Finance expenses include the effect of unrealised foreign
currency gains and losses on monetary assets and liabilities
arising in the period plus the effect of the realised foreign
currency gains and losses on cash transactions completed during the
period.
3.22 Operating expenses
All expenses are accounted for on an accruals basis. The Group's
investment management and administration fees and all other
expenses are charged to the consolidated income statement.
3.23 Earnings per share
The Group presents basic and diluted earnings per share ("EPS")
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares, which comprise warrants.
3.24 Segment reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. All
operating segments' operating results are reviewed regularly to
make decisions about resources to be allocated to the segment and
to assess their performance (see note 29).
3.25 Subsequent events
Subsequent events are disclosed in the notes to the consolidated
financial statements when significant.
3.26 Contingencies
Contingent liabilities are not recognised in the consolidated
financial statements, unless there is a probable chance of an
outflow for which a provision is made. They are disclosed unless
the possibility of an outflow of resources embodying economic
benefits is remote.
A contingent asset is not recognised in the consolidated
financial statement but disclosed when an inflow of economic
benefits is probable.
4. Significant accounting estimates and judgements
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected. Information about critical judgements in applying
accounting policies that have the most significant effect on the
amount recognised in the consolidated financial statements is
included in:
Investment property
Fair value is based on the open market valuations of the
properties as provided by an independent expert, Savills (UK)
Limited, in accordance with the guidance issued by the Royal
Institution of Chartered Surveyors (the "RICS"). Market valuations
are carried out on a quarterly basis. The fair values are based on
market values, being the estimated amount for which a property
could be exchanged on the date of the valuation between a willing
buyer and a willing seller in an arm's length transaction after
proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion. 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. These estimates are based on local
market conditions existing at the reporting date. The experts also
used their market knowledge and professional judgement and did not
rely solely on historical transactional comparables. Valuations
typically reflect all the market and operational risks as described
in note 28.1. It should be noted that the valuation of property and
property related assets is inherently subjective due to the nature
of each property and the characteristics of local, regional and
national real estate markets which change over time.
The current economic climate and volatility in the global
capital markets creates additional uncertainty and there can
therefore be no assurance valuations of the Group's assets will
reflect actual sale prices even where such sales occur shortly
after the valuation date.
Current and deferred taxes
The Group is subject to income and capital gain taxes in
numerous jurisdictions. Significant judgement is required in
determining the total provision for income and deferred taxes. The
Group recognises liabilities for anticipated 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 provision in the period in which the determination
is made (refer to note 25).
Derivative financial instruments
An interest rate swap/cap can be viewed as a series of cash
flows occurring at known future dates. The value of the swap is the
present value of these cash flows. To calculate the present value
of each cash flow, both the future cash flows and an appropriate
discount factor for each period on which a cash flow occurs are
estimated. Future cash flows are calculated from a forward interest
rate curve constructed using market prices for similar interest
rate instruments independently sourced from mid-market broker
quotes for the relevant market. The discount factor is the factor
by which the future cash flow must be adjusted to obtain the
present value. Discount factors are derived from an assessment of
interest rates in the future and are calculated using forward rates
such as EURIBOR. Interest rates used for calculating discount
factors are independently sourced from mid-market broker quotes for
the relevant market at the valuation date.
The fair value of the Group's derivatives is the estimated
amount that the Group would receive or pay to terminate the
derivatives at the balance sheet date. The Group estimates the fair
value of derivatives by reference to current market conditions
compared to the terms of the derivatives agreement using the result
of an external appraiser. Refer to note 28 for the related
balances.
Classification of preference shares
Judgement is required to determine whether preference shares
should be classified as financial liability or equity. Based on the
terms and conditions of the preference shares issued in December
2009 the Group has determined that the preference shares have the
characteristics of a financial liability rather than equity. This
was primarily based on the fact that the preference shares are
denominated in sterling whereas the functional currency used by the
Group is the euro. In addition, the preference shares have a right
to receive a dividend and are redeemable.
5. Capital Management
The primary objectives of the Group's capital management is to
ensure that it remains within its quantitative banking covenants
and maintains a strong credit rating. No changes were made in the
objectives, policies or processes during the years ending 30
September 2014 and 30 September 2013. The Group monitors capital
primarily using a Loan to Value ratio (LTV), 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 LTV ratio of the Group lower than the LTV requirements in
the banking covenants.
The banking covenants require the Group to have a LTV ratio of
85% up to and including the occurrence of the Step-Down Event, 80%
after the occurrence of the Step-Down Event. Under the terms of the
new facility, once the total amount of the unpaid principal balance
has been reduced to EUR135 million and as long as the LTV is below
70%, the ("Step-Down Event"), the margin will be reduced from 770bp
to 470bp over three month EURIBOR. The LTV covenant, which is set
initially at 85%, falls to 80% following the Step-Down Event. Under
the terms of the new debt, a cash sweep will be applied to the
Company's income prior to the Step-Down Event.
During the year the Group did not breach any of its loan
covenants, nor did it default on any other of its obligations under
its loan agreement.
For the financial year ended 30 September 2014, the LTV ratio
disclosed to the lender was 77.18%, (2013: 68.18% for Bank of
Scotland ("BOS").
Rental income
The Group leases out its investment properties under operating
leases. The future minimum lease receipts under non-cancellable
leases are as follows:
30 Sep 14 30 Sep 13
EUR000 EUR000
Less than one year 22,469 33,740
Between one and five years 81,940 110,141
More than five years 33,354 47,065
---------------------------- ---------- ----------
Total rental income 137,763 190,946
---------------------------- ---------- ----------
For the year ended 30 September 2014, EUR26.6 million was
recognised as rental income in the consolidated income statement
(2013: EUR27.6 million).
6. Property operating expenses
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