The directors present the strategic report for the year ended 31 December 2023.
During the year, the company continued to be the general partner of European Property Investors Special Opportunities (General Partner) LP, a Limited Partnership which has an interest in European Property Investors Special Opportunities LP ("the Fund"). The investment period for the Fund closed in May 2012.
As at 31 December 2023, the group had net liabilities of €0.625m (2022: €0.465m). The group loss for the financial year was €0.018m compared to a profit of €0.084m for the year ended 31 December 2022.
The principal risk facing the group is poor investment performance. The future health of the business is dependent upon good investment performance, if (for whatever reason) assets do not increase then this could jeopardize the future business profits. This risk is minimal due to the overall profitability of the group, which has already been returned a significant portion of its original investment and the nature of the assets, which are high quality, revenue generating real estate assets.
The Fund is in the process of selling its assets although the timeframe for a formal liquidation is not yet certain. The group will continue its commitment to the Fund and providing the loan note to EPISO Special Limited Partner LLC, however due to the stage of the Fund life it is expected that no further capital will be called by the Fund. As a result the directors have prepared the financial statements on a basis other than a going concern.
The KPIs of the group are the return on their investment in the Fund, as indicated by the income and distributable yield, the internal rate of return from the Fund and the net asset value of their investment in the Fund. The group monitors its performance against these KPIs on a quarterly basis
Forecast IRR 6.4% net (2022 - 6.4% net)
Investment valuation €0.20m (2022 - €0.37m)
Revenue €nil (2022 - €644k)
There has been minimal activity within the company in the 2023 financial year due the Outlook of the Fund, as the fund is close to termination. The Fund is in the process of disposing of its assets although the timeframe for a formal liquidation is not yet certain, it is expected to be in the next 12 to 18 months. The group will continue its commitment to the Fund, however due to the stage of the Fund life it is expected that no further capital will be called by the Fund. The small IRR movement of the Fund in 2023 has been driven by the return of €4m of capital to its investors and the time value of money. The group received one distribution of €0.178m consisting wholly of return of capital from the Fund, this derived the change in Investment Valuation for the year. Subsequently, in 2023 revenue is €nil as the group has not received distributions of income or gains from the Fund which it has in previous years.
As the fund is disposing of their final real estate asset, the directors have prepared the financial statements on a basis other than going concern. No adjustments have been required to be made to the financial statements as a result of this basis of preparation.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The consolidated profit and loss account sets out the results for the year.
In accordance with section 414C(11) of the Companies Act 2006, the directors have chosen to include information about future developments in the Strategic Report.
In accordance with the company's articles, a resolution proposing that Moore Kingston Smith LLP be reappointed as auditor of the group will be put at a General Meeting.
We have audited the financial statements of European Property Investors Special Opportunities (General Partner) Limited (the ‘parent company’) and its subsidiaries (the 'group') for the year ended 31 December 2023 which comprise the Group Statement of Comprehensive Income, the Group Balance Sheet, the Company Balance Sheet, the Group Statement of Changes in Equity, the Company Statement of Changes in Equity, the Group Statement of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 ‘The Financial Reporting Standard Applicable in the UK and Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter - financial statements prepared on a basis other than going concern
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's or the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Explanation as to what extent the audit was considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.
Our approach was as follows:
We obtained an understanding of the legal and regulatory requirements applicable to the company and considered that the most significant are the Companies Act 2006, UK financial reporting standards as issued by the Financial Reporting Council, and UK taxation legislation.
We obtained an understanding of how the company complies with these requirements by discussions with management and those charged with governance.
We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance.
We inquired of management and those charged with governance as to any known instances of noncompliance or suspected non-compliance with laws and regulations.
Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Other matters we are required to address
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken for no purpose other than to draw to the attention of the company’s members those matters we are required to include in an auditor's report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account ands related notes. The company's profit for the year was £nil (2022 - £nil)
European Property Investors Special Opportunities (General Partner) Limited (“the Company”) is a limited company incorporated in England and Wales. The registered office is Berkeley Square House, 8th Floor, Berkeley Square, London, W1J 6DB.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are presented in Euros, the functional currency, rounded to the nearest thousand Euros. The year end exchange rate for Pounds Sterling to Euros is 1.15.
The financial statements have been prepared on the historical cost convention, modified to include the revaluation of investments. The principal accounting policies adopted are set out below.
The company's balance sheet shows both net current assets and net assets of €nil whilst the group shows net liabilities of €0.625m. On consolidation, as set out in the basis of consolidation accounting policy, the group incorporates the assets and liabilities of subsidiary undertakings on a line by line basis. However, none of the assets and liabilities of the subsidiaries are attributable to the shareholders of the company. The group’s net liabilities of €0.625m arise as a result of the provision for clawback of carried interest as set out in the partnership agreement of European Property Investors Special Opportunities (SLP) LP. This clawback crystallises on termination of the underlying fund at which point the Special Limited Partner will have an obligation to pay these amounts to the Fund. As the Fund is in the processing of disposing its final asset, the directors have prepared the financial statements on a basis other than a going concern. No adjustment to the recognition and measurements of assets and liabilities has been required as a result of adopting a basis other than going concern.
Turnover represents amounts receivable as carried interest payable to the group in accordance with the European Property Investors Special Opportunities LP (“the Fund”) Limited Partnership Agreement. The carried interest payable is calculated at Fund level based on the return generated by each realised investment. However on disposal of the final investment the overall level of the performance fee will be calculated based on the total sums generated. This may result in a claw back to the Fund of carried interest already calculated or an additional payment. At the end of each financial year, the General Partner is required to make an estimate of the level of the carried interest at that date based on returns generated and expected future returns. Turnover is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured.
Income also includes distributions received from investments, rental income and gains or losses on property sales.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Trade debtors, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.
Interest is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument to the net carrying amount on initial recognition.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
The group periodically revalues its investments based on its share of the underlying value of the net assets of the investments of the Fund. The share of net assets is determined by reference to a valuation of the Fund's assets prepared by independent external fund managers.
In accordance with the European Property Investors Special Opportunities LP’s (‘the Fund’) Limited Partnership Agreement, the carried interest is calculated by the Fund based on the return generated by each realised investment. At the end of each financial year, the General Partner is required to make an estimate of the level of the carried interest at that date based on returns generated and expected future returns.
An analysis of the group's turnover is as follows:
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 December 2023 are as follows:
The above entities are controlled by virtue of the powers granted to European Property Investors Special Opportunities (General Partner) Limited under the respective partnership agreements of each entity.
The company has outstanding charges over its assets in favour of the group's bankers and a fellow group undertaking. At the balance sheet date the potential liability under these charges was €nil.
Under the Limited Partnership Agreement of European Property Investors Special Opportunities LP, the group is entitled to a portion of the profits made by the Fund over a minimum rate of return for investors. The group's portion of profits, over the minimum return for investors, made on realised deals has been recognised in the group's Statement of Comprehensive Income. There may be a contingent liability in respect of a true-up of income by the Fund. It would only become payable by the group if future deals did not achieve the minimum rate of return for investors. The General Partner of the Fund is of the opinion of that, at this point in time, it is not possible to accurately estimate the future performance and potential true-up. On this basis, the group has not recognised a contingent liability in this set of financial statements.
The group has an obligation for the remaining capital commitment of €3.6m (2022: €3.6m) to European Property Investors Special Opportunities LP.
During the year, the group adjusted incentive income upwards by €nil to reflect the increase in the amount expected from the Fund (2022: €0.006m upwards revaluation) and received no investment income (2022: €nil) from European Property Investors Special Opportunities LP, an entity in which the group has a material interest. The group also received finance income of €11k (2022: €1k) from EPISO Special Limited Partner LLC, who have an interest in one of the subsidiaries.
At year end, the group owed €0.839 million (2022: €0.839m) to European Property Investors Special Opportunities LP. The group also owed €0.930m (2022: €0.930m) to European Property Investors Special Opportunities LP in respect of tax advances transferred to the group to be forwarded to EPISO Special Limited Partner LLC.
The group was owed €0.960m (2022: €0.958m) at year end by EPISO Special Limited Partner LLC, in respect of advances made by the group. The group also owed €0.099 million (2022: €0.089m) to European Property Investors Special Opportunities LLC at the year end.
At year end, the group owed €0.696 million (2022: €0.696m) to Natixis Global Asset Management SA, a member of one of the subsidiaries, in respect of distributions payable.