To the participants of Vesteda Residential Fund FGR
Report on the financial statements 2016 included in the annual accounts
We have audited the consolidated financial statements 2016 of Vesteda Residential Fund FGR, based in Amsterdam.
In our opinion The consolidated financial statements included in these annual accounts give a true and fair view of the financial position of Vesteda Residential Fund FGR as at 31 December 2016, and of its result and its cash flows for 2016 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.
The consolidated financial statements comprise:
The consolidated statement of financial position as at 31 December 2016.
The following statements for 2016: the consolidated statements of comprehensive income, changes in equity and cash flows.
The notes comprising a summary of the significant accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.
We are independent of Vesteda Residential Fund FGR in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Based on our professional judgement we determined the materiality for the financial statements as a whole at € 30 million. The materiality is based on 1% of group equity. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
We agreed with the Supervisory Committee that misstatements in excess of € 1,5 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Committee. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Fair value of investment property
The valuation of the investment properties in operation and investment properties under construction (Investment Properties) is significant to our audit due to their magnitude and their valuation is complex and highly dependent on a range of estimates (amongst others, rental value, vacancy rates, yields, vacant value). The valuation is performed in accordance with IAS 40 / IFRS 13 which is based on an extensive internal valuation process and determined by external appraisers.The valuation of the investment property is set out in Note 17 of the financial statements.
Management uses external appraisers to support its determination of the individual fair value of the Investment Properties. Amongst others, we have considered the objectivity, independence and expertise of the external appraisers, assessed the appropriateness of the property related data, including estimates as used by the external appraisers (amongst others, rental value, vacancy rates, yields, vacant value). In addition we used our real estate and valuation specialists to assist us in challenging the external valuations. We have challenged management and the external appraisers about the appropriateness of the property related data, used estimates and the (movements in) fair value of the Investment Properties. Furthermore, we discussed with the external appraisers their valuation reports and our findings. We also assessed the appropriateness of the disclosures relating to the assumptions, as we consider them likely to be important to users of the financial statements given the estimation uncertainty and sensitivity of the valuations.
Significant estimates related to provisions for contractual obligations in respect to real estate projects
Vesteda’s disclosures about non-current provisions are included in Note 26 of the financial statements and are mainly related to expected losses on contractual obligations for real estate projects. The determination of these provisions requires significant management judgment. Movements in these provisions are also influenced by changes in the project plans, the underlying contractual agreements and changes in the fair value of the underlying Investment Properties which will be developed. The amounts involved are deemed significant to the financial statements.
We verified whether the methodology used for determining the non-current provisions has been applied in accordance with IAS 37 furthermore we compared the estimated future results used in the calculation with the project plans. We reviewed the changes in the project plans and challenged whether these changes have been properly addressed in the new calculations. In addition we used our real estate and valuation specialists to assist us in challenging the external valuations as if completed. We challenged the estimated project cost to complete.
Net gains and losses on cash flow hedges arising during the year are recognized directly in equity through other comprehensive income, as set out in Note 27 of the financial statements. This accounting treatment depends on the relation between the underlying hedged item (the borrowing) and the hedge instrument. Changes in the fair value of the hedge instrument are recognized in other comprehensive income when this relation is deemed effective.
We audited the critical terms match and verified that the calculation has been accurately performed, evidencing an effective relation between the borrowings and the interest rate swaps. We verified that the hedge documentation is in accordance with IAS 39. We made use of specialist in this process.
Consolidated financial statements as part of the (complete) financial statements
The financial statements include the consolidated financial statements and the company financial statements. The company financial statements have been included in a separate report. For a proper understanding of the financial position and result the consolidated financial statements must be considered in connection with the company financial statements. On March 17, 2017 we issued a separate auditor’s report on the company financial statements
Report on the other information included in the annual accounts
In addition to the financial statements and our auditor’s report, the annual accounts contain other information that consists of:
Based on the following procedures performed, we conclude that the other information:
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of other information, including the Management Report in accordance with Part 9 of Book 2 of the Dutch Civil Code, and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
We were engaged by the Supervisory Committee as auditor of Vesteda Residential Fund FGR on April 1, 2015, as of the audit for year 2016 and have operated as statutory auditor ever since that date.
Description of responsibilities for the consolidated financial statements
Responsibilities of management and the supervisory board for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting framework mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.
Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
The Supervisory Committee is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.
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. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.:
Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining 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.
Obtaining 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 purpose of expressing an opinion on the effectiveness of the company’s internal control.
Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Concluding on the appropriateness of management’s 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 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 company to cease to continue as a going concern.
Evaluating the overall presentation, structure and content of the financial statements, including the disclosures.
Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Supervisory Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
We provide the Supervisory Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Amsterdam, March 17, 2017
Deloitte Accountants B.V.