties 1 January 2011
IAS 27 Consolidated and Separate Financial Statements -
Amendment relating to cost of an investment on first-time
adoption (Revised 2008) 1 July 2009
IAS 32 Financial Instruments: Presentation - Amendments
relating to classification of rights issues 1 February 2010
IAS 39 Financial Instruments: Recognition and Measurement -
Amendments for embedded derivatives when reclassifying
financial instruments 30 June 2009
IAS 39 Financial Instruments: Recognition and Measurement -
Amendments for eligible hedged items 1 July 2009
IAS 39 Financial Instruments: Recognition and Measurement
(Revised 2009) 1 January 2010
IFRS 8 Operating Segments (Revised 2009) 1 January 2010
IFRS 9 Financial Instruments 1 January 2013
IFRIC Interpretation
IFRIC 9 Reassessment of Embedded Derivatives 30 June 2009
The directors do not expect the adoption of the other standards and
interpretations to have a material impact on the Group`s financial statements
in the period of initial application.
Going concern
The Group has financial resources in the form of realisable investments and
adequate working capital. Accordingly, the directors continue to adopt the
going concern basis.
Basis of consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiary undertakings for the period under review. The
acquisition method of accounting has been adopted. Under this method, the
results of subsidiary undertakings acquired or disposed of in the year are
included in the consolidated income statement from the date of acquisition or
up to the date of disposal. Subsidiaries are those enterprises controlled by
the Company. Control exists where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from
its activities. In assessing control, potential voting rights that presently
are exercisable are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases. Intra-group
balances and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial
statements. Unrealised losses are eliminated in the same way as unrealised
gains, but to the extent that there is no evidence of impairment.
Revenue recognition
Revenue includes the rent received on real estate investments, including
interest and dividends and is accounted for on an accruals basis.
Investments
Investment Property ("IAS40"): direct real estate investments are classified as
Investment Properties and comprise both freehold and leasehold land and
buildings and installed equipment held for the purpose of earning rental income
and for capital appreciation. Investment property is treated as a long-term
investment and is initially recognised at cost (including related transaction
costs) and subsequently carried at fair value. Subsequent additions that
produce future economic benefit to the Group are capitalised.
Investment property under construction is valued at cost.
Maintenance and repairs which neither materially add to the value of the
properties nor prolong their useful lives are expensed in the income statement.
Independent valuations are obtained on an annual basis. The directors shall
value the investment properties on an interim semi-annual basis. Investment
properties are classified as held for sale when the directors have approved the
disposal of the properties. The valuation calculations are based on the
aggregate of the net annual rents receivable and associated costs, using the
discounted cash flow method. The discounted cash flow method takes projected
cash flow and discounts it at a rate which is consistent with the comparable
market transactions. Any gains or losses arising from changes in fair value
are included in the net profit or loss for the year. The net gains or losses
are transferred to a revaluation reserve and are not available for
distribution. These fair value adjustments are excluded from the computation
of distributable profit. Gains or losses arising from the disposal of
investment properties, being the difference between the net disposal
proceeds and the carrying value, are brought to account in the determination
of the net profit for the year.
Considerable judgment is required in interpreting market data to determine the
estimates of value; accordingly the estimates of value presented in the
financial statements are not necessarily indicative of the amounts that the
Group could realise in a market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair values.
Foreign currency
Transactions in currencies other than Euro are recorded at the rate of exchange
prevailing at the dates of the transactions. At each Statement of Financial
Position date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the Statement of
Financial Position date. Non-monetary assets and liabilities carried at fair
value that are denominated in foreign currencies are translated at the rates at
the Statement of Financial Position date. Other non-monetary assets and
liabilities denominated in foreign currencies are translated at the initial
drawdown rate. Gains and losses arising on translation are included in the net
profit or loss for the period.
Functional and Presentational Currency
The financial statements are presented in Euro, which is the functional
currency of the Group.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash at bank.
Other Assets
Other assets consist of short term assets. The directors consider that the
carrying value of the other assets approximates to their fair value.
Borrowings
Interest bearing bank loans are recorded at the proceeds received, net of
direct issue costs. Borrowing costs are amortised over the term of the loan.
Derivatives
The Group has currency exposures related to its investments and may enter into
portfolio level and investment specific foreign exchange contracts and other
derivatives to hedge such exposures. Movements in the fair value of derivatives
are accounted for in the statement of comprehensive income. The Group may also
use interest rate derivatives to hedge interest rate exposure on the underlying
debt of the property portfolio.
Risk management
Liquidity Risk - the risk that arises when the maturity of assets and
liabilities do not match. An unmatched position potentially enhances
profitability, but can also increase the risk of losses.
The Group has internal procedures focused on ensuring the efficient but prudent
use of cash and availability of working capital. The liquidity risk inherent in
the Group is mainly as a result of the tenant risk in the property portfolio.
Should a tenant default, liquidity risk may result in the inability of the
Group to cover the interest payments. As a result adequate cash buffers are
maintained, and tenant strength is reviewed on a continual basis.
Market price risk - the risk that the market price of an investment or
financial instrument will fluctuate due to changes in foreign exchange rates,
market interest rates, market factors specific to the security or its issuer or
factors generally affecting all investments.
The risk to the Group relates to an imbalance between demand and supply for the
relevant investments and financial instruments in the portfolio, which could
potentially result in a disorderly market. This risk is mitigated through the
use of a dedicated Investment Manager, MAS Property Advisers Limited, focussed
on continual assessment of the portfolio and its movements in relation to the
broader market.
Foreign exchange risk - the Group holds both assets and liabilities denominated
in currencies other than Euro, the functional and presentation currency. It is
therefore exposed to currency risk, as the value of the assets denominated in
other currencies will fluctuate due to changes in exchange rates. The Group`s
policy is to hedge, on a case-by-case basis, all foreign exchange exposures and
commitments.
Interest rate risk - a significant part of the funding of the companies`
portfolios derives from debt. Debt is managed on an active basis, hedging
against adverse movements in interest rates. Note 8 details the hedging
activities taken in the current year.
At the 28 February 2010 the Group had the following currency exposures:
Currency Risk Exposures
GBP CHF ZAR
Closing exchange rate 0.8937 1.4621 10.5070
MONETARY ITEMS
Cash at Bank GBP CHF ZAR
Foreign currency 260,347 295,406 4,911
Euro equivalent 291,314 202,042 467
Payables GBP CHF ZAR
Foreign currency 1 817,772 787,557
Euro equivalent 1 559,313 74,955
Receivables GBP CHF ZAR
Foreign currency 40,035 255,432 -
Euro equivalent 44,797 174,702 -
Long-term borrowings GBP CHF ZAR
Foreign currency - 13,000,000 -
Euro equivalent - 8,891,321 -
Total monetary exposure
Foreign currency 300,383 14,368,610 792,468
Euro equivalent 336,112 9,827,378 75,422
NON-MONETARY ITEMS
Investment property GBP CHF ZAR
Foreign currency - 21,600,000 -
Euro equivalent - 14,773,271 -
Taxation
Taxation on the profit or loss for the year comprises current and deferred tax
relating to operations in taxable jurisdictions. Income tax is recognised in
profit or loss except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year in
each taxable jurisdiction, using tax rates enacted or substantively enacted at
the Statement of Financial Position date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided using the Statement of Financial Position liability
method, based on temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their tax bases. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the Statement of Financial Position date.
Distributable Income
Distributable Income is the funds that have been generated by the business, as
represented by the cash rental received, less interest expenses, operating
expenses and taxation paid, that can be distributed to shareholders.
2. Legal and professional expenses
(Note 13)
Year ended 28 Period ended
February 2010 28 February
2009
Euros Euros
Legal Services - MAS Property Advisers Ltd 122,011 -
Independent taxation and professional advice 50,877 -
Due diligence costs and other 10,340 -
183,228 -
3. Listing expenses
(Note 13)
Year ended 28 Period ended
February 2010 28 February
2009
Euros Euros
Corporate advisers 251,085 -
Bourse de Luxembourg 20,760 -
Other 13,402 -
Transfer secretaries 5,380 -
JSE 5,078 -
295,705 -
4. Exchange differences
Exchange gains and losses arise from the revaluation of the monetary assets and
liabilities and the fair valuation of non-monetary assets denominated in a
foreign currency. Included in exchange differences is a profit of Euro 140,689
arising from the fair valuation of the DPD property.
5. Share capital
During the period under review, the Company issued 9,309,721 ordinary shares of
no par value at Euro 1 each (period ended 28 February 2009: 100 shares of no par
value at Euro 1 each) via a dual listing on the Euro-MTF market of the
Luxembourg Stock Exchange (primary listing) and on the Alternative
Exchange (Altx) of the JSE Limited (secondary listing). The current issued
share capital of the Company is 9,309,821 ordinary shares. The Company does not
have authorised share capital as it is registered under the Companies Act 2006
of the Isle of Man.
Year ended 28 February Period ended 28 February
2010 2009
Number Euros Number Euros
Share Capital 9,309,821 9,309,821 100 100
6. Fair value adjustments
Fair value adjustments relate to:
Year Period
ended 28 ended 28
February February
2010 2009
Euros Euros
DPD Property
Fair value adjustment - DPD property 137,308 -
Fair value adjustment - Credit Suisse interest
rate swap (276,667) -
(139,359) -
Aldi Portfolio
Fair value adjustment - Aldi portfolio (1,525,896) -
Fair value adjustment - Sparkasse interest rate
swap/cap (449,530) -
(1,975,426) -
Total (2,114,785) -
7. Loans
Save for the loans set out below, no other material loans, including the issue
of debentures, have been made to MAS plc or the subsidiaries. Long-term loans
comprise the following:
a) Inventive Capital S.a.r.l. (a subsidiary) received a loan of Euro 8,369,840
on 1 December 2009 from Sparkasse Bank. This is a 20-year term floating
rate loan at 95bps above Euribor. The Aldi Portfolio purchased by Inventive
Capital S.a.r.l. is held as security against this loan. There are no
conversion or redemption rights for this loan.
b) Petrusse Capital S.a.r.l. (a subsidiary) received a loan of CHF 13,000,000
on 15 January 2009 from Credit-Suisse. This is a 15-year term floating rate
loan at 90bps above Swiss LIBOR. The DPD Property purchased by Petrusse
Capital S.a.r.l. is held as security against this loan. There are no
conversion or redemption rights for this loan. Amortisation repayments begin
in June 2010 on this loan. Such amortisation payments are to be financed by
the rentals received from the property.
Short-term loans comprise the following:
c) MAS received a loan from Amplain Limited of Euro 1,378,488 on 7th January
2010. The loan is unsecured and carries interest at ECB base rate plus
2%. On 28th February 2010 MAS received instruction from Amplain to convert
this loan into Share Capital. The loan was converted into Share Capital
on the listing of the private placement shares on 7th April 2010. With
accrued interest this amount totalled Euro 1,384,500 as at 28th February
2010.
In addition, a loan liability, plus accrued interest at a rate of ECB base rate
plus a margin of 2%, was redeemed against the issue of new shares at par value
on 30 July 2009 in the course of a private placing that immediately preceded
the initial listing of the Company`s shares.
8. Financial Instruments
The Group has hedged the interest rate exposure on the loans disclosed in
Note 7.
75% of the Sparkasse Bank debt used to purchase the "Aldi portfolio" was hedged
with Bayern LB via a interest rate swap at a fixed rate of 4.2%, and 25% fixed
via an interest rate cap with a strike at 4.0%, on 20th October 2009. Both the
hedge and the cap started on 1 December 2009, the completion date of the
property. The mark-to-market valuation of this hedge was a loss of
(Euro 449,530) as at 28th February 2010.
70% of the Credit Suisse debt used to purchase the `DPD Property` was hedged
directly with Credit-Suisse via a forward starting interest rate swap at 2.76%
on 14th September 2009. The start date is 15 June 2010. The mark-to-market
valuation of this hedge was a loss of (Euro 276,667) as at 28th February 2010.
9. Investment property
During the year the Group completed the acquisition of a logistics and office
property near Zurich (the "DPD Property"), and a portfolio of retail properties
from discount retailer Aldi in Germany (the "Aldi portfolio") under a sale and
leaseback arrangement. Details of the transactions, with the account
reconciliation, are as follows:
DPD Property Aldi Portfolio
Location Zurich, Switzerland Various, Germany
Currency CHF EUR
Purchase price 20,535,431 10,462,300
Rent 1,304,000 732,108
Yield 6.35% 6.9975%
Debt 13,000,000 8,369,840
Completion date 15-Jan-10 01-Dec-09
Breakdown of Investment Properties DPD Property Aldi Portfolio
Euro Euro
Property purchase price 13,950,904 10,462,300
Capitalised expenses:
Legal and professional costs 186,928 200,887
Notary and land registration taxes 10,663 465,019
Commissions 207,642 293,067
Transaction fees 139,137 104,623
Exchange difference 140,689 -
Fair value adjustment 137,308 (1,525,896)
Net Book Value 14,773,271 10,000,000
Both properties are included at the valuations given by approved independent
third party valuers. The DPD Property has been valued by Wuest and Partners at
CHF 21.6 million and the Aldi portfolio by DTZ at Euro 10 million.
10. Taxation
The Group is ultimately resident in the Isle of Man for taxation purposes. The
Isle of Man has a 0% rate of corporate income tax to which the Group is
subject, therefore no taxation was payable for the period under review (2009:
0%).
11. Related party transactions
In August 2009 the Group received South African Rand denominated irrevocable
undertakings from investors for the amount of ZAR 79,185,636. The number of
shares to be issued against these commitments was fixed several days before the
practicable conversion of these monies to the base currency of the Group. It
was considered prudent to hedge this amount for this period. The Group took
advice and considered various options and costings in order to mitigate this
risk. The most appropriate was offered by Barclays Bank and required a margin
deposit of Euro 375,000.
As the Group had insufficient funds to place this margin deposit, appropriate
funding was sought. High street banks were not prepared to lend on an unsecured
basis. Accordingly, Mergon Services Limited offered to provide Euro 110,000 at a
cost of 5%. To achieve the balance, Lukas Nakos and Malcolm Levy loaned Euro
55,000 and Euro 47,000 respectively at the same terms. Prior authorisation was
received from the Board of Directors before the transaction.
During the year, the Group made the following payments to the Investment
Adviser, MAS Property Advisors Limited:
* Management fees were paid of Euro 71,748
* Transaction fees were paid of Euro 243,760 (see note 9)
* Euro 122,011 was paid for the provision of legal services by the Investment
Adviser, predominantly relating to the preparation of materials for the listing
on two exchanges (see note 3)
* Euro 73,276 was paid to the Investment Adviser for the provision of a
Financial Director, Malcolm Levy
* Euro 81,079 was paid to the Investment Adviser for the provision of a Group
Secretary, Helen Cullen.
The following entities are all subsidiaries of MAS plc:
Company Name Domicile
MAS (BVI) Holdings Ltd British Virgin Islands
MAS (IOM) Holdings Ltd Isle of Man
European Property Holdings S.a.r.l. Luxembourg
Petrusse Capital S.a.r.l. Luxembourg
Inventive Capital S.a.r.l. Luxembourg
12. Segmental reporting
Logistics / Retail /
Switzerland Germany
Euro Euro
Income Statement
Year ended 28 February 2010
Rent received 107,972 183,027
Operating expenses (19,656) (34,707)
Exchange differences 36,768 -
Fair value adjustment (139,336) (1,975,449)
Results from operating activities (14,252) (1,827,129)
Net interest income / (expense) 83,666 (88,727)
(Loss) / profit before taxation 69,414 (1,915,856)
Statement of Financial Position
as at 28 February 2010
Non-current assets
Investment Property 14,773,271 10,000,000
Current assets
Trade and other receivables 98,631 8,269
Cash and cash equivalents 51,234 195,966
Segment assets 14,923,136 10,204,235
Current liabilities
Trade and other payables (206,575) (128,330)
Non Current Liabilities
Loans (8,891,320) (8,369,840)
Financial instruments (276,667) (449,531)
Segment liabilities (9,374,563) (8,947,701)
Segment net assets 5,548,573 1,256,534
Capital and reserves
Share capital
Retained (loss) / profit
Segment equity and reserves
Corporate Total
Euro Euro
Income Statement
Year ended 28 February 2010
Rent received - 290,999
Operating expenses (843,061) (897,424)
Exchange differences 45,355 82,123
Fair value adjustment - (2,114,785)
Results from operating activities (797,706) (2,639,087)
Net interest income / (expense) (43,802) (48,863)
(Loss) / profit before taxation (841,508) (2,687,950)
Statement of Financial Position
as at 28 February 2010
Non-current assets
Investment Property - 24,773,271
Current assets
Trade and other receivables 15,599 122,499
Cash and cash equivalents 1,281,106 1,528,306
Segment assets 1,296,705 26,424,076
Current liabilities
Trade and other payables (94,104) (429,009)
Non Current Liabilities
Loans (1,384,500) (18,645,660)
Financial instruments - (726,198)
Segment liabilities (1,478,604) (19,800,868)
Segment net assets (181,899) 6,623,208
Capital and reserves
Share capital 9,309,821
Retained (loss) / profit (2,686,613)
Segment equity and reserves 6,623,208
13. Comparative period
The comparative period is from 3 July 2008 (date of incorporation) to
28 February 2009.
14. Beneficial Ownership
The major beneficial owners of MAS plc are as follows:
Alkara 114 33.53%
BNF Investments (Pty) Limited 23.26%
Amplain Limited 21.86%
Mertech Investments (Pty) Limited 8.14%
Mertech Services (Pty) Limited 5.85%
15. Post-Balance Sheet Event
On the 7th April 2010, MAS plc raised a further Euro 10,079,126 via the issue
of new shares at a price of Euro 1. This included Euro 8,690,301 of fresh
capital, and the conversion, including accrued interest, of the short term
loan discussed in note 7.
Sponsor
PSG Capital (Pty) Limited
Date: 25/05/2010 17:00:01 Supplied by www.sharenet.co.za
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