CONSOLIDATED

ANNUAL

REPORT

OF GLOBE TRADE CENTRE S.A. CAPITAL GROUP

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER

2020

Place and date of publication: Warsaw, 23 March 2021

LIST OF CONTENTS:

01. Letter of the Management Board

02. Management Board’s report on the activities of Globe Trade Centre S.A.

Capital Group in the financial year ended 31 December 2020

03. Report on the application of the principles of corporate governance for the

financial year ended 31 December 2020

04. Management Board’s representations

05. Management Board’s information on apoitment of the audit company

06. Supervisory Board’s statement

07. Assessment of the Supervisory Board

08. Consolidated financial statements for the year ended 31 December 2020

09. Independent auditor’s report on the audit of the annual consolidated financial

statements

Dear Stakeholders,

During the last few years, including 2020, we have grown our property portfolio through

development and smart acquisitions, tightened our financial policy and strengthened our

liquidity. Our asset management teams delivered excellent service to our tenants and

maintained high levels of occupancy. The Group heightened its attention to ESG matters,

issued green bonds and strengthened its contribution to the well-being of the communities it

creates. We are proud that these accomplishments prepared us for the unforeseen challenges

posed by the outbreak of COVID-19 during 2020.

COVID-19 IMPACT AND RESPONSE

Our immediate priority has been to work alongside and support the communities in which we

operate, our suppliers and those customers most affected to protect the long-term value of our

business. To help us achieve this, we implemented multi-pronged measures to support tenants

and encourage consumer spending, such as reducing rent, allowing rent payment in instalments,

waiving late payment interest and service charges. The financial impact of this in terms of lost

operating profit was € 15m. Overall, we have collected 99% of the rent originally due for the year

(99% for offices and 97% for retail). The value of the portfolio declined 5% as ongoing structural

challenges were exacerbated at the year-end valuation date by the effects of Covid-19.

In the office segment, occupiers are working on plans to get back to the workplace and most feel

that it is too early to make fundamental long-term changes regarding their requirements. However,

we are mindful that the trend towards greater flexibility may accelerate following this prolonged

period of working from home. At the same time, there will be a greater focus on high quality,

modern and safe environment, which provides more space per person and we expect the trend

towards higher density offices and hot-desking to reverse. We continue to make progress on

leasing discussions, particularly larger space requirements. We are encouraged by the strong

level of activity we are seeing in the markets we operate.

CORPORATE GOVERNANCE

The year was also marked with a change on the corporate side of the Group. Spring brought a

change of the key shareholder, as Lone Star sold its majority stake to Optimum Ventures Private

Equity Fund. In autumn, the Supervisory Board appointed Yovav Carmi as the new CEO and

strengthen the management team by further promoting Ariel Ferstman and Robert Snow, very

experienced and motivated professionals, to the Management Board positions. We remain

focused on executing the company strategy while taking active steps to further improve the

balance sheet and operational results as proven by our year end strong FFO amounting to 66m

despite the Covid-19 impact.

In August, the Management Board made a difficult decision to temporarily suspend the dividend

payment for FY19. It was deemed to be an appropriate course of action given the circumstances

and uncertainty of the outlook despite our financial resilience and performance during FY20.

Going forward, the Management Board understands the importance of the dividend to

shareholders. We will seek to resume dividends at an appropriate level as soon as there is a

sufficient clarity of outlook. To achieve this, we will need to see a significant improvement in rent

collection and have more visibility on the post lockdown productivity of our assets, principally how

quickly retail customers and office workers return.

REVIEW OF THE YEAR

At the end of 2020, our property portfolio reached €2.1 billion. Total revenues were at €160 million.

The Group's EPRA net asset value (NAV) now stands at €1.1 billion, reflecting the high quality of

our portfolio and low leverage: net loan-to-value (LTV) was 45% at year-end. GTC has a low cost

of debt averaging 2.3% and a strong net interest coverage ratio (ICR) of 3.7×. Occupancy across

the whole portfolio was steady at 91%.

Our local asset management teams continued to outperform and showed that long-standing

relationship with tenants combined with very good quality of the portfolio can bring new leases

even in more challenging times: the LPP Group decided to open the biggest Polish Sinsay store

in Galeria Północna, Mobica and Barry Callebaut expanded their offices in University Business

Park, EoN prolonged office space in City Gate, Modis ,World Bank and Commerzbank chose

Advance Business Center II, while Generali leased office space in Matrix B. Additionally, IKEA

and Bershka will open their stores in the Mall of Sofia.

During the year we also decided to refresh our portfolio: we sold one of our Hungarian assets, the

Spiral office building, generating €41m of free cash to finance new acquisitions and implementing

new projects. At the beginning of 2020, we completed the construction of the final building of the

Green Heart office complex in Belgrade, followed by Advance Business Center II in Sofia and

Matrix B in Zagreb towards the end of the year. In 2020, we also commenced Sofia Tower 2, an

A-class office building above the Mall of Sofia, and additionally, our development pipeline includes

such great projects as Pillar in Budapest, which was fully pre-let prior to the commencement of

construction.

We benefit from the work we have done over several years to strengthen our balance sheet. GTC

remained active on the capital markets in 2020, raising about €110 million of senior unsecured

bonds, providing additional flexibility that will be used for a combination of debt repayment, new

developments and acquisitions. We issued HUF-denominated green bonds, further

demonstrating our commitment to sustainability and financial innovation. The Group’s strong

market position was also confirmed by investment grade rating BBB- by Scope Ratings. Total

available liquidity of the Group was €272 million at the end of 2020. As a result, GTC's finances

are prepared for any opportunities or uncertainties which may lie ahead.

Invariably, sustainability has been our priority. We actively strive to deliver the most modern

buildings, equipped with the latest technology solutions that meet the strict BREEAM or LEED

criteria. The major accomplishment was LEED Platinum certification for two of our A-class

buildings, Matrix A and Matrix B in Zagreb. Thus, 84% of all GTC properties now proudly bear

an eco-friendly label. Additionally, we are working on the ESG policy to increase our market

advantages, improve financial results and reduce operational risk. It is another step forward for

the company to develop environmental protection, social care and corporate governance. As a

result, we have embarked on a project to deliver the 2020 ESG report.

Near term, it is clear that the management and maintenance of places and buildings are likely to

become more important to businesses, their customers and their people, as they place an even

greater focus on the safety and quality of their environments. As a result, our property

management expertise is likely to become even more of a positive differentiator for our business.

In the longer-term, it is our view that many of the macro trends will accelerate. This includes the

growth of online shopping, reinforcing our focus on delivering a smaller, more focused retail

business. We continue to believe there remains a role for the right kind of retail within our portfolio

especially assets that can play a key role for retailers in terms of fulfilment of online sales, returns

and click-and-collect. This will particularly be the case for shopping malls located conveniently in

and around key transport hubs. We also expect demand to polarise towards workspace which is

high quality, modern and sustainable and supports more flexible working patterns. However, it

remains early days and we do not yet have clarity around what long term trends will emerge so

we will remain alert as things develop, and be flexible in our approach, including evolving or

adapting our strategy as appropriate.

Our success, and our ability to face future challenges, would not be possible without our

employees, tenants, banks and bondholders. Whatever 2021 holds, we look forward to working

together and believe the future is bright as we step in 2021 trusting that we could enhance the

deal flow, mitigate risk and optimize performance effectively through our regional platform.

Sincerely,

Members of the Management Board

Globe Trade Centre S.A.

Yovav Carmi

CEO

Ariel A. Ferstman

CFO

Gyula Nagy

Board Member

Robert Snow

Board Member

MANAGEMENT BOARD’S REPORT

ON THE ACTIVITIES OF GLOBE TRADE CENTRE S.A. CAPITAL GROUP

IN THE FINANCIAL YEAR ENDED 31 DECEMBER 2020

TABLE OF CONTENT

1. Introduction ...................................................................................................................... 5

2. Selected financial data ..................................................................................................... 9

3. Key risk factors ...............................................................................................................11

4. Presentation of the Group ...............................................................................................39

4.1 General information about the Group ........................................................................39

4.2 Main events of 2020 .................................................................................................40

4.3 Structure of the Group ..............................................................................................44

4.4 Changes to the principal rules of the management of the Company and the Group .46

4.5 The Group’s Strategy ...............................................................................................47

4.6 Business overview ....................................................................................................50

4.6.1 Overview of the investment portfolio ....................................................................52

4.6.1.1 Overview of income generating portfolio ..........................................................52

4.6.1.1.1Overview of the office portfolio .........................................................................54

4.6.1.1.1.1 Office portfolio in Poland ..............................................................................55

4.6.1.1.1.2 Office portfolio in Belgrade ...........................................................................56

4.6.1.1.1.3 Office portfolio in Budapest ..........................................................................57

4.6.1.1.1.4 Office portfolio in Sofia .................................................................................58

4.6.1.1.1.5 Office portfolio in Bucharest .........................................................................58

4.6.1.1.1.6 Office portfolio in Zagreb..............................................................................59

4.6.1.1.2 Overview of the retail portfolio ........................................................................60

4.6.1.1.2.1 Retail portfolio in Poland ..............................................................................61

4.6.1.1.2.2 Retail portfolio in Sofia .................................................................................62

4.6.1.1.2.3 Retail portfolio in Zagreb ..............................................................................62

4.6.1.1.2.4 Retail portfolio in Belgrade ...........................................................................63

4.6.1.2 Overview of properties under construction.......................................................63

4.6.1.3 Overview of investment property landbank ......................................................64

4.6.2 Residential landbank ...........................................................................................65

4.7 Overview of the markets on which the Group operates .........................................65

4.7.1 Office market .......................................................................................................66

4.7.2 Retail market .......................................................................................................72

4.8 Information on the Company’s policy on sponsorship, charity, and other similar

activities. ...................................................................................................................76

5. Operating and financial review ........................................................................................78

5.1 General factors affecting operating and financial results ..........................................78

5.2 Specific factors affecting financial and operating results ...........................................81

5.3 Presentation of differences between achieved financial results and published

forecasts ...................................................................................................................84

5.4 Statement of financial position ..................................................................................85

5.4.1 Key items of the statement of financial position ...................................................85

5.4.2 Financial position as of 31 December 2020 compared to 31 December 2019 .....86

5.5 Consolidated income statement ................................................................................88

5.5.1 Key items of the consolidated income statement .................................................88

5.5.2 Comparison of financial results for the year ended 31 December 2020 with

the result for the corresponding period of 2019 .....................................................90

5.6 Consolidated cash flow statement ............................................................................94

5.6.1 Key items from consolidated cash flow statement ...............................................94

5.6.2 Cash flow analysis ...............................................................................................95

5.7 Future liquidity and capital resources ........................................................................96

6. Information on the use of proceeds from the issuance of shares and bonds ...................98

7. Information on loans granted with a particular emphasis on related entities ....................98

8. Information on granted and received guarantees with a particular emphasis on guarantees

granted to related entities ................................................................................................98

9. Off balance liabilities .......................................................................................................99

10. Major investments, local and foreign (securities, financial instruments, intangible assets,

real estate), including capital investments outside the Group and its financing method 99

11. Information on risk management ..................................................................................99

12. Remuneration policy and human resources management.......................................... 104

12.1 Remuneration policy ............................................................................................ 104

12.2 Incentive system .................................................................................................. 106

12.2.1.1 Phantom Shares program control system ....................................................... 108

12.3 Number of employees ......................................................................................... 108

12.4 Training policy ..................................................................................................... 108

12.5 Agreements concluded between GTC and management board members ........... 108

12.6 Evaluation of the remuneration policy for the realization of its objectives ............. 108

12.7 Remuneration of the Members of the management board and supervisory board109

12.8 Information on any liabilities arising from pension and similar benefits for former

members of the management board and the supervisory board ........................... 111

13. Shares in GTC held by members of the management board and the supervisory

board .......................................................................................................................... 112

14. Transactions with related parties concluded on terms other than market terms ......... 113

15. Information on signed and terminated loan agreements within a given year ............... 113

16. Information on contracts of which the Company is aware of (including those concluded

after the balance sheet date) which could result in a change in the shareholding structure

in the future ................................................................................................................ 114

17. Proceedings before a court or public authority involving Globe Trade Centre SA or its

subsidiaries the total value of the liabilities or claims is material ................................. 114

18. Material contracts signed during the year, including insurance contracts and co-operation

contracts ..................................................................................................................... 115

19. Agreements with an entity certified to execute an audit of the financial statements .... 115

1. Introduction

The GTC Group is a leading real estate investor and

developer focusing on Poland and capital cities in Eastern

and Southern Europe: Belgrade, Budapest, Bucharest,

Zagreb, and Sofia. The Group was established in 1994.

Group’s portfolio comprises: (i) completed commercial

properties; (ii) commercial properties under construction; (iii)

a commercial landbank intended for future development (iv)

assets held for sale, and (v) residential landbank.

GTC GROUP:

Poland,

Budapest,

Belgrade,

Bucharest, Sofia,

and Zagreb

Since its establishment and as of 31 December 2020, the Group has: (i) developed

approximately 1.2 million sq m of gross commercial space and approximately 300 thousand

sq m of residential space; (ii) sold approximately 600 thousand sq m of gross commercial

space in completed commercial properties and approximately 300 thousand sq m of residential

space; and (iii) acquired approximately 160 thousand sq m of commercial space in completed

commercial properties. Additionally, GTC Group developed and sold over 100 thousand sq m

of commercial space and approximately 76 thousand sq m of residential space through its

associates in the Czech Republic.

As of 31 December 2020, the Group`s property portfolio comprised the following properties:

 48 completed commercial buildings, including 43 office buildings and five retail

properties with a total combined commercial space of approximately 753 thousand sq

m of GLA, of which the Group's proportional interest amounts to approximately 743

thousand sq m of GLA;

 2 office buildings under construction with a total GLA of approximately 37 thousand sq

 commercial landbank designated for future development; and

 residential landbank.

753 000

landbank for

completed

buildings

sq m of

GLA

buildings

under

construction

future

development

As of 31 December 2020, the book value of the Group’s portfolio amounts to €2,136,802 with:

(i) the Group’s completed investment properties account for 88% thereof; (ii) investment

properties under construction for 3%; (iii) an investment landbank intended for future

development for 7%; (iv) right of use of lands under perpetual usufruct for 2% (v) assets held

for sale for less than 1% and (vi) residential landbank account for less than 1%.

The Company’s shares are listed on the Warsaw Stock Exchange and inward listed on the

Johannesburg Stock Exchange. The Company’s shares are included in mWIG 40.

The Group’s headquarters are located in Warsaw, at Komitetu Obrony Robotników 45A.

Terms and abbreviations capitalized in this Management's Board Report shall have the

following meanings unless the context indicates otherwise :

the

Company

or GTC

are to Globe Trade Centre S.A.

the Group

or the GTC

Group

are to Globe Trade Centre S.A. and its consolidated subsidiaries

are to the shares in Globe Trade Centre S.A., which were introduced to

public trading on the Warsaw Stock Exchange in May 2004 and later and

are marked under the PLGTC0000037 code and inward listed on

Johannesburg Stock Exchange in August 2016 and are marked under the

ISIN PLGTC0000037 code

Bonds

are to the bonds issued by Globe Trade Centre S.A. and introduced to

alternative trading market and marked with the ISIN codes PLGTC0000177,

PLGTC0000219, PLGTC0000227, PLGTC0000235, PLGTC0000243,

PLGTC0000268, PLGTC0000276, PLGTC0000292, PLGTC0000318 and

HU0000360102GTC

the Report

are to the consolidated annual report prepared according to art. 71 of the

Decree of the Finance Minister of 29 March 2018 on current and periodical

information published by issuers of securities and conditions of qualifying as

equivalent the information required by the provisions of the law of a country

not being a member state

CEE

are to the Group of countries that are within the region of Central and

Eastern Europe (Hungary, Poland)

SEE

are to the Group of countries that are within the region of South-Eastern

Europe (Bulgaria, Croatia, Romania, and Serbia)

net rentable

area, NRA”,

are to the metric of the area of a given property as indicated by the property

appraisal experts to prepare the relevant property valuations. With respect

or net

leasable

area, NLA

to commercial properties, the net leasable (rentable) area is all the office or

retail leasable area of a property exclusive of non-leasable space, such as

hallways, building foyers, and areas devoted to heating and air conditioning

installations, elevators, and other utility areas. The specific methods of

calculation of NRA may vary among particular properties, which is due to

different methodologies and standards applicable in the various geographic

markets on which the Group operates

gross

rentable

area or

gross

leasable

area, GLA

are to the metric of all the office or retail leasable area of a property

multiplied by add-on-factor;

Commercial

properties

are to properties with respect to which GTC Group derives revenue from

rent and includes both office and retail properties

FFO,

FFO I

are to profit before tax less tax paid, after adjusting for non-cash transactions

(such as fair value or real estate re-measurement, share-based payment

provision and unpaid financial expenses) and one-off items (such as FX

differences and residential activity);

EPRA NAV

are to total equity less non-controlling interest, less deferred tax liability

related to real estate assets and derivatives at fair value

EBITDA

are to earning before fair value adjustments, interest, tax, depreciation, and

amortization;

In-place rent

Are to rental income that was in place as of the reporting date. It includes

headline rent from premises, income from parking, and other rental income

EUR, €

or euro

are to the single currency of the participating Member States in the Third

Stage of European Economic and Monetary Union of the Treaty

Establishing the European Community, as amended from time to time

PLN or zloty

are to the lawful currency of Poland

HUF

are to the lawful currency of Hungary

JSE

are to the Johannesburg Stock Exchange

PRESENTATION OF FINANCIAL INFORMATION

Unless indicated otherwise, the financial information presented in this Report was prepared

according to International Financial Reporting Standards (“IFRS”) as approved for use in the

European Union.

All the financial data in this Report is presented in euro or PLN and expressed in thousands

unless indicated otherwise.

Certain financial information in this Report was adjusted by rounding. As a result, certain

numerical figures shown as totals in this Report may not be exact arithmetic aggregations of

the figures that precede them.

PRESENTATION OF PROPERTY INFORMATION

Information on properties is presented pro-rata to the Group’s consolidation method in each of

the properties. The properties' valuation is based on the value that the Group consolidates in

its consolidated financial statements. The occupancy rate given for each of the markets is as

of 31 December 2020.

INDUSTRY AND MARKET DATA

In this Report the Group sets out information relating to its business and the markets in which

it operates and in which its competitors operate. The information regarding the markets, their

potential, macroeconomic situation, occupancy rates, rental rates, and other industry data

relating to the Group's markets are based on data and reports compiled by various third-party

entities. The information included in that section is not expressed in thousand and is prepared

by Jones Lang LaSalle IP, Inc („JLL”). It is based on material that JLL believes to be reliable.

While every effort has been made to ensure its accuracy, GTC cannot offer any warranty that

contains no factual errors.

Moreover, in numerous cases, the Group has made statements in this Report regarding the

industry in which it operates based on its own experience and examining market conditions.

The Group cannot guarantee that any of these assumptions properly reflect the Group’s

understanding of the markets on which it operates. Its internal surveys have not been verified

by any independent sources.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements relating to future expectations regarding the

Group’s business, financial condition, and results of operations. You can find these statements

by looking for words such as "may", "will", "expect", "anticipate", "believe", "estimate", and

similar words used in this Report. By their nature, forward-looking statements are subject to

numerous assumptions, risks, and uncertainties. Accordingly, actual results may differ

materially from those expressed or implied by forward-looking statements. The Group cautions

you not to place undue reliance on such statements, which speak only as of this Report's date.

The cautionary statements set out above should be considered in connection with any

subsequent written or oral forward-looking statements that the Group or persons acting on its

behalf may issue. The Group does not undertake any obligation to review or confirm analysts’

expectations or estimates or to release publicly any revisions to any forward-looking

statements to reflect events or circumstances after the date of this Report.

The Group discloses essential risk factors that could cause its actual results to differ materially

from its expectations under Item 3. “Key risk factors”, Item 5. “Operating and financial review”,

and elsewhere in this Report. These cautionary statements qualify all forward-looking

statements attributable to us or persons acting on behalf of the Group. When the Group

indicates that an event, condition, or circumstance could or would have an adverse effect on

the Group, it means to include effects upon its business, financial situation, and results of

operations.

2. Selected financial data

The following tables present the Group’s selected historical financial data for the financial year

ended 31 December 2020 and 2019. The historical financial data should be read in conjunction

with Item 5. “Operating and Financial Review” and the consolidated financial statements for

the year ended 31 December 2020 (including the notes thereto). The Group has derived the

financial data presented in accordance with IFRS from the audited consolidated financial

statements for the year ended 31 December 2020.

Selected financial data presented in PLN is derived from the consolidated financial

statements for the year ended 31 December 2020 presented in accordance with IFRS and

prepared in the Polish language and Polish zloty as a presentation currency.

The reader is advised not to view such conversions as a representation that such zloty

amounts actually represent such euro amounts or could be or could have been converted into

euro at the rates indicated or at any other rate.

For the 12-month period ended

31 December

2020

2019

(in thousands)

€

PLN

€

PLN

Consolidated Income Statement

Revenues from operations

160,121

711,706

169,762

729,637

Cost of operations

(41,527)

(184,579)

(41,876)

(179,983)

Gross margin from operations

118,594

527,127

127,886

549,654

Selling expenses

(1,307)

(5,809)

(2,017)

(8,669)

Administrative expenses

(11,712)

(52,057)

(14,410)

(61,934)

Profit/(loss) from revaluation/impairment of

assets, net

(142,721)

(649,116)

16,190

69,779

Financial income/(expense), net

(34,913)

(155,182)

(34,254)

(147,224)

Net profit / (loss)

(70,861)

(328,741)

75,421

324,319

Basic and diluted earnings per share (not in

thousands)

(0.14)

(0.67)

0.15

0.66

Weighted average number of issued ordinary shares (not

in thousands)

485,555,122

484,659,406

Consolidated Cash Flow Statement

Net cash from operating activities

100,325

445,925

101,407

435,849

Net cash used in investing activities

(30,298)

(134,631)

(9,882)

(42,447)

Net cash from/(used in) financing activities

27,713

123,178

7,549

32,910

Cash and cash equivalents at the end of the

period

271,996

1,255,207

179,636

764,980

Consolidated statement of financial

position

Investment property (completed and under

construction)

1,942,082

8,962,320

2,087,268

8,888,631

Investment property landbank

140,367

647,766

115,277

490,907

Right of use

42,679

196,955

44,485

189,439

Residential landbank

10,094

46,582

13,388

57,013

Assets held for sale

1,580

7,291

Cash and cash equivalents

271,996

1,255,207

179,636

764,980

Others

71,959

322,077

82,688

352,127

Total assets

2,480,757

11,448,198

2,522,742

10,743,097

Non-current liabilities

1,274,363

5,880,931

1,192,168

5,076,847

Current liabilities

232,246

1,071,769

271,912

1,157,938

Total Equity

974,148

4,495,498

1,058,662

4,508,312

Share capital

11,007

48,556

11,007

48,556

3. Key risk factors

THE IMPACT OF THE SARS-COV-2 VIRUS AND THE COVID-19 DISEASE ON THE

OPERATIONS AND FINANCIAL STANDING OF THE GROUP

The Group is subject to risk related to the spread of the SARS-CoV-2 virus and the COVID-19

pandemic. The impact of the SARS-CoV-2 virus and the COVID-19 pandemic is largely

dependent on factors over which the Group Companies have no control. The consequences of

the epidemic related to the SARS-CoV-2 virus (including precautionary restrictions such as

temporary closures of public spaces including shopping malls or a temporary ban on public

gatherings introduced in countries in which the Group or its tenants operate) may have an

adverse effect on the operations of the Group, specifically, in the following areas:

• reduced demand for both office and retail space as a result of different work patterns

(a growing share of employees may work from home and not from the office) and

habits (a growing number of customers may switch to shopping online rather than in

brick-and-mortar shopping malls);

• the sales dynamics of real estate projects and the conclusion of lease agreements -

in the form of delays in signing agreements relating to the sale of real estate projects

or leases;

• administrative proceedings in public administration authorities – in the form of

protraction of such proceedings and, consequently, delays in obtaining

administrative decisions of key importance to the development process;

• the dynamics of securing the financing required for funding current and planned real

estate projects - in the form of delays in obtaining or the failure to obtain such

financing;

• the timetables of construction work - in the form of possible delays in such works

related to limited access to building materials (disrupted supply chains) and

insufficient personnel, if any, of subcontractors, thus having a direct impact on the

timeliness of completion of the investments; and

• any case of employees of the Group or individuals cooperating therewith testing

positive for the COVID-19 pandemic, whereby such persons or the Group’s

headquarters or other office buildings are subject to quarantine, thus, having an

adverse impact on the Group’s operations and functioning, in particular, if such

affects a significant number of individuals or individuals who are key to the Group’s

operations.

Any of these factors may have a material adverse effect on the Group’s business, financial

condition, and results of operations. It cannot be excluded that the recently intensified spread

of the COVID-19 pandemic will cause the precautionary restrictions introduced in countries in

which the Group operates to be re-imposed or that new, more strict measures will be introduced,

which could have an adverse negative impact on the business operations or financial liquidity

of the Group’s tenants or other business partners and the general behavior of the public, and

thus, intensify the negative impact of the COVID-19 pandemic and its consequences on the

Group’s business, financial condition and results of operations or increase the likelihood of the

materialization of risks connected therewith.

THE GROUP’S BUSINESS COULD BE AFFECTED IF THE GENERAL ECONOMIC

CONDITIONS IN THE COUNTRIES IN WHICH THE GROUP OPERATES CONTINUE OR

WORSEN

A deterioration of the general economic conditions and the real estate market in the countries

where the Group operates may adversely affect customers' willingness and ability to secure

financing and purchase or lease property. If such demand falls, the Group may have to sell or

let its projects at a loss or may not be able to sell or let its projects at all. A potential downturn

in the general economic conditions and the real estate market in Poland or other countries in

which the Group operates, resulting from the outbreak of the COVID-19 pandemic or otherwise,

may also lead to a drop in the market value of the Group’s properties. The financial markets

crisis may also adversely affect the Group’s business in other ways, for example, if tenants of

the Group or the financial institutions that provide the Group with financing go bankrupt.

Any of these factors may have a material adverse effect on the Group’s business, financial

condition, and results of operations.

THE GROUP MAY FAIL TO IMPLEMENT ITS STRATEGY

The Group has its growth strategy approved pursuant to which it plans to: (i) expand its portfolio

by acquiring and improving yielding properties in Poland and in capital cities in countries where

the Group operates, supplemented by selected, most attractive development projects in the

Group’s Property Portfolio; (ii) improve the efficiency of its asset management activities and

maximize operating performance and efficiency, and (iii) sell its non-core assets which may

allow the Group to reduce its financial leverage or obtain funds to be used for new investments.

As a result, certain properties and qualities of the portfolio may change in terms of the

geographic split, the ratio of the value of completed properties and the value of properties under

construction, as well as the portfolio’s split by asset classes (i.e., retail, office, residential and

other properties). As a result, various metrics of the Group’s business and recurring cash flows

derived from rental income may change. Moreover, no assurance can be given that the Group’s

property portfolio or future investment strategies effected pursuant to the Group’s strategy will

enhance the value of its property portfolio and increase the Group’s profitability. In particular,

the success of the Group’s business strategy relies on assumptions and contingencies that may

prove to be partially or wholly incorrect and/or inaccurate. This includes assumptions with

respect to the level of profitability of the acquisition targets to be completed in the future and

investment criteria which have been developed by the Group for the purpose of achieving the

expected level of returns on the acquired properties.

The Group may fail to achieve its major goals due to internal and external factors of a regulatory,

legal, financial, social or operational nature, some of which may be beyond the Group’s control.

In particular, volatile market conditions, a lack of capital resources needed for expansion and

the changing price of available properties for sale in the relevant markets may hinder or make

it impossible for the Group to implement the core elements of its strategy. Moreover, expanding

its presence in the asset management sector may be hindered or even impossible due to

increasing competition from other real estate managers and investors in the real estate market.

Should the Group experience these or other challenges, the Group may be unable to implement

its strategy fully or at all; it may decide to change, suspend or withdraw from its strategy or

development program, and it may be unable to achieve, or it could encounter delays in

achieving, the planned synergies and desired benefits from its strategy and development

program. This could have a material adverse effect on the Group’s business, financial condition,

results of operations.

THE VALUATION OF THE GROUP’S PROPERTIES IS INHERENTLY UNCERTAIN, MAY

BE INACCURATE AND IS SUBJECT TO FLUCTUATION

The Group presents the vast majority of its real estate properties at a fair value, which has been

estimated by external real estate valuation experts.

The valuation of property is inherently subjective and uncertain since it is done on the basis of

assumptions which may differ from actual future developments. For example, the valuation

reports were prepared on the basis of certain forecasts and assumptions regarding the real

estate market in geographic markets in which the Group operates.

The fair value of investment properties and the undeveloped landbank is established semi-

annually (i.e. as of 30 June and 31 December of each year) by independent certified appraisers

based on discounted projected cash flows from the investment properties using discount rates

applicable for the relevant local real estate market or, in case of some of the real properties,

using the sales comparison approach. In most instances the independent certified appraisers

do not, prepare valuations for 31 March and 30 September of each year. Such valuations are

reviewed internally and, if necessary confirmed by our independent certified appraiser and,

verified by the Group’s management.

There can be no assurance that the valuations of the Group’s properties (undeveloped, in

progress and completed) will reflect the actual sale prices or that the estimated yield and annual

rental revenue of any property will be attained, or that such valuations will not be subject to be

challenged by, among others, the regulatory authorities. Forecasts may prove inaccurate as a

result of the limited amount and quality of publicly available data and research regarding Poland

and other markets in which the Group operates compared to mature markets. Moreover, a lack

of comparable transactions, experienced particularly during difficult times such as the

lockdowns, forces valuation experts to rely on yields derived from theoretical models and

estimates rather than actual market yields.

Additional factors that impact the valuation and, specifically, the planning of projects are the

construction costs as estimated by the Group and established on the basis of current prices

and future price forecasts, whereas the actual costs may be different. Moreover, some of the

valuations are based on certain assumptions regarding future zoning decisions. Such

assumptions may turn out not to be fulfilled which may result in the Group not being able to

develop certain property in line with the plan. This may adversely impact the valuation of such

properties in the future.

If the forecasts and assumptions on which the valuations of the projects in the Group’s portfolio

are based prove to be inaccurate, the actual value of the projects in the Group’s portfolio may

differ materially from that stated in the valuation reports. Inaccurate valuations of the Group’s

properties and fluctuations in valuations may have a material adverse effect on the Group’s

business, financial condition and results of operations.

In addition, a decrease in the value of the real estate properties of the Group may also

negatively affect the Group’s covenants to maintain certain levels of loan-to-value ratios

established in connection with the Group’s loans incurred to finance projects and the ability of

the Group to raise and service its debt funding. Each such event may have a material adverse

effect on the Group’s business, financial condition, results of operations.

THE GROUP’S CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT MAY BE

SIGNIFICANTLY AFFECTED BY FLUCTUATIONS IN THE FAIR MARKET VALUE OF ITS

PROPERTIES AS A RESULT OF REVALUATIONS

The Group’s income generating properties and properties under development are

independently revalued on at least semi-annual basis in accordance with its accounting policy.

Consequently, in accordance with IAS 40 “Investment Property” as adopted by the EU, any

increase or decrease in the value of its properties accounted for in accordance with fair value

models recorded as a revaluation gain or loss in the Company’s consolidated income statement

for the period during which the revaluation occurs. Moreover, projects under construction which

cannot be reliably valued at fair value are valued at historical cost decreased by impairment, if

any. Such properties are tested for impairment on, at least, a semi-annual basis. If the criteria

for impairment are satisfied, a loss is recognized in the Group’s consolidated income statement.

As a result, the Group can have significant non-cash revenue gains or losses from period to

period depending on the changes in the fair value of its investment properties, whether or not

such properties are sold. For instance, the Group may recognize revaluation losses and

impairment of assets and residential projects as well as profits in other years.

If market conditions and the prices of comparable commercial real properties continue to be

volatile, the Group may continue to experience significant revaluation gains or losses from the

Group’s existing properties in the future. If a substantial decrease in the fair market value of its

properties occurs, over the longer term, this may have a material adverse effect on the Group’s

business, financial condition, results of operations.

THE GROUP’S BUSINESS IS DEPENDENT ON ITS ABILITY TO ACTIVELY MANAGE ITS

ASSETS

A core part of the Group’s operations is the active management of its assets, which includes

the management of vacancy rates and rent levels and the terms of executed lease agreements

in the case of all commercial properties, as well as achieving the desired tenant mix in the case

of retail properties. This is particularly relevant with respect to the Group’s large scale

commercial properties. In addition to legal constraints, the Group’s ability to reduce vacancies,

renegotiate rents and create a desired tenant mix is partly subject to market-related factors.

Some of these factors, such as the general economic environment, consumer confidence,

inflation and interest rates, and others are beyond the Group’s control. During periods of

recession or downturns in the economy, or as a result of the uncertainty caused by the outbreak

of the COVID-19 pandemic, it is more challenging for developers to attract new tenants and to

retain existing ones, and the competition between developers for each tenant is much stronger.

If the Group is unable to create or capture demand for its properties by, for example, improving

tenant services or motivating its external sales agents, it may not be able to reduce vacancy

rates or renegotiate rents as desired. Moreover, tenants that experience liquidity shortages may

not pay their rent on time during prolonged periods, but, despite that, the Group may not be

able to replace them with different tenants with a better financial standing.

A prolonged period of higher vacancy rates could lower the rents tenants generally pay and

make it more difficult to increase the average rent that the Group expects to charge. Higher

vacancy rates would also increase the Group’s overall operating costs, as it would have to cover

expenses generated by empty properties or units. Any such decrease in rental revenue or

increase in operating costs could have a material adverse effect on the Group’s business,

financial condition, results of operations.

THE GROUP’S GROWTH AND PROFITABILITY WILL DEPEND ON THE GROUP’S

ABILITY TO IDENTIFY AND ACQUIRE ATTRACTIVE INCOME-GENERATING

PROPERTIES, EFFICIENTLY MANAGE ITS PORTFOLIO AND DEVELOP SELECTED

PROJECTS

In accordance with its strategy, the Group intends to expand its business through (i) the

acquisition of yielding properties; (ii) asset management focused on unlocking value from the

Group’s portfolio; and (iii) the development of selected projects. Accordingly, the growth and

profitability of the Group and the success of its proposed business strategy depend, to a

significant extent, on its continued ability to locate and acquire yielding properties at attractive

prices and on favorable terms and conditions

The ability to identify and secure accretive value-added acquisition opportunities involves

uncertainties and risks, including the risk that the acquisition is not an income-generating one

after the Group has carried out business, technical, environmental, accounting, and legal

examinations of the property or project. In addition, the Group also faces the risk that

competitors may anticipate certain investment opportunities and compete for their acquisition.

Additionally, any potential acquisition of properties may give rise to pre-acquisition costs, which

have to be paid by the Group even if the purchase of a property is not concluded. There can be

no assurance that the Group will be able to: (i) identify and secure investments that satisfy its

rate of return objective and realize their values; and (ii) acquire properties suitable for

management in the future at attractive prices or on favorable terms and conditions.

As a part of its strategy, the Group intends to focus on maximizing the operating performance

and efficiency of the active management of its income-generating commercial property portfolio.

In pursuing this objective, the Group may expend considerable resources (including funds and

management time) on managing properties that do not generate the expected returns and

maintain certain ratios at the required level due to, for example, a decrease in demand for rental

units or in rental levels which are not possible to anticipate.

The failure of the Group to identify and acquire suitable properties, effectively manage its

properties portfolio and develop its projects could have a material adverse effect on the

Company’s business, financial condition, results of operations or prospects.

THE GROUP MIGHT NOT RECEIVE ADEQUATE INFORMATION ON RISKS RELATING TO,

OR MIGHT MAKE ERRORS IN JUDGMENT REGARDING, FUTURE ACQUISITIONS OF

REAL ESTATE

The acquisition of real estate requires a precise analysis of the factors that create value, in

particular, the levels of future rental values and the potential for the improvement of the NOI.

Such an analysis is subject to a wide variety of factors and subjective assessments and is based

on various assumptions. It is possible that the Group or its service providers will misjudge

individual aspects of a given project when making acquisition decisions or that assessments on

which the Group bases its decision are inaccurate or based on assumptions that turn out to be

incorrect. Such judgment errors may lead to inaccurate analysis and valuation of the properties

by the Group in connection with investment decisions that may only become apparent at a later

stage and force us to revise the Group’s valuation amounts downwards. The Group can also

not guarantee that the service provider it chooses to carry out its due diligence when purchasing

property will identify all the risks related to the property in question. In addition, the Group cannot

guarantee that it will be able to have recourse to the seller of the property for not disclosing

such risks. If the Group does not find out about these risks, this could lead the Group to

economic and financial disadvantages. The Group cannot guarantee that it will be able to

pursue remedies against the respective seller for the non-disclosure of such risks. The

occurrence of one or several of such risks could have a material adverse effect on the Group’s

business, financial condition, results of operations.

THE GROUP CANNOT GUARANTEE THAT IT WILL CONTINUE TO GENERATE RENTAL

INCOME AT ASSUMED LEVELS

Rental levels of the Group’s properties are generally affected by overall conditions in the

economy as well as the conditions of the portfolio itself (including future acquisitions of

properties and the performance of the existing portfolio), the development of the selected

existing projects, their infrastructure condition, the specific properties, and the vacancy rates.

All these elements are subject to various factors, some of which are outside the Group’s control.

In particular, due to increased competition and pressure on rents and the worsening of the

financial condition of tenants, the Group may not be able to renew the expiring leases of its

current properties on favorable terms and conditions (if at all) or find and retain tenants willing

to enter into leases on terms that are at least as favorable as those on which the Group has

rented its properties thus far. Moreover, the Group’s portfolio has included and will continue to

include numerous properties with non-fixed rents tied to the turnover of the tenants. Accordingly,

if the turnover of such tenants declines, the rent payable by them will also decrease. In addition,

the Group has no impact on the operations of its tenants and may not be able to monitor on an

ongoing basis the tenants’ turnover in order to ensure that the level of turnover reflects the best

and actual performance efforts of its tenants. Consequently, the amounts of rental income

generated by the Group's office and retail properties in the past cannot be used to predict future

rental income, and there can be no assurance that rental income will develop positively in the

future.

Additionally, the Group’s rental income may also decrease as a result of asset disposals or

acquisitions of properties with no or unsatisfactory income-generating capabilities. As part of its

strategy, the Group is reorienting its portfolio and intends to acquire accretive and value-added

properties and sell its non-core assets. In accordance with such strategy, newly acquired

properties are intended to be integrated with the existing portfolio and rented out in order to

generate rental income for the Group. If these properties are not fully rented and/or the rental

rates are agreed below the estimated rental values, the Group may not be able to realize its

expected rates of return on the new acquisitions.

Less positive or negative development of rental income and profits could have a material

adverse effect on the Group’s business, financial condition, results of operations.

THE TERMINATION OR EXPIRATION OF LEASE AGREEMENTS OR THE INABILITY TO

RENT OUT EXISTING UNOCCUPIED SPACE COULD HAVE LASTING NEGATIVE

EFFECTS ON THE GROUP’S PROFITABILITY AND ON THE VALUE OF THE GROUP’S

PORTFOLIO

For the Group to be profitable over the long term, the income-generating properties it owns and

intends to acquire in the future must be rented out without interruptions to the greatest extent

possible. The same applies to maintaining the valuation of the properties the Group owns and

thus the valuation of the overall portfolio. To the extent that leases are terminated or expire, the

Group can give no assurance that the properties in question can be rented out again

immediately, especially in light of potential softening demand for office or retail space which

may be caused by the outbreak of the COVID-19 pandemic. An increased vacancy rate would

result in lower rental income from the management of the existing portfolio and in a lower

valuation of the Group’s properties and overall portfolio. Expected vacancies are already

reflected in the valuation reports as of 31 December 2020. The fixed costs for maintaining

vacant spaces and the lack of rental income generated by such spaces could have a material

adverse effect on the Group’s business, financial condition, results of operations.

THE GROUP MAY BE UNABLE TO FULLY RECOVER THE COSTS OF OPERATING THE

PROPERTIES FROM THE TENANTS

The majority of the Group’s lease contracts are structured in a way that allows passing on

certain of the costs related to the leased property to the tenant, including marketing cost,

electricity cost on common space, real estate taxes, building insurance, and maintenance.

However, the Group is not able to pass on all such costs to the tenants, especially in a very

competitive environment, where the Company has to offer the attractive conditions to be able

to compete with the other office buildings or has to improve the conditions offered to its tenants

to be able to attract a new tenant to its retail project. Deteriorating market conditions, increased

competition and tenants’ requirements may further limit the Group’s ability to transfer such

costs, in full or in part, to the tenants. The service charges of the properties may increase due

to a number of factors, including an increase in the electricity costs or an increase in the

maintenance cost. Moreover, if vacancy rates increase, the Company has to cover the portion

of the service charge related to the vacant space. Some lease agreements provide for the

maximum value combined rental rate and service charge paid by the tenant. In such cases, if

the maintenance charges increase, the Group is unable to pass on such costs to the tenants.

Any significant increases in the property costs that cannot be compensated by increasing the

level of costs incurred by the tenants may have an adverse effect on the Group’s business,

financial condition, and results of operations.

THE GROUP MAY BE MATERIALLY AFFECTED BY THE LOSS OF ATTRACTIVE

TENANTS

The presence of reputable tenants, especially anchor tenants, in the Group’s retail projects is

important for its commercial success. Such tenants play an important part in generating

customer traffic and making a building a desirable location for other tenants. It may be more

difficult for the Group to attract tenants to enter into leases during periods when market rents

are increasing or when general consumer activity is decreasing, or if there is competition for

such tenants from competing developments. In addition, the termination of a lease agreement

by any significant tenant may adversely affect the attractiveness of a project. Moreover,

following the period of the lockdown, anchor tenants were among the first to demand

renegotiation of their lease agreements. In order to maintain such tenants, the Group was

required to implement multi-pronged measures to support tenants and encourage consumer

spendings, such as reducing rent, allowing rent payment in installments, and waiving late

payment interest and service charges. Depending on the extent and length of the COVID-19

pandemic, the Group may have to extend further assistance to its tenants across the portfolio.

The failure of such tenants to abide by their lease agreements, or their bankruptcy or economic

decline, which may have become more likely as a result of the COVID-19 pandemic, may cause

delays or result in a decrease in rental income (temporary or long-term), the effect of which the

Group may not be able to offset due to difficulties in finding a suitable replacement tenant.

If the Group fails to renew the leases of important tenants or to replace such tenants in a timely

manner, the Group may incur material additional costs or loss of revenues, which may, in turn,

have a material adverse effect on the Group’s business, financial condition, and results of

operations.

THE GROUP FACES COMPETITION FROM OTHER OWNERS, REAL ESTATE

MANAGERS, AND DEVELOPERS OF COMMERCIAL REAL ESTATE

The Group has faced and continues to face increased competition from other owners, local and

international real estate managers, and developers of commercial real estate. Such competition

may affect the Group’s ability to attract and retain tenants and may reduce the rents that the

Group is able to charge. Such competing properties may have vacancy rates that are higher

than the vacancy rates of the Group’s properties, which could result in their owners being willing

to make space available at lower rental rates than the Group would typically be prepared to

offer, but which the Group may have to match. Competition in the real estate market may also

lead to increased marketing and development costs.

Given that the successful growth and profitability of the Group depend on: (i) the level of its

vacancy rates; (ii) the increase and maintenance of occupancy on best achievable market

terms; (iii) the level of lease rent and rent collection; (iv) optimization of property maintenance

costs; and (v) the acquisition of real estate at lowest available prices, the increased competition

from other owners, real estate managers and developers of commercial real estate and

surrounding factors could adversely affect the Group’s business, financial condition, and results

of operations.

THE GROUP MAY BE SUBJECT TO SIGNIFICANT COMPETITION IN SEEKING

INVESTMENTS AND MAY INCREASE THE PURCHASE PRICE OF PROPERTIES TO BE

ACQUIRED

The Company competes with a number of real estate companies and developers for properties,

developments, contractors, and customers. Some of the Group’s competitors may be larger or

have greater financial, technical, and marketing resources than the Group. Therefore, the Group

may not be able to compete successfully for investments or developments.

In addition, new acquisitions of existing properties at yields that the Company considers

attractive may become difficult to complete. Accordingly, the implementation of the Company’s

strategy to make suitable investments in prime locations may be delayed or, even, become

impossible.

Competition in the real estate market may also lead to a significant increase in prices for real

estate available for sale, which could be potential targets for the Group. Each of these risks

could have a material adverse effect on the Group’s business, financial condition, results of

operations.

THE GROUP CANNOT ASSURE PROFITABILITY OF ITS PROJECTS

The Group currently has no projects that are not profitable, however, in the past, the Group had

several projects that were not primarily due to insufficient occupancy rates and rent levels. The

Group cannot exclude that other projects may also start generating losses in the future. Any

such development may have a material adverse effect on the Group’s business, financial

condition, results of operations.

THE GROUP MAY NOT BE ABLE TO SELL ITS PROPERTIES ON A TIMELY BASIS

As part of its strategy, the Group sells time to time its real estate properties to recycle its equity

and reinvest in new projects. The sale of a real estate project is usually a complex and lengthy

process. There may be situations, however, when it would be beneficial for the Group to be able

to sell one or more of its projects quickly. For example, the Group may wish to sell on short

notice if it believes that market conditions are optimal or if it is approached by a party interested

in purchasing a particular property on commercially attractive terms. The Group’s ability to sell

its property quickly may, however, be hindered by a number of factors beyond its control.

The Group’s properties may constitute collateral established in favor of entities providing

external financing, which may further restrict and/or delay their transferability if the lender’s

consent must first be obtained. Several of the Group’s projects are also held through joint

ventures with third parties and may, as a result, be subject to legal and/or contractual limitations

on transferability, such as first refusal and co-sale rights, or a requirement to obtain joint

approval for any such sale. Such limitations could adversely affect the Group’s ability to

complete a transaction and to generate cash as needed through the timely sale of its projects

at favorable prices or to vary its portfolio in response to economic or other conditions impacting

the property value. It may be challenging to sell real estate properties in an uncertain market

environment caused by the COVID-19 pandemic. If the Group cannot sell a particular project

within a reasonable time, it may not be able to generate the cash flow it may require to service

ongoing operations or invest in new projects, or it may be unable to take advantage of favorable

economic conditions or mitigate the impact of unfavorable economic conditions should they

arise, which could have a material adverse effect on the Group’s business, financial condition,

results of operations.

THE GROUP'S PROPERTIES COULD SUFFER DAMAGE DUE TO UNDISCOVERED

DEFECTS OR EXTERNAL INFLUENCES

The Group's properties could suffer damage due to undiscovered or underestimated defects or

external influences (e.g., earthquakes, floods, landslides, or mining damage). In addition to the

significant health risks and related costs, the Group could also be required to pay for the removal

and disposal of hazardous substances, as well as the related maintenance and restoration

work, without the ability to pass those costs onto third parties. The occurrence of any such risk

could have a material adverse effect on the Group’s business, financial condition, results of

operations.

If a given property is currently under renovation or modernization, there can be no assurance

that any space which has not been pre-leased can be let or otherwise marketed during or

following the renovation or modernization phase on the appropriate terms and conditions. Such

developments could have a material adverse effect on the Group’s business, financial situation,

results of operations.

FAILURE TO OBTAIN THE REQUIRED ZONING OR CONSTRUCTION PERMITS OR ANY

OTHER APPROVALS IN A TIMELY MANNER OR AT ALL MAY DELAY OR PREVENT THE

DEVELOPMENT OF CERTAIN OF THE GROUP’S PROJECTS

The Group cannot guarantee that any permits, consents or approvals required from various

government entities in connection with existing or new development projects will be obtained

by the Group in a timely manner, or that they will be obtained at all, or that any current or future

permits, consents or approvals will not be withdrawn. For example, as part of its operations, the

Group may occasionally purchase land that requires rezoning or a new or amended local spatial

development plan or planning permission. The issuance of required permission cannot be

guaranteed, and the Group has encountered difficulties in the past in that respect.

If the Group cannot obtain the required approvals and permits in a timely manner or at all, its

projects may be delayed or cancelled, which could have a material adverse effect on the

Group’s business, financial condition, results of operations.

THE GROUP MAY BE SUBJECT TO INCREASED COSTS OR PROJECT DELAYS OR

CANCELLATIONS IF IT IS UNABLE TO HIRE GENERAL CONTRACTORS TO BUILD ITS

PROJECTS ON COMMERCIALLY REASONABLE TERMS, OR AT ALL, OR IF THE

GENERAL CONTRACTORS IT HIRES FAIL TO BUILD THE GROUP’S PROJECTS TO

ACCEPTED STANDARDS, IN A TIMELY MANNER OR WITHIN BUDGET

The Group outsources the construction of its projects to general reputable contractors. The

successful construction of the Group’s projects depends on its ability to hire general contractors

to build its projects to accepted standards of quality and safety on commercially reasonable

terms, within the limits of an agreed timeframe or an approved budget. The Group’s failure to

hire general contractors on commercially reasonable terms could result in increased costs.

Failure to hire general contractors at all could result in project delays or cancellations. Failure

of the general contractors to meet accepted standards of quality and safety or to complete the

construction within the agreed timeframe or within an approved budget may result in increased

costs, project delays or claims against the Group. General contractors may face additional

difficulties with obtaining qualified personnel if further restrictions or quarantine requirements

are imposed on immigrant workers from outside the European Union. In addition, it may damage

the Group’s reputation and affect the marketability of the completed property. If the Group is

unable to enter into contract arrangements with quality general contractors or subcontractors

on commercially reasonable terms, or their performance is substandard, this could have a

material adverse effect on the Group’s business, financial condition, results of operations.

The financial strength and liquidity of the Group’s general contractors may be insufficient in the

case of a severe downturn in the real estate market, which, in turn, could lead to their

insolvency. Although most of the subsidiaries’ agreements with general contractors provide for

the indemnification of the subsidiaries against any claims raised by sub-contractors engaged

by such general contractors, there can be no assurance that such indemnification provisions

will be fully effective, in particular, if such indemnification is challenged in court. The Group

endeavors to require general contractors to secure the performance of their obligations under

their respective agreements, in particular by presenting bank guarantees. However, there can

be no assurance that such guarantees will cover the entire costs and damages incurred by the

Group in connection with the non-performance of agreements entered into with general

contractors.

The Group’s reliance on general contractors and subcontractors exposes it to risks associated

with the poor performance of such contractors and their subcontractors and employees and

construction defects. The Group may incur losses as a result of being required to engage

contractors to repair defective work or pay damages to persons who have suffered losses as a

result of such defective work. Furthermore, these losses and costs may not be covered by the

Group’s professional liability insurance, by the contractor or by any relevant subcontractor – in

particular in the case of the architects engaged by the general contractors as both the scope of

their liability and their financial strength is limited in comparison to the value of the Group’s

projects. If the performance of the Group’s general contractors or subcontractors is

substandard, this could have a material adverse effect on the Group’s business, financial

condition, results of operations.

THE GROUP MAY FACE CLAIMS FOR DEFECTIVE CONSTRUCTION AND RISKS

ASSOCIATED WITH ADVERSE PUBLICITY, WHICH COULD HAVE AN ADVERSE EFFECT

ON ITS COMPETITIVE POSITION

The construction, lease, and sale of properties are subject to a risk of claims for defective

construction, corrective or other works, and associated adverse publicity. There can be no

assurance that such claims will not be asserted against the Group in the future or that such

corrective or other works will not be necessary. Further, any claim brought against the Group,

and the surrounding negative publicity concerning the quality of the Group’s properties or

projects, irrespective of whether the claim is successful, could also have a material adverse

effect on how its business, properties, and projects are perceived by target customers, tenants

or investors. This could negatively affect the Group’s ability to market, lease, and sell its

properties and projects successfully in the future, which could have a material adverse effect

on the Group’s business, financial condition, results of operations.

THE CONSTRUCTION OF THE GROUP’S PROJECTS MAY BE DELAYED OR OTHERWISE

NEGATIVELY AFFECTED BY FACTORS OVER WHICH THE GROUP HAS LIMITED OR NO

CONTROL

The construction of the Group’s projects may be delayed or otherwise negatively affected by,

among others, the following factors over which the Group has limited or no control:

• increased material, labor, or other costs, which may make completion of the project

uneconomical;

• acts of nature, such as harsh climate conditions, earthquakes, and floods that may

damage or delay the construction of properties;

• industrial accidents, deterioration of ground conditions (for example, the presence

of underground water) and potential liability under environmental laws and other

laws related to, for example, ground contamination, archaeological findings, or

unexploded ordnance;

• acts of terrorism, riots, strikes, or social unrest;

• building code violations or as yet undetected existing contamination, soil pollution,

or construction materials that are determined to be harmful to health;

• changes in applicable laws, regulations, rules or standards that take effect after the

commencement by the Group of the planning or construction of a project that result

in the incurrence of costs by the Group or delays in the development of a project;

and

• defective building methods or materials.

The inability to complete the construction of a project on schedule, within budget, or at all for

any of the above or other reasons may result in increased costs or cause the project to be

delayed or canceled, which could have a material adverse effect on the Group’s business,

financial condition, results of operations.

THE GROUP IS SUBJECT TO GENERAL DEVELOPMENT RISKS THAT MAY INCREASE

COSTS AND/OR DELAY OR PREVENT THE DEVELOPMENT OF ITS PROJECTS

Development of certain of the Group’s projects has not yet begun, and these projects do not,

as of the date of delivery of this Report, generate any revenues. The successful development

of these projects is an important factor for the Group’s future success and involves a large

number of highly variable factors which are complex and inherently subject to risk. Development

risks to which the Group is sensitive include, among others:

• additional construction costs for a development project being incurred in excess of

the amount originally agreed with the general contractor;

• liability to subcontractors related with the bankruptcy of the general contractor;

• changes in existing legislation or the interpretation or application thereof (e.g., an

increase of the rate of the goods and services tax, which impacts the demand for

housing);

• actions of governmental and local authorities resulting in unforeseen changes in

urban planning, zoning, and architectural requirements;

• potential defects or restrictions in the legal title to plots of land or buildings acquired

by the Group, or defects, qualifications or conditions related to approvals or other

authorizations relating to plots of land held by the Group;

• the Group’s potential inability to obtain financing on favorable terms or at all for

individual projects or in the context of multiple projects being developed at the same

time;

• potential liabilities relating to acquired land, properties, or entities owning properties

with respect to which the Group may have limited or no recourse;

• tenants’ unwillingness to vacate a development site;

• obligations regarding the development of adjacent properties;

• inability to receive required zoning permissions for the intended use;

• discrepancies between the planned area and the post-construction area of

developments; and

• obligations relating to the preservation and protection of the environment and the

historical and cultural heritage of Poland and other jurisdictions in which the Group

conducts its operations, as well as other social obligations;

• Covid-19 pandemic associated development costs.

These factors, including factors over which the Group has little or no control, may increase

costs, give rise to liabilities, or otherwise create difficulties or obstacles to the development of

the Group’s projects. The inability to complete the construction of property on schedule or at all

for any of the above reasons may result in increased costs or cause the projects to be delayed

or canceled, which may have a material adverse effect on the Group’s business, financial

condition, results of operations.

WITHOUT SUFFICIENT LOCAL INFRASTRUCTURE AND UTILITIES, THE

CONSTRUCTION OF THE GROUP’S PROJECTS MAY BE DELAYED OR CANCELED, OR

IT MAY BE UNABLE TO REALIZE THE FULL EXPECTED VALUE OF ITS COMPLETED

PROJECTS

The Group’s projects can only be carried out if the sites on which they are located have access

to the relevant technical infrastructure required by law (e.g., internal roads, utility connections,

and fire prevention equipment and procedures). In cases where such sites do not have the

required infrastructure, a use permit for the project may not be issued until such infrastructure

is assured. It is also possible that the relevant authorities may require the Group to develop the

relevant infrastructure as a part of the works related to the project, which may have a significant

impact on the costs of the construction works. The authorities may also demand that the investor

develop technical infrastructure that is not required from the project’s perspective but may be

expected by the authorities as a contribution by the investor to the development of the local

municipality.

In addition to the necessity of having adequate infrastructure during the construction process,

the viability of the Group’s projects, once completed, depends on the availability and sufficiency

of the local infrastructure and utilities. In some cases, utilities, communications, and logistics

networks have not been adequately funded or maintained in recent decades and maybe non-

existent, obsolete, or experience failures. To be sufficient, the existing local infrastructure and

utilities may need to be improved, upgraded, or replaced. As a consequence of this lack of

maintenance, for example, the Group may from time to time, experience shortages in the

availability of energy and other utilities. There can be no assurance that improvements to the

infrastructure in and around the Group’s projects, or the infrastructure integrated into its

projects, will be completed prior to the completion of the projects or that any such improvement

will be sufficient to support the Group’s completed projects. This may have a material adverse

effect on the Group’s business, financial condition, results of operations.

THE GROUP IS RELIANT ON PARTNERS AND CO-INVESTMENT AGREEMENTS FOR A

PORTION OF ITS DEVELOPMENTS AND FACES COUNTERPARTY RISKS

A subsidiary of the Group may be a party to a shareholders agreement imposing some

restrictions on it, including, inter alia, in relation to the disposal of its interest and its income and

capital distribution entitlements. In addition, as a shareholder, the Group may be jointly and

severally liable for costs, taxes or liabilities with its co-investors and, in the event of the

subsidiary default, and the Group company may be exposed to more than its proportionate

share of the cost, tax or liability in question. This could have an adverse effect on the Group’s

business, financial condition, and results of operations.

The Group is also exposed to the credit risk of its counterparties in such partnership or co-

investment agreements and their ability to satisfy the terms of contracts Group companies have

with them. This may have an adverse effect on the Group’s business, financial condition, results

of operations.

THE GROUP MAY BE SUBJECT TO LIABILITY FOLLOWING THE DISPOSAL OF

INVESTMENTS

When the Group disposes of its projects, it may be required to give certain representations,

warranties, and undertakings which, if breached, could result in liability to pay damages. As a

consequence, the Group may become involved in disputes or litigation concerning such

provisions and may be required to make payments to third parties, which may have a material

adverse effect on the Group’s business, financial condition, results of operations.

THE GROUP MAY BE EXPOSED TO CERTAIN ENVIRONMENTAL LIABILITIES AND

COMPLIANCE COSTS

The environmental laws in CEE and SEE impose existing and potential requirements to conduct

remedial action on sites contaminated with hazardous or toxic substances. Such laws often

impose liability without regard to whether the owner of such site knew of, or was responsible

for, the presence of such contaminating substances. In such circumstances, the owner’s liability

is generally not limited under such laws, and the costs of any required removal, investigation,

or remediation can be substantial. The presence of such substances on any of the Group’s

properties, or the liability for the failure to remedy contamination from such substances, could

adversely affect the Group’s ability to sell or let such property or to borrow funds using such

property as collateral. In addition, the presence of hazardous or toxic substances on a property

may prevent, delay or restrict the development or redevelopment of such property, which could

have a material adverse effect on the Group’s business, financial condition, results of

operations.

THE GROUP MAY BE SUBJECT TO LEGAL DISPUTES AND RISKS

The Group’s business involves the acquisition, rental, sale, and administration of properties,

including under cooperation agreements that, as a matter of ordinary course of business,

expose the Group to a certain amount of small-scale litigation and other legal proceedings.

Legal disputes, which, taken individually, are relatively immaterial, may be joined with disputes

based on similar facts such that the aggregate exposure of the Group might become material

to its business. Furthermore, the Group may face claims and may be held liable in connection

with incidents occurring on its construction sites, such as accidents, injuries, or fatalities of its

employees, employees of its contractors, or other visitors on the sites. It is standard practice in

real estate transactions for the seller to make representations and warranties in the purchase

agreement concerning specific features of the property. Typically, the assurances the seller

gives regarding the property in the purchase agreement do not cover all of the risks or potential

problems that can arise for the Group in connection with the purchase of property by the Group.

In addition, the Group may be unable, for a variety of reasons, including, in particular, the seller’s

insolvency, to enforce its claims under these assurances. If this were to occur, the Group might

suffer a financial loss.

Moreover, if the Group's properties are subjected to legal claims by third parties and no

resolution or agreement is reached, these claims can delay, for significant periods of time,

planned actions of the Group. Such situations may include, for example, claims from third

parties relating to plots of land where the Group has developed and completed a real estate

asset which it then intends to sell, as well as claims from third parties relating to specific land

plots the Group needs to acquire in order to complete a particular project (for example plots

adjoining plots it owned as of the date of the delivery of this Report), which could delay the

acquisition by the Group of such plots.

The occurrence of one or several of the aforementioned risks could have a material adverse

effect on the Group’s business, financial condition, results of operations.

WHEN LEASING OR SELLING REAL ESTATE, THE GROUP COULD BE FACED WITH

CLAIMS FOR GUARANTEES FOR WHICH IT DOES NOT HAVE ADEQUATE RECOURSE

The Group provides different types of guarantees when it leases real estate, especially with

regard to legal title and the absence of defects in quality, as well as existing contamination and

the portfolio of leases. The same applies to the sale of real estate. Claims could be brought

against the Group for breach of these guarantees. Defects of which the Group was not aware,

but of which it should have been aware when it concluded the transaction poses a particular

risk. The Group's possible rights of recourse towards the sellers of properties could fail due to

the inability of the persons in question to demonstrate that they knew or should have known

about the defects, due to the expiration of the statute of limitations, due to the insolvency of the

parties opposing the claim, or for other reasons. The occurrence of one or several of the

aforementioned risks could have a material adverse effect on the Group’s business, financial

condition, results of operations.

THE GROUP’S INSURANCE MAY BE INADEQUATE

The Group’s insurance policies may not cover it for all losses that may be incurred by the Group

in the conduct of its business, and certain types of insurance are not available on commercially

reasonable terms or at all. As a result, the Group’s insurance may not fully compensate it for

losses associated with damage to its real estate properties. In addition, there are certain types

of risks, generally of a catastrophic nature, such as floods, hurricanes, terrorism, or acts of war

that may be uninsurable or that are not economically insurable. Other factors may also result in

insurance proceeds being insufficient to repair or replace a property if it is damaged or

destroyed, such as inflation, changes in building codes and ordinances, and environmental

considerations. The Group may incur significant losses or damage to its properties or business

for which it may not be compensated fully or at all. As a result, the Group may not have sufficient

coverage against all losses that it may experience. Should an uninsured loss or a loss in excess

of insured limits occur, the Group could lose the capital invested in the affected developments

as well as anticipated future revenues from such projects. In addition, the Group could be liable

to repair damage caused by uninsured risks. The Group could also remain liable for any debt

or other financial obligation related to such damaged property. No assurance can be given that

material losses in excess of insurance coverage limits will not occur in the future. Any uninsured

losses or losses in excess of insured limits could have a material adverse effect on the Group’s

business, financial condition, results of operations.

THE GROUP IS DEPENDENT ON A LIMITED NUMBER OF KEY MEMBERS OF ITS

MANAGEMENT

The Group's success depends on the activities and expertise of the members of its

management. If the Group is unable to retain the key members of its management, this could

result in a significant loss of expertise and could have a material adverse effect on the Group’s

business, financial condition, results of operations.

Additionally, in view of the increased spread of the COVID-19 pandemic, it cannot be excluded

that key members of the Group’s management will be subjected to quarantine and/or will test

positive for COVID-19 pandemic what might result in such persons being subjected to

isolation/hospitalization or not being able to devote sufficient time and resources to managing

the Group’s operations, and thus, could have an adverse effect on the Group’s business,

financial condition, and results of operations.

SHORTAGES OF QUALIFIED EMPLOYEES AND OTHER SKILLED PROFESSIONALS

COULD DELAY THE COMPLETION OF THE PROJECTS OF THE GROUP OR INCREASE

ITS COSTS

The Group relies on a skilled team of professionals, including its key management and project

managers, mid-level managers, accountants, and other financial professionals, in the

development of its projects. If the Group is unable to hire the necessary employees, staffing

shortages may adversely affect its ability to adequately manage the completion of its projects

and efficiently manage its assets or force it to pay increased salaries to attract skilled

professionals or the necessary employees. Furthermore, the future success of the Group

depends on its ability to hire senior personnel such as managers with extensive experience in

the identification, acquisition, financing, construction, marketing, and management of

development projects and investment properties. The failure by the Group to recruit and retain

appropriate personnel may have a material adverse effect on the Group’s business, financial

condition, results of operations.

CLIMATE CHANGES MAY REQUIRE CHANGES IN THE OPERATION OF THE

PROPERTIES, AND NOT ADAPTING TO THESE CHANGES IN A TIMELY MANNER

COULD CREATE A COMPETITIVE DISADVANTAGE AND DECREASE IN RENTAL

REVENUE, WHILE ADAPTING TO CHANGES MAY REQUIRE ADDITIONAL CAPITAL

EXPENDITURE

Over the last several years, the Group has observed changes in climate with significant changes

in the average air temperature in the region in which the Group operates. The Group strives to

prepare its properties for changing climate in the best possible way. However, it cannot be

guaranteed that the Group will not suffer a competitive disadvantage or decrease in rental

revenue as a result of not adapting to those changes in a timely or appropriate manner.

Additionally, the Group cannot assess at that stage what adjustments to its properties will be

required going forward to adapt the properties to the changes in climate and what capital

expenditure will be required to make those adaptations.

NOT ADAPTING TO THE NEW TECHNOLOGICAL SOLUTIONS IN A TIMELY MANNER

COULD CREATE A COMPETITIVE DISADVANTAGE AND DECREASE IN RENTAL

REVENUE

The Group continuously monitors innovative technological solutions (e.g., energy efficiency,

data analysis in investment decisions, etc.) and keeps abreast of their development. The Group

strives to meet the new technological challenges, as well as the changing market (e.g., the

significant decrease of the popularity of “open plan” offices), new trends, and economic

environment. However, it cannot be guaranteed that the Group will not suffer a competitive

disadvantage or decrease in rental revenues in the future as a result of not adapting such new

technological solutions in a timely or appropriate manner.

THE GROUP'S SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS ARE

SIGNIFICANT AND COULD INCREASE, ADVERSELY AFFECTING ITS BUSINESS,

FINANCIAL CONDITION, OR RESULTS OF OPERATIONS

As of the date of this Report the Group is substantially leveraged and has significant debt

service obligations. In addition, the Group may incur additional indebtedness in the future. The

incurrence of additional indebtedness would increase the leverage-related risks described in

this Report and may have a material adverse effect on the Group’s business, financial condition,

results of operations. The Group's leverage could have material consequences for investors,

including, but not limited to, could lead to the following:

• increasing vulnerability to and simultaneously reducing flexibility to respond to

downturns in the Group's business or general adverse economic and industry

conditions, including adverse economic conditions in the jurisdictions in which the

Group operates;

• limiting the Group's ability to obtain additional financing to fund future operations,

capital expenditures, business opportunities, acquisitions, and other general

corporate purposes and increasing the cost of any future borrowings;

• forcing the Group to dispose of its properties in order to enable it to meet its financing

obligations, including compliance with certain covenants under loan agreements;

• requiring the dedication of a substantial portion of the Group's cash flows from

operations to the payment of the principal of and interest on its indebtedness,

meaning that these cash flows will not be available to fund its operations, capital

expenditures, acquisitions or other corporate purposes;

• limiting the Group's flexibility in planning for, or reacting to, changes in its business,

the competitive environment, and the real estate market; and

• placing the Group at a competitive disadvantage compared to its competitors that

are not as highly leveraged.

Any of these or other consequences or events could have a material adverse effect on the

Group's ability to satisfy its obligations.

THE GROUP MAY INCUR SUBSTANTIAL LOSSES IF IT FAILS TO MEET THE

OBLIGATIONS AND REQUIREMENTS OF ITS DEBT FINANCING AND, FURTHERMORE,

THE RESTRICTIONS IMPOSED BY ITS DEBT FINANCING MAY PREVENT IT FROM

SELLING ITS PROJECTS

In order to secure its loans, the Group has in the past and/or may in the future mortgage its

assets, pledge participation interests in its subsidiaries, enter into guarantees and covenant to

its creditors that it would not establish any further mortgages or pledges on its present and/or

future assets without their consent (negative pledges provisions). In addition, the Group’s loans

contain restrictions on its ability to dispose of certain key assets, which in turn may be required

in order to satisfy certain financial covenants. The Group could fail to make principal and/or

interest payments due under the Group’s loans or breach any of the covenants included in the

loan agreements to which the Group has entered. In some cases, the Group may breach these

covenants due to circumstances that may be beyond the control of the Group. These may

include requirements to meet certain loan-to-value ratio, debt service coverage, and working

capital requirements. A breach of such covenants by the Group could result in the forfeiture of

its mortgaged assets, the acceleration of its payment obligations, the acceleration of payment

guarantees, trigger cross-default clauses, or make future borrowing difficult or impossible. In

these circumstances, the Group could also be forced in the long term to sell some of its assets

to meet its loan obligations, or the completion of its affected projects could be delayed or

curtailed.

Any of the events described above could have a material adverse effect on the Group’s

business, financial condition, results of operations.

THE GROUP MIGHT BE UNABLE TO RENEW OR REFINANCE LOANS AS THEY MATURE

OR MIGHT BE ABLE TO RENEW OR REFINANCE SUCH LOANS ONLY ON LESS

FAVORABLE TERMS

All of the Group's real estate developments have been financed through loans, which have been

provided for a limited term. The Group might not be able to renew or refinance the remaining

obligations in part or at all or might have to accept less favorable terms in respect of such

refinancing. If the Group is unable to renew a loan or secure refinancing, the Group could be

forced to sell one or more of its office properties in order to procure the necessary liquidity.

Additionally, if the Group is not able to renew certain loans, those properties which are financed

through loans will become low leveraged and, as a consequence, will not be able to generate

the expected returns on equity. Any combination of the above would have material adverse

effects on the Group's business, cash flows, financial condition, and results of operations.

THE GROUP IS EXPOSED TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATES

The Group’s financial statements are expressed in Euro, and the Company’s functional

currency is the Euro. Moreover, the majority of the Group’s revenues, specifically rent revenues,

are expressed in Euro. However, certain of the Group’s costs, such as certain construction

costs, labor costs, and remuneration for certain general contractors, are incurred in the

currencies of the respective geographical markets, including Polish złoty, Bulgarian leva,

Croatian kuna, Hungarian forint, Romanian lei or Serbian dinar.

In making the assumptions regarding the level of equity required to implement its strategic

objectives, the Group used Euro as the reference currency. Additionally, the majority of the

investments that the Group plans to make as part of its business strategy will be expressed in

Euro. Therefore, no assurance can be given that the proceeds derived and expressed in Polish

zloty will suffice to meet the investment requirements of the Group’s contemplated acquisition

pipeline. Whilst the companies of the Group may engage in currency hedging in an attempt to

reduce the impact of currency fluctuations and the volatility of returns that may result from their

currency exposure by, inter alia, entering into derivatives transactions, obtaining debt financing

denominated in Euro, as well as concluding agreements with contractors specifying

remuneration expressed in Euro, there can be no assurance that such hedging will be fully

effective or beneficial. Moreover, given the fact that certain contractors of the Group engage in

hedging arrangements with respect to their remuneration on the basis of, inter alia, construction

contracts, their flexibility to postpone certain phases of construction may be limited and may

result in their financial distress. In addition, given that payments under most of the Group’s

commercial leases are expressed as the local currency equivalent of a euro-denominated

amount, some of the Group’s tenants, specifically those leasing retail space, may face

difficulties in meeting their payment obligations under such leases as they derive revenues in

their respective local currencies. Consequently, any future material appreciation of the local

currencies against the Euro could significantly decrease the Group’s income in terms of the

local currencies and could have a material adverse effect on the Group’s business, financial

condition, results of operations.

THE GROUP IS SUBJECT TO INTEREST RATE RISK

The Group currently has and intends to incur certain indebtedness under existing debt facilities

which is subject to variable interest rates. Interest rates are highly sensitive to many factors,

including government monetary policies and domestic and international economic and political

conditions, as well as other factors beyond the Group’s control. The Group’s exposure to

interest risk and the extent to which the Group attempts to hedge such exposure vary

significantly between the geographical markets in which the Group operates, but any changes

in the relevant interest rates may increase the Group’s costs of borrowing in relation to existing

loans, thus impacting its profitability. The need to hedge interest rate risk is reviewed by the

Group on a case by case basis, except for those projects in which the lenders require it to hedge

the relevant interest rate risk. Changes in interest rates may have a material adverse effect on

the Group’s business, financial condition, results of operations.

THE GROUP’S BUSINESS IS CAPITAL INTENSIVE, AND ADDITIONAL FINANCING MAY

NOT BE AVAILABLE ON FAVOURABLE TERMS, ON A TIMELY BASIS OR AT ALL

The Group requires substantial up-front expenditures for land acquisition, development

construction, and design costs. As a result, the Group requires substantial amounts of cash and

construction financing from banks for its operations. The Group’s capital needs depend on many

factors, in particular on market conditions, which are beyond the Group’s control. Should its

capital needs differ significantly from those currently planned, the Group might require additional

financing. In the case of difficulties in obtaining additional financing, the scale of the Group’s

growth and the pace of achievement of certain strategic objectives can be slower than originally

assumed. It is not certain whether the Group will be able to obtain the required financing if

needed or if such funds will be provided on conditions favorable to the Group.

In addition, construction loan agreements generally permit the drawdown of the loan funds

against the achievement of predetermined construction and space leasing milestones or the

sale of a specific number of flats. If the Group fails to achieve these milestones, the availability

of the loan funds may be delayed, thereby causing a further delay in the construction schedule.

Restrictions of or delays in the access to sources of external financing and conditions of such

financing that are less favorable than assumed can have a material adverse effect on the

Group’s business, financial condition, results of operations.

POLITICAL, ECONOMIC, AND LEGAL RISKS ASSOCIATED WITH COUNTRIES IN

EMERGING MARKETS, INCLUDING CEE AND SEE COUNTRIES

All of the Group’s revenues are attributable to operations in CEE and SEE countries, particularly

Poland, Romania, Serbia, Croatia, Bulgaria, and Hungary. These markets are subject to greater

risk than more developed markets. CEE and SEE countries still present various risks to

investors, such as instability or changes in national or local government authorities, land

expropriation, changes in taxation legislation or regulation, changes to business practices or

customs, changes to laws and regulations relating to currency repatriation and limitations on

the level of foreign investment or development. In particular, the Group is affected by rules and

regulations regarding foreign ownership of the real estate and personal property. Such rules

may change quickly and significantly and, as a result, impact the Group’s ownership and may

cause it to lose property or assets without legal recourse.

Furthermore, some countries may regulate or require governmental approval for the repatriation

of investment income, capital or the proceeds of sales of securities by foreign investors. In

addition, if there is a deterioration in a country’s balance of payments or for other reasons, a

country may impose temporary restrictions on foreign capital remittances abroad. Any such

restrictions may adversely affect the Group’s ability to repatriate investment loans or to remit

dividends. Some CEE and SEE countries have experienced substantial, and in some periods

extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates

have had and may continue to have negative effects on the economies and securities markets

of certain emerging countries.

In addition, adverse political or economic developments in neighboring countries could have a

significant negative impact on, among other things, gross domestic product, foreign trade, or

economies in general of individual countries. The countries and the region in which the Group

operates have experienced and may still be subject to potential political instability caused by

changes in governments, political deadlock in the legislative process, tension and conflict

between federal and regional authorities, corruption among government officials, and social and

ethnic unrest. In particular, the armed conflict in the territory of Ukraine and uncertainties

regarding the relationship with Russia may affect the attitude of investors towards the regional

real estate market and their willingness to invest in the countries neighboring Ukraine and

Russia, where the Group operates.

Furthermore, the governments of the developing countries in the CEE and SEE region may not

have the resources necessary to provide fiscal stimulus in response to the economic downturn

caused by the outbreak of the COVID-19 pandemic on par with the levels implemented in

developed countries.

The Group may not be able to realize its expected rates of return if the real estate markets in

CEE and SEE countries in which the Group operates become saturated and competition

increases. Real estate markets may reach saturation if the supply of properties exceeds

demand. Saturation in these markets would result in an increase in vacancy rates and/or a

decrease in market rental rates and sale prices. As the commercial real estate markets in CEE

and SEE are characterized predominantly by short-term leases, the Group expects that rental

rates will decrease promptly in response to a perceived oversupply of lettable commercial space

in those markets. If vacancy rates rise and/or market rental rates decrease, the Group may not

be able to realize its expected rates of return on its projects or may be unable to let or sell its

properties at all, which could have a material adverse effect on the Group’s business, financial

condition, results of operations.

The materialization of any of the foregoing risks would have a material adverse effect on the

Group’s business, financial condition, results of operations.

THE FUTURE OF THE COMMERCIAL REAL ESTATE MARKET IS UNCERTAIN

The outbreak of the COVID-19 pandemic has had a significant impact on the way companies

operate their businesses. In light of forced lockdowns, many companies were required or

allowed their employees to work from home. Prompted by the successful implementation of the

above, the employers may continue to require or allow a growing number of their employees

not to return to their physical offices for a prolonged period of time. This may result in a

significant decrease in the aggregate demand for office real estate.

During the lockdowns introduced in the countries coping with the spread of the COVID-19

pandemic, shopping malls were among the first to be temporarily shut down. Even after they

reopened, the footfall recorded in such shopping malls did not revert to the levels experienced

before the outbreak of the pandemic. During the lockdown, a growing number of customers

switched to shopping online and may not be willing to visit shopping malls as frequently as

before the pandemic. As a result, the aggregate demand for retail space may decline in the

future.

The materialization of the above risk would have a material adverse effect on the Group’s

business, financial condition, and results of operations.

THE REAL ESTATE MARKET IS CYCLICAL

The real estate market is cyclical. Consequently, the number of projects completed by the

Group has varied from year to year, depending on, among other things, general macro-

economic factors, changes in the demographics of specific metropolitan areas, availability of

financing, and market prices of existing and new projects. Typically, growing demand results in

greater expectations regarding the achieved profits and an increase in the number of new

projects, as well as increased activity on the part of the Group’s competitors. Because of the

significant lag time between the moment a decision is taken to construct a project and its actual

delivery, due in part to the protracted process of obtaining the required governmental consents

and construction time, there is a risk that once a project is completed, the market will be

saturated and the developer will not be able to lease or sell the project with the anticipated level

of profits. An upturn in the market is typically followed by a downturn as new developers are

deterred from commencing new projects due to reduced profit margins. There can be no

assurance that during a downturn in the market, the Group will be able to select projects which

will fill actual demand during an upturn in the market. Additionally, the corporate bodies of the

respective Group Companies that are expected to make certain investment decisions may not

be able to properly assess the cycle of the real estate market and, consequently, accurately

define the most favorable stage for completing the given investments.

All such events may have a material adverse effect on the Group’s business, financial condition,

results of operations.

THE LOCATIONS OF THE GROUP’S PROPERTIES ARE EXPOSED TO REGIONAL RISKS

AND COULD LOSE SOME OF THEIR APPEALS

The locations of each of the properties are influenced by macro-economic developments in the

regions in which the Group operates, as well as being subject to specific local conditions in a

given regional market. The Group’s real estate portfolio focuses on commercial premises, which

significantly exposes the Group to negative developments in those segments of the real estate

market in the countries where the Group operates, including intensified competition or increased

saturation.

Insolvencies, close-downs, or moves of large companies or companies from an individual or

several sectors as a consequence of adverse developments or for other reasons could have a

negative effect on the economic development of the location in question and, consequently, on

the Group’s portfolio as a whole. The Group has no control over such factors. Negative

economic developments at one or more of the locations could reduce the Group’s rental income

or result in a loss of rent, which stems from a number of tenants being unable to pay their rent

in full or in part, as well as cause a decline in the market value of the Group’s properties, which

may have a material adverse effect on the Group’s business, financial condition, results of

operations.

CHANGES IN TAX LAWS OR THEIR INTERPRETATION COULD AFFECT THE GROUP’S

FINANCIAL CONDITION, AND THE CASH FLOWS AVAILABLE TO THE GROUP

Tax regulations in a number of countries the Group operates in, including Poland, are complex,

and they are subject to frequent changes. The tax law practice of the tax authorities is not

homogenous, and there are rather significant discrepancies between the judicial decisions

issued by administrative courts in tax law matters. No assurance may be given by the Company

that the tax authorities will not employ a different interpretation of the tax laws which apply to

the Group Companies, which may prove unfavourable to the Group. One may not exclude the

risk that the specific individual tax interpretations already obtained and applied by the Group

Companies will not be changed or questioned. There is also a risk that once new tax law

regulations are introduced, the Group Companies will need to take actions to adjust thereto,

which may result in greater costs forced by circumstances related to comply with the changed

or new regulations.

In light of the foregoing, there can be no assurance given that the tax authorities will not question

the accuracy of tax reporting and tax payments made by the Group Companies, in the scope of

tax liabilities not barred by the statute of limitations, and that they will not determine the tax

arrears of the Group Companies, which may have a material adverse effect on the Group

Companies’ business, financial standing, growth prospects or results of the Group.

Moreover, in relation to the cross-border nature of the Group’s business, the international

agreements, including the double tax treaties, to which the Republic of Poland is a party, also

have an effect on the Group Companies’ business. Different interpretations of the double tax

treaties by the tax authorities, as well as any changes to these treaties, may have a material

adverse effect on the business, financial standing, or results of the Group Companies.

THE RELATED-PARTY TRANSACTIONS CARRIED OUT BY THE GROUP COMPANIES

COULD BE QUESTIONED BY THE TAX AUTHORITIES

The Group Companies have carried out transactions with related parties. When concluding and

performing related-party transactions, the Group Companies endeavor to take special care to

ensure that such transactions comply with the applicable transfer pricing regulations. However,

due to the specific nature of related-party transactions, the complexity and ambiguity of legal

regulations governing the methods of examining the prices applied, as well as the difficulties in

identifying comparable transactions for reference purposes, no assurance can be given that

specific Group Companies will not be subject to inspections or other investigative activities

undertaken by tax authorities or fiscal control authorities. Should the methods of determining

arm’s-length terms for the purpose of the above transactions be challenged, this may have a

material adverse effect on the business, financial standing, growth prospects, results of the

Group Companies.

CHANGES IN LAWS COULD ADVERSELY AFFECT THE GROUP

The Group’s operations are subject to various regulations in Poland, Romania, Hungary,

Croatia, Serbia, Bulgaria, and other jurisdictions in which the Group conducts business

activities, such as fire and safety requirements, environmental regulations, labor laws, and land

use restrictions. If the Group’s projects and properties do not comply with these requirements,

the Group may incur regulatory fines or damages.

Moreover, there can be no assurance that if perpetual usufruct fees in Poland are increased,

the Group will be able to pass such costs onto its tenants in the form of increased service

charges as such increase might lead to a given property becoming less competitive as

compared to properties not situated on land subject to perpetual usufruct fees.

Furthermore, the imposition of more strict environmental, health and safety laws or enforcement

policies in CEE and SEE could result in substantial costs and liabilities for the Group and could

subject the properties that the Group owns or operates (or those formerly owned or operated

by the Group) to more rigorous scrutiny than is currently applied. Consequently, compliance

with these laws could result in substantial costs resulting from any required removal,

investigation or remediation, and the presence of such substances on the Group’s properties

may restrict its ability to sell the property or use the property as collateral.

New or amendments to existing laws, rules, regulations, or ordinances could require significant

unanticipated expenditures or impose restrictions on the use of the properties and could have

a material adverse effect on the Group’s business, financial condition, results of operations.

UNLAWFUL, SELECTIVE, OR ARBITRARY GOVERNMENT ACTIONS MAY IMPACT THE

GROUP’S ABILITY TO SECURE THE AGREEMENTS, CONTRACTS, AND PERMITS

REQUIRED FOR IT TO DEVELOP ITS PROJECTS

Government authorities in the geographical markets in which the Group operates have a high

degree of discretion and may not be subject to supervision by other authorities, requirements

to provide a hearing or prior notice or public scrutiny. Therefore, government authorities may

exercise their discretion arbitrarily or selectively, or in an unlawful manner and may be

influenced by political or commercial considerations. The Group has faced administrative

decisions in the past which forced it to unexpectedly change its investment plans (including

limiting the scale of a project). Such discretion may have a material adverse effect on the

Group’s business, financial condition, results of operations.

THE LAND AND MORTGAGE REGISTRY SYSTEMS IN CERTAIN OF THE CEE AND SEE

JURISDICTIONS ARE NON-TRANSPARENT AND INEFFICIENT, AND THE GROUP’S

PROPERTIES MAY BE SUBJECT TO RESTITUTION CLAIMS

The land and mortgage registry systems in certain of the CEE and SEE jurisdictions are non-

transparent and inefficient, which may, inter alia, result in delays in the land acquisition process

and the registration of many plots into one consolidated plot, which is a requirement before

certain projects can be developed. This inefficiency could have a material adverse effect on the

business, cash flows, financial condition, results of operations of the Group.

Moreover, the Group may be exposed to the inherent risk related to investing in real estate

situated in CEE and SEE countries resulting from the unregulated legal status of some of such

real properties. Following the introduction of nationalization in certain CEE and SEE

jurisdictions, including Poland and Hungary, during the post-war years, many privately-owned

properties and businesses were taken over by such states. In many cases, the requisition of

the property took place in contravention of prevailing laws. After the CEE and SEE countries

moved to a market economy system in 1989-1990, many former property owners or their legal

successors took steps to recover the properties or businesses lost after the war or to obtain

compensation. For many years efforts have been made to regulate the issue of restitution

claims in Poland. Despite several attempts, no act regulating the restitution process has been

passed in Poland. Under the current law, former owners of properties or their legal successors

may file applications with the authorities for the administrative decisions under which the

properties were taken away from them to be revoked. As at the date of this Report, there are

no proceedings underway seeking the invalidation of administrative decisions issued by the

authorities concerning properties held by the Group. There is no guarantee, however, that

restitution claims may not be brought against the Group in the future, and this could have a

material adverse effect on the Group’s business, financial condition, results of operations.

THE GROUP’S CLAIMS TO THE TITLES TO INVESTMENT AND DEVELOPMENT

PROPERTIES MAY BE SUBJECT TO CHALLENGE IN CERTAIN CASES, AND PERMITS

IN RELATION TO SUCH PROPERTIES MAY HAVE BEEN OBTAINED IN BREACH OF

APPLICABLE LAWS

It may be difficult or, in certain cases, impossible for the Group to establish with certainty that

the title to a property has been vested in a relevant Group company due to the fact that real

estate laws in Poland and other jurisdictions in which the Group operates are complicated and

often ambiguous and/or contradictory and the relevant registries may not be reliable. For

example, under the laws of Poland, transactions involving real estate may be challenged on

many grounds, including where the seller or assignor to a given property did not have the right

to dispose of such property, for a breach of the corporate approval requirements by a

counterparty or a failure to register the transfer of a title in an official register, when required.

Also, even if a title to real property is registered, it may still be contested. Therefore, there can

be no assurance that the Group’s claim to a title would be upheld if challenged. Further, it is

possible that permits, authorizations, re-zoning approvals or other similar decisions may have

been obtained in breach of applicable laws or regulations. Such matters would be susceptible

to subsequent challenges. Similar issues may arise in the context of compliance with

privatization procedures and auctions related to the acquisition of land leases and development

rights. It may be difficult or impossible to monitor, assess or verify these concerns. If any of

these permits, authorizations, re-zoning approvals or other similar requirements were to be

challenged, this may have a material adverse effect on the Group’s business, financial

condition, results of operations.

THERE MAY BE POTENTIAL CONFLICT OF INTEREST BETWEEN THE GROUP AND THE

GROUP’S CONTROLLING SHAREHOLDER

GTC Dutch Holdings B.V. (“GTC Dutch”), which is fully owned by GTC Holding Zártkörüen

Müködö Részvénytársaság, is GTC’s majority shareholder as of the date of the delivery of this

Report. GTC Holding Zártkörüen Müködö Részvénytársaság, is fully owned by Optimum

Ventures Private Equity Fund, which is managed by Optima Investment Fund Management Zrt

(“Optima”).

Optima representatives may constitute the majority of the supervisory board and may thus

control the appointment of the management board. Consequently, Optima may influence the

decision-making process in the Company. Accordingly, in considering any investment,

business, and operational matters of the Company and the most appropriate uses for the

Company’s available cash, the interests of Optima may not be aligned with the interests of the

Company or of its other stakeholders.

Moreover, Optima operate in the same market as the Group and they may compete over

investments that the Group may be interested in. Any such conflicts of interest may have an

adverse effect on the Group’s business, financial condition, results of operations.

Furthermore, as in the case of any significant shareholder, all of the shares of the Company

may be offered for sale without any restrictions, and there can be no assurance as to whether

or not they will be sold on the market and at which price. Such sale, or new issuance of shares,

may adversely affect the price of the Company’s share in the market or an offering of the

Company’s shares, if any.

BECAUSE THE COMPANY IS A HOLDING COMPANY, ITS ABILITY TO PAY DIVIDENDS

DEPENDS UPON THE ABILITY OF ITS SUBSIDIARIES TO PAY DIVIDENDS AND

ADVANCE FUNDS

The dividend policy is strictly connected with the general business strategy of the Group. The

Group introduced a dividend policy in 2017, however, the amount which may be distributed by

the Company in accordance with the Polish law depends on the net profit and certain other

figures reflected in the Company’s stand-alone financial statements. Such figures may differ

from the figures included in the Group’s consolidated financial statements, which are prepared

in accordance with the IFRS.

As a holding company, the Company’s ability to pay dividends depends upon the ability of its

subsidiaries to pay dividends and advance funds to the Company. Therefore, there can be no

assurance that the Company will declare or pay any dividends to its shareholders in the future.

The payment and amount of any future dividends will depend on the management board’s

assessment of factors such as long-term growth and earnings trends, the need for sufficient

liquidity, the need for investment in the Company’s existing project portfolio, the existence of

alternative investment opportunities and the Company’s financial position in general. This may

have a material adverse effect on the Group’s business, financial condition, results of

operations.

FUTURE OFFERINGS OF DEBT OR EQUITY SECURITIES OFFERED BY THE COMPANY

MAY ADVERSELY AFFECT THE MARKET PRICE OF THE SHARES AND DILUTE THE

SHAREHOLDERS’ INTERESTS

To finance future acquisitions, the Company may raise additional capital by offering debt or

additional equity securities, including convertible notes, medium-term notes, senior or

subordinated notes, and ordinary shares. The issuance of equity or debt securities with

conversion rights may dilute the economic and voting rights of existing shareholders if made

without granting pre-emptive or other subscription rights or reduce the price of the Company’s

shares, or both. The exercise of conversion rights or options by the holders of convertible or

warrant-linked bonds that the Company may issue in the future may also dilute the

shareholders’ interests. Holders of the Company’s ordinary shares have statutory pre-emptive

rights entitling them to purchase a percentage of every issuance of the Company’s ordinary

shares. As a result, holders of the Company’s ordinary shares may, in certain circumstances,

have the right to purchase ordinary shares that the Company may issue in the future in order to

preserve their percentage ownership interest in the Company, thereby reducing the percentage

ownership interest of other investors. Because any decision by the Company to issue additional

securities depends on market conditions and other factors beyond the Company’s control, the

Company cannot predict or estimate the amount, timing or nature of any such future issuances.

Thus, prospective investors bear the risk of the Company’s future offerings reducing the market

price of the shares and diluting their interest in the Company.

4. Presentation of the Group

4.1 General information about the Group

The GTC Group is a leading real estate investor and developer focusing on Poland and capital

cities in Eastern and Southern Europe: Belgrade, Budapest, Bucharest, Zagreb, and Sofia.

The Group was established in 1994.

Group’s portfolio comprises: (i) completed commercial properties; (ii) commercial properties

under construction; (iii) a commercial landbank intended for future development (iv) assets

held for sale, and (v) residential landbank.

Since its establishment and as of 31 December 2020, the Group has: (i) developed

approximately 1.2 million sq m of gross commercial space and approximately 300 thousand

sq m of residential space; (ii) sold approximately 600 thousand sq m of gross commercial

space in completed commercial properties and approximately 300 thousand sq m of residential

space; and (iii) acquired approximately 160 thousand sq m of commercial space in completed

commercial properties. Additionally, GTC Group developed and sold over 100 thousand sq m

of commercial space and approximately 76 thousand sq m of residential space through its

associates in the Czech Republic.

As of 31 December 2020, the Group`s property portfolio comprised the following properties:

 48 completed commercial buildings, including 43 office

buildings and five retail properties with a total combined commercial space of

approximately 753 thousand sq m of GLA, of which the Group's proportional

interest amounts to approximately 743 thousand sq m of GLA;

 Two office buildings under construction with a total GLA of

approximately 37 thousand sq m,

 commercial landbank designated for future development; and

 residential landbank.

As of 31 December 2020, the book value of the Group’s portfolio amounts to €2,136,802 with:

(i) the Group’s completed investment properties account for 88% thereof; (ii) investment

properties under construction for 3%; (iii) an investment landbank intended for future

development for 7%; (iv) right of use of lands under perpetual usufruct for 2% (v) assets held

for sale for less than 1% and (vi) residential landbank account for less than 1%.

The Company’s shares are listed on the WSE and inward listed on the Johannesburg Stock

Exchange. The Company’s shares are included in mWIG40.

The Group’s headquarters are located in Warsaw, at Komitetu Obrony Robotników 45A.

4.2 Main events of 2020

On 27 January 2020, Midroog announced a cessation of debt rating for Globe Trade Centre

S.A. at the Company's request, in light of not raising debt in Israel.

On 13 February 2020, the Group signed with Erste Group Bank AG and Raiffeisenlandesbank

Niederosterreich-Wien AG a loan agreement, which refinanced the existing loan of Galeria

Jurajska with a top-up of €46,000, to a total of €130,000.

In March 2020, GTC Group completed the construction of the Green Heart N3 (5,400 sq m)

office building in Belgrade.

The Covid-19 pandemic has triggered a wave of strong negative effects on the global economy

which include a pronounced recession. The lockdowns brought a large part of the world’s

economic activity to an unparalleled standstill: consumers stayed home, companies lost

revenue and terminated employees – which, consequently, led to a rise in unemployment.

Rescue packages by national governments and the EU as well as supporting monetary policies

by the European Central Bank have been implemented to moderate the economic impact of

the pandemic. However, the scope and duration of the pandemic and possible future

containment measures are still impossible to predict. From mid-March 2020, it became

apparent that the economic disruptions caused by the COVID-19 virus and the increased

market uncertainty combined with increased volatility in the financial markets might lead to a

potential decrease in rental revenues, a potential decrease in the Company assets’ values, as

well as impact on the Company’s compliance with financial covenants. While the exact effect

of the coronavirus is still to be determined, it is clear that it poses substantial risks. (see item

5.2 in this Report and note 36 in the consolidated financial statements for the year ended 31

December 2020).

On 9 April 2020, Mr. Alexander Hesse, Chairman of the supervisory board, resigned from the

supervisory board of the Company, effective 16 April 2020.

On 16 April 2020, the GTC Dutch Holdings B.V appointed Mr. Christian Harlander as a

supervisory board member.

On 16 April 2020, the supervisory board of the Company chose Mr. Jan-Christoph Düdden as

a chairman of the supervisory board.

On 16 April 2020, the supervisory board of the Company appointed Mr. Yovav Carmi as a

member of the management board of the Company.

On 22 June 2020, the supervisory board of the Company dismissed Thomas Kurzmann from

the position of member of the management board of the Company and appointed Robert Snow

to the management board of the Company effective as of the moment of receipt by the

Company of the notification issued by LSREF III GTC INVESTMENTS B.V. regarding the

indirect disposal of shares in the share capital of the Company resulting from the disposal by

LSREF III GTC INVESTMENTS B.V. of all of the shares in the share capital of GTC DUTCH

HOLDINGS B.V.

On 23 June 2020, GTC Holding Zártkörüen Müködö Részvénytársaság (“GTC Holding Zrt”)

registered in Budapest, Hungary, bought 100% of shares of GTC Dutch Holdings B.V. (the

“Majority Shareholder“) from LSREF III GTC Investments B.V. registered in Amsterdam, the

Netherlands. GTC Dutch Holdings BV owns 298,575,091 shares of the Company, representing

61.49% of the shares in the share capital of the Company. After the abovementioned

acquisition, GTC Holding Zrt (i.e. through the Majority Shareholder) holds indirectly

298,575,091 shares of the Company, representing 61.49% votes in the Company.

On 23 June 2020, the Company received resignations of the following five members of the

supervisory board of Globe Trade Centre S.A.: Jan-Christoph Düdden, Olivier Brahin, Patrick

Haerle, Christian Harlander, and Katharina Schade, such resignations being effective as of the

moment of receipt by the Company of the notification issued by LSREF III GTC

INVESTMENTS B.V. regarding the indirect disposal of shares in the share capital of the

Company resulting from the disposal by LSREF III GTC INVESTMENTS B.V. of all of the

shares in the share capital of GTC DUTCH HOLDINGS B.V.

On 23 June 2020, the GTC Dutch Holdings B.V appointed Dr. Zoltán Fekete, Mr.Balázs Figura,

Dr. János Péter Bartha, Mr. Bálint Szécsényi and Mr. Péter Bozó as members of the

supervisory board of the Company, effective immediately.

On 1 July 2020, the supervisory board of the Company appointed Mr. Gyula Nagy as a member

of the management board of the Company.

On 1 July 2020, the supervisory board of the Company chose Mr. Zoltán Fekete as a Chairman

of the supervisory board.

On 28 July 2020, the Supervisory Board of the Company appointed Mr. Ariel Alejandro

Ferstman as a member of the management board of the Company.

On 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate his

appointment as a member of the management board of the Company.

On 28 July 2020, the supervisory board of the Company, following the recommendation of the

management board hereby issued a positive opinion on the management board’s proposal to

deviate from published dividend policy (dividend policy published on 20 March 2017) and retain

the profit for the year ended 31 December 2019 in the amount of PLN 321,756 by the Company

and allocate to the reserve/supplementary capital. Thus the supervisory board of the Company

recommends not to pay dividends out of profits earned by the Company in the financial year

ended on 31 December 2019. The final decision regarding the distribution of the Company’s

profit for the year ended 31 December 2019 was made by the general meeting of the

Company. On 27 August 2020, the general meeting of the Company decided not to distribute a

dividend for 2019.

In July 2020, Dorado 1 EOOD, a wholly-owned subsidiary of the Company has started the

construction of an office building (Sofia Tower 2) in Sofia, Bulgaria. The project shall consist

of 8,300 sq m of leasable area. The total investment for the development of Sofia Tower 2 is EUR

estimated at EUR 13,340. Superb location in the CBD, close proximity to a metro station, easy

access from the main road, excellent public transportation and large variety of amenities are only

few of the strengths of Sofia Tower II. Moreover, the project will support the shopping center with

additional 1000 people/employees per day who will use the food court units and the other

amenities. Sofia Tower 2 will offer Class A+ energy efficiency and LEED Gold standard and as a

result will be financed with Green Bonds Proceeds. The project is expected to be completed in the

second quarter of 2022.

On 17 September 2020, a Centrum Światowida Sp. z o.o., a wholly-owned subsidiary of the

Company , operating the Galeria Północna shopping mall, entered into an annex to a loan

agreement with Bank Pekao SA in order to relax the debt service coverage ratio (DSCR)

covenant and to cure the loan-to-value (LTV) covenant breach. According to the annex, the

subsidiary repaid in advance a part of the outstanding loan in the amount of €9,500 and agreed

to repay additionally up to €3,000 within 12 months of the date of the Annex. DSCR covenant

was relaxed for 18 months from the date of the signed annex. As of the date of these financial

statements the financial covenants are cured.

On 18 September 2020, the supervisory board of the Company appointed Yovav Carmi as the

president of the management board of the Company.

In September 2020, the Group acquired the remaining 20% in Marlera Golf LD d.o.o. for

consideration of €2,800, €1,800 of which was paid in September 2020 (the remaining part of

€1,000 will be paid upon completion of certain conditions). Following the transaction, GTC

remained the sole owner of the subsidiary. As a result of the transaction, the NCI increased by

€3,600, and the capital reserve decreased by €6,400. Consequently, the total equity decreased

by €2,800.

On 20 October 2020, Spiral I Kft., an indirect wholly-owned subsidiary of the Company, signed

a sale and purchase agreement for the sale of Spiral office building for consideration of

€62,700. On 5 November 2020, all conditions precedent for the sale were concluded, and the

purchase price was paid in full. In parallel with the closing Spiral I kft repaid the full outstanding

amount of the loan with Erste Bank.

On 27 October 2020, the Company received a notification from GTC

Holding Zártkörűen Működő Részvénytársaság with its registered

office in Budapest, Hungary (“GTC Holding Zrt”) regarding an

increase to 66% in the total number of votes in the Company. The

acquisition of the above-mentioned shares took place as a result of

the conclusion on 22 October 2020 and settlements on 23 October

2020 (in relation to shares acquired from other than South African

shareholders of the Company) and on 27 October 2020 (in relation to

shares acquired from South African shareholders of the Company) of

GTC Holding

Zártkörűen Működő

Részvénytársaság

and

GTC Holding Zrt

holds together

66%

transactions of resulting from acceptance of subscriptions for the sale of shares under the

tender offer for the sale of shares in the Company announced by GTC Holding Zrt on 7

September 2020. After the abovementioned acquisition, GTC Holding Zrt holds directly and

indirectly 320,466,380 shares of the Company, entitling to 320,466,380 votes in the Company,

representing 66% of the share capital of the Company and carrying the right to 66% of the total

number of votes in the Company

In October 2020, the Group completed the construction of Advance Business Center II (17,800

sq m) office building in Sofia.

In November 2020, the Group completed the construction of Matrix B (10,700 sq m) office

building in Zagreb.

On 12 November 2020, Scope Ratings assigned a first-time issuer rating of BBB-/Stable

investment grade to the Company and its wholly-owned subsidiary GTC Real Estate

Development Hungary Zrt. for the purpose of issuing green bonds within the framework of

the Bond Funding for Growth Program in Hungary. The potential unsecured debt has also

been rated BBB-.

On 13 November 2020, GTC Future Kft, a newly established wholly-owned subsidiary,

acquired a land plot from a subsidiary related to the majority shareholder with an existing old

office and industrial buildings in Vaci Corridor in Budapest for a total amount of €21,350. The

buildings have total leasable area of 12,000 sq m (GLA 8,200 sq m). The Company plans to

demolish the buildings and develop office buildings in phases with a total leasable area of

64,000 sq m.

On 7 December 2020, GTC Real Estate Development Hungary Zrt issued 10 years green

bonds with the total nominal value of €110,000 denominated in HUF to finance real estate

projects and upstream the funds with refinancing purposes. The bonds are fully and irrevocable

guaranteed by the Company and were issued at yield of 2.33%. with an annual fixed coupon

of 2.25%. The bonds are amortized 10% a year starting on the 7th year with the 70% of the

value paid at the maturity on 7 December 2030.The Bonds (ISIN code: HU0000360102GTC)

are traded on the XBond market in Budapest.

On 8 December 2020, GTC Real Estate Development Hungary Zrt. entered into cross-

currency interest swap agreements with three different banks to hedge the total green bonds

liability against foreign exchange fluctuations. The green bonds were fixed to the Euro and the

fixed annual coupon was swapped for an interest fixed rate of 0.99%.

EVENTS THAT TOOK PLACE AFTER 31 DECEMBER 2020:

On 8 January 2021, GTC Pixel and GTC Francuska signed a loan agreement with Santander

Bank Polska, which refinanced the existing loans. GTC Pixel repaid the loan in PKO BP in

amount of €19,200 and obtained the new loan in Santander Bank Polska in amount of €19,700.

GTC Francuska repaid the loan in ING in amount of €18,900 and obtained the new loan in

Santander Bank Polska in amount of €19,300.

On 5 March 2021, Globe Office Investments Ltd an indirect wholly-owned subsidiary of the

Company signed a sale and purchase agreement with a company related to the majority

shareholder of the Company for the purpose of acquisition of a Class A office building on Váci

corridor, Budapest for a consideration of €51,000. Subsequently on 19 March 2021 a loan

agreement in the amount of €25,000 with Erste Group Bank AG was signed for the purpose of

financing the acquisition. The transaction is expected to be close during Q2 2021 upon certain

conditions precedents are fulfilled.

On 5 March 2021, GTC SA repaid all bonds issued under ISIN code PLGTC0000276 (full

redemption). The original nominal value was €20,494.

On 11 March 2021 GTC Real Estate Development Hungary Zrt, a wholly-owned subsidiary of

the Company and Groton Global Corp signed a sale and purchase agreement for the purpose

of acquisition of the Napred company from Belgrade holding a land plot of 19,537 sq m for a

consideration of €33,800. The site has potential office development of cca 79,000 sq m. The

transaction is expected to be finalized during Q2 2021 upon certain conditions precedents are

fulfilled.

On 17 March 2021, GTC Real Estate Development Hungary Zrt. , a wholly-owned subsidiary

of the Company issued 10-year green bonds with the total nominal value of €53,800

denominated in HUF to finance real estate acquisitions, redevelopment and constructions of

projects. The bonds are fully and irrevocable guaranteed by the Company and were issued at

a yield of 2.68% with an annual fixed coupon of 2.6%. The bonds are amortized 10% a year

starting on the 7th year with the 70% of the value paid at the maturity on 17 March 2031.

On 17 March 2021, GTC Real Estate Development Hungary Zrt. a wholly-owned subsidiary of

the Company entered into cross-currency interest swap agreements with two different banks

to hedge the total green bonds liability against foreign exchange fluctuations. The green bonds

were fixed to the Euro, and the fixed annual coupon was swapped for an average annual

interest fixed rate of 0.93%.

As of 17 March 2021, the Polish government has announced a lockdown from 20 March 2021

till 9 April 2021 and implemented rigorous measures to contain the spread of COVID-19,

including, among others, the closure of shops in shopping malls, except those selling essential

goods (such as groceries, other food stores and pharmacies). Measures taken by the

government will affect our business. The currently known impact is a decline in revenues of

shopping malls. The magnitude of the impact is not yet fully known and will depend between

the others, on the length of the closure.

On 18 March 2021, Erste Group Bank AG, Raiffeisenlandesbank Niederosterreich-Wien AG

and GTC CTWA Sp. z o.o., a wholly-owned subsidiary of the Company, operating Galeria

Jurajska Shopping Mall, signed a waiver letter, according to which the DSCR covenant was

waived until the end of September 2022 and a prepayment of €5,000 will be done by the end

of March 2021.

On 19 March 2021 City Gate SRL and City Gate Bucharest SRL wholly-owned subsidiaries of

the Company signed on loan agreement prolongation with Erste Group Bank AG, for additional

5 years.

On 19 March 2021, Commercial Development d.o.o. Beograd, a wholly owned subsidiary of

the Company, operating Ada Mall, and Intesa Bank signed a restated loan agreement whereby

the existing loan in the amount of €58,300 shall be early prepaid by 31 March 2021 in the

amount of €29,000 and margin reduced from 3.15% to 2.9%. Following the prepayment the

outstanding loan amount shall be payable in full at maturity in 2029.

4.3 Structure of the Group

The structure of Globe Trade Centre S.A. Capital Group as of 31 December 2020 is presented

in the consolidated financial statements for the year ended 31 December 2020 in Note 8

“Investment in subsidiaries, associates and joint ventures.”

The following changes in the structure of the Group occurred in the twelve-month period ended

31 December 2020:

 liquidation of Julesberg Sp. z o.o.,

 liquidation of Jowett Sp. z o.o.,

 the commencement of liquidation of Glorine investments Sp. z o.o,

 the commencement of liquidation of Fajos S.R.L,

 a merger of SASAD Resort Kft. to GTC Hungary Ltd,

 a merger of Amarantan Ltd. to Center Point I. Kft.,

 acquisition of the remaining 20% in Marlera Golf LD d.o.o.,

 establishment of wholly-owned subsidiary - GTC Future Kft,

 establishment of wholly-owned subsidiary - Globe Office Investments Kft

4.4 Changes to the principal rules of the management of the Company and the

Group

There were no changes to the principal rules of management of the Company and the Group.

During 2020, the following changes in the composition of the management board took place:

 on 16 April 2020, the supervisory board of the Company appointed Mr. Yovav Carmi

as a member of the management board of the Company (see current report no 7/2020);

 on 22 June 2020, the supervisory board of the Company dismissed Mr. Thomas

Kurzmann from the position of member of the management board of the Company and

appointed Robert Snow to the management board of the Company effective as of the

moment of receipt by the Company of the notification issued by LSREF III GTC

INVESTMENTS B.V. regarding the indirect disposal of shares in the share capital of

the Company resulting from the disposal by LSREF III GTC INVESTMENTS B.V. of all

of the shares in the share capital of GTC DUTCH HOLDINGS B.V (see current reports

no 11/2020 and 13/2020);

 on 1 July 2020, the supervisory board of the Company appointed Mr. Gyula Nagy as a

member of the management board of the Company (see current report no 16/2020);

 on 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate

his appointment as a member to the management board of the Company (see current

report no 18/2020);

 on 28 July 2020, the supervisory board of the Company appointed Mr. Ariel Alejandro

Ferstman as a member of the management board of the Company (see current report

no 18/2020);

 on 18 September 2020, the supervisory board of the Company appointed Mr. Yovav

Carmi as the president of the Company's management board. Mr. Carmi has been a

member of the management board of the Company since 16 April 2020 (see current

report no 25/2020).

4.5 The Group’s Strategy

The Group's objective is to create value from:

 active management of a growing commercial real estate portfolio in CEE and SEE,

supplemented by selected development activities; and

 enhancing deal flow, mitigating risks, and optimizing performance through its

regional platform by investing its funds, the proceeds from share capital increase,

and reinvesting potential proceeds from the sale of real estate properties.

The Group implements the following elements, among others, to achieve its strategic

objectives:

01. Acquiring yielding properties in Poland and in capital cities of selected CEE and

SEE countries

The Group's strategic objective is to expand its portfolio by acquiring yielding properties in

Poland and capital cities of selected CEE and SEE countries with value-added potential.

The management board believes that the current market conditions, including the attractive

pricing of yielding properties and the widening range of potential sellers, present compelling

real estate acquisition opportunities for both individual assets and portfolios at attractive prices.

The management board will carefully consider and evaluate attractive investment

opportunities, which meet the investment criteria of the Group while taking into consideration

the prevailing market yields and the Group's investment criteria targets.

In addition, in implementing its strategic objective of expanding its portfolio, the Group is well-

positioned to benefit from:

 the exceptionally high yield spread in the current low-interest rate environment,

allowing for highly accretive growth;

 the future growth potential in Poland, and capital cities in the Group’s countries of

operation if the macro environment improves;

 a selective approach by lenders that operate in the CEE and SEE regions, which limits

competition from other potential purchasers;

 limited offer of high-class office and retail space in some markets, which results in

increased demand for renting space in class A properties.

The Group's acquisition strategy includes the acquisition of income generating assets with

value-added potential and/or high FFO yield that meet the following criteria:

 office and retail assets;

 located in Warsaw or secondary cities in Poland or the capital cities of CEE/SEE

countries;

 cash generation ability (upon acquisition or shortly after);

 potential growth of net operating income, through re-leasing optimizing occupancy,

rental rates, and/or redevelopment; and

 potential to increase return on equity through active asset management.

The Group's expansion will be selective and will be evaluated based on market opportunity,

demand, and the potential return on investment. The Group may invest alone or co-invest with

partners, allowing for increased portfolio diversification and boosting the scope of investments.

Since the end of 2015, the Group also acquired:

 Duna Tower (office building located in Budapest, Hungary);

 Pixel (office building located in Poznań, Poland);

 Premium Point (office building located in Bucharest, Romania);

 Premium Plaza (office building located in Bucharest, Romania);

 Neptun Office Center (office building located in Gdańsk, Poland);

 Sterlinga Business Center (office building located in Łódź, Poland);

 Cascade Office Building (office building located in Bucharest, Romania);

 Belgrade Business Center (office building located in Belgrade, Serbia);

 Mall of Sofia combined with Sofia Tower (shopping mall with adjacent office building

located in Sofia, Bulgaria);

Additionally, the Group acquired a number of land plots for office development, predominantly

in Budapest, but also in Zagreb, Bucharest and Sofia.

02. Improving the efficiency of asset management activities and maximizing the

operating performance

The Group will continue to manage actively its current and future income-generating

commercial property portfolio to maximize operating performance and efficiency, diversify

tenant risk and enhance rental income.

The Group intends at least to maintain high value to its portfolio through its asset management

activities. Such activities include:

 increasing and maintaining occupancy on best achievable market terms;

 maintaining high collection efficiency by strict monitoring of receivables;

 striving for a low and efficient cost base by using energy-efficient technologies and

optimizing property repair and maintenance costs;

 optimizing development costs by revising and cost-engineering its developments

without detriment to the competitiveness of any individual asset;

 optimizing administrative costs where possible; and

 optimizing the costs of finance through refinancing where possible.

The management board believes that, on a long-term basis, active asset management of

completed assets will constitute a critical success factor of the Group's strategy.

03. Developing selected projects in the pre-construction or construction stage

Another core growth source under the Group's strategy is developing commercial projects in

areas where there is a demand for commercial properties.

The Group is a real estate investor and developer and adjusts its development activities to the

market conditions. The management board believes that this approach allows the Group to

better respond to the changing conditions of the real estate market and focus on more active

and efficient asset management of its existing as well as its expanded portfolio. Subject to

prevailing market conditions, in order to improve the recurring operating income, in the mid-

term, the Group intends to structure its real estate portfolio in such a manner whereby more

than half of its value is attributed to income-generating assets and the remaining portion to

trading and development.

In 2020, the Group completed three office buildings:

 Green Heart N3 (office building located in Belgrade, Serbia);

 Advance Business Center II (office building located in Sofia, Bulgaria);

 Matrix B (office building located in Zagreb, Croatia).

The development of projects, which at the date of the Report were in the construction stage or

the pre-construction stage, is an important value driver.

Currently, the Group has two projects consisting of 37,300 sq m of office space under

construction:

 Pillar - an office building in Budapest, Hungary with an intended GLA of approximately

29,000 sq m;

 Sofia Tower 2 - an office building (part of Mall of Sofia) in Sofia, Bulgaria, with an intended

GLA of approximately 8,300 sq m;

As of 31 December 2020, projects under construction represent approximately 3% of the

Group's portfolio value.

Currently, another two buildings consisting of 52,300 sq m in of office space is ready to be

launched in 24 months:

 GTC X - an office building in Belgrade, Serbia, with an intended GLA of approximately

16,800 sq m;

 Center Point 3 - an office building in Budapest, Hungary, with an intended GLA of

approximately 35,500 sq m.

The Group’s rich commercial landbank designated for future development allows us to extend

the planned projects in areas where there will be demand for commercial properties.

04. Disposal of mature assets

The Group may sell certain of its mature assets from its portfolio (i.e., completed commercial

properties that generate a stable flow of rental income and have reached their long-term value

in the Group's view, have reached their long-term value). Moreover, following the acquisition

of existing income-generating properties and increasing their value, the Group may also sell

such properties.

Based on market conditions and Group’s strict criteria during 2020, the Group sold Spiral

(office building located in Budapest, Hungary).

05. Maintaining a balanced mix of investments across CEE and SEE regions and

adapting to changes in the real estate markets

The Group intends to continue to focus its real estate management and development activities

on properties located in Warsaw or secondary cities in Poland and in the capital cities of CEE

and SEE countries, characterized by macroeconomic stability, continued GDP growth, and

investor and tenant demand. The Group believes that some other markets in which it operates

also offer long-term growth potential due to their relatively underdeveloped real estate markets

and relatively illiquid markets. Further investments in these markets will be explored on an

opportunistic basis with strict risk-adjusted return hurdles. Simultaneously, specific

performance requirements will be imposed on all assets in the Group's portfolio.

The Group aims to create and maximize shareholder value by continually adapting to changes

in the markets in which it operates while maintaining the maximum performance of its core

portfolio of assets.

4.6 Business overview

The Group’s core business is geared towards commercial real estate, with a clear focus on

creating value from active management of a growing real estate portfolio in CEE and SEE

supplemented by selected development activities. As of 31 December 2020, the book value of

the Group’s investment property, residential landbank, and assets held for sale amounted to

€2,136,802. The Group's investment properties include income generating assets (completed

properties), projects under construction, commercial landbank, and right of use.

INVESTMENT PORTFOLIO

As of 31 December 2020, the Group manages completed commercial properties with a

combined gross rentable area of approximately 753 thousand sq m, including 43 office

buildings and five shopping malls, which constituted 88% of the overall portfolio.

The Group’s office buildings provide convenient space, flexible interiors, and a comfortable

working environment. They are located in the heart of business districts and in proximity to the

most important transport routes, including international airports. All projects have earned the

trust of a significant number of multinational corporations and other prestigious institutions,

including Exxon Mobil, IBM, Allegro, Budapest Bank, T-Mobile, Concentrix, Rompetrol,

UniCredit, CBRE, LOT, Deloitte, KPMG, Roche, State Street, and others

The Group’s shopping centers are located in both capital cities as well as in secondary cities

in Poland, Serbia, Bulgaria, and Croatia. They are always very highly ranked in the city of their

location. The tenants include big multinationals as well as local brands like Carrefour, Cinema

City, H&M, LPP Group, Inditex Group, and others.

PROJECTS UNDER CONSTRUCTION

As of 31 December 2020, the Group had two office buildings classified as an investment under

construction with a book value of €62,909, which constituted 3% of the Group’s overall

portfolio.

INVESTEMENT PROPERTY LANDBANK

As of 31 December 2020, the Group had land classified as an investment property landbank

designated for the future development of €140,367, which constituted 7% of the Group’s overall

portfolio (by value). This landbank includes projects that are on the Group`s focus for the

coming year like GTC X, Center Point 3, The Twins, City Rose Park, Moderna, Platinium 6,

and Matrix future phases which constitute 5% of the Group’s overall portfolio (80% of

investment property landbank).

The Group’s rich investment property landbank designated for future development allows us

to extend the planned projects in areas where there will be demand for commercial

properties.

RESIDENTIAL LANDBANK

As of 31 December 2020, the Group held a residential landbank with a total value of €10,094,

which constituted less than 1% of the Group’s overall portfolio.

RIGHT OF USE

The Group recognized the right of use in the amount €42,679, which constituted 2% of the

Group’s overall portfolio.

4.6.1 Overview of the investment portfolio

The Group`s strategy focuses on creating

value from active management of a growing

real estate portfolio in CEE and SEE. The

Group has a presence in Poland, Belgrade,

Budapest, Bucharest, Zagreb, and Sofia. The

Group focused on commercial assets, mainly

office buildings and office parks as well as

retail and entertainment centers. The Groups

investment properties include income

generating assets (completed properties),

projects under construction, investment

property landbank and right of use.

4.6.1.1 Overview of income generating portfolio

As of 31 December 2020, the Group had 48 income generating portfolio totaling 753 thousand

sq m and valued at €1,879,173. The average occupancy rate within the income generating

portfolio was 91% as of 31 December 2020. The portfolio was valued based on an average

yield of 7.8%. The average duration of leases in the Group`s income generating portfolio was

2.9 years, and the average rental rate was €17.2/sq m/month.

Approximately 44% of the income generating portfolio is located in Poland, 19% in Belgrade,

11% in Budapest, 9% in Bucharest, 9% in Sofia, and 8% in Zagreb.

Poland

44%

Belgrade

19%

Budapest

11%

Sofia

Bucharest

Zagreb

Investment property

under construction

Investment

property landbank

Right of

use

Income generating portfolio

88%

The following table presents income generating portfolio by country in which the Group

operates as at 31 December 2020:

Location

Total gross

leasable area

(sq m)

% of GLA

(sq m)

Average

occupancy

(%)

Book value

(€)

% of total

book value

Poland

309,200

41%

90%

824,738

44%

Belgrade

156,800

21%

94%

355,481

19%

Budapest

96,600

13%

95%

206,138

11%

Sofia

67,200

88%

176,500

Bucharest

66,600

93%

172,085

Zagreb

56,100

89%

144,231

Total

752,500

100%

91%

1,879,173

100%

The Group is focused on the office sector. As of 31 December 2020, office properties

accounted for around 61%, and retail properties accounted for the remaining 39% of the book

value of income generating portfolio.

Office

61%

Retail

39%

The following table presents income generating portfolio by main usage type as of 31

December 2020:

Usage type

Total gross

leasable

area

(sq m)

% of GLA

(sq m)

Average

occupancy

(%)

Book

value

(€)

% of

total

book

value

Office

536,400

71%

90%

1,145,261

61%

Retail

216,100

29%

95%

733,912

39%

Total

752,500

100%

91%

1,879,173

100%

Including Avenue Center, Zagreb, Croatia and Sofia Tower, Sofia, Bulgaria.

4.6.1.1.1Overview of the office portfolio

As of 31 December 2020, the Group office portfolio comprises 43 office buildings. Total gross

rentable office space was 536 thousand sq m compared to 531 sq m as of 31 December 2019.

The total value of the office portfolio as of 31 December 2020 was €1,145,261 compared to

€1,173,106 as of 31 December 2019. The decrease in value is mainly due revaluation loss

arise mainly from an increase in yields combined with a decrease in occupancy and expected

rental values across the portfolio coming mostly from Covid-19 pandemic impact and sale of

Spiral office building. This was partially offset by the completion of in the Green Heart N3 in

Belgrade, Advance Business Center II in Sofia, and Matrix B in Zagreb.

The Group’s office buildings are located in Poland, and capital cities of CEE and SEE region:

Budapest, Belgrade, Zagreb, Bucharest, and Sofia.

Poland

33%

Belgrade

23%

Budapest

18%

Bucharest

15%

Sofia

Zagreb

The following table presents the office portfolio by country as of 31 December 2020:

Location

Total gross

leasable

area

(sq m)

% of

GLA

(sq m)

Average

occupancy

(%)

Book

value

(€)

% of total

book value

Poland

195,700

37%

88%

381,738

33%

Belgrade

122,100

23%

93%

264,781

23%

Budapest

96,600

18%

95%

206,138

18%

Bucharest

66,700

12%

93%

172,085

15%

Sofia

33,800

79%

75,800

Zagreb

21,500

76%

44,719

Total

536,400

100%

90%

1,145,261

100%

4.6.1.1.1.1 Office portfolio in Poland

The total gross rentable area in Poland comprises 196 thousand sq m in 16 office buildings

located in Warsaw, Kraków, Łódź, Katowice, Poznań and Wrocław. The average occupancy

rate was at the level of 88%. The average duration of leases was 2.6 years at the year-end,

and applied yield was at the level of 8.2%. The average rental rate generated by the office

portfolio in Poland was at the level of €14.6/sq m/month. The book value of the office portfolio

in Poland amounted to €381,738 as of 31 December 2020 compared to €398,888 as of 31

December 2019. The decrease comes from a decline in estimated rental values and expansion

of yield.

The following table lists the Group’s office properties located in Poland:

Property

Location

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Galileo

Kraków

100%

10,600

2003

Globis Poznań

Poznań

100%

13,800

2003

Newton

Kraków

100%

10,800

2007

Edison

Kraków

100%

10,900

2007

Nothus

Warsaw

100%

9,600

2007

Zephirus

Warsaw

100%

9,600

2008

Globis Wrocław

Wrocław

100%

16,100

2008

University Business Park A

Łódź

100%

20,200

2010

Francuska Office Centre A&B

Katowice

100%

23,000

2010

Sterlinga Business Center

Łódź

100%

13,400

2010

Corius

Warsaw

100%

9,600

2011

Pixel

Poznań

100%

14,400

2013

Pascal

Kraków

100%

5,900

2014

University Business Park B

Łódź

100%

20,200

2016

Artico

Warsaw

100%

7,600

2017

Total

195,700

4.6.1.1.1.2 Office portfolio in Belgrade

The Group’s total gross rentable area in Belgrade comprises 122 thousand sq m in 11 office

buildings. The occupancy rate was at the level of 93%. The average duration of leases was

2.5 years at the year-end, and the applied yield was 8.6%. The average rental rate generated

by the office portfolio in Belgrade was at €16.7/sq m/month. The book value of the Group’s

office portfolio in Belgrade amounted to €264,781 as of 31 December 2020 compared to

€263,081 as of 31 December 2019.

The following table lists the Group’s office properties located in Belgrade:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

GTC House

100%

13,300

2005

Avenue 19

100%

16,700

2008

Belgrade Business Center

100%

17,800

2009

FortyOne phase I

100%

10,100

2015

FortyOne phase II

100%

7,200

2016

FortyOne phase III

100%

10,700

2017

Green Heart E1

100%

10,400

2018

Green Heart E2

100%

11,300

2018

Green Heart N1

100%

13,100

2019

Green Heart N2

100%

6,100

2019

Green Heart N3

100%

5,400

2020

Total

122,100

4.6.1.1.1.3 Office portfolio in Budapest

The Group’s total gross rentable area in Budapest comprises 97 thousand sq m in five office

buildings. The occupancy rate was 95%. The average duration of leases was 2.3 years at the

year-end, and the applied yield was 7.5%. The average rental rate generated by the office

portfolio in Budapest was €14.2/sq m/month. The book value of the Group’s office portfolio in

Budapest amounted to €206,138 as of 31 December 2019, as compared to €259,419 as of 31

December 2019. A decrease comes mainly from sale of Spiral office building, partially offset

by the purchase of landbank for future development, with a small office building.

The following table lists the Group’s office properties located in Budapest:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Center Point I&II

100%

40,900

2004/2006

Duna Tower

100%

31,300

2006

GTC Metro

100%

16,200

2010

Vaci 173-177

100%

8,200

Total

96,600

Property acquired as landbank for future development, with a small office building located on the plot

4.6.1.1.1.4 Office portfolio in Sofia

The Group’s total gross rentable area in Sofia comprises 44 thousand sq m in three office

buildings (including Sofia Tower). The occupancy rate, the book value, and other data of the

Sofia Tower are presented together with the data for Mall of Sofia.

The occupancy rate of the Group’s office portfolio in Sofia was 79%. The average duration of

leases was 3.7 years at the year-end, and the applied yield was 7.8%. The average rental rate

generated by the office portfolio in Sofia was at the level of €14.6/sq m/month. Book value of

the Group’s office portfolio in Sofia amounted to €75,800 as of 31 December 2020 compared

to €36,800 as of 31 December 2019 and came from the completion of the second building in

the Advance Business Center complex.

The following table lists the Group’s office investment properties located in Sofia:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Advance Business Center I

100%

16,000

2019

Advance Business Center II

100%

17,800

2020

Total

33,800

Sofia Tower

100%

10,300

2006

44,100

The occupancy rate, the book value, and other data of the Sofia Tower are presented together with the data for

Mall of Sofia (retail portfolio).

4.6.1.1.1.5 Office portfolio in Bucharest

The Group’s total gross rentable area in Bucharest comprises 67 thousand sq m in five office

buildings. The occupancy rate was 93%. The average duration of leases was 1.9 years at the

year-end, and the applied yield was 7.7%. The average rental rate generated by the office

portfolio in Bucharest was at the level of €20.5/sq m/month. Book value of the Group’s office

portfolio in Bucharest amounted to €172,085 as of 31 December 2020, compared to €190,418

as of 31 December 2019. The decrease comes mainly from a decrease in value of City Gate

due to decline in estimated rental values and extended void period.

The following table lists the Group’s office properties located in Bucharest:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Cascade Office

100%

4,200

2005

Premium Plaza

100%

8,500

2008

City Gate

100%

47,600

2009

Premium Point

100%

6,400

2009

Total

66,700

4.6.1.1.1.6 Office portfolio in Zagreb

The Group’s total gross rentable area in Zagreb comprises 28 thousand sq m in three office

buildings (including Avenue Centre). The occupancy rate, the book value, and other data of

the Avenue Centre in Zagreb are presented together with the data for Avenue Mall Zagreb.

The occupancy rate of the Group’s office portfolio in Zagreb was 76%. The average duration

of leases was 4.5 years at the year-end and applied yield was 7.6%. The average rental rate

generated by the office portfolio in Zagreb was at the level of €14.3/sq m/month. Book value

of the Group’s office portfolio in Zagreb amounted to €44,719 as of 31 December 2020

compared to €24,500 as of 31 December 2019. The increase in value comes from the

completion of the second building in Matrix complex.

The following table lists the Group’s office investment properties located in Zagreb:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Matrix A

100%

10,800

2019

Matrix B

100%

10,700

2020

Total

21,500

Avenue Center

70%

7,000

2007

28,500

The occupancy rate, the book value, and other data of the Avenue Centre in Zagreb are presented together with

the data for Avenue Mall Zagreb (retail portfolio).

4.6.1.1.2 Overview of the retail portfolio

As of 31 December 2020, the Group’s retail properties comprised five shopping centres with a

total gross rentable area of 216 thousand sq m compared to 216 thousand sq m as of 31

December 2019. The total value of retail investment properties as of 31 December 2020 was

€733,912 compared to €830,082 as of 31 December 2019. The decrease in value comes

mainly from the impact of COVID-19 pandemic. It results from multi-pronged measures

implemented to support tenants and encourage consumer spendings, such as reducing

rent, allowing rent payment in installments, waiving late payment interest and service

charges and a decline of the expected rental values combined with a slight expansion over

the assets’ future yields.

Poland

60%

Sofia

14%

Zagreb

14%

Belgrade

12%

The following table presents the retail portfolio by country as of 31 December 2020:

Location

Total gross

leasable area

(sq m)

% of total

retail

portfolio

(%)

Average

occupancy

(%)

Book

value

(€)

% of total

book

value

Poland

113,500

53%

93%

443,000

60%

Sofia

33,400

15%

98%

100,700

14%

Zagreb

34,600

16%

97%

99,512

14%

Belgrade

34,600

16%

97%

90,700

12%

Total

216,100

100%

95%

733,912

100%

Including book value of office building

4.6.1.1.2.1 Retail portfolio in Poland

The total gross rentable retail space in Poland comprises 113 thousand sq m in two retail

schemes located in Warsaw and Częstochowa. The average occupancy rate was 93%. The

average duration of leases was 3.9 years at the year-end, and the applied yield was 6.2%. The

average rental rate generated by the retail portfolio in Poland was €20.9/sq m/month. The book

value of the Group’s retail portfolio in Poland amounted to €443,000 as of 31 December 2020,

as compared to €497,370 as of 31 December 2019. The decrease comes mainly from the

impact of COVID-19 pandemic. It results from multi-pronged measures implemented to

support tenants and encourage consumer spendings, such as reducing rent, allowing rent

payment in installments, waiving late payment interest and service charges and a decline

of the expected rental values combined with a slight expansion over the assets’ future

yields.

The following table lists the Group’s retail properties located in Poland:

Property

Location

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Galeria Jurajska

Częstochowa

100%

48,700

2009

Galeria Północna

Warsaw

100%

64,800

2017

Total

113,500

4.6.1.1.2.2 Retail portfolio in Sofia

The Group’s total gross rentable retail space in Sofia comprises 33 thousand sq m (including

10.3 thousand sq m of Sofia Tower office building) in one retail scheme. The occupancy rate

was 98%. The average duration of leases was 2.5 years at the year-end, and the applied yield

was 7.8%. The average rental rate generated by the retail portfolio in Sofia was €18.8 /sq

m/month. The book value of the Group’s retail portfolio in Sofia amounted to €100,700

(including the book value of Sofia Tower) as of 31 December 2020 as compared to €108,600

as of 31 December 2019. The decrease comes mainly from the impact of COVID-19 pandemic.

It results from multi-pronged measures implemented to support tenants and encourage

consumer spendings, such as reducing rent, allowing rent payment in installments, waiving

late payment interest and service charges and a decline of the expected rental values

combined with a slight expansion over the assets’ future yields.The following table lists the

Group’s retail properties located in Sofia:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Mall of Sofia

100%

33,400

2006

Total

33,400

Including Sofia Tower

4.6.1.1.2.3 Retail portfolio in Zagreb

The Group’s total gross rentable retail space in Zagreb comprises 35 thousand sq m (including

7 thousand sq m of Avenue Center office building) in one retail scheme. The occupancy rate

was 97%. The average duration of leases was 2.8 years at the year-end, and the applied yield

was 7.9%. The average rental rate generated by the retail portfolio in Zagreb was at the

€20.2/sq m/month. Book value of the Group’s retail portfolio in Zagreb amounted to €99,512

(including book value of Avenue Center) as of 31 December 2020 compared to €104,812 as

of 31 December 2019. The decrease comes mainly from the impact of COVID-19 pandemic.

It results from multi-pronged measures implemented to support tenants and encourage

consumer spendings, such as reducing rent, allowing rent payment in installments, waiving

late payment interest and service charges and a decline of the expected rental values

combined with a slight expansion over the assets’ future yields.

The following table lists the Group’s retail properties located in Zagreb:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Avenue Mall Zagreb

70%

34,600

2007

Total

34,600

Including Avenue Center

4.6.1.1.2.4 Retail portfolio in Belgrade

The total gross rentable retail space in Belgrade comprises 35 thousand sq m in one shopping

mall in Belgrade. The average occupancy rate was 97%. The average duration of leases was

4.5 years at the year-end, and the applied yield was 8.5%. The average rental rate generated

by the retail portfolio in Belgrade was at €22/ sq m/month. Book value of the Group’s retail

portfolio in Belgrade amounted to €90,700 as of 31 December 2020 as compared to €119,300

as of 31 December 2019. The decrease comes mainly from the impact of COVID-19 pandemic.

It results from multi-pronged measures implemented to support tenants and encourage

consumer spendings, such as reducing rent, allowing rent payment in installments, waiving

late payment interest and service charges and a decline of the expected rental values

combined with a slight expansion over the assets’ future yields.

The following table lists the Group’s retail properties located in Belgrade:

Property

GTC’s

Total gross

rentable area

Year of

completion

(%)

(sq m)

Ada Mall

100%

34,600

2019

Total

34,600

4.6.1.2 Overview of properties under construction

As of 31 December 2020, the Group had two office projects with a total gross rentable area of

37 thousand sq m and a book value of €62,909.

The following table lists the Group’s properties under construction:

Property

Segment

Location

GTC’s

Total gross

leasable

area

(sq m)

Expected

completion

Pillar

office

Budapest,

Hungary

100%

29,000

Q4 2021

Sofia Tower 2

office

Sofia,

Bulgaria

100%

8,300

Q2 2022

Total

37,300

4.6.1.3 Overview of investment property landbank

Management has conducted a thorough, asset by asset, review of the whole portfolio, in

parallel to its decision to focus on Group’s new developments efforts, solely on the strongest

markets and, whilst supporting only the projects in its portfolio, which give the strongest mid-

term upside potential, while reducing. Concurrently, the Management decided to reduce the

cash allocation towards projects that has a longer-term investment horizon. The above-implied

re-assessment of some of GTC's landbank projects development timetable and rescheduling

them to a later stage or designating them for sale.

Additionally, in some cases, in view due to the decline in consumption and deteriorating of

purchasing power, the timetable for stabilization of in relevant catchment areas around certain

completed and cash generating assets in SEE, the timeframe for stabilization of had to be re-

assessed, and consequently expectations for stabilized income were deferred.

As of 31 December 2020, the Group had land classified as investment property landbank

designated for future commercial development of €140,367. This landbank, designated for

future commercial development, includes projects on Group`s focus for the coming years.

The following table lists the Group’s projects that are in the planning stage:

Property

Segment

Location

GTC’s

Total gross

leasable area

(sq m)

GTC X

office

Belgrade, Serbia

100%

16,800

Center Point 3

office

Budapest,

Hungary

100%

35,500

The Twins

office

Budapest,

Hungary

100%

38,000

Moderna

office

Katowice, Poland

100%

18,300

City Rose Park

office

Bucharest,

Romania

100%

50,100

Platinium 6

office

Warsaw, Poland

100%

13,500

Matrix future phases

office

Zagreb, Croatia

100%

55,000

Zielone Tarasy

mixed use

Warsaw, Poland

100%

61,000

Total

288,200

The Group’s rich investment property landbank designated for future development allows us

to extend the planned projects in areas where there will be demand for commercial properties.

4.6.2 Residential landbank

As of 31 December 2020, the Group held a residential landbank with a total value of €10,094,

which constituted less than 1% of the Group’s overall portfolio.

4.7 Overview of the markets on which the Group operates

With varying recent and ongoing policy responses to the COVID-19 pandemic across the

region and the mitigating implications differing by market and sector, we provide no assurance

that market conditions will not change unfavorably as a result of future events that are unknown

to us.

This market commentary was prepared by Jones Lang LaSalle IP, Inc. It is based on material that we believe to

be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it

contains no factual errors. We would like to be told of any such errors in order to correct them. Please note, the

below-presented market commentaries are based on information available to us as at 4 February 2021.

4.7.1 Office market

WARSAW

Following several months of the pandemic, the office market’s dynamics, when compared to

the last few years, have changed. Demand for office space in 2020 was 31% lower than in

2019, with the vacancy rate increasing as the year went on. Before the COVID-19 pandemic,

2020 was forecast to experience a new supply peak, demand growth, but an increase in

vacancy rates. In fact, in comparison to the expectations from 2019, office demand decreased

by 29%, with new supply being 26% lower.

In terms of demand for traditional offices in Warsaw in 2020, the total was 602,000 sq m. The

two leading districts, comprising over ⅔ of total demand, are the City Centre and Mokotów.

Furthermore, right now, companies are more likely to renew their leases, and Mokotów looks

set to benefit from this. In 2020, renewals in occupied office buildings accounted for 37% of

tenant activity. During the pandemic, i.e., between Q2-Q4 2020, this increased to

approximately 39%.

For several years, under-construction volume in the Polish capital ranged from between

700,000 sq m and 800,000 sq m. Now it stands at around 500,000 sq m. Developers are much

more cautious about starting new construction, and only a few have done so in the past few

months. In the next 2-3 years, this may create a supply gap in Warsaw, especially outside of

the city centre. This can further boost the appeal of, and competition for, space in best-in-class

buildings located outside of the central parts of Warsaw.

Current market sentiment is, unsurprisingly, having an influence on the vacancy rate. In Q4

2020, it increased to 9.9% in Warsaw (8.5% in Central zones and 10.8% in the Non-Central

zones of the city), which was a 2.1 pp increase in Q4 2019. However, in the mid-term, the

contracting pipeline coupled with future demand growth should contribute to the gradual

absorption of available space.

COVID-19 affected not only the activity of tenants and developers in the office market but

also the strategy of landlords in terms of offered rent rates for office space. Currently, the

highest transaction rents for prime properties in the city centre are stable at €18-24/sq

m/month, and outside the centre stands at €16/sq m/month. Some landlords continue to

have a relatively rigid financial policy regarding the rates they offer, but a growing package

of incentives for tenants is evidently being offered, resulting in lower effective rents.

REGIONAL CITIES POLAND

As a result of the cautious attitude from both developers and tenants, a slowdown in the office

market was observed. Compared to 2019, demand for office space was only 16% lower in

Polish regional markets. However, between the beginning of April and the end of December,

this number was as much as 35% lower y-o-y.

Office space being offered for sublease is currently one of the most visible trends on Poland’s

office market. Out of the approx. 150,000 sq m available for sublease in major office markets

outside Warsaw, 30% is located in Wrocław, followed by Kraków and the Tri-City (with 23%

and 22% respectively). Such offers vary from less than 100 sq m up to approx. 11,000 sq m.

Therefore, both small and large companies can opt for this solution.

The demand for offices in 2020 was 582,200 sq m, of which 38% were renewals of lease

agreements. In fact, from April to December, the share of renewals was as high as 49%.

Currently, an increasing number of companies are deciding to extend their lease agreements

rather than relocate.

In 2020, 36 new buildings offering a total of 393,300 sq m came onto the regional markets.

Under-construction space in the eight major regional markets now totals approx. 700,000 sq

m. It is less than pre- COVID-19 levels when the supply under construction ranged from

800,000 sq m up to 900,000 sq m. This is mainly because developers continue construction

works but have not started new projects.

The overall vacancy rate for the eight regional markets now stands at 12.7%, which is a 3.2 pp

increase y-o-y, and 0.9 pp growth q-o-q. During 2020, the largest increases in the vacancy rate

were recorded in Łódź (5.1 p.p.) and Tri-City (4.6 p.p.). Szczecin boasts the lowest vacancy

rate (6.9%), while the highest rate is currently in Łódź (16.4%).

Currently, the highest rents are quoted in Kraków (€14-15.5/sq m/month), while the lowest are

to be found in Lublin (€10.5-11.5/sq m/month). Due to the increasing vacancy rate and reduced

demand, rental rates are now coming under pressure in the Polish regional cities.

BUDAPEST

The Budapest office market became volatile in the second quarter of 2020, however, the level

of new developments shows an active developer market – completion rate was triple compared

to 2019. The share of renewals is increasing quarter by a quarter due to the current economic

climate, leasing activity is decreasing, and real estate strategies are under reconsideration.

Due to the efficiency of remote working, downsizing and subleasing trends are growing. In line

with the global workplace trends, there is a growing demand for serviced offices which is clearly

reflected in the growing number of new locations and increased sizes of flex operators.

Q4 2020 office market statistics have reflected the ongoing economic restrictions triggered by

the COVID-19 pandemic. Total leasing activity has decreased considerably y-o-y, the number

of transactions has shown a significant reduction. Based on headline rents in the current

availability, only minimal rent correction has been witnessed, mainly in category ‘B’ office

schemes.

In the fourth quarter of 2020, 38,850 sq m of new office space was delivered to the Budapest

office market in 4 schemes. Váci Greens E (22,460 sq m) was handed over in the Váci Corridor

submarket, the Szervita Square building (8,450 sq m) was completed in the CBD, and the

Alphagon office building (4,690 sq m) was handed over in the South Buda submarket. In

addition, the office component of Csalogány 43 (3,250 sq m) was delivered in the Central Buda

submarket.

Despite a few postponed hand-over dates, developers are still active on the market, the

volume of buildings under construction is 441,000 sq m. It became common in the past

quarters that developers cannot complete their buildings for the expected handover-date

partly because of the lack of workforce on the construction sites and due to COVID19.

Developers are more cautious with speculative development in competitive locations.

Therefore, some constructions were postponed in case of planned new developments until

anchor tenant pre-leases. The volume of expected completions in 2021 is 157,900 sq m,

and nearly the double volume is forecasted for 2022 with 283,416 sq m. The total modern

office stock currently adds up to 3.9 million sq m, consisting of 3.3 million sq m of ‘A’ and ‘B’

category speculative office space as well as 614,750 sq m of owner-occupied space. Most

developments are located in the Váci Corridor, Pest Central South, and Buda South

submarkets.

In 2020, we experienced a more active developer market than in 2019, completions increased

to more than triple year-on-year (230%). The newly constructed office buildings were built on

a speculative basis (except for one building), and only 28% of the total delivered space was

available at completion, the remaining spaces were pre-let.

In the last quarter of 2020, total demand reached 86,310 sq m, representing a 9% increase

quarter-on-quarter, however, it is a 57% decrease year-on-year. Renewals still made up the

largest share of total leasing activity with 44%, followed by new leases in the existing stock

with 42%, while expansions of existing premises and pre-leases in new developments

amounted to 7% of the total demand, each. The most active tenant sectors in the market are

IT, professional services, SSCs, and the public sector.

In 2020 annual gross take-up reaching 334,703 sq m while net take-up amounted to 182,627

sq m meaning that more than 42% of the total demand was generated by renewals, and 31%

was generated by new transactions. The owner-occupied stock in 2020 made up only 2% of

the total leasing activity.

In Q4 2020, the office vacancy rate has increased to 9.1% due to handover of new completions,

decreasing demand, the emergence of secondary space and sublease options, representing

an increase of 1.0 p.p. quarter-on-quarter and 3.5 p.p. year-on-year. The proportion of

subleases within the whole vacancy is ca. 15%.

In 2018, prime rent increased by 11% to €25/sq m/month and remained at this level at the end

of 2020. The highest rents are registered in the CBD submarket, the average rents in Budapest

for existing Class ‘A’ buildings are between €13.5-16.5/sq m/month, and in the case of Class

‘B’ buildings between €11.5-12.5/sq m/month.

BELGRADE

Since the beginning of the year, construction of ongoing projects has continued relatively

uninterrupted, despite the ongoing pandemic, whilst the start of construction for some pipeline

projects has been postponed. The second quarter recorded the completion of notable projects

such as Ušće Tower 2 by MPC Properties and the final building of the GTC Green Heart

project, spread over 23,200 sq m and 5,300 sq m, respectively, both located in the central

business district. In Q3 2020, positive signals on the office market are still present from the

supply side with the opening of two smaller-scale projects located in the central business

district, followed by the opening of Navigator Business Center II and Marera Kondina Office

building in October.

The restrictive measures in place due to Covid have resulted in a drop-in leasing activity

similar to other countries. More than 80% of all transactions were closed in New Belgrade,

recognized as the CBD area. The most active sector was IT, followed by consumer goods

and professional services.

The vacancy rate for class A and B offices remained low, standing at 4.5%.

As in other countries, activity in the market has been dominated by contract renewals. The

total stock currently stands at 928,000 sq m whilst prime rents are generally in the range of

€15-16.5/sq m/month.

ZAGREB

The Zagreb office market is developing and maturing. Most of the office stock is in the Centre

of the city, New Zagreb, and the Business District East and West.

The stock of A and B class offices is approximately 1.15 million sq m. After an uptick in activity

recorded at the beginning of 2020 and the completion of the second building within Matrix

Office Park in Business District East, the office market in Croatia slowed down and there were

no new notable completions since.

In the next three years, the average annual supply is likely to be less than 20,000 sq m.

Office vacancy is currently at a record low of below 4% and is expected to remain stable due

to low levels of upcoming new supply.

The total take-up of office space in the first half of the year exceeded 15,000 sq m. The

earthquake in Zagreb contributed to office market activity, as many companies located in older

buildings in the center began to consider the option of moving to more modern office

accommodation. Rental prices for both A and B class offices remained stable, and the market

does not expect major changes in the next quarter. Market activity considering leasing

transactions picked up during the third quarter. During the past two quarters of 2020, market

activity was mostly dominated by relocations, followed by new lease agreements.

Rental levels are currently generally in the range of €13-15.5/sq m/month and are unlikely to

move significantly in the short term.

BUCHAREST

The vaccination campaign against COVID-19 started in Romania on 27 December 2020. A

month later, over 500,000 people already received at least the first of two required vaccine

doses. The COVID-19 pandemic had a profound impact on the economy, for 2020, the GDP

was estimated to have fallen by -4.4%, according to the National Commission for Strategy and

Prognosis.

The latest prognosis issued by the World Bank in January 2021 is slightly more pessimistic,

estimating the country’s economic contraction for 2020 to -5.0% (revised from -5.7% in October

2020). This is to be followed by a 3.5% growth in 2021 (revised from 4.9% in October 2020).

Total gross transaction volume in Bucharest during Q4 2020 reached almost 55,000 sq m.

That represents half the volume recorded during Q4 2019, of over 107,000 sq m. Net take-up

during the period accounted for a little over 21,600 sq m, compared to 83,600 sq m in Q4 2019.

Even though gross take-up decreased by approx. 13% in Q4 2020 compared to the previous

quarter, net take-up increased by almost 50%.

By far, renewals had the largest share in total transactions in Q4 2020, with almost 54%,

followed by relocations, with approximately 17%.

For the entire year 2020, gross take-up totaled approx. 217,500 sq m, corresponding to a 44%

decrease when compared to 2019. However, net take-up in 2020 reached only 71,400 sq m,

marking a 65% drop from the level recorded during the previous year.

The vacancy rate continued to increase in Q4, from approx. 10.9% during the previous quarter,

to 11.3%.

For the last three consecutive quarters of 2020, the office market has been severely affected

by the uncertainty caused by the COVID-19 pandemic and the measures taken to contain

the spread of the virus. While analyzing the impact of the work from home approach and

waiting for an end to the pandemic, many companies postponed their decision with regards

to renting additional office space. We expect market sentiment to gradually improve during

2021, as more and more people will be vaccinated against COVID-19 and companies will

start recalling their employees at the office.

Deliveries during Q4 2020 totaled 31,200 sq m, bringing the Bucharest modern office stock to

almost 2.96 million sq m. Overall, the office stock expanded by 155,200 sq m during 2020,

compared to 286,400 sq m in the previous year, representing an almost 46% decrease. The

largest projects were delivered in North-West Expozitiei and Dimitrie Pompeiu sub-markets,

accounting for almost half of total deliveries in 2020.

By far, the largest delivery during Q4 was One Tower, the 23,900 sq m GLA office building in

the mix-use project One Floreasca City, developed by One United Properties in the Floreasca

– Barbu Vacarescu sub-market.

After the decrease in 2020, office deliveries are expected to bounce back in 2021 to a volume

close to the one registered in 2019. The pipeline for 2021 totals almost 252,000 sq m. Close

to 43% of planned deliveries are in the Center-West sub-market, followed by the Center, with

16%, and the CBD, with approximately 12%.

The largest delivery expected for 2021 is the first phase of the One Cotroceni Park project,

developed by One United Properties, adding approximately 45,000 sq m GLA to the Center-

West sub-market.

Whilst prime headline office rents in Bucharest remained stable at €18.50/sq m/month, four

sub-markets out of the eleven sub-markets of Bucharest experienced a fall of €0.5-1/sq

m/month in prime rents over the fourth quarter. The rental decrease in these sub-markets came

off the back of additional supply, which increased the vacancy in these areas and put further

pressure on rents. We also observe that incentive packages have become more

commonplace, which will lead to lower net effective rents.

SOFIA

The second half of the year recorded the opening of five new buildings, predominately within

the suburban area, followed by a broad center and CBD. The largest among them was the

second phase of Advance Business Center with its 17,500 sq m. From there on, a 15,000 sq

m mixed-use project GORA was completed, followed by three smaller-scale projects Business

House, Vitorio Pozitano business center, and a smaller scale owner-occupied scheme,

presenting around 9,000 sq m in total.

Based on the volume of currently active projects in the pipeline, Sofia remains the most

dynamic office market in the region. With over 300,000 sq m under construction, more than

a half is expected to be delivered during the first half of the year 2021, from which the

majority will take place in the suburban areas and the broad center, with Tsarigradsko

Shosse as the hotspot of the activity.

With an increase in supply towards the end of the year, the vacancy level recorded a slight

increase, standing at 11%, while the prime rent remained stable.

In Q2 and Q3 2020, the office market in Sofia faced a significant slowdown due to the economic

uncertainty caused by COVID-19. Most of the inquiries and new leases were terminated or

deferred until the situation will improve. With 107,832 sq m gross leasing volume, 2020 was

the weakest of the last five years for the office market in Sofia.

Currently, companies are putting short-term expansion plans on hold and are considering the

option of letting more employees work from home going forward.

Prime headline office monthly rents have been stable at €15-16/sq m/month, however,

landlords are under pressure and are offering more incentives than previously, therefore

driving the net-effective rates to lower levels.

New office construction is on hold and is not expected to begin in the short term until the

COVID-19 impact on the economy is clear, and the pandemic has passed.

The current modern stock in Sofia was almost 2.3 million sq m as of the end of 2019, of which

71% is considered class A. Following the completion of Building C in Garitage Park, Sofia

Office.

4.7.2 Retail market

GENERAL

Retail sales in many countries across the Eurozone had recovered to pre COVID-19 levels by

July. As harsh national lockdown restrictions eased, a strong bounce-back in retail sales and

consumer spending occurred over May and June as consumers made up for the lost time.

However, retail sales continue to be propped up by the closure of other avenues or outlets for

spending. Moreover, where there has been a drop in sales during the lockdown, there are few

signs of pent-up demand being released across all retail sectors.

Over the longer-term, the developing markets of the CEE/SEE region are anticipated to see

retail sales above Eurozone levels. Poland, the Czech Republic, and Hungary are forecast to

see retail sales increase by 3.4%, 2.8%, and 2.5%, respectively, on an annual basis. The more

developed markets of Germany, the UK, the Netherlands, Spain, and Italy are expected to see

average annual retail sales growth until the end of 2024 at levels nearer the wider Eurozone

region (1.4%), accounting for 1.8%, 1.8%, 1.6%, 1.2%, and 0.2% respectively.

Retail Sales Growth Forecast Europe 2020-2024 (% p.a.)

Source: Oxford Economics (October 2020)

The recovery in European retail sales is favoring retail warehouse parks above high street

locations and major shopping centers. Retail parks are outperforming high street, and

shopping centers as consumers find the convenience of easy parking and safe traveling more

appealing than using public transport into inner-city areas.

Across all retail sectors, online sales growth remained significantly above pre-COVID-19

levels. Various electronic goods retailers, DIY-stores, and furniture specialists have particularly

benefitted from pent-up demand as a large number of consumers spent money that they would

have otherwise used on holidays or entertainment.

WARSAW

The last twelve months were marked by three lockdowns that helped change the shopping

habits of Poles, lower developer activity, and increase the popularity of smaller retail formats.

The local and convenience trend, which existed before COVID-19, has been boosted by the

pandemic and is reflected in the new retail supply. In 2020, developers in Poland completed

430,000 sq m of modern retail space both in large-scale projects (GLA > 5,000 sq m) and

convenience centers (GLA of between 2,000 sq m and 4,999 sq m).

Of the new space delivered in 2020, 41% was located in retail parks and another 28% in

convenience centers. Shopping centers which are still the most widespread format on the

market delivered a mere 86,000 sq m (20% of the new retail space).

In Warsaw, Elektrownia Powiśle mixed-use project was opened (15,500 sq m of GLA). In Q4

2020, Designer Outlet in Piaseczno was extended by the additional 5,500 sq m of GLA (what

accounts for 1/3 of already existing retail space) and 30 shopping units.

As a result, the total modern retail stock in Poland, covering large scale formats and

convenience centers, stood at a total of 15.9 million sq m of GLA at the end of 2020. Four

hundred and fourteen shopping centers account for 9.97 million sq m of that space, equating

to a shopping center density of 260 sq m per 1,000 people.

In line with growing market maturity, developer activity is slowing down. Approximately 406,000

sq m of GLA was under construction at the year’s end in Poland, confirming this trend. Retail

parks and standalone retail warehouses account for the largest shares in the under-

construction retail space (36% and 30%, accordingly).

Along with the government restrictions placed on shopping centers, the share of e-

commerce has been fluctuating over the last few months, reaching a peak of 11.9% in total

retail sales in April 2020, when the most severe lockdown was in force. Although e-

commerce is now very much developing in Poland, traditional retailing is still the first choice

for most consumers.

2020 was a challenging year in terms of rental conditions, too. Mutual obligations between

landlords and tenants were temporarily suspended, according to legal regulations. Retailers

who had to cease operations were released from rent and service charge payments, being

obliged to prolong lease agreements for a period of lockdown plus six months.

Prime rents in Warsaw, defined as rents for a 100 sq m unit for a fashion and accessories

sector tenant noted in the best shopping centers in the market, in 2020 stood at the level of

€115 -125/sq m/month, which is the highest number recorded in Poland.

In 2020, on top of the statutory regulations, as a result of the negotiations between the parties,

many tenants received from landlords the so-called COVID discounts, which were usually

spread over several months and lasted until the end of 2020. Due to the 2nd lockdown in

November, the 3rd lockdown extended by 31 January 2021, further demands for reductions

were received and are under discussion. However, it has to be noted that the statutory

regulations negatively impacted the financial condition of shopping centers’ owners, who in

addition are not included in any of the governmental financial support programs.

BELGRADE

Similar to other countries, the retail market in Serbia and Belgrade, in particular, has been

affected by government measures but began to improve in early May when shopping malls

started to reopen and also during the whole third quarter of 2020. During the 2

wave, the

shopping malls remained open with limited conditions, and footfalls were stronger than

during the 1

wave.

At the same time, there were no major disturbances and interruptions in construction activities

and some significant projects were delivered during the second quarter of the year. The most

significant of these was the BEO Shopping Centre by MPC Properties, with over 43,000 sq m

of space. In addition, RC Reinvest completed the 4,400 sq m of the second phase of NEST

Kraljevo. Q3 saw the soft opening of iBW Galerija with over 90,000 sq m within the new city

core known as Belgrade Waterfront, becoming the largest retail scheme in the country. The

construction of West 65 Mall is progressing, which will provide more than 100,000 sq m.

The second quarter of 2020 witnessed new market entries, including German multi-brand

chain Peek & Cloppenburg, which opened its store in BEO Shopping Centre, while the French

children’s clothing brand, Jacadi opened its first store in the city center. The third quarter of the

year recorded the market entrance of notable Polish retailer Pepco, which opened two stores

in Belgrade.

Average prime rental rates currently stand at approximately €26-28/sq m/month. Total stock in

the market amounts to 421,000 sq m representing a density of 254 sq m per 1,000 inhabitants.

ZAGREB

The COVID-19 pandemic has dramatically disrupted the retail sector in Zagreb. Because of

lockdown measures, retailers have turned to flexible omnichannel retail models to offset the

loss of revenue from their physical stores and to protect the future of their businesses. During

the 2

wave, the shopping malls remained open with limited conditions, and footfalls were

stronger than during the 1

wave.

The relaxation of restrictions at the end of April led to increased turnover in retail, with a 22%

rise in consumption in the first week of eased measures. Croatia was among those EU

countries with the strongest recovery in retail trade in May, considerably above the EU

average according to Eurostat. Despite the recent outbreak, the market recorded several

entries, including Italian supermarket chain Eurospin, which opened its store in Zadar.

Another major brand that marked its first opening on the market was Domino’s fast-food

chain in Zagreb.

Total shopping mall floorspace in Zagreb is 510,000 sq m. Shopping center density in Zagreb

is about 645 sq m per 1,000 inhabitants. In recent years negotiation strength in the shopping

center market in Zagreb has been with occupiers. However, with the improvement of economic

and market conditions, we have noted shopping centers are stabilizing their position in the

market, and there has been a fundamental shift by occupiers to the higher quality and better

performing schemes.

The construction of Supernova Požega and Kaptol center in Zagreb is underway. Z Centar

shopping center in Špansko district of Zagreb is ongoing, with completion scheduled for 2021.

It is being developed by Sensa Nekretnine and will extend over 30,000 sq m, featuring 70

stores, a nine-screen cinema, and other entertainment content.

Since the beginning of the year, retailer activity has been moderate with no new market entries.

At the same time, there has been a trend for tenants to relocate from the CBD High street

market to shopping centers constructed according to modern standards. This trend is a result

of the earthquake that occurred in spring 2020 and caused structural damage to many

historical buildings located in the CBD.

Average prime shopping centre rental rates are currently approximately €19-21/sq m/month.

SOFIA

Total modern retail stock in Bulgaria, including shopping centers, retail parks, and outlet

centers, is approximately 1 million sq m, of which 540,500 sq m is in Sofia. Shopping centre

stock accounts for approximately 400,000 sq m of this total gross lettable area, and thus,

shopping centre density in Sofia is around 320 sq m per 1,000 inhabitants.

Continuing the same trend as 2019, no new shopping centers have been delivered to date in

2020 in Sofia. Currently, developers’ focus is shifting from shopping centers towards retail

parks.

The largest new shopping centre projects planned for Sofia, totaling 104,750 sq m of gross

lettable area, are on hold for the moment. These are Plaza West Mall, Grand Kanyon and Sofia

Square.

The retail market is the segment that has taken the greatest hit during the COVID-19 crisis.

Most shops, restaurants, and shopping centers were closed for two months. This initiated a

process of renegotiation of certain lease agreements. Discounts were negotiated with

tenants on a case-by-case basis, offering discounts from the base rent or for some tenants

turnover rents were applied until the end of 2020.

With some minor exceptions, tenants have witnessed reduced revenues. Retail sales plunged

in March and April, especially for non-food goods due to the COVID-19 restrictions, and many

shops, malls, restaurants, cafes, and others were closed. Only retailers for first-hand goods

remained open such as gas stations, banks, pharmacies, and grocery stores.

Considering the impact of the coronavirus pandemic, the focus in the operation of shopping

centers will shift towards the fine-tuning of the tenant mix, the substitution of retailers who fail

to sustain the pandemic, and as such, taking measures to cut operational expenses.

Average rental levels in shopping centers are in the approximate current range of €17-21/sq

m/month, with prime rental levels at €40/sq m/month.

4.8 Information on the Company’s policy on sponsorship, charity, and other similar

activities.

The Group is a responsible developer, and asset manager focused on sustainability. All its

corporate social responsibility activities are run in a coordinated manner to support local

communities in which the Group operates. Such support involves:

 Enhancement of local infrastructure, including road and traffic infrastructure. The

infrastructure created in connection with or for the purposes of the developments

constructed is handed over to the local self-government free of charge to be used by

all residents. Moreover, prior to the development of the Group’s projects, public green

areas (such as squares and parks) are placed on undeveloped plots or plots which will

surround future developments following their completion by the Group.

 Local initiatives. The Group participates in and supports local initiatives such as:

- help for medics due to COVID-19 pandemic;

- commissioning the plot for use by the authorities as part of COVID-19 testing

initiative

- support Red Cross with providing a place for blood donations;

- promotion of

 local businesses by continuously providing organic and home-made

products for all visitors,

- supporting charity organizations by continuously providing lease free positions

for humanitarian associations and charities;

- organization of charity Christmas fairs in office buildings;

- sponsoring of sports activities:

 a humanitarian race “Zagreb Love Run” - all the money collected is used

as a donation for “Oblačič” association, a charity aimed to help children

with growth disorders;

 the 1st Santa Claus Run in Galeria Jurajska - promotion of a healthy

lifestyle

 the North Bridge Run (“Bieg przez Most”) - promotion of a healthy

lifestyle;

 participation of Galeria Północna in Night Bicycle Race;

 Beach Volleyball tournament - Cup of Silesia;

 Cadet Championship in beach volleyball in Galeria Jurajska.

Additionally, Group conducted several local initiatives via its shopping malls:

- Ada Mall created a “Reading corner” – free library in common space in

the mall bringing back the importance of the culture and free education

to everyone;

- Mall of Sofia involved in the initiative “The good in the heart of the city”

which supports people in need. The charity campaign provided more

than 900 boxes of food which were distributed among people from the

community who belong to the most vulnerable groups;

- Avenue Mall Zagreb served as a training place for “The Rehabilitation

Centre Silver” in – which trains assistance dogs for disabled persons

and children with developmental difficulties.

 Embracing environmental certification. Out of concern for the environment, the

investments of the Company and the Group are fully compliant with LEED or BREEAM

guidelines. As at the end of 2020, approximately 84% of our properties holds a green

certificate, which proves the sustainability of the properties that GTC develop and

manage.

5. Operating and financial review

5.1 General factors affecting operating and financial results

GENERAL FACTORS AFFECTING OPERATING AND FINANCIAL RESULTS

The key factors affecting the Group’s financial and operating results are discussed below. The

Management believes that the following factors and important market trends have significantly

affected the Group’s results of operations since the end of the period covered by the latest

published audited financial statements, and the Group expects that such factors and trends

will continue to have a significant impact on the Group’s results of operations in the future.

ECONOMIC CONDITIONS IN CEE AND SEE

The economic crisis may slow down the general economy in the countries where the Group

operates. The economic downturn in those countries may result in reduced demand for

property, growth of vacancy rates, and increased competition in the real estate market, which

may adversely affect the Group’s ability to sell or let its completed projects at their expected

yields and rates of return.

The reduced demand for property that, on the one hand, may result in a drop in sales dynamics,

and, on the other, an increase in vacancy rates and lower rent revenues from leased space,

may significantly impact the results of operations of the Group. Specifically, the Group may be

a force to change some of its investment plans. Additionally, the Group may not be able to

develop numerous projects in the countries where it operates.

REAL ESTATE MARKET IN CEE AND SEE

The Group derives the majority of its revenue from operations from rental activities, including

rental and service revenue. For the year ended 31 December 2020 and for the year ended 30

December 2019, the Group derived 75% and 75% of its revenues from operations as rental

revenue, which greatly depends on the rental rates per sq m and occupancy rates. The amount

the Group can charge for rent largely depends on the property’s location and condition and is

influenced by local market trends and the state of local economies. The Group’s revenue from

rent is particularly affected by the delivery of new rent spaces, changes in vacancy rates, and

the Group’s ability to implement rent increases. Rental income is also dependent upon the time

of completion of the Group’s development projects as well as on its ability to let such completed

properties at favorable rent levels. Moreover, for the year ended 31 December 2020 and for

the year ended 30 December 2019, the Group derived 25% and 25% of its revenues from

operations as service revenue, which reflects certain costs the Group passes on to its tenants.

The vast majority of the Group’s lease agreements are concluded in Euro and include a clause

that provides for the full indexation of the rent linked to the European Index of Consumer

Prices. When a lease is concluded in another currency, it is typically linked to the consumer

price index of the relevant country of the currency.

REAL ESTATE VALUATION

The Group’s results of operations depend heavily on the fluctuation of the value of assets on

the property markets. The Group revalues its investment properties at least twice per year.

Any change in the fair value of investment property is thereafter recognized as a gain or loss

in the income statement.

The following three significant factors influence the valuation of the Group’s properties: (i) the

cash flow arising from operational performance, (ii) the expected rental rates, and (iii) the

capitalization rates that result from the interest rates in the market and the risk premiums

applied to the Group’s business.

The cash flow arising from the operational performance is primarily determined by current

gross rental income per square meter, vacancy rate trends, total portfolio size, maintenance

and administrative expenses, and operating expenses. Expected rental values are determined

predominantly by expected development of the macroeconomic indicators as GDP growth,

disposable income, etc. as well as micro conditions such as new developments in the

immediate neighborhood, competition, etc. Capitalization rates are influenced by prevailing

interest rates and risk premiums. In the absence of other changes when capitalization rates

increase, market value decreases and vice versa. Small changes in one or some of these

factors can have a considerable effect on the fair value of the Group’s investment properties

and on the results of its operations.

Moreover, the valuation of the Group’s landbank additionally depends on, among others, the

building rights and the expected timing of the projects. The value of landbank, which is

assessed using a comparative method, is determined by referring to the market prices applied

in transactions relating to similar properties.

The Group recognized a net loss from revaluation and impairment of assets of €142,721 in the

year ended 31 December 2020 and €16,190 net gain from revaluation and impairment of

assets in the year ended 31 December 2019.

IMPACT OF INTEREST RATE MOVEMENTS

Substantially all of the loans of the Group have a variable interest rate, mainly connected to

EURIBOR. Increases in interest rates generally increase the Group’s financing costs. As at 31

December 2020, 95% of the Group’s borrowings are hedged. In addition, in an economic

environment in which availability of financing is not scarce, demand for investment properties

generally tends to increase when interest rates are low, which can lead to higher valuations of

the Group’s existing investment portfolio. Conversely, increased interest rates generally

adversely affect the valuation of the Group’s properties, which can result in recognition of

impairment that could negatively affect the Group’s income.

Historically, EURIBOR rates have demonstrated significant volatility, changing from 1.343%

as of 2 January 2012, through 0.188% as of 2 January 2013, to 0.284% as of 3 January 2014,

0.076% as of 2 January 2015, and -0.132% as of 4 January 2016, -0.318% as of 2 January

2017, -0.329% as of 2 January 2018, -0.310% as of 2 January 2019, -0.379 % as 2 January

2020 and -0.546% as 2 January 2021 (EURIBOR for three-month deposits).

IMPACT OF FOREIGN EXCHANGE RATE MOVEMENTS

For the twelve-month period ended 31 December 2020 and for the twelve -month period ended

31 December 2019, a vast majority of the Group’s revenues and costs were incurred or derived

in euro. Nonetheless, the exchange rates against euro of the local currencies of the countries

in which the Group operates are an important factor as the credit facilities that are obtained

may be denominated in either euro or local currencies.

The Group presents its financial statements in euro, its operations, however, are based locally

in Poland, Romania, Hungary, Croatia, Serbia, Bulgaria, and other countries. The Group

receives the vast majority of its revenue from rent denominated in euro, however, it receives a

certain portion of its income (including the proceeds from the sales of residential real estate)

and incurs most of its costs (including the vast majority of its selling expenses and

administrative expenses) in local currencies, including the Polish zloty, Bulgarian leva,

Croatian kunas, Hungarian forints, Romanian lei, and Serbian dinars. In particular, the

significant portion of the financial costs incurred by the Group includes: (i) the interest on the

bonds issued by the Group in Polish zloty, (ii) the interest on the bonds issued by the Group in

Hungarian forints and (iii) the interest on the loan taken by the Group in Hungarian forints. The

exchange rates between local currencies and the euro have historically fluctuated. The Group

hedges its foreign exchange exposure.

The income tax expense (both actual and deferred) in the jurisdictions in which the Group

conducts its operations is incurred in such local currencies. Consequently, such income tax

expense was and may continue to be materially affected by foreign exchange rate movements.

2 January

2012

2 January

2013

3 January

2014

2 January

2015

4 January

2016

2 January

2017

2 January

2018

2 January

2019

2 January

2020

2 January

2021

1,34%

0,19%

0,28%

0,08%

-0,13%

-0,32%

-0,33%

-0,31%

-0,38%

-0,55%

EURIBOR for three-month deposits

Accordingly, the foreign exchange rate movements have a material impact on the Group’s

operations and financial results.

AVAILABILITY OF FINANCING

In the CEE and SEE markets, real estate development companies, including the companies

of the Group, usually finance their real estate projects with proceeds from bank loans, loans

extended by their holding companies, or the issuance of debt securities. The availability and

cost of procuring financing are of material importance to the implementation of the Group’s

projects and for the Group’s development prospects, as well as its ability to repay existing debt.

Finally, the availability and cost of financing may impact the Group’s development dynamics

and the Group’s net profit.

In the past, the principal sources of financing for the Group’s core business included, apart

from proceeds from asset disposals, bank loans, and proceeds from bonds issued by the

Company.

5.2 Specific factors affecting financial and operating results

COVID-19

The Covid-19 pandemic has triggered a wave of strong negative effects on the global

economy. The lockdowns brought a large part of the world’s economic activity to an

unparalleled standstill: consumers stayed home, companies lost revenue, and terminated

employees – which, consequently, led to a rise in unemployment. Rescue packages by

national governments and the EU, as well as supporting monetary policies by the European

Central Bank have been implemented to moderate the economic impact of the pandemic.

However, the scope and duration of the pandemic and possible future containment measures

are still impossible to predict. From mid-March 2020, it became apparent that the economic

disruptions caused by the Covid-19 virus and the increased market uncertainty combined with

increased volatility in the financial markets might lead to a potential decrease in rental

revenues, a potential decrease in the Company assets’ values, as well as impact on the

Company’s compliance with financial covenants. While the exact effect of the coronavirus is

still to be determined, it is clear that it poses substantial risks

CLOSING AND REOPENING OF THE GROUP’S SHOPPING CENTRES

The COVID-19 pandemic has significantly impacted the Company’s business. Following the

outbreak of the COVID-19 pandemic, the authorities in many of the markets the Group

operates in imposed restrictions on the opening of its shopping centres. Except for select

“essential” retailers, or those able to offer curb side pickup or fulfill delivery orders from the

store. The tenants in the Group’s centres were unable to trade for a period beginning mid-

March and ending between beginning-May and end-May depending on the country, and later

in the period between beginning-November and ending end-December and end-January. In

addition, even in those regions in which there were no mandatory shutdowns, or when

shopping centres were allowed to reopen, not all retailers continued or restarted operations.

As at 31 December 2020, shopping centres in Poland and Bulgaria were closed. These centres

contributed 69% of total retail rental revenue for 2020.

RENT DISCOUNTS AND COLLECTION

In several countries of our operations, governments adopted tenant support packages, such

as a rental payments holiday in Poland for the period of lockdown or rent support through

subsidizing part of any rental discounts. Upon the re-opening of its shopping centres, the

Group engaged tenants in discussions about collecting rent and service charges as well as

the terms of any support by the Group. The Group implemented multi-pronged measures to

support tenants and encourage consumer spendings, such as reducing rent, allowing rent

payment in instalments, waiving late payment interest and service charges. The financial

impact of this in terms of loss of rent and service income related to the COVID-19 amounted

to €14,700. Overall, we have collected 99% of the rent originally due for the year ended 31

December 2020 (99% for offices and 97% for retail).

VALUATION OF INVESTMENT PROPERTIES

As for each year end, investment properties have been valued by external independent

appraisers as described in the Note 17 Investment properties in the audited consolidated

financial statements for the year ended 31 December 2020. Those appraisals have been

performed in a context of the current COVID-19 pandemic characterised by lack of transactions

since the outbreak of the pandemic and difficulties to estimate future market prospects.

The increased uncertainty and increased volatility in the financial markets have negatively

affected the investment properties of the Group and might have an effect in the future asset

valuations, as well as impact on the Company’s compliance with financial covenants. While

the exact effect of the coronavirus is unknown and unknowable, it is clear that it poses

substantial risks of reduction of income, increasing yields, increasing collection costs, and FX

volatility.

During the financial year end 31 December 2020, the valuation of the investment properties

decreased by €142,721 (for details please refer to note 17 in the audited consolidated financial

statements for the year ended 31 December 2020.) which led to a breach of certain covenants:

- With respect to a €175,404 loan from Bank Pekao SA on 17 September 2020, a whole

owned subsidiary of the Company, operating the Galeria Północna project, entered into

an annex to a loan agreement with the bank in order to relax the DSCR (debt service

coverage ratio) covenant and to cure the LTV (loan-to-value) covenant breach.

According to the annex, the subsidiary repaid in advance a part of outstanding loan in

the amount of EUR 9,500 and agreed to repay additionally up to €3,000 within 12

months of the date of the Annex. As of the date of this report the financial covenants

are cured.

- With respect to a €125,125 loan from Erste Group Bank AG and Raiffeisenlandesbank

Niederosterreich-Wien AG granted to a whole owned subsidiary of the Company,

operating the Galeria Jurajska, the DSCR covenant was waived until the end of June

2021.

- With respect to a €58,256 loan from Banka Intesa ad Beograd, Vseobecna Uverova

Banka a.s. and Privredna Banka Zagreb d.d. granted to a whole owned subsidiary of

the Company, operating the Ada Shopping Mall, the DSCR covenant was waived by

the banks until the end of June 2021. In addition the LTV (loan-to-value) covenant was

waived by the banks until the end of December 2021.

LIQUIDITY POSITION

During the COVID-19 pandemic, the Group took immediate steps to preserve its strong liquidity

position in light of the uncertain impact of the pandemic. These steps included cost and CAPEX

measures, as well as the decision to retain profit for the year ended 31 December 2019 in the

Company. As of 31 December 2020, the Group holds cash in the amount of €271,996.

The Group runs stress tests, which indicated that the going concern assumption remains valid

for at least 12 months from the financial statement publication date.

The Group is continuously assessing the situation and undertakes mitigating steps to reduce

the impact that may be caused by the adverse market situation.

OTHER

On 13 February 2020, the Group signed with Erste and Raiffeisen banks a loan agreement,

which refinanced the existing loan of Galeria Jurajska with a top-up of €46,000, to a total of

€130,000.

In March 2020, GTC Group completed the construction of the Green Heart N3 (5,400 sq m)

office building in Belgrade.

In July 2020, Dorado 1 EOOD, a wholly-owned subsidiary of the Company has started the

construction of an office building (Sofia Tower 2) in Sofia, Bulgaria. The project shall consist

of 8,300 sq m of leasable area.

On 27 August 2020, the general’ meeting of the Company decided not to distribute dividend

for 2019.

In September 2020, the Group acquired the remaining 20% in Marlera Golf LD d.o.o. for a

consideration of €2,800, €1,800 of which was paid in September 2020 (the remaining part of

€1,000 will be paid upon completion of certain conditions). Following the transaction GTC

remained the sole owner of the subsidiary. As a result of the transaction, the NCI increased by

€3,600 and the capital reserve decreased by €6,400. Consequently, the total equity decreased

by €2,800.

On 20 October 2020, Spiral I Kft., an indirect wholly owned subsidiary of the Company, signed

a sale and purchase agreement for the sale of Spiral office building for consideration of

€62,700. On 5 November 2020 all conditions precedent for the sale were concluded and the

purchase price was paid in full. In parallel with the Closing Spiral I kft repaid the full outstanding

amount of the loan with Erste Bank.

In October 2020, the Group completed the construction of office building Advance Business

Center II (17,800 sq ,) in Sofia.

In November 2020, the Group completed the construction of office building Matrix B (10,700

sq m) in Zagreb.

On 13 November 2020, GTC Future Kft, a newly established wholly owned subsidiary acquired

a land plot from a subsidiary related to the majority shareholder with an existing old office and

industrial buildings in Vaci Corridor in Budapest for a total amount of €21,350. The buildings

have total leasable area of 12,000 sq m (GLA 8,200 sq m). m. The Company plans to demolish

the buildings and develop office buildings in phases with a total leasable area of 64,000 sq m.

On 7 December 2020 GTC Real Estate Development Hungary Zrt. issued 10 years green

bonds with the total nominal value of €110,000 denominated in HUF to finance real estate

acquisition, redevelopment and construction projects as well as refinance existing debt by the

issuer and guarantor (or other members of the guarantor’s group). The bonds are fully and

irrevocable guaranteed by the Company and were issued at yield of 2.33%. with an annual

fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7

year with the

70% of the value paid at the maturity on 7 December 2030.

On 8 December 2020, GTC Real Estate Development Hungary Zrt. entered into cross-

currency interest swap agreements with three different banks to hedge the total green bonds

liability against foreign exchange fluctuations. The green bonds were fixed to the Euro and the

fixed annual coupon was swapped for an interest fixed rate of 0.99%.

5.3 Presentation of differences between achieved financial results and published

forecasts

The Group did not publish forecasts for 2020.

5.4 Statement of financial position

5.4.1 Key items of the statement of financial position

INVESTMENT PROPERTY

Investment properties that are owned by the Group comprise office and commercial space,

including property under construction. Investment property can be split up into (i) completed

investment property; (ii) investment property under construction; (iii) investment property

landplots, and (iv) right of use.

RESIDENTIAL LANDBANK

The Group classifies its residential inventory as current or non-current assets based on their

development stage within the business operating cycle. The normal operating cycle, in most

cases, falls within a period of one to five years. The Group classifies residential inventory, the

development of which is planned to be commenced at least one year after the balance sheet

date as residential landbank, which is part of its non-current assets.

INVESTMENT IN ASSOCIATES AND JOINT VENTURES

Investment in associates and joint ventures is accounted for pursuant to the equity method.

Such investment is carried in the statement of financial position at cost plus post-acquisition

changes in the Group’s share of the net assets of the associate and joint ventures.

ASSETS HELD FOR SALE

Assets held for sale comprise office or retail space and land plots that are designated for sale.

BLOCKED DEPOSITS

Short-term blocked, and long-term blocked deposits are restricted and can be used only for

certain operating activities as determined by underlying contractual undertakings.

DERIVATIVES

Derivatives include hedge instruments held by the Group that mitigates the risk of interest and

currency rate fluctuations. In relation to the instruments qualified as cash flow hedges, the

portion of gain or loss on the hedging instrument that is determined to be an effective hedge is

recognized directly in other comprehensive income, and the ineffective portion (if any) is

recognized in net profit or loss. The classification of hedges in the statement of the financial

position depends on their maturity. For derivatives that do not qualify for hedge accounting,

any gain or losses arising from changes in fair value are recorded directly in net profit and loss

for the year. The fair value of interest rate swap contracts is determined by calculating the

present value of cash flows of each leg of the transaction, taking into account several risk

statistics.

5.4.2 Financial position as of 31 December 2020 compared to 31 December 2019

ASSETS

Total assets decreased by €41,985 (2%) to €2,480,757 as of 31 December 2020 from

€2,522,742 as of 31 December 2019. The decrease was mainly due to the devaluation of

investment property resulting from the impact of the COVID-19 outbreak combined with

disposal of properties, partially offset by an increase in cash and cash equivalents as a result

of the issuance of the bonds under the Founding for Growth Scheme.

The value of investment property and investment property landbank decreased by €121,902

(5%) to €2,125,128 as of 31 December 2020 from €2,247,030 as of 31 December 2019, mainly

due to the impact of the COVID-19 outbreak on retail activity of the Company which lead to

decrease in value of the properties of €140,913 combined with disposal of Spiral office building

(Budapest, Hungary) and non-core land plots with the total value of €63,149. The decrease

was partially offset by an investment of €67,695 mostly into assets under construction: Green

Heart, Advance Business Center II, Matrix B, Pillar and Sofia Tower 2 and an acquisition of a

landplot with completed building for €22,102

The value of assets held for sale increased to €1,580 as of 31 December 2020 from €0 as of

31 December 2019 mainly as a result of reclassification of non-core land plots to assets held

for sale.

The value of short-term blocked deposits decreased by €5,597 (17%) to €27,434 as of 31

December 2020 from €33,031 as of 31 December 2019 mainly as a result of a release of

retention deposit related to construction works in Ada Mall.

The value of cash and cash equivalents increased by €92,360 (51%) to €271,996 as of 31

December 2020 from 179,636 as of 31 December 2019 mainly as a result of bond issue with

the total value of €110,000, disposal of Spiral office building with net proceeds before tax

payment of €44,000 (after the repayment of related loan) and refinancing of loan related to

Galeria Jurajska with the top-up of €46,000 (€40,989 as at 31 December 2020) partially offset

by repayment of bonds in the amount of €68,600 and investment (net of loans received) in

planned projects and projects under construction of approximately €30,562.

LIABILITIES

The value of loans and bonds increased by €55,070 (5%) to €1,261,292 as of 31 December

2020 from €1,206,222 as of 31 December 2019. This increase comes mainly from bond issue

with the total value of €110,000, refinancing of loan related to Galeria Jurajska with the top-up

of €46,000 (€40,989 as at 31 December 2020) and drawdown of loans for projects under

construction of €42,043, partially offset by repayment of bonds in the amount of €68,600 and

Spiral loan in amount of €18,645 combined with repayment of existing loans in the amount of

€48,037.

The value of lease liability (incl. current portion of lease liabilities) decreased by €3,376 (7%)

to €43,054 as of 31 December 2020 from €46,430 as of 31 December 2019, mainly due to

foreign exchange gain, resulted from devaluation of local currencies.

The value of derivatives increased by €12,910 (203%) to €19,260 as of 31 December 2020

from €6,350 as of 31 December 2019, mainly due to foreign exchange differences on hedged

liabilities, resulted from devaluation of local currencies in amount of €5,427 (this loss offset a

foreign exchange differences profit in an amount of €5,427 on bonds nominated in PLN and

HUF), and a loss in the amount of €7,748 relates to hedge of interest rate mainly from a cross

currency swap established for the green bonds.

Provision for deferred tax liability decreased by €14,002 (10%) to €133,230 as of 31 December

2020 from €147,232 as of 31 December 2019 mainly due to the decrease in fair value of

investment property from the Covid-19 outbreak impact.

Investment and trade payables and provisions decreased by €9,991 (27%) to €27,299 as of

31 December 2020 from €37,290 as of 31 December 2019 mainly due a decrease in payables

related to development activities (Ada Mall and Matrix B).

EQUITY

The amount of accumulated profit decreased by €70,189 (13%) to €460,053 as of 31

December 2020 from €530,242 as of 31 December 2019, following recognition of loss for the

period in the amount €70,861.

The value of foreign currency translation decreased by €3,496 to €2,553 loss as of 31

December 2020 from €943 gain as of 31 December 2019, mainly due to devaluation of local

currencies.

The value of hedge reserve increased by €6,936 (139%) to €11,930 as of 31 December 2020

from €4,994 as of 31 December 2019, mainly due to hedging of foreign exchange rate

fluctuations for bonds in PLN and HUF and devaluation of corresponding local currencies.

The value of capital reserve increased by €6,391 (15%) to €49,489 as of 31 December 2020

from €43,098 as of 31 December 2019, mainly due to acquisition of non-controlling interest in

Marlera.

Equity decreased by €84,514 (8%) to €974,148 as of 31 December 2020 from €1,058,662 as

of 31 December 2019 mainly due to a decrease in accumulated profit in the amount of €70,861,

following recognition of loss during the period.

5.5 Consolidated income statement

5.5.1 Key items of the consolidated income statement

REVENUES FROM OPERATIONS

Revenues from operations consist of:

 rental income, which consists of monthly rental payments paid by tenants of the

Group’s investment properties for the office or retail space rented by such tenants.

Rental income is recognized as income over the lease term;

 service income, which comprises fees paid by the tenants of the Group’s investment

properties to cover the costs of the services provided by the Group in relation to their

leases.

COST OF OPERATIONS

Costs of operations consist of:

 service costs, which consist of all the costs that are related to the management

services provided to the individual tenants within the Group’s properties — service

costs should be covered by service income.

GROSS MARGIN FROM OPERATIONS

Gross margin from operations is equal to the revenues from operations less the cost of

operations.

SELLING EXPENSES

Selling expenses include:

 brokerage and similar fees incurred to originate the lease or sale of space;

 marketing and advertising costs; and

 payroll and related expenses directly related to leasing or sales personnel.

ADMINISTRATIVE EXPENSES

Administration expenses include:

 payroll, management fees, and other expenses that include the salaries of all

employees that are not directly involved in sales or rental activities;

 provisions made to account for the share-based incentive program that was granted to

key personnel;

 costs related to the sale of investment properties;

 costs of an audit, legal and other advisors;

 office expenses;

 depreciation and amortization expenses include depreciation and amortization of the

Group’s property, plant, and equipment; and

 others.

PROFIT/(LOSS) FROM THE REVALUATION/IMPAIRMENT OF ASSETS

Net valuation gains (loss) on investment property and investment properties under

development reflect the change in the fair value of investment properties and investment

property under development.

FINANCIAL INCOME/(EXPENSE), NET

Financial income includes interest on loans granted to associate companies and interest on

bank deposits.

Financial expenses include interest on borrowings and deferred debt rising expenses.

Borrowing costs are expensed in the period in which they are incurred, except for those that

are directly attributable to construction. In such a case, borrowing costs are capitalized as part

of the cost of the asset. Borrowing costs include interest and foreign exchange differences.

Additionally, financial income or expenses include settlement of financial assets and gain or

losses arising from changes in the fair value of derivatives that do not qualify for hedge

accounting.

TAXATION

Income tax on profit or loss for the year comprises current and deferred tax. Current tax is the

expected tax payable on the taxable income for the year using tax rates enacted or

substantially enacted as of the balance sheet date and any adjustments to tax payable in

respect of previous years. Generally, the Group disposes of property holding companies rather

than the real estate itself, in part because, in certain jurisdictions, the sale and disposal of real

estate are generally subject to real estate transfer tax and/or VAT.

5.5.2 Comparison of financial results for the year ended 31 December 2020 with

the result for the corresponding period of 2019

REVENUES FROM RENTAL ACTIVITY

Rental and service revenues decreased by €9,641 (6%) to €160,121 in the year ended 31

December 2020 from €169,762 in the year ended 31 December 2019. The decrease mainly

resulted from a decrease in rental revenues of approximately €14,720 due to rent relief

imposed by governments during lockdown of shopping malls and rent concessions and

discounts provided by the Group to the retail tenants across the portfolio due to the COVID-19

outbreak combined with a decrease in rental revenues following the sale of GTC White House

in the third quarter of 2019, Neptun Office Center in the fourth quarter of 2019 and Spiral in

the fourth quarter of 2020 of €3,870. The decrease was partially offset by an increase in the

rental revenues due to the completion of Ada Mall, Green Heart, ABC I, and Matrix A of €8,982.

COST OF RENTAL ACTIVITY

Service cost decreased by €349 (1%) to €41,527 in the year ended 31 December 2020 from

€41,876 in the year ended 31 December 2019 mainly as a result of a decrease of service costs

and implemented savings in our shopping malls due to the COVID-19 outbreak of €1,213

combined with a decrease in the service costs due to the sale of GTC White House in the third

quarter of 2019, Neptun Office Center in the fourth quarter of 2019 and Spiral in fourth quarter

of 2020 of €1,562. The decrease was partially offset by an increase on service costs due to

the completion of Ada Mall, Green Heart, ABC I and Matrix A of € 2,385.

GROSS MARGIN FROM OPERATIONS

Gross margin (profit) from operations decreased by €9,292 to €118,594 in the year ended 31

December 2020 from €127,886 in the year ended 31 December 2019 mostly resulting from a

loss in rent and service revenues in our shopping malls across the portfolio due to the COVID-

19 outbreak partially offset by newly completed properties net of sold assets.

Gross margin on rental activities in the year ended 31 December 2020 was 74% compared to

75% in the year ended 31 December 2019.

ADMINISTRATIVE EXPENSES

Administrative expenses (before provision for share based program) decreased by €5,316 to

€12,181 in the year ended 31 December 2020 from €17,497 in the year ended 31 December

2019. The administrative expenses in year ended 31 December 2019 included one-off cost

related to the exercise of phantom shares of €5,900. Mark-to-market of share based program

resulted in a reversal of the provision of €469 in the year ended 31 December 2020 compared

to a reversal of the provision of €3,087 recognized in the year ended 31 December 2019. The

above factors resulted in a decrease of administration expenses by €2,698 to €11,712 in the

year ended 31 December 2020 from €14,410 in the year ended 31 December 2019.

PROFIT/(LOSS) FROM THE REVALUATION/IMPAIRMENT OF ASSETS

Net loss from the revaluation/impairment of the assets amounted to €142,721 in the year

ended 31 December 2020, as compared to a net profit of €16,190 in the year ended 31

December 2019. Net loss from the revaluation of the investment properties reflects mainly

devaluation of our shopping malls across the portfolio which resulted from the impact of the

COVID-19 outbreak mainly on the retail activity of the Group.

OTHER EXPENSE, NET

Other expenses (net of other income) amounted to €846 in the year ended 31 December 2020

as compared to expenses of €772 in the year ended 31 December 2019.

FOREIGN EXCHANGE DIFFERENCES GAIN (LOSS)

Foreign exchange differences loss amounted to €2,951 in the year ended 31 December 2020,

as compared to a foreign exchange loss of €437 in the year ended 31 December 2019. An

increase is mainly due to the significant devaluation of local currencies following the COVID-

19 outbreak.

FINANCIAL INCOME

Financial income amounted to €331 in the year ended 31 December 2020 as compared to

€380 in the year ended 31 December 2019.

FINANCIAL COST

Financial cost increased by €610 to €35,244 in the year ended 31 December 2020 as

compared to €34,634 in the year ended 31 December 2019. The average interest cost was

2.3%.

PROFIT/(LOSS) BEFORE TAX

Loss before tax was €75,856 in the year ended 31 December 2020, as compared to profit

before tax of €92,186 in the year ended 31 December 2019. A decrease is mainly due to a

recognition of loss from revaluation/impairment of assets in the amount of €142,721 (as

compared to net profit from revaluation/impairment of assets in the amount of €16,190 in 2019)

combined with a decrease in gross margin from operations resulting from COVID-19 outbreak.

TAXATION

Tax benefit amounted to €4,995 in the year ended 31 December 2020. Taxation consists

mainly of €8,811 of current tax expenses and €13,806 of deferred tax benefit.

NET PROFIT/ (LOSS)

Net loss amounted to €70,861 in the year ended 31 December 2020, as compared to a net

profit of €75,421 in the year ended 31 December 2019. This mostly resulted from recognition

of loss from revaluation/impairment of assets in the amount of €142,721 (as compared to net

profit from revaluation/impairment of assets in the amount of €16,190 in 2019) combined with

a decrease in gross margin from operations resulting from COVID-19 outbreak, partially offset

by the recognition of tax benefit of €4,995.

SEGMENTAL ANALYSIS

The operating segments are aggregated into reportable segments, taking into consideration

the nature of the business, operating markets, and other factors. GTC operates in six core

markets: Poland, Budapest, Bucharest, Belgrade, Sofia, and Zagreb.

Operating segments are divided into geographical zones, which have common characteristics

and reflect the nature of management reporting structure:

a. Poland

b. Belgrade

c. Budapest

d. Bucharest

e. Zagreb

f. Sofia

g. Other

Segment analysis of rental income and costs for the year ended 31 December 2020 and

31 December 2019 is presented below:

Year ended

31 December 2020

Year ended

31 December 2019

Portfolio

Revenues

Costs

Gross

margin

Revenues

Costs

Gross

margin

Poland

65,227

(19,218)

46,009

75,793

(20,499)

55,294

Belgrade

33,806

(8,485)

25,321

29,542

(6,658)

22,884

Budapest

21,926

(4,900)

17,026

24,195

(5,792)

18,403

Bucharest

17,229

(2,969)

14,260

17,497

(3,103)

14,394

Zagreb

11,004

(3,684)

7,320

11,624

(3,893)

7,731

Sofia

10,929

(2,271)

8,658

11,111

(1,931)

9,180

Total

160,121

(41,527)

118,594

169,762

(41,876)

127,886

Segment analysis of assets and liabilities as of 31 December 2020 is presented below:

Real

estate

Cash

and

deposits

Other

Total

assets

Loans,

bonds

and

leases

Deferred

tax

liability

Other

Total

liabilities

Poland

906,313

44,939

3,872

955,124

532,127

59,536

14,005

605,668

Belgrade

370,123

13,316

3,711

387,150

211,497

10,373

8,628

230,498

Budapest

321,704

149,239

4,680

475,623

223,862

12,240

17,617

253,719

Buchares

197,247

13,527

1,119

211,893

104,974

11,816

3,103

119,893

Zagreb

159,319

5,905

12,305

177,529

67,142

16,728

4,383

88,253

Sofia

179,109

11,609

1,087

191,805

93,212

8,337

6,850

108,399

Other

9,521

9,556

1,141

Non

allocated

71,857

220

72,077

78,370

14,200

6,468

99,038

Total

2,143,336

310,409

27,012

2,480,757

1,311,184

133,230

62,195

1,506,609

Segment analysis of assets and liabilities as of 31 December 2019 is presented below:

Real

estate

Cash

and

deposits

Other

Total

assets

Loans,

bonds,

and

leases

Deferred

tax

liability

Other

Total

liabilities

Poland

978,398

38,399

5,062

1,021,859

516,539

70,600

10,506

597,645

Belgrade

404,219

18,427

5,625

428,271

216,805

13,570

19,545

249,920

Budapest

326,832

20,364

4,705

351,901

126,524

14,090

5,756

146,370

Bucharest

219,271

10,578

1,941

231,790

110,272

12,844

4,793

127,909

Zagreb

160,366

4,305

12,326

176,997

58,710

17,538

7,161

83,409

Sofia

166,070

8,825

1,733

176,628

79,321

8,940

5,360

93,621

Other

12,029

12,064

1,184

Non

allocated

122,886

346

123,232

151,249

9,650

3,123

164,022

Total

2,267,185

223,804

31,753

2,522,742

1,259,420

147,232

57,428

1,464,080

5.6 Consolidated cash flow statement

5.6.1 Key items from consolidated cash flow statement

NET CASH FROM (USED IN) OPERATING ACTIVITIES

The operating cash flow is the cash that the Group generates through running its business and

comprises cash inflows from rental activities.

NET CASH USED IN INVESTING ACTIVITIES

The investing cash flow is the aggregate change in the Group’s cash position resulting from

any gains (or losses) from investments in the financial markets, investment properties, and

operating subsidiaries, as well as changes resulting from amounts spent on investments in

capital assets, such as property, plant, and equipment.

NET CASH FROM (USED IN) FINANCING ACTIVITIES

The cash flow from (used in) financing activities accounts for, inter alia, the payment of cash

dividends, receiving proceeds from loans or bonds, and issuing stock.

CASH AND CASH EQUIVALENTS

Cash balance consists of cash in banks. Cash in banks may earn interest at floating rates

based on daily bank deposit rates if those are positive. Short-term deposits are made for

varying periods of between one day and three months, depending on the immediate cash

requirements of the Group, and earn interest at the respective short-term deposit rates if those

are positive. All cash is deposited in banks. All cash and cash equivalents are available for use

by the Group.

5.6.2 Cash flow analysis

The table below presents an extract of the cash flow for the period of twelve months ended on

31 December 2020 and 2019:

Year ended 31

December

Year ended 31

December

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net cash from operating activities

100,325

101,407

CASH FLOWS FROM INVESTING ACTIVITIES:

Expenditure on investment property

(78,528)

(144,688)

Decrease in short term deposits

5,923

5,579

Purchase of subsidiary, completed assets, land, and minority

(23,270)

Sale (including advances) of investment property

64,569

80,504

Proceeds related to the expropriation of land

4,917

Sale of shares in associates and subsidiaries

42,834

VAT/tax on purchase/sale of investment property

953

857

Interest received

115

Net cash used in investing activities

(30,298)

(9,882)

CASH FLOWS FROM FINANCING ACTIVITIES

Distribution of dividend

(37,992)

Proceeds from long-term borrowings

286,807

292,962

Repayment of long-term borrowings

(224,293)

(200,918)

Interest paid

(32,068)

(30,430)

Repayment of lease liability

(162)

(1,739)

Loans origination cost

(1,983)

(2,390)

Dividend granted to non-controlling interest

(420)

(429)

Loan granted to non-controlling interest

(429)

Decrease/(increase) in short term deposits

(168)

(11,086)

Net cash from (used in) financing activities

27,713

7,549

Effect of foreign currency translation

(5,380)

106

Net increase/(decrease) in cash and cash equivalents

92,360

99,180

Cash and cash equivalents, at the beginning

of the year

179,636

80,456

Cash and cash equivalents, at the end of the year

271,996

179,636

Net cash flow from operating activities decreased to €100,325 in the year ended 31 December

2020 compared to €101,407 in the year ended 31 December 2019. The decrease is mainly

due to the impact of COVID-19 outbreak (decrease in income due to the rent relief imposed by

governments during lockdowns of shopping malls and rent concessions and discounts

provided by the Group across the portfolio) in the amount of €14,700 combined with a decrease

in operating cash flow following the sale of GTC White House and Neptun Office Center in

amount of €3,870. The decrease was partially offset by the completion of Ada Mall, Green

Heart, ABC I, and Matrix A of €8,980 and execution of phantom shares which impacted 2019

cash flow from operating activity in the amount of €5,900.

Net cash flow used in investing activities amounted to €30,298 in the year ended 31 December

2020 compared to €9,882 used in the year ended 31 December 2019. Cash flow used in

investing activities mainly composed of (i) expenditure on investment properties of €78,528

related to: Green Heart, Advance Business Center, Matrix, Pillar and Sofia Tower 2, (ii)

proceeds from sale (including advances) of investment property of €64,569 (iii) purchase of

completed assets and land of €21,468 (iv)decrease in short term blocked deposits of €5,923

and (v) a purchase of minority of €1,802.

Net cash flow from financing activities amounted to €27,713 in the year ended 31 December

2020, compared to €7,549 of cash flow from financing activities in the year ended 31 December

2019. Cash flow from financing activities mainly composed of (i) proceeds from long-term

borrowings for the year ended 31 December 2020 in the amount of €286,807 that are related

mainly to the bond issue with the total value of €110,000, loans related to assets under

construction in the amount of €42,043, refinancing of loans related to Galeria Jurajska in the

amount of €130,000; (ii) repayment of long-term borrowings in the amount of €224,293 mainly

loan repayment of €84,000 related to Galeria Jurajska, loan repayment of €9,500 related to

Galeria Północna, settlement of maturing bonds in amount of 68,600, repayment of Spiral Loan

in amount of €18,645 as well as amortization of existing loans in the amount of €38,537; and

(iii) interest paid in the amount of €32,068.

Cash and cash equivalents as of 31 December 2020 amounted to €271,996 compared to

€179,636 as of 31 December 2019. The Group keeps its cash in the form of bank deposits.

5.7 Future liquidity and capital resources

As of 31 December 2020, the Group believes that its cash balances, cash generated from

leasing activities of its investment properties, and cash available under its existing and future

loan facilities will fund its needs.

The Group endeavors to efficiently manage all its liabilities and is currently reviewing its funding

plans related to (i) development and acquisition of commercial properties, (ii) debt servicing of

its existing assets portfolio, and (iii) CAPEX. Such funding will be sourced through available

cash, operating income, and refinancing.

As of 31 December 2020, the Group’s non-current liabilities amounted to €1,274,363

compared to €1,192,168 as of 31 December 2019.

The Group’s total debt from long and short-term loans and borrowings as of 31 December

2020 amounted to €1,261,292 as compared to €1,206,222 as of 31 December 2019.

The Group’s loans and borrowings are mainly denominated in Euro. Debt in other currencies

includes bonds (series mature in 2022-2023) in PLN and bonds issued by Hungarian

subsidiary in HUF (series mature in 2030).

The Group’s loan-to-value ratio amounted to 45% as of 31 December 2020, as compared to

44% as of 31 December 2019. The Group’s strategy is to keep its loan-to-value ratio at a level

not exceeding 50%.

As of 31 December 2020, 95% of the Group’s loans (by value) were hedged against interest

fluctuations, mostly through interest rate swaps and cap transactions.

Availability of financing

In the CEE and SEE markets, real estate development companies, including the companies

of the Group, usually finance their real estate projects with proceeds from bank loans, loans

extended by their holding companies, or the issuance of debt securities. The availability and

cost of procuring financing are of material importance to the implementation of the Group’s

projects and for the Group’s development prospects, as well as its ability to repay existing debt.

Finally, the availability and cost of financing may impact the Group’s development dynamics

and the Group’s cash flow and net profit.

Traditionally, the principal sources of financing for the Group’s core business included rental

revenues, bank loans, proceeds from bonds issued by the Company, and proceeds from asset

disposals.

With reference to the COVID-19 outbreak, the management has prepared and analyzed cash

flow budget based on certain hypothetical defensive assumptions to assess the

reasonableness of the going concern assumption in view of the current developments on the

market. This analysis assumed certain loan repayment acceleration, negative impact on NOI,

as well as other offsetting measures, which the Management may take to mitigate the risks,

including deferring the development activity and dividend pay-out.

Based on management’s analysis, the current cash liquidity of the Company, and the budget

assumptions, Management concluded that there is no material uncertainty as to the

Company’s ability to continue as a going concern in the foreseeable future i.e., at least in the

next 12 months. Management notes that it is difficult to predict the ultimate short, medium, and

long-term impact of the macroeconomic conditions on the financial markets and the

Company’s activities, but the expected impact may be significant. Accordingly, Management

conclusions will be updated and may change from time to time.

More information regarding the impact of the COVID-19 outbreak is presented in the audited

consolidated financial statements for the year ended 31 December 2020 in Note 36 COVID-

19.

6. Information on the use of proceeds from the issuance of shares and bonds

On 7 December 2020 GTC Real Estate Development Hungary Zrt. issued 10 years green

bonds with the total nominal value of €110,000 denominated in HUF to finance real estate

acquisition, redevelopment and construction projects as well as refinance existing debt by the

issuer and guarantor (or other members of the guarantor’s group). The bonds are fully and

irrevocable guaranteed by the Company and were issued at yield of 2.33%. with an annual

fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7

year with the

70% of the value paid at the maturity on 7 December 2030. (see current report no 32/2020).

As at 31 December 2020, the proceeds were not allocated. The net proceeds from the

issuance of the bonds amounted to €109,200 and will be used for acquisition, redevelopment,

and construction of real estate projects which meet recognized green building standards, such

as BREEAM (Very good and above) and LEED (Gold and above) in line with Group’s Green

Bonds Framework as well as refinance existing debt.

7. Information on loans granted with a particular emphasis on related entities

As of 31 December 2020, the Group does not have any long-term loans granted to its

associates or joint ventures.

8. Information on granted and received guarantees with a particular emphasis on

guarantees granted to related entities

In December 2020, the Company guaranteed bonds issued by GTC Real Estate Development

Hungary Zrt with the total nominal value of €110,000 nominated in HUF.

GTC gives guarantees to third parties in the normal course of its business activities. As of 31

December 2020, the guarantees granted amounted to €0.

Additionally, the Company gives typical warranties in connection with the sale of its assets,

under the sale agreements, and construction cost-overruns guarantees to secure construction

loans. The risk involved in the above warranties and guarantees is very low.

In the normal course of business activities, the Group receives guarantees from the majority

of its tenants to secure the rental payments on the leased space.

9. Off balance liabilities

COMMITMENTS

As of 31 December 2020 (and as at 31 December 2019), the Group had commitments

contracted for in relation to future building construction without specified date, amounting to

€40,000 (€77,000). These commitments are expected to be financed from available cash and

current financing facilities, other external financings, or future installments under already

contracted sale agreements and yet to be contracted sale agreements.

CROATIA

In relation to the Marlera Golf project in Croatia, part of the land is held on a lease basis from

the State. There is furthermore a Consortium agreement with the Ministry of Tourism of Croatia

(Ministry), which includes a deadline for the completion of a golf course that has expired in

2014. If the deadline is not met, then the Ministry has the right to terminate the Consortium

agreement which might automatically trigger the termination of the Land Acquisition

Agreements, as well as collateral activation and damages claims. Prior to 2014, the Company

has taken active steps to achieve an extension of the period for completing the project. In

February 2014, the Company received a draft amendment from the Ministry expressing its

good faith and intentions to prolong the abovementioned timeline however, the amendment

was not formalized since then. Since the formalization of the amendment is not at the sole

discretion of the Group, the Management has decided to revalue the freehold asset in

assuming no development of the golf course project. Furthermore, as a prudential measure,

the Management has also written off the related collateral in the amount of €1,000 provided to

the Ministry as a guarantee for completing the golf course. As of 31 December 2020 the book

value of the investment in Marlera Golf project was assessed by an independent valuer at

€6,800.

10. Major investments, local and foreign (securities, financial instruments,

intangible assets, real estate), including capital investments outside the Group

and its financing method

The Group does not have any major local or foreign investments other than direct investments

in real estate properties designated for development or through companies that hold such real

estate.

11. Information on risk management

The Group’s principal financial instruments comprise bank and shareholders’ loans, bonds,

hedging instruments, trade payables, and other long-term financial liabilities. The main

purpose of these financial instruments is to finance the Group’s operations. The Group has

100

various financial assets such as trade receivables, loans granted, derivatives, and cash and

short-term deposits.

The main risks arising from the Group’s financial instruments are cash flow interest risk,

liquidity risk, foreign currency risk, and credit risk.

INTEREST RATE RISK

The Group exposure to changes in interest rates that are not offset by hedge relates primarily

to the Group's long-term debt obligations and loans granted.

The Group’s policy is to obtain finance bearing variable interest rates. To manage the interest

rate risk in a cost-efficient manner, the Group enters into interest rate swaps, swap currency,

or cap transactions.

The majority of the Group’s loans are nominated or swapped into Euro.

As at 31 December 2020, 95% of the Group’s borrowings are hedged. (As at 31 December

2019 – 95%).

A 50bp increase in EURIBOR rate would lead to a €2,022 change in loss before tax.

FOREIGN CURRENCY RISK

The Group enters into transactions in currencies other than the Group's functional currency.

Therefore, it hedges the currency risk by either matching the currency of the inflow, outflow,

and cash and cash equivalent with that of the expenditures.

Exchange rates as of 31 December 2020 and 2019 were as following:

31 December 2020 31 December 2019

PLN/EURO 4.6148 4.2585

101

The table below presents the sensitivity of profit (loss) before tax due to change in foreign

exchange:

2020

2019

PLN/Euro

Rate/Percentage

of change

5.0763

(+10%)

4.8455

(+5%)

4.3841

(-5%)

4.1533

(-10%)

4.6844

(+10%)

4.4714

(+5%)

4.0456

(-5%)

3.8327

(-10%)

Cash and blocked

deposits

(4,303)

(2,151)

2,151

4,303

(8,105)

(4,053)

4,053

8,105

Trade and other

receivables

(353)

(176)

176

353

(519)

(259)

259

519

Trade and other

payables

1,052

526

(526)

(1,052)

818

409

(409)

(818)

Land leases

3,172

1,586

(1,586)

(3,172)

3,486

1,743

(1,743)

(3,486)

The Group does not see any credit risk related to bond denominated in PLN and HUF.

Exposure to other currencies and other positions in the statement of financial position are not

material.

CREDIT RISK

Credit risk is the risk that a party to a financial instrument will fail to discharge an obligation.

To manage this risk, the Group periodically assesses the financial viability of its customers.

The Group does not expect any counterparties to fail in meeting their obligations. The Group

has no significant concentration of credit risk with any single counterparty or Group

counterparties.

With respect to trade receivables and other receivables that are neither impaired nor past due,

there are no indications as of the reporting date that those will not meet their payment

obligations.

With respect to credit risk arising from the other financial assets of the Group, which comprise

cash and cash equivalents and blocked deposits, the Group’s exposure to credit risk equals

the carrying amount of these instruments.

The maximum exposure to credit risk as of the reporting date is the full amount presented.

There are no material financial assets as of the reporting dates, which are overdue and not

impaired. There are no significant financial assets impaired.

LIQUIDITY RISK

As at 31 December 2020, the Group holds Cash and Cash Equivalent (as defined in IFRS) in

the amount of approximately €272,000. As described above, the Group attempts to efficiently

manage all its liabilities and is currently reviewing its funding plans related to (i) debt servicing

of its existing assets portfolio; (ii) CAPEX; and (iii) development of commercial properties. Such

102

funding will be sourced through available cash, operating income, sales of assets, and

refinancing. The management board believes that based on its current assumptions, the Group

will be able to settle all its liabilities for at least the next twelve months.

Repayments of long-term debt and interest are scheduled as follows (Euro million)

(the amounts are not discounted):

31 December

2020

31 December

2019

First year

218

251

Second year

211

189

Third year

204

199

Fourth year

272

198

Fifth year

155

270

Thereafter

292

196

1,352

1,303

The above table does not contain payments relating to the market value of derivative

instruments. The Group hedges significant parts of the interest risk related to floating interests

rate with derivative instruments. Management plans to refinance some of the repayment

amounts.

All derivative instruments mature within 1-5 years from the balance sheet date.

Maturity dates of current financial liabilities as of 31 December 2020 were as following:

Total

Overdue

Up to a

month

From a

month to

three

months

From three

months to

one year

Investment and trade

payables and provisions

27,299

6,289

5,905

15,105

Current portion of long-

term borrowing

193,425

19,284

49,874

124,267

VAT and other taxes

payable

1,551

Deposits from tenants

1,790

149

448

1,193

Lease liabilities

163

122

Income tax payable

4,220

4,133

Derivatives

3,365

841

2,524

231,813

27,349

57,120

147,344

103

Some loans classified as current liabilities were refinanced post balance sheet data (please

refer to note 37 in consolidated financial statement for the year ended 31 December 2020).

Maturity dates of current financial liabilities as of 31 December 2019 were as following:

Total

Overdue

Up to a

month

From a

month to

three

months

From three

months to

one year

Investment and trade

payables and provisions

37,289

6,674

14,374

16,241

Current portion of long-

term borrowing

225,350

1,965

111,172

112,213

VAT and other taxes

payable

1,817

Deposits from tenants

1,605

117

433

1,055

Lease liabilities

208

156

Income tax payable

1,542

410

1,132

Derivatives

3,739

868

2,805

271,550

11,049

126,899

133,602

FAIR VALUE

As of 31 December 2020, and 2019, all bank loans bear floating interest rates (however, as of

31 December 2020 and 2019, 95% of loans are hedged). The fair value of the loans, which is

related to the floating component of the interest, equals the market rate.

Fair value of all other financial assets/liabilities is close to carrying value.

For the fair value of investment property, please refer to note 17 consolidate financial statement

for the year ended 31 December 2020.

FAIR VALUE HIERARCHY

As at 31 December 2020 and 2019, the Group held several hedge instruments carried at fair

value on the statement of financial position.

The Group uses the following hierarchy for determining and disclosing the fair value of financial

instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities,

Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly,

Level 3: techniques that use inputs that have a significant effect on the recorded fair value that

are not based on observable market data.

104

Valuations of hedges are considered as level 2 fair value measurements. During the year

ended 31 December 2020 and 31 December 2019, there were no transfers among Level 1 and

Level 3 fair value measurements.

PRICE RISK

The Group is exposed to fluctuations in the real estate markets in which it operates. These can

have an effect on the Group’s results (due to changes in the market rent rates and in occupancy

of the leased properties). Further risks are detailed in the Management Report as of 31

December 2020.

CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to provide for operational and

value growth while prudently managing the capital and maintaining healthy capital ratios in

order to support its business and maximize shareholder value.

The Group manages its capital structure and adjusts it to dynamic economic conditions. While

observing the capital structure, the Group decides on leverage policy, loans raising and

repayments, investment or divestment of assets, dividend policy, and capital raise, if needed.

No changes were made in the objectives, policies, or processes during the years ended 31

December 2020 and 31 December 2019.

The Group monitors its gearing ratio, which is Gross Project and Corporate Debt less Cash &

Deposits, (as defined in IFRS) divided by its real estate investment value. The Group’s policy

is to maintain the loan-to-value (“LTV”) ratio at a level not higher than 50%.

31 December

2020

31 December

2019

(1) Loans, net of cash and deposits (*)

949,192

980,903

(2) Investment properties (exc. land leases),

residential landbank, assets held for sale and

building for own use

2,099,300

2,220,994

LTV ratio [(1)/(2)]

45.2%

44.2%

(*) Excluding loans from non-controlling interest and deferred issuance debt expenses.

12. Remuneration policy and human resources management

12.1 Remuneration policy

On 27 August 2020, the general meeting approved a Remuneration Policy of the Group. The

Remuneration Policy governs the remuneration of the management and supervisory board

members.

105

REMUNERATION OF THE MANAGEMENT BOARD

In accordance with the Remuneration Policy, the remuneration of the members of the

management board is determined by the supervisory board and is set at a level appropriate to

the roles assigned to individual persons and related responsibilities and takes into account the

performance of any additional functions, qualifications and professional experience, the current

market and economic situation, as well as the Company’s financial and operational situation

and needs.

Members of the management board are entitled to the following components of remuneration:

(i) fixed remuneration; (ii) variable remuneration in the form of an annual bonus; (iii) Phantom

shares or other incentive programs either based on the Company’s shares or the movement

of prices of these shares to be established in the future by the general meeting or the

supervisory board; (iv) compensation for compliance with the non-compete clause; and (v) a

severance payment related to the termination of the legal relationship with the Company.

With respect to the variable components of remuneration in the form of an Annual Performance

Bonus, as defined in the Remuneration Policy, it is designed to be motivational and to reward

the members of the management board for fulfilling their roles, discharging their responsibilities

and delivering superior results. Annual Performance Bonus targets and the related payouts

reflect a range of expected levels of performance. Members of the management board may be

entitled to the Annual Performance Bonus if they achieve the minimum level of the set targets

in the given financial year. The Annual Performance Bonus should amount to a particular

percentage or part of the maximum bonus amount, as specified in the contract with a particular

member of the management board, depending on the level of achievement of the set targets.

The Annual Performance Bonus awarded to members of the management board is determined

by the supervisory board.

The Annual Performance Bonus is paid after the approval of the annual financial statements

by the supervisory board of the Company. As of the date of this Report, the Annual

Performance Bonus for 2020 has not yet been paid.

Moreover, the management board members may receive and have received in 2020 additional

benefits, such as: (i) private medical care, including for family members; and (ii) the use of

company cars, company telephones and other electronic devices for private purposes and the

covering of their costs.

The members of the management board may also receive compensation for compliance with

the non-compete clause following the end of an engagement, however, the Company has

exercised its right to withdraw from such non-compete obligations and such compensation has

not been paid to the former members of the management board.

During the 2020 financial year, and in line with the Company’s approved Policy regarding the

remuneration of the management board members, management board members received a

base fixed remuneration as well as variable elements of the remuneration in accordance with

the relevant contract concluded with the Company or other entity from the Company’s capital

group. The establishment of a link between the management board member's remuneration in

a form of Phantom Shares and the increase in the Company's share prices aligns such

members’ personal interest with the interests of the shareholders. The implementation of the

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Company’s strategy and commitment to long-term interests should have a positive impact on

the Company’s share prices, which in turn should translate into higher remuneration of the

management board members. In addition, it also increases the motivation of management

board members and facilitates in the Company retaining them and, as such, contributes to the

stability of the Company.

REMUNERATION OF THE SUPERVISORY BOARD

Members of the supervisory board are entitled only to monthly fixed remuneration for

performing their functions, or if performing additional functions in a separate committee(s), they

are entitled to additional monthly fixed remuneration. The amount of the above-mentioned

remuneration is determined by the general meeting. There are no performance-based variable

components of remuneration or financial or non-financial benefits awarded to members of the

supervisory board.

In 2020, there were changes in the composition of the supervisory board. The remuneration

paid to the supervisory board members was granted and paid in compliance with the

Remuneration Policy as the supervisory board members were granted only fixed remuneration

for holding a position on the board and, in some cases, additional remuneration for performing

additional functions in a separate committee(s) of the supervisory board.

12.2 Incentive system

The Company has a remuneration and incentive system that consists of a bonus for meeting

specific goals or objectives set by the management board or supervisory board (as the case

may be) or achieving special achievements. The Company’s management board members

key managers are also incentivized by participation in Phantom Shares program, according to

which a certain number of phantom shares is vested to the employee once a year.

The Phantom Shares grant to the entitled persons a right for a settlement from the Group in

the amount equal to the difference between the average closing price for the Company’s

shares on the Warsaw Stock Exchange during the 30-day period prior to the date of delivery

to the Company of the exercise notice, and settlement price (“strike”) amount per share

(adjustable for dividend). The Phantom Shares are not securities convertible or exchangeable

into shares in the Company, in particular, they are not options on such shares. The Phantom

Shares are merely a means of calculation of deferred variable compensation of the entitled

persons, which depends on the future market price of the shares on the regulated market.

The company uses binomial model to evaluate the fair value of the phantom shares. The input

data includes the date of valuation, strike price, and expiry date.

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The Phantom shares (as presented in below mentioned table) have been accounted for based

on future cash settlement.

Strike (PLN)

Blocked

Vested

Total

6.11

100,000

751,200

851,200

6.31

4,275,000

20,000

4,295,000

Total

4,375,000

771,200

5,146,200

As at 31 December 2020, phantom shares issued were as follows:

Last year of exercise date

Number of phantom shares

2021

500,000

2022

220,000

2023

4,426,200

Total

5,146,200

As at 31 December 2019, phantom shares issued were as follows:

Last year of exercise date

Number of phantom shares

2020

50,000

2021

1,837,400

2022

330,000

Total

2,217,400

The number of phantom shares were changed as follows:

Number of phantom shares as of

1 January 2020

2,217,400

Granted during the period

4,275,000

Exercised during the year

(1,346,200)

Number of phantom shares as of

31 December 2020

5,146,200

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12.2.1.1 Phantom Shares program control system

Granting Phantom Shares to members of the management board and setting their condition is

reviewed and approved by the Remuneration Committee and the supervisory board and is in

accordance with the Remuneration Policy.

Remuneration to other key personnel is set by the management board.

12.3 Number of employees

As of 31 December 2020 and 2019, the number of full time equivalent working in the Group

companies was 209 and 197, respectively.

12.4 Training policy

The Company offers its employees various forms to raise professional qualifications. The key

strategic training and workshops are conducted by external companies. Such training

opportunities focus mainly on market and product knowledge, marketing, processes, and IT

applications competencies, asset management, legal, tax, and accounting. The Company

believes that such training is increasing the employee’s commitment to the performance of

business tasks, improving his/her skills, and maintaining high customer service quality.

12.5 Agreements concluded between GTC and management board members

The Company has concludes agreements with its members of the board, providing for their

basic compensation, performance-related bonus, participation in the Phantom Share program,

severance payment in the case of their dismissal. Furthermore, the agreements contain a non-

competition clause and confidentiality clause.

12.6 Evaluation of the remuneration policy for the realization of its objectives

The remuneration policy is consistent with the shareholders' target to have a long-term

increase in shareholder value. Furthermore, it aims to provide stability in managing the

Company and carrying out its policies by attracting and retaining highly skilled employees

across the organization and operation countries of the Company. Such goals guarantee

motivation for quality work and the good attitude of employees, stable financial results, in the

long run, sound and effective risk management, supporting the implementation of the business

strategy, and the reduction of conflict of interest.

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12.7 Remuneration of the Members of the management board and supervisory

board

MANAGEMENT BOARD

The following table presents the remuneration of the members of the management board

as of 31 December 2020 for the 12 months ended 31 December 2020:

Name

Periods

Fixed

remuneration¹

(€)

(not in

thousand)

Variable

remuneration¹

(€)

(not in

thousand)

Vested

Phantom

(not in

thousand)

Yovav Carmi

16 April - 31 December

219,284

150,000

Erez Boniel

1 January – 28 July

408,177

358,564

300,000

Ariel Ferstman

28 July - 31 December

99,515

Thomas Kurzmann

1 January - 23 June

249,444

599,213

500,000

Gyula Nagy

1 July - 31 December

18,000

Robert Snow

23 June - 31 December

166,480

100,000

¹ Remuneration (or fees to entities in which the holder is key personnel) consists of payment for 2020 and

success fee amounts paid for present and the past year in addition to Group’s Phantom Shares program

exercised during 2020, as detailed in Item 12.2. Phantom shares.