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Despite the name (familiar to followers of welsh legend) the company specialises in acquiring solid town centre residential properties in the east of Germany. Share price has doubled in the past 3 years.

Thread began in Feb 2015 with a reference to its strong previous share price growth. It went sideways for the rest of 2015. Up 70% since then though.

Nice Half-year Results this morning.

See http://www.moneyam.com/action/news/showArticle?id=5625070

RNS Number : 8412N

Taliesin Property Fund Limited

14 August 2017

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

TALIESIN PROPERTY FUND LIMITED

Unaudited half yearly report for the 6 months to 30 June 2017

Key financial and operational highlights

-- Adjusted Net Asset Value (NAV)* per share increased by 17.6% to end the first half of 2017 at EUR44.14 (31 December 2016 EUR37.53). On an EPRA basis**, the NAV per share was EUR43.59 as at 30 June 2017 (31 December 2016 EUR36.87)

-- Property portfolio now valued at EUR359.7 million, an increase of 14.1% after adjusting for property sales in the first half of 2017

-- Per square metre (psqm) valuation of EUR3,070 (31 December 2016 EUR2,700)
-- Loan-to-value declined to 37.8% (31 December 2016 42.2%)
* The Adjusted NAV takes the IFRS NAV and excludes gross deferred tax liabilities
** The EPRA NAV takes the IFRS NAV and excludes the cumulative mark-to-market movements in Taliesin's interest rate swap contracts and excludes net deferred tax liabilities

For further information, please contact:

Taliesin Property Fund Limited

Mark Smith, Director 01534 700 000

Stockdale Securities Limited

Robert Finlay/David Coaten 020 7601 6100

I am pleased to be able to report on another strong half year for the Group. Taliesin's Adjusted NAV per share increased by 17.6% in the first six months of 2017 to EUR44.14 (31 December 2016 EUR37.53). The value of the Group's portfolio as at 30 June 2017, following a valuation carried out by Jones Lang LaSalle (JLL), stood at EUR359.7 million, an increase of 14.1% in the period after adjusting for property sales.

The value per square metre of the portfolio now stands at EUR3,070, an increase of 13.7% from 31 December 2016 (EUR2,700 psqm). The Group continued to invest in the property portfolio during the six month period under review, with a further EUR2.1 million spent on maintenance and improvements. A similar amount has been committed for the second half of the year.

The privatisation potential of the Taliesin portfolio is beginning to be better reflected in the overall portfolio valuation. Further apartment sales were made in the first half at prices significantly above the current valuation level and I expect further momentum in the second half of 2017. Rents continue to increase in line with the trend of recent years as the availability of residential space continues to lag behind demand.

The virtuous circle in Berlin residential real estate continues apace. A low interest rate environment combined with higher property valuations is allowing the Group to re-finance maturing senior debt facilities at lower interest rates and higher principal amounts. Lower borrowing rates have played a large part in the yield compression seen in the portfolio valuation but equally important, I would argue, has been the ongoing price growth in individual apartment sales, the elevated level of market rents versus in situ rents and the still cheap absolute price of Berlin residential property.

In the last couple of years, Taliesin has been able to deliver on its long held aim of distributing capital to shareholders. This distribution has been possible due to the attractive re-financing market and, to a lesser extent, proceeds from the privatisation process in place. The Group has a further large senior loan maturing at the end of 2017 and is in discussions with various lenders regarding re-financing. A successful outcome should facilitate a further capital distribution within the next six months.

Investment Advisers' Report

The first six months of 2017 showed an acceleration of the price trends experienced in Berlin in 2016. The value of the Group's property portfolio (based on a valuation by JLL) increased to EUR359.7 million. This valuation equates to EUR3,070 psqm, an increase of 13.7% from EUR2,700 psqm at the end of 2016. Apartment sales during the period amounted to EUR3.2 million with recent apartment sales prices approaching EUR4,500 psqm. In the first half of 2017, the Group's Adjusted NAV per share increased by 17.6% to EUR44.14.

The Berlin residential property market continues to benefit from a number of positive factors which have been discussed in detail in previous updates. Of particular note in the recent valuation carried out by JLL is the greater recognition of the privatisation uplift potential in the Taliesin portfolio. This is a subject that we have spoken about extensively in recent years (the difference between single apartment sale prices and whole building valuations) and it is encouraging that this price differential is beginning to be recognised in higher whole building valuations. The single apartment market continues to power ahead driven primarily by local buyers but with a growing international participation. Our own experience with apartment sales, which is covered in more depth later in this report, has shown a similarly strong price trajectory.

What has become increasingly evident recently is that, in the wake of Brexit and changes to the tax regime, especially in relation to foreign purchasers, the UK has ceded its status as a 'safe haven' for property investors to Germany. With America retreating somewhat from its international commitments, Germany, along with China, is filling the political vacuum and taking the mantle of global leadership. Germany's dominant position in Europe appears truly unassailable, as the EU continues to muddle through with the help of the German tax payer, the Greek problem now satisfactorily contained and the Italian banking system slowly recapitalising. Berlin is now the preeminent city of Europe, yet property prices are less than half those prevailing in Moscow, Stockholm, Paris or Vienna: prices are far closer to those prevailing in Kiev than to London.

Angela Merkel is the clear political beneficiary of Germany's current strength. No political party, including her own, has been able to find a challenger to her in the upcoming Federal elections. Her CDU party is well ahead in opinion polls with Martin Schulz' SPD trailing far behind. Four other parties are polling between 6 and 8% each and look set to be the junior partners in an eventual coalition government. The current most likely outcome is a coalition of the CDU and FDP (economically liberal party), a combination which achieved election success recently in Schleswig-Holstein (together with the Green party) and Nordrhein Westfalen. Unlikely is another grand coalition, especially from the perspective of the leftist SPD party - their popularity has plummeted whilst they have participated in the current coalition government. Interesting to note is that the CDU/FDP coalition appears ready to push back against certain rent regulations, in particular the Mietpreisbremse and favours instead encouraging home ownership through subsidies. Berlin continues to be governed by a left/communist/green coalition. The operating environment remains challenging and we provide more commentary in the risks section of this report.

Berlin is the capital of a country which is growing the strongest amongst the G7. According to recent data from Destatis, unemployment in Germany declined to 3.9% in May and the number of employed persons hit a post reunification high of 44.1 million. Real wage growth looks set to grow strongly as peak employment approaches. Recent ifo Business Survey data describes sentiment among German businesses as 'euphoric'. The Business Climate Index rose to 116.0 points in July, hitting a record high for a third successive month. Companies' satisfaction with their current business situation also reached a post reunification high. The ifo construction index rose to a record high and contractors expressed optimism about the outlook for the sector.

Increasing property prices combined with a robust economy have led to further record property transaction volumes in both Germany and Berlin. As a snapshot of overall activity, large residential portfolio transaction volumes increased by 22% in Germany in the first six months of 2017 to EUR5.9 billion according to CBRE. Over 80% of the buying came from German investors. Berlin accounted for close to 30% of total portfolio transactions in the six months, with volumes up by a third from a year earlier to EUR1.7 billion. Nationwide, there was a significant increase in transaction volume related to development and new build. This sector showed a year-on-year increase of around 40% and reflects the current lack of housing and strong urbanisation trend. This catapulted average selling prices higher to EUR1,980 across Germany, an increase of 29% from a year ago according to CBRE.

In the face of record demand, residential property supply continues to be an issue. Although construction activity is picking up in Germany, in the first five months of 2017, only 121,234 residential building permits were issued, compared with 295,000 in France (Federal Statistics Bureau, Ministre de L'ecologie du Developpement). In Berlin, the supply issue appears even more acute. According to a recent report from BFW Landesverband BB, the current political situation in Berlin is dissuading developers from pursuing new residential projects. They report an 8.5% reduction in building permit applications in the first quarter of 2017 compared to a year earlier. In the same period, the number of permits granted for multi-family dwellings in Brandenburg (the 'Land' that surrounds Berlin) increased by 132%. Any further contraction in the supply of new residential stock will inevitably pressure prices further. Some of the constraint on supply could be eased by a number of recent court rulings in Berlin which appear to pave the way for significantly

higher residential development density in central districts. This could be especially beneficial for Taliesin given how many centrally located properties are in the portfolio and should accelerate the planning process for roof developments in particular.

Operational Highlights

Taliesin's latest privatisation project, Kavalierstrasse, progressed strongly during the period under review. Seven additional apartments were sold in the first half and a further one notarised for sale beyond the reporting date. Average sales prices exceeded EUR4,200 psqm for the seven sold units, amounting to a total sales value of EUR3.2 million and close to EUR4,500 psqm for the most recently notarised unit. Achieved sales prices continue to represent a significant premium over the accounting valuation of the remaining units in the property, which currently stands at EUR3,710 psqm. Interestingly, Kavalierstrasse is the only property in the portfolio which has been reclassified as an 'asset held for sale' and therefore valued at an implied privatisation price. The project provides a good insight into the potential for further valuation uplift across the Group's portfolio. There remain eleven unsold units in the building and we expect the strong price momentum to continue in the second half of the year.

The Group has taken advantage of the benign financing environment in recent years and managed to reduce the interest cost on its senior loans by a significant margin. As we highlighted in the full year 2016 report, Taliesin has a maturing EUR25.3 million debt facility to re-finance later this year and has been in discussions with a number of local banks regarding terms for a new facility. The market for new loans remains extremely borrower friendly. The existing senior secured loan started out as a EUR30 million facility and has been amortised down over the last five years to the current amount. The rate of amortisation of the existing loan had been increased due to the sale of a property. The current interest rate stands at 2.69%. Indicative terms for a replacement loan point to a principal amount of approximately EUR60 million with an interest rate of around 1.5% per annum for a five year term.

The Group has historically relied almost entirely on the local Pfandbrief market for its borrowing. Strong relationships have been built with a number of local banks which has been beneficial in facilitating the rollover of maturing senior loans. It is interesting to note, however, how many property investors are now issuing bonds directly to re-finance existing loans or to raise new capital and just how competitive the terms have become. Recent large unsecured bonds have been issued with interest rates below 1.5% and durations of seven years plus. Investor demand for any bond which offers (relative to Bunds) an attractive yield appears insatiable. The availability of this lower cost financing will have a predictable impact on the demand for property in Berlin.

Additional funds released from maturing loan facilities together with the proceeds of profitable apartment sales should allow the Group to make a further B share capital distribution within the next six months. The aforementioned large re financing is scheduled to take place at year end and it is currently the intention of the Group to complete this re financing ahead of making a further distribution. This should allow Taliesin to consider making a larger distribution, depending on both the successful replacement of the existing loan and other demands on capital.

Risks and Uncertainties

Taliesin's property portfolio is located almost entirely in Berlin and therefore at risk from developments in the political and economic environment that may have an impact on the city. As in previous years, the Group remains vigilant to these twin threats to the wellbeing of the business.

We have discussed the upcoming Federal elections and the potential for a more constructive environment in the future for landlords on a national level. Locally, however, the operating environment remains challenging. As we mentioned earlier in this report, housing starts in Berlin appear to be moving in the wrong direction which is further exacerbating the scarcity of supply in the residential market and further heightening political tensions. Routine refurbishment approvals and planning consents are taking a considerable time to complete resulting in a much slower turnaround for vacant apartments. We also face the prospect of further restrictions and regulations on the rental market.

On the economic front, the ongoing improvement in the outlook for the German and European economies will inevitably lead to higher interest rates at some point. There has been a small back up in Bund yields recently and we would expect a further move higher as and when quantitative easing is withdrawn. Although there is no evidence of any kind of leverage binge in Germany and real yields on property remain attractive currently versus government bond yields, there exists the risk of a reversal at some point.



I hold this in my 'Portfolio 69' (see thread 69)