Globalworth Real Estate Investments Limited
Annual Report 2016

Plain-text annual report

globalworthTM THE LEADING OFFICE INVESTOR IN ROMANIA ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 INTRODUCTION GLOBALWORTH FOCUSES ON MAXIMISING VALUE FROM REAL ESTATE INVESTMENT OPPORTUNITIES IN ROMANIA AND THE BROADER CEE AND SEE REGION Overview 1 2016 Highlights At a Glance Investment Proposition Investment Journey Strategic review 10 Chairman’s Statement Our Market Business Model Strategy in Action Chief Executive’s Statement Management Review Investment Review Leasing Review Financial Review Financing and Liquidity Review Corporate Social Responsibility Risk Report Viability Statement Board of Directors The Team Portfolio review 64 2 4 6 8 12 14 18 20 28 30 34 36 38 40 42 50 55 56 60 Globalworth Tower BOB BOC Green Court Building “A” Green Court Building “B” Globalworth Plaza Unicredit HQ TCI City Offices Gara Herastrau Upground Towers TAP Globalworth Campus Dacia Warehouse Governance 100 Corporate Governance Report Directors’ Report 72 74 76 78 80 82 84 86 88 90 92 94 96 98 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Section I: Basis of Preparation Section II: Investment Property Section III: Financial Results Section IV: Financial Assets and Liabilities Section V: Share Capital and Reserves Section VI: Business Combinations and Related Disclosures Section VII: Other Disclosures 102 104 Independent Auditor’s Report to the Members of Globalworth Real Estate Investments Limited Remuneration Committee Report 107 Investing Policy Audit Committee Report 109 Schedule of Properties Financial Statements 112 Consolidated Statement of Comprehensive Income 114 Glossary Company Directory 115 116 117 118 119 123 128 134 137 139 143 149 150 152 155 Green Court “B" overview Strategic review Portfolio review governance financial StatementS GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 1 2016 HiGHLiGHTs a Year of Strong reSUltS FINANCIAL portfolio open market value €977.5m +5% on 2015 epRA nAV €783.8m +38% on 2015 normalised eBiTdA €36.3m +62% on 2015 Loan to value ratio 43.4% epRA nAV per share 857 cents -6% on 2015 net operating income €43.6m +54% on 2015 epRA earnings €8.6m +€13.9m on 2015 epRA earnings per share 13.34 cents +22.75 cents on 2015 nAV €715.4m +43% on 2015 nAV per share 791 cents -1% on 2015 Gain on the valuation of property earnings before tax €6.7m €49.4m in 2015 €12.2m €62.5m in 2015 To learn more about our business and investments visit us online at globalworth.com overview Strategic review Portfolio review governance financial StatementS OPERATIONAL ¡ completed a €200 million ¡ increased commercial equity capital raise at €8.0 per share, subscribed by Growthpoint properties Ltd and Oak Hill standing GLA by 22% to 370k sqm – Total standing GLA of 420k sqm ¡ completed a €180 million senior secured real estate bond subscribed by the canada pension plan investment Board (cppiB) and cairn capital ¡ delivered two class “A” office properties in Bucharest increasing the total number of standing properties to 14 – The flagship Globalworth Tower in Q1-16 (GLA: c.54.7k sqm) – The Gara Herastrau office property in Q2-16 (GLA: c.12k sqm) ¡ signed tenancies for a total of 98k sqm of commercial GLA in our properties in 2016 ¡ four office and light-industrial/ warehouse facilities under construction in Bucharest and Timisoara ¡ 332k sqm of commercial space let or pre-let with a WALL of 6.5 years ¡ Total average occupancy of commercial standing GLA at c.83.1% ¡ Received green accreditation for three office properties, including Leed platinum for Globalworth Tower (in 2017), increasing the total number of green accredited properties in the portfolio to eight 2016 was a busy and successful year for Globalworth. We delivered strong results, improved the fundamentals of our business, and continued to strengthen our position as one of the leading real estate players in Romania and the wider region. Geoff Miller chairman 2 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 3 AT A GLAnce comPetitivelY PoSitioneD in an attractive marKet We are a fully integrated real estate company operating in the CEE and SEE region with a primary focus on Romania, where we acquire, develop and directly manage primarily high-quality office and logistics/light-industrial real estate assets. Sector: High-quality commercial properties, with primary focus on: – Offices – Logistics / Light-industrial region: – cee and see Region – Romania (primary market of focus) aSSetS: – existing or to be developed, undervalued or underperforming properties with transformation potential into performing and marketable assets with long / stable cash flow tenantS: – multinational corporate groups and financial institutions leaSe termS: – Long-term – Triple net – euro-denominated – Annually indexed City Offices overview Strategic review Portfolio review governance financial StatementS standing & operational* assets: value “as is” €882m current developments:* value “as is” €78m Land for development: value “as is” €18m portfolio appraised value upon completion €1.1bn *for presentation purposes only we have included under 'standing and Operational properties' the three facilities of TAp leased to Valeo, continental and elster offering total GLA of 81.4k sqm valued at €42.0 million, with facilities either under or with potential for further development (Valeo, continental and Litens) presented as 'developments' with an appraised value of €7.5 million. 4 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 5 INVESTMENT STRATEGY overview Strategic review Portfolio review governance financial StatementS inVesTmenT pROpOsiTiOn we Have a roBUSt recorD of Performance anD oUr StrengtHS PoSition US for fUrtHer growtH see inVesTmenT JOuRneY on page 8 see OuR mARKeT on page 14 see Business mOdeL on page 18 see mAnAGemenT ReVieW on page 30 OuR finAnciAL ReVieW on page 38 see finAnciAL sTATemenTs on page 112 portfolio open market value €977.5m +5% Gara Herastrau & Green Court Buildings “A” and “B” 6 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 7 WE HAVE AFULLY INTEGRATED PLATFORM66 professionals, majority located in BucharestIn-house expertise in investment, project, asset and property managementWE HAVE ALONG-TERM STABLE CASH FLOW 329k sqm of commercial space let or pre-let with a WALL of 6.5 years86% of contracted rent generated by multinationals 93% of commercial contracted rent expiring ≥ 2020WE HAVE ASTRONG FINANCIAL POSITION€43.6 million of net operating income, expected to increase further in the short-medium term LTV of 43.4% with no material debt maturities in the short termc.€221 million of cash at 31 December 2016 expected to be deployed in the near termWE HAVE APROVEN STRATEGY Investment in a diverse pool of properties (standing / developments) allowing for higher risk-adjusted returnsc.238k sqm of commercial GLA successfully negotiated in our propertiesAverage portfolio lease length of 6.5 years, longer than average in the market WE HAVE AFAVOURABLE MARKET IN WHICH WE OPERATE Romania (principal country of operation) is one of the fastest growing economies in EuropeStrong macro-economic outlookImproving real estate market, with further growth potentialWE HAVE AROBUST TRACK RECORDSuccessfully completed a number of corporate (debt and equity) and real estate transactionsDeployed €860 million in Romania’s real estate market in the past 3 1/2 yearsDeveloped 170k sqm of high quality commercial GLAAssembled a portfolio of high-quality properties valued at €1.1 billionoverview Strategic review Portfolio review governance financial StatementS inVesTmenT JOuRneY €860 million of inveStmentS undeRTAKen since incepTiOn WiTH 20 pROpeRTies cuRRenTLY WORTH €1.0 BiLLiOn And €1.1 BiLLiOn upOn cOmpLeTiOn Of deVeLOpmenTs 2013 2015 Key corporate events Acquisitions completion of developments feB 2013 SeP 2013 feB 2014 aPr 2014 JUl 2014 JUl 2013 Dec 2013 mar 2014 JUn 2014 Dec 2014 mar 2015 JUn 2015 oct 2015 feB 2016 JUn 2016 aPr 2015 SeP 2015 Dec 2015 maY 2016 Dec 2016 2015 2017 1 Globalworth plaza, was previously referred to as nusco Tower. 8 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 9 Acquisition of UniCredit HQ and Globalworth Plaza1Delivery of Continentalwarehouse in TAPAcquisition ofGreen Court “A”Delivery of Elsterfacility in TAPEquity Capital raise €54 millionAcquisition ofGreen Court “B”Delivery of GlobalworthTower€180 million Bond issuesubscribed by CPPIB and Cairn CapitalDelivery of Gara HerastrauEquity Capital raise €200 million subscribed byGRT and OakHillIncorporation of GWIListing on LSE AIM, raising €54 millionAcquisition of GAMAcquisition of Globalworth Tower siteAcquisition of TCIAcquisition of BOB, BOC & Upground TowersEquity Capitalraise €144 millionAcquisition of GWI Campus siteAcquisition of TAPAcquisition of Gara Herastrau &Luterana landsOvERvIEW STRATEGIC REvIEW PORTFOLIO REvIEW GOvERNANCE FINANCIAL STATEMENTS STRATEGIC REVIEW Chairman’s Statement Our Market Business Model Strategy in Action Chief Executive’s Statement Management Review Investment Review Leasing Review Financial Review Financing and Liquidity Review Corporate Social Responsibility Risk Report Board of Directors The Team 12 14 18 20 28 30 34 36 38 40 42 50 56 60 10 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 11 cHAiRmAn’s sTATemenT anotHer SUcceSSfUl SteP in oUr evolUtion marKeD BY roBUSt Performance, imProveD governance anD Stronger caPital BaSe 2016 was a busy and successful year for us. We continued to grow our asset base, achieved strong operating and financial performance, raised a total of €380 million through two high-profile transactions in the debt and equity capital markets, and welcomed a new cornerstone shareholder to the Company. Geoff Miller chairman This level of investment has been made possible through the support of our shareholders, our debt finance providers and the use of our own resources. i would like to highlight that, in 2016, we successfully completed two corporate transactions, which in our opinion should be included in the list of the most notable ones for the year in the region: ¡ The €180 million bond transaction concluded in June 2016 with the canada pension plan investment Board (cppiB) and cairn capital ¡ The €200 million equity capital raise concluded in december 2016, fully subscribed by Growthpoint properties Ltd. and Oak Hill Advisors1 We are proud and grateful for the validation and support of international investors of cppiB and Growthpoint’s size and reputation. We are also pleased to be paying a dividend for the first time since the company’s inception. As declared in december 2016, we will be distributing €40 million (€0.44 per share) to our shareholders in two tranches for 2017 and have committed to distribute the equivalent of 90% of our funds from Operations (ffO) in the future. Shareholder Base We are delighted to have Growthpoint properties Ltd. (GRT) as the new principal shareholder in Globalworth. GRT is south Africa’s largest ReiT, with assets of over €7.5 billion, and a top-5 constituent of the fTse epRA/ nAReiT emerging markets index. GRT became the largest shareholder in the company following its participation in the €200 million equity capital raise in december 2016, in which it invested c.€186 million. Performance Over the course of the year we made good progress with our development programme for office and light- industrial/warehouse space in Romania while adding to our footprint of class “A" offices in Bucharest with two new properties, one of which was the landmark Globalworth Tower. We continued to actively manage our portfolio to best position our properties in the market and deliver sustainable growth for the company, our shareholders and the wider community in which we operate. since Globalworth’s inception in february 2013 we have invested c.€860 million in Romania’s real estate market, ranking us as one of the most active investors in the country over this period, and assembled a portfolio of 15 high-quality investments valued at €977.5 million as at 31 december 2016. GRT’s interest in further investing in the central and south eastern european region is aligned with that of the company and we will be looking to leverage its support and best-in-class practices of operation and governance. Board Operation/Memberships We believe that a close relationship and open communication between the non-executive and executive directors is critical for the smooth operation of the Board and to provide the right guidance for the company. This level of close cooperation, intensified by the key bond and equity transactions contemplated and finally executed in 2016, was evidenced by our Board convening 18 times over the course of the year to ensure that all appropriate actions and decisions were taken. 1. includes certain funds and/or accounts managed by Oak Hill Advisors (europe), LLp and its affiliates. overview Strategic review Portfolio review governance financial StatementS We are pleased to welcome four new members to our Board of directors, which as of february 2017 comprised 12 participants, and thank the existing directors for their ongoing cooperation and support. norbert sasse (ceO of GRT) and George muchanya of Growthpoint, peter fechter and Richard van Vliet have joined the Board as non-executive directors. We believe that their extensive experience and business acumen will help us to steer Globalworth to new levels of success. Corporate Governance The benefits of GRT’s involvement with the company have become immediately apparent as we have already adopted some of the practices of our new principal shareholder. We believe that these will further improve the way that we operate. As our business grows in scale and to increase the efficiency of our operations and our Board, we have introduced a newly formed investment committee. This committee has been established to consider and approve or recommend to the Board (in accordance with a specified delegated authority framework) proposed investments or divestments, financing arrangements, investment policies and strategy. it comprises five members, these being eli Alroy (chairperson), norbert sasse, George muchanya, ioannis papalekas and dimitris Raptis. The Board has also resolved to make certain changes to its committee memberships: ¡ peter fechter has joined the Remuneration committee and John Whittle has stepped down as chairperson and member, with myself succeeding him as chairperson ¡ Richard van Vliet has joined the Audit committee, replacing myself in the role i would like to thank John for his service on the Remuneration committee and wish my fellow members every success with their new roles and responsibilities. We are also very proud to be able to give back to the community. Globalworth has directly or indirectly supported numerous local communities, charities and hospitals in Romania over the years, predominantly focused on young children, single mothers and those in need of palliative care. Health and Safety The health and safety of the people working or visiting our properties, our employees and our partners is of paramount importance to us. With over 420k sqm of standing GLA in our property portfolio and an additional 79k sqm under construction at the end of 2016, and thousands of people working on or visiting our sites on a daily basis, we work hard together with our partners to ensure that our safety record remains intact. On our construction sites we monitor our contractors closely to ensure that proper safety measures are being applied to the workforce and, in the case of visitors, that the proper health and safety training is being performed. At our completed properties we conduct health and safety training for our tenants and undertake regular scenario exercises in order to secure the safety of employees and visitors in the event of an emergency. With a portfolio of high-class assets, a new cornerstone investor and a robust balance sheet, Globalworth is in a strong position to pursue further asset growth through acquisitions. We already announced in february 2017 our acquisition of dacia’s main distribution centre facility in Romania and we have a strong pipeline of potential investments that we are pursuing. We also aim to simplify our debt capital structure and reduce our average cost of debt and to that end are exploring a benchmark size eurobond issue. We are also considering means to broaden our shareholder base and enhance trading in our equity including the possibility of an additional listing. Sustainability/Social Responsibility At Globalworth we aim to do business while adhering to strict business ethics and corporate social responsibility, which we believe adds and sustains long-term value for the company, our shareholders, the community and the environment. Geoff Miller chairman 3 April 2017 We continue to focus on investing in environmentally friendly properties, having added two green certified buildings to our portfolio in 2016 and now having the first property in Bucharest and the broader see region to be awarded Leed platinum. Of our commercial standing investments, 8 out of 11 have received green accreditation of BReeAm excellent/Leed Gold or higher, and we are exploring the potential for similar accreditations for other properties in our portfolio. Upground Towers 12 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 13 overview Strategic review Portfolio review governance financial StatementS OuR mARKeT gloBalwortH focUSeS PrimarilY on romania’S commercial real eState marKet Since its inception, the Company has invested exclusively in Romania, with over 90% of the c.€850 million of capital that it has deployed, targeted at Class “A” office properties in Bucharest and a light-industrial park in Timisoara. The commercial real estate market is cyclical and in Romania fell to its lowest point in 2009. since then, the market has been gradually recovering and, supported by a strong and expanding economy, this recovery has gained pace since 2012. Romania is one of the few european economies that has expanded consistently over the past six years, outpacing eu average growth. its attractive macro-fundamentals resulted in real Gdp rising by 4.7% in 2016, the second highest growth rate in europe, and the economy is forecast to continue to expand in the medium term. Growth is also underpinned by european union grants and subsidies, which have been made available to the country since its accession to the eu in 2007. Romania is currently on the second phase of its european funding programme, which runs from 2014 to 2020, with c.€43 billion of approved eu funds expected to flow into the country over that period. The national Bank of Romania has maintained its monetary policy rate, with the base rate remaining unchanged at a record low of 1.75%, supporting the momentum in the economy and taking a cautious stance on the uncertainty in europe caused by the Brexit vote. mandatory reserve ratios for banks have also remained flat for both local and foreign liabilities at 8% and 10% respectively, providing further support to the well- capitalised banking sector. Real estate financing continues to be available for good-quality projects, with increasing competition among financial providers (both local and international) leading to improved pricing and LTV terms for borrowers. investment activity in commercial real estate in Romania remained strong at c.€0.8 billion in 2016, with a number of both existing and new international investors entering and/or increasing their exposure to the market directly or indirectly. interest from investors such as Growthpoint properties (Globalworth), cppiB (Globalworth), Gic (p3 Logistics parks), Blackstone/Logicor (immofinanz’s industrial assets) and ppf, has been added to that of the likes of nepi, cTp, Lonestar/GTc immofinanz, skanska and, of course, Globalworth and we believe this will help the Romanian real estate market to develop further. prime yields for office properties stabilised at 7.5% in 2016, but contracted further for logistics properties, where yields fell to 8.5% from 9.0% the previous year. current prime yields in Romania are still higher than in most other prime markets in the cee and see region, despite contraction and favourable market conditions, having fallen c.100-150bps from their peak level in 2007 thus allowing for potential further yield compression as the real estate market continues to evolve. Approximately 81% of our portfolio value is in offices (standing and development), with the majority of our properties having been built since 2011, and four having been completed in the past two years. Over the past three years, we have extensively modernised the three office properties in our portfolio constructed prior to 2011 and made them more environmentally friendly. ¡ BOB (2008): partial refurbishment (2014-16 in stages) and recipient green accreditation in 2014 ¡ BOc (2009) partial refurbishment (2012-16 in stages) and recipient of green accreditation in 2014 ¡ GW plaza (2010): under partial refurbishment 2016-17. Our modern office stock competes directly with the current supply in the market, which in Bucharest has increased by over 50% since 2010 to reach 2.6 million sqm in Q4-16. The average office vacancy rate in Bucharest decreased marginally in 2016 to 11.7%, although vacancy rates continue to vary between sub-markets and this was also reflected in rents. due to the cyclical nature of the real estate markets, the timing at which investments are made is critical to their long-term success and the impact they can have on shareholder returns. At Globalworth, we have been addressing this risk by investing in high-quality real estate properties at relatively early stages of the cycle, maintaining a moderate level of debt and focusing on signing long-term, triple net leases with a diversified pool of multinational tenants. We thus aim to be in a position to generate attractive risk-adjusted returns for our shareholders. We believe that strong macro fundamentals will continue to benefit Romania’s real estate market for the foreseeable future. The new schemes projected to be completed over the next two years are spread around Bucharest and, given the demand for good-quality space, we anticipate that rental levels will remain stable. Yields on new, prime real estate product are expected to contract further, supported by investors interested in acquiring quality stock at a discount to other cee real estate markets. Overall supply of class “A" office space is estimated to increase by 300k to 500k sqm over the next two years, including 88k sqm developed at Globalworth campus by the company. demand for top-quality office space continued to be strong in 2016, running at almost 40% higher to the level of new supply. demand was driven by companies in the iT&c, production/energy and financial sectors, with a number of multinational corporates consolidating their positions and expanding their operations in Romania. This trend was reflected in the leases signed by Globalworth during the year through tenants which included Huawei, deutsche Bank, Honeywell, patria Bank, Hp and Wipro. class A energy-efficient office properties, which are easily accessible by public and private transport and combine high-quality space with other amenities, are in firm demand and maintain low vacancy rates and stable rents. properties matching this profile in Globalworth’s portfolio, such as BOB, BOc, and Green court “A" and “B", have occupancy rates of over 97%. As of march 2017 the recently completed Globalworth Tower and Gara Herastrau office properties have occupancy rates in excess of 90%. The light-industrial/warehouse sector in Romania was one of the most actively sought-after in 2016, driven by growth in retail consumption and industrial production. Rents and vacancy rates in this sector vary significantly depending on quality, the location of the facility and the lease duration. Rents for high-quality space in prime sub-markets have stabilised, however, and vacancy remains low, below 3.0% at national level. most new light-industrial properties are pre-let and built-to-suit to the specifications of the tenants, as has been the case at our TAp complex where we have 97% occupancy. following the completion of the new facilities under construction and leased to Valeo and Litens Automotive, occupancy in the park will rise to 98%. 14 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 15 overview Strategic review Portfolio review governance financial StatementS OuR mARKeT cOnTinued marKet review 2016 Romania Country Performance Real Gross domestic product growth (Gdp): private consumption growth: current account % of Gdp: Budget deficit % of Gdp: public debt % of Gdp: inflation %: unemployment %: 4.7% 7.7% - 2.4% - 1.5% 37.1% -0.5% 6.0% Strong Macroeconomic Fundamentals full membership of the eu since 2007 Local currency: Romanian Leu Transactions typically completed in euros 7th largest country in the eu by population strategic location allowing access to the Black sea and central europe excellent iT infrastructure with one of the fastest internet networks in the World continued Real Gdp growth since 2011 Low public debt to Gdp significant national and eu funding available until 2020, supporting investment and further infrastructure improvements stable tax system with corporate and personal income tax at 16% Highly skilled workforce sustaining growth and attracting multinational corporates to Romania One of the lowest costs of labour in the eu increasing private consumption Real Estate Highlights Office demand consistently exceeding supply since 2011 modern office stock in Bucharest of c.2.6 million sqm demand driven by iT&c and production sectors investment yields continued to contract in 2015, but remain higher than most cee and see sub-markets Office prime yields at 7.5% Logistics prime yields at 8.5% Rents stabilised, with positive outlook source: ministry of public finance Romania, national Bank of Romania, cBRe, national institute of statistics, Jones Lang Lasalle, colliers and the company Based on march 2017 (estimates) Investment Volume – Romania investment Volume - Romania investment Volume - Romania Yield evolution Yield evolution Yield Evolution m € 1600 1400 1200 1000 800 600 400 200 0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Year 14.00% 12.00% 10.00% 8.00% % 6.00% 4.00% 2.00% 0.00% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Year Industrial Retail Office source: cBRe, JLL Structural supply/demand imbalance demand exceeding supply in the office market for commercial space in Bucharest... since 2011 Bucharest continues to have one of the most attractive return profiles in the region m q S 0 0 0 ’ 400 350 300 250 200 150 100 50 0 '06 '07 '08 '09 '10 '13 '14 '15 '16 '12 '11 Year 12% 11% 10% % 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% ROM CZR HUN POL Capital City BUL SLO Supply Demand Industrial Office 16 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 17 overview Strategic review Portfolio review governance financial StatementS Business mOdeL clear anD Proven moDel Our business model, built upon our sources of competitive advantage, delivers sustainable growth and value to our stakeholders. We offer turnkey commercial real estate solutions and our leasing policy is to rent our office and other space to multinational corporate groups and financial institution tenants on long-term, triple net, annually indexed, euro-denominated leases. comPetitive aDvantageS Proven inveStment StrategY BenefitS anD oUtcomeS STRONG MANAGEMENT TEAM ¡ proven track record ¡ market knowledge ¡ size and scale in core market HIGH QUALITY PORTFOLIO ¡ strong macro environment ¡ diverse and international tenant base ¡ Long-term contracted cash flow streams ¡ financial strength ¡ Robust euro-denominated rental income ¡ strong corporate governance ¡ integrated operating platform ¡ Turnkey solutions offered to tenants ¡ Ability to structure complex asset acquisitions (distress, restructuring, repositioning) ¡ Raising of equity and debt capital and successful deployment on multiple investments ¡ Attractive, risk-adjusted returns, through yield and capital appreciation nAV €715.4m +43% epRA nAV €783.8m +38% normalised eBiTdA €36.3m +62% 18 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 19 ASSETS ¡Existing or to be developed, undervalued or underperforming properties with transformation potential into performing and marketable assets with long / stable cash flowTENANTS AND LEASE TERMS ¡Multinational corporates and financial institutions ¡Long-term, euro-denominated, triple net, inflation linked ¡Focus on quality, predictable, inflation protected cash flows, with very high NOI to EBITDA conversion, at attractive yieldsREGION ¡CEE and SEE region ¡Romania (primary market of focus) ¡Deep market knowledge with local presence in Romania for 15 years ¡Contrarian play that allowed securing investments at discount to market value, offering capital appreciation potentialSECTOR ¡Acquisition, development and management of commercial assets ¡Active management of underperforming / mispriced assets ¡High-quality portfolio with modern Class “A” assetssTRATeGY in AcTiOn GLOBALWORTH TOWeR BUcHareSt’S lanDmarK office tower The idea for the development of Globalworth Tower, was conceived at the same time as when Globalworth (the Company) was in the process of being established. The Idea We believed that the city was missing a new modern, high-rise landmark, class “A” office building which would demonstrate the same characteristics found in Western europe. mainly a multi-floor, high-rise, energy-efficient, class “A” office property, with a large floor plate and a high utilisation coefficient, that would be easily accessible by both public and private transportation. We believed that this product would be very attractive to large multinational tenants operating in Romania, who were looking to replicate international trends and practices for their activities in the country. At the same time, offering a high quality work space, which is easily accessible to employees, further incentivises performance and work ethic. A building demonstrating all the aforementioned characteristics did not exist in Bucharest and as such we decided to develop it ourselves as Globalworth! The Implementation Key in every real estate investment is the location of the property to be acquired / developed and when the site on 201 Barbu Vacarescu street became available we acted quickly to secure it. The property displays all the key characteristics we were looking for: ¡ Accessibility: located next to the metro station (max 5min walk to all other public transport) ¡ Visibility: the site is located at the corner of three main road arteries ¡ shape: the site has a rectangle shape ¡ Building coefficient: allowing the development of a c.54,700sqm GLA above ground ¡ Height coefficient: allowing the development of a 120 meter tower As we secured the site to be developed, we initiated the design and permitting process for the project. considering the overall size of the development, we were looking to have mainly restaurants and commercial uses on the ground floor and offer premium class “A” office space on all other floors above ground. The restaurants and coffee shops, together with the development of the mega image concept store offer multiple options for the people working at Globalworth Tower, and allow them to socialise, have business meetings and find alternative culinary options. On the 26 floors above ground, we offer premium class “A” office space, with above average height (2.85m) and great views to our tenants. development completed in 23 months Average number of floors per month delivered 2.5 overview Strategic review Portfolio review governance financial StatementS Development Timeline feB 2016 property formally delivered nov 2015 façade completed aUg 2015 construction reached floor 26 JUl 2015 construction reached floor 20 mar 2015 construction reached floor 10 oct 2014 construction reached Ground level aPr 2014 construction commenced mar 2014 Building permit issued Dec 2013 Acquisition of the site completed JUl 2013 Agreement to acquire the site to be developed – 1st LEED Platinum Class “A” office in the SEE – 2nd tallest office in Romania – 2nd largest single asset office in Romania 20 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 21 sTRATeGY in AcTiOn cOnTinued Area & Access Globalworth Tower is centrally located in one of Bucharest’s most “dynamic” business hubs to the north of the city. The northern part of the city, due to its excellent infrastructure, close proximity to the airport and availability of land plots has attracted significant investment by both landlords and (mainly international) occupiers in recent time, and has evolved to become the new cBd of Bucharest. The property is strategically positioned at the entrance of the new cBd and enjoys a direct opening to three main streets (Barbu Vacarescu street, pipera Road and calea floreasca Road), which in conjunction with its great height (c.120m), results in a high level of visibility. Globalworth Tower is easily accessible by public transport as the Aurel Vlaicu square subway station, three bus stops and two tram stations are located within a 5 minutes’ walk from the property. in addition Globalworth Tower is also accessible by car from the three aforementioned streets, namely Barbu Vacarescu street, pipera Road and calea floreasca Road. Globalworth Tower Average number of builders on site per day c.550 shifts working at the peak of the construction 3 On site builders at the height of the construction process 1,050 overview Strategic review Portfolio review governance financial StatementS KeY factS location: north Bucharest (new cBd) aDDreSS: 201 Barbu Vacarescu street, sector 2, 020276, Bucharest, Romania tYPe: class “A” Office Year of comPletion: 2016 groSS BUilD area: 78,173sqm groSS leaSaBle area: 54,686sqm – 2nd largest single office in Romania green certification: Leed platinum – 1st building in Romania and the see to receive this green accreditation arcHitect: Architect service lead by costantin ciurea lanDlorD / DeveloPer: Globalworth Real estate investments Ltd contractor: Bog’ Art ProJect manager: Globalworth Asset managers sRL ProPertY manager: Globalworth Building managers sRL aSSet manager: Globalworth Asset managers sRL tenantS (SelecteD): Vodafone (telecoms), Huawei (telecoms), nndKp (law), Wipro (iT), delhaize / mega image (retail-fmcG), Bunge (services), ferrero (confectionery), Anritsu solutions (services) and Globalworth (real estate) awarDS: Best Big Office development of 2016 (ciJ Awards 2016 – Romania) 22 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 23 sTRATeGY in AcTiOn cOnTinued GLOBALWORTH cAmpus Delivering a new claSS “a” office comPleX wHere BUSineSS can Be innovative anD floUriSH A state-of-the-art development, balancing office, retail and other supporting amenities over 88.6k sqm. It combines high technical and environmentally friendly specifications of three Class “A” office towers, with green areas and a dedicated commercial component. In addition a running track, electric vehicle charging station, bicycle racks, coffee shops and restaurants promoting healthy lifestyle. The project will be complemented by one of Bucharest’s largest conference centres, providing the infrastructure for a continuous learning process for companies and employees alike. overview Strategic review Portfolio review governance financial StatementS High-quality space 88.6k sqm No other office development in Bucharest will exemplify the work–life balance so clearly as Globalworth Campus. 24 24 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 25 25 sTRATeGY in AcTiOn cOnTinued Globalworth campus will blend office, retail and other functions in an 88k sqm GLA development. The project built in two phases, will incorporate the latest technologies and high functionality, in order to deliver the very best of office experiences. phase A – comprising two towers, each with Gf + 12 floors above ground, is currently under construction and will offer total GLA of 56.9k sqm upon completion in Q1-18. With a 2,300 sqm floor plate, the two towers will have a 320 employee floor efficiency and a 1 to 80 parking ratio. The overall project will be anchored by a 3,000 sqm retail gallery and a 720 seat conference centre, which combined with its unique running track, will make it the focal point of Bucharest’s new cBd. class “A" energy-efficient office properties, which are easily accessible by public and private transport and combine high-quality space with other amenities, are in firm demand and maintain low vacancy rates and stable rents. DEVELOPMENT SNAPSHOT ¡ 88.6k sqm of high-quality space ¡ Three office towers developed in two phases ¡ Retail and leisure area ¡ conference centre ¡ unique running track ¡ 2.3k sqm office floor plate ¡ 320 employee floor efficiency ¡ Two underground levels ¡ 1 to 80 parking ratio ¡ Aiming for BReeAm excellent ACCESS ¡ excellent access by public and private transport ¡ metro station directly in front of the property • 10 minutes to the city centre ¡ 20 minutes’ drive to the airport ¡ Bus and tram stops within 5 minutes’ walk overview Strategic review Portfolio review governance financial StatementS Globalworth Campus is the latest project to be developed by Globalworth and upon its completion will be the pivotal element of the Dimitrie Pompeiu sub-market in Bucharest’s New CBD. Site map Technical specifications Building management system with full control of the equipment and billing system for utilities, parking with controlled access interior hydrants and sprinkler system Green certification targeted Open space area per floor efficiently organised areas with very few lost common spaces ACCESS CONFERENCE " HALL TOWER 2S + P + 12E + Th 3 FIRE TRUCK ACCESS UNDERGROUND CAR ACCESS UNDERGROUND CAR ACCESS ACCESS TOWER 2 2S + P + 12E + Th FIRE TRUCK ACCESS UNDERGROUND CAR ACCESS ACCESS ACCESS ACCESS FIRE TRUCK ACCESS TOWER 1 2S + P + 12E + Th FIRE TRUCK ACCESS DIMITRIE POMPEIU BLVD. PIPERA PUBLIC ACCESS PUBLIC ACCESS public announcement system The central lobbies and staircases four pipes independent HVAc system with fan-coils mounted on the ceiling 2.8m clear height with built-in HVAc systems, lighting and fire detection and alarm emergency generator for the vital systems and common areas of the building Telecom and internet services High-efficiency chillers energy-saving heating plant (boilers with condensation) energy-saving air handling units with heat recovery and free cooling dedicated chiller backed up by generator for server rooms 24h/7 days security and safety sprinkler system on all common and office areas controlled access and video surveillance system smoke detectors and fire alarm system easy orientation by proper signs for parking, entrances, lobbies, common spaces, elevators and exits efficiently placed on the floor area, facilitate the partitioning and the decorating of the rented space depending on the specific requirements of each tenant each floor benefits from natural light High-performance solar control glass with advanced thermal insulation properties (sGG cool- Lite sT 120) 26 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 27 cHief eXecuTiVe’s sTATemenT Delivering Strong reSUltS anD PreParing for tHe neXt Stage of growtH Over the past three-and-a-half years, Globalworth has become the largest owner of Class “A” office property in Romania and one of the leading investors in the country’s commercial real estate market. Ioannis Papalekas chief executive Officer We have put together what we believe to be a high- quality and resilient portfolio in our principal market of Romania, assembled through disciplined buying, development and active management of space. We are proud to see that our hard work to-date has been validated by interest in the company from highly reputable international institutional investors. The transactions closed in 2016 with investors of cppiB and Growthpoint’s calibre mark a considerable endorsement of Globalworth and its position in the market. This has further incentivised us to continue on our growth path. essential to the success of the company is the environment in which we operate. Romania remains our primary focus and its real estate market continues to provide the right foundations for us to implement our strategy. We will, however, also be looking to diversify our portfolio through acquisitions in the wider cee and see regions. increased private consumption is expected to support further growth. The banking sector remains well- capitalised and competition between banks to deploy capital for good-quality real estate projects has resulted in a further improvement in financing terms. eu and national funds continue to be available to the country (more than €43 billion to be provided over a seven year period from 2014-2020), with the absorption rate expected to pick up in 2017, further incentivising investment in Romania and underpinning its growth in the short to medium term. The strength of the macro-economic environment has been reflected in the performance of Romania’s real estate sector, with demand for office and industrial estate space reaching historically high levels and significantly outweighing supply. investment yields in the office market were stable at 7.5% in 2016, mainly due to a limited number of transactions being completed during the year, while yields for industrial properties narrowed by an additional 50 basis points to 8.5% by year end. With a view to achieving attractive, risk-adjusted returns for our shareholders, we have invested in both standing, income-generating properties as well as properties to be developed by the company. Our blended, stabilised nOi yield on capital invested is estimated at c.10%. in 2016 we made good progress with our development programme for office and light-industrial/warehouse space in Romania, investing c.€39 million in six projects and an additional c.€4 million in other standing properties in our portfolio. We completed two properties located in the new central Business district (cBd) of Bucharest offering a total of 66.7k sqm of class A office space, thus increasing our total footprint of standing properties to 420k sqm at the end of 2016. in addition, four other properties were under construction. Three are expected to be finalised in 2017 and one at the beginning of 2018 which, upon completion, will add a further 78.4k sqm of high-quality office and industrial space to our portfolio. We are particularly proud that our flagship development project Globalworth Tower was delivered in Q1-16. Globalworth Tower is a landmark class “A" office property located at the heart of Bucharest’s new cBd. At c.120 metres high and with GLA of 54.7k sqm, this is the second tallest tower and the second largest single office building in Romania. in addition, in 2017 the property was awarded a Leed platinum rating, thus becoming the first building in Romania and the broader see region to have received the highest available Green accreditation. in 2016, the Romanian macro environment was again positive, resulting in real Gdp expanding by 4.7%, one of the highest growth rates in europe. in addition, Romania continued to have one of the lowest public debt to Gdp ratios and, with disposable income remaining strong, in addition to Globalworth Tower, in 2016 we received Green accreditation for two other properties in our portfolio. Our commitment to investing in environmentally friendly properties is further demonstrated by the fact that over the past three-and-a-half years we have either overview Strategic review Portfolio review governance financial StatementS acquired (3), developed (3) or improved the efficiency (2) of our office properties and currently 8 out of 10 of these hold Green accreditation of BReeAm excellent/Leed Gold or higher. We are exploring the potential for similar accreditation for other properties in our portfolio, both standing and development projects. The portfolio value at the end of year was 5% higher at €977.5 million as compared to 31 december 2015, principally due to the completion of the two development projects and to further investment made on projects under construction. On delivery, these developments (including Globalworth campus phase B) will add an additional c.€115 million to our portfolio (“On completion” valuation of c.€1.1 billion). Total revenue generated by our portfolio increased to €68.2 million (€44.8 million in 2015) following the acquisition of income-generating assets in 2014 and 2015, the completion of own-developments, and as a result of active asset management. 2016 was a record year for leasing for us, as we let or renegotiated c.98k sqm of commercial GLA in our properties. Our tenant base remains diversified in terms of both origin and sector and comprises more than 90 different national and multinational corporates, including some of the best-known blue- chip corporates from over 19 different countries and 27 sectors. As at 31 december 2016, our standing portfolio (excluding the upground Towers residential complex) offered GLA of 370k sqm and had an occupancy rate of 83.1%. As of year end, Globalworth had a combined total of c.330k sqm of GLA leased in our standing and development projects, while since the beginning of 2017 we have leased further space, thus increasing the overall occupancy of our portfolio. The rise in the company’s revenues was reflected in our normalised eBiTdA from ongoing operating activities increasing to €36.3 million in 2016, up 62.4% compared to 2015 (€22.4 million), and our underlying epRA eps of €13.33 (negative in 2015). The company’s overall leverage remained at a moderate level, with LTV of 43.4% at 31 december 2016, marginally lower than the previous year (43.9% in 2015). We managed, however, to significantly improve our financing position through the issue of a €180 million bond, which was directly negotiated/subscribed to by the canada pension plan investment Board (cppiB) and cairn capital. As a result of this landmark transaction and other bank financings completed during the year, we de-risked our balance sheet by replacing short-term liabilities with longer-term ones and reduced our weighted average cost of debt by 0.9% to c.5.3% (as at 31 december 2016). At the end of 2016, we completed our largest and most successful equity capital issue to date in a transaction resulting in the company raising €200 million new capital at €8.0 per share. The transaction was 93% subscribed by Growthpoint properties, which is now the largest shareholder in Globalworth, with the remaining equity being provided by Oak Hill. Although completed at a 13% discount to the latest (september 2016) epRA nAV, the capital raise was priced: ¡ at a 58% premium to the closing share price prior to the announcement; and ¡ at a 33% premium to the previous capital raise completed in October 2015. At this point i would like to welcome Growthpoint to the Globalworth family. l look forward to working closely with them and together steering the company to new levels of success. Our epRA nAV increased by 38% to €783.8 million as of 31 december 2016, mainly as a result of the €200 million equity capital raise concluded in december 2016. The revaluation of development projects, which were either delivered or whose construction made further progress in 2016 also contributed to the increase. epRA nAV per share, however, decreased by 6% to €8.57 as a result of the dilutive effect of the cash raised in december 2016 from the equity capital raise. We believe, however, that as we invest the equity raised in new, exciting opportunities and return capital through dividends, both our existing and our new shareholders will benefit from significant value creation in the near term. Working towards this goal, in december 2016 we announced that we will be distributing €40 million (€0.44 per share, assuming no further issue of shares except for the shares issued or to be issued as part of the december 2016 capital raise) to our shareholders in 2017. A dividend of €0.22 per share, will be distributed in respect of the six-month financial period ending on 30 June 2017, marking the first time that Globalworth will be distributing dividends since it was established in february 2013. We are committed to continue paying dividends in the future on a semi-annual basis and, following the already announced distributions for the year, we will be paying dividends equal to not less than 90% of the company’s ffO to our shareholders. Globalworth’s continued growth could not have been achieved without its people. i would like to thank our team of 66 professionals for their consistent and continuous efforts over the years. in order to continue to progress it is important that we keep attracting, developing and supporting talent, as well as constantly improving the efficiency and effectiveness of our operations. To that end we have over the past one-and-a-half years been investing in developing our in-house eRp software. This has already improved our overall operational effectiveness and efficiency and is expected to yield further benefits in the future. The delivery of the landmark Globalworth Tower development marks the completion of a major chapter for the company, as all the investments identified at the time of the company’s ipO of July 2013 have now materialised. Looking at what we were hoping to realise back then and what we have actually to-date achieved, i cannot be anything but proud. With a new cornerstone investor, a company with a solid portfolio, sound operations, a robust balance sheet, and an improving real estate market, i am excited about the next chapter in Globalworth’s evolution. Ioannis Papalekas chief executive Office 3 April 2017 28 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 29 mAnAGemenT ReVieW reaDY to taKe aDvantage of eXiSting anD UPcoming oPPortUnitieS 2016 was a year in which management focused on improving the fundamentals of the business and better positioning Globalworth as it implements its strategy of becoming one of the leading real estate players in Romania and the wider CEE and SEE regions. Dimitris Raptis deputy chief executive Officer, chief investment Officer efforts were concentrated on making significant progress with our development programme, actively managing our portfolio of real estate assets, strengthening the company’s balance sheet and continuing to optimise the way in which Globalworth operates. As a result, no new third-party real estate acquisitions were completed during the year, although we remained active in sourcing a pipeline of exciting opportunities, one of which has already been announced in Q1-17 and more are expected to be concluded during the course of the year. Progress with Globalworth’s Development Programme Globalworth has a very active development programme. The company was engaged with projects involving six new buildings in 2016 which, upon completion, will offer c.200k sqm of Gross Build Area (GBA) and c.145k sqm of Gross Leasable Area (GLA). Bucharest. Our development programme expanded further in 2016 following agreements signed with Valeo Lighting and Litens Automotive, which will result in further growth at our TAp light-industrial complex in Timisoara, with two new facilities currently under construction. One of our primary targets for 2016 was to deliver to market two class “A" offices, our flagship Globalworth Tower and the smaller Gara Herastrau office property, thus increasing our total footprint of standing office GLA by c.66.7k sqm. We are very proud to have met this target, with Globalworth Tower opening its doors to tenants in february and the Gara Herastrau office property in June. Our footprint of standing properties is expected to increase further in 2017/18 as we currently have two active projects at different stages of development which, upon completion, will offer total GLA of 78.4k sqm. in Bucharest, phase A of our Globalworth campus project is under construction (total GLA 56.9k sqm), with Tower i expected to be completed in 2017 and Tower ii at the beginning of 2018. in Timisoara we completed a facility let to Valeo Lighting in Q1-17 and a second pre-let to Litens Automotive is scheduled for delivery in 2017, adding c.21.5k sqm of GLA to our TAp complex. in 2016 we invested c.€42.7 million in the development and extraordinary maintenance of our real estate portfolio, c.90% of which was in 6 projects under development. Overall, we are very pleased to have been able to deliver according to plan in 2016 and to have done so within the scheduled delivery dates and budget, as well as to be on track for the projects currently under construction. completing real estate projects on time and within budget is key to the success of our business and our ability to do so is a reflection of the capabilities of our internal project management team, in conjunction with those of our partners, and has been key to our successful track record to-date. Investment in Standing Portfolio in 2016, Globalworth maintained its commitment of having a modern portfolio of high-quality and environmentally friendly real estate properties, with the company receiving Green accreditation for two properties - Green court “B" (Leed Gold) and Gara Herastrau (BReeAm excellent), raising the number of Green-certified properties in our portfolio to seven. We remain committed to investing in environmentally friendly schemes and aim to further increase our number of such properties in the short to medium term, with five other properties currently at various stages of Green accreditation, the first of which was Globalworth Tower that has received Leed platinum accreditation in 2017. At the beginning of the year, the company was in the process of finalising its flagship class “A" Globalworth Tower office property and had three other office buildings under construction, all located in the new cBd of in addition, as part of our efforts to maintain and improve the marketability of our portfolio, we initiated a renovation and repair programme involving four of our portfolio properties. overview Strategic review Portfolio review governance financial StatementS The first project involved the common areas (indoor and outdoor) of the cluster of properties formed by BOB (office), BOc (office) and upground Towers (residential), with works including landscaping, general repair works, the upgrade of light features and the repainting of selected areas. The second project involved the re-introduction to the market of the property now branded as Globalworth plaza (formerly nusco Tower) and the renovation/modernisation of the lobby, conversion of the first floor terrace to a roof garden and upgrade of the building’s façade. We are currently reviewing alternative solutions for other properties in our portfolio as we are committed to providing our tenants and their employees with the best possible product. Optimising Capital Efficiency efficiently managing our combination of equity and debt financing is key in order to achieve a balance that allows for the rapid growth of the company, enhances shareholder returns in the medium-term, and controls the inherent risk associated with third-party debt. during the year we completed a number of debt and equity transactions that have allowed us to de-risk our balance sheet and provide us with funds that will facilitate further investment in our development projects and new pipeline opportunities, and thus the growth of the company. in 2016 we successfully raised c.€224 million from debt financing providers at an average cost of 6.5% and €200 million from equity investors at an average share price of €8.0 per share. Debt transactions during the year, three new facilities were completed involving either the refinancing of existing facilities at improved terms or the raising of new debt against unencumbered properties. The most notable transaction was the €180 million senior secured real estate bond, which was directly negotiated and subscribed to by the cppiB and cairn capital and completed in may 2016. part of the proceeds were used to repay a €100 million short-term corporate level facility expiring in 2016. Other transactions completed during the period included the re-financing of the TAp investment by BcR and the financing of the Gara Herastrau office building by Garanti Bank. The new facilities agreed in 2016 resulted in the reduction of Globalworth’s weighted average cost of debt from approximately 6.2% as at 31 december 2015 to approximately 5.3% at 31 december 2016. in addition, the consolidated LTV ratio has remained at the moderate level of approximately 43.4% as at 31 december 2016 (approximately 43.9% at 31 december 2015), well below the 60% level which Globalworth is committed to maintaining at all times. equity transactions in december 2016 we successfully completed a €200 million new equity capital raise at €8.0 per share. The transaction, which is transformational for the company, was subscribed to by Growthpoint properties Limited (GRT) and certain funds and/or accounts managed by Oak Hill Advisors (europe), LLp and its affiliates (Oak Hill). As a result of this transaction, GRT became the principal shareholder of Globalworth with a 26.9% stake and the company further strengthened its shareholder base with the addition of one of south Africa’s leading ReiTs as one of its anchor investors. Portfolio High Occupancy Rate supported by High-Quality Long-Term Leases Our ability to achieve high occupancy rates in our properties remains one of the key strengths of our company. 2016 was our best year so far, having successfully negotiated the take-up or extension of 98k sqm of commercial GLA, increasing our overall total since 2014 to c.238.1k sqm and confirming the company’s position as one of the most successful investors and developers in the Romanian real estate market and the wider cee/see region. new commercial leases signed in 2016 more than doubled on the previous year and accounted for c.71% of the overall total space signed. These agreements included some of Romania’s best-known national and multinational corporates and were signed at a WALL of c.7.0 years, in line with the company’s strategy of agreeing long-term lease contracts. We are pleased to see demand for office and light- industrial space increasing as the performance of tenants continues to improve. demand in our properties has originated from: ¡ existing tenants expanding their occupancy as a result of growth in their respective business activities (e.g., Valeo, Huawei and deutsche Bank); ¡ existing tenants seeking to maintain stability and run their operations without interruption and, as such, renegotiating their leases by removing break options and/or extending the term of the contracts (Hewlett packard enterprises, Honeywell and cegeca); and ¡ new tenants wishing to take up space in high-quality properties owned and managed by Globalworth (e.g. Litens Automotive, patria Bank, WipRO, Anritsu, Bunge and ferrero). At the end of december 2016, the average occupancy rate of the standing commercial portfolio was c.83.1%, while the WALL of our commercial leases was c.6.5 years. The portfolio is occupied by a diversified, high-quality tenant mix, comprising some 90 national and multinational corporates from more than 19 different countries. 30 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 31 mAnAGemenT ReVieW cOnTinued High-Quality Team of Professionals Based in Bucharest & Improved Infrastructure in 2016, we continued to invest in our team of skilled professionals through selected hires in our core and support teams and to upgrade our infrastructure through the implementation of our new eRp system. This investment was considered necessary as Globalworth now has more than 420.0k sqm of GLA under management in its real estate portfolio and this is expected to increase in the future. Our talent pool now totals 66 professionals, the majority located in Bucharest. Our local presence in our core Romanian market has allowed us to develop a broad network of relationships over the years among owners, occupiers, property specialists and community representatives, as well as domestic and international investors and capital providers. These relationships and our local market knowledge have given us an advantage in identifying and investing in opportunities as and when they become available, either publicly or off-market. furthermore, investment in skilled professionals and high-quality and customised technology has allowed us to service our business partners and service providers more effectively, as well as improving our economies of scale and the overall efficiency of our operations. Pipeline of Investment to Facilitate Further Growth management continued to work intensively to source new opportunities and facilitate further growth in the company. Opportunities under consideration are located both in our core Romanian market as well as in the broader cee/see regions, where Globalworth will be seeking to invest in the future. We are pleased to have been able to announce our first transaction for 2017 in february, involving the acquisition of a modern warehouse leased solely to Automobile dacia, Romania’s largest corporate, on a long-term basis. The facility, which offers total GLA of c.68.4k, was acquired for a total of €42.5 million reflecting an attractive nOi yield of c.9.6%. We look forward to announcing more exciting transactions in 2017. Dimitris Raptis deputy chief executive Officer, chief investment Officer 3 April 2017 overview Strategic review Portfolio review governance financial StatementS caSe StUDY €200 miLLiOn eQuiTY cApiTAL RAise in december 2016 Globalworth successfully completed a €200 million new equity capital raise at €8.0 per share. The transaction was subscribed to by Growthpoint properties Limited (GRT) and certain funds and/or accounts managed by Oak Hill Advisors (europe), LLp and its affiliates (Oak Hill). The issue price represented a: ¡ 58.4% premium to the closing share price on the date prior to the announcement of the transaction; and ¡ 12.6% discount to the 30 september 2016 period-end epRA nAV of €9.15 (unaudited). GRT subscribed to 23.3 million shares (c.93%) and Oak Hill the remaining 1.7 million shares. in addition, and as part of the overall transaction, Globalworth issued an initial tranche of 1.1 million fee shares to GRT and Oak Hill, with a further tranche of an additional 1.1 million fee shares to be issued to GRT and Oak Hill by no later than 31 december 2017. This milestone transaction was completed on 20 december and, as of that date, the number of Globalworth’s total shares in issue increased to 90.4 million. All shares in issue have been admitted for trading on Aim. The proceeds raised from the offering will be used: ¡ to develop the Globalworth campus project; ¡ to pursue attractive, pre-identified investment opportunities in line with the company’s investing policy; and ¡ for other general corporate purposes. Resulting from the transaction, Globalworth’s main shareholders are: name GRT i. papalekas York Oak Hill Gordel Hold. Ltd Other number of shares held immediately following the subscription* percentage interest in issued share capital immediately following the subscription* 24,300,000 23,247,028 16,770,113 10,169,574 3,835,141 12,075,092 26.88 25.72 18.55 11.25 4.24 13.36 note: * including the initial tranche of fee shares but excluding the second tranche of fee shares. GRT is the largest listed south African ReiT with assets in excess of €7.5 billion in south Africa and Australia (through its 64.3% owned AsX listed Growthpoint properties Australia) commercial (offices) GRT is the 26th largest company on the Johannesburg stock exchange and a top 5 constituent of the fTse epRA/nAReiT emerging index and has been included in the fTse/Jse Responsible investment index for seven years running – GRT has a market capitalisation of approximately €5 billion The company owns and manages a diversified portfolio of 533 property assets spanning approximately 6.7 million square meters – The south Africa portfolio comprises 473 properties and a 50% interest in the properties at V&A Waterfront (cape Town), with a total 5.7 million square meters of retail, office and industrial properties – GRT’s Australian subsidiary owns a portfolio 59 properties constrained by south Africa’s sovereign rating, GRT has a moody’s Global scale rating of Baa2/p-2 (same as the sovereign rating) and is the only non-financial south African corporate with a moody’s national scale Rating of Aaa.za GRT is the largest shareholder of Globalworth Real estate investments Ltd with a 26.9% stake following its €186 million investment in december 2016 – its strategy is to invest in the central and eastern european region, with Globalworth identified as its corporate partner 32 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 33 inVesTmenT ReVieW Delivering BeSt-in-claSS office ProPertieS In 2016 we invested €42.7 million in our portfolio, raising our total investment in real estate since the Company was established to c.€860 million. We delivered two Class “A” office properties in Bucharest, further progressed with the development of four other high-quality buildings in Romania, and initiated a renovation and repair programme for selected assets. Globalworth’s development programme was our principal focus in 2016, with the company developing six new buildings during the course of year which, upon completion, will offer GBA of c.200.0k sqm and GLA of c.145k sqm. Overall, we invested €42.7 million in 14 properties within our portfolio, the majority of which are in four developments – Globalworth Tower, Gara Herastrau, Globalworth campus phase A and TAp – accounting for 90% of the total. New Deliveries ¡ Globalworth Tower: in february 2016 we delivered Globalworth Tower to market, a landmark class “A” office property which extends over 26 floors above ground and three levels underground offering total GBA of 78.2k sqm. The project was finalised 23 months after the commencement of construction works. ¡ Gara Herastrau: in June 2016 we delivered our second project under development, the Gara Herastrau office property, a class “A” office which extends over 12 floors above ground and with three underground levels, offering total GBA of 16.9k sqm. The property is adjacent to our Green court “A” and Green court “B” office buildings and was constructed in 17 months. Under Development in addition to the projects delivered, in 2016 we progressed with the development/construction of four other buildings, two class “A” offices in Bucharest and two high-quality, light-industrial facilities in Timisoara. in total, as of year-end 2016 we had four buildings with c.78.4k sqm of GLA under construction, due for completion in 2017 and 2018. Renovation and Repair Programme of Standing Properties As part of our ongoing strategy to offer best-in-class real estate space to our business partners, the company selected four properties for further improvement works. As part of this renovation and repair programme we invested a total of €2.2 million in 2016, principally on the cluster of properties formed by BOB (office), BOc (office) and upground Towers (residential), all situated in the same block, with works involving primarily the upgrade of common areas (indoor and outdoor) and the creation of more uniform surroundings. furthermore, in 2016 we completed the necessary design/ preparatory activities for Globalworth plaza (formerly nusco Tower), which involved the renovation and modernisation of the lobby, conversion of the first floor terrace to a roof garden, and upgrade of the building’s façade. All works are expected to be completed in 2017. 2017 Investments in 2017 Globalworth announced the €42.5 million acquisition of a modern warehouse facility, leased on a long-term basis to Automobile dacia, Romania’s largest corporate. The facility benefits from being situated in a prime location, c.100km west of Bucharest near the Bucharest-pitesti motorway, one of Romania’s principal warehouse and industrial corridors and 28km from dacia’s main plant in mioveni, Arges county. The property offers c.68.4k sqm of GLA, and is one of the Renault Group’s largest spare parts and accessories distribution centres worldwide. Q4 2016 “On completion” Valuation Like for Like increase in “As is” Valuation €1,092.4m 5.0% overview Strategic review Portfolio review governance financial StatementS evolution of portfolio “As Is” Valuation “Completion” Valuation m € 1100 1000 900 800 700 600 500 400 300 200 100 0 4 15 15 15 14 11 8 s t n e m t s e v n I f o r e b m u N 16 14 12 10 8 6 4 2 0 m € 1100 1000 900 800 700 600 500 400 300 200 100 0 4 15 15 15 14 11 8 Q4/ 2013 Q2/ 2014 Q4/ 2014 Q2/ 2015 Q4/ 2015 Q2/ 2016 Q4/ 2016 Q4/2013 Q2/2014 Q4/2014 Q2/2015 Q4/2015 Q2/2016 Q4/2016 note: individual investments in TAp and Globalworth campus have been consolidated in the graph. s t n e m t s e v n I f o r e b m u N 16 14 12 10 8 6 4 2 0 34 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 35 Amounts invested in 2016:Developments – DeliveredDevelopments – Under ConstructionPortfolio –ImprovementsGlobalworth TowerGara HerastrauGW Campus Phase A (two towers)TAP – ValeoTAP – Litens AutomotiveOther c.€24.8mc.€13.8mc.€4.1m overview Strategic review Portfolio review governance financial StatementS LeAsinG ReVieW a recorD Year in leaSing Over the past three years, Globalworth has successfully negotiated the take-up or extension of c.238k sqm of commercial GLA within its property portfolio, confirming the Company’s position as one of the most successful investors and developers in the Romanian real estate market. in leasing terms, 2016 was a record year for Globalworth with a total of c.98k sqm of commercial GLA takenup or extended. new leases signed (c.69.2k sqm GLA) during the year were more than double (c.145%) those of 2015, and were agreed at a WALL of c.7.0 years. in line with our strategy, these new leases were typically agreed with multinational corporate groups and financial institutions on long-term, euro-denominated, inflation-linked, triple net leases. Our Green court Building "B" is now 100.0% leased (c.82.1% at year-end 2015), and significant progress in lettings was made in the Globalworth Tower and Gara Herastrau office properties (both completed in 2016), which respectively had year-end occupancy of c.83.2% (c.51.0% at year-end 2015) and c.68.9% (vacant at year-end 2015). in addition, at our TAp light-industrial complex we signed new leases with Valeo Lighting and Litens Automotive for a total of c.21.5k sqm, which will result in two facilities being developed in 2017, with the one for Valeo already delivered in Q1-17. furthermore, the company has continued to improve the risk profile of its portfolio through the extension and/or expansion of leases with some of its prime tenants. new contracts in 2016 included signings with well-known national and multinational corporates such as Valeo (TAp c.13.5k sqm), Litens (TAp c.8.0k sqm), Huawei (Globalworth Tower c.6.8k sqm), deutsche Bank (BOB c.6.2k sqm), Adp (Gara Herastrau c.6.1k sqm), Honeywell (BOc c.3.8k sqm), patria Bank (Globalworth plaza c.3.0k sqm), Hewlett packard enterprises (BOc c.2.5k sqm), Vodafone (Globalworth Tower c.2.0k sqm), Wipro (Globalworth Tower c.1.98k sqm), ericsson (Green court B c.1.9k sqm), Bunge (Globalworth Tower c.1.8k sqm), Tripsta and saipem (Gara Herastrau c.2.2k sqm), ferrero and Anritsu (Globalworth Tower c.1.8k sqm). in Tci, the company signed expansion contracts with existing tenants cegeka, Hidroelectrica and eY for a total of c.3.1k sqm. in addition, Globalworth successfully renegotiated its leases with Honeywell (BOc), Hp (BOc) and cegeca (Tci) for a total of c.28.9k sqm. The average occupancy rate of the company’s standing commercial portfolio at 31 december 2016 was 83.1%, with tenancies signed with 90 national and multinational corporates from 19 countries, including some of the most recognisable corporates from their respective industries. The WALL remaining on the commercial lease space in the company’s portfolio is approximately 6.3 years. Tenant contribution by Origin – commercial contracted Rent Tenant contribution by Origin – commercial contracted Areas (sqm) commercial contracted Rent expiration profile – (% of total) 46.3m 5.6% 5.5% 48.0m 5.8% 8.2% 88.9% 86.0% 32.7m 7.9% 2.2% 89.9% m € 50 40 30 20 10 0 310,732 sqm 3.7% 4.5% 329,184 sqm 3.7% 6.1% 272,037 sqm 4.2% 1.5% 91.8% 90.2% 94.3% m € 350 280 210 140 70 0 30 24 l a t o t f o % 18 12 6 0 2.1m 4.5% 0.6m 1.3% 0.8m 1.7% 11.5m 24.0% 8.5m 17.8% 8.3m 17.2% 8.3m 17.4% 3.9m 8.2% 3.8m 7.9% 2014 2015 2016 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 ≥2025 multi national state Owned multi national state Owned 36 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 37 Selected Tenants of our PortfolioTenant Origin:% of Contracted RentSelected Tenants of Commercial PortfolioMultinational86.0%Abbott Laboratories, Adecco, ADP, Anritsu Solutions, Bayer, Billa, BRD, Bunge, Carrefour, Cegeka, Clearanswer, Colgate-Palmolive, Continental, Credit Agricole Bank, Delhaize Group, Deutsche Telekom, EADS, Elster Rometrics, Ericsson, EY, Ferrero, GfK, Honeywell, Hewlett Packard Enterprise, Huawei, Intel, Litens Automotive, Mood Media, NBG Group, Nestle, Orange, Piraeus Bank, ProCredit Bank, Saipem, Sanofi, Schneider Electric, Skanska, Starbucks, Stefanini, Subway, Telekom, Tripsta, UniCredit, Valeo, Vodafone, Wipro, WorldclassNational8.2%CITR, Creative Media, GlobalVision, NNDKP, NX Data, Patria Bank, RINFState Owned Entities5.8%Hidroelectrica, Ministry of European Funds finAnciAL ReVieW imPreSSive financial reSUltS overview Strategic review Portfolio review governance financial StatementS 2016 was an outstanding year for Globalworth in terms of growth in revenues and operational profitability 2016 evolution of nOi and revenue – cumulative data by quarter Highlights ¡ significant growth in revenues and nOi by 52.4%, and 53.5%, respectively, resulting mainly from the acquisition of four rented office buildings in Bucharest during 2015; ¡ significant growth in normalised eBiTdA by 62.4%, compared to 2015; Portfolio Valuation, Shareholders Equity, Total Assets and NAV ¡ The significant level of development activity in 2016 (c.€44.7 million of investments on standing and under development properties together) influenced the value of our portfolio positively, leading to an (unrealised) gain in OmV of €46.4 million; ¡ epRA earnings for 2016 increased by €13.9 million ¡ equity share capital increased to c.90.4 million shares compared to 2015, and ifRs earnings per share for 2016 amounted to 17.57 cents, as compared to 92.01 cents in 2015; ¡ Overall uplift in the OmV of the assets portfolio by €46.4 million; ¡ epRA nAV as at 31 december 2016 increased by 37.9% from 31 december 2015; and ¡ significant level of cash and cash equivalents of €221.3 million at 31 december 2016. Revenues and Profitability ¡ Total revenue reached €68.2 million in 2016 (52.4% or €23.5 million higher than in 2015), €18.4 million of which was derived from new investments made in 2015; ¡ nOi also increased significantly in 2016, following the increase in total revenues and reaching a total of €43.6 million (2015: €28.4 million), a significant improvement of 53.5% or €15.2 million over 2015 figures, €14.1 million of which was generated by the new investments made in 2015; ¡ eBiTdA1 amounted to €43.8 million (2015: €66.3 million), however, the decrease from 2015 is due to the significant (unrealised) fair value gain on investment property recorded in 2015 (€49.4 million), as in 2016 this gain was much lower (€6.7 million); ¡ normalised eBiTdA2 amounted to €36.3 million (2015: €22.4 million) and increased in line with the revenues and nOi increase in 2016 by a very significant 62.4%; ¡ epRA earnings amounted to €8.6 million in 2016 (2015: -€5.3 million), representing an increase of €13.9 million over 2015; ¡ increased finance costs during 2016 by 49.2% resulted from the costs associated with the restructuring of the €100 million short-term company level mezzanine facility using part of the proceeds of the Bond; and ¡ earnings before tax of €12.2 million decreased as compared to 2015 (€62.5 million) mainly as a result of the fair value gain on investment property recorded in 2015 (€49.4 million), as in 2016 this gain was much lower (€6.7 million). 1 earnings before finance cost, tax, depreciation, amortisation of other non-current assets and purchase gain on acquisition of subsidiaries. 2 eBiTdA less: fair value gain on investment property (2016: € 6.7 million; 2015: €49.4 million), non-recurring income (2016: 3.4 million; 2015: nil); plus non-recurring administration and other expense items (2016: 2.6 million; 2015: 5.5 million). following the issuance c.27.1 million new shares (including 1.07 million share to be issued in 2017) at an issue price of €8.00 per share in december 2016, as part of the successful €200 million equity raise; ¡ Total assets at 31 december 2016 exceeded €1.2 billion and increased by 20.7% from 31 december 2015; and ¡ epRA nAV at 31 december 2016 (€783.8 million) increased by 37.9% from 31 december 2015 (€568.3 million), however, epRA nAV per share was impacted following the latest capital raise and as at 31 december 2016 amounted to €8.57 per share, down by c.5.6% compared to 31 december 2015 (€9.08 per share). Cash Flows ¡ cash and cash equivalents at 31 december 2016 (€221.3 million) increased by c.500% compared to 31 december 2015 (€37.0 million), influenced mainly by the c.€200 million equity raise; ¡ cash used on properties under development and the overall upgrade of our real estate portfolio of €51.7 million; and ¡ cash generated from operating activities during the year amounted to €19.9 million, representing an outstanding increase of 559% as compared to 2015. Total revenue in 2016 €68.2m cash and cash equivalents €221.3m 80 60 m € 40 20 0 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 2016 evolution of nAV/share and OmV by quarter 1200 1000 800 m € 600 400 200 0 Revenue N0I 9.0 8.5 8.0 m € 7.5 7.0 OMV EPRA NAV EPRA NAV per share NAV – Basic per share NAV – Diluted per share Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 2016 evolution of equity and shares in issue – cumulative data by quarter 800 700 600 500 400 300 m € 0.19 0.22 0.24 0.27 155 158 160 165 2.67 0.31 2.1 2.1 104 114 138 137 342 344 350 350 10.7 167 538 200 289 289 289 289 100 0 54 54 54 54 63 63 64 64 90.4 Share Capital (€) Other Reserves (€) Retained Earnings (€) Number of Ordinary Shares (m) Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 38 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 39 overview Strategic review Portfolio review governance financial StatementS finAncinG And LiQuidiTY ReVieW roBUSt liQUiDitY anD caPital BaSe Financing Achievements During 2016 2016 was a record year in terms of financing achievements as we managed to successfully secure a total of c.€426.1 million debt (including the refinancing of existing loan facilities) and equity, leading to a significant decrease in the weighted average interest rate on debt financing and the participation of Growthpoint properties Limited ('GRT') into our Group. The most significant achievements in this area during 2016 were as follows: Debt financing/refinancing: ¡ in march 2016 the Group signed a c.€29.1 million long-term debt facility agreement with Banca comerciala Romana ('BcR') in Romania (erste Bank Group) in order to refinance the existing secured loan facilities related to the TAp light-industrial park in Timisoara, and to fund the development of an extension to this property. These facilities are secured on the TAp property and mature in 2031 (refinancing loan), 2032 (development loan) and 2018 (VAT loan). The first drawdown under the development and VAT loans occurred in december 2016; ¡ At the end of may 2016 the Group secured a €180 million three- year bond (the 'Bond'). The Bond was provided by matisse financing B.V. (an orphan spV) which issued €180 million of senior secured notes to institutional investors. The proceeds of such issuance was on-lent to the Group in order to refinance the €100 million short-term corporate level facility obtained in 2015 from funds managed by York capital and Oak Hill and three secured debt facilities at the level of three of its Romanian subsidiaries. The Bond is secured, among others, on the properties of four Romanian subsidiaries as well as the shares of their holding companies. drawdown under the Bond was concluded in June 2016; ¡ in may 2016 the Group signed a c.€10.3 million long-term debt facility agreement with Garanti Bank in Romania in order to refinance equity and to fund the remaining development costs of the Gara Herastrau office building. This facility is secured on the land and completed building and matures in the first quarter of 2026. in december 2016, the above mentioned facility was supplemented with an additional €2.2 million; ¡ during August 2016 the Group signed and drew down a c.€1.5 million top-up of the medium-term loan facility with Libra internet Bank in Romania, secured on the Luterana and Herastrau One land plots; and ¡ in september 2016 the Group signed and utilised a €3 million equity raising: in december 2016 we successfully raised €200 million, diversifying our equity investor base following the participation of GRT into our Group. Servicing of Debt During 2016 in 2016 we have repaid in total c.€12.3 million loan capital (excluding the refinancing of existing facilities), and c.€24.8 million of accrued interest on the Group’s drawn debt facilities. Liquidity The Group seeks to maintain, at all times, sufficient liquidity to enable it to finance its ongoing, planned property investments and completion of properties under development, while maintaining flexibility to capture quickly attractive new investment opportunities. during 2016 a total of c.€200 million additional equity and c.€31.1 million additional debt financing (excluding c.€195 million refinancing of existing facilities) was secured, leading to a significant increase in available cash resources at year end. moreover, during the year the Group maintained a healthy balance of available cash and cash equivalents ranging from c.€31 million to c.€38 million at each quarter end, except at 31 december 2016 when available cash and cash equivalents amounted to c.€221.3 million as a result of the equity raise which was completed at the end of december 2016. undrawn loan facilities at 31 december 2016 amounted to c.€2.5 million. Loan Structure as at 31 December 2016 Short-term and long-term debt structure mix Loan structure 2016 2015 0% 20% 40% 60% 80% 100% top-up of the long-term facility from BcR signed in september 2014, secured on the Tci property. Short Term Long Term The total debt portfolio of the Group ranges between short-and- medium to long-term debt, denominated mostly in euR, with a small portion denominated in Romanian Leu ('ROn'). These are secured with real estate mortgages, pledges on shares, receivables and loan subordination agreements in favour of the financing parties. in terms of applicable financial covenants observed, the most notable are the debt service cover Ratio ('dscR'), with values ranging from 100% to 125%, and the LTV ratio, with values ranging from 50% up to 83% (versus the significantly lower overall LTV of the Group at 31 december 2016 of 43.4%), with no actual deviations occurring during the period from the aforementioned values. The Group’s credit facilities concluded with local banks in Romania are secured with real estate mortgages, pledges on shares, receivables and loan subordination agreements in favor of the financing banks. further details on the Group’s debt financing facilities are provided in note 15 of the consolidated financial statements. The Bond is secured, among others, with mortgages on the properties of four Romanian subsidiaries as well as pledges on the shares of their respective holding companies. unicredit HQ Loan Covenants in terms of applicable financial covenants observed, the most notable are the dscR with values ranging from 100% to 125%, and the LTV ratio, with values ranging from 50% up to 83%. The Group’s policy is to maintain an LTV ratio of up to 60%. As at 31 december 2016 the LTV ratio amounts to 43.4% (31 december 2015: 43.9%). Loan Maturity At 31 december 2016, the weighted average remaining duration of the Group’s debt is 4.2 years (2015: 5 years). maturity by year of the principal balance outstanding at 31 december 2016. 200.0 150.0 m € 100.0 50.0 0 2017 2018 2019 2020 2021 2022-2035 Dec 2016 Loan Denomination Currency and Interest Rate Risk Our long-term loan facilities are almost entirely euro-denominated and either bear interest based on three-months euribor plus a margin or bear a fixed interest rate. This ensures a natural hedging linked to the euro, original currency denomination of the most significant part of our liquid assets (cash and cash equivalents and rental receivables) and reporting currency for the fair market value of our investment property. This is depicted by the low level of overall net foreign exchange loss reported for the year 2016. The weighted average cost of servicing debt as at 31 december 2016 amounted to 5.25% compared to 6.18% at 31 december 2015. The decrease is due to the repayment of the short-term corporate Loan facility and other financing granted to the Group’s subsidiaries using the proceeds of the Bond. The Group’s policy is to borrow funds at a competitive cost and to limit its exposure to upward interest rate fluctuations through employing appropriate hedging instruments on new long-term loans secured. examples are the interest rate cap agreements concluded with BcR (to cover 50% of the outstanding facilities) as part of the Tci and TAp financings. 40 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 41 cORpORATe sOciAL RespOnsiBiLiTY reSPecting oUr Social anD environmental oBJectiveS Social focUS positively impacting and improving the future prospects of our local community, by the way we approach our business is a key driver for Globalworth. The Globalworth family, and its founder in particular, have, directly or indirectly, supported numerous local communities, charities and hospitals in Romania over the past 10 years. We have predominantly focused on those in need, with particular attention given to young children, orphanages, underprivileged families, single mothers and those in need of palliative care at the initiative of Hospices of Hope. Our intention is for every year to be able to give more to those in need and 2016 was no exception. We are very proud that our founder, the companies under his control and Globalworth (since its inception) have donated more than €1.5m in charitable contributions since 2011. in addition, many of our people have been contributing to several charities in Romania by diverting part of their state income tax deductions to charitable service. Our involvement in causes goes over and beyond financial contributions, as we actively invest our personal time and effort to support those who need it the most. Being able to be actively involved and showing that they are not alone in their battles is equally important for us as the financial contribution we are committed of making. With this in mind we organised a number of events and visited selected charities throughout the year. in 2016, these included distributing thousands of gifts to children between the ages of 1 and 18 over the christmas period, the organisation of our annual 2016 children’s events and the Globalworth camp day at Adunatii copaceni (Hospice of Hope). in addition we gave school scholarships for children, provided space in one of our properties to host a charity shop and hosted a number of local and international university gatherings at our development sites as well as our standing properties. At Globalworth we believe that it is our duty to be aware of, and manage responsibly, the social, environmental and economic impacts of the way in which we conduct our business and to make a positive contribution to the community in which we live and work. Globalworth’s key objective is to create value for its shareholders by acting consistently in an ethical and socially responsible manner. We aim to do so, by building a sustainable business and managing our financial goals and shareholder returns while respecting our social and environmental objectives. We are very pleased that in 2016 we have been able to continue to promote and foster a sustainable and ecologically-responsible approach as well as supporting a number of social and charitable initiatives. Overview Selected Charities / Donations ¡ education/social Assistance and child care ¡ Health-related (Hospitals, Hospices etc) ¡ Health-related operations for various individual cases ¡ foundation Hospice “casa sperantei” Bucharest ¡ "make a Wish" foundation ¡ foundation for the Hearing impairment (Asociatia procultura surzilor) ¡ foundation Together We are Overcoming Autism ¡ Association for child and family protection “Ana and the children” ¡ Association for equal opportunities (“un strop de fericire”) ¡ special school no9 for children (scoala Gimnaziala speciala nr. 9) ¡ “sf dimitrie” foundation ¡ metropolis foundation for children overview Strategic review Portfolio review governance financial StatementS suppORTinG HoSPice caSa SPerantei HOspice casa sperantei (member of the Hospices of Hope network) is the largest non- profit organisation in Romania, established 1992, providing free specialist palliative care services. since its inception, more than 20,000 patients and their families have received support at HOspice and found out that they are not alone in their battle. its work means that people no longer have to face their illness without support. palliative care aims to improve the quality of life of patients and their families when faced with problems of an incurable illness, through medical care for patients and social support, psycho- emotional and spiritual counselling for patients and their families. www.hospice.ro Total investment €5.7m consultations in the outpatient clinic/year 8,000 day centre attendances/year 5,000 patients cared for/year 2,000 Admissions/year patients cared for/year 700 11,000 Globalworth & Hospice - Casa Sperantei Foundation ¡ Globalworth is hosting a charity shop in our upground complex with a share of the proceeds going directly to the hospice. ¡ The company was the principal sponsor for two fundraising events organised by the hospice in June and november 2016. ¡ Globalworth was honored to receive the HOspice champion Award for its support of the foundation. Globalworth in action. 42 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 43 cORpORATe sOciAL RespOnsiBiLiTY cOnTinued overview Strategic review Portfolio review governance financial StatementS The Hospice Centre at Adunatii-Copaceni Hospice achievements The therapy centre for children with rare or life-limiting illnesses and their families. Located 15km from Bucharest, in Adunatii copaceni, Hospice is developing a centre for children affected by rare and life-limiting illnesses and their families. The land and buildings to be used for development of the centre, were donated by the florescu family to Hospice in 2012. The cost of the restoration work is estimated at €1.5m and once completed the centre will be used for medical respite care, therapeutic sessions for families as well as training courses in paediatric palliative care for medical professionals. during the last few years, Hospice casa sperantei has organised residential summer trips at Adunatii copaceni for children and teenagers suffering from life-limiting illnesses, recent bereavement or needing respite. Hospice is renovating several buildings at Adunatii copaceni to create clinical areas, family accommodation and recreational areas. The Hospice centre will include a day centre (educational-therapeutic activities for children), a respite centre for palliative care, shelter for families in crisis situations and an educational centre (for parents and palliative care specialists). ¡ The land was donated to HOspice casa sperantei by the florescu family, in 2012. ¡ The HOspice centre will include a day centre (educational- therapeutic activities for children), a respite centre for palliative care (12 beds), a shelter for families in crisis situations (5 apartments) and an educational centre (for parents and palliative care specialists). 3,498 Children and adults diagnosed with incurable illnesses who received free-of-charge HOSPICE services in 2015. physiotherapy treatment palliative care at home 2,916 sessions 17,531 Visits HOspice inpatient unit admission consultations in the outpatient clinic 849 Admissions 4,867 consultations current investment Total estimated investment €5.7m €1.5m psycho-emotional counselling 1,572 sessions spiritual counselling 1,277 sessions Going about our business in a way that positively impacts and improves the outlook for our local community is a key driver of Globalworth. Educational programmes in 2015, the main beneficiaries of the educational programmes have been doctors, nurses and also the patients and their families. 276 111 Doctors received the palliative care certificate, 165 Doctors began the certification courses 488 attendances by nurses to introductory and advanced palliative care courses 45 Volunteer coordinators trained within the volunteer management in palliative care services programme 81 professionals from all over the country, involved in teaching palliative care in nursing schools, attended an intensive palliative care course 522 Medical/Healthcare students and medical post secondary school students attended palliative care sessions taught by HOSPICE professionals 75 professionals from Romania and many countries across Europe participated in the training courses for professionals in palliative care 35 doctors participated in the online courses of HOSPICE 45 nurses became trainers Globalworth Camp Day at Adunatii Copaceni: in June 2016, Globalworth organised the “Globalworth camp day” at Adunatii-copaceni. for this full day event we invited our friends and partners to work with us to support the hospice’s initiative at the Adunatii-copaceni Patients social and medical centre. 17,500 Over 100 volunteers responded to our call and we would like to thank every single one of them for their contribution to the cause. in addition, we invited more than 300 children from eight foundations to spend a day of fun with us outdoors, playing, creating and learning. We were very pleased to be able to welcome children from Hospice social – casa sperantei, as well as the make-A-Wish, Ana and services the children, metropolis, Together we are Overcoming Autism, Hearing impaired, sf. dimitrie and A drop of Happiness foundations. 16,507 The volunteers contributed by painting structures on interventions the premises, assembling kitchens and other indoor furniture to be used by residents in the future, planting, landscaping, and preparing and serving lunch for our guests. 2,909 day centre activities The most important part of the day, however, was spending time with the children and playing games, as well as participating in painting and art workshops, first-aid training seminars and sports activities. We are very pleased that our young friends also had the Attendances opportunity to spend time and interact with well- known athletes and actors from Romania, who were kind enough to share their experiences with them. At Globalworth we are committed to continue to actively support Hospice - casa sperantei and the counselling in Adunatii-copaceni initiative, and we hope to be able to organise other camp days in the future. partner hospitals 2,054 patients 44 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 45 cORpORATe sOciAL RespOnsiBiLiTY cOnTinued overview Strategic review Portfolio review governance financial StatementS environmental focUS creating an environment in which people want to work and be associated with is a key objective for Globalworth, and for us there is no better way to achieve this than by building a “greener” and more environmentally-friendly portfolio. in 2016, our efforts were dedicated to designing and building new developments with the aim of achieving Leed Gold, BReeAm Very Good, or higher accreditations and to ongoing investment in our properties to ensure further improvement in our sustainability performance. investment in energy efficient properties allows us to give back to local communities, our investors, our tenants, our partners and the people who work in or live nearby our buildings: ¡ local communities benefit from reduced carbon emissions generated from the use of the property; ¡ our tenants benefit from lower energy costs, positively impacting the profitability of their operations; ¡ those working in our buildings benefit from improved conditions thanks to temperature control and better flow and quality of air (which can also lead to improved productivity); ¡ our partners benefit by assisting us to develop, maintain and operate a green portfolio according to the respective specifications of each property; and ¡ our investors benefit through the creation of long term sustainable value in the portfolio. We are pleased to report that over the course of the year we received green accreditation for two new properties. Green court "B", which was acquired by the company in 2015, received Leed Gold accreditation in february 2016, while the Gara Herastrau office property, developed by Globalworth and completed in June 2016, received BReeAm excellent accreditation in november. in addition, our flagship Globalworth Tower, which was developed by the company and completed in february 2016, was awarded a Leed platinum rating in 2017. it is the first building in Romania and the broader see region to have received the highest available green accreditation, an achievement of which we are particularly proud. The majority of the standing office properties in our portfolio are now green accredited, with eight currently holding green accreditation of BReeAm excellent/Leed Gold or higher. We are exploring the potential for similar accreditation for other properties in our portfolio, both standing and development projects. Existing Properties Developments / New Investments ¡ Our portfolio includes 8 class A ¡ Globalworth is designing its office properties with Leed Gold or BReeAm Very Good (or higher) certifications ¡ We are in the process of certifying additional properties owned by Globalworth ¡ Green court B was awarded Leed Gold in 2016 ¡ Gara Herastrau was awarded BReeAm excellent in 2016 ¡ Globalworth Tower was awarded Leed platinum in 2017 development projects to be energy efficient and sustainable, aiming to achieve Leed Gold or BReeAm Very Good or higher accreditations ¡ When considering new investments, Globalworth is looking, insofar as is possible, for green buildings or properties which have the potential to achieve a green classification How we achieve an environmental-friendly portfolio globalworthTM inveStment in “green” certifieD real eState inveStment in non- green certifieD real eState witH environmentallY frienDlY Potential ¡ standing properties ¡ development ¡ investment in real estate which meets the requirements of tenants, the wider community and our shareholders. focus on investments that either have received green accreditation or have the potential to receive it in the future. ¡ focus on investments that either have received green accreditation or have the potential to receive in the future. ¡ developments are designed to be energy efficient and sustainable aiming to achieve Leed Gold or BReeAm Very Good or higher accreditations. active management EXPLORE AND IMPLEMENT ALTERNATIVES TO IMPROVE THE ENVIRONMENTAL FOOTPRINT OF PROPERTIES GIVE BACK TO COMMUNITY, PARTNERS AND SHAREHOLDERS ¡ Active management of our properties to ensure that they operate according to their specifications. ¡ We actively work together with our tenants, partners and the community to identify ways to improve the effectiveness and efficiency of our properties. ¡ constantly improving the workspace and the environmental footprint of our properties aims at maintaining the marketability of our properties. ¡ Our goal is to create long term sustainable value, and we aim to do so by creating an environment in which tenants want to work in, and the overall community benefits from. 46 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 47 cORpORATe sOciAL RespOnsiBiLiTY cOnTinued overview Strategic review Portfolio review governance financial StatementS Building a sustainable portfolio is also a commitment to our partners and our shareholders to create value for the long term. Our awards (Leed) Green Court “A” STANDING Green Court “B” STANDING BOB STANDING BOC STANDING Unicredit HQ STANDING TCI STANDING GREEN COURT BUCHAREST BUILDING A Bucuresti, Romania HAS FULFILLED THE REQUIREMENTS OF THE FOLLOWING LEVEL OF CERTIFICATION ESTABLISHED BY THE U.S. GREEN BUILDING COUNCIL IN THE LEED GREEN BUILDING RATING SYSTEMTM AND VERIFIED BY THE GREEN BUILDING CERTIFICATION INSTITUTE. GREEN COURT BUCHAREST II Bucharest, Romania LEED FOR CORE & SHELL LEED FOR CORE & SHELL S. RICHARD FEDRIZZI, PRESIDENT & CEO U.S. GREEN BUILDING COUNCIL MAHESH RAMANUJAM, PRESIDENT GREEN BUILDING CERTIFICATION INSTITUTE S. RICHARD FEDRIZZI, CEO & FOUNDING CHAIRMAN U.S. GREEN BUILDING COUNCIL MAHESH RAMANUJAM, PRESIDENT GREEN BUILDING CERTIFICATION INSTITUTE March 2015 February 2016 Very Good / excellent under certification City Offices STANDING Globalworth Tower STANDING Globalworth Plaza STANDING Gara Herastrau STANDING Globalworth Campus DEVELOPMENT Upground Towers STANDING CITY OFFICES Bucharest, Romania HAS FULFILLED THE REQUIREMENTS OF THE FOLLOWING LEVEL OF CERTIFICATION ESTABLISHED BY THE U.S. GREEN BUILDING COUNCIL IN THE LEED GREEN BUILDING RATING SYSTEMTM AND VERIFIED BY THE GREEN BUILDING CERTIFICATION INSTITUTE. LEED FOR CORE & SHELL S. RICHARD FEDRIZZI, PRESIDENT & CEO U.S. GREEN BUILDING COUNCIL MAHESH RAMANUJAM, PRESIDENT GREEN BUILDING CERTIFICATION INSTITUTE October 2015 GLOBALWORTH TOWER Bucharest, Romania LEED 2009 CORE AND SHELL DEVELOPMENT January 2017 Very Good / excellent under certification Very Good / excellent under certification Very Good / excellent under certification 48 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 49 RisK RepORT pRincipAL RisKs & unceRTAinTies The Board is responsible for establishing and maintaining the Company’s system of internal control and for maintaining and reviewing its effectiveness. Risk oversight BUSINESS ENVIRONMENT ORGANISATION CULTURE, POLICIES AND PROCEDURES SENIOR MANAGEMENT TEAM AUDIT COMMITTEE BOARD OVERSIGHT The system of internal control is designed to manage rather than to eliminate the risk of failure to achieve business objectives and, as such, can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Group has a conservative risk philosophy as it only accepts risks associated with the nature of its business activities. The Group’s approach to internal control and for monitoring and reviewing its effectiveness is set out within the Audit committee Report, see pages 109 and 110 of the Annual Report. since admission to Aim the Group has made suitable appointments in the area of financial management and supervision over internal control in order to strengthen the internal controls over financial reporting and other significant processes of the Group. despite the existence of an effective internal control system, these risks can only be managed as they cannot be eliminated completely. identify evaluate RISK IDENTIFICATION & MANAGEMENT PROCESS respond report monitor identify The Board and the Audit committee identify risks with input from the key management of the Group. The Group follows an objectives-based risk identification strategy to identify key principal risks for each reporting period. Any event or factor that may endanger the achievement of the short and long-term goals partly or completely is identified as a risk. evaluate Once risks have been identified, they are assessed as to their potential severity of impact on the Group’s performance (a negative impact on financial results) and to the probability of occurrence, that is risk indexation. respond Once risks have been identified and evaluated, one or a combination of the following techniques are used to manage each particular risk: ¡ avoid (eliminate, withdraw from, or not become involved); ¡ control (optimise – mitigate); ¡ sharing (outsource or insure); and ¡ retention (accept and budget). The selection of a particular response strategy depends upon the magnitude of the impact, probability of occurrence, existing internal and external controls. monitor The initial risk management strategy may not address all issues as expected. Therefore, the Board will reassess, at each quarterly meeting, whether the previously selected controls are still applicable and effective, and the possible risk level changes in the business environment. report The Group presents the principal risks profile on pages 51-54 of the Annual Report. overview Strategic review Portfolio review governance financial StatementS The diagram below portrays our current principal risks assessment in terms of their individual impact on the Group’s future results and the probability of occurrence. The probability of risk occurrence is an estimate, since the past data on frequencies is not readily available. After all, probability does not imply certainty. The probability of risk occurrence is, by nature, difficult to estimate. Likewise, the impact of the risk, in isolation, is estimated based on the management’s past experience in the real estate industry. further, both the above factors can change in magnitude depending on the adequacy of risk avoidance and prevention measures taken and due to changes in the external business environment. Hence the Board intends to continue the process of quarterly examination and evaluation of identified significant risks faced by the Group, as well as the controls in place to manage or mitigate those risks. indexation of principal Risks Internal control 10 1 6 7 13 h g H i t c a p m I 4 2 11 12 8 9 5 3 w o L Less Probability more e r u s o p x E 50 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 51 overview Strategic review Portfolio review governance financial StatementS RisK RepORT pRincipAL RisKs & unceRTAinTies cOnTinued The following key is used in the table below to highlight the changes in risk exposures during the year ended 31 december 2016:    Risk exposure has increased in the current year Risk exposure has reduced in the current year no significant change in risk exposure since prior year in addition, the risks marked with  have been considered relevant for the Viability statement analysis. Risk Impact Mitigation Change from prior year Risk Impact Mitigation 1 2 Business Risks exposure to the economic environment in romania changes in the Political or regulatory framework in romania or the european Union Property Risks 3 acquisition of Properties A negative trend in the economic activity in Romania may affect the Group’s tenants and potential new tenants and in turn can exert downward pressure on rent rates. A significant number of the Group’s tenants are subsidiaries of multinational groups with either insignificant exposure to developments in the Romanian economy and/or very sound financial standing. The Group also ensures that long-term leases are signed with new tenants and that current leases are renewed prior to their expiry for a longer term and at index-linked rental rates, so as to minimise the risk of possible negative variations in rent rates over the short and medium term. The Group was set up to carry out investments in the central and south-eastern europe region, focusing first on property investments in Romania. it is therefore exposed to political and regulatory framework changes that may occur in this region. even though the Group is currently focusing on investments in Romania (independent eu bodies place it among the most rapidly growing economies in central and south-eastern europe), the Group is considering diversifying its property portfolio with investments in other countries in the central and south-eastern europe region. The Group’s executives frequently monitor political or regulatory developments in the Romanian market through their own observation and also by frequent reviews of available third-party reports on the developments in Romania. in cases when changes in regulations occur, appropriate action is taken so as to maintain compliance with applicable regulations in Romania. inability to execute the Group’s plan of investing in high-quality assets would affect the Group’s objectives of maximisation in nAV and eps. The Group’s management team have a proven track record of acquiring high quality assets, most of them at a discount to their fair market values. The team remains in close contact with leading european real estate agents with presence in Romania so as to get spontaneous access to potential sellers. The team takes the lead in negotiations with sellers of properties and puts in place safeguards (involvement of legal, financial, tax and technical third-party reputable and experienced due diligence advisers) and ensures the related agreements are concluded within a short period of time. 4 5 counterparty credit risk  Loss of income may result from the possible default of tenants. The vast majority of tenants are reputable, blue-chip multinational and local groups of very good to excellent credit standing. Guarantee cash deposits or bank guarantee letters are received from all tenants for the credit period agreed in lease agreements. changes in interest rates Additional financing costs may be incurred as a result of interest rate increases.  The Group monitors on a regular basis the cost of its debt financing and considers the use of suitable hedging instruments (such as variable- fixed rate swaps, interest caps) to minimise the potential increase of the cost of debt above acceptable levels. As of 31 december 2016, the Group’s weighted average debt financing costs amounted to 5.25%, representing a significant decrease as compared to 31 december 2015 (6.18%) as a result of the refinancing of a significant portion of the Group’s debt during 2016. The Group explores on a continuous basis new refinancing options so as to maintain its average debt financing costs at competitive levels.      Change from prior year  6 valuation of Portfolio  Any error or negative trend in valuations of properties would significantly impact the results (nAV and eps) of the Group. The Group involves reputable third-party valuation specialists to measure the fair value of the investment property portfolio at least twice a year. management closely monitors the valuation approach for each class of investment property and estimates and assumptions about key inputs used in the valuation. periodically, the Group also obtains second valuations from other reputable and experienced third-party valuations specialists, other than those used for financial reporting purposes, as an additional safety measure in this area. The Group is also striving to maximise property values by employing an effective development strategy and/or a property management and leasing strategy. The Group has proven ability to attract tenants to its properties even before the inauguration of the construction works for properties under development.  The Group maintains a low level of vacant space for its completed properties (which decreased further during 2016, a record year in terms of leasing), through the effective management of vacant space by its very experienced marketing and leasing team based in Romania. in addition, the leasing team cooperates closely with leading estate agents in the local market to tap all emerging opportunities. Risks for delay in completion of properties under development are passed on to the main contractors with whom fixed-cost turnkey contracts are signed and from which good execution guarantees are received. A portion of amounts payable to them, ranging from 5% to 15% of contracted value, are retained from the contractor’s monthly certified works until after the successful completion of the construction works.  Only experienced, reputable and financially sound contractors are selected for the construction of properties under development, which are supervised on a daily basis by the project management team in Romania. further, significant penalties are stipulated in the related construction contracts to minimise any loss due to the delayed completion of the development works. 7 inability to lease Space  potential loss of revenues leading to inability to maximise the eps and ffO available for distribution of dividends to shareholders. 8 inability to complete Projects Under Development on time inability to deliver to tenants the pre-leased office space by the agreed dates due to delays caused by contractors or their possible default, leading to potential costs overruns, penalties and loss of revenues. Financial, Financing & Liquidity Risks 9 lack of available financing  This would negatively affect the Group’s ability to execute, to the full extent, its investment plan. The Group’s management team hold frequent meetings with current and potential equity investors as well as continuous discussions with leading global and Romanian financing institutions in connection with its financing requirements.  since admission, the Group has raised over €1.1bn in equity and debt (including new loan facilities and rolled-over loan facilities on the acquisition of subsidiaries) to meet its financing requirements. The Group monitors on a regular basis its compliance with loan covenants and has increased its resources on monitoring in the area of loan contractual terms (including covenants) compliance.  10 Breach of loan covenants  may negatively affect the Group’s relationship with financing banks, may have going concern implications, and affect, negatively, its ability to raise further debt financing at competitive interest rates. 52 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 53 RisK RepORT pRincipAL RisKs & unceRTAinTies cOnTinued ViABiLiTY sTATemenT overview Strategic review Portfolio review governance financial StatementS Financial, Financing & Liquidity Risks continued Risk Impact Mitigation 11 foreign exchange risk significant fluctuations, especially in the Romanian Leu to euro exchange rate in the direction of the depreciation of the Romanian Leu against the euro, may lead to significant realised foreign exchange losses. The Group’s exposure to negative realised foreign exchange fluctuations is limited to cases where the date invoices are issued to tenants or received from contractors and suppliers and the date of their settlement differ significantly. The limited exposure to foreign exchange fluctuations is due to the fact that the pricing in all major contracts entered into (with tenants and contractors/suppliers) is agreed in euro, hence providing for a natural cash flow hedge to a large extent. The Group actively monitors, on a daily basis, the fluctuations in Romanian Leu to euro exchange rate and strives to minimise the period between the issuance and settlement of invoices to tenants and by its contractors/suppliers and the potential related, realised foreign exchange losses that may result. it also enters frequently into transactions with financial institutions for the purchase or sale of Romanian Leu at favourable exchange rates against the euro, compared to the market average, due to the relatively high value of such transactions as a result of a batch settlement process followed for invoices received from contractors/suppliers. Change from prior year  Regulatory Risks 12 change in fiscal and tax regulations Adverse changes in favourable taxation provisions in the jurisdictions the Group’s legal entities operate in would negatively affect its net results. 13 compliance with fire, Structural or other Health and Safety regulations non-compliance with related regulations in Romania may affect our reputation with existing and potential new tenants. it may also lead to loss of right to operate our properties, and may also lead to severe legal implications for the Romanian subsidiaries’ directors. The Group, through engaging professional tax advisers on a regular basis in all the jurisdictions where its legal entities operate, monitors very closely the upcoming changes in taxation legislation and ensures that all steps are taken for compliance and optimisation of the tax efficiency of its structure over time.  Through regular tax compliance monitoring and conservative policies in this area the Group ensures that the risks associated with potential additional, unexpected tax assessments is minimised. moreover, the Group is closely monitoring its compliance with changes in eu member states legislation (mainly for Romania and cyprus) in relation to Oecd/Beps recommendations. The Group has a specialised department dealing on a daily basis with matters related to compliance with such regulations in Romania, where the Group’s properties are located. Apart from in-house expertise, the Group also engages external consultants, when required, on specialised matters related to its compliance with these regulations.  Appropriate actions are taken as soon as a potential threat for non- compliance with such regulations is identified. in accordance with provision c2:2 of the 2014 revision of the uK corporate Governance code, the Board has considered the company’s viability over the next three years. As a result of the long-term nature of the Group’s commitments from its tenants for its properties in Romania, as well as the long-term nature of the Group’s assets (properties), the Board is confident over the long-term viability of the Group’s business; however, it is difficult to assess the long- terms trends in the real estate market in Romania, the long-term availability of funds in the european and global capital markets, and the european central Bank’s long-term policies over the provision of liquidity to banks operating in the eurozone, the largest of which have subsidiaries in Romania. in addition, it is difficult to assess the regulatory, tax and political environment in which the Group operates on a basis longer than a three-year period. Therefore, the Board considered that a three-year period is an appropriate period to perform its viability analysis, as also supported by the following factors: ¡ three years is the period over which the Group performs its cash flow projections and business plans due to the Group’s dynamic growth plan. it would be very difficult to extend the Group’s strategic planning period beyond a three-year period and still maintain its accuracy to an acceptable level; ¡ part of the Group’s financing facilities mature within the next three years; and ¡ three years is the average period over which the Group carries out its major development projects, starting from the date of purchase of land to the completion of the properties. in 2016, the viability assessment process comprised the following key steps: 1. A review and assessment by the Audit committee of the principal risks facing the company. An outline of the identified principal risks, including changes in the assessed risk level from the prior year, is presented on pages 50-54. 2. identification of those principal risks that are more likely to have a potential impact on the company’s viability over the next three-year period, namely: ¡ counterparty credit risk; ¡ changes in interest rates; ¡ valuation of portfolio; ¡ inability to lease space; ¡ lack of available financing; and ¡ breach of loan covenants. 3. Analysis of the potential quantitative impact of the principal risks identified under step 2 above, should these occur in isolation or under certain possible combinations. it should be emphasised that, based on the assessment performed, a number of the above-mentioned risks may have direct and indirect impact on the Group’s property portfolio values and/or nAV, but have been assessed as having very low probability of affecting the Group’s viability over the next three years. 4. Assessment of the possible, available strategies to minimise the potential impact of these principal risks over the next three years. such mitigation strategies include the possibility to raise additional equity capital, or refinance/reschedule existing debt facilities, or to dispose of properties. 5. following the completion of the viability assessment, this has been presented and approved by the Board. Based on the assessment performed, the Board concluded that it has a reasonable expectation that the company will be able to continue in operation and meet all its liabilities as they fall due up to march 2020. it should be noted that this assessment is based on the following assumptions which are not within the company’s control: ¡ no unanticipated changes in laws and regulations affecting the company, including the value of its investments, operating performance and cash flows; and ¡ continued stability and availability of sufficient capital and market liquidity so as to enable the raising of additional equity, as well as the refinancing/rescheduling of the Group’s debt facilities which mature within the next three years. 54 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 55 BOARd Of diRecTORs overview Strategic review Portfolio review governance financial StatementS Geoff Miller non-executive director, chairman of the Board and the Remuneration committee Ioannis Papalekas founder & chief executive Officer Dimitris Raptis deputy chief executive Officer and chief investment Officer Eli Alroy non-executive director and senior independent director John Whittle non-executive director, chairman of the Audit committee Akbar Rafiq non-executive director Geoff miller spent over 20 years in research and fund management in the uK, specialising in the finance sector, before moving offshore, firstly to moscow and then to singapore before becoming a Guernsey resident in 2011. He was formerly a number one rated uK mid and small cap financials analyst covering investment banks, asset managers, insurance vehicles, investment companies and real estate companies. Geoff is chief executive Officer and co-founder of Afaafa, a business which provides investment and consultancy services to early stage companies focused in the financials and technology sectors. He is also a director for a number of private companies. The founder of Globalworth, ioannis papalekas has over 18 years of real estate investment and development experience, 16 of which were in Romania, having created one of the most successful real estate development and investment groups in the Romanian real estate market. He is experienced in the acquisition, master planning, development, reconstruction, refurbishment, operation and asset management of land and buildings across all major asset classes in Romania. ioannis has been responsible for the development of more than 400k sqm of commercial (office, retail and logistics) space and 1,000 residential units in Romania, realising an iRR of 175% and an equity multiple of 4.7x on invested capital. dimitris Raptis joined Globalworth in november 2012, following 16 years of experience in the financial services and real estate investment management industries with deutsche Bank, the last 12 years as a senior member of the real estate investment management group of deutsche Bank’s Asset and Wealth management division ('RReef'). from 2008 to 2012, dimitris was managing director and european Head of portfolio management for RReef Opportunistic investments ('ROi'). in this role he was responsible for overseeing ROi’s acquisitions across europe as well as managing ROi’s pan-european real estate investment portfolio consisting of 40 investments with a gross asset value in excess of €6bn. from 2000 to 2008, dimitris was a senior member of the team responsible for originating, structuring and executing real estate investments, with a main focus on the french, italian and south-eastern european markets with an enterprise value in excess of €5.5bn across all major asset classes. Akbar Rafiq serves as a partner, portfolio manager and Head of europe credit at York capital management. Akbar joined York capital management in June 2011 and is a partner of York capital management europe (uK) Advisors LLp. Akbar is a co-portfolio manager of the York european distressed credit funds. from 2007 to 2011, Akbar worked as a Vice president and senior distressed debt Analyst at deutsche Bank AG, London. previously, Akbar held various positions in the investment banking division at Bear, stearns and co. inc. from 2000 to 2003, Akbar worked as an Associate for a private equity firm, Alta communications. eli Alroy has extensive international experience in real estate investment and project management. from 1994 to 2012 eli was chairman of the supervisory Board of Globe Trade centre s.A. ('GTc'), traded on the Warsaw stock exchange. during part of this period (from 1994 to 1997) eli also served as the ceO of Kardan Real estate. eli received a Bsc in civil engineering from the Technion in israel and an msc from stanford university in the usA. in 2010 eli was honoured with the prestigious ceeQA Real estate Lifetime Achievement award, sponsored by the financial Times, for his commitment to the real estate industry in central and eastern europe. John Whittle is a resident of Guernsey. He is a chartered Accountant and holds the iod diploma in company direction. He is a non-executive director of international public partnerships Ltd2 (fTse 250), starwood european Real estate finance Ltd1 (Lse), Toro Ltd1 (sfm), india capital Growth fund Ltd, Globalworth Real estate investments Ltd1 and Aberdeen frontier markets investment company Ltd3 (Aim) and GLi finance Ltd (Aim)1. He also acts as non-executive director to several other, mainly pe, Guernsey investment funds and B&Q channel islands. immediately before choosing to become non-executive he was finance director of close fund services, a large independent fund administrator, where he successfully initiated a restructuring of client financial reporting services and was a key member of the business transition team. prior to moving to Guernsey he was at pricewaterhouse in London before embarking on a career in business services, predominantly retail and telecoms. He co-led the business turnaround of Talkland international (now Vodafone Retail) and was directly responsible for the strategic shift into retail distribution and its subsequent implementation; he subsequently worked on the £20 million private equity acquisition of Ora Telecom. He was previously at John Lewis and was cfO of Windsmoor (London Lse). 56 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 57 1. Audit committee chair 2. Audit committee chair and senior independent director 3. chairman BOARd Of diRecTORs cOnTinued overview Strategic review Portfolio review governance financial StatementS Alexis Atteslis non-executive director Andreea Petreanu non-executive director Norbert Sasse non-executive director Peter Fechter non-executive director George Muchanya non-executive director Richard van Vliet non-executive director Alexis Atteslis serves as a managing director at Oak Hill Advisors with senior responsibility for european investments. He has more than 12 years of experience in the finance industry, having previously worked at deutsche Bank and pricewaterhousecoopers. He received an mA from the university of cambridge and has earned a chartered Accountant qualification with the institute of chartered Accountants in england and Wales. Andreea petreanu is currently Head of credit Risk management at mizuho international in London. Over the past 16 years, Andreea has had various risk management roles with global investment banks such as morgan stanley, HsBc, merrill Lynch, Bank of America and VTB capital. Andreea’s educational background includes an executive mBA from the university of cambridge, Judge Business school and an msc in insurance and Risk management from city university, cAss Business school. she is also an Associate of the chartered insurance institute in London. norbert sasse is chief executive Officer of Growthpoint. He has 10 years’ experience in corporate finance with ernst & Young corporate Advisory (in south Africa and London) and investec corporate finance (in south Africa). norbert was instrumental in growing Growthpoint from a listed property fund having assets of ZAR 100 million and a market capitalisation of ZAR 30 million in 2001 to being south Africa’s largest listed property company with assets of over ZAR 112 billion and a market capitalisation of ZAR 73 billion as at January 2017. norbert led Growthpoint’s first offshore investment in Australia in 2009 by investing Aud200 million in Orchard industrial fund, and subsequently renamed Growthpoint properties Australia, ('GOZ') a property company that was facing foreclosure. With a market capitalisation of Aud250 million following the recapitalisation of the company by Growthpoint, GOZ has now grown to a market cap of Aud2 billion. norbert was involved in establishing the Association of property Loan stock companies (pLs Association) which has subsequently been renamed sAReiT (south African Real estate Association). norbert holds a Bcom and Honours degree in Accounting from Rand Afrikaans university and is a chartered Accountant. peter fechter has deeply embedded entrepreneurial experiences of all aspects of the property space. After graduating as civil engineer in 1968, he worked in south Africa as a site agent and tendering estimator, becoming ceO of large private construction company in 1978. He formed his own business in 1980 which successfully engaged in general contracting and doing its own property developments for sale and selective own investment. After 20 years, peter’s business was voluntarily closed, with the property portfolio being sold to an ipO company. When this company merged with Growthpoint properties in 2003, he was appointed as non-executive director of Growthpoint, serving on the Audit and Risk committees and as chairman of the property investment committee, all resulting in regular and close involvement in merger, acquisition and investment deals in south Africa and Australia. George muchanya is responsible for corporate strategy at Growthpoint and is a member of the executive committee. After spending his initial career years as an engineer, George made a career change into banking in 2000 where he worked in retail product development, treasury and investment banking both in south Africa and the uK. This was followed by a brief period at a global management consulting firm. George joined Growthpoint in 2005, where he focuses largely on mergers and acquisitions. The period since he joined saw Growthpoint concluding transformational transactions including the expansion of Growthpoint into Australia, the acquisition of the iconic V&A in cape Town, single and large property portfolio acquisitions, and the consolidation, through mergers and acquisitions, by Growthpoint of the south African listed property sector. George played an integral part in this transformation and was part of the frontline deal negotiation and execution team. Richard van Vliet is a qualified as a chartered Accountant in south Africa and england and Wales. On leaving pricewaterhouse in south Africa he became the sole proprietor of an audit practice in Johannesburg, with work biased towards international mergers and acquisitions, taxation and financial structures. from 1995 until mid-1997 he also represented the Jersey General Group, an offshore investment group of companies, in Johannesburg. He relocated to Guernsey in August 1997 as a founding member of cannon Asset management Limited and is now the managing director. He currently holds the chairmanship of The cubic property fund, a channel islands securities exchange listed fund, and a number of Board positions on companies and investment funds exposed to property, equity and alternative investments. He also held the position of a main board member of Thames River capital Holdings Limited, a fund management company with usd 9billion prior to its disposal. George holds a Bsc in engineering from the university of natal, mBA from Wales university, a certificate in corporate finance from the London Business school as well as a leadership certificate from Harvard Business school. 58 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 59 THe TeAm toP management witH a Strong tracK recorD in tHe real eState Sector Ioannis Papalekas founder & ceO ¡ 18 yrs (16 yrs in Romania) real estate track record ¡ multi-sector real estate experience in Romania and see ¡ Realised return on investments of (“iRR”) of 175% and an equity multiple of 4.7 Andreas Papadopoulos cfO Dimitris Raptis deputy ceO/ciO Adrian Danoiu cOO ¡ chartered Accountant with c.24 yrs of ¡ 20 yrs of experience in financial services experience in audit and transactions advisory ¡ 16 yrs with big 4 audit firms (eY and pwc) ¡ Joined Globalworth in 2014 and real estate ¡ former md and european Head of portfolio management for deutsche Bank’s RReef Opportunistic investments ¡ managed a portfolio of 40 investments (GAV >€6 billion) ¡ Joined Globalworth in 2012 ¡ +20 yrs of experience in accounting, finance and business administration ¡ part of the founder’s team since 2002 Stan Andre deputy ciO Stamatis Sapkas deputy ciO ¡ 9 yrs of experience with uBs (6 yrs), BAmL and credit Agricole in Leveraged capital markets, special situations Group, emerging markets Lending and dcm ¡ 14 yrs of experience in emeA real estate and lodging including 10 yrs with citigroup investment Banking (7 yrs) and eurobank properties ¡ Joined Globalworth in 2014 ¡ Joined Globalworth in 2013 Construction and Development Property Compliance Asset Management Leasing Investments and Capital Markets Legal Accounting and Finance Operations and Administrations Ô Ô Ô Ô D. Pergamalis (Group Head) (+ 9 people) G. Udroiu (Group Head) (+ 4 people) C. Kolonias (Group Head) (+ 4 people) E. Iftimie (Group Head) (+ 4 people) Ô S. Andre (D.CIO)/ S. Sapkas (D.CIO) (+ 5 people) Ô Ô Ô C. Tirziu (Group Head) (+ 1 person) A. Papadopoulos (CFO) (+ 15 people) A. Danoiu (COO) (+ 14 people) Platform of 66 professionals highly skilled in their respective fields overview Strategic review Portfolio review governance financial StatementS Diversity The Group maintains a policy of employing the best candidates available in every position, regardless of gender, ethnic group or background. information about the diversity of the Group’s directors and employees is set out below: Gender diversity Gender diversity Male Female Age Age Under 25 41 – 50 25 – 40 Over 50 Length of service Length of service* Up to 3 years 3 – 6 years 6 – 10 years Over 10 years 2016 54% 2015 47% 2016 1 7 46% 53% 34 32 Board Management 2015 1 7 33 32 Board Management 60% 68% 9% 29% 62% 11% 29% 11% 21% 100 25% 50% 25% 80 60 40 20 0 100 80 60 40 20 0 Board Management 25% 25% 50% 9% 20% 71% Board Management 17% 6% 29% 16% 7% 30% 50% 50% 49% 47% 18% 6% 27% 48% Board Management 18% 8% 28% 46% 50% 50% Board Management 100 80 60 40 20 0 100 80 60 40 20 0 60 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 61 THe TeAm cOnTinued overview Strategic review Portfolio review governance financial StatementS 62 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 63 OvERvIEW STRATEGIC REvIEW PORTFOLIO REvIEW GOvERNANCE FINANCIAL STATEMENTS PORTFOLIO REVIEW Portfolio review – BOC – BOB – Globalworth Tower 66 72 74 76 78 80 82 84 86 88 90 92 94 96 98 – Green Court Building “A” – Green Court Building “B” – Globalworth Plaza – Unicredit HQ – TCI – City Offices – Gara Herastrau – Upground Towers – TAP – Globalworth Campus – Dacia Warehouse 64 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 65 pORTfOLiO ReVieW BeSt-in-claSS real eState Portfolio Over the past three-and-a-half years, Globalworth has been investing exclusively in Romanian real estate, its principal market, assembling a portfolio of best-in-class properties in prime locations within their respective sub-markets. By the end of 2016 the company had 15 investments with a total of 20 assets, all of which were located in two Romanian cities, the capital Bucharest and Timisoara, one of the largest logistics hubs in the country. since the turn of the year we have continued to expand our footprint, having announced the acquisition of a standing warehouse leased to Automobile dacia in pitesti (central Romania) and formed a partnership for the development of a new class “A” office complex in the western part of Bucharest. These initiatives have increased our total number of investments and assets to 17 and 22 respectively. Globalworth’s main focus is to invest in standing or development office properties, which are subsequently actively managed by the company. such properties accounted for c.81.4% of our portfolio value as of year end 2016. in addition, our exposure to the industrial sector has been increasing in the past couple of years, initially driven by demand from tenants interested in taking up space in what has become one of our most successful investments, the TAp light-industrial complex in Timisoara. This complex consisted initially of a facility leased to Valeo Lighting and was expanded in 2015 following the development of two facilities let to continental and elster. A new facility leased to Valeo Lighting was delivered in Q1-17 and a second facility pre-let to Litens Automotive is scheduled for delivery in Q3-17. Total portfolio value upon completion c.€1.1bn overview Strategic review Portfolio review governance financial StatementS “As is” Value (€m) “As is” Value (€m) Value upon “Completion” (€m) Value upon “Completion” (€m) evolution of portfolio “As Is” Value (€m) €977.5m €977.5m €1,092.4m €1,092.4m Value upon “Completion” (€m) “As is” Value (€m) “As is” Value (€m) Value upon “Completion” (€m) Value upon “Completion” (€m) €977.5m €977.5m Land for Future Development / 1.8% Land for Future Development / 1.8% €1,092.4m €1,092.4m Developments / 8.0% Developments / 8.0% Land for Future Development / 1.7% Land for Future Development / 1.7% Standing Properties / 90.2% Standing Properties / 90.2% Standing Properties / 98.3% Standing Properties / 98.3% Standing Properties / 90.2% Standing Properties / 90.2% note: data based on 31 december 2015 appraisals. Developments / 8.0% Developments / 8.0% Standing Properties / 98.3% Standing Properties / 98.3% Land for Future Development / 1.7% Land for Future Development / 1.7% Land for Future Development / 1.8% Land for Future Development / 1.8% please see page 84 please see page 78-81 please see page 72 please see page 76 please see page 92 please see page 96 please see page 86 please see page 90 please see page 82 please see page 96 please see page 88 please see page 74 please see page 96 66 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 67 BOCSTANDINGGLOBALWORTH PLAZASTANDINGBOBSTANDINGUPGROUND TOWERSSTANDINGGWI CAMPUS – TOWER IDEVELOPMENTGWI CAMPUS – TOWER IIDEVELOPMENTGWI CAMPUS – TOWER IIIDEVELOPMENTUNICREDIT HQSTANDINGGLOBALWORTH TOWERSTANDINGGREEN COURT “A” AND “B” STANDINGTCISTANDINGGARA HERASTRAUSTANDINGCITY OFFICESSTANDINGpORTfOLiO ReVieW cOnTinued in february 2017, Globalworth announced the acquisition of a 68.4k sqm modern warehouse facility 100% leased to dacia in pitesti. including the addition of the three new facilities under construction or being acquired, our total footprint in the light-industrial / warehouse sector will grow to 171.0k sqm of GLA (c.27.0k sqm year end 2014). Key investments in the new cBd include the class “A" flagship office Globalworth Tower, offering GLA of 54.7k sqm (delivered in 2016), two class “A" offices which form part of the Green court complex, the class A BOc office property and, finally, our Globalworth campus development which, upon completion, will offer 88.6k sqm of class “A" office space supported by retail shops and other amenities. The highest concentration of our portfolio, however, remains in the new cBd of Bucharest where we have eight standing properties and one development project, accounting for 73.4% of the value of our portfolio and representing 214.8k sqm of standing commercial GLA and 421 residential units as of 31 december 2016. The remainder of our Bucharest portfolio comprises class “A" offices offering total GLA of 73.9k sqm and two land plots held for future development. These properties are spread across the capital (centre, north and south), with each property occupying a prime location within its respective sub-market. The new cBd is in the northern part of Bucharest, clustered around the dimitrie pompeiu, calea floreasca and Barbu Vacarescu Boulevards, and has seen the highest level of office investment in recent years as a result of its excellent accessibility and infrastructure (metro, tram, bus, road), its proximity to the Henri coanda international Airport, and the availability of sizeable land plots. We are very pleased that Globalworth, following the delivery of our Globalworth Tower in Q1-16, now owns the second, third and fifth-tallest office towers in Bucharest and the two single largest office buildings (held by an institutional investor) in Romania. property “As is” Value (€ m) capex (€ m) mark to market uplift (€ m) GW Tower BOB BOc Green court "A" Green court "B" GW plaza unicredit HQ Tci city Offices Gara Herastrau upG TAp GWi campus Herastrau One Luterana Total 162.5 50.3 143.7 51.3 53.2 56.5 52.5 76.7 62.0 28.8 101.2 50.4 70.4 5.8 12.3 - - - - - - - - - - - 12.0 84.5 - - - - - - - - - - - - - 2.4 16.0 - - Value upon “completion” (€ m) 162.5 50.3 143.7 51.3 53.2 56.5 52.5 76.7 62.0 28.8 101.2 64.8 170.9 5.8 12.3 977.5m 96.5m 18.4m 1,092.4m overview Strategic review Portfolio review governance financial StatementS Standing Properties Globalworth’s portfolio of standing assets increased in 2016 with the addition of the flagship Globalworth Tower and the smaller Gara Herastrau office property, which were delivered in Q1-16 and Q2-16 respectively. Our standing portfolio increased to 14 assets, comprising 10 class A office properties and a residential complex located in Bucharest, while in Timisoara we own a light-industrial park comprising three facilities. Globalworth’s total standing GLA at the end of 2016 had increased by c.18.1% to 420k sqm, of which 370.0k sqm was commercial space, while the appraised value of our standing investment properties rose to c.€881.5 million (as at 31 december 2016), representing a c.26.8% increase on the previous year. Globalworth Tower is a landmark office property located in the heart of the new cBd of Bucharest. At a height of approximately 120 metres it is the second-tallest office property in Romania and one of the biggest in terms of office space in the cee/see region. Globalworth Tower offers approximately 54.7k sqm of class “A" office space and is approximately 83.2% let to high-quality national and international tenants including Vodafone (telecoms), nestor nestor diculescu Kingston petersen (law), Huawei (telecoms), delhaize/mega image (retail-fmcG), Wipro (iT), Bunge (services), ferrero (confectionery), Anritsu solutions (services) and Globalworth (real estate). Globalworth Tower recently received the award for the “Best Big Office development of the Year” for 2016 in the prestigious ciJ Awards. Occupancy in the property increased in 2017 to 90.4% following the signing of new leases with new and existing tenants. Gara Herastrau was the second of Globalworth’s projects delivered in 2016. This class “A" office property is also situated in the new cBd and is adjacent to the Green court Building complex and approximately 200 metres from Globalworth plaza and Globalworth Tower. it extends over 12 floors (with an additional technical floor) and offers approximately 12.0k sqm of GLA. The Gara Herastrau office building was delivered in June 2016 and has an occupancy of approximately 68.9%. The property is anchored by Adp, the leading global provider of human capital management solutions, with other tenants including saipem (oil and gas) and Tripsta (services). Occupancy in the property has further increased in 2017, rising to 75.4% following a new lease signed with Baker Tilly (accounting, audit and tax advisory). All standing properties in the portfolio have been completed or refurbished since 2008, with Globalworth continuously investing in its properties in order to maintain them as both modern and in line with tenant demand. The number of ‘green’ properties owned by the company has also increased since the beginning of 2016, with Green court B receiving Leed Gold in february and the Gara Herastrau office property receiving BReeAm excellent accreditation in november. in addition, we are very proud that our landmark Globalworth Tower property was officially awarded Green certification of Leed platinum (January 2017), becoming the first building in Romania and the broader see region to have received the highest available Green accreditation. The portfolio currently comprises eight Green accredited properties, with four others currently under various stages of Green certification. The company expects to complete the Green certification process in the next 12 months. At 83.1% as of 31 december 2016, occupancy of our standing portfolio remains high, with 307.7k sqm leased to top-quality tenants. nine of our commercial properties had an occupancy rate in excess of 90% and we are in active discussions with a number of tenants for the remaining vacant space in our portfolio. since the beginning of 2017, as a result of the ongoing efforts of our leasing team and the acquisition of the 100% let dacia warehouse, the total commercial space leased in our standing portfolio has increased to 383.7k sqm and the average occupancy rate has reached 87.5%. in addition to its commercial portfolio, Globalworth owns 421 apartments in upground Towers (upground), a modern two-tower residential complex ideally situated in the new cBd, with a total of 571 apartments. The property benefits from fine views of the nearby Tei lake and is located close to our commercial portfolio, thus allowing us to leverage its use and provide a complete package to our many international tenants looking for turnkey solutions when relocating their operations to the area. in upground Towers we own a range of different apartments, varying in size (80 to 440sqm) and number of bedrooms (1 to 5). These are available for rental or sale and are targeted at residents interested in living in a complex offering top-end space combined with other amenities (gym, supermarket, restaurants and coffee shops etc.), while also being easily accessible by both public and private transport. in 2016 we continued to market units for sale, and as a result we sold 14 apartments. in addition, at the end of the year 205 apartments were leased, generating c.€1.6 million of annual rental income. 68 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 69 Green Certified PropertiesGlobalworth Tower: LEED PlatinumBOB:BREEAM In-use/Excellent and LEED Gold certifications (for part of the property)BOC:BREEAM In-use/Excellent certificationUniCredit HQ:BREEAM Very Good certificationCity Offices:LEED Gold certificationGreen Court “A”:LEED Gold certificationGreen Court “B”:LEED Gold certificationGara Herastrau: BREEAM ExcellentProperties Under Green Certification ProcessTCI:BREEAM Very Good/ExcellentGlobalworth Plaza:BREEAM Very Good/ExcellentGlobalworth Campus:BREEAM Very Good/ExcellentUpground Towers:BREEAM Very Good/Excellent (ongoing)overview Strategic review Portfolio review governance financial StatementS Land for Future Development Globalworth owns land plots in two prime locations in Bucharest (Herastrau Lake and the historical cBd) for future development. These plots represent further opportunities for office or mixed-use developments, which the company intends to take advantage of in the future in order to further grow its real estate portfolio. The total land size for future development in these two locations is approximately 9.8k sqm, with an appraised value of approximately €18.1 million. pORTfOLiO ReVieW cOnTinued commercial properties number of investments number of Assets GLA (sqm) “As is” Valuation: Occupancy contracted Rent WALL Q4-15 9 11 303,155 595.6 85.1% 36.3 6.0 Q4-16 Total standing properties number of investments number of Assets GLA (sqm) “As is” Valuation: contracted Rent 11 13 370,033 788.6 83.1% 46.9 6.4 Q4-15 10 12 355,513 695.1 37.8 Q4-16 12 14 419,986 881.5 48.5 Developments We continued with our active development programme in 2016, delivering to market two class “A" office properties with 66.7k sqm of GLA. As at the end of the year we had four other properties under construction which, upon completion, will further increase our footprint of high-quality office and light-industrial standing GLA by 78.4k sqm. Developments in Bucharest The Globalworth campus project is a large-scale development situated in the new cBd of Bucharest, which upon completion will offer three class “A" office towers, retail spaces and other supporting amenities (including a conference centre). phase A, currently under construction, will comprise two side towers facing dimitrie pompeiu street (main street) with total GLA of approximately 56.9k sqm on completion, while phase B will comprise one middle tower, which on completion will contribute additional GLA of approximately 31.7k sqm. Developments in timisoara The TAp project has proven to be a location much sought-after by high-quality multinational tenants and a very successful investment for Globalworth. since its acquisition in July 2014 the park has been continuously expanded, initially with new facilities developed for continental and elster Rometrics (part of the Honeywell Group), who moved into TAp in 2015. in 2016 the company signed new leases for the development of two facilities leased to Valeo Lighting (expansion) which was delivered in Q1-17 and Litens Automotive (new tenant) which is currently under construction and scheduled for delivery in Q3-17. in february 2016, Valeo exercised its option to take more space in the TAp complex, with the development of a new light-industrial facility of 13.5k sqm. The delivery of the new facility in Q2-17 marked the second time that Valeo has expanded in the park since its arrival in 2011. The development of phase A is progressing in line with the estimated timeline. in Tower i the structural concrete works have been completed and the façade is currently being fitted out with a glazed surface, which is approximately 95% complete. for Tower ii, the necessary preparatory activities have been completed, including excavations, and construction of the structure has now commenced. We expect to deliver Tower i in Q2-17, followed by Tower ii in Q1-18. in november 2016 the company signed a 10-year unbreakable lease with Litens Automotive for the development of a 8.0k sqm new light-industrial facility in the park. The new facility is to be developed on available land in TAp and is expected to be delivered in Q3-17. The German Litens Automotive Group is a leading global designer and manufacturer of engineered power transmission systems and components, with more than 35 years of experience in the market. Globalworth is currently in negotiations with a number of tenants for the take-up of space in both towers. The company has adopted a number of environmentally friendly principles for both office buildings under development and, as such, anticipates being able to achieve Green certifications of BReeAm Very Good or excellent. TAp offered a total of 81.3k sqm of GLA and was c.97.3% occupied at the end of 2016. GLA in the complex is expected to increase to 102.9k sqm by Q3-17, and has the potential for further development reaching a total GLA of 131.4k sqm as a result of the extension options currently available to the existing tenants of the park. The “As is” value of the development projects as of 31 december 2016 was approximately €77.9 million. On completion, the projects are expected to deliver approximately 138.7k sqm of new office and light-industrial space, with an appraised value of c.€192.8 million. 70 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 71 Development Projects – Breakdown by Status Q4-16Under Construction(1)Future Development(2)Total DevelopmentNumber of Investments222 investments developed in stagesNumber of Assets to be Developed426GLA (sqm)78,44460,229138,673“As is” Valuation €58.7m€19.3m€77.9m“Completion” Valuation €118.7m€74.1m€192.8mNotes:1 “Under Construction” comprises Globalworth Campus Phase I, TAP Valeo (expansion) and TAP Litens (new facility).2 “Future Development” comprises Globalworth Campus Phase II and other expansion options available at TAP.overview Strategic review Portfolio review governance financial StatementS gloBalwortH tower ‘Globalworth Tower’ is a landmark Class “A” office building located in the northern part of Bucharest on the junction of three main streets: Barbu Vacarescu Street, Pipera Road and Calea Floreasca. Globalworth Tower is the second-tallest office property in Bucharest with a height of 120m, extending over 26 floors above ground and three underground levels. The project was acquired in december 2013 and subsequently developed by Globalworth and following its delivery it offers c.54.7k sqm of GLA and 638 parking spaces. Globalworth Tower is the first building in Romania and the broader see region having received Leed platinum accreditation which is the highest available Green accreditation. location: Status: Description: ownership: Year of completion: Bucharest/new cBd standing property class “A” multi-tenanted office building 100% 2016 appraised value “as is”: €162.5 million gla: occupancy: contracted rent: 54,686 sqm 83.2% (90.4% as of 27 mar. ‘17) €9.5 million (€10.3 million as of 27 mar. ‘17) wall: 8.8 years Selected tenants: Vodafone, Huawei, delhaize Group, nndKp, Globalworth, Wipro, Bunge note: All data as of 31 december 2016. 1st LEED Platinum Office in the SEE region. 72 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 73 overview Strategic review Portfolio review governance financial StatementS BoB BOB is a modern Class “A” multi-tenanted office building located in the Northern part of Bucharest on Dimitrie Pompeiu Boulevard. The property was delivered in 2008 and received both BReeAm in-use/excellent and Leed Gold certifications (for part of the property) in 2014. BOB was acquired by Globalworth in march 2014 and offers 22.4k sqm of GLA over seven floors above ground and 157 parking spaces. The property is part of a wider building complex developed between 2006 and 2011, which includes BOc and upground Towers. location: Status: Description: ownership: Year of completion: Bucharest/new cBd standing property class “A” multi-tenanted office building 100.0% 2008 appraised value “as is”: €50.3 million gla: occupancy: contracted rent: wall: Selected tenants: note: All data as of 31 december 2016. 22,391 sqm 97.3% €3.6 million 5.5 years deutsche Bank, stefanini, nX data, nBG Group, clearanswer europe Dual Green Accreditation – BREEAM Excellent and LEED Platinum for DB’s space. 74 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 75 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – sTAndinG cOnTinued Boc BOC is a modern Class “A” multi-tenanted office building located in the northern part of Bucharest on George Constantinescu Street. The property was delivered in 2009 and received BReeAm in-use/ excellent Green certification in 2014. it was nominated in the category for the best Green “Office: in-use” property in the 2015 BReeAm awards. it was the first property in Romania to be rated “excellent” for Asset performance (part 1) and Building management (part 2). BOc was acquired by Globalworth in march 2014 offering 57.0k sqm of GLA and 895 parking spaces. The property extends over eight floors above ground and has three underground levels. The property is part of a wider building complex developed between 2006 and 2011, which includes BOB and upground Towers. location: Status: Description: ownership: Year of completion: Bucharest / new cBd standing property class “A” multi-tenanted office building 100.0% 2009 appraised value “as is”: €143.7 million gla: occupancy: contracted rent: wall: Selected tenants: 56,962 sqm 97.3% €9.5 million 5.8 years Honeywell, nBG Group, Hp, GfK, nestle, eAds, deutsche Telekom, mood media, stefanini note: All data as of 31 december 2016. Largest office floor and largest single office building in Romania. 76 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 77 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – sTAndinG cOnTinued green coUrt BuiLdinG “A” Green Court Building “A” is a Class “A” multi-tenanted office building located in the northern part of Bucharest on Gara Herastrau Street. The property, which was developed by skanska, was completed in 2014 and received Leed Gold certification in 2015. Green court Building “A” was acquired by Globalworth in June 2015, and is offering 19.6k sqm of GLA and 262 parking spaces. The property extends over 12 floors above ground and has three underground levels. The property is part of the wider Green court Building complex developed by skanska which upon completion will comprise three office towers (Globalworth currently owns two of the three office buildings). location: Status: Description: ownership: Year of completion: Bucharest/new cBd standing property class “A” multi-tenanted office building 100.0% 2014 appraised value “as is”: €51.3 million gla: occupancy: contracted rent: wall: Selected tenants: 19,589 sqm 100.0% €3.4 million 5.3 years Orange, schneider electric, ciTR, skanska note: All data as of 31 december 2016. 100% leased since acquisition in 2015. 78 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 79 pORTfOLiO ReVieW – sTAndinG cOnTinued green coUrt BuiLdinG “B” Green Court Building “B” is a Class “A” multi-tenanted office building located in the northern part of Bucharest on Gara Herastrau Street. location: Status: The property, which was developed by skanska, was completed in 2015 and received Leed Gold certification in 2016. Green court Building “B” was acquired by Globalworth in december 2015, and is offering 18.4k sqm of GLA and 328 parking spaces. The property extends over 12 floors above ground and has three underground levels. The property is part of the wider Green court Building complex developed by skanska which upon completion will comprise three office towers (Globalworth currently owns two of the three office buildings). Description: ownership: Year of completion: overview Strategic review Portfolio review governance financial StatementS Bucharest/new cBd standing property class “A” multi-tenanted office building 100.0% 2015 appraised value “as is”: €53.2 million gla: occupancy: contracted rent: wall: Selected tenants: note: All data as of 31 december 2016. 18,369 sqm 100.0% €3.5 million 4.2 years carrefour, sanofi, colgate, ericsson, Adecco, Abbott Second building of the Green Court complex acquired by Globalworth in 2015. 80 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 81 pORTfOLiO ReVieW – sTAndinG cOnTinued gloBalwortH PlaZa “Globalworth Plaza” is a Class “A” multi-tenanted office building located in the northern part of Bucharest on the junction of Pipera Road and Gara Herastrau Street. location: Status: Description: The property was delivered in 2010 and was partially refurbished during 2014/15. ownership: Globalworth plaza was acquired by Globalworth in march 2015, and is offering 24.0k sqm of GLA and 336 parking spaces. The property extends over 21 floors above ground and has three underground levels. Year of completion: overview Strategic review Portfolio review governance financial StatementS Bucharest/new cBd standing property class “A” multi-tenanted office building 100.0% 2010 appraised value “as is”: €56.5 million gla: occupancy: contracted rent: 24,020 sqm 29.7% (41.6% as of 27 mar. ’17) €1.3 million (€1.8 million as of 27 mar. ’17) wall: 4.7 years Selected tenants: patria Bank, Bayer, Anima, printec, coface note: All data as of 31 december 2016. Third tallest Class “A” office tower located at the entrance of the New CBD. 82 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 83 pORTfOLiO ReVieW – sTAndinG cOnTinued UnicreDit HQ “Unicredit HQ” is a landmark Class “A” single-tenanted office building located in the northern part of Bucharest on Expozitiei Boulevard, off Presei Libere Square. location: Status: Description: Bucharest/north standing property class “A” single-tenanted office building The property was delivered in 2012 and has received BReeAm in-use/Very Good Green certification. unicredit HQ is the headquarters of the unicredit Bank and was ranked 17th on the list of the 30th most architecturally impressive banks in the world in 2013. Globalworth acquired the unicredit HQ in march 2015 and is offering c.15.5k sqm of GLA and 146 parking spaces. The property extends over 16 floors above ground and has two underground levels. ownership: Year of completion: 100.0% 2012 appraised value “as is”: €52.5 million gla: occupancy: contracted rent: wall: 15,500 sqm 100.0% €3.8 million 5.4 years Selected tenants: unicredit Bank note: All data as of 31 december 2016. overview Strategic review Portfolio review governance financial StatementS Ranked 17th in the 2013 global list of the most architecturally impressive bank headquarters. 84 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 85 pORTfOLiO ReVieW – sTAndinG cOnTinued tci “TCI” is a landmark modern Class “A” multi-tenanted office building located in Bucharest’s historical CBD, at Victoriei Square. The property was delivered in 2012 and acquired by Globalworth in february 2014. location: Status: Description: ownership: Tci consists of two interconnected buildings and, at 106 metres high, is currently the third-tallest office property in Bucharest. Year of completion: Bucharest/Historical cBd standing property class “A” multi-tenanted office building 100.0% 2012 The property offers c.22.4k sqm of GLA and 202 parking spaces, extending over 26 floors above ground and four underground levels. appraised value “as is”: €76.7 million gla: occupancy: contracted rent: wall: Selected tenants: 22,453 sqm 99.7% €5.0 million 4.1 years ministry of european funds, ernst & Young, Hidroelectrica, cegeka, deutsche Bank note: All data as of 31 december 2016. overview Strategic review Portfolio review governance financial StatementS Tallest office tower in Bucharest’s CBD with c.106 metres. 86 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 87 pORTfOLiO ReVieW – sTAndinG cOnTinued citY officeS “City Offices” is a mixed-use property comprising two connected buildings, a commercial building and multi-level parking. The property is located at the southern part of Bucharest in the densely populated area of Eroii Revolutiei. location: Status: Description: Bucharest/south standing property mixed-use property comprising a commercial building and multi-level parking The commercial building was entirely refurbished by Globalworth, with works completed in Q4-14, and received Leed Gold accreditation in October 2016. ownership: Year of completion: 100.0% 2014 city Offices was acquired by Globalworth in september 2013 and offers 36.0k sqm of commercial GLA over six floors above ground and 1,019 parking spaces. appraised value “as is”: €62.0 million gla: occupancy: contracted rent: 35,968 sqm 21.8% (25.3% as of 27 mar. ‘17) €1.4 million (€1.5 million as of 27 mar. ‘17) wall: 4.5 years Selected tenants: Vodafone, delhaize Group, max Bet, Billa, piraeus Bank, credit Agricole Bank, procredit Bank note: All data as of 31 december 2016. overview Strategic review Portfolio review governance financial StatementS Fully refurbished Class “A” back-office building. 88 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 89 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – sTAndinG cOnTinued gara HeraStraU “Gara Herastrau” is a Class “A” office building located in the northern part of Bucharest on Gara Herastrau street. It is adjacent to Green Court Building “A” and is c.200 meters away from Globalworth Tower. The land was acquired in december 2014 and subsequently the project was developed by Globalworth, and delivered to the market in Q2-16. Gara Herastrau offers c.12.0k sqm of GLA and 157 parking spaces. The property extends over 12 floors above ground and will have three underground levels. The property received BReeAm excellent accreditation in november 2016. location: Status: Description: ownership: Year of completion: Bucharest/new cBd standing property class “A” office building 100.0% 2016 appraised value “as is”: €28.8 million gla: occupancy: contracted rent: 12,037 sqm 68.9% (75.4% as of 27 mar. ’17) €1.4 million (€1.6 million as of 27 mar. ’17) wall: 6.3 years Selected tenants: Adp, saipem, Baker Tilly, Tripsta note: All data as of 31 december 2016. Newly completed Class “A” office property. 90 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 91 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – sTAndinG cOnTinued UPgroUnD towerS “Upground Towers” is a modern residential complex located in the northern part of Bucharest on Fabrica de Glucoza Street. The property was delivered in 2011 and comprises two buildings with a total GBA of 101.4k sqm. in total upground Towers offers 571 residential units, of which Globalworth (as of 31 december 2016) owns 421. Globalworth owns in addition 25 retail units and 580 parking spaces in the complex. upground Towers is part of a wider building complex developed between 2006 and 2011, which includes BOB and BOc. location: Status: Description: ownership: Year of completion: Bucharest / new cBs standing property Residential complex comprising two towers 100% 2011 appraised value “as is”: €101.2 million gla: occupancy: contracted rent: wall: Selected tenants: 56,662 sqm commercial: 99.3%/Residential: 47.8% €2.4 million 7.4/1.9 years Worldclass, delhaize Group, marfin Bank, subway, starbucks, sensiblue note: All data as of 31 december 2016. Modern two-tower residential complex, offering high quality residential units and supporting amenities. 92 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 93 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – sTAndinG/undeR deVeLOpmenT cOnTinued taP The Timisoara Airport Park (‘TAP’), is a light-industrial complex located in the North-East of Timisoara. The property is in close vicinity to the international airport and benefits from easy access to the fourth European Corridor. location: Status: Description: ownership: Timisoara (Western Romania) standing/under development property Light-industrial complex 100% The complex has been developed in phases and offered total GLA of 81.3k sqm at the end of 2016. in Q1-17 total GLA reached 94.9k sqm following the delivery of a new facility leased to Valeo Lighting, and is expected to increase further to c.102.9k sqm by Q3-17 following the delivery of the facility under development for Litens Automotive. Year of completion: 2011 – 2017e appraised value “as is”: €50.4 million appraised value “completion”: €64.8 million TAp is almost exclusively let to Valeo Lighting, continental, elster Rometrics and Litens Automotive. gla: 81,349 sqm (Q1-17: 94,877 sqm + 8,000 sqm under construction) The complex has maximum capacity of total GLA of c.131.4k sqm. occupancy: 97.3% contracted rent: €4.4 million (incl. pre-lettings under construction) wall: 11.1 years Selected tenants: continental, Valeo, elster, Litens note: All data as of 31 december 2016. High quality and fast growing light-industrial and logistics complex. 94 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 95 95 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – deVeLOpmenTs cOnTinued gloBalwortH camPUS “Globalworth Campus” is a Class “A” office development located in the northern part of Bucharest on Dimitrie Pompeiu street. location: Status: The site for the development of Globalworth campus was acquired in 2013 and 2014 and is subsequently being developed by Globalworth. Description: Bucharest/new cBd development/under construction class “A” multi-tenanted office complex phase “A”, currently under construction, will comprise two (side) towers facing dimitrie pompeiu street (main street) offering upon completion a total GLA of c.56.9k sqm. The two towers are expected to be delivered in Q2-17 and Q1-18 respectively and will extend over 12 floors (each) above ground and will have two underground levels. phase “B” will comprise of a third tower offering an additional GLA of c.31.7k sqm. ownership: 100.0% Year of completion: 2017e / 2018e appraised value “as is”: €70.4 million appraised value “completion”: €170.9 million gla: 88,650 sqm (phase “A”: 56,900 sqm) The development is expected to received BReeAm Very Good/ excellent certification following its completion. note: All data as of 31 december 2016. Class “A” office complex development of three towers located in the New CBD. 96 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 97 overview Strategic review Portfolio review governance financial StatementS pORTfOLiO ReVieW – 2017 AnnOunced AcQuisiTiOns cOnTinued Dacia wareHoUSe The “Dacia Warehouse”, is a modern warehouse located in Pitesti (central Romania), 100km west of Bucharest near the Bucharest-Pitesti motorway, one of the country’s principal warehouse and industrial corridors. The property is leased solely to Automobile dacia, offering c.68.4k sqm of GLA, and is one of the Renault Group’s largest spare parts and accessories distribution centres outside of france. Globalworth announced the acquisition of “dacia Warehouse” in february 2017. location: Status: Description: ownership: Year of completion: pitesti (central Romania) standing property modern Warehouse 100% 2010 appraised value “as is”: €42.5m (transaction value) gla: occupancy: 68,412 sqm 100.0% contracted rent: €4.1 million wall: 8.3 years (as of 27 mar. ‘17) Selected tenants: Automobile dacia 98 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnciAL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 99 99 OvERvIEW STRATEGIC REvIEW PORTFOLIO REvIEW GOvERNANCE FINANCIAL STATEMENTS GOVERNANCECorporate Governance Report Directors’ Report Remuneration Committee Report 102 104 107 Audit Committee Report 109 100 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 101 cORpORATe GOVeRnAnce RepORT Introduction The Board of directors is committed to high standards of corporate governance and has put in place a framework for corporate governance which it believes is appropriate considering its type of activities and size. Corporate Governance Principles The company has continued to comply voluntarily with the main principles of good governance set out in the uK corporate Governance code (the ‘uK code’). The Board believes that the company has complied throughout the year ended 31 december 2016 with the provisions set out in the uK code, subject to the statements made below in this section. Board of Directors introduction during the year ended 31 december 2016 the Board comprised the chairman, who is a non-executive director, two executive directors and five other non-executive directors. On 27 february 2017, an additional four non-executive directors were appointed as members of the Board. The Articles of incorporation of the investment Adviser (Globalworth investment Advisers Limited, a direct wholly owned subsidiary of the Group) provide that the Board of directors of the investment Adviser comprises two executive directors (ioannis papalekas and dimitris Raptis) and two non-executive directors (Geoff miller and John Whittle). As at 31 december 2016, with the exception of the company and the investment Adviser, there are no common directorships between members of the Board. Chairman The chairman of the Board is Geoff miller. in considering the independence of the chairman, the Board has taken note of the provisions of the uK code relating to independence and, at the quarterly Board meeting held in december 2016, it has appointed eli Alroy as the senior independent director of the company. Directors Directors’ Duties and responsibilities The directors are responsible for the determination and oversight of the company’s investing policy and strategy and have overall responsibility for the company’s activities, including the review of its investment activity and performance, and the activities and performance of the management Team. details on the profile, experience and date of appointment of the executive and non-executive directors are set out on pages 56-59 of the Annual Report. Committees of the Board The committees of the Board comprise the Remuneration committee, the Audit committee and the investment committee, with terms of reference briefly summarised below. further details about the Remuneration committee and the Audit committee and on their work during the year are provided in the Remuneration committee Report and the Audit committee Report on pages 107-108 and pages 109-111, respectively, of the Annual Report. The investment committee was formed in february 2017. The committee consists of eli Alroy (chairman of the committee), ioannis papalekas, dimitris Raptis, norbert sasse and George muchanya. The investment committee was formed primarily for the purpose of considering: ¡ all acquisitions, disposals and developments or redevelopments of physical property assets and letting enterprises in accordance with the thresholds set out in the delegated authority framework; ¡ capital expenditure, including refurbishments and developments or redevelopments of physical property assets and letting enterprises in accordance with the thresholds set out in the delegated authority framework; ¡ periodic review of systems and processes for due diligence reviews relative to acquisitions of physical property assets and letting enterprises; ¡ annual budgets for capital expenditure; ¡ annual valuations of physical property assets and letting enterprises; ¡ philosophy, policies and strategy in respect of investment in physical property assets and letting enterprises; ¡ loan and debt securitisation within the thresholds set out in the delegated authority framework; and ¡ lease agreements and amendments thereto within the thresholds set out in the delegated authority framework, and making recommendations in respect thereof to the Board or any appropriate committee of the Board of the company. during the year, we appointed a compliance Officer in the uK whose responsibilities include providing the Group with guidance and advice on regulatory and compliance matters, as well as company secretarial support. overview Strategic review Portfolio review governance financial StatementS Shareholder Communications A report on shareholder communications is considered at each Board meeting. A quarterly announcement is published on the company’s website, reporting the quarter-end net asset value. Regular trading updates are also posted on the company’s website with commentary on significant events in the evolution of the company’s portfolio and performance. The company’s senior management and its brokers maintain regular dialogue with institutional shareholders, feedback from which is reported to the Board. in addition, Board members are available to answer shareholders’ questions at any time, and specifically at the Annual General meeting (‘AGm'). The company secretary is available to answer general shareholder queries at any time during the year. The Board monitors activity in the company’s shares and the discount or premium to net asset value at which the shares trade both in absolute terms and relative to the company’s peers. Board Meetings, Committee Meetings and Directors’ Attendance The number of meetings of the Board of directors, the Audit committee and the Remuneration committee attended by each director, as applicable, during the year ended 31 december 2016 is set out below. Quarterly Board Meetings Ad-hoc Board Meetings Board Committee Meetings Board Meetings (Total) Audit Committee Remuneration Committee eligible to eligible to eligible to eligible to eligible to eligible to Attend Attended Attend Attended Attend Attended Attend Attended Attend Attended Attend Attended ioannis papalekas dimitris Raptis Geoff miller eli Alroy John Whittle Akbar Rafiq Alexis Atteslis Andreea petreanu 4 4 4 4 4 4 4 4 4 4 4 4 3 3 4 4 14 14 15 15 15 9 6 15 10 14 14 12 11 3 2 12 – 1 1 – 1 – – – – 1 1 – 1 – – – 18 19 20 19 20 13 10 19 14 19 19 16 15 6 6 16 – – 3 – 3 – – 3 – – 3 – 3 – – 3 – – 4 4 4 – – – – – 2 3 4 – – – Nomination Committee The Board as a whole fulfils the function of a nomination committee. The size and independence of the Board is such that it is considered that the function of such a committee is best carried out by the Board as a whole. Any proposal for a new director will be discussed and approved by the Board, however, significant shareholders (ioannis papalekas and Growthpoint properties Ltd) have the power to appoint additional directors. in accordance with the company’s Articles of incorporation, each of Growthpoint and Zakiano Holdings Limited may nominate and appoint one non-executive director for every eight per cent. of the issued shares in the share capital in the company which it holds. Growthpoint and Zakiono enterprises Limited are also each entitled to nominate one of the Guernsey resident directors (a minimum of two Guernsey resident directors are required pursuant to the Articles). Management Engagement Committee no separate management engagement committee has been constituted to date as the monitoring of management is considered a primary function of the Board. Performance evaluation The Board formally considers on an annual basis its effectiveness as a Board, the balance of skills represented and the composition and performance of its committees. The Board considers that it has an appropriate balance of skills and experience in relation to the activities of the company. The chairman evaluates the performance of each of the directors on an annual basis, taking into account the effectiveness of their contributions and their commitment to the role. The performance and contribution of the chairman is reviewed by the other directors under the leadership of the chairman of the Remuneration committee. An evaluation of the performance of the Board members who served during the entire year ended 31 december 2016 has been undertaken. The performance of the chairman of the Board was also evaluated by the other directors under the leadership of the chairman of the Remuneration committee. The result of the evaluation carried out was that all directors’ performance is in line with the expectations set out at the point of their appointment to the Board. independence evaluation The Board will consider the independence of each member of the Board at the next quarterly Board meeting, within June 2017. tenure and re-election of Directors in accordance with the company’s Articles of incorporation, the company’s non-executive directors, except Akbar Rafiq and Alexis Atteslis (nominated and appointed by York capital and Oak Hill Advisors, respectively), as well as norbert sasse, George muchanya, peter Henry fechter and Richard van Vliet (nominated and appointed by Growthpoint properties Ltd), shall retire from office annually and may offer themselves for re-election by the members. At the next AGm Geoff miller, John Whittle, eli Alroy, and Andreea petreanu are required to retire from office and offer themselves for re-election. Geoff miller, John Whittle, eli Alroy, and Andreea petreanu will stand for re-election at the forthcoming AGm. The Board has reviewed their skills and experience and is recommending their re-election to shareholders. moreover, ioannis papalekas and dimitris Raptis are not required to submit themselves for re-election, unless required to do so by a two-thirds vote of the company. Diversity The details are provided on page 61 of the Annual Report. 102 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 103 diRecTORs’ RepORT The directors present their Annual Report and the audited consolidated financial statements of the Group for the year ended 31 december 2016. Directors’ Indemnities The company maintains qualifying third-party indemnity provisions in the form of a directors’ and Officers’ insurance policy for the benefit of its directors, which were made during the year and remain in force at the date of this report. Investment Policy The Group’s investment strategy focuses on generating attractive risk-adjusted returns, made up of a combination of yield and capital appreciation, by investing in a diversified portfolio of properties. Key highlights of the company’s investment policy are presented below: Profile of Underlying investments ¡ focus on commercial assets (existing or to be developed); ¡ Geographically located in south-eastern europe/central and eastern europe with a primary focus on Romania; ¡ most of the income to be derived from multinational corporates and financial institutions; and ¡ euro-denominated, long-term, triple net and annually indexed leases, with corporate guarantees where possible. investment themes ¡ distressed investments ¡ Acquisition of unfinished or partially let commercial buildings at prices below replacement cost; ¡ Restructuring; ¡ Acquisition of real estate owned by financial institutions or others seeking to restructure their balance sheets through monetisation; and ¡ developments with pre-lettings from high-quality tenants. The complete investment policy of the company can be found on its website under investor Relations/Aim Rule 26 disclosures and on page 149 of the Annual Report. Results and Dividends The results for the year are set out in the consolidated statement of comprehensive income on page 114 of the Annual Report. The company has announced its intention to distribute a dividend of €0.22 per share, payable in respect of the six-month financial period ending on 30 June 2017, to holders of shares at that time and a dividend of €0.22 per share, payable in respect of the six-month financial period ending on 31 december 2017. for subsequent years, the intention of the company is to distribute the equivalent of 90% of the company’s funds from Operations (ffO). Going Concern As disclosed in note 1 of the consolidated financial statements, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the consolidated financial statements as the company expects to have access to adequate financial resources to continue in operational existence for the foreseeable future. Ongoing Charges in accordance with the recommended methodology set out by the Aic, the ongoing charges ratio of the Group for the year ended 31 december 2016 was 0.87% (2015: 0.98%), excluding exceptional costs. no performance fees were charged during the year. Supply of Information to the Board The Board meetings are the principal source of regular information for the Board, enabling it to determine policy and to monitor performance and compliance. A representative of the investment Adviser attends each Board meeting, thus enabling the Board to discuss fully and review the company’s operations and performance. each director has direct access to the company secretary and may, at the expense of the company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. Delegation of Functions The Board has contractually delegated to external agencies the custodial services and the accounting and company secretarial requirements of the company and some of its subsidiaries. each of these contracts were entered into after full and proper consideration of the quality and cost of services offered. Investment Adviser under the investment Advisory Agreement, the company has appointed the investment Adviser, a wholly owned subsidiary of the Group, subject to the overall control and supervision of the Board of the company, to act as investment Adviser. The investment Adviser has no authority to act for or represent the company (or any other member of the Group) in any other capacity. The appointment is on an exclusive basis. The investment Adviser is obliged to advise in respect of potential and actual investments of the company in pursuit of the company’s investing policy, subject to any applicable investment restrictions and having regard to any investment guidelines. subject to any applicable law, the investment Adviser complies with all reasonable instructions issued by the Board (so long as these are not outside the investing policy as recorded in the admission document or contrary to the exclusivity of the investment Adviser in relation to the company’s investment activities). overview Strategic review Portfolio review governance financial StatementS The investment Adviser is entitled to fees as approved by the Board, following recommendation by the Remuneration committee of the Board. At quarterly Board meetings the investment Adviser summarises its activities, proposals and achievements and the independent directors review the performance of the investment Adviser and the executive directors in relation thereto. Having considered the portfolio performance and investment strategy, the Board has agreed that the interests of the shareholders as a whole are best served by the continuing appointment of the investment Adviser on the terms agreed. Substantial Interests At 31 december 2016, the following shareholders had substantial interests (more than 3%) in the issued share capital of the company: Growthpoint properties Ltd ioannis papalekas York capital Oak Hill Advisors Gordel Holdings Limited % of issued share capital of the Company 26.9% 25.7% 18.8% 11.2% 4.2% number of shares 24,300,000 23,277,101 17,020,326 10,169,574 3,835,141 Directors’ Interests At 31 december 2016 and 2015, directors held (either directly or through companies controlled by them) the following declarable interests in the company: Number of shares held Number of warrants held ioannis papalekas dimitris Raptis Geoff miller eli Alroy John Whittle Akbar Rafiq Alexis Atteslis Andreea petreanu 2016 2015 2016 2015 23,277,101 22,603,792 4,245,030 110,000 11,000 260,000 9,000 – – – 352,407 11,000 398,814 9,000 – – – 193,348 11,000 358,814 9,000 – – – 4,245,030 110,000 11,000 260,000 9,000 – – – The Group has granted a number of warrants to ioannis papalekas (‘the founder’), dimitris Raptis, Geoff miller, eli Alroy and John Whittle. pursuant to the warrant agreements, the warrants confer the right to subscribe, at the placing price, for a specific number of Ordinary shares. The warrants will vest and become exercisable when the market price of an Ordinary share, on a weighted average basis over 60 consecutive days, exceeds a specific target price. The warrants, subject to vesting, are exercisable in whole or in part during the period commencing on Admission and ending on the date falling 10 years from the date of Admission. founder warrant agreement On 24 July 2013 the company entered into a warrant agreement with ioannis papalekas and Zorviani Limited under which the company agreed to issue at, and subject to, Admission to Zorviani Limited three tranches of warrants, each representing 5% of the aggregate of the placing shares and the Ordinary shares subscribed by Zorviani Limited (or other founder companies), pursuant to the founder Admission subscription and the founder equity for Assets subscriptions, subject to the market price per Ordinary share being at least €7.50, €10.00 and €12.50 (respectively) as a weighted average over a period of 60 consecutive days (each a ‘market price Vesting Threshold’). in each case, the subscription price will be €5.00. Director warrant agreement On 24 July 2013 the company entered into a warrant agreement with dimitris Raptis, eli Alroy, Geoff miller and John Whittle under which the company agreed to issue to such persons at, and subject to, Admission, warrants over 110,000, 260,000, 11,000 and 9,000 (respectively) Ordinary shares, subject to the market price per Ordinary share being at least €7.50 as a weighted average over a period of 60 consecutive days (the ‘market price Vesting Threshold’). in each case, the subscription price will be €5.00. Auditors The auditors, ernst & Young LLp, have indicated their willingness to continue in office. Accordingly, a resolution for their reappointment will be proposed at the forthcoming AGm. Power to Buy Back Shares The company has the power to buy back shares in the market, the renewal of which power is sought from shareholders on an annual basis at the AGm, and the Board considers on a regular basis the exercise of those powers. The Board did not consider it appropriate to exercise such powers during the year ended 31 december 2016. 104 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 105 diRecTORs’ RepORT cOnTinued RemuneRATiOn cOmmiTTee RepORT overview Strategic review Portfolio review governance financial StatementS Annual General Meeting The AGm of the company will be held on 19 June 2017 at 10am British summer Time at Ground floor, dorey court, Admiral park, st peter port, Guernsey. Statement of Directors’ Responsibilities The directors are responsible for preparing the directors’ Report and the consolidated financial statements in accordance with applicable law and regulations. The directors are required to prepare consolidated financial statements for each financial year in accordance with international financial Reporting standards (‘ifRs'), as adopted by the european union (‘eu'), and applicable law. The consolidated financial statements are required by law to give a true and fair view of the state of affairs at the end of the year and of the profit or loss for that year. in preparing these consolidated financial statements, the directors are required to: ¡ select suitable accounting policies and then apply them consistently; ¡ make judgements and estimates that are reasonable and prudent; ¡ state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and ¡ prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for ensuring that the company maintains proper accounting records which disclose, with reasonable accuracy at any time, the financial position of the company and to enable them to ensure that the consolidated financial statements comply with the companies (Guernsey) Law 2008, as amended. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities. The directors confirm to the best of their knowledge that: ¡ so far as each of the directors is aware, there is no relevant audit information of which the company’s auditor is unaware, and each has taken all the steps he or she ought to have taken as a director to make himself or herself aware of any relevant information and to establish that the company’s auditor is aware of that information; ¡ these consolidated financial statements have been prepared in conformity with ifRs, as adopted by the eu, and give a true and fair view of the financial position of the Group; and ¡ this Annual Report and consolidated financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholders to assess the company’s performance, business model and strategy. Approved by the Board of directors and signed on behalf of the Board on 3 April 2017. John Whittle director Composition of the Committee Throughout the year ended 31 december 2016, the Remuneration committee comprised three independent non-executive directors: John Whittle (chairman of the Remuneration committee), Geoff miller and eli Alroy. On 27 february 2017 the composition of the Remuneration committee changed pursuant to the new Articles of Association of the company. John Whittle stepped down as chairman of the Remuneration committee and Geoff miller was appointed as its chairman. At the same time peter fechter joined the Remuneration committee. The Remuneration committee has as its remit, amongst other matters, the determination and review of the fees payable to Globalworth investment Adviser (‘GiAL'), the company’s subsidiary, and the related emoluments of the executive directors and other senior executives of the company who are preference shareholders of GiAL and the terms of any performance or incentive plans of the investment Adviser, including the setting of performance thresholds, the allocation of any such entitlements as between shares and cash and the setting of any vesting periods (in each case, taking such independent advice as it considers appropriate in the circumstances). in addition, the Remuneration committee prepares an Annual Report on the remuneration policies of the company. The emoluments of the non-executive directors is a matter for the Board. no director or manager may be involved in any decisions as to his own emoluments. The complete details of the Remuneration committee’s formal duties and responsibilities are set out in its terms of reference, which can be found on the company’s website. Directors’ Remuneration Policy directors’ emoluments comprise a fee or salary based compensation plus, in the case of the executive directors dividends in their capacity as preference shareholders of GiAL, all in accordance with the new fee arrangement plan for the investment Adviser (the ‘plan’), which was approved by the company’s shareholders in november 2016. during the year ended 31 december 2016, four meetings of the Remuneration committee were held. Directors’ Emoluments The directors’ emoluments during the year ended 31 december 2016 comprised a fixed level of salary and/or fees, plus dividends from GiAL in the case of the two executive directors. during the year ended 31 december 2016 the emoluments of the directors were as follows and refer to note 28 to the financial statements for other transactions with directors: Amounts in €‘000 ioannis papalekas dimitris Raptis Geoff miller eli Alroy John Whittle Akbar Rafiq Alexis Atteslis Andreea petreanu fees – – 150 200 61 – – 49 460 company subsidiaries1 dividends2 fees salary Total 871 150 – – – – – – 871 150 30 – 30 – – – 1,400 600 – – – – – – Total3 emoluments 2,271 750 180 200 91 – – 49 1,021 1,081 2,000 3,541 – – 30 – 30 – – – 60 1 Globalworth investment Advisers Limited (‘GiAL') and Aserat properties sRL for ioannis papalekas, and GiAL for dimitris Raptis. 2 The executive directors receive dividends in their capacity of preference shareholders of GiAL, the amount of which depends on the performance and profitability of GiAL. GiAL provides investment advisory services to the company and is rewarded for the services it provides pursuant to the investment management Agreement signed on 24 July 2013, as amended from time to time (the ‘imA'). for ioannis papalekas dividends include an accrual of €1.4 million (c.€0.27 million to be settled in cash and c.€1.13 million by the issuance of shares of the company); and for dimitris Raptis dividends include an accrual of €0.4 million (c.€0.12 million to be settled in cash and c.€0.28 million by the issuance of shares of the company). 3 The amounts indicated represent accrued amounts corresponding to the period during which the beneficiaries were members of the Board. Out of the amounts disclosed in the above table €1.8 million was payable to the directors as of 31 december 2016. An additional amount of €5,729 was due to the directors as of 31 december 2016 for out-of-pocket expenses incurred, which was settled subsequent to 31 december 2016. 106 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 107 RemuneRATiOn cOmmiTTee RepORT cOnTinued AudiT cOmmiTTee RepORT overview Strategic review Portfolio review governance financial StatementS during the year ended 31 december 2015 the emoluments of the directors were as follows: Amounts in €‘000 ioannis papalekas dimitris Raptis Geoff miller eli Alroy John Whittle Akbar Rafiq Alexis Atteslis Andreea petreanu company subsidiaries1 dividends2 fees – – 70 200 69 – – 56 395 fees salary Total Total3 emoluments – – 35 – 35 – – – 70 575 150 – – – – – – 725 575 150 35 – 35 – – – 2,500 725 – – – – – – 3,075 875 105 200 104 – – 56 795 3,225 4,415 1 Globalworth investment Advisers Limited (‘GiAL') and Aserat properties sRL for ioannis papalekas, and GiAL for dimitris Raptis. 2 The executive directors receive dividends in their capacity of preference shareholders of GiAL, the amount of which depends on the performance and profitability of GiAL. GiAL provides investment advisory services to the company and is rewarded for the services it provides pursuant to the investment management Agreement signed on 24 July 2013, as amended from time to time (the ‘imA'). for ioannis papalekas dividends include an accrual of €2.5 million and for dimitris Raptis dividends include an accrual of €0.575 million. Out of the amounts outstanding at 31 december 2015, €50,000 represent dividends declared and settled subsequent to 31 december 2015. 3 The amounts indicated represent accrued amounts corresponding to the period during which the beneficiaries were members of the Board. Out of the amounts disclosed in the above table €3.075 million was payable to the directors as of 31 december 2015. An additional amount of €29,742 was due to the directors as of 31 december 2015 for out-of-pocket expenses incurred. Out of the amounts due to the directors at 31 december 2015, €50,000 was settled subsequent to 31 december 2015. Founder and Director Warrant Agreements please refer to page 105 of the Annual Report for details on the founder and director Warrant Agreements concluded on 24 July 2013. Performance Incentive Scheme The company, following approval from its shareholders in november 2016, has set up a performance incentive scheme for the investment Adviser, applicable from 1 January 2016. The plan comprises the following three main elements: ¡ a fixed annual fee which includes the payment of an amount by way of profit margin to the investment Adviser for the relevant financial year; ¡ an annual incentive amount based on the achievement of targets set at the start of the relevant year; and ¡ a more long-term incentive fee, primarily based on achieving certain returns for shareholders.. Geoff Miller Remuneration committee chairman 3 April 2017 Introduction We present below the Audit committee (‘the committee’) Report for the year ended 31 december 2016. Structure and Composition during the year ended 31 december 2016, the Audit committee comprised three independent non-executive directors: John Whittle (chairman of the Audit committee), Geoff miller and Andreea petreanu. On 27 february 2017 the composition of the Audit committee changed pursuant to the new Articles of Association of the company and Geoff miller stepped down as a member of the committee. At the same time Richard van Vliet joined the Audit committee. Activities of the Committee during the year ended 31 december 2016 and up to the date of this report the committee has been active in the following areas, presented below under the three key areas of focus of financial reporting, controls and safeguards, and external audit: Financial Reporting: ¡ reviewed the Annual Report for the years ended 31 december 2015 and 31 december 2016 prior to their approval by the Board; and ¡ reviewed the interim Report and unaudited interim consolidated financial statements for the half year ended 30 June 2016 prior to their approval by the Board. The chairman of the committee is appointed by the Board and the members are appointed by the Board, in consultation with the chairman of the committee. The committee shall have a minimum of two members. All members of the committee shall be independent non-executive directors with relevant financial experience. John Whittle’s profile and relevant experience is presented in the Board of directors sub-section of the Annual Report (page 57). Principal Duties of the Committee The role of the committee includes the following: ¡ financial Reporting: The committee has had regular contact with management during the process of preparation of the Annual Report and consolidated financial statements and the auditor during the audit thereof. in planning its work and reviewing the audit plan with the auditor, the committee took account of the most significant issues and risks, both operational and financial, likely to have an impact on the Group’s financial statements and selected the following as the most significant issues impacting the company’s financial statements and Annual Report disclosures: ¡ investment property appraisal process; ¡ accounting for business acquisitions and disposals; ¡ use of the going concern principle as a basis for preparation of the – monitoring the integrity of the consolidated financial financial statements; – statements and any formal announcements regarding financial performance; reviewing and reporting to the Board on the significant issues and judgements made in the preparation of the Group’s published financial statements, preliminary announcements and other financial information having regard to matters communicated by the independent auditors; and – assessing whether the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company’s performance, business model and strategy. ¡ controls and safeguards: – keeping under review the effectiveness of the company’s – internal controls and risk management systems; reviewing the company’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters and ensuring that these arrangements allow proportionate and independent investigation of such matters and appropriate follow-up action; and – considering annually whether there is a need for the company to have its own internal audit function. ¡ external Audit: – reviewing the effectiveness of the external audit process and the auditor’s independence; – considering and making recommendations to the Board on the appointment, reappointment, replacement and remuneration of the company’s independent auditor; – developing and implementing a policy on the engagement of – the external auditor to supply non-audit services; and reporting to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken. The complete details of the committee’s formal duties and responsibilities are set out in the committee’s terms of reference, which can be found on the company’s website. ¡ underlying cash flow projections and sensitivity analysis supporting the viability statement; and ¡ compliance with the fair, balanced and understandable principle. investment Property valuations Valuations for investment property, property under construction and land bank are prepared by an external valuer, cBAR Research & Valuation Advisors sRL (‘coldwell Banker’). The valuation of the investment property is inherently subjective, requiring significant estimates and assumptions by the valuer. errors in the valuation could have a material impact on the Group’s net assets value. further information about the portfolio and inputs to the valuations are set out in note 3 of the consolidated financial statements. The Board and the committee discuss the outcome of the valuation process and the details of each property on a semi-annual basis. The management liaise with valuers on a regular basis and meet them on a semi-annual basis prior to the finalisation of the portfolio valuation. The external auditor has access to the external valuer and comments on the key assumptions used in the valuations performed and movements on property values. The committee receives a detailed written report from ernst & Young (‘eY') presented to the committee upon finalisation of the audit fieldwork. accounting for acquisitions and Disposals The committee notes that there is judgement involved in identifying and valuing the consideration given and the fair value of the assets acquired in a business combination, or in the acquisition of assets. The committee also notes that there is judgement involved in the accounting for disposals, particularly around the valuation of the consideration receivable. However, during the year ended 31 december 2016 there were no new acquisitions and only a disposal of a subsidiary in Greece, in connection with which the company recorded the related investment property under assets held for sale at 31 december 2015 at a carrying value equal to the disposal proceeds received. 108 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 109 overview Strategic review Portfolio review governance financial StatementS audit fees and non-audit Services The table below summarises the remuneration of ernst & Young LLp and other entities of eY during the years ended 31 december 2016 and 31 december 2015: Audit of financial statements Other assurance services Other non-audit services Audit fees €‘000 non-audit fees €‘000 2016 416 – – 416 2015 365 41 – 406 2016 – – 276 276 2015 – 11 302 313 The committee has reviewed the level of non-audit fees of the external auditor for the year ended 31 december 2016 and has considered that they are in line with the Group’s level of development and concluded that they relate to permissible non-audit services under the auditor’s independence and other related professional standards. Reviewed the effectiveness of the external auditor and recommended its reappointment to the Board: for the year ended 31 december 2016 the committee reviewed the effectiveness of the external auditors. This was facilitated through: the completion of a questionnaire by the relevant stakeholders (including members of the committee and key financial management of the Group); interviews with finance staff; and a review of the audit plan and process for the year. The committee has also reviewed and considered the findings of the latest Annual Audit Quality inspection Report of the fRc for ernst & Young LLp, dated may 2016. in addition, the chairman of the Audit committee discussed with the external auditor in march 2017 their preliminary findings on the audit of the consolidated financial statements for the year ended 31 december 2016. furthermore, the chairman of the Audit committee discussed with the external auditor in march 2017 their final findings on the audit of the Annual Report and consolidated financial statements for the year ended 31 december 2016 and their draft audit opinion thereon. Local statutory audits of individual subsidiary companies are also required in some jurisdictions in which the Group operates. eY Romania and eY cyprus carry out these audits in Romania and cyprus, respectively. following this review, the committee recommended to the Board that ernst & Young LLp be reappointed as external auditors for the year ending 31 december 2017. for any questions on the activities of the committee not addressed in this report, a member of the Audit committee remains available to attend each Annual General meeting to respond to such questions.. John Whittle Audit committee chairman 3 April 2017 AudiT cOmmiTTee RepORT cOnTinued going concern Principle The committee has considered management’s assessment and conclusion of continuing to use the going concern assumption as a basis of preparation of the company’s financial statements, as supported by detailed cash flow projections for the period up to 30 June 2018 and supporting documentation. following their review of the management’s assessment, the committee concurred with management’s conclusion to continue using the going concern assumption as a basis of preparation of the company’s financial statements. Underlying cash flow projections and sensitivity analysis supporting the viability statement The committee has considered management’s viability analysis, including the underlying cash flow projections for the three year period to 31 march 2020, sensitivity analysis, results and conclusion. following their review of the viability analysis, the committee concurred with management’s conclusion as reflected in the viability statement on page 55. fair, Balanced and Understandable Principle The committee has considered the Annual Report and financial statements and, taken as a whole, consider them to be fair, balanced and understandable and provide the information necessary for shareholders to assess the company’s performance, financial position, business model and strategy. External Audit: Held regular meetings and discussions with the external auditor: ¡ The chairman of the committee held discussions with the auditor at the planning phase and at the end of the audit at the reporting stage, before the approval of the company’s consolidated financial statements and Annual Report for the year ended 31 december 2016. ¡ At the planning stage of the audit for the year ended 31 december 2016, the chairman of the committee met the auditor in november 2016. during this meeting the draft audit plan was presented, reviewed and discussed, as well as a discussion held regarding the risks on which the audit would be focusing. The auditor explained that the risks the audit would focus on were the following: – valuation of investment property whether in use or under – – development; revenue recognition, lease incentives and other special clauses; and risk of misstatement due to fraud and error (associated to the significant risks). in addition, the chairman of the committee met in march 2017 with the external auditor and discussed the findings from their audit of the draft Annual Report and their draft audit report for the year ended 31 december 2016, prior to submission of the draft Annual Report to the Board for formal approval. The committee has reviewed the company’s Annual Report and financial statements for the year ended 31 december 2016 and has advised the Board that, in its opinion, the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary to assess the company’s performance, operating model and strategy. Controls and Safeguards: ¡ reviewed the risk matrix used to identify and monitor the significant risks encountered by the Group, as well as the analysis underlying the viability report; ¡ reviewed the principal risks and uncertainties identified by management and the update thereof during 2016, presented on pages 50-54 of the Annual Report; ¡ performed an assessment of the internal controls of the Group and in particular the controls over the most significant financial reporting risks: – The Audit committee reviewed the report on controls over identified significant financial reporting risks, prepared by management and submitted to the Audit committee by the company’s chief financial Officer, and concluded that the related internal control environment is adequate considering the current size and activities of the company and its subsidiaries; and ¡ considered whether there is a need for an internal audit function: – The committee does not consider at present to be a need for an internal audit function, given the size of the Group and the fact that its internal control procedures are still under development so as to align these to the level of continuous development of the Group’s activities. The committee has met with the external auditor to discuss in detail the findings and recommendations based on their audit for the year ended 31 december 2016. Assessed the independence and objectivity of the external auditor: ernst & Young LLp has been appointed the company’s independent auditor from the date of the initial listing on the Aim market of the London stock exchange in July 2013. The committee considers the reappointment of the external Auditor, including rotation of the audit partner. The uK corporate Governance code recommends that the independent audit of fTse 350 companies is put out to tender every 10 years. The committee will continue to follow the developments around the financial Reporting council’s (‘fRc') related guidance on tendering at the appropriate time. in addition, the external Auditor is required to rotate the audit partner responsible for the Group’s audit every five years. The auditor has confirmed to the Audit committee its independence of the Group. The independence and objectivity of the independent auditor is reviewed by the committee, which also reviews the terms under which the independent auditor is appointed to perform non-audit services, in accordance with the company’s non-audit services policy which has been in effect since november 2015. services which are permissible in accordance with the auditor’s independence and other professional standards as well as the company’s non-audit services policy, such as tax compliance, accounting and disclosure advice, special purpose audits, periodic reviews of financial information, and pre-acquisition due diligence reviews, are normally permitted to be performed by the independent auditor. 110 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 111 OvERvIEW STRATEGIC REvIEW PORTFOLIO REvIEW GOvERNANCE FINANCIAL STATEMENTS FINANCIAL STATEMENTSConsolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Section I: Basis of Preparation Section II: Investment Property Section III: Financial Results Section IV: Financial Assets and Liabilities Section V: Share Capital and Reserves Section VI: Business Combinations and Related Disclosures Section VII: Other Disclosures Independent Auditor’s Report to the Members of Globalworth Real Estate Investments Limited Investing Policy Schedule of Properties Glossary Company Directory 114 115 116 117 118 119 123 128 134 137 139 143 149 150 152 155 112 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 GLOBALWORTH ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 113 cOnsOLidATed sTATemenT Of cOmpReHensiVe incOme fOR THe YeAR ended 31 decemBeR 2016 cOnsOLidATed sTATemenT Of finAnciAL pOsiTiOn As AT 31 decemBeR 2016 overview Strategic review Portfolio review governance financial StatementS Revenue Operating expenses Net operating income Administrative expenses Acquisition costs fair value movement Bargain purchase gain on acquisition of subsidiaries Gain on sale of subsidiary share-based payment expense depreciation on other long-term assets Other expenses Other income foreign exchange loss Profit before net financing cost Net financing cost – finance cost – finance income Profit before tax income tax expense Profit for the year Other comprehensive income Attributable to equity holders of the company Earnings per share – Basic – diluted EPRA earnings per share – Basic – diluted note 7 8 9 3 25 22 7 2016 €’000 68,231 (24,678) 43,553 (7,707) (105) 6,710 – 272 (14) (183) (1,857) 3,111 (119) 2015 €’000 44,776 (16,406) 28,370 (10,201) (811) 49,422 17,227 – (125) (174) – – (249) 108 55,089 43,661 83,459 10 (32,222) 749 (21,472) 526 (31,473) (20,946) 12,188 62,513 11 (873) (11,092) 11,315 51,421 – – 11,315 51,421 Cents cents 12 12 12 12 17.57 17.56 13.34 13.33 92.01 92.01 (9.41) (9.41) ASSETS Non-current assets investment property Goodwill Advances for investment property Other long-term assets Other receivables prepayments Current assets Trade and other receivables Guarantees retained by tenants income tax receivable prepayments cash and cash equivalents investment property held for sale Total assets EQUITY AND LIABILITIES Total equity issued share capital unissued share capital share-based payment reserve Retained earnings equity attributable to equity holders of the company Non-current liabilities interest-bearing loans and borrowings deferred tax liability Guarantees retained from contractors finance lease liabilities deposits from tenants Trade and other payables Current liabilities interest-bearing loans and borrowings Guarantees retained from contractors Trade and other payables Other current financial liabilities finance lease liabilities deposits from tenants income tax payable Total equity and liabilities nAV per share diluted nAV per share epRA nAV per share note 2016 €’000 2015 €’000 3 24 5 17 17 18 25 20 21 22 15 11 16 15 16 19 13 13 13 980,892 12,349 2,454 722 1,183 1,022 937,119 12,349 3,993 661 2,193 1,020 998,622 957,335 10,807 277 411 348 221,337 – 13,114 79 583 1,638 37,036 10,353 233,180 62,803 1,231,802 1,020,138 538,114 8,584 2,139 166,557 341,784 – 2,655 155,242 715,394 499,681 375,570 70,575 33 – 2,261 2,188 261,287 70,413 957 5 1,485 3,278 450,627 337,425 38,665 2,394 20,726 3,574 4 374 44 143,024 3,277 32,275 3,935 18 428 75 65,781 183,032 1,231,802 1,020,138 Cents cents 791 782 857 798 798 908 The financial statements were approved by the Board of directors on 3 April 2017 and were signed on its behalf by: John Whittle director 114 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 115 overview Strategic review Portfolio review governance financial StatementS cOnsOLidATed sTATemenT Of cHAnGes in eQuiTY fOR THe YeAR ended 31 decemBeR 2016 cOnsOLidATed sTATemenT Of cAsH fLOWs fOR THe YeAR ended 31 decemBeR 2016 equity attributable to equity holders of the company As at 1 January 2015 shares issued for cash Transaction costs on issue of shares fair value of option warrants issued for executive share scheme shares granted to executive directors and other senior management employees Acquisition of minority interest profit for the year As at 31 December 2015 shares issued for cash Transaction costs on issue of shares Transaction costs on issue of shares settled in shares Transaction costs on issue of shares to be settled in shares fair value of option warrants issued for executive share scheme shares granted to executive directors and other senior management employees shares issued to the executive directors and other senior management employees shares issued for settlement of interest-bearing liability profit for the year issued share capital €’000 unissued share capital €’000 note 288,740 53,830 (786) – – – – 341,784 20 200,000 (22,191) 20 8,584 20 – – – – – – – – – – – 21 22 22.2 20 20 – – – 3,937 6,000 – 8,584 – – – – – share- based payment reserve €’000 180 – – 125 Retained earnings €’000 103,815 – – Total €’000 392,735 53,830 (786) – 125 2,350 – – – 6 51,421 2,350 6 51,421 non- controlling interests €’000 6 – – – – (6) – Total equity €’000 392,741 53,830 (786) 125 2,350 – 51,421 2,655 155,242 499,681 – 499,681 – – – – 14 3,407 (3,937) – – – – 11,315 – 200,000 (22,191) – 8,584 – – 200,000 (22,191) – 8,584 – – – – 8,584 14 3,407 – 6,000 11,315 – – – – – – 8,584 14 3,407 – 6,000 11,315 As at 31 December 2016 538,114 8,584 2,139 166,557 715,394 – 715,394 Profit before tax Adjustments to reconcile profit before tax to net cash flows fair value movement on investment property Bargain purchase gain on acquisition of subsidiaries Loss on sale of investment property Gain on sale of subsidiaries share-based payment expense depreciation on other long-term assets net movement in provision for doubtful debts foreign exchange loss net financing costs Operating profit before changes in working capital decrease in trade and other receivables (increase)/decrease in trade and other payables interest paid interest received income tax paid Cash flows from operating activities Investing activities expenditure on investment property under development payment for acquisition of subsidiaries less cash acquired proceeds from sale of subsidiary less cash disposed proceeds from sale of investment property Acquisition of other long-term assets Cash flows used in investing activities Financing activities proceeds from share issuance payment of transaction costs on issue of shares proceeds from interest-bearing loans and borrowings1 Repayment of interest-bearing loans and borrowings payment of loan arrangement fees payment of other financing costs Cash flows from financing activities Net increase in cash and cash equivalents cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year1 1 net of the €2.9 million (2015: €6 million) cash reserve, see note 18. note 2016 €’000 2015 €’000 12,188 62,513 3 25 22 16 25 20 (6,710) – 1,421 (272) 14 183 (98) 119 31,473 38,318 4,174 1,364 (23,171) 22 (795) (49,422) (17,227) – – 125 174 – 249 20,881 17,293 4,148 (2,896) (15,158) 78 (447) 19,912 3,018 (51,688) (1,894) 11,000 3,327 (244) (69,729) (114,406) – – (162) (39,499) (184,297) 200,000 (1,099) 222,703 (203,017) (5,543) (6,127) 53,830 (389) 155,634 (15,095) (3,622) – 206,917 190,358 187,330 9,079 18 18 31,036 21,957 218,366 31,036 116 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 117 secTiOn i: BAsis Of pRepARATiOn secTiOn ii: inVesTmenT pROpeRTY overview Strategic review Portfolio review governance financial StatementS This section contains the Group’s significant accounting policies that relate to the financial statements as a whole. significant accounting policies and related management’s estimates, judgements and assumptions in application of those policies specific to one note are included with that note. Accounting policies relating to non-material items are not included in these financial statements. 1. Basis of Preparation corporate information Globalworth Real estate investments Limited (‘the company’) is a company with liability limited by shares and incorporated in Guernsey. The Group’s registered office address, corporate profile, principal activities and nature of its operations are set out on pages 4 and 155 of the Annual Report. Basis of Preparation and compliance These consolidated financial statements have been prepared in accordance with the international financial Reporting standards (‘ifRs'), as adopted by the european union (‘eu') and in compliance with the companies (Guernsey) Law 2008, as amended. The directors believe that it is appropriate to adopt the going concern basis in preparing the consolidated financial statements. The directors based their assessment on the Group’s detailed cash flow projections for the period up to 30 June 2018. These projections take into account the latest contracted rental income, anticipated additional rental income from new lease agreements to be concluded during the period covered by the projections, as well as contracted debt financing, cApeX, and other commitments. The projections show that, in the period up to 30 June 2018, the company has sufficient resources to continue to fund ongoing operations and asset development without the need to raise any additional debt or equity financing or the need to reschedule existing debt facilities or other commitments. These consolidated financial statements have been prepared on a historical cost basis, except for investment property and derivatives which are measured at fair value. The significant accounting policies adopted are set out in the relevant notes to the financial statements and consistently applied throughout the periods presented except for the new and amended ifRs, see note 29, which were adopted on 1 January 2016. These consolidated financial statements are prepared in euro (‘euR' or ‘€’), rounded to the nearest thousand unless otherwise indicated, being the functional currency and presentation currency of the company. Basis of consolidation These consolidated financial statements comprise the financial statements of the company and its subsidiaries (‘the Group’) at 31 december. subsidiaries are fully consolidated (refer to note 26) from the date of acquisition, being the date on which the Group obtains control (refer to note 26), and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the period from the date of obtaining control to 31 december, using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full. non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated statement of financial position, separately from net assets and profit and loss attributable to equity holders of the company. foreign currency transactions and Balances foreign currency transactions during the year are initially recorded in the functional currency at the exchange rates approximating those ruling on the date of the transaction. monetary assets and liabilities denominated in foreign currencies other than the Group’s functional currency are retranslated at the rates of exchange prevailing on the statement of financial position date. Gains and losses on translation are taken to profit and loss. non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 2. Critical Accounting Judgements, Estimates and Assumptions The preparation of financial statements in conformity with ifRs requires management to make certain judgements, estimates and assumptions that affect reported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures and the disclosures of contingent liabilities. Selection of functional currency The company and its subsidiaries used their judgement, based on the criteria outlined in iAs 21 The effects of changes in foreign exchanges Rates, and determined that the functional currency of all the entities is the euR. items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates. consideration in determining the functional currency is given to the denomination of the major cash flows of the entity e.g. revenues and financing. As a consequence, the company uses the euR as the functional currency, rather than the local currency (ROn) for the subsidiaries incorporated in Romania, and pounds sterling (‘GBp') for the company and the subsidiary incorporated in Guernsey. further additional critical accounting judgements, estimates and assumptions are disclosed in the following notes to the financial statements: ¡ investment property, see note 3 and fair value measurement and related estimate and judgements, see note 4 ¡ commitments (operating leases commitments – Group as lessor), see note 6 ¡ Taxation, see note 11 ¡ Trade and other receivables, see note 17 ¡ Goodwill, see note 24 ¡ investment in subsidiaries, see note 26 This section focuses on the assets in the balance sheet of the Group which form the core of the Group’s business activities. This includes investment property and related disclosures on fair valuation inputs, advances for investment properties and commitments for future property developments. This section quantifies the property portfolio valuations and movements for the year. further information about each property is described in the portfolio review section on pages 64 to 99 of the Annual Report. 3. Investment Property Policy investment property comprises completed property, property under construction that is held to earn rentals or for capital appreciation or both, and land bank for further development. investment properties are initially measured at cost, including transaction costs. Transaction costs include transfer taxes and professional fees for legal services to bring the property to the condition necessary for it to be capable of operating. After initial recognition, investment property is carried at fair value. fair value is based on valuation methods such as discounted cash flow projections and recent market comparables adjusted, if necessary, for differences in the nature, location or condition of the specific asset. investment property under construction is measured at fair value, if the fair value is considered to be reliably determinable. investment properties under construction for which the fair value cannot be determined reliably, but for which the Group expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed – whichever is earlier. Valuations are performed as of the statement of financial position date 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. This value corresponds to the price that a third-party investor would be disposed to pay in order to acquire each of the properties making up the portfolio of assets and in order to benefit from their rental income. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the year in which they arise. in order to avoid double accounting, the assessed fair value is reduced by the carrying amount of any accrued income (if any outstanding at the statement of financial position date) resulting from the spreading of lease incentives and/or minimum lease payments. 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 and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised. investment properties are derecognised when either 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. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at the retirement or disposal of investment property. 1 January 2015 Business acquisitions Transfer to investment property under development subsequent expenditure Other operating lease commitment capitalised borrowing costs disposal during the year fair value movement on investment property Transfer to completed investment property 31 December 2015 1 January 2016 subsequent expenditure Other operating lease commitment capitalised borrowing costs disposal during the year fair value movement on investment property Transfer to completed investment property 31 December 2016 completed investment property €’000 investment property under development €’000 Land bank for further development €’000 460,010 209,800 – 4,421 – – (1,155) (3,675) 27,000 91,387 – 29,800 66,170 6,021 3,115 – 53,025 (27,000) 47,860 – (29,800) 68 – – – 72 – Total €’000 599,257 209,800 – 70,659 6,021 3,115 (1,155) 49,422 – 696,401 222,518 18,200 937,119 22,908 3,371 – (5,048) (6,510) 180,600 19,776 (6,021) 2,073 – 13,374 (180,600) 4 – – – (154) – 42,688 (2,650) 2,073 (5,048) 6,710 – 891,722 71,120 18,050 980,892 Judgement Used in the classification of investment Property investment property comprises completed property, property under construction and land bank for further development which are not occupied substantially for use by, or in the operations of, the Group, nor for sale in the ordinary course of business, but are held primarily to earn rental income and for capital appreciation. The Group considers that, when the property is in a condition which will allow the generation of cash flows from its rental, the property is no longer a property under development or refurbishment but an investment property. if the property is kept for sale in the ordinary course of business then it is classified as inventory property. 3.1 other operating lease commitment Other operating lease commitment of €3.4 million (2015: €6.0 million) as of 31 december 2016 (a similar corresponding amount was recorded in trade and other payables as payables for tenant lease incentives, see note 16) represents the Group’s estimated net cost for undertaking existing operating leases in properties owned by third parties, as well as for the commitment to undertake additional operating lease expense, under certain conditions, related to one of the Group’s tenants. The net cost is estimated by deducting from the operating lease expenses the revenues from sub-letting the respective properties to third parties selected by the Group, for the unexpired portion of their leases. 118 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 119 secTiOn ii: inVesTmenT pROpeRTY cOnTinued 4. Fair Value Measurement and Related Estimates and Judgements Policy All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: ¡ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities ¡ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable ¡ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The Group measures non-financial assets such as investment properties at fair value (recurring) at each statement of financial position date and for financial liabilities such as interest-bearing loans and borrowings, carried at amortised cost using the effective interest rate method, the fair value is disclosed. for assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. investment Property measured at fair value The Group’s investment properties were valued by cBAR Research & Valuation Advisors sRL (“coldwell Banker”), independent professionally qualified valuers who hold a recognised relevant professional qualification and have recent experience in the locations and segments of the investment properties valued, using recognised valuation techniques. our Property valuation approach and Process The Group’s investment department includes a team that reviews the valuations performed by the independent valuers for financial reporting purposes. This team reports directly to the chief financial Officer (‘cfO'), the chief investment Officer (‘ciO') and the chief executive Officer (‘ceO'). discussions of valuation processes and results are held between the cfO, ciO, ceO, the valuation team and the independent valuers twice in a financial year. for each independent valuation performed, the investment team, along with the finance team: ¡ verifies all major inputs to the independent valuation report; ¡ assesses property valuation movements when compared to the initial valuation report at acquisition or latest period end valuation report; and ¡ holds discussions with the independent valuer. The fair value hierarchy levels are specified in accordance with ifRs 13 fair Value measurement. some of the inputs to the valuations are defined as “unobservable” by ifRs 13 and these are analysed in the tables below. Any change in valuation technique or fair value hierarchy (between Level 1, 2 and Level 3) is analysed at each reporting date or as of the date of the event or variation in the circumstances that caused the change. during the year there were no transfers between fair value hierarchy levels. valuation techniques, Key inputs and Underlying management’s estimations and assumptions As noted under subsection investment property Valuations of the Audit committee Report on page 109 of the Annual Report, property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer which may not prove to be accurate. Valuation techniques comprise the discounted cash flow, the sales comparison approach and residual value method. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. such changes are reflected in the assumptions when they occur. overview Strategic review Portfolio review governance financial StatementS Key information about fair value measurements using significant unobservable inputs (Level 3) are disclosed below: class of property carrying value 2016 €’000 2015 €’000 Valuation technique fair value hierarchy Range input 2016 2015 completed investment 790,511 589,060 discounted cash flow Level 3 Rental value (sqm) €2.77–€65 €2.77–€65 property discount rate exit yield 7.10%–9.70% 7.30%–9.00% 6.65%–9.20% 6.65%–8.75% 101,211 107,341 sales comparison Level 3 sales value (sqm) €1,192 €1,190 891,722 696,401 investment property under development 71,120 222,518 Residual method Level 3 Rental value (sqm) €3.33–€17.00 €12.50–€35.00 discount rate exit yield capex (€m) 8.00%–9.00% 7.40%–8.50% 7.25%–8.75% 7.00%–7.25% €53.6 €19.4 Land bank – for further 18,050 18,200 sales comparison Level 3 sales value (sqm) development TOTAL 980,892 937,119 €1,819– €1,864 €1,833–€1,872 The fair value movement on investment property recognised, as gain, in the income statement includes an amount of €6.7 million (2015: €49.4 million) for fair value measurements as of the statement of financial position date related to investment properties categorised within Level 3 of the fair value hierarchy. in arriving at estimates of market values as at 31 december 2016 and 2015, the independent valuation experts used their market knowledge and professional judgement and did not rely solely on historical transactional comparables. in these circumstances, there was a greater degree of uncertainty in estimating the market values of investment properties than would have existed in a more active market. Sensitivity analysis on Significant inputs The assumptions on which the property Valuation Reports have been based include, but are not limited to, rental value per sqm, discount rate, exit yield, cost to complete, comparable market transactions for land bank for further development, tenant profile for the rented properties, and the present condition of the properties. These assumptions are market standard and in line with the international Valuation standards (‘iVs'). Generally, a change in the assumption made for the rental value (per sqm per annum) is accompanied by a similar change in the rent growth per annum and discount rate (and exit yield) and an opposite change in the other inputs. A quantitative sensitivity analysis, in isolation, of the most sensitive inputs used in the independent valuations performed, as of the statement of financial position date, are set out below: investment property – completed – under development – further development Year 2016 2015 2016 2015 2016 2015 €0.5 change in rental value per month, per sqm 25 bps change in market yield increase €’000 26,640 21,330 decrease €’000 increase €’000 (26,750) (21,320) (19,310) (14,150) decrease €’000 20,470 15,080 5% change in capex increase €’000 decrease €’000 – – – – €50 (2015:€25) change in sales prices per sqm 2.5% change in vacancy in perpetuity increase €’000 2,251 1,940 decrease €’000 increase €’000 (2,250) (1,937) (15,460) (11,730) decrease €’000 14,980 10,620 5,460 (5,460) (4,290) 4,630 (3,200) 3,200 9,720 (9,520) (8,560) 9,390 (4,439) 4,439 – – – – – – – – – – – – – – 500 450 – – (3,210) 2,990 (7,160) 6,310 (480) (530) – – – – other Disclosures related to investment Property interest-bearing loans and borrowings are secured on investment property, see note 15 for details. further information about individual properties is disclosed in the portfolio Review section on pages 64 to 99 of the Annual Report. 120 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 121 secTiOn ii: inVesTmenT pROpeRTY cOnTinued 5. Advances for Investment Property Advances for land and other property acquisitions Advances to contractors for investment properties under development 2016 €’000 2,000 454 2,454 2015 €’000 2,000 1,993 3,993 6. Commitments commitments for investment Property Under construction As at 31 december 2016 the Group had agreed construction contracts with third parties and is consequently committed to future capital expenditure in respect of investment property completed €1.0 million (2015: €nil), investment property under construction of €37.1 million (2015: €32.0 million), and had committed with tenants to incur fit-out works of €1.1 million (2015: €1.6 million). operating leases commitments – group as lessor Policy The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases; see note 7 for policies on revenue recognition for properties under operating leases and related costs. Judgements made for Properties Under operating leases The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of the investment properties leased to third parties, therefore, accounts for these leases as operating leases. The duration of these leases is one year or more (2015: one year or more) and rentals are subject to annual upward revisions based on the consumer price index. The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 2016 €’000 47,335 179,354 94,156 2015 €’000 35,100 162,200 109,200 320,845 306,500 overview Strategic review Portfolio review governance financial StatementS secTiOn iii: finAnciAL ResuLTs This section includes the results and performance of the Group, including the net asset value and epRA net asset value. This section also includes details of the Group’s tax credits in the year and deferred tax assets and liabilities held at the year end. The section quantifies the financial impact of the operations for the year; further analysis on operations is described in the financial Review section on page 38 of the Annual Report. 7. Revenue Policy a) rental income Rental income is measured at the fair value of the consideration received or receivable, except for contingent rental income which is recognised when it arises. The value of rent-free periods and all similar lease incentives is spread on a straight-line basis over the term of the lease. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which the benefit derived from the leased asset is diminished. if the annual lease rent increases as a result of a price index to cover inflationary cost, then the policy is not to spread the amounts but to recognise them when the increase takes place (applied prospectively when the right to receive it arises). The amount received from tenants to terminate non-cancellable operating leases are recognised in the statement of profit or loss when the right to receive them arise. b) Service charge income income arising from service charges and expenses recoverable from tenants is recognised in the period in which the compensation becomes receivable. c) rendering of Services Revenue from property and asset management fees is recognised at the time the service is provided. Revenue from rendering property development services is recognised by reference to the stage of completion. Rental income service charge income property development services 2016 €’000 46,166 14,825 7,240 68,231 2015 €’000 30,921 10,814 3,041 44,776 The total contingent rents recognised as income during the year amount to €0.1 million (2015: €0.1 million). in order to determine if the Group is acting as principal or agent, it assesses the primary responsibility for providing the goods or services, inventory risk, discretion in establishing prices, and who bears the credit risk. The Group has concluded that it is acting as a principal in all of the above-mentioned revenue arrangements. other income it mainly refers to the execution of bank guarantee letters held from tenants under operating lease commitments. 8. Operating Expenses Policy a) Service costs service costs paid, as well as those borne on behalf of the tenants, are included under direct property expenses. Reclaiming them from tenants is presented separately under revenue. b) works carried out on Properties Works carried out which are the responsibility of the building’s owner and which do not add any extra functionality to, or enhance significantly, the standard of comfort of the building are considered as current expenditure for the period and recorded in the income statement as expenses. property management, utilities and insurance property development services costs property maintenance costs and other non-recoverable costs Operating expenses analysis by revenue and non-revenue generating properties property expenses arising from investment property that generate rental income property expenses arising from investment property that did not generate rental income property development services costs 2016 €’000 17,331 6,848 499 2015 €’000 14,002 2,009 395 24,678 16,406 2016 €’000 17,712 118 6,848 2015 €’000 14,057 340 2,009 24,678 16,406 122 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 123 secTiOn iii: finAnciAL ResuLTs cOnTinued overview Strategic review Portfolio review governance financial StatementS 9. Administrative Expenses Policy Administrative expenses are expensed as incurred with the exception of expenditure on long-term developments, see note 3. subsidiary acquisition costs are presented separately in the consolidated statement of comprehensive income. unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. directors’ emoluments (pages 107-108 )1 salaries and wages1 Accounting, secretarial and administration costs Legal and other advisory services Audit and non-audit services (page 111) corporate social responsibility costs Travel and accommodation marketing and advertising services post, telecommunication and office supplies stock exchange expenses 2016 €’000 2,056 3,048 377 261 777 357 118 217 177 319 2015 €’000 4,441 3,240 276 294 713 151 237 465 92 292 7,707 10,201 1 costs of €1 million (2015: €0.4 million) associated with the team of executive directors and other employees who worked on development projects were capitalised in line with the progress made on the properties under development during the year. in addition, €0.5 million (2015: €nil) was capitalised as debt issue costs and €0.4 million (2015: €nil) as transaction costs on issue of shares. during the year, the Group contributed €0.3 million (2015: €0.2 million) and €0.1 million (2015: €0.1 million) to the mandatory Government pension fund of the employees and key management of the Group, respectively. 10. Finance Cost Policy Borrowing costs associated with direct expenditure on properties under development or undergoing major refurbishment are capitalised. Where borrowings are associated with specific developments, the amount capitalised is the gross interest less finance income (if any) incurred on those borrowings. interest is capitalised as from the commencement of the development work until the date of practical completion. Arrangement fees are amortised over the term of the borrowing facility. All other borrowing costs are expensed in the period in which they occur. interest on secured loans interest on corporate Loan facility debt issue cost amortisation and other finance cost Other financial expenses Bank charges1 2016 €’000 18,640 4,453 8,421 584 124 32,222 2015 €’000 11,551 5,609 4,045 202 65 21,472 1 prior year bank charges were classified under Administrative expenses. 11. Taxation Policy current income tax current income tax is the tax payable on the taxable income for the year using tax rates applicable at the statement of financial position date. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income statement in the period in which the determination is made. Tax is included in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity. Deferred income tax deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements at the income tax rate applicable at the reporting date, with the following exceptions: ¡ where the temporary difference arises from the initial recognition of goodwill, or of an asset, or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; ¡ deferred tax assets are only recognised to the extent that it is foreseeable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses, can be utilised; and ¡ in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. income tax expense current income tax expense deferred income tax expense 2016 €’000 711 162 873 2015 €’000 245 10,847 11,092 The company has obtained an exempt company status in Guernsey under the terms of the income Tax (exempt Bodies) Ordinance, 1989. The directors intend to conduct the company’s affairs so that it remains eligible for exemption. The subsidiaries in Romania, the netherlands and cyprus are subject to income taxes in respect of local sources of income. The income tax rate applicable to the company in Guernsey is nil. The current income tax charge of €0.7 million (2015: €0.2 million) represents tax charges on profit arising in the subsidiaries in Romania and cyprus (2015: Romania, the netherlands and cyprus). Tax charges on profit arising in Romania, the netherlands and cyprus are subject to corporate income tax at the rate of 16%, 25% (20% for tax on profit up to €0.2 million), and 12.5%, respectively. The Group’s subsidiaries registered in cyprus and the netherlands need to comply with the cyprus and netherlands tax regulations; however, the Group does not expect any taxable income, other than dividend and interest income, which are the most significant future sources of income of the Group companies registered in these countries. dividend income is exempt or taxed at 0% in cyprus and the netherlands, respectively; however, interest income is subject to corporate income tax at the rate of 12.5% in cyprus and ranges from 20% to 25%, depending on total taxable profit (20% for tax on profit up to €0.2 million), in the netherlands. Judgements and assumptions Used in the computation of current income tax liability uncertainties exist, particularly in Romania where the Group has significant operations, with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective company’s domicile. in Romania, the tax position is open to further verification for five years and no subsidiary in Romania has had a corporate income tax audit in the last five years. reconciliation Between applicable and effective tax rate The reconciliation between tax expense and the product of accounting profit multiplied by the company’s income tax rate for the year ended 31 december 2016 and the year ended 31 december 2015 is as follows: profit before tax At company’s income tax rate 0% (2015: 0%) Effect of higher tax rates in foreign jurisdictions Tax in Romania – Corporate income tax – deferred tax expenses for taxable temporary differences Tax in cyprus – Corporate income tax Tax in the netherlands – Corporate income tax Tax expense reported in the income statement Effective tax rate, including deferred tax expenses (%) Effective tax rate, excluding deferred tax expenses (%) deferred Tax Liability Acquired under business combinations: Recognised unused tax losses deferred tax liability Valuation of investment property at fair value deductible temporary differences discounting of tenant deposits and long-term deferred costs share issue cost recognised in equity Valuation of financial instruments at fair value Recognised unused tax losses 2016 €’000 12,188 – 644 162 67 – 873 7.2% 6.0% 2015 €’000 62,513 – 202 10,847 12 31 11,092 17.7% 0.3% consolidated statement of financial position consolidated statement of comprehensive income 2016 €’000 – – – 77,121 (288) 311 (7) (572) (5,990) 2015 €’000 12,456 (50) 12,506 60,003 (467) 164 (7) 110 (1,846) 2016 €’000 2015 €’000 – – – 3,876 179 147 – 53 (4,093) – – – 11,611 (6) (84) – 110 (784) 70,575 70,413 162 10,847 124 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 125 secTiOn iii: finAnciAL ResuLTs cOnTinued 11. Taxation continued in Romania, the Group has unused assessed tax losses carried forward of €73.5 million (2015: €68.3 million) that are available for offsetting against future taxable profits of the respective entity in Romania, in which the losses arose, within seven years from the year of origination. As of the statement of financial position date the Group had recognised deferred tax assets of €5.9 million (2015: €1.9 million) out of the total available deferred tax assets of €11.8 million (2015: €10.9 million) calculated at the corporate income tax rate of 16%. expiry year fiscal year Available deferred tax assets (€m) 2017 2010 0.7 2018 2011 0.5 2019 2012 2.0 2020 2013 2.0 2021 2014 1.5 2022 2015 3.3 2023 2016 1.8 TOTAL 11.8 There are also temporary non-deductible interest expenses and net foreign exchange losses related to intercompany loans of €11.2 million (2015: €21.8 million). such amounts can be carried forward indefinitely, until the corresponding subsidiaries reach a debt-to-equity tax ratio in the range from nil to 3, at which time the amount would become tax deductible, for which no deferred tax asset was recorded as well. Judgements, estimates and assumptions Used for assessed tax losses and related Deferred tax assets At each statement of financial position date, the Group assesses whether the realisation of future tax benefits is sufficiently probable to recognise deferred tax assets. This assessment requires the exercise of judgement on the part of management with respect to, among other things, benefits that could be realised from available tax strategies and future taxable income, as well as other positive and negative factors. Based on the above assessment performed at year end, the Group recognised an additional €4.0 million (2015: €1.0 million) deferred tax asset due to improved forecasts and transformation of some subsidiaries in Romania in taxable profit position. The recorded amount of total deferred tax assets could be reduced if estimates of projected future taxable income and benefits from available tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the Group’s ability to utilise future tax benefits. 12. Earnings Per Share The following table reflects the data used in the calculation of basic and diluted earnings per share and number of shares used in the basic and diluted nAV and epRA nAV per share: date event 2015 October 2015 At the beginning of the year shares issued for cash 2015 2016 shares in issue at year end (basic and diluted) At the beginning of the year January 2016 June 2016 October 2016 december 2016 december 2016 december 2016 shares issued for: – the executive directors and other senior management employees – settlement of interest-bearing liability – the executive directors and other senior management employees – cash – transaction costs on issue of shares – the executive directors and other senior management employees 2016 Shares in issue at year end (basic) december 2016 2016 shares to be issued for transaction costs on issue of shares Shares in issue at year end (diluted) ifrS earnings Per Share profit attributable to equity holders of the company for basic and diluted earnings per share IFRS earnings per share – Basic – Diluted subsequent to 31 december 2016, no shares were issued. number of shares issued (‘000’) note 53,645 8,972 62,617 62,617 407 1,000 270 25,000 1,073 30 90,397 1,073 91,470 22.2 20.1 22.2 20.2 20.2 22.2 21 % of the period 100 25.0 93.4 56.4 22.5 3.0 3.0 2.0 3.0 Weighted average (‘000’) 53,645 2,243 55,888 62,617 380 564 61 753 32 1 64,408 32 64,440 2016 €’000 2015 €’000 11,315 51,421 cents 17.57 17.56 cents 92.01 92.01 overview Strategic review Portfolio review governance financial StatementS ePra earnings Per Share The following table reflects the reconciliation between earnings as per the statement of comprehensive income and epRA earnings: Earnings attributable to equity holders of the Company (IFRS) fair value movement Losses on disposal of investment properties Tax credit relating to losses on disposals Bargain purchase gain on acquisition of subsidiaries changes in fair value of financial instruments and associated close-out costs Acquisition costs deferred tax charge in respect of above adjustments EPRA earnings EPRA earnings per share – Basic – Diluted 13. Net Asset Value (‘NAV') Per Share nav Per Share The following reflects the net assets used in the nAV per share computations: net assets attributable to equity holders of the company NAV per share Diluted NAV per share EPRA NAV Per Share The following reflects the net assets used in the epRA nAV per share computations: net assets attributable to equity holders of the company exclude: deferred tax liability fair value of interest rate swap instrument Goodwill as a result of deferred tax EPRA NAV attributable to equity holders of the Company EPRA NAV per share 2016 €’000 2015 €’000 11,315 51,421 (6,710) 1,657 (265) – 1,522 105 969 (49,422) 619 (99) (17,227) 872 811 7,768 8,593 (5,257) cents 13.34 13.33 cents (9.41) (9.41) 2016 €’000 2015 €’000 715,394 499,681 Cents cents 791 782 798 798 note 11 19 2016 €’000 2015 €’000 715,394 499,681 70,575 3,574 (5,697) 70,413 3,935 (5,697) 783,846 568,332 Cents 857 cents 908 epRA nAV includes properties and other investment interests at fair value and excludes certain items not expected to crystallise in a long-term investment property business model. 126 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 127       secTiOn iV: finAnciAL AsseTs And LiABiLiTies This section focuses on financial instruments, together with the working capital position of the Group and financial risk management of the risks that the Group is exposed to at year end. 14. Financial Instruments Policy A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. financial instruments are recognised on the balance sheet when the Group becomes a party to the contractual obligations of the instrument. The Group determines the classification of its financial assets and financial liabilities at initial recognition. initially, financial instruments are recognised at their fair value. Transaction costs directly attributable to the acquisition or issue of financial instruments are only recognised in determining the carrying amount, if the financial instruments are not measured at fair value through profit or loss. subsequently, financial instruments are measured according to the category to which they are assigned. A financial asset and a financial liability is offset and the net amount is reported in the statement of financial position if, and only if, the Group has a legally enforceable right to offset the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. financial assets financial assets of the Group mainly include cash and cash equivalents, trade and other receivables and guarantees retained by tenants. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either: (a) the Group has transferred substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. cash and cash equivalents cash and cash equivalents include highly liquid investments that are readily convertible into cash and which are subject to an insignificant risk of change in value. such investment includes cash in hand and cash balances at banks and short-term bank deposits with maturity of three months or less. trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently at amortised cost including, where relevant and material, an adjustment for the time value of money, less any impairment provision. A provision for impairment is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables concerned. if, in a subsequent year, the amount of the provision for impairment loss changes because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by recording a gain or loss in the income statement. Trade and other receivables together with the associated provision are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. if collection is expected in more than one year, they are classified as non-current assets. financial liabilities financial liabilities of the Group mainly comprise interest-bearing loans and borrowings, trade and other payables, guarantees retained from contractors, finance lease payables, other derivative financial liabilities and tenant security deposits. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. interest-Bearing loans and Borrowings All loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs, and are subsequently measured at amortised cost using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Derivative financial instruments derivatives are recognised initially, and are subsequently remeasured at fair value. derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative. derivative assets and liabilities arising from different transactions are offset only if the transactions are with the same counterparty, a legal right of offset exists, and the parties intend to settle the cash flows on a net basis. fair value movements on derivative financial instruments at fair value through profit and loss account are recognised in the statement of comprehensive income. overview Strategic review Portfolio review governance financial StatementS 15. Interest-Bearing Loans and Borrowings This note describes information on the material contractual terms of the Group’s interest-bearing loans and borrowings. for more information about the Group’s exposure to market risk, currency risk and liquidity risks, see note 19. Current current portion of secured loans corporate loan facility Non-current secured loans 2016 €’000 2015 €’000 38,665 – 42,681 100,343 38,665 143,024 375,570 261,287 414,235 404,311 Terms and conditions of outstanding loans were as follows: secured facility Loan 3 Loan 6 Loan 7 Loan 8 Loan 9 Loan 11 Loan 13 Loan 14 Loan 15 Loan 16 Loan 17 Loan 18 Loan 19 Loan 20 corporate Loan Loan 21 Loan 22 Loan 23 Loan 24 Total contract date nov 2013 mar 2013 Aug 2008 may 2008 may 2008 sep 2014 Jun 2015 Jun 2015 Aug 2008 mar 2010 mar 2010 Aug 2015 Jun 2015 dec 2015 Jun 2015 mar 2016 may 2016 may 2016 dec 2016 currency nominal interest rate maturity date ROn euR euR euR euR euR euR euR euR euR ROn ROn euR euR euR euR euR euR euR ROBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 1m+ margin euRiBOR 1m+ margin ROBOR 1m+ margin ROBOR 3m+ margin euRiBOR 3m+ margin euRiBOR 3m+ margin fixed rate euRiBOR 3m+ margin euRiBOR 3m+ margin fixed rate euRiBOR 3m+ margin feb 2016 mar 2019 dec 2016 dec 2018 dec 2018 Oct 2032 Jun 2022 Jun 2022 dec 2017 Jun 2022 Apr 2019 Aug 2018 Jul 2035 dec 2030 Jul 2016 mar 2031 nov 2026 Jun 2019 dec 2026 2016 2015 Face value €’000 – 12,718 – 32,732 80,611 27,347 – – 27,510 20,507 572 4,739 – – – 25,949 10,300 178,607 2,200 Carrying value €’000 – 12,187 – 32,732 80,611 26,944 – – 27,510 20,507 572 4,739 – – – 25,434 10,300 170,499 2,200 face value €’000 423 13,768 30,000 33,626 82,505 25,317 7,885 8,905 28,398 21,907 718 4,872 27,165 20,022 103,067 – – – – carrying value €’000 423 13,518 29,938 33,626 82,505 24,909 7,660 8,905 28,398 21,907 718 4,845 26,849 19,767 100,343 – – – – 423,792 414,235 408,578 404,311 On 9 march 2016, the Group signed a c.€29.1 million long-term debt facility (Loan 21) agreement with Banca comerciala Romana (‘BcR') in Romania (erste Bank Group) in order to refinance the existing secured loan facilities (Loans 13 and 14) related to the TAp light-industrial park in Timisoara, and to fund the development of an extension to this property. This facility is secured on the TAp property and matures in year 2031. On 19 may 2016, the Group signed a €10.3 million long-term debt facility (Loan 22) agreement with Garanti Bank in Romania in order to refinance equity and to fund the remaining development costs of the Gara Herastrau office building. This facility is secured on the land and completed building and matures in year 2026. in december 2016, the facility was supplemented with an additional €2.2 million. The Group secured a €180 million three-year bond (the ‘matisse facility’, Loan 23). The facility was provided by matisse funding B.V. (an orphan spV) which issued €180 million of senior secured notes to institutional investors. The proceeds of such issuance were on-lent to the Group in order to refinance the €100 million short-term corporate level facility obtained in 2015 from funds managed by York capital and Oak Hill Advisors and three secured debt facilities at the level of three of its Romanian subsidiaries. The matisse facility is secured on the properties of four Romanian subsidiaries as well as the shares of their holding companies. drawdown under the facility was completed in June 2016. secured bank loans are secured by investment properties with a carrying value of €902.0 million at 31 december 2016 (2015: €692.0 million) and also carry pledges on rent receivable balances of €6.1 million (2015: €3.0 million), tenant deposits of €2.6 million (2015: €1.9 million), VAT receivable balances of €0.4 million (2015: €3.3 million) and a moveable charge on the bank accounts (see note 18). other Disclosures The loans are subject to certain financial covenants, which are calculated based on the individual financial statements of the respective subsidiaries and of the Group. The Group is in compliance with all financial covenants and there were no defaults for payments during the year 2016. financial covenants mainly include the loan-to-value ratio (“LTV”) which ranges from 50% - 83% and the debt service cover ratio (‘dscR') that ranges from 100% - 125%. LTV is calculated as the loan value divided by the market value of the relevant property (for a calculation date), and dscR (historical and/or projected, as the case may be, for a 12-month period) is calculated as net operating income divided by the debt service. As of 31 december 2016, the Group had undrawn borrowing facilities of €2.5 million (2015: €2.0 million). 128 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 129 secTiOn iV: finAnciAL AsseTs And LiABiLiTies cOnTinued 16. Trade and Other Payables Current payable for property service charges payable to suppliers for properties under development payable for tenant lease incentives consideration payable for business acquisition Advances from customers deferred income directors’ emoluments payable salaries and related payables Accruals for administrative expenses Accruals for non-recurring costs Other taxes payable Other short-term payables Non-current payable for tenant lease incentives 17. Trade and Other Receivables Current Rent and service charges receivable VAT and other taxes receivable Loan receivable from subsidiary disposed consideration receivable from the seller Advances to suppliers for services Advances to directors sundry debtors Non-current VAT and other taxes receivable note 3.1 2016 €’000 1,415 7,371 1,183 – 1,161 4,553 396 418 1,129 2,806 294 – 20,726 2015 €’000 2,358 12,263 2,743 1,894 625 3,381 3,650 915 776 1,939 588 1,143 32,275 3.1 2,188 3,278 22,915 35,553 2016 €’000 6,209 3,987 – 290 211 – 110 2015 €’000 3,399 8,045 400 290 184 650 146 10,807 13,114 1,183 2,193 11,990 15,307 rent and Service charges receivable Rent and service charges receivable are non-interest-bearing and are typically due within 30-90 days (see more information on credit risk and currency profile in note 19). for the terms and conditions for related party receivables, see note 28. 18. Cash and Cash Equivalents cash at bank and in hand short-term deposits Cash and cash equivalents as per statement of cash flows corporate Loan - restricted cash reserve matisse facility - restricted cash reserve Cash and cash equivalents as per statement of financial position note 15 2016 €’000 217,467 899 218,366 – 2,971 221,337 2015 €’000 25,778 5,258 31,036 6,000 – 37,036 details of cash and cash equivalents denominated in foreign currencies are disclosed in note 19. short-term deposits are made for varying periods depending on the immediate cash requirements of the Group and earn interest at rates ranging from 0.02% to 0.15% (2015: 0.05% to 0.1%) per annum. cash at bank and in hand includes restricted cash balances of €5.2 million (2015: €12.4 million). 19. Financial Risk Management – Objective and Policies The Group is exposed to the following risks from its use of financial instruments: ¡ market risk (including currency risk, interest rate risk); ¡ credit risk; and ¡ liquidity risk. overview Strategic review Portfolio review governance financial StatementS market risk market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s market risks arise from open positions in: (a) foreign currencies; and (b) interest-bearing assets and liabilities, to the extent that these are exposed to general and specific market movements. i) foreign currency risk The Group has entities registered in several eu countries, with the majority of operating transactions arising from its activities in Romania. Therefore, the Group is exposed to foreign exchange risk, primarily with respect to the Romanian Lei (ROn). foreign exchange risk arises in respect of those recognised monetary financial assets and liabilities that are not in the functional currency of the Group. The Group’s exposure to foreign currency risk was as follows (based on nominal amounts): All amounts are presented in €’000 equivalent value ASSETS cash and cash equivalents Trade and other receivables income tax receivable Total LIABILITIES interest-bearing loans and borrowings Trade and other payables income tax payable deposits from tenants Total Net exposure RON 2016 GBP denominated USD ROn 2015 GBp denominated usd 19,141 11,379 214 30,734 5,311 9,386 – 1,304 16,001 14,733 18 – – 18 – 236 – – 236 106 – – 106 – – – – – (218) 106 13,561 13,757 583 27,901 5,987 15,459 1 1,094 22,541 5,360 14 – – 14 – 994 – – 994 80 – – 80 – – – – – (980) 80 Foreign Currency Sensitivity Analysis As of the statement of financial position date, the Group is exposed to foreign exchange risk in respect of the exchange rate of the ROn, usd and GBp. The following table details the Group’s sensitivity (impact on income statement before tax and equity) to a 5% devaluation in ROn, usd and GBp exchange rates against the euR, on the basis that all other variables remain constant. The 5% sensitivity rate represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the yearend for a 5% appreciation in the euR against other currencies. All amounts in €’000 ROn GBp usd 2016 2015 Profit and (loss) (737) 11 (5) Equity (737) 11 (5) profit and (loss) (268) 49 (4) equity (268) 49 (4) A 5% devaluation of the euR against the above currencies would have had an equal but opposite impact on the above currencies to the amounts shown above, on the basis that all other variables remain constant. ii) interest rate risk interest rate price risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates relative to the interest rate that applies to the financial instrument. interest rate cash flows risk is the risk that the interest cost will fluctuate over time. The Group’s interest rate risk principally arises from interest-bearing loans and borrowings. As at 31 december 2016, 58.8% (2015: 75%) of the total outstanding borrowings carried variable interest rates (including the 1m and 3m euRiBOR and 1m ROBOR as bases) which expose the Group to cash flow interest rate risk. in order to minimise this risk, the Group hedged 14% (2015: 19%) of such variable interest rate borrowings with fixed-variable interest rate swap and interest rate cap instruments. Based on the Group’s debt balances at 31 december 2016, an increase or decrease of 25 basis points in the euRiBOR or ROBOR will result in an increase or decrease (net of tax) in the result for the year of €1.0 million (2015: €0.7 million), with a corresponding impact on equity for the same amount. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The Group has euR denominated long-term borrowings (Loan 23) at fixed rates which constitute 41.2% (2015: 25%) of total debt portfolio. The facility is payable in June 2019; as a consequence, the Group is exposed to fair value interest rate risk, which has been disclosed under ifRs but will not have an impact on the income statement. As of 31 december 2016, the fair value was higher by €1.7 million than the carrying value as disclosed below in fair value hierarchy table. credit risk credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s policy is to trade with recognised and creditworthy third parties. The Group’s exposure is continuously monitored and spread amongst approved counterparties. 130 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 131 secTiOn iV: finAnciAL AsseTs And LiABiLiTies cOnTinued 19. Financial Risk Management – Objective and Policies continued The Group’s maximum exposure to credit risk, by class of financial asset, is equal to their carrying values at the statement of financial position date. Trade receivables – net of provision Other receivables Guarantees retained by tenants VAT and other taxes receivable income tax receivable cash and cash equivalents 2016 €’000 6,209 123 277 5,170 411 221,337 233,527 2015 €’000 3,399 757 79 10,238 583 37,036 52,092 trade receivables – net of Provision There is no significant concentration of credit risk with respect to trade receivables, as the Group has a large number of tenants, a few of which are part of multinational groups, internationally dispersed, as disclosed in the subsection ‘Leasing review’ on the pages 36 and 37 of the Annual Report. for related parties it is assessed that there is no significant risk of non-recovery. estimates and assumptions Used for impairment of trade receivables The Group assesses when there is sufficient objective evidence to require the impairment of individual trade receivables. it does this on the basis of the age of the relevant receivables, external evidence of the credit status of the counterparty and the status of any disputed amounts. The movements in the provision for impairment of receivables during the respective periods were as follows: Opening balance provision for doubtful debts Reversal of provision for doubtful debts doubtful debts written off during the year Closing balance 2016 €’000 2,542 200 (298) (435) 2,009 2015 €’000 2,313 229 – – 2,542 The analysis by credit quality of financial assets, cumulated for rent, service charge and property management, is as follows: 2016 (€’000) 2015 (€’000) neither past due nor impaired 5,051 2,602 past due but not impaired <90 days <120 days <365 days 936 228 145 554 77 15 TOTAL 6,209 3,399 The customer balances which were overdue but not provisioned are due to the fact that the related customers committed and started to pay the outstanding balances subsequent to the year end. further deposits payable to tenants may be withheld by the Group in part or in whole if receivables due from the tenant are not settled or in case of other breaches of contract. other receivables This balance relates to sundry debtors of €0.1 million (2015: €0.15 million) and consideration receivable for the seller of €0.3 million (2015: €0.3 million). management has made due consideration of the credit risk associated with these balances resulting in no impairment being identified. vat and other taxes receivable This balance relates to corporate income tax paid in advance, VAT and other taxes receivable from the Romanian tax authorities. The balances are not considered to be subject to significant credit risk as all the amounts receivable from Government authorities are secured under sovereign warranty. cash and cash equivalents The credit risk on cash and cash equivalents is very small, since the cash and cash equivalents are held at reputable banks in different countries. The most significant part of the cash and cash equivalents balance is kept at the company level with bank having credit rating of A-2 and in subsidiaries in Romania in local branches of reputable international banks with credit rating of BBB. liquidity risk The Group’s policy on liquidity is to maintain sufficient liquid resources to meet its obligations as they fall due. ultimate responsibility for liquidity risk management rests with management. The Group manages liquidity risk by maintaining adequate cash reserves and planning and close monitoring of cash flows. The Group expects to meet its financial liabilities through the various available liquidity sources, including a secure rental income profile, further equity raises, undrawn committed borrowing facilities and, in the medium term, debt refinancing. overview Strategic review Portfolio review governance financial StatementS The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. All amounts in €’000 Contractual payment 2016 interest-bearing loans and borrowings Trade payables and guarantee retained from contracts (excluding advances from customers) Other payables finance lease liabilities deposits from tenants income tax payable Total All amounts in €’000 2015 interest-bearing loans and borrowings Trade payables and guarantee retained from contracts (excluding advances from customers) Other payables finance lease liabilities deposits from tenants income tax payable Total Difference from carrying amount Carrying amount <3 months 3 months – 1 year 1-5 years >5 years Total 8,036 51,028 363,156 66,715 488,935 (74,700) 414,235 5,492 296 3 791 44 10,731 887 1 – – 2,221 – – 864 – – – – 1,552 – 18,444 1,183 4 3,207 44 – – – (572) – 18,444 1,183 4 2,635 44 14,662 62,647 366,241 68,267 511,817 (75,272) 436,545 contractual payment <3 months 3 months – 1 year 1-5 years >5 years Total difference from carrying amount carrying amount 8,891 152,517 205,175 103,320 469,903 (65,592) 404,311 15,863 743 6 164 75 11,798 3,143 14 263 – 3,278 – 4 1,450 – – – – 447 – 30,939 3,886 24 2,324 75 – – (1) (411) – 30,939 3,886 23 1,913 75 25,742 167,735 209,907 103,767 507,151 (66,004) 441,147 The tables above present the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay, and includes both interest and principal cash flows. As the amount of contractual undiscounted cash flows related to bank borrowings is based on variable rather than fixed interest rates, the amount disclosed is determined by reference to the conditions existing at the year end, that is, the actual spot interest rates effective at the end of year are used for determining the related undiscounted cash flows. financial instruments for which fair values are Disclosed set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that are reasonable approximations of their fair values. All amounts in €’000 interest-bearing loans and borrowings (note 15) Other current financial liabilities finance lease obligations Year 2016 2015 2016 2015 2016 2015 carrying amount 414,235 404,311 3,574 3,935 4 23 fair value hierarchy Level 1 Level 2 Level 3 TOTAL – – – – – – 243,736 404,311 180,339 – 424,075 404,311 3,574 3,935 4 23 – – – – 3,574 3,935 4 23 The fair value of financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. When determining the fair values of interest-bearing loans and borrowings and finance lease obligations the Group used the dcf method with inputs such as discount rate that reflects the issuer’s borrowing rate as at the statement financial position date. The own non-performance risk at the statement of financial position date was assessed to be insignificant. other current financial liabilities Other current financial liabilities represent the market-to-market value of an interest rate swap, obtained from the counterparty financial institution, at €3.6 million (2015: €3.9 million) at the end of the current year. The fair value of derivative was developed in accordance with the requirements of ifRs 13. under the terms of the swap agreement, the Group is entitled to receive a floating rate of 1m euRiBOR at a notional amount of €22.8 million and is required to pay a fixed rate of interest of 3.62% p.a. on the said notional amount in four quarterly instalments, with maturity date of June 2022. The movement in fair value recognised in the income statement for the year was a financial income of €0.3 million (2015: €0.7 million). On 31 december 2016, the Group had interest rate cap instruments valued market-to-market at €4,000 for secured loan 21 (2015: €0.15 million for secured loans 11, 19 and 20), see note 15, under which the Group capped euRiBOR at 1.25% for 50% of the notional loan facilities. These derivative financial instruments were fair valued (level 2) at each reporting date and any change in fair value is recognised in the consolidated statements of income within other financial expenses. The change in the fair value during the year ended 31 december 2016 was a loss of €0.3 million (2015: €0.2 million). The Group assessed that the fair values of other financial assets and financial liabilities, such as trade and other receivables, guarantees retained by tenants, cash and cash equivalents, income tax receivable and payables, trade and other payables, guarantees retained from contractors and deposits from tenants, approximate their carrying amounts largely due to short-term maturities and low transaction costs of these instruments as of the statement of financial position date. 132 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 133 secTiOn V: sHARe cApiTAL And ReseRVes The disclosures in this section focus on the issued share capital, the share schemes in operation and the associated share-based payment charge to profit or loss. Other mandatory disclosures, such as details of capital management, can also be found here. 20. Issued Share Capital Policy Ordinary shares are classified as equity. The costs of issuing or acquiring equity are recognised in equity (net of any related income tax benefit), as a reduction of equity on the condition that these are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. The costs of an equity transaction that is abandoned are recognised as an expense. Those costs might include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties. Opening balance shares issued for settlement of interest-bearing liability shares issued to the executive directors and other senior management employees shares issued for cash Transaction costs on issue of shares Transaction costs on issue of shares settled in shares Balance at 31 December 2016 2015 note €’000 Number (’000’) €’000 341,784 62,617 288,740 20.1 6,000 1,000 – 22.2 20.2 20.2 20.2 3,937 200,000 (22,191) 8,584 707 25,000 – 1,073 – 53,830 (786) number (’000’) 53,645 – – 8,972 – overview Strategic review Portfolio review governance financial StatementS The following table analyses the movement in total cost outstanding at year end. Share-based payments reserve executive share option plan shares granted to executive directors and other senior management employees note 22.1 22.2 2016 €’000 319 1,820 2,139 2015 €’000 305 2,350 2,655 22.1 executive Share option Plan under the plan, the directors of the Group were awarded share option warrants as remuneration for the services performed. The share options granted to the directors of the Group are equity settled. in 2013, the Group granted warrants to the founder and the directors which entitle each holder to subscribe for Ordinary shares in the company at an exercise price of €5.00 per share if the market price of an Ordinary share, on a weighted average basis over 60 consecutive days, exceeds a specific target price and the holder is employed on such date. The contractual term of each warrant granted is 10 years. There are no cash settlement alternatives and the Group does not have the intention to offer cash settlement for these warrants. further details are disclosed in the directors’ Report on the page 105 of the Annual Report. 538,114 90,397 341,784 62,617 The following table analyses the total cost of the executive share option plan (Warrants), together with the number of options outstanding. Ordinary shares carry no right to fixed income but are entitled to dividends as declared from time to time. each Ordinary share is entitled to one vote at meetings of the company. There is no limit on the authorised share capital of the company. The company can issue no par value and par value shares as the shareholders see fit for the five-year period following the incorporation of the company (unless renewed, revoked or varied by a general meeting). This authority has not been revoked by the shareholders. under Guernsey company Law there is no distinction between distributable and non-distributable reserves, requiring instead that a company passes a solvency test in order to be able to make distributions to shareholders. similarly, share premium for issuance of shares above their par value per share is recognised directly under share capital and no separate share premium reserve account is recognised. 20.1 Shares issued for settlement of interest-bearing liability On 8 June 2016, the company issued 1.0m Ordinary shares for the settlement of €6.0 million, an aggregate amount payable by the company to lenders of a short-term corporate Level facility (‘facility’), in respect of a prepayment fee and interest payable by the company under the facility which was prepaid in full during the year. The Ordinary shares have been issued at €6.00 per Ordinary share as the placing price at the last fundraising by the company in september 2015, and equates to a premium of 18%. of the closing middle-market price on 8 June 2016. The 1.0 million new Ordinary shares rank pari passu with the existing shares of the company. 20.2 Shares issued for cash On 20 december 2016, an additional 25 million Ordinary shares were issued at €8.00 each (€200 million) following the completion of the fundraising, which was announced on 1 december 2016. The Group recognised an amount of €22.2 million as transaction costs for the fundraising, out of which €8.6 million was settled in 1.07 million shares issued on 20 december 2016 and €8.6 million to be settled with the further issuance of 1.07 million Ordinary shares, see note 21. The funds raised from the subscription will be used to develop the Globalworth campus project, pursue attractive pre-identified investment opportunities in line with the company’s investing policy and for other general corporate purposes. As a term of the subscription, the company issued 1.07 million Ordinary shares at €8.00 each share as initial fee shares to settle transaction costs incurred for fundraising. The 26.07 million new Ordinary shares rank pari passu with the existing shares of the company. 21. Unissued Share Capital As disclosed in note 20.2 under the terms of equity fundraising completed in december 2016, the company will issue, by no later than 31 december 2017 an additional 1.07 million Ordinary shares as a second tranche of fee shares to settle remaining equity settled transaction costs in shares. The second tranche of fee shares are disclosed as dilutive shares for earnings per share and net asset value per share, see note 12. 22. Share-Based Payment Reserve Policy equity-settled transactions where vesting is conditional upon a market or non-vesting condition, are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all service conditions are satisfied. The cost of equity-settled transactions is recognised in income statement, together with a corresponding increase in other reserves in equity (share-based payment reserve), over the period in which the service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired. Where the share scheme has market-related performance criteria, the Group has used a binomial option pricing model to establish the relevant fair values at grant date, taking into account the terms and conditions. At the beginning of the year share scheme expense during the year At 31 December Weighted average remaining contractual life (years) 2016 2015 Cost €’000 305 14 319 Number (‘000’) 4,635 – 4,635 6.58 cost €’000 180 125 305 number (‘000’) 4,635 – 4,635 7.58 The fair value of the warrants was estimated at the grant date (i.e. July 2013) at €0.073 per share. There have been no cancellations or modifications to any of the plans during the year. 22.2 Shares granted to executive Directors and other senior management employees At the beginning of the year shares granted to executive directors and other senior management employees shares issued to the executive directors and other senior management employees Closing balance 2016 €’000 2,350 3,407 (3,937) 1,820 2015 €’000 – 2,350 – 2,350 Shares issued to the Executive Directors and other senior management employees On 25 January 2016, the company issued 0.4 million Ordinary shares (Ordinary shares of no par value) and delivered them to the executive directors and other senior management employees from share-based payment reserve in their capacity as GiAL's preference shareholders, on behalf of its subsidiary GiAL, in order to settle a liability of €2.35 million owed by the company to its subsidiary, related to the fees charged by GiAL to the company pursuant to the investment Advisory Agreement concluded between the company and GiAL. The 0.4 million new shares rank pari passu with the existing shares of the company. The Ordinary shares have been issued at €5.77 per Ordinary share, representing the volume-weighted average market price over the 90 trading days prior to the date of allotment. Shares granted and issued to Executive Directors and other senior management employees On 8 April 2016, the Board approved the award of an additional fee of €3.6 million to GiAL for the services rendered to the company during the year ended 31 december 2015, which in turn GiAL has distributed to its preference shareholders. 50% of such amount was settled in the form of Ordinary shares in the company. in this respect on 10 October 2016 the company issued 269,927 Ordinary shares at €6.00 per share (market price on the date of allotment was €5.13 per share), and on 22 december 2016 it issued 30,073 Ordinary shares at €6.00 per share (market price on the date of allotment was €6.75 per share). The Ordinary shares issued rank pari passu with the existing shares of the company. Shares granted to Executive Directors and other senior management employees On 20 march 2017, the Board approved the award of a variable fee of €2.16 million to GiAL for the services rendered to the company during the year ended 31 december 2016. The Board also agreed that c.€1.6 million of the total amount of €2.16 million will be settled in the form of Ordinary shares in the company (to be issued at €8.00 per share), subject to the vesting conditions set out in the performance incentive scheme for the investment Adviser. in addition, the amount of c.€3.4 million includes also a c.€0.2 million performance reward to employees of subsidiaries of the Group for their work during the year ended 31 december 2016, which will be settled with the issuance of Ordinary shares in the company. The Ordinary shares to be issued will rank pari passu with the existing shares of the company. 134 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 135 secTiOn V: sHARe cApiTAL And ReseRVes cOnTinued 23. Capital Management The company has no legal capital regulatory requirement. The Group’s policy is to maintain a strong equity capital base so as to maintain investor, creditor and market confidence and to sustain the continuous development of its business. The Board considers from time to time whether it may be appropriate to raise new capital by a further issue of shares. The Group monitors capital primarily using a LTV ratio, which is calculated as the amount of outstanding debt divided by the open market value of its investment property portfolio as certified by external valuers. As at 31 december 2016 the LTV ratio was 43.4% (2015: 43.9%). overview Strategic review Portfolio review governance financial StatementS secTiOn Vi: Business cOmBinATiOns And ReLATed discLOsuRes This section includes details about Globalworth’s subsidiaries goodwill, subsidiary disposed and related impact on the income statement and cash flows. 24. Goodwill Policy Goodwill only arises upon a business combination, and is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, after recognising the acquiree’s identifiable assets, liabilities and contingent liabilities. subsequently, goodwill is carried at cost and is subject to reviews for impairment at each year end or whenever there is an indication of impairment. At the date of acquisition, goodwill is allocated to one or more cash-generating units that are expected to benefit from the combination. The recoverable amount of a cash-generating unit, for the purpose of impairment testing, is determined using the discounted cash flows method and is applied to the full cash-generating unit rather than each legal entity. Where the recoverable amount of the cash-generating unit is less than their carrying amount, an impairment loss is recognised. impairment losses relating to goodwill cannot be reversed in future periods. Where goodwill arises as a result of deferred tax liabilities, recognised under a business combination on acquisition date, the impairment of this goodwill is calculated according to the amounts of tax optimisation existing at the date of reporting. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. Goodwill balance At 31 December 2016 €’000 2015 €’000 12,349 12,349 Goodwill is allocated to the Group’s cash-generating units (‘cGus') which represented individual properties acquired under business combinations. The goodwill balance arose from deferred tax liabilities, recognised at the acquisition date of a subsidiary (Globalworth Asset managers sRL), and its property management activities. Key estimates and assumptions used for goodwill impairment testing The Group’s impairment test for goodwill is based on value-in-use calculations that use a discounted cash flow model. The cash flows are derived from the budget for the next four years approved by management and significant future investments that will enhance the asset base of the cash-generating unit being tested. These calculations require the use of estimates which mainly include the assumptions on the financial performance of cGu's operations. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. At 31 december 2016, the goodwill related to property management activity with a carrying value of €6.7 million (2015: 6.7 million) was tested for impairment. As permitted by iAs 36 impairment of Assets, the detailed calculations of recoverable amount performed in 2015 were used for the 2016 impairment test as the criteria in that standard were considered to be satisfied: the assets and liabilities comprising the cGu have not changed significantly since the prior year; the previously calculated recoverable amount exceeded the carrying amount by a substantial margin; and the likelihood that an updated calculation of the recoverable amount would be less than the cGu's, carrying amount at the time of the test was remote. no impairment charge arose as a result of this assessment at year end. management believes that as of 31 december 2016 no reasonable change in the main assumptions could result in an impairment charge (31 december 2015: same) At 31 december 2016 and 2015 respectively, the value-in-use of the property management activity was determined based on the following main assumptions: ¡ budgets for 4 years; ¡ discount rate of 12.0% p.a.; and ¡ extrapolation in perpetuity from year 4 onwards, considering a growth rate of 1.0% p.a. The goodwill related to deferred tax liabilities recognised on acquisition was not tested for impairment as there were no changes in the tax circumstances of the relevant entities or other events that would indicate an impairment thereof. 136 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 137 secTiOn Vi: Business cOmBinATiOns And ReLATed discLOsuRes cOnTinued 25. Gain on Sale of Subsidiary On 24 february 2016, the Group disposed of its 100% shareholding in and control of mycre investment s.A. for total consideration of €11.3 million, in cash, and ceased to have control over this entity by transferring the title of the shares to Bakaso Holdings Limited, being the buyer. The following table presents the amount of the assets and liabilities in the disposed subsidiary on the disposal date, summarised by each major category. Assets investment property held for sale Trade and other receivables cash and cash equivalents Total assets €’000 Liabilities 10,353 Loan payable to the Group 387 Trade and other payables 300 11,040 Total liabilities net assets of the subsidiary on disposal date (total assets minus total liabilities per the above table) Loan payable to the Group Total assets disposed disposal consideration (Gain) on sale of subsidiary Cash flows from the disposal: cash received cash balance of the subsidiary at disposal date Net cash inflows from the disposal €’000 8,497 12 8,509 2,531 8,497 11,028 (11,300) (272) 11,300 (300) 11,000 overview Strategic review Portfolio review governance financial StatementS secTiOn Vii: OTHeR discLOsuRes This section includes segmental disclosures highlighting the core areas of Globalworth’s operations in the office, residential and other (industrial and corporate segments). There were no significant transactions between segments except for management services provided by the offices segment to the residential and other (industrial) segments. This section also includes the transactions with related parties, new standards and amendments, contingencies that existed at the year end and details on significant events which occurred subsequent to the date of the financial statements. 26. Investment in Subsidiaries Policy The Group assesses whether it has control over a subsidiary or an investee, in order to consolidate the assets, liabilities, income and expenses of the subsidiary or the investee in the Group’s consolidated financial statements, based on certain judgements and assumptions. Key Judgements and assumptions used in Determining the control over an entity: ¡ power over the investee (i.e. existing rights, directly or indirectly, in the investee that give it the current ability to direct the relevant activities of the investee). if the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including the contractual arrangement with the other vote holders of the investee, rights arising from other contractual arrangements and the Group’s voting rights and potential voting rights. ¡ exposure, or rights, to variable returns from its involvement with the investee. ¡ The ability to use its power over the investee to affect its returns (such as appointment of administrator or director in the subsidiary or investee). details on all direct and indirect subsidiaries of the company, over which the Group has control and consolidated as of 31 december 2016 and 2015, are disclosed in the table below. There are no other subsidiaries which were not consolidated. As of 31 december 2016, the Group held a 100% shareholding interest (31 december 2015: 100%) in the following subsidiaries, being holding companies as principal activities. subsidiary Globalworth investment Advisers Limited, Globalworth finance Guernsey Limited GWi finance B.V., Globalworth Holding B.V., GW Real estate finance B.V. Globalworth Holdings cyprus Limited, Zaggatti Holdings Limited, Tisarra Holdings Limited, Ramoro Limited, Vaniasa Holdings Limited, serana Holdings Limited, Kusanda Holdings Limited, Kifeni investments Limited, casalia Holdings Limited, pieranu enterprises Limited, dunvant Holding Limited, Oystermouth Holding Limited, saniovo Holdings Limited. place of incorporation Guernsey, channel islands netherlands cyprus mycre investment s.A.1 1 disposed of during the year, see note 25. As of 31 december 2016, the Group held a 100% shareholding interest (31 december 2015: 100%) in the following subsidiaries, who own real estate assets in Romania, being asset holding companies as their principal activities except Globalworth Building management sRL as building management. corinthian five sRL, Tower center international sRL, upground estates sRL, BOB development sRL, BOc Real property sRL, netron investment sRL, see exclusive development sRL, Aserat properties sRL, corinthian Tower sRL, Bog’Art Offices sRL, Beta property development company sRL, spc Gamma property development company sRL, Globalworth Asset managers sRL, Globalworth Building management sRL Greece Romania during the year ended 31 december 2016 the following companies were incorporated, 100% owned by the Group, as holding companies in cyprus. Kinolta investments Limited, minory investments Limited cyprus 27. Segmental Information Policy The Board of directors is of the opinion that the Group is engaged mainly in three segments of business, being offices investment property, residential investment property and other, in one geographical area, Romania. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The chief operating decision-makers, who are responsible for allocating resources and assessing performance of the operating segments, have been identified as the executive directors. The Group is domiciled in Guernsey. The Group earns revenue and holds non-current assets (investment properties) in Romania only, the geographical area of its operations. for investment property, discrete financial information is provided on a property-by-property basis (including those under construction) to members of executive management, which collectively comprise the executive directors of the Group. The information provided is net Opearting income (‘nOi') (gross rental income less property expenses) and property valuation gains/losses. The individual properties are aggregated into segments with similar economic characteristics, such as the nature of the property and the occupier market it serves. management considers that this is best achieved by aggregating into the office, residential and other segments. consequently, the Group is considered to have three reportable operating segments: the Offices segment (acquires, develops, leases and manages offices and spaces), the Residential segment (builds, acquires, develops and leases apartments) and the Other segment (acquires, develops, leases and manages industrial spaces and corporate holding offices). share-based payments expense is not allocated to individual segments as underlying instruments are managed at Group basis. 138 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 139 secTiOn Vii: OTHeR discLOsuRes cOnTinued 27. Segmental Information continued segment assets and liabilities reported to executive management on a segmental basis are set out below: 2016 Segments Office €’000 Residential €’000 Other €’000 Inter- segment eliminations €’000 Total €’000 Office €’000 Residential €’000 Revenue Operating expenses 59,725 (20,947) 2,985 (944) 6,807 (3,156) (1,286) 369 68,231 (24,678) 37,977 (11,885) 2,855 (1,843) 2015 Other €’000 5,779 (3,333) inter- segment eliminations €’000 Total €’000 (1,835) 655 44,776 (16,406) The related party transactions are set out in the table below: name nature of transactions/balance amounts Asia ccf investment s.à r.l corporate Loan facility cdp escf investment s.à r.l. corporate Loan facility escf investment s.à r.l. corporate Loan facility Segment NOI 38,778 2,041 3,651 (917) 43,553 26,092 1,012 2,446 (1,180) 28,370 York Global finance Offshore BdH corporate Loan facility Administrative expenses Acquisition costs change in fair value of investment property Bargain purchase gain on acquisition of subsidiary depreciation on other long-term assets Other expenses Other income foreign exchange loss finance cost finance income (3,529) (14) (599) – (4,478) (91) 899 – (7,707) (105) (3,434) (811) (1,210) – (6,447) – 890 – (10,201) (811) 6,527 (1,277) 1,460 – – – (119) (169) 2,910 (135) (28,153) 748 (62) (1,688) 201 (17) (2,644) 1 (2) – – 33 (1,425) – – – – – – – – – 6,710 47,859 (437) 2,000 – 17,227 – – (183) (1,857) 3,111 (119) (32,222) 749 (108) – – (169) (18,568) 522 (66) – – (10) (2,210) 2 – – – (70) (694) 2 – – – – – – – – 49,422 17,227 (174) – – (249) (21,472) 526 Segment results 16,844 (4,044) (852) (18) 11,930 68,610 (2,919) (2,763) (290) 62,638 share-based payment expense Gain on sale of subsidiary – – – – (14) 272 – – (14) 272 – – – – (125) – – – (125) – Profit before tax 16,844 (4,044) (594) (18) 12,188 68,610 (2,919) (2,888) (290) 62,513 Revenues are derived from a large number of tenants and no tenant contributes more than 10% of the Group’s rental revenues for the year ended 31 december 2016 (2015: €nil). 2016 2015 Office €’000 Residential €’000 Other €’000 Inter- segment eliminations €’000 Total €’000 Office €’000 Residential €’000 Other €’000 inter- segment eliminations €’000 Total €’000 844,752 101,454 52,445 (29) 998,622 804,218 108,760 44,391 (34) 957,335 1,054,626 104,831 73,975 (1,630) 1,231,802 844,212 110,246 67,140 (1,460) 1,020,138 451,205 34,857 32,015 (1,669) 516,408 458,184 37,606 26,158 (1,493) 520,455 Segments segment non-current assets Total assets Total liabilities Additions to non-current assets 37,691 200 4,220 – 42,111 70,982 24 8,789 – 79,795 none of the Group’s non-current assets are located in Guernsey except for goodwill (there are no employment benefit plan assets, deferred tax assets or rights arising under insurance contracts) recognised on business combination. 28. Transactions with Related Parties The Group’s related parties are the company’s executive and non-executive directors, as well as all companies controlled by them or under their joint control, or under significant influence. The Group’s major shareholders are disclosed on page 105 of the director’s Report of the Annual Report. overview Strategic review Portfolio review governance financial StatementS income statement statement of financial position income/(expense) Amounts owing (to)/from 2016 €’000 (994) (1,364) (1,867) 2015 €’000 (828) (1,204) (1,774) (3,011) (2,606) (533) (361) (723) (181) – 1,667 (541) (247) (493) (123) – – 2016 €’000 – – – – – – – – – – 2015 €’000 (11,337) (15,563) (21,300) (34,356) (6,081) (4,123) (8,245) (2,061) 650 – (Luxembourg) s.à r.l. spfc investment s.à r.l. corporate Loan facility indiana public Retirement system corporate Loan facility centre street investments s.à r.l. corporate Loan facility OcA OHA credit fund LLc corporate Loan facility mr ioannis papalekas mr ioannis papalekas1 Advances to directors Revenue from sale of residential completed property 1 during the year, Globalworth Asset managers sRL completed the sale, the terms of which had been agreed in 2011, of two apartments and a few parking and storage spaces for an amount of €2 million including VAT (€1.67 million excluding VAT). The emoluments of the executive and non-executive directors are disclosed in the Remuneration committee Report on pages 107 – 108 of the Annual Report. 29. New and Amended Standards starting from 1 January 2016 the Group adopted the following new and amended standards and interpretations. The new standards and amendments had no impact on the Group’s financial position and performance. new and amended standards and interpretations ifRs 11 Joint arrangements (Amendment): Accounting for Acquisitions of interests in Joint Operations iAs 16 property, plant & equipment and iAs 38 intangible Assets (Amendment): clarification of Acceptable methods of depreciation and Amortisation iAs 27 separate financial statements (amended) ifRs 10, ifRs 12 and iAs 28: investment entities – Applying the consolidation exception (Amendments) iAs 1 disclosure initiative (Amendment) Annual improvements to ifRss 2012–2014 cycle effective date Jan-16 Jan-16 Jan-16 Jan-16 Jan-16 Jan-16 standards issued but not yet effective and not early adopted by the Group are presented in the table below. ifRs 15 does not apply to rental income, but only apply to service charge income and property development services revenues generated by the Group. The Group does not currently anticipate that the adoption of ifRs 15 would have a material impact on the measurement of revenues derived from the above mentioned two revenue streams, however, additional disclosures may be required to be made in the consolidated financial statements. The Group will continue its assessment of the possible impact from the adoption of this new standard starting from 1 January 2018 and will consider any interpretation notes and guidance that may be issued in the meantime by the international Accounting standards Board. The Group is in the process of assessing the impact of ifRs 16. for other standards issued but not yet effective and not early adopted by the Group, the management believes that there will be no significant impact in the Group’s consolidated financial statements. narrow scope amendments and new standards iAs 12 income taxes (Amendments): Recognition of deferred Tax Assets for unrealised Losses iAs 7 statement of cash flows (Amendments): disclosure initiative ifRs 2 Amendments to ifRs 2: classification and measurement of share-based payment Transactions ifRs 9 financial instruments: classification and measurement ifRs 15 Revenue from contracts with customers ifRs 16 Leases effective date Jan-17 Jan-17 Jan-18 Jan-18 Jan-18 Jan-19 140 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 141 secTiOn Vii: OTHeR discLOsuRes cOnTinued 29. New and Amended Standards continued narrow scope amendments and new standards ifRs 10 consolidated financial statements and iAs 28 investments in Associates and Joint Ventures: sale or contribution of Assets between an investor and its Associate or Joint Venture ifRs 14 Regulatory deferral Accounts ifRs 15 Revenue from contracts with customers (clarifications) ifRs 4: Applying ifRs 9 financial instruments with ifRs 4 insurance contracts (Amendments)  iAs 40: Transfers to investment property (Amendments) ifRic 22: foreign currency Transactions and Advance consideration Annual improvements to ifRss 2014 – 2016 cycle effective date not yet announced not yet announced not yet announced not yet announced not yet announced not yet announced not yet announced 30. Contingencies Policy contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. legal claims One of the company’s subsidiaries (the ‘subsidiary’) is involved in court proceedings with a third party. following the third party’s decision to terminate the lease agreement signed with the subsidiary, the subsidiary enforced the c.€3.16 million bank letter of guarantee provided by the third party, on the grounds that the third party has unlawfully terminated the agreement. The third party claimed that the subsidiary was not entitled to enforce the guarantee and requested before the court that the subsidiary reimburses the guarantee amount. On top of the cashed-in guarantee, the subsidiary has submitted a court claim against the third party claiming an amount of c.€24.7 million representing penalties as per the agreement for the unlawful termination of the agreement by the third party. The presiding judge accepted the subsidiary’s claim to merge the two claims into one court case and the next hearing will be held in April 2017. Based on the legal advice it has received, management believes that the presiding judge will embrace its view that the subsidiary acted in accordance with the applicable law and the remedies available to it under the agreement when enforcing the bank letter of guarantee provided by the third party. taxation All amounts due to state authorities for taxes have been paid or accrued at the balance sheet date. The Romanian tax system undergoes a consolidation process and is being harmonised with the european legislation. different interpretations may exist at the level of the tax authorities in relation to the tax legislation that may result in additional taxes and penalties payable. Where the state authorities have findings from reviews relating to breaches of Romania’s tax laws, and related regulations these may result in: confiscation of the amounts in case; additional tax liabilities being payable; fines and penalties (that are applied on the total outstanding amount). As a result, the fiscal penalties resulting from breaches of the legal provisions may result in a significant amount payable to the state. The Group believes that it has paid in due time and in full all applicable taxes, penalties and penalty interests in the applicable extent. transfer Pricing According to the applicable relevant Romanian tax legislation, the tax assessment of related party transactions is based on the concept of market value for the respective transfers. following this concept, the transfer prices should be adjusted so that they reflect the market prices that would have been set between unrelated companies acting independently (i.e. based on the “arm’s length principle”). it is likely that transfer pricing reviews will be undertaken in the future in order to assess whether the transfer pricing policy observes the “arm’s length principle” and therefore no distortion exists that may affect the taxable base of the Romanian tax payer. 31. Subsequent Events date description 21 february 2017 Signing of agreement for acquisition of subsidiary The Group signed an agreement for the acquisition of a 100% holding and control of elgan Automotive Kft., an unlisted holding company based in Hungary, and its subsidiary elgan Automotive sRL, an unlisted company based in Romania. elgan Automotive sRL operates in the real estate management and development business and currently owns a modern warehouse facility 100% leased to Automobile dacia, Romania's largest corporate, on a long-term basis. The transaction value is c.€42.5 million. closing of the transaction is expected at the beginning of April 2017. independenT AudiTOR’s RepORT TO THe memBeRs Of GLOBALWORTH ReAL esTATe inVesTmenTs LimiTed 1. Our opinion on the consolidated financial statements in our opinion Globalworth Real estate investments Limited’s (“the company”) and its subsidiaries (together the “Group”) consolidated financial statements (the “financial statements”): ¡ give a true and fair view of the state of the Group’s affairs as at 31 december 2016 and its profit for the year then ended; ¡ have been properly prepared in accordance with international financial Reporting standards as adopted by the european union (“ifRs”); and ¡ have been prepared in accordance with the requirements of the companies (Guernsey) Law 2008. 2. What we have audited We have audited the Group financial statements of Globalworth Real estate investments Limited for the year ended 31 december 2016, which comprise: • the consolidated statement of comprehensive income for the year ended 31 december 2016; • the consolidated statement of financial position as at 31 december 2016; • the consolidated statement of changes in equity for the year ended 31 december 2016; • the consolidated statement of cash flows for the year ended 31 december 2016; and • the related notes 1 to 31. The financial reporting framework that has been applied in their preparation is applicable law and ifRs. 3. Overview of our audit approach Risks of material misstatement • Valuation of investment property • Revenue recognition Audit scope • We have performed an audit of the complete financial information of nine components and audit procedures on specific balances, particularly the valuation of investment property, where we considered the risk of material misstatement to be higher, for a further four components. We also performed work on other specific balances for a further thirteen components. • The reporting components where we performed audit procedures accounted for 100% of total equity (including the parent company which was a full scope component), and 100% of the Groups’ total revenue. materiality • Overall materiality of €5.2 million (2015: €5.0 million) which represents 1% (2015: 1%) of total equity net of What has changed • Our scope of work has changed from the prior year as follows new equity in 2016. Business combinations Accounting for business combinations was considered a significant risk in the prior year. There were no significant business combination in the year so this is not considered to be a significant risk in the current year. management’s judgements about going concern during the year the Group obtained significant new debt and equity financing. Accordingly we no longer consider that there is a significant risk with respect to management’s judgements about going concern. The audit was led by eY Guernsey. The Group audit team comprised individuals from Guernsey and Romania and we operated as an integrated team across both jurisdictions. We engaged component teams in Romania and in cyprus. The engagement partner and senior manager from Guernsey visited Romania to review work done there. We performed audit procedures and responded to the risks identified as described below. 3.1. Our assessment of risk of material misstatement We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. This is not a complete list of all risks or areas of focus identified by our audit. in addressing these risks, we have performed the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas. 142 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 143 independenT AudiTOR’s RepORT TO THe memBeRs Of GLOBALWORTH ReAL esTATe inVesTmenTs LimiTed cOnTinued Risk Our response to the risk Key observations communicated to the Audit Committee Valuation of investment property (€981 million; 2015 – €937 million) The valuation of investment property is the key driver of the Group’s net asset value and total return. Valuation of investment property requires specialist expertise and the use of significant estimates and judgements giving rise to a higher risk of misstatement. Refer to the Audit Committee Report (page 109) and note 3 of the financial statements (page 119) We performed full and specific scope audit procedures over the valuation of investment property which covered 100% thereof. specific scope procedures were performed by component audit teams based on instructions issued by the Group audit team. Those procedures are described below: We confirmed that there were no material matters arising from our audit work that we wished to bring to the attention of the Audit committee. We confirmed that investment property was not materially misstated. ¡ We documented our understanding of the processes, policies and methodologies used by management for valuing investment property and performed walkthrough tests to confirm our understanding of the systems and controls implemented. ¡ We agreed the valuations recorded in the consolidated financial statements to the values reported by the company’s independent experts (“specialists”). ¡ We agreed a sample of the significant inputs, particularly rental data, let areas and projected capex, used by the specialists to value investment property to contractual documentation and development plans. ¡ We tested the arithmetical accuracy of the calculations done by specialists for the main assumptions in the model, by reperforming a sample of their calculations. ¡ We engaged our own internal valuation experts from Romania to: – use their knowledge of the market to assess and corroborate the market related judgements and valuation inputs (including discount rates, exit yields and sales values) used by the specialists; and – assist us in determining whether the specialists were appropriately qualified and independent. Recognition of rental income (€46 million; 2015 – €31 million) management may seek to overstate rental income as it is a significant metric and indicator of the Group’s progress giving rise to a higher risk of misstatement. Refer to note 7 of the financial statements (page 123) ¡ We documented our understanding of the processes, policies and methodologies used by management in respect of revenue recognition and performed walkthrough tests to confirm our understanding of the systems and controls implemented. ¡ On a sample basis we agreed rental rates to tenancy agreements and rent received to bank statements. ¡ for a sample of tenancy agreements with lease incentives, we recalculated the spreading of the incentives over the period of the contract by reference to the terms of the agreements and we assessed the appropriateness of the accounting treatment by reference to the requirements of ifRs. We confirmed that there were no matters identified during our audit work on revenue recognition that we wished to bring to the attention of the Audit committee. We confirmed that revenue from rental income was recognised in accordance with ifRs. 4. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the financial statements. for the purposes of determining whether the financial statements are free from material misstatement we define materiality as the magnitude of misstatement that makes it probable that the economic decisions of a reasonably knowledgeable person, relying on the financial statements, would be changed or influenced. 4.1. materiality This is the magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined planning materiality for the Group to be €5.2 million (2015: €5.0 million), which is 1% of total equity less equity raised in december 2016 of €200 million, net of transaction costs of issuing shares (2015: 1% of equity). This provided a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures. it was considered inappropriate to determine materiality based on the Group’s profit before tax as the primary performance measures of the Group for internal and external reporting are based on equity. We believe that total equity provides us with an appropriate basis for audit materiality as it is a key published performance measure and is a key metric used by management in assessing and reporting on overall performance. during the course of our audit, we reassessed initial materiality and noted no matters leading us to amend materiality levels from those originally determined at the audit planning stage. 4.2. Performance materiality This refers to the application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 50% (2015: 50%) of our planning materiality, namely €2.6 million (2015: €2.5 million). Our objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in the financial statements did not exceed our materiality level. Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. for the Group audit, the performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. in the current year, the range of performance materiality allocated to components was €0.52 million to €1.7 million (2015: €0.4 million to €1.2 million). This is set out in more detail in section 5 below. 4.3. reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit committee that we would report to them all uncorrected audit differences in excess of €260,000 (2015: €250,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. 5. Scope of the audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. in addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. if we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. 5.1. tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the Group financial statements. The factors that we considered when assessing the scope of the Group audit and the level of work to be performed at each location included the following: the financial significance and specific risks of the location; the size of the component in relation to Group total equity; the organisation of the Group and effectiveness of the control environment, including group-wide controls; and changes in the business environment. Of the 30 components selected, which includes the parent company, we performed an audit of the complete financial information of nine components (“full scope component”) which were selected based on their size and risk characteristics. for the remaining twenty-one components (“specific scope components”), we performed specific audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of the accounts or their risk profile. for those specific accounts selected, as part of our specific scope components, the extent of our audit work on those accounts was the same as that for a full scope audit. 144 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 145 independenT AudiTOR’s RepORT TO THe memBeRs Of GLOBALWORTH ReAL esTATe inVesTmenTs LimiTed cOnTinued The components selected, in addition to the parent company, which is a full scope component, together with the allocated performance materiality, were as follows: Component Name Globalworth Asset managers sRL BOc Real property sRL upground estates sRL Tower center international sRL corinthian five sRL corinthian Tower sRL Bog’art Offices sRL spc Beta property development company sRL spc Gamma property development company sRL Location Romania Romania Romania Romania Investment type Scope Performance materiality € Asset manager / completed investment property / investment property under development full scope 1,300,000 completed investment property full scope 1,430,000 completed investment property completed investment property full scope full scope 1,170,000 1,170,000 Romania investment property under development full scope 1,690,000 Romania Romania Romania completed investment property completed investment property completed investment property full scope full scope full scope 1,170,000 1,170,000 780,000 Romania completed investment property full scope 780,000 BOB development sRL see exclusive development sRL Romania Romania completed investment property specific scope (1) 1,170,000 completed investment property / investment property under development specific scope (2) 780,000 netron investment sRL Aserat properties sRL Globalworth Building management sRL Globalworth Holdings cyprus Limited pieranu enterprises Ltd Tisarra Holding Limited Ramoro Ltd Oystermouth Holding Limited dunvant Holding Limited Zaggatti Holdings Limited casalia Holdings Limited Kifeni Holdings Limited serana Holdings Limited Vaniasa Holdings Limited saniovo Holding Limited Kusanda Holdings Limited minory investments Limited Kinolta investments Limited Romania investment property under development specific scope (3) Romania Romania Land bank for further development specific scope (4) Building management services specific scope (5) cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus cyprus Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) Holding entity specific scope (5) 780,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 520,000 1 2 investment property, rental and service charge income, cash, bank loans & interest expense, commitments and contingent liabilities and taxation (including deferred taxation) investment property, rental and service charge income, cash, accounts payable, bank loans & interest expense, commitments and contingent liabilities and taxation (including deferred taxation) investment property, cash, accounts payables, commitments and contingent liabilities and taxation (including deferred taxation and VAT receivable) investment property, cash, commitments and contingent liabilities and taxation (including deferred taxation) 3 4 5 Taxation and contingent liabilities. The remaining components together represent below 1% of the total equity and none are individually greater than 2% of the Group’s total equity. for these components we only performed analytical procedures (and certain audit procedures as applicable) as there were no risks identified that could indicate the group financial statements might be materially misstated. 5.2. involvement with component teams Team structure The overall audit strategy is determined by the opinion signatory who is based in Guernsey. since the group’s operations are principally in Romania, the audit team includes eY teams from Romania. The Group audit team visited Romania during the current year and prior year audits. Whilst in Romania we focused our time on the significant risks and judgemental areas of the audit. in addition, eY cyprus was involved for the components in cyprus with assigned specific scope. Involvement with component teams in establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by the Group audit team, or by the component team operating under our instruction. for the specific scope components, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to be satisfied that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The Group audit team, assisted by our internal valuation specialists in Romania, performed procedures on the valuations of investment properties. The Group audit team also participated in key discussions, via conference calls with all full and specific scope locations. The Group audit team interacted regularly with the component teams where appropriate during various stages of the audit, reviewed key working papers and were responsible for the scope and direction of the audit process. This, together with the additional procedures performed at group level, gave us appropriate audit evidence for our opinion on the Group financial statements. 6. Respective responsibilities of Directors and auditor As explained more fully in the directors’ Responsibilities statement set out on page 106, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and international standards on Auditing (uK and ireland). Those standards require us to comply with the Auditing practices Board’s ethical standards for Auditors. This report is made solely to the company’s members, as a body, in accordance with section 262 of the companies (Guernsey) Law 2008. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. 7. Matters on which we are required to report by exception ISAs (UK and Ireland) reporting We are required to report to you if, in our opinion, financial and non-financial information in the annual report is: ¡ materially inconsistent with the information in the audited financial We have no exceptions to report. statements; or ¡ apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of performing our audit; or ¡ otherwise misleading. in particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the course of performing the audit and the directors’ statement that they consider the annual report and accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the entity’s performance, business model and strategy; and whether the annual report appropriately addresses those matters that we communicated to the audit committee that we consider should have been disclosed. Companies (Guernsey) Law 2008 reporting We are required to report to you if, in our opinion: ¡ proper accounting records have not been kept; or ¡ the financial statements are not in agreement with the accounting records; or ¡ we have not received all the information and explanations we require for We have no exceptions to report. our audit. The reporting components where we performed audit procedures accounted for 100% (2015: 98%) of the Group’s total equity (including the parent company which was a full scope component), and 100% (2015: 99%) of the Group’s total revenue. for the current year, the full scope components contributed 80% (2015: 77%) of the Group’s total equity and 82% (2015: 79%) of the Group’s total revenue. The specific scope components contributed 20% (2015: 21%) of the Group’s total equity and 18% (2015: 21%) of the Group’s total revenue. 146 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 147 independenT AudiTOR’s RepORT TO THe memBeRs Of GLOBALWORTH ReAL esTATe inVesTmenTs LimiTed cOnTinued inVesTinG pOLicY 8. Statement on the Directors’ Assessment of the Principal Risks that Would Threaten the Solvency or Liquidity of the Entity ISAs (UK and Ireland) reporting Ernst & Young LLP Guernsey 3 April 2017 We have nothing material to add or to draw attention to. We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to: ¡ the directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity; ¡ the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated; ¡ the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and ¡ the directors’ explanation in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. notes: 1. The maintenance and integrity of the Globalworth Real estate investments Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2. Legislation in Guernsey governing the preparation and dissemination of group financial statements may differ from legislation in other jurisdictions. Investing strategy The company’s primary focus is to invest in a diversified portfolio of real estate opportunities situated in Romania and the wider south and central eastern european regions. The directors believe its primary market of investment represents an attractive real estate investment proposition over the medium to long term. By investing in income-generating properties, asset repositioning and development opportunities, and seeking to derive most of its income from multinational corporate groups and institutional financial tenants on long, triple net leases, the company intends to provide investors with an attractive, risk-adjusted combination of yield and capital appreciation. Globalworth is internally managed, with all investment advisory and portfolio management services exclusively provided by Globalworth investment Advisers Ltd (‘GiAL'), a wholly owned subsidiary of the company. Asset management services to the company’s real estate portfolio are provided by Globalworth Asset managers (‘GAm'), another wholly owned subsidiary of Globalworth, which employs a team of 53 professionals. Assets or companies in which the Company can invest investments made by the company may take the form of, but are not limited to, single real estate assets, real estate portfolios and companies, joint ventures, loan portfolios and equity and debt instruments. Strategy through which the investing policy is achieved The company’s strategy is to focus on acquiring underperforming or undervalued properties (due to financial distress, mismanagement or otherwise) and, through active asset management, to transform these into performing and marketable assets. most of the current or expected income from these assets is derived from multinational corporate groups and institutional financial tenants on long, triple net and annually indexed leases. Investment approach The company assumes a proactive approach to every real estate investment in the company’s portfolio and pursues various asset management initiatives according to the most appropriate business plan for each investment. These initiatives may include: repositioning of existing assets (including re-letting, refurbishment or redevelopment); development of new assets, corporate restructuring and reorganisation; portfolio break-ups (for example, ‘wholesale’ to ‘retail’ trades); and optimising capital structure. Holding period for investments The typical holding period for any investment is expected to be five to seven years. The decision to exit a particular investment will be taken by the company’s Board of directors (‘the Board’) following the recommendation of the investment Adviser, and may be less or greater than the expected holding period. such a decision may result from a variety of factors, including the need to optimise the risk/ return of the investment, responding to asset or market dynamics, or taking advantage of an unsolicited enquiry, but always with a view to ensuring that returns to shareholders are maximised. Gearing and cross holdings policies The company is permitted, directly or indirectly, to borrow for working capital, investment and any other purpose. debt financing is expected to be an important component of the structuring and execution of the company’s investments, to improve returns for both developmental and income-generating assets. Borrowings may be undertaken by the company itself or by any of its subsidiaries or project companies. The amount of leverage employed in respect of an investment is dependent on the nature of the opportunity, however, it is expected that the maximum loan-to-value for the Group will not exceed 60%. Hedging instruments in connection with third-party debt, the company may enter into one or a series of interest rate hedging products (including, among others, swaps, caps, collars or options) to protect the returns of the relevant investment against adverse interest rate fluctuations. Although it is anticipated that all rentals and debt finance will be in euro, the company may also enter into one or a series of currency hedging instruments (including, among others, swaps, caps, collars or options) to protect the returns of the relevant investment against adverse currency fluctuations. Investing restrictions unless the Board (at its absolute discretion) approves otherwise, the company will not acquire or invest in commercial properties which do not satisfy the minimum pre-letting commitment targets and will not acquire any asset where any such acquisition would result in more than 50% of the company’s net asset value (at the time of investment) being attributable to assets located outside Romania. The company’s minimum pre-letting commitment is as follows: ¡ for any logistics or warehouse property, pre-letting commitments for a minimum of 60% of the gross leasable area of such property; and ¡ for any other commercial property, pre-letting commitments for minimum of 50% of the gross leasable area of such property. These above restrictions will not preclude the company making investments in short-dated cash or near-cash equivalent securities, which form part of its cash management practices. Nature of returns that the Company seeks to deliver to Shareholders To support shareholder dividends, the directors anticipate that a sustainable cash flow will be generated through stable and recurring rental income, increased where appropriate through active asset management. The determination as to whether or not to reinvest some of the proceeds of the disposal of an asset, and the declaration of dividends, is at the absolute discretion of the Board. it is intended that not less than 90% of the company’s funds from operations will be distributed to shareholders of the company on a semi-annual basis, subject to solvency or other legal requirements. 148 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 149 scHeduLe Of pROpeRTies property name Location Address Year of completion Acquisition date Ownership % office Standing BOB BOc Bucharest 6A dimitrie pompeiu Blvd, district 2 Bucharest 3 George constantinescu st., district 2 city Offices Bucharest 2 – 4A Oltenitei street., district 4 Tci Bucharest 15-17 ion mihalache Blvd, district 1 unicredit HQ Bucharest 1f expozitiei Blvd, district 1 Globalworth plaza1 Bucharest 42 pipera Road, district 2 Green court A Bucharest 4 Gara Herastrau, district 2 Green court B Bucharest 4 Gara Herastrau, district 2 Globalworth Tower Bucharest 201 Barbu Vacarescu street, district 2 Gara Herastrau Bucharest 4B Gara Herastrau street, district 2 2008 2009 2014 2012 2012 2010 2014 2015 Q1 2016 Q2 2016 Q1, 2014 Q1, 2014 Q3, 2013 Q1, 2014 Q1, 2015 Q1, 2015 Q2, 2015 Q4, 2015 Q3, 2013 Q2, 2014 100 100 100 100 100 100 100 100 100 100 office Development  Globalworth campus2 Bucharest 4-6 dimitrie pompeiu Blvd, district 2 2017e/2018e Q1, 2014 100 industrial completed TAp – completed3 Timisoara Lipovei Way, Giarmata, Timis 2011 & 2015 Q3, 2014 development TAp – (development)3 Timisoara Lipovei Way, Giarmata, Timis 2017e Q3, 2014 100 100 retail/residential upground Towers Bucharest 9B fabrica de Glucoza street, district 2 2011 Q1, 2014 100 land bank – for further development Luterana Bucharest 7-13 Luterana street, district 1 Herastrau One Bucharest 48-50 soseaua nordului, district 1 – – Q4, 2014 Q3, 2013 100 100 note: All data as of 31 december 2016 1 Globalworth plaza, was previously referred to as nusco Tower 2 phase A is under construction (GLA: c.57k sqm) with expected completion dates for Towers i and ii in 2017 and 2018 respectively. phase B expected to commence in 2018. includes all extension options available to tenants. currently two facilities with total GLA of 25.5k sqm, 100% leased to Valeo and Litens are under construction and are expected to be completed in 2017. 3 4 Retail units in the property 5 Residential units available in the property GLA m² Standing   22,391 56,962 35,968 22,453 15,500 24,020 19,589 18,369 54,686 12,037 281,975 Development   88,650 88,650 industrial 81,349 50,000 131,349 commercial/ residential 56,662 56,662 land bank – for further development   – – – 558,905 Occupancy4 contracted rent WALL years “As is” valuation €’000 “completion” valuation €’000 97.3 97.2 21.8 99.7 100.0 29.7 100.0 100.0 83.2 68.9 78.7 – – 97.3 100.0 98.3 99.3/47.8 99.3/47.8 – – – 3.6 9.6 1.4 5.0 3.8 1.3 3.4 3.5 9.6 1.4 42.6 – – 3.5 1.9 5.4 2.4 2.4 – – – 5.5 5.8 4.5 4.1 5.4 4.7 5.3 4.2 8.8 6.3 – 11.1 11.0 7.44/1.95 7.4/1.9 – – 50,250 143,700 62,000 76,700 52,500 56,500 51,300 53,200 162,500 28,800 737,450 70,430 70,430 50,250 143,700 62,000 76,700 52,500 56,500 51,300 53,200 162,500 28,800 737,450 170,900 170,900 42,869 42,869 7,511 50,380 101,211 101,211 12,300 5,750 18,050 977,521 21,911 64,780 101,211 101,211 12,300 5,750 18,050 1,092,391 150 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 151                                                                                                                                                                                                                           GLOssARY Accounting Return The growth in epRA nAV plus dividend paid which can be expressed as a percentage of epRA nAV per share at the beginning of the period. EBITDA earnings before finance cost, tax, depreciation, amortisation of other non-current assets and purchase gain on acquisition of subsidiaries. AIC The Association of investment companies. Bargain Purchase Gain Any excess between the fair value of net assets acquired and consideration paid, in accordance with ifRs 3 Business combination. BREEAM Building Research establishment Assessment method, which assesses the sustainability of the buildings against a range of criteria. CAPEX Represents the estimated capital expenditure to be incurred for the completion of the development projects. Capitalisation Rates Based on actual location, size and quality of the properties and taking into account market data at the valuation date. CBD central Business district CEE central and eastern europe Commercial Properties comprises the office, light-industrial and retail properties or areas of the portfolio. Completed Investment Property completed developments consist of those properties that are in a condition which will allow the generation of cash flows from its rental. Completion Dates The date when the properties under development will be completed and ready to generate rental income after obtaining all necessary permits and approvals. Costs to Complete it represents additional costs to complete the property under development. Debt Service Cover Ratio (DSCR) it is calculated as net operating income for the year as defined in specific loan agreements with the respective lenders, divided by the principal plus interest due over the same year. Discount Rates The discount rate is the interest rate used to discount a stream of future cash flows to their present value. Discounted Cash Flow Analysis (DCF) Valuation method that implies income projections of the property for a discrete period of time, usually between 5-10 years. The dcf method involves the projection of a series of periodic cash flows either to an operating property or a development property. discounted cash flow projections based on significant unobservable inputs taking into account the costs to complete and completion date. Earnings Per Share (EPS) profit after tax divided by the basic/diluted weighted average number of shares in issue during the year. EBITDA (normalised) earnings before interest, depreciation, bargain purchase gain, fair value movement and other non-operational and/or non-recurring income and expense items. EPRA The european public Real estate Association is a non-profit association representing europe’s publicly listed property companies. EPRA Earnings profit after tax attributable to the equity holders of the company, excluding investment property revaluation, gains, losses on investment property disposals and related tax adjustment for losses on disposals, bargain purchase gain on acquisition of subsidiaries, acquisition costs, changes in the fair value of financial instruments and associated close-out costs and the related deferred tax impact of adjustments made to profit after tax. EPRA Earnings Per Share epRA earnings divided by the basic or diluted number of shares outstanding at the year or period end. EPRA NAV Per Share epRA nAV divided by the basic/diluted number of shares outstanding at the year or period end. EPRA Net Assets (EPRA NAV) net assets per the statement of financial position, excluding the mark-to-market on effective cash flow hedges and related debt adjustments and deferred taxation on revaluations excluding goodwill. Estimated Rental Value (ERV) eRV is the external valuers’ opinion as to the open market rent which, on the date of valuations, could reasonably be expected to be obtained on a new letting or rent review of a property. Estimated Vacancy Rates Represent vacancy rates computed based on current and expected future market conditions after expiry of any current lease. EURIBOR The euro interbank Offered Rate: the interest rate charged by one bank to another for lending money, often used as a reference rate in bank facilities. Financial Year period from 1 January to 31 december. FFO free funds from operations, estimated as the epRA earnings for the relevant period. Future Rental Cash Inflows future rental cash inflows computed based on the actual location, type and quality of the properties and supported by the terms of any existing lease, other contracts or external evidence such as current market rents for similar properties. GLA Gross leasable area. IFRS international financial Reporting standards as adopted by the european union. Income Capitalisation Method Valuation method that takes into consideration the income that a property is expected to generate if leased out assuming a stabilised occupancy level, and applying to that income a capitalisation rate reflecting the investors’ interest in a property of this kind. Property Under Development properties in the development process that do not meet all the requirements to be transferred to completed investment property. Property Under Refurbishment properties in the process of being refurbished and do not meet all the requirements to be transferred to completed investment property. IPO Admission to the Aim market of the London stock exchange. Land Bank for Further Development Land bought for further development but for which the Group did not obtain all the legal documentations and authorisation permits in order to start the development process. LEED Leadership in energy & environmental design, a green building certification programme that recognises best-in-class building strategies and practices. Like-for-like Property Value (LTLV) LTLV is the change in fair value over a period of one year on the standing and underdevelopment investment properties. Portfolio Open Market Value (OMV) portfolio open market value means the fair value of the Group’s investment properties determined by cBAR Research & Valuation Advisors sRL (coldwell Banker), independent professionally qualified valuers who hold a recognised relevant professional qualification and have recent experience in the locations and segments of the investment properties valued, using recognised valuation techniques. Property Valuation “As Is” Represents the appraised value for standing and operational properties (owned and announced), properties under development and land, performed by coldwell Banker as of financial position date. Property Valuation on “Completion” Represents the appraised value for standing and operational properties (owned and announced), properties under development and land, performed by coldwell Banker as of financial position date, assuming that the properties under development were completed as of the date of valuation. The estimated appraised values on completion are subject to risks and uncertainties that could cause actual outcomes to differ materially from those expressed or implied by the relevant statements; they are not guarantees of future performance and there can be no assurance that these estimated values on completion can or will be achieved. Residual Value Method Valuation method that estimated the difference between the market value of the building upon completion that can be built on the plot of land and all the building’s construction costs, as well as the developer’s profit. This method relies on the contribution concept by estimating from the future income of the building, the amount that can be distributed to the land. Loan to Value (LTV) calculated as the total outstanding debt excluding amortised cost as of financial position date divided by the appraised value of owned assets as of financial position date. Sales Comparison Approach Valuation method that compares the subject property with quoted prices of similar properties in the same or similar location. Maintenance Costs including necessary investments to maintain functionality of the property for its expected useful life. SEE south-eastern europe, in alphabetical order, Albania, Bosnia and Herzegovina, Bulgaria, croatia, cyprus, Greece, Kosovo, moldova, f.Y.R. macedonia, montenegro, Romania, serbia, slovenia and Turkey. Net Assets Value (NAV) equity attributable to equity holders of the company and/or net assets value. SPA share sale purchase agreement. Net Asset Value (NAV) Per Share equity attributable to equity holders of the company divided by the number of Ordinary shares in issue at the period end. SQM square metres. Net Operating Income (NOI) net operating income (being the gross operating income less operating expenses that are not paid by or rechargeable to tenants, excluding funding costs, depreciation and capital expenditure). Non-Controlling Interest (NCI) The equity in a subsidiary not attributable, directly or indirectly, to the parent. Occupancy Rate The estimated rental value of let sqm as a percentage of the total estimated rental value of the portfolio, excluding development properties. it includes spaces under offer or subject to asset management (where they have been taken back for refurbishment and are not available to let as of financial position date). Passing Rent it is the gross rent, less any ground rent payable under the head leases. Stabilised Vacancy it represents the reasonably estimated vacancy rate registered by the building with the proper marketing, management and maintenance conditions. Terminal Value The value of an asset at a specified, future valuation date, taking into account factors such as discount rates and the current value of the asset, and assuming a stable growth rate. Terminal value refers to the value of an entire property at a specified future valuation date. The common approach used to evaluate the terminal value of an asset is the “exit approach”. The Company or the Group Globalworth Real estate investments Limited and its subsidiaries. The Investment Adviser Globalworth investment Advisers Limited, a wholly owned holding subsidiary incorporated in Guernsey. 152 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 153 GLOssARY cOnTinued The Asset Manager Globalworth Asset managers sRL, an Asset Holding and Asset manager wholly owned subsidiary incorporated in Romania. WALL Represents the remaining weighted average lease length of the contracted leases as of the financial position date, until the lease contracts full expiration. Weighted Average Interest Rate The average of the interest rate charged on the Group’s loans, weighted by the relative outstanding balance of each loan at the year or period end. cOmpAnY diRecTORY Registered Office Ground floor dorey court Admiral park st peter port Guernsey GY1 2HT Nominated Adviser and Joint Broker panmure Gordon (uK) Limited One new change London ec4m 9Af united Kingdom Investment Adviser* Globalworth investment Advisers Limited Ground floor dorey court Admiral park st peter port Guernsey GY1 2HT Auditors ernst & Young LLp Royal chambers st. Julians Avenue st. peter port Guernsey GY1 4Af Registrar capita Registrars (Guernsey) Limited mont crevalt House Bulwer Avenue st. sampson Guernsey GY2 4LH Public Relations milbourne 1 Ropemaker street London ec2Y 9AW united Kingdom * Wholly owned subsidiaries of the company Administrator and Company Secretary JTc (Guernsey) Limited pO Box 156 Ground floor dorey court Admiral park st peter port Guernsey GY1 4eu Joint Broker cantor fitzgerald europe One churchill place canary Wharf London e14 5RB Asset Manager* Globalworth Tower 26th floor 201 Barbu Vacarescu Boulevard 2nd district Bucharest 020276 Romania Legal Advisers – English Law sidley Austin LLp Woolgate exchange 25 Basinghall street London ec2V 5HA united Kingdom skadden, Arps, slate, meagher & flom (uK) LLp 40 Bank street canary Wharf London e14 5ds united Kingdom Advocates – Guernsey Law carey Olsen pO Box 98 carey House Les Banques st. peter port Guernsey GY1 4BZ Legal Adviser – Romanian Law nestor nestor diculescu Kingston petersen Globalworth Tower 18th floor 201 Barbu Vacarescu Boulevard 2nd district Bucharest 020276 Romania 154 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 GLOBALWORTH AnnuAL RepORT And finAnci AL sTATemenTs 2016 155 Globalworth Real Estate Investments Limited Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT Globalworth Tower 26th Floor 201 Barbu Vacarescu Boulevard, 2nd district Bucharest, 020276 Romania Tel: +4 (0) 372 800 000 Fax: +4 (0) 371 600 000 Email: enquiries@globalworth.com www.globalworth.com 

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