Annual Report and Consolidated

Financial Statements

31 December 2023  

Company Registration Number C 51272

Contents 

Chairman’s message

Chief Executive Officer’s review

Directors’ report

Corporate governance - Statement of compliance

Remuneration report

Statements of financial position

Income statements

Statements of comprehensive income

Statements of changes in equity

Statements of cash flows

Notes to the financial statements

Independent auditor's report

Readers are reminded that the official statutory Annual Financial Report 2023, authorised for issue by the Board of Directors, is in European Single Electronic Format (ESEF) and is published on  www.maltaproperties.com.mt . A copy of the Independent auditor’s report issued on the official statutory Annual Financial Report 2023, is included within this printed document and comprises the auditor’s report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the ESEF RTS), by reference to Capital Markets Rule 5.55.6.

Chairman’s message

Dear Shareholders,

It is with great privilege that I address you as the newly appointed Chairman of Malta Properties Company p.lc. and provide my inaugural review for the financial year 2023. This year has brought both challenges and successes, and I am honoured to share our progress and strategic outlook.

In my brief tenure as Chairman, I have witnessed Malta Properties demonstrate remarkable financial strength and operational excellence. The growth in revenues and operating profits are testament to the strength of our business and the unwavering dedication of our executive team. The Board is committed to fostering a culture of financial prudence and operational efficiency to safeguard the long-term prosperity of our company.

Our strategic initiatives, particularly the completion of The Exchange project, showcase our commitment to enhancing the value of our portfolio. The addition of prestigious tenants, such as the Building and Construction Authority (BCA) and the Older Persons Standard Authority, is a positive indicator of the market's response to our redevelopment efforts. The Board is supportive of such initiatives and remains focused on optimising our portfolio for sustained growth.

Challenges persist within the office sector, necessitating a proactive, yet prudent approach. The Board fully endorses the outlined strategies to address lease expirations, enhance tenant experiences and adapt our properties to meet evolving market demands. We believe in the resilience of Malta Properties and are confident in our ability to navigate these market dynamics successfully.

Upholding robust governance practices and fostering transparent communication with shareholders and stakeholders are top priorities for the Board. We deeply value the trust and confidence you place in us and are resolute in upholding the highest standards of corporate governance. The Board welcomes active engagement with our shareholders as we collectively work towards the growth and prosperity of Malta Properties.

Looking ahead, the Board remains optimistic about the future trajectory of our company. The foundations of the business and the dedication of the team, position us favourably for continued success. I extend my gratitude to the management team for their steadfast commitment and strategic foresight. Additionally, I express my sincere appreciation to our shareholders for your ongoing support, which is vital to the sustained success of Malta Properties.

As Chairman, I am committed to steering our company towards new heights and ensuring that Malta Properties remains a beacon of success in the real estate sector in Malta.

Sincerely,

Nasser Al Awadhi

Chairman of the Board of Directors

Malta Properties Company p.l.c.

Chief Executive Officer’s review

I am delighted to present the Annual Report for Malta Properties Company p.l.c. (MPC), covering our performance and key milestones in 2023. Despite the changed real estate landscape since the COVID-19 pandemic, I am pleased to report another year of strong financial performance for our company.

In 2023, Malta Properties continued its positive trajectory with notable growth in both revenues and operating profits. Our commitment to high quality properties and operational efficiency resulted in a 19% increase in revenues, reaching EUR 5.0 million, and a 26% rise in operating profits, now standing at EUR 3.4 million. This financial success is a testament to the resilience and adaptability of our business in the face of evolving market conditions. The improved operations have also led to the strengthening of our balance sheet, with net debt/EBITDA being maintained at around 6.4x. 

The growth in revenues in 2023 was supported by the commencement of rental income from our property in Spencer Hill, Marsa, that was named The Exchange. The first phase of the renovation of The Exchange is now complete and we are proud of the result, a restored heritage building that has been fully modernised. We were delighted to welcome the Building and Construction Authority (BCA) as the first tenant of this property in 2023. Additionally, we recently reached an agreement with the Older Persons Standards Authority to become the second tenant in this property, with the lease that commenced in the first quarter of 2024.

The company anticipates that the positive trends witnessed to persist into 2024. The macroeconomic landscape of the country remains robust, providing a solid foundation for our operations. Nonetheless, we acknowledge challenges within the office sector, characterised by a notable increase in supply alongside evolving tenant needs following the COVID-19 pandemic. Furthermore, numerous leases are nearing termination over the coming 18 months, prompting us to adopt a cautious approach.

In response to these challenges, we are implementing targeted strategies to address lease expirations and enhance the overall tenant experience. Our proactive lease management approach aims to secure favourable renewals, attract new tenants and optimise the utilisation of our office spaces. Additionally, we continue to explore innovative ways to adapt our properties to meet evolving market demands, ensuring they remain competitive and attractive to a diverse range of tenants. Over the coming year, our focus will be on attracting new tenants and upholding a high level of customer service.

Our proactive stance, the calibre of our tenants and our strong balance sheet, positions us well to weather uncertainties and capitalise on emerging trends. The dedication of our team and the excellent relationships with our tenants gives us confidence in our ability to navigate the evolving real estate landscape.

I would like to express my sincere appreciation to our shareholders for your continued trust and support. The collective efforts of our team, combined with your support, are integral to our sustained success. As we look forward to the opportunities and challenges of the upcoming year, we remain committed to delivering value and driving the growth of Malta Properties.

Sincerely, 

Mohsin Majid

Chief Executive Officer

Malta Properties Company p.l.c.

Directors’ report

The Directors present their annual report and the audited consolidated financial statements for the year ended 31 December 2023.

Principal activities

The main activity of the Group and the Company is property investment and development.  The Company may, inter alia, directly or through subsidiary companies, acquire by any title whatsoever, and take on lease or sub-lease and dispose of, grant and/or lease and hold property of any kind, whether movable or immovable for the purposes of its business, and construct, develop and enter into arrangements with contractors and other service providers in connection with its properties.

As the holding company of the Malta Properties Company p.l.c. (MPC) Group, the Company is ultimately dependent upon the operations and performance of its subsidiaries and their respective operations.

Review of the business

Review of Group operations

In 2023, MPC continued its positive trajectory with growth in both revenues and operating profits. The Group also continued investing in its properties in its quest to enhance its portfolio of quality assets. Through development and renovation investments, the property portfolio value increased by 6.67% over 2022. This included the completion of the first phase of the renovation of ‘The Exchange’ at the Group’s Spencer Hill property, contributing to an increase in revenue for 2023. We are proud of the result, a restored heritage building that has been fully modernised.

Performance

The Group’s total income for the year amounted to €5.02 million, an increase of 18.9% over that of the previous year, when total income was of €4.22 million. As aforementioned, this increase resulted partly from new rental income received from ‘The Exchange’ in Marsa. Additionally, a full year’s rent was received from the Group’s largest asset, the Zejtun Complex and Data Centre, which is tenanted by GO p.l.c.. During the year, no rental income was received from the B’Kara Old Exchange following its sale in 2022.

At the end of the year, the Group’s earnings before interest, taxation, depreciation and amortisation (EBITDA) saw an increase of 24.6% over that of the previous year and stood at €3.44 million (2022: €2.76 million). Administrative expenses increased by 8.16% and amounted to €1.59 million in line with 2021 levels (2022: €1.47 million). The increase in administrative expenses related to higher professional fees, employee benefit expenses, directors’ fees, AGM and shareholder expenses, repairs and maintenance costs and travelling and accommodation costs. Profit before tax more than doubled and reached €3.33 million (2022: €1.65 million), an increase of €1.68 million, which mainly resulted from an increase in revenue, as already detailed above, and an increase in fair value gains, compared to a fair value loss in 2022. The Group generated finance income by securing fixed deposits and incurred higher finance costs, mainly due to the increased borrowings interest rates and a full year of bond interest.

Consequently, profit for the year reached €2.06 million (2022: €0.14 million), an improvement of circa €2 million over the previous year which resulted from higher revenue and fair value gains in 2023. Earnings per share increased to €0.020 (2022: €0.001).

Revenue in 2024 is projected to increase as new tenants occupy The Exchange and Ta’ Xbiex properties, which will be partially offset by the decrease in revenue from HSBC Global Services UK which will be exiting the Swatar property in Q4 of 2024. This property will be undergoing some changes to accommodate new tenants and therefore, a vacancy period is expected during Q4.

Financial position

The financial position of the Group remains a strong one, with the Group’s total non-current assets standing at €88.27 million at year end (2022: €82.74 million). Predominantly, this increase is the capital expenditure on the renovation of The Exchange building during the year. Current assets as at year end decreased to €10.81 million (2022: €19.38 million), given that capital expenditure incurred during the year was paid through the Group’s own funds.

During 2023, the Group made additional bank repayments of circa €4 million from the proceeds it had received from the sale of the B’Kara Old Exchange site in 2022. As at 31 December 2023, the Group’s gearing ratio, measured as borrowings to equity, stood at 0.55 (2022: 0.64).

Risk analysis

The Group’s risks can be analysed into three categories: strategic risk, operational risk and financial risk. Below is a description of each of these risks and the mitigating factors in place:

The Group’s financial risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s risk policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The Group has shown to be resilient in its business operations. As explained in the investment property note (Note 6), MPC’s income is secured for the medium to the long term by lease agreements in place. Malta is currently experiencing an uncertain and unpredictable commercial real estate market with high inflationary conditions and this has led to valuation uncertainty. However, most of the Group’s properties are leased to tenants which are considered to be reliable in terms of financial stability and performance. Particularly, some of the properties consist of purpose-built buildings to serve the specific tenant. The company will continue to monitor closely how the market evolves and MPC’s strategy will be adapted accordingly.

Results and dividends

The results of the Group and the Company are set out in the respective Income Statement.  The Directors recommend that at the forthcoming Annual General Meeting, the shareholders approve the payment of a net dividend of €0.014 per share after taxation (2022: €0.013 per share) – such dividend to be payable after shareholder approval at the AGM.

Retained earnings, consisting of both distributable and non-distributable reserves, amounting to €23,715,510 (2022: €22,969,616) of the Group and €4,817,108 (2022: €5,835,345) of the Company are being carried forward to the next financial year.

Directors

The Directors of the Company who held office during the year were:

Mr. Nasser Al Awadhi (Chairman) (appointed on 19 September 2023)

Mr. Mohamed Sharaf (Chairman) (resigned on 19 September 2023)

Mr. Deepak S. Padmanabhan

Dr. Cory Greenland

Mr. Saqib Saeed (appointed on 16 February 2022)

Ms. Huda Buhumaid (appointed on 22 August 2022)

Dr. Brigitte Zammit (resigned on 22 August 2022)

Mr. Aziz Moolji (resigned on 16 February 2022)

In terms of Article 96.1 of the Articles of Association, the term of appointment of the Directors still in office expires at the end of the forthcoming Annual General Meeting. 

Mr. Deepak S. Padmanabhan and Dr. Cory Greenland offered themselves for election at the last Annual General Meeting for the two seats on the Board of Directors, and were elected to represent the Company’s shareholders.

Of the Directors of the Company, Mr. Deepak S. Padmanabhan was acting as Director of the following subsidiary companies at 31 December 2023: BKE Property Company Limited, MCB Property Company Limited, MSH Property Company Limited, SGE Property Company Limited, SLM Property Company Limited, SPB Property Company Limited, SWT Property Company Limited and ZTN Property Company Limited .  

Remuneration Committee and corporate governance

The Board of Directors deems that the setting up of a Remuneration Committee is not necessary within the context of the size, nature and operations of the Group and Company. The Board of the Company will be submitting to the Shareholders at the next Annual General Meeting (AGM) the Remuneration Report for the financial year ending 31 December 2023 (the ‘Reporting Period’). The Report is drawn up in accordance with, and in fulfilment of the provisions of Chapter 12 of the Capital Markets Rules issued by the Malta Financial Services Authority relating to the Remuneration Report and Section 8A of the Code of Principles of Good Corporate Governance (Appendix 5.1 of the Capital Markets Rules) regarding the Remuneration Statement.  

The Report provides a comprehensive overview of the nature and quantum of remuneration paid to the individual Directors and the Chief Executive Officer during the reporting period and details how this complies with the Company’s Remuneration Policy. The Report is intended to provide increased corporate transparency, increased accountability and a better shareholder oversight over the remuneration paid to Directors and the Chief Executive Officer. The contents of this Remuneration Report have been reviewed by the Company’s Auditors to ensure that the information required in terms of Appendix 12.1 of the Capital Markets Rules has been included.

The Group’s arrangements for corporate governance are reported in the ‘Corporate governance - Statement of compliance’ section.

Statement of Directors’ responsibilities for the financial statements

The Directors are required by the Companies Act (Cap. 386) to prepare financial statements which give a true and fair view of the state of affairs of the Group and the parent Company as at the end of each reporting period and of the profit or loss for that period.

In preparing the financial statements, the Directors are responsible for:

The Directors are also responsible for designing, implementing and maintaining 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, and that comply with the Companies Act (Cap. 386).  They are also responsible for safeguarding the assets of the Group and the parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements of Malta Properties Company p.l.c. for the year ended 31 December 2023 are included in the Annual Report 2023, which is published in hard-copy printed form and is made available on the Company’s website.  The Directors are responsible for the maintenance and integrity of the Annual Report on the website in view of their responsibility for the controls over, and the security of, the website.  Access to information published on the Company’s website is available in other countries and jurisdictions, where legislation governing the preparation and dissemination of financial statements may differ from requirements or practice in Malta.

Information provided in accordance with Capital Markets Rule 5.70.1

There were no material contracts to which the Company, or any of its subsidiaries was a party, and in which anyone of the Company’s Directors was directly or indirectly interested.

Going concern

The Directors, as required by Capital Markets Rule 5.62, have considered the Group’s operating performance, the statement of financial position at year end, as well as the business plan for the coming year, and they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Auditors

Pursuant to the Company’s statutory obligations in terms of the Companies Act and the MFSA Capital Markets Rules, the appointment of the auditors and the authorisation of the Directors to set their remuneration will be proposed and approved at the Company’s AGM.

Information provided in accordance with Capital Markets Rule 5.64

The authorised share capital of the Company is forty million Euro (€40,000,000) divided into one hundred and twenty five million (125,000,000) shares of thirty two Euro cents (€0.32) each share.

The issued share capital of the Company is thirty two million four hundred and nineteen thousand, three hundred and fifty six Euro (€32,419,356) divided into one hundred and one million three hundred and ten thousand, four hundred and eighty eight (101,310,488) ordinary shares of thirty two Euro cents (€0.32) each share, which have been subscribed for and allotted fully paid-up.

The issued shares of the Company consist of one class of ordinary shares with equal voting rights attached.

The Directors confirm that as at 31 December 2023, only Emirates International Telecommunications (Malta) Limited held a shareholding in excess of 5% of the total issued share capital. 

Any shareholder holding in excess of 40% of the issued share capital of the Company having voting rights may appoint the Chairman.  In the event that there is no one single shareholder having such a shareholding, the Chairman shall be elected by shareholders at the Annual General Meeting of the Company.

The rules governing the appointment of Board members are contained in Clause 96 of the Company’s Articles of Association as follows:

The Directors shall be appointed as set out hereunder:

Any amendment to the Company’s Memorandum and Articles of Association has to be made in accordance with the Companies Act (Cap. 386).

Without prejudice to any special rights previously conferred on the holders of any of the existing shares or class thereof, any share in the Company may be issued with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Board of Directors may from time to time determine, as provided for in Clause 3 of the Articles of Association, as long as any such issue of Equity Securities falls within the authorised share capital of the Company.

The Company may, subject to the applicable restrictions, limitations and conditions contained in the Companies Act (Cap. 386), acquire its own shares and/or Equity Securities.

Pursuant to Capital Markets Rules 5.64.2, 5.64.4, 5.64.5, 5.64.6, 5.64.7 and 5.64.10 it is hereby declared that, as at 31 December 2023, none of the requirements apply to the Company.

Statement by the Directors pursuant to Capital Markets Rule 5.68

We, the undersigned, declare that to the best of our knowledge, the financial statements prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and its subsidiaries included in the consolidation taken as a whole, and that this report includes a fair review of the performance of the business and the position of the Company and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Signed on behalf of the Board of Directors on 21 March 2024 by Dr Cory Greenland (Director) and Mr Deepak Padmanabhan (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.

Registered office:

The Bastions

Emvin Cremona Street

Floriana, Malta

Telephone: (+356) 2123 0032

Dr Francis Galea Salomone

Company Secretary 

Corporate governance - Statement of compliance

A.        Introduction

Pursuant to the Malta Financial Services Authority Capital Markets Rules, Malta Properties Company p.l.c. (“the Company”) whose equity securities are listed on a regulated market should endeavour to adopt the Code of Principles of Good Corporate Governance (“the Code”) as contained in Appendix 5.1 to Chapter 5 of the Capital Markets Rules.  In terms of the Capital Markets Rules, the Company is hereby reporting on the extent of its adoption of the Code.

The Company acknowledges that the Code does not prescribe mandatory rules but recommends principles so as to provide proper incentives for the Board of Directors (“the Board”) and the Company’s management to pursue objectives that are in the interests of the Company and its shareholders.  Good corporate governance is the responsibility of the Board, and in this regard the Board has carried out a review of the Company’s compliance with the Code during the period under review, and hereby provides its report thereon.

As demonstrated by the information set out in this statement, the Company believes that it has, save as indicated in the section entitled Non-Compliance with the Code, throughout the period under review, applied the principles and complied with the provisions of the Code.

B.        Compliance

Principle 1: The Board

The Board, the members of which are appointed by the shareholders, is primarily tasked with the administration of the Company’s resources in such a way as to enhance the prosperity of the business over time, and therefore the value of the shareholders’ investment.  The Board is composed of five non-executive Directors, one of whom is the Chairman.

The Board is in regular contact with the Chief Executive Officer and is continuously informed of any decisions taken in order to ensure an effective contribution to the decision-making process, whilst at the same time exercising prudent and effective controls.  Directors, individually and collectively, are of appropriate calibre, with the necessary skill and experience to assist the Chief Executive Officer in providing leadership, integrity and judgement in directing the Company towards the maximisation of shareholder value.

Further detail in relation to Board Committees and the responsibilities of the Board is found in “Principles 4 and 5” of this statement.

Principle 2: Chairman and Chief Executive Officer 

The roles of the Chairman and the Chief Executive Officer are filled by separate individuals, and the Chief Executive Officer is appointed by the Board for a definite period. During the year under review, Mr. Mohsin Majid continued in his office as Chief Executive Officer of the Company.

The responsibilities and roles of the Chairman and the Chief Executive Officer are clearly established and agreed to by the Board of Directors.

The Chairman is responsible to lead the Board and set its agenda. The Chairman ensures that the Board is in receipt of precise, timely and objective information and also encourages active engagement by all members of the Board for discussion of complex and contentious issues.

Principle 3: Composition of the Board

In accordance with the provisions of the Company’s Articles of Association, the appointment of Directors to the Board is exclusively reserved to the Company’s shareholders, except in so far as appointment is made to fill a casual vacancy on the Board, and which appointment would expire at the Company’s Annual General Meeting following appointment.  Any vacancy among the Directors may be filled by the co-option of another person to fill such vacancy.  Such co-option shall be made by the Board of Directors. 

The Board has the overall responsibility for the activities carried out within the Company and the Group and thus decides on the nature, direction, strategy and framework of the activities and sets the objectives for the activities.

The Board of Directors is currently chaired by Mr. Nasser Al Awadhi and comprises five (5) non-executive Directors. The following Directors served on the Board during the period under review:

Non-executive directors

Mr. Nasser Al Awadhi (Chairman) (appointed on 19 September 2023)

Mr. Mohamed Sharaf (Chairman) (resigned on 19 September 2023)

Mr. Deepak S. Padmanabhan

Dr. Cory Greenland

Mr. Saqib Saeed

Ms. Huda Buhumaid

For the purposes of the Code, the non-executive Directors are independent. The Company deems that, although Mr. Nasser Al Awadhi, Mr. Saqib Saeed and Ms. Huda Buhumaid have an employee and director relationship with the controlling shareholder, in terms of Supporting Principle 3 (vii) of the Code of Principles of Good Corporate Governance such relationship is not considered to create a conflict of interest such as to jeopardise exercise of their free judgement.

Principles 4 and 5: The Responsibilities of the Board and Board Meetings

The Board has a formal schedule of matters reserved to it for decisions, but also delegates specific responsibilities to Board committees and sub-committees, the most prominent being the Audit Committee.  Directors receive Board and committee papers in advance of meetings and have access to the advice and services of the Company Secretary.  Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense.  The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board.  As delegated and monitored by the Board, the Company Secretary keeps detailed records of all dealings by Directors and senior executives of the Company and its subsidiaries in the Company’s shares and all minutes of meetings of the Board and its sub-committees.

During the year under review the Company held six (6) Board meetings.

The following is the attendance at Board meetings of each of the Directors during 2023:

On joining the Board, a Director is provided with a presentation on the activities of the Company and its subsidiaries. 

The Board has the responsibility to ensure that the activities are organised in such a way that the accounts, management of funds and financial conditions in all other respects are controlled in a satisfactory manner and that the risks inherent in the activities are identified, defined, measured, monitored and controlled in accordance with external and internal rules, including the Articles of Association of the Company.  The Board of Directors, through the work carried out by the executive team, continuously assesses and monitors the Company’s operational and financial performance, assesses and controls risk, and monitors competitive forces in all areas of operation.  It also ensures that both the Company and its employees maintain the highest standards of corporate conduct.

Board Committees

Audit Committee

The Audit Committee supports the work of the Board in terms of quality control of the Group’s financial reports and internal controls.  The Audit Committee is currently chaired by Dr. Cory Greenland, with the other members being Mr. Deepak S. Padmanabhan and Mr. Saqib Saeed (who replaced Dr. Brigitte Zammit on 5 October 2022).  The Audit Committee is independent and is constituted in accordance with the requirements of the Capital Markets Rules, with Mr. Deepak S. Padmanabhan being chosen as the member competent in accounting and/or auditing in view of his experience in the field.  The Chief Finance Officer and the external auditors of the Company attend the meetings of the Committee by invitation.  Other executives are requested to attend when required.  The Company Secretary also acts as Secretary to the Audit Committee.

The Committee scrutinises and monitors related party transactions.  It considers the materiality and the nature of the related party transactions carried out by the Company to ensure that the arm’s length principle is adhered to at all times. 

As part of its duties, the Committee receives and considers the audited statutory financials statements of all companies comprising the Group.  The Committee held six (6) meetings during the year.  The external auditors attended two (2) meetings.

Principle 6: Information and Professional Development

The Board is responsible for the appointment of the Chief Executive Officer.  The Chief Executive Officer is responsible for the appointment of senior management.

On joining the Board, Board members are informed in writing by the Company Secretary of the Directors’ duties and obligations, relevant legislation as well as rules and bye-laws.  In addition, Directors have access to the advice and services of the Company Secretary and the Board is also advised directly, as appropriate, by its legal advisors.  Directors are also provided with a presentation on the activities of the Company and subsidiaries.  The Company Secretary ensures effective information flows within the Board, committees and between senior management and Directors, as well as facilitating professional development. The Company Secretary advises the Board through the Chairman on all governance matters.

Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense. The Company will provide for additional individual Directors' training on a requirements basis. 

Principle 7: Evaluation of the Board’s Performance

The Chairman of the Board informally evaluates the performance of the Board members, which assessment is followed by discussions within the Board.  Through this process, the activities and working methods of the Board and each committee member are evaluated.  Amongst the things examined by the Chairman through his assessment are the following: how to improve the work of the Board further, whether or not each individual member takes an active part in the discussions of the Board and the committees; whether they contribute independent opinions and whether the meeting atmosphere facilitates open discussions. Under the present circumstances the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role as the Board’s performance is furthermore also under the scrutiny of the shareholders. On the other hand, the performance of the Chairman is evaluated by the Board of Directors of the ultimate controlling party, taking into account the manner in which the Chairman is appointed.  The self-evaluation of the Board has not led to any material changes in the Company’s governance structures and organisations.

Principle 8: Committees

The Company has opted not to set up a Remuneration Committee and a Nomination Committee.  Further explanation is provided under the section entitled Non-Compliance with the Code of this Statement.  The Board of Directors deems that the setting up of a Remuneration Committee is not necessary within the context of the size, nature and operations of the Group and Company.  During the year ended 31 December 2023, the Board of Directors performed the functions of a Remuneration Committee and this is further explained within the Remuneration Report.

Principles 9 and 10: Relations with Shareholders and with the Market, and Institutional Shareholders

The Company recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure that its strategies and performance are well understood.  During the period under review, the Company has maintained an effective communication with the market through a number of channels including Company announcements, Circulars, etc.

The Company also communicates with its shareholders through the Company’s Annual General Meeting (“AGM”). Both the Chairman of the Board and the Chairman of the Audit Committee are available to answer shareholder questions.

The Chairman/Chief Executive Officer also ensure that sufficient contact is maintained with major shareholders to understand issues and concerns.

Apart from the AGM, the Company communicates with its shareholders by way of the Annual Report and Financial Statements and also through the Company’s website ( www.maltaproperties.com.mt ) which also contains information about the Company and its business, including an Investor Relations section.

The Office of the Company Secretary maintains regular communication between the Company and its investors.  Individual shareholders can raise matters relating to their shareholdings and the business of the Company at any time throughout the year, and are given the opportunity to ask questions at the AGM or to submit written questions in advance.

As provided by the Companies Act (Cap. 386), minority shareholders may convene Extraordinary General Meetings. 

Principle 11: Conflicts of Interest

The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board. 

On joining the Board and regularly thereafter, the Directors are informed of their obligations on dealing in securities of the Company within the parameters of law, including the Capital Markets Rules, and Directors follow the required notification procedures.

Directors’ interest in the shareholding of the Company:

None of the Directors of the Company have any interest in the shares of the Company’s subsidiaries or investees or any disclosable interest in any contracts or arrangements either subsisting at the end of the last financial year or entered into during this financial year.  No other changes in the Directors’ interest in the shareholding of the Company between year-end and 18 March 2024.

Principle 12: Corporate Social Responsibility

The Directors also seek to adhere to accepted principles of corporate social responsibility in their management practices of the company in relation to the Company’s workforce, the country’s cultural and historical heritage, the environment and the local community. During 2023, the Company has continued to support voluntary organisations through donations with the aim of improving the quality of life of the local community and society at large. As in previous years, the Company is also committed to constructing buildings which are energy efficient.

C.    Non-compliance with the Code

Principle 3: Executive and Non-Executive Directors on the Board

As explained in Principle 3 in Section B, the Board is composed entirely of non-executive Directors.  Notwithstanding this, it is considered that the Board, as composed, provides for sufficiently balanced skills and experience to enable it to discharge its duties and responsibilities effectively.  In addition, no cases of conflict of interest are foreseen. The Directors believe that the executive role should be performed by the Chief Executive Officer who reports directly to the Board. As such, the Board shall maintain a supervisory role and monitor the operations of the Chief Executive Officer.

Principle 4: Succession Policy for the Board

Code Provision 4.2.7 recommends “the development of a succession policy for the future composition of the Board of Directors and particularly the executive component thereof, for which the Chairman should hold key responsibility”. In the context of the appointment of Directors being a matter reserved exclusively to the Company’s shareholders (except where the need arises to fill a casual vacancy) as explained under Principle 3 in Section B, considering that every Director retires from office at the AGM and that all five Directors have a non-executive role, the Company does not consider it feasible to have in place such a succession policy. 

Principle 6: Succession Plan for Senior Management

Although the Chief Executive Officer is responsible for the recruitment and appointment of senior management, the Company has not established a formal succession plan.  This is basically due to the size of the Company’s work force.  

Principle 7: Evaluation of the Board’s Performance

Under the present circumstances, the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role, as the Board’s performance is always under scrutiny of the shareholders.

Principle 8A: Remuneration Committee

The Board deems that the setting up of a Remuneration Committee is not necessary within the context of the size, nature and operations of the Company.  However, as aforementioned, its function was carried out by the Board of Directors.

Principle 8B: Nomination Committee

Pursuant to the Company’s Articles of Association, the appointment of Directors to the Board is reserved exclusively to the Company’s shareholders.  Shareholders holding not less than 20% (twenty per centum) of the issued share capital of the Company having voting rights shall be entitled to appoint one Director for every such 20% holding by letter addressed to the Company. The other shareholders are entitled to appoint the remaining Board members at the AGM in accordance with the provisions of the Articles of Association. Within this context, the Board believes that the setting up of a Nomination Committee is currently not suited to the Company since it will not be able to undertake satisfactorily its full functions and responsibilities as envisaged by the spirit of the Code.   

Principle 9: Conflicts between Shareholders (code provision 9.3)

Currently there is no established mechanism disclosed in the Company’s Memorandum and Articles of Association to trigger arbitration in the case of conflict between the minority shareholders and the controlling shareholders. In any such cases should a conflict arise, the matter is dealt with in the appropriate fora in the Board meetings, wherein the minority shareholders are represented. There is also an open channel of communication between the Company and the minority shareholders via the Office of the Company Secretary.

D.    Internal control

The key features of the Group’s system of internal controls are as follows:

Organisation

The Group operates through Boards of Directors of subsidiaries with clear reporting lines and delegation of powers.

Control environment

The Group is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations. Group policies and employee procedures are in place for the reporting and resolution of fraudulent activities. The Group has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Group objectives.  Lines of responsibility and delegation of authority are documented.

The Group and the individual companies comprising it have implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud.  Measures taken include physical controls, segregation of duties and reviews by management and the external auditors.

Risk identification

Group management is responsible together with each of the subsidiary companies’ management, for the identification and evaluation of key risks applicable to their areas of business. These risks are assessed on a continual basis and may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements.

Information and communication

Group companies participate in periodic strategic reviews which include consideration of long term financial projections and the evaluation of business alternatives.

Monitoring and corrective action

There are clear and consistent procedures in place for monitoring the system of internal financial controls. The Audit Committee meets regularly during the year and, within its terms of reference as approved by the Malta Financial Services Authority, reviews the effectiveness of the Group’s systems of internal financial controls.  The Committee receives reports from management and the external auditors.

E.    General meetings

Shareholders’ influence is exercised at the Annual General Meeting (AGM), which is the highest decision-making body of the Company. All shareholders, registered in the Shareholders’ Register, have the right to participate in the Meeting and to vote for the full number of their respective shares. A shareholder who cannot participate in the Meeting can be represented by proxy.

Business at the Company’s AGM will cover the Annual Report and Financial Statements, the declaration of dividends, election of Directors and the approval of their remuneration, the appointment of the auditors and the authorisation of the Directors to set the auditors’ fees.  Shareholders’ meetings are called with sufficient notice to enable the use of proxies to attend, vote or abstain. The Company clearly recognises the importance of maintaining a regular dialogue with its shareholders in order to ensure that its strategies and performance are understood. It communicates with the shareholders through the AGM by way of the Annual Report and Financial Statements and by publishing its results on a regular basis during the year.  This it does through the Investor Relations Section on the Company’s internet site, the Office of the Company Secretary, and Company announcements to the market in general. 

Remuneration report

A.         Remuneration Committee

The functions of the Remuneration Committee were performed by the Board of Directors composed of Nasser Al Awadhi (appointed on 19 September 2023), Mohamed Sharaf (resigned on 19 September 2023), Deepak S. Padmanabhan, Cory Greenland, Saqib Saeed (appointed on 16 February 2022), Huda Buhumaid (appointed on 22 August 2022), Brigitte Zammit (resigned on 22 August 2022) and Aziz Moolji (resigned on 16 February 2022). The Board discusses and approves remuneration and bonuses of senior executives.

B.         Remuneration policy - Directors and CEO

The Company is required to establish a Remuneration Policy with respect to its Directors. The remuneration policy has been approved by the shareholders at the Annual General Meeting held on 29 July 2020 and is applicable for a maximum period of four years. All remuneration for directors was in conformity with this policy. The policy describes the components of such remuneration and how this contributes to the Company’s business strategy, in the context of its long-term sustainable value creation. This remuneration policy is divided into two parts distinguishing between Directors and Executive Directors.

It is the shareholders, in terms of the Memorandum and Articles of Association of the Company, who elect the Directors and determine their maximum annual aggregate emoluments by resolution at the Annual General Meeting of the Company. Remuneration payable to directors (in their capacity as directors) is reviewed as and when necessary and is not linked to the share price or the company’s performance. These are benchmarked against market practice for major local companies of similar size and complexity.

The aggregate amount fixed for this purpose during the last Annual General Meeting was €200,000 (2022: €200,000). None of the Directors have any service contracts with the Company but three (3) of the Directors are employees of the ultimate parent company of Malta Properties Company p.l.c. However, there are no specific amounts of their remuneration allocated to their role at Malta Properties Company p.l.c. Moreover, none of the Directors, in their capacity as Directors of the Company, are entitled to profit sharing, share options, pension benefits or any other remuneration. The Directors’ fees as approved by the Board for 2023 were set at €25,000 (2022: €25,000) per annum for each Director. Since their appointment as Directors, Dr. B. Zammit and Mr. A. Moolji opted to waive fees due to them as Directors. No variable remuneration is paid to Directors in their capacity as Directors of the Company. Total emoluments received by Directors during the financial year 2023 in terms of Code Provisions 8.A.5 are as follows: fixed remuneration of €125,000 (2022: €105,806).

In terms of Code Provision 12.1 and 12.2 of the Malta Financial Services Authority Capital Markets Rules, Directors’ emoluments paid for the financial years 2023 and 2022 were as follows:

The total emoluments received by the Chief Executive Officer (CEO) for the financial years 2023 and 2022 were as follows:

C.         Remuneration policy - Senior executives

It is the Board of Directors who determines the overall structure and parameters of the Remuneration Policy and the individual remuneration packages for senior executives (including the CEO). The Board of Directors considers that the Remuneration Policy which is being adopted in respect of the remuneration packages of senior executives is fair and reasonable and in keeping with local equivalents. The Board of Directors is also of the opinion that the packages offered ensure that the Company attracts and retains management staff that is capable of fulfilling their duties and obligations towards the Company. Senior executives are on an indefinite contract of employment except for the CEO who is on a definite contract of employment and their contracts specify their remuneration package. None of the contracts provide for profit sharing or share options, pension benefits, early retirement schemes or payments linked to termination in the contracts.

The variable component comprises an incentive that reflects the business performance or profit of the Company as well as the individual’s performance as measured on the basis of the level of achievement over one financial period of financial and non-financial objectives established by the Board which are consistent with the Company’s strategy and aligned with the shareholders’ interest. These objectives and benchmarks set include targets for operating income and growth as well as measures for diversification and development, financing and governance processes. The Board evaluates the fulfilment of criteria by comparing the targeted levels to realised outcomes. The Company does not have the possibility to reclaim any variable remuneration. The Board considers the linkage between the fixed remuneration and the variable remuneration to be appropriate.

As regards to non-cash benefits, senior executives are entitled to health insurance, telephone expenses and a car allowance. Total emoluments received by senior executives (including the CEO) during the financial years 2023 and 2022 in terms of Code Provisions 8.A.5 are as follows: fixed remuneration of €294,000 (2022: €262,000) and variable remuneration of €99,000 (2022: €94,000); and other benefits referred to above.

D.         Remuneration policy - Employees

The CEO, within the overall structure and parameters of the Remuneration Policy determined by the Board, determines the individual remuneration packages for all other employees. The Board of Directors considers that the Remuneration Policy which is being adopted in respect of the remuneration packages of the employees is fair and reasonable and in keeping with local equivalents. The Board of Directors is also of the opinion that the packages offered ensure that the Company attracts and retains staff that is capable of fulfilling their duties and obligations towards the Company. All other employees are on an indefinite contract of employment and their contracts specify their remuneration package. None of the contracts provide for profit sharing or share options, pension benefits, early retirement schemes or payments linked to termination in the contracts.

The variable component comprises an incentive that reflects the business performance or profit of the Company as well as the individual’s performance as measured on the basis of the level of achievement over one financial period of financial and non-financial objectives established by the CEO which are consistent with the Company’s strategy and aligned with the shareholders’ interest. The CEO evaluates the fulfilment of criteria by comparing the targeted levels to realised outcomes.

As regards to non-cash benefits, employees are entitled to health insurance, telephone expenses and a car allowance or company car.

E.         Other information on remuneration in terms of Appendix 12.1 of the Capital Markets Rules

In terms of the requirements within Appendix 12.1 of the Capital Markets Rules, the following table presents the annual change of remuneration, of the Company’s performance, and of average remuneration on a full-time equivalent basis of the Company’s employees over the three most recent financial years. The Company’s Directors, which are all non-executive Directors, have been excluded from the table below since they have a fixed fee as described in Section B above.

The Group’s performance is measured using EBITDA since the profit before tax fluctuates year on year due to extraordinary gains on sale of property and changes in fair value, which depend on changes in the local property market conditions.

The contents of the Remuneration Report have been reviewed by the external auditor to ensure that the information required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules have been included.

The accompanying notes are an integral part of these financial statements.

The financial statements were approved and authorised for issue by the Board of Directors on 21 March 2024. The financial statements were signed on behalf of the Board of Directors by Dr Cory Greenland (Director) and Mr Deepak Padmanabhan (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

As at 31 December 2023, total retained earnings of the Group amounted to €23,715,510 (2022: €22,969,616). Distributable reserves within retained earnings amounted to €4,119,236 (2022: €3,802,186), while non-distributable reserves amounted to €19,596,274 (2022: €19,167,430). 

As at 31 December 2023, total retained earnings of the Company amounted to €4,817,108 (2022: €5,835,345). Distributable reserves within retained earnings amounted to €1,494,422 (2022: €3,097,810), while non-distributable reserves amounted to €3,322,686 (2022: €2,737,535). 

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

Notes to the financial statements

1.       Summary of material accounting policy information

The material accounting policy information applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

1.1 Basis of preparation

The consolidated financial statements include the financial statements of Malta Properties Company p.l.c. and its subsidiaries and have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act (Cap. 386) .  They have been prepared under the historical cost convention as modified by the fair valuation of property, plant and equipment and investment property.

The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates.  It also requires Directors to exercise their judgement in the process of applying the Group and Company’s accounting policies (see Note 3 - Critical accounting estimates and judgements).

The directors have concluded that at the time of approving these consolidated financial statements the Group’s business is considered to be a going concern.  

Standards, interpretations and amendments to published standards effective in 2023

In 2023, the Group and Company adopted new standards, amendments and interpretations to existing standards that are mandatory for the Group and Company’s accounting period beginning on 1 January 2023. Except for the amendments to IAS 1 and IFRS Practice Statement 2, the adoption of these revisions to the requirements of IFRSs as adopted by the EU did not result in substantial changes to the Group’s and Company’s accounting policies impacting the Group and Company’s financial performance and position, including disclosures. 

Standards, interpretations and amendments to published standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements, that are mandatory for the Group’s and Company’s accounting periods beginning after 1 January 2023.  The Group and Company have not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the Company’s Directors are of the opinion that there are no requirements that will have possible significant impact on the Group and Company’s financial statements in the period of initial application.

1.2 Consolidation

Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.  The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.  They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.  Unrealised losses are also eliminated.  Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s separate financial statements, investments in subsidiaries are accounted for by the cost method of accounting, i.e. at cost less impairment.  Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes directly attributable costs of the investment.  Provisions are recorded where, in the opinion of the Directors, there is impairment in value.  Where there has been impairment in the value of an investment, it is recognised as an expense in the period in which the diminution is identified.

The results of subsidiaries are reflected in the Company’s separate financial statements only to the extent of dividends receivable.  On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss.

Loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, an extension of the Company's investment in that subsidiary.  Loans to subsidiaries for which settlement is planned are classified as financial assets (Note 1.8).

1.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’).  The consolidated financial statements are presented in euro, which is the Group and Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

1.4 Property, plant and equipment

All property, plant and equipment is initially recorded at historical cost.  Land and buildings comprise offices and are shown at fair value based on periodic valuations by external independent valuers, less subsequent depreciation for buildings.  Valuations are carried out on a regular basis such that the carrying amount of property does not differ materially from that which would be determined using fair values at the end of the reporting period. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset.

All other property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying asset are capitalised as part of its cost.  Borrowing costs are capitalised while acquisition or construction is actively underway.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as a revaluation reserve in shareholders’ equity.  Decreases that offset previous increases of the same individual asset are charged in other comprehensive income and debited against the revaluation reserve directly in equity; all other decreases are charged to profit or loss.  Any subsequent increases are recognised in profit or loss up to the amount previously charged to profit or loss, and then reflected in other comprehensive income and shown as a revaluation reserve.

An external, independent valuer, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group’s property portfolio at periodic intervals. The fair values are based on market values, being the estimated amount or price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.  In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property.  A yield that reflects the specific risk inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

 
Land is not depreciated as it is deemed to have an indefinite life. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful life. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

The rates of depreciation used for the current and comparative periods are as follows:

The asset’s residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.  An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 1.6).

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount and are recognised in profit or loss.

  
When revalued assets are sold, the amounts included in the revaluation reserve relating to the asset are transferred to retained earnings.

1.5 Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Group or Company is classified as investment property.  Investment property also includes property that is being constructed or developed for future use as investment property, when such identification is made.

Investment property is measured initially at its historical cost, including related transaction costs and borrowing costs. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway.

Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended.

After initial recognition, investment property is carried at fair value, representing open market value determined annually. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location, or condition of the specific asset. If this information is not available, the Group and Company use alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as of the end of the reporting period by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the financial statements.

Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.  Fair value measurement on property under construction is only applied if the fair value is considered to be reliably measurable. The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.  The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.

Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group or Company and the cost of the item can be measured reliably.  All other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred.  When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.

The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property.

Changes in fair values are recognised in profit or loss. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment. Its fair value at the date of the reclassification becomes its cost for the following accounting period and is subsequently shown at fair value.  When the Group or Company decides to dispose of an investment property without development, the Group or Company continues to treat the property as an investment property until it is derecognised (eliminated) from the statement of financial position and does not reclassify it as inventory.  Similarly, if the Group or Company begins to redevelop an existing investment property for continued future use as investment property, it remains an investment property during the redevelopment. If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is treated in the same way as a revaluation under IAS 16. Any resulting increase in the carrying amount of the property is recognised in profit or loss to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income directly to revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged to other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to profit or loss.

Upon the disposal of such investment property, any surplus previously recorded in equity is transferred to retained earnings; the transfer is not made through profit or loss.

Where an investment property undergoes a change in use, evidenced by commencement of development with a view to sell, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as inventories is its fair value at the date of change in use.