Content
1. Information on the Company 90
2. Significant Accounting Policies 90
2.1. General principles 90 2.2. Consolidation range and business combinations 90 2.3. Change in presentation and significant accounting policies 94 2.4. New and revised standards and interpretations 95 2.5. Basis of consolidation 96 2.6. Summary of significant accounting policies 98
3. Accounting Judgments, Estimates and Assumptions 105
3.1. Property valuation 105 3.2. Deferred taxes 106 3.3. Measurement of derivatives 106 4. Segment Reporting 107 4.1. Internal reporting 107 4.2. Intersegment transactions 107 4.3. Third-party revenues 107 4.4. Segment reporting by region 107
5. Notes to the Income Statement 108
5.1. Property revenues and expenses 108 5.2. Revenues from property services 108 5.3. Other property expenses 108 5.4. Personnel expenses 109 5.5. Other operating expenses 109 5.6. Finance revenue 110 5.7. Finance costs 110 5.8. Income tax expense 110 5.9. Earnings per share 111
6. Notes to the Balance Sheet 112
6.1. Investment property 112 6.2. Investments in associates 112 6.3. Properties held for sale 113
6.4. Other assets 114
6.5. Cash and cash equivalents 114
6.6. Equity 114
6.7. Deferred taxes 116 6.8. Income tax liabilities and provisions 117 6.9. Other current liabilities 117 6.10. Financial instruments 117
7. Operating Leases 126
8. Objectives and Policies of Financial Risk Management 126
9. Related Party Transactions 130
9.1. Provision of services 130 9.2. Other services 130 9.3. Remuneration of persons in key positions 130
10. Information on Bodies of the Corporation 131
11. Events after the Balance Sheet Date 131
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1. Information on the Company
conwert Immobilien Invest SE (conwert) is a European stock company that trades in the ATX segment of the Vienna Stock Exchange. The registered headquarters of conwert Immobilien Invest SE are located at Alserbachstrasse 32, 1090 Vienna, Austria.
The business activities of the conwert Immobilien Group (conwert Group) are focused on property investments, in particular the acquisition, development, rental and best possible realisation of properties in order to optimise investments.
2. Significant Accounting Policies
2.1. General principles
The Executive Directors of conwert were responsible for the preparation of these annual financial statements in accordance with the guidelines set forth in International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). The consolidated financial statements were prepared on a historical cost basis, which was modified to include the measurement of investment property and derivative financial instruments at fair value. The consolidated financial statements are prepared in million Euros (€ mn). Numerous amounts and percentage rates
in the consolidated financial statements were rounded, and totals can therefore differ arithmetically from the sum of the individual amounts.
2.2. Consolidation range and business combinations
Consolidation range
The consolidation range includes conwert Immobilien Invest SE as the parent company as well as the companies listed under note 12.
Business combinations
On 21 December 2012, conwert signed an agreement to acquire the majority interest in KWG Kommunale Wohnen AG (KWG), Hamburg. This transaction is designed to expand the Group‘s portfolio in Germany. KWG trades in the Entry Standard segment of the Frankfurt Stock Exchange. The responsible antitrust authorities approved the purchase of a 61.62% stake in KWG by conwert on 21 January 2013.
(in € mn) Fair value as of the acquisition date Assets
Investment property 388.6
Other property, plant and equipment and intangible assets 0.6
Properties held for sale 4.2
Receivables and other financial assets 10.4
Cash and cash equivalents 30.3
Deferred tax assets 2.5
Total 436.6
Liabilities
Liabilities 284.7
Deferred tax liabilities 10.0
Total 294.7
Total identifiable net assets at fair value 141.9
Non-controlling interests as of the initial consolidation date (38.38%) (58.3) Total identifiable net assets attributable to the shareholders
of the parent (61.62%)
83.6 Share of profit from the bargain purchase attributable to the shareholders
of the parent
(1,0)
Return compensation transferred 82.6
Thereof liquid funds 44.1
Thereof equity instruments 38.5
This acquisition was accounted for in accordance with the purchase method. The fair value of the identifiable assets and liabilities of KWG on the date of initial consolidation are as follows:
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The €1.0 mn gain on the bargain purchase of 61.62% of the shares is reported on the income statement under point 14. This gain resulted, above all, from the lower market value of KWG compared with the fair value of the acquired assets
and assumed liabilities.
The transaction costs of €0.3 mn incurred in 2013 (2012: €2.4 mn) were recognised as expenses and are included on the income statement under other operating expenses.
As of 31 December 2013, the conwert Group had increased its investment in KWG Kommunale Wohnen AG to a total of 76.96%.
The acquisition of KWG led to an increase of €55.7 mn in Group revenues, €33.3 mn in profit after tax and €33.3 mn in total comprehensive income as of 31 December 2013.
Acquisition of assets and liabilities
On 6 August 2013 the conwert Group acquired 94.9% of a German residential property portfolio. This acquisition is not classified as a business combination in the sense of IFRS 3 because it does not meet the definition of a business. In accordance with IFRS 3.2(b), the acquired identifiable assets and assumed liabilities were therefore recognised individually at cost. The allocation of the Group‘s acquisition cost to the individual acquired identifiable assets and liabilities was based on the respective fair values.
(in € mn)
Liquid funds acquired through the transaction 30.3
Outflow of liquid funds (44.1)
Net outflow of liquid funds (13.8)
(in € mn) Gross
amount Fair value
Trade accounts receivable 3.1 3.1
Other receivables 7.7 7.3
Total 10.8 10.4
Classification of cash outflows from the acquisition:
The receivables acquired in connection with the acquisition are as follows:
(in € mn) Carrying amount as of the acquisition date Assets
Investment property 133.2
Property held for sale 17.0
Receivables and other financial assets 3.9
Cash and cash equivalents 3.2
Total 157.3
Liabilities
Liabilities 12.7
Total 12.7
Total identifiable net assets at fair value 144.6
Non-controlling interests as of the initial consolidation date (5.1%) (7.2) Total identifiable net assets attributable to the shareholders of
the parent (94.9%)
137.4
Return compensation transferred 137.4
Thereof liquid funds 132.0
Thereof liabilities 5.4
The following table shows the acquired assets and liabilities in the portfolio on the date of initial consolidation:
(in € mn)
Liquid funds acquired through the transaction 3.2
Outflow of liquid funds (132.0)
Net outflow of liquid funds 128.8
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2.3. Change in presentation and significant accounting policies
In order to meet the presentation requirements of IAS 1.54, conwert changed its reporting to show current provisions as a separate balance sheet item beginning with the 2013 financial year. The provisions for future tax obligations arising from the accounting for losses recorded by foreign subsidiaries under Austrian group taxation are presented under income taxes beginning with the 2013 financial year. In prior years, these items were offset against deferred tax assets. This change in presentation reflects an opinion issued by the Austrian Financial Reporting and Auditing Committee (AFRAC, Point 3.4. Reference no. 18ff).
In accordance with IAS 8, these changes in presentation were made retroactively. The resulting effects on the comparable prior periods are shown in the following table.
Effects from the initial application of IFRS 13
The first-time inclusion of counterparty risk in the determination of fair value led to additional income of €2.3 mn for the conwert Group from the measurement of derivatives. This income was included under finance revenue.
Correction to the calculation of diluted earnings per share
In the prior year, the calculation of earnings per share (diluted) did not include the effect of interest (after tax) paid on the convertible bond. This error was corrected in 2013 in accordance with IAS 8 and the comparable prior year figure was adjusted accordingly. This correction led to an improvement in diluted earnings per share for 2012 from €-1.61 to €-1.47.
(in € mn) 01/01/2012 01/01/2012 31/12/2012 31/12/2012
excl. adjustment adjustment adjusted excl. adjustment adjustment adjusted
Deferred tax assets 22.1 16.9 39.0 32.7 20.3 53.0
Total non-current assets 2,580.0 16.9 2,596.9 2,262.3 20.3 2,282.6
Total assets 3,176.4 16.9 3,193.3 2,849.8 20.3 2,870.1
Equity and liabilities
Trade accounts payable 13.5 0.0 13.5 13.8 (1.0) 12.8
Income tax liabilities 8.3 16.9 25.2 14.4 20.3 34.7
Provisions 0.0 2.6 2.6 0.0 2.2 2.2
Other financial liabilities 23.7 (2.6) 21.1 37.6 (1.2) 36.4
Total current liabilities 462.7 16.9 479.6 384.5 20.3 404.8
Total equity and liabilities 3,176.4 16.9 3,193.3 2,849.8 20.3 2,870.1
2.4. New and revised standards and interpretations
The following new or revised standards and interpretations were applied for the first time in 2013:
The changes to IAS 1 “Presentation of Financial Statements“ lead to a new classification for the components of other comprehensive income. Items that can be reclassified (recycled) to profit or loss when they are derecognised or settled must be reported separately from items that cannot be recycled.
IFRS 13 “Fair Value Measurement“ describes the procedure for determining fair value and expands the required disclosures on fair value in the notes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.
The differences to prior periods arising from the initial application of IFRS 13 are described under note 2.3 in these consolidated financial statements. In agreement with the transition guidance provided by IFRS 13, conwert applied the new rules for fair value measurement prospectively and did not provide adjusted comparative information for the prior year.
Standard Effective date*)
Material effects on the consolidated financial statements IAS 1 Presentation of individual components of
other comprehensive income
01/07/2012 yes
IAS 12 Changes in deferred taxes 01/01/2013 no
IAS 19 Employee Benefits 01/01/2013 no
IFRS 1 Changes in government loans 01/01/2013 no
IFRS 7 Financial instruments: Disclosures – net presentation of financial liabilities 01/01/2013 no
IFRS 13 Fair Value Measurement 01/01/2013 yes
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
01/01/2013 no
Improvements to IFRS 2009-2011 01/01/2013 no
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Standard Effective date*)
Effects on the consolidated financial statements
IFRS 9 Financial Instruments not yet
determined
in analysis
IAS 27 New version: Separate Financial Statements 01/01/2014 no
IAS 28 New version: Associated Companies 01/01/2014 no
IFRS 10 Consolidated Financial Statements 01/01/2014 no
IFRS 11 Joint Arrangements 01/01/2014 no
IFRS 12 Disclosure of Interests in Other Entities 01/01/2014 no
IFRS 14 Regulatory Deferral Accounts 01/01/2016 no
IAS 19 Employee Benefits (change: defined benefit plans – employer contributions)
01/07/2014 no
IAS 36 Impairment of Assets (change: disclosure of recoverable amount for non-financial assets)
01/01/2014 no
IAS 39 Financial Instruments: Recognition and Measurement (change: novation of derivatives and continuation of hedges)
01/01/2014 no
IFRIC 21 Levies 01/01/2014 no
Various Investment entities – changes to IFRS 10, IFRS 12 and IAS 27 01/01/2014 no
Various Improvements to IFRSs 2010-2012 (2013) 01/07/2014 no
Various Improvements to IFRSs 2011-2013 (2013) 01/07/2014 no
The following new or revised standards and interpretations have been announced by the IASB but do not require mandatory application because they have not yet been adopted by the EU or only require mandatory application in a later financial year.
*) Applicable to financial years beginning on or after the indicated date
IFRS 9 “Financial Instruments“ provides new rules for the classification and measurement of financial instruments and is intended to replace IAS 39. The new standard allocates all financial assets to two classification categories – assets carried at amortised cost and assets carried at fair value. New rules were also added for the accounting treatment of financial liabilities, and the rules for the derecognition of financial assets and liabilities were taken over from IAS 39. Plans call for the extension of IFRS 9 through the addition of new rules for the impairment of financial assets carried at amortised cost and for hedge accounting. The future effects of IFRS 9 on conwert must be evaluated, and the adoption by the EU is still outstanding.
2.5. Basis of consolidation 2.5.1. Introduction
All companies controlled by the parent are included in the consolidated financial statements through full consolidation. A company is initially consolidated when control is transferred to the parent and deconsolidated when control ends. All transactions between companies included through full consolidation were eliminated, i.e. income and expenses, receivables and liabilities, and unrealised interim profits.
An associate is a company over which the Group has significant influence, but not control. The profit or loss, assets and liabilities of associates are included by applying the equity method. Under this method, the shares in associates are recognised at cost, including any directly allocated transaction costs. The carrying amount is subsequently adjusted to reflect changes in the Group’s share of net assets in the associate after the acquisition date based on the following: the proportional share of profit or loss as shown on the income statement, the proportional share of other comprehensive income as shown on the statement of comprehensive income, dividend distributions and contributions as well as impairment charges to individual shares.
In accordance with the principle of a uniform balance sheet date, the consolidated financial statements are prepared as of the same balance sheet date as the financial statements of the parent company. The individual financial statements of all companies included in the consolidation were prepared as of the balance sheet date used for the consolidated financial statements.
2.5.2. Business combinations
Business combinations are accounted for according to the purchase method described in IFRS 3, unless the acquired units do not represent a business. At the acquisition date, the company must classify a transaction as the purchase of assets or a business. An acquired unit is generally classified as a business if it has personnel and/or activities such as facility management or asset management that are also taken over.
If an acquisition involves the purchase of a group of assets or net assets that do not represent a business, the acquisition costs are allocated between the individual identifiable assets and liabilities in the acquired unit based on their relative fair value at the acquisition date. If an acquisition involves the purchase of a business, the subsidiary is initially recognised by applying the purchase method; this involves the recognition of the identifiable assets and liabilities at fair value together with any goodwill.
2.5.3. Foreign currency translation
Business transactions in a foreign currency
The Group companies record foreign currency business transactions at the reference exchange rate in effect on the transaction date. Monetary assets and liabilities are translated into the Euro using the relevant reference rates issued by the European Central Bank for the balance sheet date. Any resulting foreign exchange gains and losses are recognised to profit or loss for the financial year.
Translation of individual financial statements prepared in a foreign currency
The Euro is the reporting currency and the functional currency for the Group companies in Austria and countries that are members of the European Economic and Currency Union. In cases where consolidated subsidiaries prepare their financial statements in a foreign currency, these financial statements are translated into the Euro in accordance with IAS 21. Assets and liabilities are translated at the average rate for the balance sheet date, while equity – with the exception of income and expenses recognised directly in equity – are translated at historical exchange rates. Income and expenses are generally translated at the exchange rate in effect on the date of the transaction. Gains and losses on foreign currency translation are recorded under other comprehensive income.
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2.6. Summary of significant accounting policies 2.6.1. Properties
2.6.1.1. Investment properties
Classification and measurement
Investment properties represent assets that are held to generate rental income or for capital appreciation and are not used for the production or supply of goods or services in the ordinary course of business. Investment properties can represent land and/or buildings or parts thereof.
Investment properties are initially recognised at cost, including any transaction or production costs as defined in IAS 16. Borrowing costs incurred during the development of investment properties are capitalised at an amount equal to the directly attributable interest expense. These assets are subsequently measured at fair value based on IFRS 13 in connection with IAS 40. Fair value represents the amount that would be paid for the sale of a property in an orderly transaction between market participants on the balance sheet date. Since the determination of fair value is generally based on non-observable input factors, the fair value of investment property is classified under level three on the IFRS 13 fair value hierarchy. Additional details on the definition of the fair value hierarchy are provided in note 2.6.5 and are
also applicable to non-financial assets.
Changes in fair value are recognised through profit or loss and reported on the income statement. Investment property is derecognised when it is sold or can no longer be used on a lasting basis, and no future economic benefits are expected from its disposal. Properties are reclassified from investment properties to properties held for sale if there is a change in use. A change in use is assumed when the responsible corporate bodies of the conwert Group decide to sell the property.
Determination of fair value
The fair value of the properties held by the conwert Group is determined each year by independent experts, who have the necessary qualifications and experience for this work. The applied valuation methodology meets the requirements of the valuation standards defined by the Royal Institution of Chartered Surveyors (RICS) and the requirements of IFRS 13.
As of 31 December 2013, the fair value for 80.3% (2012: 73.8%) of the properties reported on the balance sheet was determined on the basis of the discounted cash flow (DCF) method and 19.4% (2012: 25.5%) according to the combined asset value and income capitalisation approach. The fair value of the remaining properties was determined on the basis of the residual value method and the “developer method“ because of their specific features.
The DCF method involves the preparation of monthly forecasts for the future income and expenditures connected with the valuation object over a detailed planning period of ten years. The payment flows at the beginning of each month are discounted back to the valuation date to determine the specific effects of relevant incoming and outgoing payments during the forecast period on the market value of the property as of the valuation date.
The discount rate used for the calculation reflects the expected return of a potential investor as well as the forecast uncertainty connected with future payment flows and was derived from actually realised comparable transactions and alternative investment forms. Since the weighting of future payment flows decreases and forecast uncertainty increases during the forecast period, cash flows after this period are normally capitalised based on a growth rate and discounted back to the valuation date.
A combined asset value and income capitalisation approach was used to value the residential properties in Austria, whereby both the earning power and the net asset value of the properties were included. This method is necessary for the Austrian market because certain subsegments and appraised properties are still subject to legally defined rent controls.
The asset value method results in a total value that comprises the land on which a building is located as well as the building and all related facilities. It is based on production cost, including the factors that influence value (impairment due to age, furnishings/accessories, maintenance condition).
Carrying amount (in € mn) Discount/ capitalisation rate (in %) Maintenance costs/sqm/ month (in €) Structural vacancies (in %) Rent/sqm/ month (in €) 31/12/2013 Austria Residential 271.9 4.1 0.8 2.5 6.7 Commercial 527.4 5.8 0.8 4.6 12.8 Germany Residential 1,376.9 5.8 0.7 2.2 5.3 Commercial 342.4 6.8 0.8 3.1 6.9 Other countries Residential 30.4 7.8 0.4 4.0 5.7 Commercial 67.7 8.3 1.1 5.3 8.2 Total 2,616.6 31/12/2012 Austria Residential 293.3 4.1 0.8 2.5 6.6 Commercial 574.7 5.8 0.9 4.8 9.2 Germany Residential 884.8 5.7 0.7 2.2 5.2 Commercial 337.1 6.9 0.8 3.1 8.1 Other countries Residential 36.5 7.3 1.7 4.1 6.3 Commercial 81.0 7.3 1.0 5.4 8.2 Total 2,207.4
The capitalised earning power is calculated by multiplying the annual net income (rental income less management costs and the return on land) from a property by a multiplier. The multiplier represents the discount factor for an