Income Balance sheet Share

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1 Meinl European Land Annual Report 2006

2 2004* Income (in TEUR) Rental income 25,456 60,199 96,451 Net revenues 27,825 63, ,446 Net operating profi t (EBIT) 42, , ,562 Profi t before taxation 31, , ,108 Profi t after taxation 30, , ,445 YE 2004* YE 2005 YE 2006 Balance sheet (in TEUR) Investment properties 456,122 1,067,671 1,688,863 Investment properties under construction 1,433 37, ,232 Net cash** 156, ,433 2,514,224 Long-term liabilities 292, ,839 1,017,218 Shareholders equity 421,807 1,620,675 3,454,355 YE 2004* YE 2005 YE 2006 Share Market capitalisation in TEUR 468,360 1,789,200 4,371,750 Issued shares 36,000, ,000, ,000,001 Share price in EUR Net asset value per share in EUR Earnings per share in EUR * Figures for 2004 restated according to IAS 40 (fair value method) ** Net of short-term borrowings Key Figures

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4 Meinl European Land 2006 Net profi t of EUR 267m increased by 135% compared to 2005 Investment property portfolio size advanced by 60% to EUR 1.7bn plus committed development projects of EUR 3.5bn as of April 2007 Share price advanced by approx. 31% Meinl European Land

5 Key Figures Highlights 2006 Statement of the Board of Directors Meinl European Land Business Activities Market Development Main Investment Markets: Russia, Poland and Turkey Established Markets: Czech Republic, Hungary, Slovakia and the Baltic Region Growth Markets: Bulgaria, Romania and the Ukraine Portfolio at a Glance: Property Investments and Development Projects Development of Business Financial Statements Directors Report Notes to the Financial Statements Independent Auditor s Report Offi cers and Professional Advisors Contents

6 Meinl European Land 2006 Shares of Meinl European Land are newly being traded in the standard market continuous on the Vienna Stock Exchange. Capital increase: 60m new shares placed with retail and institutional investors. January February March April May June The portfolio at the beginning of the year 2006 includes investment properties with a total value of approx. EUR 1bn and committed development projects of EUR 1.5bn. Acquisition of a hypermarket with retail warehouse in Mlada Boleslav in the Czech Republic. Shopping Centre Portfolio Moscow with a total investment value of more than EUR 400m acquired: Portfolio includes two existing shopping centres with signifi cant extension potential and two projects for shopping centres. Announcement of entrance in the Ukraine. Meinl European Land obtains building permit for largest shopping centre in Eastern part of Poland a shopping centre in Lublin with a GLA of approximately 100,000 sqm. Shopping Centre in St. Petersburg under construction with expected investment costs of approximately EUR 120m acquired. Opening scheduled for Summer Highlights 2006

7 Highlights 2006 Investment grade rating issued by S&P and Fitch. Establishment of a EUR 2bn EMTN program. Bond issue: EUR 400m placed with institutional investors. Capital increase: 45m new shares placed with retail and institutional investors. Bond issue: EUR 200m placed with institutional investors. July August September October November December Opening of Meinl European Land s shopping centre Galeria Azur Riga, Latvia. Entrance in Estonia. First project is a portfolio of supermarkets for the leading Baltic grocery retailer which shall be developed in several cities in Estonia. Signing of contracts for a shopping centre in Togliatti, Russia. Acquisition completed by yearend Again entrance in a new market: Bulgaria. The fi rst project will be a development project for a shopping centre in Sofi a with an investment value of approximately EUR 185m. Opening of Park House in Kazan, Russia, a shopping centre with a GLA of 50,000 sqm. Total investment property portfolio reaches EUR 1.7bn. In April 2007, the committed development projects reach EUR 3.5bn. 3

8 Meinl European Land 2006 Statement of the Board of Directors

9 Statement of the Board of Directors Dear Shareholders, Sirs, Madams, The year 2006 was again an exciting period for Meinl European Land. The Company consolidated its position as a leading property investor in Central and Eastern Europe and set the signals for continued expansion in the coming years. The Company extended the scope of its operations to include 11 countries and once again posted signifi cant increases in all key fi nancial indicators. At 31 December 2006 the value of investment properties was EUR 1.7bn. Together with the contractually agreed development projects with a total investment value of EUR 3.5bn as of April 2007, which are only included in the fi nancial statements with their invested amounts, Meinl European Land s total portfolio stands at approx. EUR 5.2bn. This portfolio is expected to generate rental income of approx. EUR 500m by the end of 2009, once all projects are complete. Additionally, there are projects amounting to around EUR 2bn currently undergoing due diligence. The high proportion of development projects in the portfolio highlights the increasing importance of Meinl European Land s activities as property developer. This refl ects a strategic realignment in 2004 in response to a shortage in the less well established markets of completed properties matching the Company s high specifi cations. The yields achievable on development projects are also still signifi cantly better than those of comparable completed properties. Rental income in 2006 was up some 60%, from EUR 60m to EUR 96m. Even more impressive was the increase in operating profi t, which more than doubled from EUR 114m to EUR 252m. Profi t after tax went up from EUR 114m to EUR 267m, an increase of more than 135% on the year. Meinl European Land s fi nance policy is deliberately conservative: it ensures that projects are fully fi nanced at an early stage, relying as far as appropriate on a combination of its own funds and external borrowings. In March and November 2006 Meinl European Land launched further capital increases. Once again, the issues were a complete success: all 105 million shares were placed with private and institutional investors. The gross proceeds amounted to almost EUR 1.7bn. Meinl European Land s total net equity of approximately EUR 3.5bn at 31 December 2006 was up approx. 113% on the previous year (2005: EUR 1.6bn). Despite the capital increases earnings per share increased from EUR 1.29 in 2005 to EUR 1.31 in 2006 an impressive achievement for a company going through a period of such rapid growth. The Company also launched an uncollateralized EUR 2bn bond program in August 2006, to increase its leverage. As a fi rst step, a Euro denomination tranche with a seven year maturity and a nominal value of EUR 400m was placed with institutional investors. This tranche was tapped in December 2006 by issuing further bonds with a nominal value of EUR 200m. The success of the bond is attributable to the investment grade rating awarded to Meinl European Land shortly before the launch of the bond program. This positive rating confi rms the wisdom of Meinl European Land s corporate strategy: to enter the fastest growing real estate markets at an early stage, i.e., those in Central and Eastern Europe, and to invest in highyield retail properties. And in addition, these are precisely the markets where the economies are experiencing the highest overall rates of growth. This strategy, combined with our own development activities and proactive property portfolio management, forms the foundation for the long-term success of Meinl European Land and the sustained growth of shareholder equity. The Board of Directors April

10 Meinl European Land 2006 Meinl European Land Business Activities

11 Meinl European Land Business Activities 7

12 Meinl European Land 2006 Meinl European Land s activities broadly fall into two business areas: property investment and property development. Property investment On the one hand Meinl European Land s property investment activities consists of managing and administering the existing property portfolio as well as identifying potentially attractive new investments on the market, conducting due diligence for acquisitions and managing all the stages of the acquisition process. On the other hand the Company s property experts regularly conduct an analysis of the existing property portfolio to decide on any potential disposal of individual properties that no longer dovetail with the Meinl European Land s investment strategy. In 2006 Meinl European Land invested a total of more than EUR 250m in the acquisition of completed properties. The majority of these acquisitions were in the Group s main investment market, Russia. Two development projects were also completed during the year and transferred to the investment property portfolio. In Hungary a portfolio of supermarkets where optimal yields had already been achieved was successfully disposed of. At 31 December 2006 Meinl European Land s investment property portfolio comprised 157 retail properties with a combined total lettable area of approx. 873,000 sqm and a total market value of approx. EUR 1.7bn. Property development Meinl European Land is now involved in the development of projects from the start, it is also able to play a major role in defi ning the key parameters, such as layout and quality standards, thereby increasing the value of the property. The property development business includes both own development activities as well as joint ventures and joint developments, where development risks can to varying degrees be transferred to development partners under predefi ned terms. As per April 2007 Meinl European Land had secured 38 development projects representing a total investment volume of approx. EUR 3.5bn. The vast majority of these projects are situated in Russia, Poland and Turkey. Completion of these developments is planned within the years Projects amounting to an investment volume of approx. EUR 1.6bn were contracted during Further project pipeline In addition to these contractually agreed projects, further projects to a value of approx. EUR 2.0bn were under evaluation as per April Some of these pipeline projects were at an advanced stage of the due diligence process. The Company is confi dent that they will be concluded in the coming months and contribute to Meinl European Land s dynamic growth in the future. Property portfolio (EUR m) As conditions in Central and Eastern Europe markets increasingly come to resemble those in Western Europe, it is becoming more and more diffi cult to acquire completed retail properties offering attractive yields. Meinl European Land is now increasingly concentrating on regions where market saturation is low and there are virtually no completed properties available on the market. 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Property investments Contracted development projects Further project pipeline It was for this reason that the Company decided to expand its activities to include property development on its own behalf. Because * *Contracted development projects and pipeline as per April

13 Meinl European Land Business Activities Portfolio diversification A broadly based portfolio has always been Meinl European Land s strategy. Diversifi cation, which includes diversifying regionally, investing in a range of property types and selecting a broad mix of tenants, is intended to guard against concentration risks. The objective however remains to achieve a certain critical mass in each market, to ensure that operation of the individual portfolios is economically viable. Regional diversification of portfolios At the start of 2006 Meinl European Land had operations in six countries in Central and Eastern Europe Czech Republic, Hungary, Poland, Romania, Russia and Slovakia. On top of these, the Company also had interests in development projects in Latvia and Turkey. Numerous acquisitions during the year broadened the base of the portfolio, particularly when development projects are taken into account. In 2006 the Company entered the Bulgarian, Estonian and Ukrainian markets. This took the number of Central and Eastern European countries in its regionally diversifi ed portfolio to 11. In some of these markets Meinl European Land s activities are currently restricted to development projects, which have yet to generate earnings. These projects will make a positive contribution to the Company s risk diversifi cation strategy once they are completed. The proportion of the portfolio accounted for by the individual countries has changed considerably as a result of the additional investment in the countries in which Meinl European Land already operated and of its regional expansion. The geographical breakdown varies considerably, depending on whether contractually agreed development projects are included or not. Broken down by geographical region and not including the contracted development projects, the property portfolio at the end of 2006 was as follows: Regional distribution (%) 35% 30% 25% 20% 15% 10% 5% 0% Russia Poland Czech Republic Hungary The geographical balance will shift signifi cantly once all contracted projects have been completed. Including contractually agreed development projects at April 2007, Russia is Meinl European Land s largest market: the Russian part of the portfolio, at EUR 2.1bn, represents approx. 40% of the total. The portfolio in Poland, including contracted projects, amounts to EUR 1.2bn, or 23% of the total. The proportions accounted for by other countries in the portfolio were between 1% (Romania) and 18% (Turkey). Unlike many international investors, Meinl European Land does not concentrate exclusively on major cities but focuses mainly on investment in regional cities. Market penetration, and hence market saturation, is much lower here than in major urban centres. In addition, the price of land is much lower than in capital cities, resulting in higher yields for a development. Slovakia Latvia Romania Turkey 9

14 Meinl European Land 2006 Vertical portfolio diversification Property mix spread of property types Meinl European Land also makes every effort to ensure that its portfolio is diversifi ed vertically, with a broad mix of property types and tenants. Diversifi cation in terms of property types is to some extent limited by Meinl European Land s own self-imposed investment constraints, which favour retail properties an area in which Management and staff have many years of experience. But within this segment the Company attempts to balances the portfolio spread by investing in different forms of retailing so as to guard against any negative effects of changes in demand in the retailing industry. Property formats sqm % Convenience Centre 65,378 8% Neighbourhood Centre 220,765 25% Stand Alone Retail Warehouse / Food Store 125,949 14% Sub Regional Shopping Centre 348,386 40% Warehouse/Logistics Park 37,039 4% Other 75,222 9% 872, % Just 9% of lettable space was accounted for by property other than retail property. This small proportion includes a number of logistics properties and some offi ce space used by retail property tenants or the Company itself. Total lettable space rose by 96,257 sqm as a result of acquisitions during the year, to reach 872,739 sqm at 31 December Once all contracted development projects have been completed, Meinl European Land s total lettable space will climb to approx. 2,800,000 sqm. As with distribution by country, distribution of lettable space by retail type will shift considerably once all projects are completed. Largescale shopping centres planned in Russia and Turkey will increase the importance of this property category in the portfolio in future. Smaller properties will play a less prominent role in coming years. 10

15 Meinl European Land Business Activities Tenant mix spread of tenant portfolio Broad diversifi cation of rental income between different categories of tenants helps to reduce default risk. Recent acquisitions have added a range of well-known brands and numerous local businesses to the tenant portfolio, and at the year end Meinl European Land counted over 2,000 different tenants. Over half of all lease agreements are with international retail groups, and leading Eastern European companies and smaller retailers round out the tenant mix. The proportion of rental income contributed by the largest tenants in percentage terms changed as a result of the new acquisitions and the disposal of the Hungarian supermarket portfolio. Terms of lease agreements At 31 December 2006 over 40% of rents from existing lease agreements had more than fi ve years left to run. Lease agreements with anchor tenants are usually for a term of 10 to 15 years. For other tenants terms vary between three and 10 years. As a general rule, the larger the area, the longer the duration of the agreement. Meinl European Land concludes the majority of its lease agreements in CEE countries in Euro. In Russia, US dollar lease agreements had been the norm in recent years, but the Company has identifi ed the beginnings of a shift towards Euro-denominated agreements in new leases signed in Tenant mix (based on rental income in %) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SPAR Ahold REWE Metro Others Virtually all lease agreements are pegged to the Euro or the US dollar consumer price indexes, so that rental income is protected against infl ation. A growing number of lease agreements also contain a clause that increases the rent in line with the tenant s revenue growth, enabling the Company to participate in the growth of consumer spending. With a 9% contribution to total rental income, the Austrian based retailer Spar was Meinl European Land s biggest tenant. Other well-known brands contributing several percent of the Company s rental income included Ahold (7%), Metro (2%), REWE (2%) and Nomi S.A. (2%). The proportion represented by other large tenants has increased considerably. This category includes a number of well-known Western European groups, including Carrefour, Tengelmann, Promod and McDonalds, as well as leading Eastern European companies such as Perekryostok, Reserve and Technosila. It also includes a large number of smaller local companies, most of which only lease single units. 11

16 Meinl European Land 2006 Market Development

17 Market Development Economic Growth in Eastern Europe As in the preceding years, markets in Eastern Europe in 2006 were characterised by continuing stabilisation of the economic and political climates. This meant that there were further improvements in all the major macro-economic indicators in Meinl European Land s chosen markets. Economic growth in Eastern Europe In the new EU member states growth rates were in some cases again signifi cantly better than in the Western European economies. The Baltic states recorded the strongest growth, at approx. 11%. While Hungary posted the lowest growth of all the new EU states, its GDP growth 12 % 10 % 8 % 6 % Source Eurostat, OECD, wiiw economy still outperformed the EU 15 average of just 2.2%, with GDP 4 % growth of 3.9%. Meinl European Land s other investment markets drove forward growth as well. The Bulgarian and Romanian economies both grew by over 6% in 2006, ahead of their accession to the EU on 1 January Similar growth rates were recorded in two of Meinl European Land s main investment markets, Russia and 2 % 0 % EU 15 Bulgaria Development CPI Estonia Latvia Poland Romania Russia Slovakia Czech Republic Turkey Ukraine Hungary Turkey. Forecasts for the coming years predict continuing robust 14 % economic growth in Central and Eastern Europe. Growth will range from 5% to 9%, depending on the individual market. Forecasts for Western Europe are for ca. 2%. 12 % 10 % % Infl ation has declined signifi cantly in all Eastern European markets in recent years. In the established markets, like the Czech Republic and Poland, infl ation in 2006 of 2.1% and 1.3% respectively was below 6 % 4 % the European average of 2.2%. In Meinl European Land s other EU 2 % investment markets, infl ation ranged from 4% in Hungary to 7.3% in Bulgaria, and in some cases was signifi cantly lower than in earlier years. Even in Turkey an economy struggling with infl ation rates in 0 % EU 15 Bulgaria Estonia Latvia Poland Romania Russia Slovakia Czech Republic Turkey Ukraine Hungary excess of 50% just fi ve years ago it was down to a relatively Development unemployment moderate 9.3%. With approximately 9%, infl ation in Russia and the 18 % Ukraine was also below the rates of the previous years. Employment in Eastern Europe is also continuing to pick up. 16 % 14 % 12 % Unemployment fell further in all Meinl European Land s markets, and 10 % in the Czech Republic and the Baltic States but also in Russia, Ukraine 8 % and Romania it was even below the Western European average of 7.5%. Poland and Slovakia continue to have the highest unemployment rates approx. 15% and 13% respectively. But here too the trend is positive: fi ve years ago unemployment was ca. 20%. 6 % 4 % 2 % 0 % EU 15 Bulgaria Estonia Latvia Poland Romania Russia Slovakia Czech Republic Turkey Ukraine Hungary 13

18 Meinl European Land 2006 The retail industry in Europe continues to offer signifi cant opportunities for retailers and investors alike. The challenge lies in identifying the right regions for attractive, profi table long-term investment in the 30 different countries, with their different economic, political and cultural environments and signifi cant variations in market saturation and growth in consumption. European retail industry investment Yield convergence It would be too simple to divide Europe into two regions developed Western European markets and less well established Eastern European ones. Some Eastern European countries have already made up a great deal of ground when it comes to density of modern retail centres, and already rank more comfortably among the established markets. In some countries, too, the growth potential has already been recognised by a large number of investors, which has led to yields settling at the level for comparable shopping centres in Western Europe. Such maturing markets include the Czech Republic, Hungary, and Poland, as well as the smaller fi rst-round EU accession countries. Investors such as Meinl European Land who invested in them early have in the last two years recorded signifi cant appreciation in the value of their portfolios. In other markets, too, the process of convergence has already begun, and a decline in yields coupled with higher prices for completed retail properties is discernible. Retail yields in Europe % Moscow Istanbul Sofia Bucharest Budapest Warsaw Prague Zurich Vienna Paris 2005 Berlin 2006 London 0 % 2 % 4 % 6 % 8 % 10 % 12 % Source: King Sturge, European Retail Property 2007 Overall yields in 2006 declined once again, by ca. 1.5%. Fair value of retail property in the converging markets is approx. 15 to 16 times annual rental income. In countries such as Bulgaria and Romania yields are still about 1% higher. In Turkey, prices at the end of 2006 were ca. 12 times the annual rental. At approx %, the highest yields are to still be found in Ukraine and parts of Russia, though in Moscow yields are now traded at around the 9 10% mark. 14

19 Market Development European Retail Industry Investment Retail space in Western and Eastern Europe Here two further points must be borne in mind. First: particularly in the less well established markets, there is often an overall shortage of high quality modern retail space, so that there are virtually no properties available to buy. Secondly, market saturation in some regions is so high that appropriate yields are no longer attainable. There are, of course, considerable differences within individual countries. Despite all this, the retail property market in Central and Eastern Europe is still relatively underdeveloped in Western European terms. The average shopping centre space per 1,000 inhabitants in Western Europe is approx. 205 sqm. In Eastern Europe the average is sqm per 1,000 inhabitants in the established markets, falling as low as sqm per 1,000 inhabitants in Russia, Ukraine and Turkey. Particularly in the new EU member states there are regions within a country that have virtually caught up to Western European levels. Potential exists often still outside these major cities. Shopping centre space per capita in Europe Total GLA in sqm/1,000 inhabitants Netherlands Sweden Ireland UK France Spain Czech. Rep. Average Poland Hungary Slovakia Turkey Romania Russia Source: King Sturge, European Retail Property 2007 Rents in Europe s capitals Rents for retail properties in Central and Eastern Europe in 2006 were stable to slightly rising. Increases in rents for retail spaces in prime locations in Budapest and Bucharest were striking, with year-on-year increases of 20% and almost 70% respectively. Similar tendencies were also to be noted in some Western European cities. Overall, rental levels in Eastern European cities are still much lower than in their Western European counterparts. Here, too, there are signifi cant differences between countries and within individual countries. Annual rents for prime locations in Eastern Europe varied between EUR per sqm in Baltic States and EUR 2,700 per sqm in Moscow. In Western Europe annual rentals for comparable locations ranged from EUR 1,000 per sqm up to EUR 8,000 per sqm in Paris and London. Rents in shopping centres in out-of-town locations and in regional cities fell signifi cantly short of these levels. Rents vary considerably, depending on unit sizes. While anchor tenants with retail space of over 1,000 sqm in Eastern Europe pay annual rents of EUR per sqm in established markets and EUR per sqm in Turkey and Russia, annual rents for areas of less than 100sqm are EUR per sqm, depending on the country. Prime Rents in Europe EUR/sqm/year Paris Dublin London Zurich Berlin Vienna Moscow Prague Sofia Budapest Bucharest St. Petersburg Istanbul Warsaw Bratislava Riga ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Source: King Sturge, European Retail Property

20 Meinl European Land 2006 Main Investment Markets Russia, Poland and Turkey

21 Main Investment Markets Russia, Poland and Turkey Meinl European Land s most important investment markets in 2006 were Russia, Poland and Turkey. In 2006 the Company acquired or signed new contracts covering several new property and development projects in these countries with by far the largest portion of these new investments being in Russia. 17

22 Meinl European Land 2006 Russia is currently Meinl European Land s most important investment market. Following the acquisition of recent years and especially its numerous development projects the total portfolio of existing properties and development projects amounted to EUR 2.1bn. Hence, Meinl European Land has become the largest retail property investor and developer in Russia. All in all, close to 40% of its investments are to be found in Russia. Property investments Property development At the end of 2006 the Group s Russian portfolio included seven shopping centre sites with a total value of ca. EUR 528m, generating net yields of over 12%. Properties valued at approx. EUR 400m were newly acquired and/or completed in the course of The Company acquired two existing shopping centres in Moscow in the second quarter of 2006 at purchase prices amounting to approx. EUR 120m, and it completed the acquisition of a shopping centre in Togliatti in December The acquisition costs for that shopping centre were ca. EUR 83m. The opening of a major 50,000 sqm shopping centre in Kazan also took place in December, a project involving investment costs close to EUR 90m achieving a return of approx. 12%. Other property projects involving ca. EUR 1.3bn are already signed and sealed, with their completions intended by the end of These projects encompass, in particular, large fl oor-space shopping centres in Russia s regional cities with populations of over one million each. Completion of projects in Rostov od Don, Niznij Novgorod, Ufa, Omsk, Ryazan and Yekaterinburg is planned for 2008/2009, with the development project in Yekaterinburg forming Meinl European Land s second shopping centre and two projects also being planned in Rostov od Don. With these developments the Company intends to secure its market position in the region for the long term. The volume of investment for all these projects ranges from EUR 70m to approx. Russia 18

23 Main Investment Markets Russia EUR 120m. The largest Russian project is a shopping centre planned in a suburb of Moscow involving planned development costs of ca. EUR 300m. Here it is intended, in several stages, to construct a shopping centre including specialist shops with a total fl oor area of up to 250,000 sqm by the end of Meinl European Land will be continuing its own expansion in Moscow as well with, on the one hand, work due to begin shortly on extending its two existing shopping centres and, over and above that, contracts for two further shopping centres in the capital having already been arranged. Rental income Meinl European Land s 2006 rental income in Russia climbed by more than EUR 17m to EUR 29m. Approx. EUR 21m was attributable to rents on the properties that the Company already owned at the beginning of the year, with the remaining part being the rental income from newly acquired properties. Considerable increases are expected for the following years on the basis of the development projects being completed, with the total rental income in Russia estimated at almost EUR 260m once all the projects in hand have been opened by the end of Shopping centres Development projects Portions of the overall portfolio and of the total rental income 40% of the overall portfolio 22% of the total rental income Occupancy rate Acquisition: Park House Shopping Centre Togliatti Acquisition: December 2006 Market value: EUR 76m Anchor tenants: Great-B The occupancy rate in Russia amounts to ca. 97%. Outlook Russia is expected to be one of the most rapidly growing and expanding markets in Meinl European Land intends to keep widening its activities there and to consolidate its position in the Russian property market. Strong demand both from retailers and investors from Western Europe penetrating the Russian market to an increasing extent give grounds for expecting the process of convergence there to continue, and for yields to come closer in the medium term to those now prevailing in Eastern Europe s established markets. Assuming further yield compression, an appreciation in property values in Russia could increase even further by time the projects are fi nalized. 19

24 Meinl European Land 2006 Poland is Meinl European Land s second largest market, involving property and development projects with a total value of more than EUR 1.2bn in April 2007 or approx. 23% of the Company s overall portfolio. Over 45% of the portfolio consists of active properties, with the remaining 55% comprising development projects scheduled to come to completion between 2007 and Property investments Meinl European Land s portfolio in Poland at the end of 2006 consisted of 15 properties with a total value of approx. EUR 512m, which was EUR 160m above the previous year s amount. Their average yields come to ca. 9.2% on the basis of acquisition costs. In 2006 the Company concentrated its efforts in Poland on development projects, not least on the basis of yields that had dropped, making the acquisition of existing properties seem increasingly unattractive. These projects will be completed in the coming 2 3 years. investment volume of approx. EUR 650m and completions planned between 2007 and Meinl European Land s largest Polish project is a shopping centre in Lublin, which will be Eastern Poland s largest shopping centre with planned fl oor space of more than 100,000 sqm. The estimated investment costs for this project, which is scheduled for completion in 2009, are approx. EUR 140m. In Poland, too, Meinl European Land is pursuing a strategy of securing its market position by having several properties in the same region. Larger projects with lettable areas of 40,000 sqm and above are also in the planning stages in Jastrzebie Zdroj, Koszalin and Gdansk. Property development Rental income In 2006 the Company signed contracts for six further development projects in Poland, where Meinl European Land s overall project portfolio as of now encompasses 12 development projects with an Meinl European Land s 2006 rental income in Poland came to more than EUR 27m, and thus managed to be more than twice as much as in the previous year. The increase is attributable to the Poland 20

25 Main Investment Markets Poland properties acquired in the course of the previous year, the revenues from which could for the fi rst time be fully taken into account in the period reported. Now that a range of development project contracts have been signed that will be completed in the coming years, rental income in Poland will climb considerably in subsequent reporting periods. The Company expects to be able to achieve from its Polish portfolio annualised rental income of more than EUR 80m following completion of all the projects secured as at the end of Development project: Shopping centre in Bialystok, Poland Planned opening: QIV 2007 Investment costs: EUR 39m Leased in advance: over 95% Anchor tenants: Metro Shopping centres Development projects + approx. 10 other retail sites (supermarkets, retail parks ) Portions of the overall portfolio and of the total rental income 23% of the overall portfolio 28% of the total rental income Outlook Occupancy rate The occupancy rate of Meinl European Land s Polish properties was over 94% in The vacant fl oor space resulted mainly from changes among smaller tenants within shopping centres. The Company is confi dent of being able to rent out the remaining areas in the near future. Taking into consideration the high volume of development project contracts that have been secured Poland will continue to be one of Meinl European Land s most important markets in These projects are, without exception, in medium-size regional cities where, in many case, the supply of modern retail fl oor space is still insuffi cient. The Company s Polish portfolio will therefore rise to EUR 1.2bn by the end of 2010 based on the investment cost of development projects. As the market yields for existing properties are, in some cases, considerably below the yields Meinl European Land expects on development projects, these projects offer potential for considerable appreciation that can be realized upon their completion. Apart from the development projects that have been committed a range of other investment opportunities is being investigated, most of them likewise in regional cities. Meinl European Land intends to concentrate in the future in such cities, where the market is less saturated than in Warsaw and in which sustainable and more attractive yields can thus be attained. It is expected that the setback in yields of recent years will continue in For Meinl European Land this means the potential for further appreciation arising from the existing portfolio and from development projects upon completion can be expected. 21

26 Meinl European Land 2006 At the end of 2006 Meinl European Land s portfolio in Turkey consisted of development projects with a total value of approx. EUR 0.5bn, thus making it the Group s third largest market. The development volume increased to approx. EUR 0.9bn by April The Company expects this vibrant country to rank among its most important investment markets in the coming years. Property investments Meinl European Land has been active in Turkey since Until now the Company has not invested in standing properties but has rather concentrated its efforts on property development. The Company owns only one land plot valued at EUR 28m which is included in investment properties. Because of special circumstances in the market the Group s focus in the coming years will continue to be more on the development of retail properties than on the acquisition of existing properties. Property development The most advanced development is that of a shopping centre project in Trabzon, a city with more than 200,000 residents and a catchment area that attracts consumers along a substantial stretch of the Black Sea coast. Construction for the shopping centre with a rental area of 47,000 sqm began at the end of 2006, and opening is forecast for the fi rst quarter of The volume of investment is estimated at approx. EUR 130m with an expected yield of ca. 11%. The other development projects, which are currently in planning stages and are scheduled for completion in the course of 2009, have similarly attractive conditions. At the end of 2006 Meinl European Land s portfolio of Turkish projects consisted of four development projects covering shopping centres with planned fl oor areas ranging from 30,000 sqm to 70,000 sqm. The projects total estimated investment volume is more than EUR 0.5bn. Turkey 22

27 Main Investment Markets Turkey Development project: Shopping centre in Trabzon, Turkey Planned opening: QI 2008 Development projects Investment costs: EUR 36m (until year-end 2006) Rented area: 47,000 sqm Outlook As one of the growth markets in the years ahead Turkey will rank among Meinl European Land s most signifi cant future investment markets. An initial drop in property yields was recorded in 2006, a trend that is expected to persist for the near future. The Company will profi t from this trend in that the above mentioned development projects have been concluded on the basis of predetermined yields that are considerably above the current market yields for comparable, fully developed properties. This results in a considerable potential for appreciation that can be realised once the projects have been completed. The Company intends to extend its activities rapidly in order to benefi t, to the greatest possible extent, from the potential for appreciation arising from any future harmonisation of yields, and simultaneously to secure its market position for the long term. Its future investment focus will remain on development projects as only few shopping centres built to Western standards are available on the market. In addition to the above mentioned development projects, further attractive investment opportunities were under investigation at yearend Two of these developments projects were secured in the fi rst months of 2007, bringing the total portfolio to EUR 0.9bn. 23

28 Meinl European Land 2006 Established Markets Czech Republic, Hungary, Slovakia and the Baltic Region

29 Established Markets Czech Republic, Hungary, Slovakia and the Baltic Region The Czech Republic and Hungary were the first countries in which Meinl European Land became active at the time of its formation in From 2004 onwards, the Group expanded its activities into Slovakia and the Baltic countries. The total portfolio in these markets is currently valued at ca. EUR 0.7bn. These countries are among the most mature markets in CEE with the yields having already substantially converged to Western Europe s levels. As a result, the Company sees only limited potential for attractive investment opportunities in these countries. 33

30 Meinl European Land 2006 By the end of 2006 the Czech Republic was Meinl European Land s fourth largest market with a portfolio including developments valued at approx. EUR 0.4bn. Due to the fact that yields have largely adjusted to those of Western Europe, selectivity will apply to any extension of the portfolio. As a result, the relative importance of the Czech Republic within the Group s overall portfolio will decline in the coming years. Property investments Over the past few years competition in the Czech Republic has been fi erce leading to a saturated market. At the same time yields have dropped signifi cantly and are now only slightly above the returns obtainable for comparable properties in Western Europe. Hence, Meinl European Land s expansion strategy in the Czech Republic has meanwhile become very selective. Nevertheless, the Company did extend its portfolio in the Czech Republic in 2006 by one hypermarket with an adjoining shopping mall. The market value of this site in the city of Mlada Boleslav in Central Bohemia is EUR 16m. At the end of 2006 the portfolio consisted of 102 existing investment properties with an estimated value of ca. EUR 0.3bn, on which the average yield was close to 9% based on acquisition costs. The portfolio consists particularly of smaller properties, such as supermarkets, stand-alone hypermarkets or specialist shopping malls including one hypermarket. Property development The competitive market conditions are restricting Meinl European Land s activity in the Czech Republic and the Company currently has just one development project in the region involving the planned construction of a shopping centre in a prime location in the centre of Brno. The Group has owned the plot of land for some years and is currently operating on this area a supermarket. The project s investment volume is estimated at approx. EUR 60m. Czech Republic 26

31 Established Markets Czech Republic Rental income Meinl European Land s rental income generated in the Czech Republic in 2006 was just ca. EUR 21m, which is slightly above the rental proceeds of the previous year. The properties are achieving average yields based on acquisition costs of close to 9%. Acquisition: Hypermarket in Mlada Boloeslav, Czech Republic Acquisition: March 2006 Market value: EUR 15m Anchor tenant: Spar Shopping centres Development projects + approx. 100 other retail sites (supermarkets, retail parks ) Occupancy rate The occupancy rate of the Group s Czech portfolio is approx. 92% in 2006, with most of it consisting of long-term leases. Outlook The retail property market in the Czech Republic is comparatively well developed with a saturation seen in Prague. There are, nonetheless, still some regions of the country where the supply of retail space is still relatively low, and where an increase in private consumption could be expected in the coming years. Meinl European Land will concentrate on such regions in the immediate future, with its focus on property development. The Company already owns some stand-alone properties in these regions particularly supermarkets and hypermarkets and intends to extend these by small shopping malls. With property yields at low levels the Company may well also consider to dispose of some or even all its Czech sites in the near to mid-term future. 27

32 Meinl European Land 2006 With a portfolio of approx. EUR 125m at the end of 2006 Hungary is one of Meinl European Land s smaller markets. Expansion in this country is subdued due to the yield compression which has already been recorded. Therefore, Hungary is expected to decline in importance for the Group in the future. Property investments As in the Czech Republic, the market for retail space in Hungary is already quite well developed, and yields are only slightly above those of Western Europe, such that Meinl European Land is now making only selective investments there and concentrating mostly on property development. It acquires the land plot for a development project in Gödöllö, which is included in the investment properties in Hungary in Rather, the Company succeeded in the disposal of 29 supermarkets that had been initiated in the previous year because they no longer fi tted in with the Company s investment strategy. The transaction s proceeds were approx. 15% above the most recent valuation of the properties. The Hungarian portfolio of investment properties had an overall estimated value of EUR 120m at the end of The somewhat lower total value compared with the previous year is attributable to the disposal of the supermarket portfolio. Property development Meinl European Land initiated in 2006 a small development project in Gödöllö, to the east of Budapest. This EUR 5m project consists of a supermarket with some additional areas for rental. Opening is planned for autumn of There are no other development projects in Hungary for the time being. Hungary 28

33 Established Markets Hungary Rental income Rent income in Hungary rose by ca. 35% compared with the previous year, and amounted to ca. EUR 9m in The increase is attributable, above all, to the properties acquired in the second half of 2005 making whole-year profi t contributions. The Company expects revenues to be slightly lower in the coming year, owing to the disposal of the supermarket portfolio unless any new acquisitions are undertaken. Investment property: Budapest Market value: EUR 44m Anchor tenant: Spar Shopping centres + more than 20 other retail sites (supermarkets, retail parks ) Occupancy rate The occupancy rate in Hungary in 2006 was ca. 99% (excluding a site in Budapest which is planned to be redeveloped). Outlook Management expects yield compression to continue in Hungary bringing the yield to Western European levels within a few more years. This process of yield compression will result in a further increase in value of Meinl European Land s existing portfolio, yet at the same time this situation also limits the opportunities for new, fi nancially attractive investments. In so far as new acquisitions are being sought, Meinl European Land s focus will continue to be on development projects, particularly in the regional cities. 29

34 Meinl European Land 2006 Meinl European Land s portfolio of 2 attractive shopping centres in Slovakia are valued at approx. EUR 88m. The country ranks as one of the Group s smallest markets. Properties Property development Meinl European Land did not acquire any new properties in Slovakia in The portfolio consists of two shopping centres with a market value of approx. EUR 88m at the end of Continuing yield compression in Slovakia, as well as a rise in the level of rents achieved, lead to an appreciation in value in 2006 of approx. EUR 12m. Meinl European Land had initiated one development project in Slovakia at the end of 2006, namely the extension of an existing shopping centre in Kosice, having owned the land plot since The market is now indicating potential for such an extension with a number of retailers showing interest in renting space within this new area. Hence, the development of a specialist shopping centre was initiated in 2006 with an investment volume of approx. EUR 20m. A lettable area of ca. 17,000 sqm is projected, with completion scheduled for Slovakia 30

35 Established Markets Slovakia Rental income Rental income in 2006 amounted to EUR 6.3m in Slovakia, up ca. 10% on the previous year. This increase is attributable to new leases as well as sales linked lease agreements with existing tenants. Shopping centres Investment property: Kosice Market value: EUR 61m Anchor tenants: Ahold, Datart Occupancy rate The occupancy rate in the 2 Slovak shopping centres is currently 100%, with long-term leases in place for most of the lettable area. Outlook Owing to its robust economic growth Slovakia should remain an attractive location for foreign investors in the future, though the market is subject to certain limits because of its small size. Nevertheless, interesting investment opportunities can still be seen in Slovakia as a whole, and especially in the formerly poorer region in the east of the country. The economy in Eastern Slovakia has clearly been restrained over the past two years, but has caught up to Western Slovakia so that this region is now becoming more interesting for retailers. Meinl European Land is currently investigating some possible investments in Slovakia with its focus preset on development projects, as the returns on completed properties either do not match up to the Company s expectations and/or because no appropriately modern retail trading areas are in existence. 31

36 Meinl European Land 2006 Meinl European Land has been active in the Baltic region (Latvia and Estonia) since The region ranks among the Company s smaller markets with a portfolio volume of approx. EUR 120m. Investment opportunities are rather limited because of the small size of the countries concerned and their market conditions. Property investments Property development Meinl European Land currently has one investment property in the Baltic, namely a shopping centre with an area of 20,420 sqm, which was opened in summer 2006 in Riga, the Latvian capital. The fair value of the property is ca. EUR 61m. The shopping centre is generating a yield based on investment costs of 9.6%. The market yield for comparable properties in the region is, by contrast, estimated at ca. 6.5%. Meinl European Land s 2006 Baltic activities included, in addition to completing the Latvian shopping centre, extending its activities to a further market in the form of a fi rst project in Estonia. This project involves the Group constructing supermarkets for a leading Baltic retailer in various Estonian towns, which the retailer will then rent from Meinl European Land over the long term, as main lessee. The project s investment volume is approx. EUR 60m. Baltic Region 32

37 Established Markets Baltic Region Rental income Meinl European Land s 2006 rental income from the Baltic countries was approx. EUR 1.4m. As the Company s one and only operative property in the region only opened at the end of August 2006, its fi rst full year revenue contribution will only be recorded in Rental income is expected to reach EUR 4m in Further increases are possible, as most of the leases include rents linked to the turnover of the lessees. Shopping centres Development project: Riga Market value: EUR 61m Anchor tenant: Rimi Hypermarket + Project for the development of approx. 15 supermarkets in different cities in Estonia Occupancy rate The shopping centre in Riga has been operating close to full capacity since it opened. The rents are long-term with lease periods of up to 15 years. Outlook Because of their sizes, the Baltic countries offer only limited expansion potential. In addition, market saturation and depressed yields do not favour large scale expansion. On the other hand there are rural regions in which hardly any modern retail fl oor space exists which might lead to some attractive investment opportunities taking high economic growth of the Baltic region into consideration. This is expected to continue in the years ahead. Therefore, Meinl European Land will concentrate its future investments on property development in regions with a low sales penetration in order to achieve attractive conditions and to participate in the imminent adjustment of those conditions to the levels pertaining in Western Europe. 33

38 Meinl European Land 2006 Growth Markets Bulgaria, Romania and the Ukraine

39 Growth Markets Bulgaria, Romania and the Ukraine Meinl European Land sees the two new EU member countries of Bulgaria and Romania, as well as the Ukraine as growth markets of the future. Because of the attractiveness of these markets, the Company decided, in 2006, to widen its activities in these countries and to intensify its commitment to them. Because of the market circumstances (with hardly any modern retail space in existence) the investment focus is clearly on property development. 35

40 Meinl European Land 2006 Meinl European Land extended its activities to the Bulgarian market in The portfolio currently consists of one development project with an investment volume of approx. EUR 185m, which has been aquired at the beginning of Further investments are planned for the future. Property investments Property development Meinl European Land entered the Bulgarian market at the end of 2006, after a comprehensive analysis of it. The Company does not yet have any complete, operative retail property but is concentrating on property development. As hardly any modern retail space exists in Bulgaria, and as the price/performance ratio for the few existing shopping centres are not attractive, the Group s focus will continue to be, over the coming years, the development of retail properties. Meinl European Land signed agreements for its fi rst and so far only development project in Bulgaria in January This involves a project for a shopping centre in Sofi a with a planned lettable area of ca. 80,000 sqm. The investment costs for the shopping centre, which is intended be opened by the end of 2009, will run to approx. EUR 185m. Bulgaria 36

41 Growth Markets Bulgaria Development project: Sofia Investment costs: EUR 185m Planned GLA: 80,000 sqm Scheduled opening: 2009 Development project Outlook Bulgaria is regarded as one of the prime growth markets in Europe for the coming years, not only by Meinl European Land. Over the past two years the country has had solid economic growth of more than 5%, and similar fi gures are forecasted for the years ahead. As a consequence of the accession of Bulgaria and Romania to the EU on 1st January 2007 it is expected that quite a number of European retail companies that have as yet not operated in Bulgaria at all will now enter the market. Meinl European Land intends to capitalize on the opportunities arising from this and has therefore decided to extend its activities swiftly. As a result of its early market entry, the Company is striving to participate as much as possible in the expected increase in value arising from any future harmonisation of yields and, simultaneously, to secure its market position. The future investment focus will be on development projects. A further development project, in addition to the contractually arranged shopping centre in Sofi a, was in the pipeline at the end of

42 Meinl European Land 2006 In Meinl European Land s estimation the Romanian market likewise belongs to the growth markets of the years ahead. Hence, the Company is striving to extend its activities in Romania massively. Some attractive investment opportunities were being evaluated at the end of Property investments Property development Meinl European Land s Romanian portfolio consisted at the end of 2006 of a specialist shopping centre in Bucharest with most of it leased to an operator of a DIY market. A land reserve of approx. 150,000 sqm is located on the site, having been acquired in the course of the acquisition in The market value of Romanian investment property is EUR 38m. With retail demand exceeding supply in Bucharest, Meinl European Land resolved, in 2006, to develop part of the existing expansion space alongside its specialist shopping centre in Bucharest. The land plot had been acquired in 2004 at a relatively favourable price, whereby the expansion was intended to materialise at an attractive level of return. In addition to the DIY market, which wanted to expand its own fl oor space, other major retailers have also indicated their interest in renting space at this location. At the end of 2006 Meinl European Land had not yet secured any further development sites, although the investment conditions for retail properties improved markedly within the past year, and the Company is now seeking to extend its commitments in the Romanian market in the coming years. Some attractive development projects were indeed under investigation just at the end of the year. Romania 38

43 Growth Markets Romania Rental income Rental income in Romania in 2006 amounted to ca. EUR 1.2m, 10% above the previous year, with the portfolio unchanged. Investment property: Bucharest Market value: EUR 31m Anchor tenant: Praktiker Shopping centres Occupancy rate The occupancy rate in the site at Bucharest remained unchanged in 2006 at 100%. Outlook Intensifi ed interest coming from major European retailers has clearly livened up the Romanian property market. It is expected for 2007 that local and international retailers represented in Romania will extend their activities and that, in some places, new retailers will also enter the market. The demand for high quality retail space will rise further, which will in turn encourage developers and investors to penetrate the Romanian market. Meinl European Land has already started to investigate more closely the opportunities in smaller towns of up to 50,000 inhabitants. Early concentration on small to medium-size towns a strategy that the Company has previously applied successfully in other countries will generate profi table opportunities for Meinl European Land that are no longer available in Bucharest. The investment focus in Romania will clearly stay on property development as, on the one hand such projects can still be embarked upon with higher returns than the purchase of existing properties and, on the other hand, there are still only a few modern retail properties being offered on the market outside of Bucharest. 39

44 Meinl European Land 2006 In 2006 Meinl European Land decided to enter the Ukraine. The signing of contracts for a fi rst developement project took place just before year end Other investment opportunities in the fi eld of retail properties were likewise undergoing evaluation at the end of Property investments Property development Meinl European Land does not yet have any completely operative retail properties in the Ukraine. Owing to market circumstances the Group s focus in the years ahead will be more on the development of retail properties than on the acquisition of existing properties. With its decision to expand its activities to the Ukraine Meinl European Land began, in the summer of 2006, investigating potential investment opportunities. By the end of that year several large scale development projects involving shopping centres were being evaluated. An agreement for the fi rst of these projects was signed shortly before year end 2006: a shopping centre in Odessa with planned rental areas totalling ca. 60,000 sqm. The investment costs for the shopping centre, which it is intended be completed in 2009, were estimated at EUR 150m. The expected rental yield amounts to ca. 12%. Ukraine 40

45 Growth Markets Ukraine Outlook Because of the attractive conditions there is scarcely any other market in which retail trading projects can generate returns of 12% Meinl European Land intends to reinforce its activities in the Ukraine considerably, in order to profi t to the greatest possible extent from the potential increase in value arising from any future harmonisation of yields. Some international retailers are already established in the Ukraine. Other retailers have simultaneously recognised the opportunities for expansion that are arising, particularly as a result of the forecasts of high economic growth, and are planning likewise to enter the market. The high demand for retail space coming from international retailers has already inspired a range of European investors and developers to extend the scope of their operations to the Ukraine. As one of the fi rst companies to have have set an operation in this market, Meinl European Land intends to profi t from its fi rst mover status. Development projects 41

46 Meinl European Land 2006 Portfolio at a Glance Property Investments and Development Projects

47 Portfolio at a Glance Property Investments and Development Projects At April 2007 Meinl European Land s portfolio comprises property and projects in 11 Central and Eastern European countries to a total value of approx. EUR 5.2bn. It includes 157 properties completed and let at YE 2006 with an estimated value of EUR 1.7bn and 38 further contracted development projects with a total value of EUR 3.5bn. Over 50% of the properties and projects in the portfolio are local or regional shopping centres. The following pages provide an overview of selected properties and projects which are representative of the overall portfolio. 43

48 Meinl European Land 2006 Shopping centre Reduta Warsaw, Poland Market value: EUR 76m Lettable space: 26,878 sqm Occupancy rate: 89% Tenants: H&M, Carrefour (owner hypermarket) Meinl European Land acquired this shopping centre in the summer of Reduta is one of the most popular shopping centres in Warsaw. Customers value the balanced selection of tenants that included international brands and local businesses, and the excellent transport links. 44

49 Portfolio at a Glance Property Investments and Development Projects Shopping centre Park House Yekaterinburg, Russia Market value: EUR 87m Lettable space: 32,958 sqm Occupancy rate: 100% Tenants: Grossmart, Sportsmaster, Technosila One of Meinl European Land s fi rst properties in Russia, opened in the summer of Park House is the fi rst modern facility of its kind in this city of over a million inhabitants. 45

50 Meinl European Land 2006 Shopping centre Park House Togliatti, Russia Market value: EUR 76m Lettable space: 26,368 sqm Occupancy rate: 97% Tenants: Real (Metro) Meinl European Land acquired this shopping centre in Togliatti (population 700,000) at the end of

51 Portfolio at a Glance Property Investments and Development Projects Shopping centre Park House Volgograd, Russia Market value: EUR 54m Lettable space: 30,344 sqm Occupancy rate: 100% Tenants: Perekryostok, Technosila The shopping centre in Volgograd, a city of a million inhabitants was the fi rst project in Russia, which Meinl European Land acquired in autumn At current, the location is being extended by a DIY-market adjacent to the shopping centre. 47

52 Meinl European Land 2006 Shopping centre Galeria Copernicus Torun, Poland Market value: EUR 70m Lettable space: 30,202 sqm Occupancy rate: 100% Tenants: Real, Mediamarkt, H&M The shopping centre Galeria Copernicus was one of Meinl European Land s fi rst own development projects. It was opened in November The shopping centre is leased on long-term contract basis to retailers like Real, Mediamarkt, Douglas and many more. 48

53 Portfolio at a Glance Property Investments and Development Projects Shopping centre Galeria Azur Riga, Latvia Market value: EUR 61m Lettable space: 20,420 sqm Occupancy rate: 99% Tenants: Rimi, Takko, Lindex The shopping centre Galeria Azur was Meinl European Land s fi rst project in Latvia. The opening was in August The shopping centre was almost fully occupied from the day of the opening. 49

54 Meinl European Land 2006 Shopping centre Targowek Warsaw, Poland Market value: EUR 104m Lettable space: 30,080 sqm Occupancy rate: 94% Tenants: Marks&Spencer, Carrefour (owner hypermarket) Meinl European Land acquired this shopping centre in the summer of 2005 by taking over the Danish based Foras Holding A/S which owned three shopping centres in Poland. Targowek belongs to the most popular shopping centres in Warsaw. The shopping centre is leased on long-term contract basis to European and Polish companies. 50

55 Portfolio at a Glance Property Investments and Development Projects Development project for a shopping centre in Yekaterinburg, Russia Investment costs expected: EUR 92m Lettable space: 60,300 sqm Planned opening: 2008 Meinl European Land develops in Yekaterinburg a second shopping centre with a planned lettable space of approx. 60,000 sqm. With the development of a second shopping centre in a city, Meinl European Land targets to keep its strong market position also in the future. The opening of the shopping centre is planned for year-end

56 Meinl European Land 2006 Development project for a shopping centre in Ufa, Russia Investment costs expected: EUR 127m Lettable space: 80,000 sqm Planned opening: 2009 Development project for a shopping centre with a lettable space of 80,000 sqm in Ufa, a city of more than a million inhabitants. The project will be developed under a Joint Venture with the Russian property developer Vremya. The development project is currently in planning and the opening is scheduled for

57 Portfolio at a Glance Property Investments and Development Projects Development project for a shopping centre in Nizjni Novgorod, Russia Investment costs expected: EUR 111m Lettable space: 77,500 sqm Planned opening: 2009 This development project in Nizjni Novgorod will be also realised under the joint venture with Vremya group. The opening of the shopping centre with a planned lettable space of almost 80,000 sqm is scheduled for year-end

58 Meinl European Land 2006 Shopping centre Bialystok, Poland Investment costs expected: EUR 70m Lettable space: 38,000 sqm Planned opening: Year-end 2007 The shopping centre in Bialystok, a city in the Eastern part of Poland, is currently under construction and the opening is planned for yearend More than 95% of the spaces in the shopping centre have been leased already. Anchor tenant is the German based Metro group with a Real hypermarket. Development partner for the project is the Danish property developer TK Development. 54

59 Portfolio at a Glance Property Investments and Development Projects Development project for a shopping centre in Trabzon, Turkey Investment costs expected: EUR 133m Lettable space: 48,800 sqm Planned opening: Beginning of 2008 Meinl European Land develops the shopping centre in Trabzon, a city on the black sea coast in Turkey together with the property developer Multi Development as partner. The opening of the shopping centre is scheduled for the beginning of

60 Meinl European Land 2006 Property Investments Russia City Name of property Fair value (in TEUR) Area in sqm Type Yekaterinburg Yekaterinburg 1 87,236 33,007 SRSC Volgograd Volgograd 54,115 31,085 SRSC Moscow Signalny 34,580 5,779 NCE Moscow Bratevo 56,220 11,553 NCE Togliatti Togliatti 75,771 55,000 SRSC Kazan Kazan 121,620 48,480 SRSC St. Petersburg Bugry 99, ,360 OTH Poland City Name of property Fair value (in TEUR) Area in sqm Type Plock Plock, Lukasiewicza (S.C. Agromex) 7,168 6,261 SARF Bytom Bytom, ul. Dolnoślaska (Plejada Bytom) 41,830 14,815 SRSC Olkusz Olkusz, Rabsztynska 12,210 7,390 NCE Piła Piła, Oginskiego 9,182 6,460 NCE Swietochlowice Swietochlowice, Chorzowska 10,620 7,902 NCE Plock Plock, Przemyslowa 20,300 11,061 NCE Tczew Tczew, Kwiatowa 6,600 4,594 CCE Zamosc Zamosc, Wyszynskiego 10,830 6,967 NCE Siemianowice Slaskie Siemianowice Slaskie, Jagielly 8,685 6,411 NCE Torun Galeria Copernicus 69,900 28,594 SRSC Srem Srem, Kolejowa 2,982 2,543 CCE Warszawa Warszawa, Al. Jerozolimskie (Reduta) 76,420 26,605 SRSC Warszawa Warszawa, ul. Głebocka (Targówek) 104,070 29,813 SRSC Lublin CH Felin - Felicity 91, ,381 OTH Bialystok Bialystok, Euro Mall Polska XII 39,304 36,524 OTH Czech Republic City Name of property Fair value (in TEUR) Area in sqm Type Brno Brno, Cornovova 703 1,087 SARF Brno Karolíny Světlé SARF Brno Brno, Kulkova 1,316 4,446 WLP Brno Brno, Libušina tr ,473 SARF Brno Brno, U pošty 912 1,194 SARF Bystrice nad Pernštejnem Bystrice nad Pernštejnem, nam. TGM 688 1,448 SARF Hodonín Hodonín, R. Filipa 379 1,011 SARF Jihlava Jihlava, Brezinova 2,079 4,714 CCE Nové Mesto na Morave Nové Mesto na Morave, Komenskeho 806 1,744 SARF Okríšky Okríšky, B. Němcové SARF Trebíc Trebíc, Gen. Fanty SARF Trebíc Trebíc, Hrotovická 1,829 8,513 WLP Trebíc Trebíc, Karlovo nam ,245 SARF Uherský Brod Uherský Brod, Slovácké nám ,470 SARF Znojmo Znojmo, Pražská SARF Znojmo Znojmo, Vídenská 501 1,196 SARF Ždár nad Sázavou Ždár nad Sázavou, Nádražní 926 1,526 SARF 56

61 Property Investments City Name of property Fair value (in TEUR) Area in sqm Type Ždár nad Sázavou Ždár nad Sázavou, nam. Republiky 1,433 1,824 SARF Praha Praha, Vinohradská 1,753 1,898 SARF Praha Praha, Kutnohorská 1,605 3,470 SARF Praha Praha, Podhajská pole 642 1,015 SARF Praha Praha, Chodovická (Trio) 2,190 2,809 CCE Praha Praha, V Předpolí (Klas) 899 1,209 SARF Praha Praha, Mazurská (Nisa) 1,476 1,845 SARF Praha Praha, Vojtíškova (Slunečnice) 2,321 4,562 CCE Praha Praha, Štúrova 2,616 3,471 CCE České Budějovice České Budějovice, Františka Ondříčka 1,573 2,472 CCE Plzeň Plzeň, Lidická (Gera) 1,076 1,785 SARF Hradec Králové Hradec Králové, Labská kotlina (Labe) 338 1,325 SARF Hradec Králové Hradec Králové, M. Horákové (Dukla) 909 1,464 SARF Bílina Bílina, Litoměřická 501 1,531 SARF Praha Praha, U Šalamounky (Vesna) SARF Frýdek Místek Frýdek Místek, Ostravská 862 1,935 CCE Rokycany Rokycany, Boženy Němcové 1,629 2,698 CCE Strakonice Strakonice, Lidická SARF Liberec Liberec, Hlávkova 589 2,317 SARF Domažlice Domažlice, U Nemocnice 926 1,352 SARF Jihlava Jihlava, Kollárova 1,027 1,484 SARF Praha Praha, Českomoravská (Balabenka) 2,547 2,842 SARF Brno Brno, nám. 28. dubna (Javor) 2,806 4,515 NCE Zlín Zlín, Křiby (Přerovanka) 1,031 2,799 CCE Pardubice Pardubice, Lonkova 999 3,669 CCE Praha Praha, Nevanova (Bílý Beránek) 1,570 2,831 CCE Praha Praha, Matějská (Fišerka) 1,360 1,926 CCE Praha Praha, Mukařovského (Luka) 5,923 7,804 NCE Praha Praha, Hábova (Paprsek) 2,477 3,550 CCE Praha Praha, Obchodní náměstí (Vltava) 2,394 3,831 NCE Praha Praha, Makovského (Výsluní) 1,437 2,573 CCE Praha Praha, Donovalská (Zdar) 1,554 3,036 SARF Havířov Havířov, Moravská 750 2,512 SARF Praha Praha, Prusíkova (Velká Ohrada) 4,221 8,947 NCE Náchod Náchod, R užová 573 1,991 SARF Nymburk Nymburk, Pražská 1,274 1,981 SARF Praha Praha, Malešovská (Rohožník) 1,430 2,259 CCE Praha Praha, U Libeňského pivovaru (Šetelka) OTH Klášterec nad Ohří Klášterec nad Ohří, Petverská 585 1,295 SARF Pacov Pacov, Zizkova 1, SARF Lovosice Lovosice 1,239 1,001 SARF Brno Brno, Vídeňská (Futurum) 45,844 16,693 SRSC Rakovník Rakovník, Dukelských hrdin u 1,270 1,364 SARF Benátky nad Jizerou Benátky nad Jizerou, Platanová 1,085 1,040 SARF Aš Aš, Kamenná 1, SARF Praha Praha, Topolová (Cíl) 7,520 6,503 NCE Tábor Tábor, Světlogorská (Lužnice) 2,291 6,878 NCE Ústí nad Labem Ústí nad Labem, Mírová (Horizont) 1,414 3,505 CCE Ústí nad Labem Ústí nad Labem, Masarykova (Bukov) 678 1,447 SARF Vyškov Vyškov, Hraničky SARF 57

62 Meinl European Land 2006 City Name of property Fair value (in TEUR) Area in sqm Type Ostrava Ostrava, B. Četeny (Bělský les) 3,802 7,037 NCE Tábor Tábor, kpt. Jaroše (Zlatá svíčka) 1,927 3,965 NCE Plzeň Plzeň, Gerská 6,312 6,315 SARF Brno Brno, Veveří 1,332 3,022 WLP Brno Brno, Kolaříkova 2,372 3,238 NCE Brno Brno, Černého 449 3,662 CCE Ždár nad Sázavou Ždár nad Sázavou, Studentská 746 1,435 SARF Hradec Králové Hradec Králové, Hořická 2,203 3,617 CCE Praha Praha, Novodvorská 6,282 4,710 NCE Praha Praha, Trousilova (Sokolníky) 2,973 3,473 NCE Praha Praha, Molákova (Invalidovna) 1,531 1,892 SARF Praha Praha, Brandlova (Signál) 2,988 3,390 NCE Znojmo Znojmo, Vídeňská 1,166 2,575 CCE Praha Praha, U Libeňského pivovaru (Libeň) 6,009 6,651 OTH Neratovice Neratovice, Kojetická 1,120 1,087 SARF Poděbrady Poděbrady, Na Valech 2,802 2,830 NCE Liberec Liberec, Dobiášova 2,406 2,195 NCE Hrádek nad Nisou Hrádek nad Nisou, Liberecká 821 1,202 SARF Brno Brno, Sportovní (Boby) 3,404 4,877 NCE Karlovy Vary Karlovy Vary, Horova 3,603 3,225 SARF Nejdek Nejdek, nám. Karla IV 1,364 1,335 SARF Vestec u Prahy Vestec u Prahy, Vídeňská 4,567 5,080 SARF Třeboň Třeboň, U Francouz u 1,346 1,347 SARF Zlín Zlín, Třída Tomáše Bati (Interspar) 18,018 11,578 NCE Frýdek Místek Frýdek Místek, Hlavní třída (Interspar) 11,008 11,389 NCE Pardubice Pardubice, Poděbradská (Family Centrum) 19,210 13,332 WLP Mlada boleslav Magnum Global 14,534 9,105 NCE Mlada boleslav Magnum Bytový Park 1,039 1,090 NCE Staré Město Staré Město, Východní (RW Park) 3,905 3,204 CCE Ostrava Ostrava, Horní (Interspar) 21,390 14,436 NCE Staré Město Staré Město (Spar) 11,876 9,383 NCE Duchcov Duchcov, Osecká SARF Stránčice Stránčice, Všechromy 8,693 9,656 WLP Hungary City Name of property Fair value (in TEUR) Area in sqm Type Budapest Budapest, Késmárk 7,190 30,559 OTH Gyöngyös Gyöngyös, Kassai út 1, SARF Keszthely Keszthely, Csapás út 1,210 1,058 SARF Jaszbereny Jászberény, Nagykátai út 1,220 1,063 SARF Koszeg Koszeg, Rákóczi Ferenc út 1, SARF Zalaegerszeg Zalaegerszeg, Gasparich u. 1, SARF Budapest Budapest, Sibrik Miklós u. (Kőbánya) 16,750 9,552 NCE Dunaföldvar Dunaföldvár, 6-os foút SARF Tolna Tolna, Bajcsy Zsilinszky u-arany J. u. 1, SARF Kalocsa Kalocsa, Széchenyi u. 1, SARF Paks Paks, Táncsics Mihály út 1, SARF Hajduböszörmeny Hajdúböszörmény, Baltazár u. 1, SARF 58

63 Property Investments City Name of property Fair value (in TEUR) Area in sqm Type Nyergesújfalu Nyergesújfalu, Kossuth Lajos u. 1, SARF Budapest Budapest, Késmárk u. (XV.) 1,840 1,635 SARF Budapest Budapest, Táncsics M. u. (XVII.) 615 2,242 SARF Gyöngyös Gyöngyös, Kenyérgyár u ,801 SARF Kaposvár Kaposvár, Honvéd u SARF Kaposvár Kaposvár, 48-as Ifjúság u SARF Nagykanizsa Nagykanizsa, Eötvös tér 625 1,725 SARF Nyíregyháza Nyíregyháza, Tünde u. 1,030 3,000 SARF Szombathely Szombathely - 2 properties 24,000 17,545 SRSC Budapest Budapest, Bésci út. (EuroCentre Óbuda) 44,440 20,883 SRSC Tamasi Tamási, Szabadsag u. 1,160 1,030 SARF Debrecen Debrecen, 4. sz. főút - István u. 1, SARF Gardony Gárdony, Szabadság u. 1, SARF Nagykanizsa Nagykanizsa, Hevesi Sándor u. 1,140 1,000 SARF Gödöllö Durmont 3,595 21,201 OTH Latvia City Name of property Fair value (in TEUR) Area in sqm Type Riga Aplis 61,210 21,062 SRSC Romania City Name of property Fair value (in TEUR) Area in sqm Type Bucharest Militari Shopping Centre 30,800 8,756 SARF Bucharest Sial 7, ,344 OTH Slovakia City Name of property Fair value (in TEUR) Area in sqm Type Zilina Duben 27,306 10,407 NCE Kosice Optima 61,062 32,392 SRSC Turkey City Name of property Fair value (in TEUR) Area in sqm Type Trabzon Trabzon 27,500 72,150 OTH Type refers to following defi nitions: RSC Regional shopping centre SRSC Sub regional shopping centre NCE Neighbourhood centre CCE Convenience centre SARF RWP WLP OTH Stand alone retail warehouse/food store Retail warehouse park/power centre Warehouse/Logistics park Other 59

64 Meinl European Land 2006 Development of Business

65 Development of Business 61

66 Meinl European Land 2006 Development of Business Meinl European Land operates in the Czech Republic, Hungary, Poland, Romania, Slovakia, Russia and Latvia. In 2006 the Group started its operations in Turkey and further expanded into Estonia. Statement of compliance The consolidated fi nancial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and its interpretations issued by the International Accounting Standards Board (IASB), as adopted by the EU. Change in the consolidation structure Merger In the year 2006, Meinl European Land decided to merge a number of group companies as part of a plan to consolidate operations in the Czech Republic, Slovakia and Romania as well as holding companies in Denmark. By doing so, the Group will benefi t from a decrease in the administrative expenses and a simplifi cation of the organisation. The Group owned 100% of shares of all merged companies. In the Czech Republic, 14 companies VBL Beta, s.r.o., Ceska Obchodni centra, s.r.o., Alfa Real Estate, s.r.o., Magnum CZ International, s.r.o., Magnum CZ Reality, s.r.o., G Imobilien s.r.o., Kutarex, s.r.o., Patago, s.r.o., Heleron, s.r.o., Magnum Stare mesto, s.r.o., Magnum Invest, s.r.o., Magnum CZ Pardubice, s.r.o., Magnum CZ Global, s.r.o. and Magnum CZ Bytovy Park, s.r.o. merged into Manhattan Development, a.s. In Slovakia, there were two merges in year EURO Mall Zilina, a.s. merged into Manhattan Development SK, a.s. and Optima Corporation Bratislava, s.r.o. merged into Palm Corporation, s.r.o. In Romania, Sial, s.r.l. merged into LD Property, s.r.l.. In Denmark, Bytom Holding A/S and Targowek Holding A/S merged into Foras Holding A/S. Newly acquired subsidiaries In 2006, the Group acquired 13 new companies, 3 in the Czech Republic, 2 in Poland, 2 in Turkey, 3 in Russia, 1 in Italy, 1 in Hungary and 1 in Estonia. Further, the Group established 5 new companies in Russia, 2 in Cyprus, 1 in the Czech Republic and 1 in Slovakia. Country Name of property Ownership Share capital Date of acquisition/ in TEUR establishment Czech Republic Magnum CZ Global spol. s r.o. 100% Czech Republic Magnum CZ Pardubice, spol. s r.o. 100% Czech Republic Magnum CZ Bytový Park spol. s r.o. 100% Czech Republic Manhattan Real Estate Management, s.r.o. 54% Russia LLC Bugri 54% Russia ZAO Dialog 45% Russia ZAO Megapolis 45% Russia OOO Manhattan Signalny 100% Russia OOO Manhattan Bratevo 100% Russia OOO Sodruzestvo 45% Russia OOO Vremya 45% Russia OOO MD Togliatti 45% Slovakia Manhattan Real Estate Management, s.r.o. 100% Poland NEPH Jesztrabie Zdroj Sp.z o.o. 100% Poland Multi Veste Poland 2, Sp. z o.o. 100% Hungary Durmont, Kft. 100% Turkey Trabzon Ticaret Merkezi, A.S. 100% 4, Turkey Multi Turkmall Ticaret, A.S. 100% Estonia OŰ Arvano 100% Cyprus Mall Gallery I Ltd. 100% 1, Cyprus Mall Gallery II Ltd. 100% Italy Thesis Spa 54% 7, In the year 2006, Magnum CZ Global spol. s r.o., Magnum CZ Pardubice spol. s r.o. and Magnum CZ Bytový Park spol. s r.o. merged into Manhattan Development, a.s. 62

67 Development of Business New investment properties In 2006, the Group acquired or completed 7 new investment properties, 2 in the Czech Republic, 1 in Latvia and 4 in Russia. Country Name of property Company Fair value Area in TEUR in sqm Czech Republic Magnum Global Magnum CZ Global s.r.o. 14,534 9,105 Czech Republic Magnum Bytový Park Magnum CZ Bytový Park s.r.o. 1,039 1,090 Latvia Aplis MD Galeria Azur 61,210 20,420 Russia Kazan OOO Everest 121,620 48,480 Russia Signalny OOO Signalny 34,580 5,779 Russia Bratevo OOO Brateevo 56,220 11,553 Russia Togliatti OOO MD Togliati 75,771 55,000 Disposal of investment properties In 2006, the Group sold 29 properties in Hungary and 1 property in the Czech Republic with total value of TEUR 16,728 and area of 37,469 sqm. In Hungary, due to the planned disposal, the Group demerged the required properties into new companies (Alfa Piac Invest, Kft. and Manhattan Development Invest, Kft.) which were subsequently sold in September Investment properties Investment properties comprise all land and buildings that are held to generate rental revenue or long-term increases in value or for both and are not used in production, for administrative purposes or for sale as part of the ordinary business activities of the Group. The Group owns investment properties with total space of 872,739 sqm with total value TEUR 1,688,863. Appraisers All investment properties have been valued by an independent valuer, Cushman & Wakefi eld, Real Estate Consultants, in accordance with the Practice Statements contained in the Appraisal and Valuation Standards published by The Royal Institution of Chartered Surveyors (RICS). The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Segmentation of property Due to the increase of its business, the Group decided to implement a new segmentation of investment properties according to business sectors which are recommended by the International Council of Shopping Centres (ICSC) for Europe. Investment property by country The Group segments its portfolio into 8 sectors: Country Number of Fair value properties in TEUR Czech Republic ,738 Slovak 2 88,368 Hungary ,209 Romania 1 38,230 Poland ,066 Russia 7 528,542 Latvia 1 61,210 Turkey 1 27,500 Total 157 1,688,863 - Regional shopping centre has gross lettable area of between 40,000 sqm 100,000 sqm. It attracts shoppers from a large catchment area because it has a large number of large branded anchor stores which provide a full and in depth retail offer. - Sub regional shopping centre usually has a fl oor area of between 15,000 sqm 40,000 sqm. The catchment population comes from within a 30 minutes drive time to a maximum 1 hour drive time and the main anchor in Central and Eastern Europe is a hypermarket with other large fashion brands. - Neighbourhood centre has a fl oor area of between 5,000 sqm 15,000 sqm and provides convenience shopping for an immediate catchment population. The main anchor is a supermarket. 63

68 Meinl European Land Convenience centre usually has a gross leasable area of 1,000 sqm, has at least three retail stores and is managed as a single entity with on-site parking. - Stand alone retail warehouse/food store is a retail warehouse, hypermarket or supermarket usually of 1,000 sqm 10,000 sqm with less than three retail stores. - Retail warehouse park/power centre is a group of retail warehouses with on site car parking with a fl oor area usually of 25,000 sqm 60,000 sqm. - Warehouse/Logistics park is a single or a group warehouses, logistics or distribution buildings. If more than one it is known as a centre or park. According to sectors, the investment properties can be divided as follows: Based on number of properties Based on fair value in TEUR Regional Shopping Centre Sub Regional Shopping Centre , ,518 Neighbourhood Centre , ,724 Convenience Centre ,384 42,293 Stand Alone Retail Warehouse/Food Store , ,019 Retail Warehouse Park/Power Centre Warehouse/Logistics Park ,756 13,170 Other , ,139 Total ,067,671 1,688,863 Investment properties under development Investment property under development Property that has been acquired and is being or will be developed for future use as investment property is classifi ed as investment property under development (development properties) and stated at cost. Upon the completion the property is transferred to investment property and valued at fair value. At the date of transfer, the difference between the fair value and the cost is recorded in the consolidated income statement. All costs directly associated with the purchase and development of a property, and all subsequent capital expenditures in this respect that qualifi es as acquisition costs are capitalised. Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowings costs are incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is determined by reference to the actual rate payable on borrowings for development purposes or, with regard to the respective part of the development cost fi nanced out of general funds, by the average rate. At 31 December 2006 the Group recorded a book value of TEUR 105,232 on 21 development sites. Investment property under development by country Country Book value in TEUR Russia 34,627 Poland 48,696 Turkey 17,329 Other 4,580 Total 105,232 64

69 Development of Business Revaluation Results The Group revalues investment properties to fair value which is based on an independent valuation performed by Cushman & Wakefi eld, Real Estate Consultants in accordance with the Practice Statements contained in the Appraisal and Valuation Standards published by The Royal Institution of Chartered Surveyors (RICS). Number of shares listed on the Vienna Stock Exchange in million shares Any gain or loss arising from change in fair value is recognised in the income statement. Revaluation results per country in Positive Negative Total TEUR TEUR TEUR Czech Republic (3,523) (3,523) Slovakia 12,878 12,878 Hungary 13,082 13,082 Poland 102, ,848 Russia 50,706 50,706 Latvia 10,154 10,154 Romania 14,111 14,111 Turkey 18,500 18,500 Total 222,279 (3,523) 218,756 Share Capital In the year 2006, the Company successfully raised its share capital by way of 3 capital increases: At the beginning of the year 2006 the Company had issued 120m shares which were all listed on the Vienna Stock Exchange. In March 2006, the Company issued a further 60m shares at an issue price of EUR per share. In November 2006, the Company again placed 45m shares with investors at an issue price of EUR per share. As at year end 2006, a total of 225m shares were listed on the Vienna Stock Exchange. EPRA Net asset value Net asset value is a term used to describe the value of an entity s assets less the value of its liabilities. Net asset value calculation stated below is based on Best Practices Policy Recommendations issued by European Public Estate Association (EPRA) in January EPRA issued the above mentioned recommendation to make fi nancial statements of public real estate companies in Europe clearer, more transparent and comparable. YE 2005 YE 2006 TEUR TEUR Shareholder s equity* 1,620,675 3,454,355 Deferred tax assets (5,860) (8,515) Deferred tax liabilities 52,315 55,913 Net asset value 1,667,130 3,501,753 Number of shares (in 1,000)** 120, ,300 Net asset value per share in EUR * Shareholder s equity includes revaluation on investment properties and other non current investment. ** Partly paid shares are included in the number of shares at YE 2006 on a proportional base. In March 2006, the Company also issued 150m partly paid shares which are not listed on any stock exchange. In February 2007, the Company again successfully issued 75m shares at an issue price of EUR per share so that a total of 300m shares of the Company are now listed on the Vienna Stock Exchange. 65

70 Meinl European Land 2006 Bonds Revenues Due to the expansion of its business in 2006, the Company issued new bonds in total value of EUR 600m which are listed on the London Stock Exchange. Issued bonds TEUR TEUR Bonds oustanding as at 1 January 170, ,697 New bonds issued 153, ,645 Bonds repaid (2,045) (1,534) Bonds outstanding as at 31 Dec. 322, ,808 In the year 2007 bonds with principal amount of TEUR 46,016 are deemed to be repaid. No further repayment of bonds currently outstanding is scheduled until the year Revenues are mainly generated from rental services which account for 92 % of revenues in Year to year increase of rental revenues was 60 % from TEUR 60,199 in 2005 to TEUR 96,451 in The increase was mainly driven by the purchase of new investment properties and completion of development projects. The largest share of Group rental income arises from operations in Russia (see table below). Rental revenues distribution per country Increase TEUR TEUR % Czech Republic 21,460 21, % Slovakia 5,718 6, % Hungary 6,923 9, % Poland 13,271 27, % Russia 11,724 29, % Latvia 1, % Romania 1,103 1, % Turkey 0.00% Total 60,199 96,451 The Group diversifi ed its revenues over various segments. The table below displays the segment report over various rental sectors. Rental revenues distribution per sectors 2005 % 2006 % TEUR TEUR Regional Shopping Centre 0% 0% Sub Regional Shopping Centre 30,132 50% 55,943 58% Neighbourhood Centre 15,171 25% 25,342 26% Convenience Centre 2,949 5% 2,634 3% Stand Alone Retail Warehouse /Food Store 9,507 16% 10,163 11% Retail Warehouse Park/ Power Centre 0% 0% Warehouse/Logistics Park 861 1% 1,029 1% Other 1,579 3% 1,340 1% Total 60,199 96,451 66

71 Development of Business Rental revenue distribution per region 31 % Russia 1 % Latvia 22 % Czech Republic 7 % Slovakia 10 % Hungary 28 % Poland 1 % Romania Rental revenue distribution per region and sector in TEUR Czech Rep. Hungary Slovakia Poland Russia Latvia Romania Turkey Estonia Total Regional Shopping Centre Sub Regional Shopping Centre 2,725 4,958 4,248 20,353 22,257 1,402 55,943 Neighbourhood Centre 8,920 1,396 2,077 5,721 7,228 25,342 Convenience Centre 1, ,634 Stand Alone Retail Warehouse/Food Store 6,546 1, ,197 9,991 Retail Warehouse Park/Power Centre Warehouse/Logistics Park 1,029 1,029 Other 215 1,297 1,512 Total 21,384 9,417 6,325 27,241 29,485 1,402 1,197 96,451 Committed development projects In April 2007, the Group had secured a total of 38 committed development projects in nine countries in the Region. Country Number of Investment Area Date of projects in EURm in sqm completion Russia 14 1, , Poland , Turkey , Czech Rep , Slovakia , Hungary 1 6 4, Estonia , Bulgaria , Ukraine , Total 38 3,550 1,998,614 67

72 Meinl European Land 2006 Financial Statements

73 Financial Statements 69

74 Meinl European Land 2006 Directors Report The directors submit their report and the audited consolidated fi nancial statements of the Company for the year ended 31 December Incorporation The Company was incorporated in Jersey, Channel Islands, on 8 December Company secretary Dominion Fund Administrators Limited was Secretary of the Company during the fi nancial year On 31 January 2007, they resigned and the Company Secretary since then and up to approving these fi nancial statements is as stated on page 109. Directors responsibilities Principal activities The principal activity of the Group is the ownership, leasing, management and development of commercial real estate originally in the Czech Republic and Hungary. The activities expanded into Poland, Romania, Slovakia, Russia and Latvia and in 2006 the Group further expanded into Turkey and Estonia. The directors are responsible for preparing the fi nancial statements in accordance with applicable law and the International Financial Reporting Standards. Company law requires the directors to prepare fi nancial statements for each fi nancial year which give a true and fair view of the state of affairs of the Company and of the profi t or loss of the Company for that year. In preparing these fi nancial statements, the directors are required to: Results The results for the year are shown in the consolidated income statement on page 72. select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; Dividend The directors do not recommend the payment of a dividend for the year (2005: EUR nil). Directors The directors of the Company who served during the year and up to the date of approving these fi nancial statements are as stated on page 109 with the exception of the following: James Wiseman resigned on 7 February 2006 Michael George Best resigned on 31 December 2006 Peter Richardson was appointed on 7 February 2006 and resigned on 31 January 2007 Susan Jill Fossey was appointed on 31 December 2006 and resigned on 31 January 2007 Michael Henry Richardson was appointed as a member of the Board on 31 January 2007 Peter Byrne was appointed as a member of the Board on 31 January 2007 state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the fi nancial statements; and prepare the fi nancial statements on a going-concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the fi nancial position of the Company and enable them to ensure that the fi nancial statements comply with the Companies (Jersey) Law They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. By order of the Board Director, 23 April 2007 Shares Directors of Meinl European Land Limited do not own any shares in the Company. 70

75 Financial Statements Consolidated balance sheet at 31 December Note TEUR TEUR TEUR TEUR Assets Non-current assets Investment properties 3 1,067,671 1,688,863 Investment properties under development 4 37, ,232 Furniture, equipment and motor vehicles 5 3,592 2,379 1,108,697 1,796,474 Goodwill 6 39,644 42,240 Deferred tax assets 7 5,860 8,515 Other assets 8 4,198 2,798 1,158,399 1,850,027 Current assets Properties for sale 9 16,511 Trade receivables 10 7,366 12,281 Other receivables 11 65, ,573 Prepayments 13 2,025 19,754 Financial instruments 12 84,400 30,063 Cash and cash equivalents 14 2,092,182 4,867,800 2,268,250 5,046,471 Total assets 3,426,649 6,896,498 Shareholders equity and liabilities Shareholders equity Issued share capital ,000 1,126,500 Share premium ,666 1,906,213 Income account 165, ,813 Minority shares 4,343 41,256 Currency translation (1,707) (15,427) 1,620,675 3,454,355 Non - current liabilities Long term borrowings , ,468 Long term liabilities from leasing 17 6,447 2,837 Deferred tax liabilities 18 52,315 55, ,839 1,017,218 Current liabilities Trade payables 19 9,785 15,777 Payables related to acquisitions 20 16,290 11,056 Accrued expenditure 21 4,536 28,540 Other payables 22 22,380 15,604 Provisions Short-term borrowings 16 1,210,749 2,353,576 1,264,135 2,424,925 Total shareholders equity and liabilities 3,426,649 6,896,498 The fi nancial statements on pages 70 to 109 were approved and authorised for issue by the Board of Directors on 23 April 2007 and were signed on its behalf by Georg Kucian, Director. 71

76 Meinl European Land 2006 Consolidated income statement for the year ended 31 December Note TEUR TEUR TEUR TEUR Rental income 24 60,199 96,451 Profi t on sale of property, plant and equipment Reinvoiceable service charge income 26 20,345 24,600 Reinvoiceable service charge expenses 26 (18,022) (22,496) Consultancy and other operating income ,862 Net revenues 63, ,446 Employment costs 28 (4,046) (6,609) Owner part of non-rented areas 29 (759) (3,269) Other operating expenses 30 (30,921) (60,515) Operating expenses (35,726) (70,393) Valuation gains on investment properties 3 88, ,756 Depreciation of property, plant and equipment 5 (670) (922) Other depreciation and amortisation 6 (1,231) (325) Net operating profit 114, ,562 Interest income 31 20,334 67,634 Interest expense 31 (23,573) (58,167) Other fi nancial income and expenses ,079 Profit before taxation 112, ,108 Taxation (charge)/credit for the year 33 1,946 (1,663) Profit after taxation for the year 113, ,445 Attributable to: Equity holders of the parent 114, ,439 Minority interest (330) 37,006 Basic & diluted earnings/ share in EUR

77 Financial Statements Consolidated cash flow statement for the year ended 31 December Note TEUR TEUR Cash flows from operating activities Net profi t before taxation 112, ,108 Adjustments for: Depreciation and amortisation 711 1,247 Revaluation loss/(gain) (88,443) (218,756) Foreign exchange loss/(gain) (197) (6,875) Change in provisions, reserves (385) (23) (Profi t)/loss on disposal of fi xed assets (43) (611) Interest expense 23,573 58,167 Interest income (20,334) (67,634) Operating cash flows before working capital changes 26,911 34,623 (Increase)/decrease in trade and other receivables (10,779) (10,919) (Increase)/decrease in prepayments (5,036) (6,453) Increase/(decrease) in net deferred tax (2,788) (1,661) Increase/(decrease) in trade and other payables 14,235 (12,322) Increase/(decrease) in accrued expenditure (9,855) 5,650 Cash generated from operations 12,688 8,918 Interest paid (18,429) (28,492) Interest received 20,334 67,634 Corporation taxes (paid)/received 3,276 (622) Net cash generated from operating activities 17,869 47,438 Cash flows from investing activities Payments to acquire fi xed assets (112,281) (397,078) Disposals of tangible fi xed assets 3, Movements in other fi nancial assets 5,953 30,334 Acquisition of subsidiaries net of cash acquired 37 (105,612) (28,037) Sale of subsidiaries net of cash disposed of 37 13,778 Foreign exchange rate differences 2,912 (6,394) Net cash used in investing activities (205,559) (387,119) Net cash outflow before financing (187,690) (339,681) Cash flows from financing activities Proceeds from issuance of share capital 1,160,100 1,696,522 Costs arising from issuance of share capital (80,969) (116,475) Net increase of bank borrowings 731, ,597 Net issue of bonds less redemption 153, ,106 Net cash from financing activities 1,964,256 3,115,750 Effects of exchange rates on cash and cash equivalents 3,940 (451) Net increase in cash and cash equivalents 1,780,506 2,775,618 Cash and cash equivalents at beginning of year 311,676 2,092,182 Cash and cash equivalents at end of year 2,092,182 4,867,800 73

78 Meinl European Land 2006 Consolidated statement of changes in equity for the year ended 31 December 2006 Share Share Income Currency Minority Total capital premium account translation shareholders equity TEUR TEUR TEUR TEUR TEUR TEUR Balance at 1 January , ,535 51,068 (3,786) ,807 Exchange differences arising on translation of overseas operations 2,079 2,079 Net profi t for the year 114,305 (330) 113,975 Total recognised income/(expense) 114,305 2,079 (330) 116,054 Issue of share capital 420, ,100 1,160,100 Cost of issuing shares (80,969) (80,969) Minority shareholders 3,683 3,683 Balance at 31 December , , ,373 (1,707) 4,343 1,620,675 Balance at 1 January , , ,373 (1,707) 4,343 1,620,675 Exchange differences arising on translation of overseas operations (13,720) (13,720) Net profi t for the year 230,439 37, ,445 Total recognised income/(expense) 230,439 (13,720) 37, ,725 Issue of share capital 526,500 1,170,022 1,696,522 Cost of issuing shares (116,475) (116,475) Minority shareholders (93) (93) Balance at 31 December ,126,500 1,906, ,813 (15,427) 41,256 3,454,355 74

79 Financial Statements Notes to the Financial Statements 1. Reporting entity Meinl European Land Limited (the Company ) is a company incorporated and domiciled in Jersey. Its current registered offi ce and principal place of business is 26 New Street, St. Helier, Jersey, Channel Islands. The principal activity of the Group is the ownership, leasing, management and development, as well as the sale, of commercial real estate. The Group operates in the Czech Republic, Hungary, Poland, Romania, Slovakia, Russia and Latvia. In 2006 the Group started its operations in Turkey and Estonia. The consolidated fi nancial statements for the year ended 31 December 2006 comprise the fi nancial statements of the Company and its subsidiaries (together referred to as the Group ). The fi nancial statements are presented in thousand Euro, rounded to the nearest thousand. They are prepared on the historical cost basis except for investment properties and certain fi nancial assets, which are stated at their fair values. The fi nancial statements were authorised for issue by the directors on 23 April Significant accounting policies Basis of preparation The consolidated fi nancial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and its interpretations issued by the International Accounting Standards Board (IASB), as adopted by the EU. The accounting policies set out below have been applied consistently to all periods presented in these consolidated fi nancial statements, and have been applied consistently by Group entities. Compared to the prior year, the classifi cation for certain balance sheet and income statement items has been changed. The comparative numbers for 2005 have been adjusted accordingly, without changing the overall profi t after taxation for the year. A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2006, and have not been applied in preparing these consolidated fi nancial statements: IFRS 7 Financial Instruments: Disclosures and the Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures require extensive disclosures about the signifi cance of fi nancial instruments for an entity s fi nancial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. IFRS 7 and amended IAS 1, which become mandatory for the Group s 2007 fi nancial statements, will require additional disclosures with respect to Group s fi nancial instruments and share capital. IFRS 8 Operating Segments: IFRS 8, which will become mandatory for the Group s 2009 fi nancial statements, replaces IAS 14. The Group has not yet determined the potential effect of this standard. IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinfl ationary Economies addresses the application of IAS 29 when an economy fi rst becomes hyperinfl ationary and in particular the accounting for deferred tax. IFRIC 7, which becomes mandatory for the Group s 2007 fi nancial statements, is not expected to have a signifi cant impact on the consolidated fi nancial statements. IFRIC 8 Scope of IFRS 2 Share-based Payment addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifi cally identifi ed. IFRIC 8 will become mandatory for the Group s 2007 fi nancial statements, with retrospective application required. The Group has not yet determined the potential effect of this interpretation. IFRIC 9 Reassessment of Embedded Derivatives requires that a reassessment of whether an embedded derivative should be separated from the underlying host contract should be made only when there are changes to the contract. IFRIC 9, which becomes mandatory for the Group s 2007 fi nancial statements, is not expected to have any impact on the consolidated fi nancial statements. New standards and interpretations not yet adopted The following standards or amendments of existing standards have been effective for the year ended 31 December 2006, but are not relevant or have no material effects on the fi nancial statements of the Group: IAS 19 (disclosures, alternative to include actuarial gains/losses in equity) IAS 39 (cash fl ow hedge accounting, fi nancial guarantee contracts) IFRS 6 (exploration for and evaluation of mineral resources) IFRIC 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, an investment in an equity instrument or a fi nancial asset carried at cost. IFRIC 10 will become mandatory for the Group s 2007 fi nancial statements, and will apply to goodwill and fi nancial assets carried at cost prospectively from the date that the Group fi rst applied the measurement criteria of IAS 36 and IAS 39 respectively (i.e., 1 January 2004). 75

80 Meinl European Land 2006 IFRIC 11 IFRS 2 Group and Treasury Share Transactions addresses the accounting for certain share-based transactions for which IFRS 2 does not give guidance. IFRIC 11, which becomes mandatory for the Group s 2008 fi nancial statements, is not expected to have any impact on the consolidated fi nancial statements. IFRIC 12 Service Concession Arrangements provides guidance on the accounting by operators for public-to-private service concession arrangements. IFRIC 12, which becomes mandatory for the Group s 2008 fi nancial statements, is not expected to have any impact on the consolidated fi nancial statements. benefi ts from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases. Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The preparation of fi nancial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Joint ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic fi nancial and operating decisions. Joint ventures are accounted for using the equity method. The consolidated fi nancial statements include the Group s share of the income and expenses of equity accounted investees after adjustment to align the accounting policies with those of the Group, from the date that joint control commences until the date that joint control ceases. Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated fi nancial statements. In particular, signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signifi cant effect on the amounts recognised in the fi nancial statements can be found the following notes: Note 3 fair value of investment properties (including land stated at fair value) Note 7,18 deferred tax relating to temporary differences from investment properties Note 6 goodwill impairment Note 16 borrowings Notes 42 contingencies Basis of consolidation Subsidiaries Subsidiaries are all those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the fi nancial and operating policies of an entity so as to obtain Minority interests Minority interests in the net assets of consolidated subsidiaries are identifi ed separately from the Group s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination (see below) and the minority s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority s interest in the subsidiary s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Full consolidation Full consolidation requires a combination of the fi nancial statements of the Company and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses and further steps in accordance to IAS 27.12, performed in order that the consolidated fi nancial statements present fi nancial information about the Group as that of a single economic entity. 76

81 Financial Statements Consolidation group The Group consists of the Company and following companies: Name of company Country Ownership Method of consolidation Euro Mall Brno Real Estate, s.r.o. Czech Republic 100% Full Manhattan Development, a.s. Czech Republic 100% Full Manhattan Real Estate Management, s.r.o. Czech Republic 100% Full Alfa Piac, Kft. Hungary 100% Full Durmont Hungary 100% Full Magnum Hungaria Invest, Kft. Hungary 100% Full Manhattan Development Alfa, Kft. Hungary 100% Full Manhattan Development Global, Kft. Hungary 100% Full Manhattan Development Kft. Hungary 100% Full Manhattan Development Property, Kft. Hungary 100% Full TH-TANNE, Kft. Hungary 100% Full MD Projekt, Kft. Hungary 100% Full Manhattan Real Estate Management, Kft. Hungary 100% Full Manhattan Development SK a.s. Slovakia 100% Full PALM Corp., s.r.o. Slovakia 100% Full Manhattan Real Estate Management SK, s.r.o. Slovakia 100% Full Agromex Development, Sp. z o.o. Poland 100% Full Bytom Property, Sp. z o.o. Poland 100% Full Foras Reduta Property, Sp. z o.o. Poland 100% Full Foras Targowek Property II, Sp. z o.o. Poland 100% Full Foras Targowek Property, Sp. z o.o. Poland 100% Full Foras Targowek Sp. z o.o. Poland 100% Full Galeria Bialystok, Sp. z o.o. Poland 76%* Full Galeria Copernicus, Sp. z o.o. Poland 100% Full CH Felin, Sp. z o.o. Poland 84.2%* Full CH Neptuncity, Sp. z o.o. Poland 65%* Full Manhattan Development, Sp. z o.o. Poland 100% Full Multi Veste Poland 2, Sp. z o.o. Poland 51% Full NEPH Jesztrabie Zdroj, Sp. z o.o. Poland 100% Full Projekt Echo 35, Sp. z o.o. Poland 100% Full Manhattan Real Estate Management Sp. z o.o. Poland 100% Full Foras Holding A/S Denmark 100% Full PoloniaCo ApS Denmark 100% Full SIA Shopping Center Latvia 100% Full OOO Brateevo Russia 100% Full OOO Bugri Russia 54% Full ZAO Dialog Russia 45%** Full OOO Everest Russia 45%** Full OOO Manhattan Yekaterinburg Russia 100% Full OOO MD Volgograd Russia 100% Full ZAO Megapolis Russia 45%** Full OOO Signalny Russia 100% Full OOO Sodrugestvo Russia 45%** Full ZAO Universal Ural Russia 51% Full OOO Vremya Russia 45%** Full OOO Mall Management Russia 54% Full OOO MD Togliatti Russia 45%** Full ZAO Universal Russia 51% Full 77

82 Meinl European Land 2006 Name of company Country Ownership Method of consolidation LD Project, s.r.i. Romania 100% Full Manhattan Real Estate Management s.r.l. Romania 100% Full Trabzon Ticaret Merkezi, A.S. Turkey 100% Full Multi Turkmall Ticaret, A.S. Turkey 100% Full OÜ Arvano Estonia 100% Full Mall Galery I Ltd. Cyprus 100% Full Mall Galery II Ltd. Cyprus 100% Full MD CE Holding Ltd. Cyprus 100% Full MD Russia Holding Ltd. Cyprus 100% Full MD Time Holding Ltd. Cyprus 45%** Full MD Real Estate Management Ltd. Cyprus 55% Full Thesis Spa. Italy 54% Full * Meinl European Land Limited is entitled to 100% share of the company s results ** Meinl European Land Limited is entitled to 55% of voting rights Merger In 2006, Meinl European Land decided to merge a number of group companies as part of a plan to consolidate operations in the Czech Republic, Slovakia and Romania as well as holding companies in Denmark. By doing so, the Group will benefi t from a decrease in the administrative expenses and a simplifi cation of the organisation. The Group owned 100% of shares of all merged companies. In the Czech Republic, 14 companies VBL Beta, s.r.o., Ceska Obchodni centra, s.r.o., Alfa Real Estate, s.r.o., Magnum CZ International, s.r.o., Magnum CZ Reality, s.r.o., G Imobilien s.r.o., Kutarex, s.r.o., Patago, s.r.o., Heleron, s.r.o., Magnum Stare mesto, s.r.o., Magnum Invest, s.r.o., Magnum CZ Pardubice, s.r.o., Magnum CZ Global, s.r.o. and Magnum CZ Bytovy Park, s.r.o. merged into Manhattan Development, a.s. In Slovakia, there were two mergers in EURO Mall Zilina, a.s. merged into Manhattan Development SK, a.s. and Optima Corporation Bratislava, s.r.o. merged into Palm Corporation, s.r.o. In Romania, Sial, s.r.l. merged into LD Property, s.r.l. In Denmark, Bytom Holding A/S and Targowek Holding A/S merged into Foras Holding A/S. Foreign currency The Euro has been chosen as the reporting currency of the Group due to the fact that the majority of the transactions of the Group are denominated in this currency. The individual fi nancial statements of each of the Group s entities use the currency of the primary economic environment in which the entity operates as their functional currency. As from 1 January 2006 this has been determined for all Group companies to be their local currencies, while in prior years for several Group companies the EUR has been chosen to be the functional currency. The impact of the change in functional currency has not been presented retrospectively. Transactions in foreign currencies are translated to the functional currency at the foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into the functional currency at the foreign exchange rates prevailing at the dates the values were determined. On consolidation, the assets and liabilities of the Group s foreign entities with a functional currency other than the EUR are translated into EUR at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are classifi ed as equity and transferred to the Group s currency translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Exchange differences arising on items, which in substance form part of the net investment in a foreign entity, are classifi ed within equity until the disposal of the net investment. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity. 78

83 Financial Statements The following exchange rates were used to translate fi nancial statements of foreign subsidiaries into Euro: CZK HUF SKK PLN LVL EEK RON USD RUB DKK TRY Exchange rate as at 31 Dec Average rate for the year Exchange rate as at 31 Dec Investment property Investment properties comprise all properties (land or buildings - or part of a building - or both) that are held to generate rental revenue or long-term increases in value or for both and are not used in production, for administrative purposes or for sale as part of the ordinary business activities of the Group. Investment properties are stated at fair value. An external, independent international valuation company, Cushman & Wakefi eld, Real Estate Consultants, having an appropriate recognised professional qualifi cation and recent experience in the respective locations and categories of properties being valued, valued the portfolio of the entire Group as at 31 December The valuation has been prepared in accordance with the Practice Statements contained in the Appraisal and Valuation Standards published by The Royal Institution of Chartered Surveyors (RICS). The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. For 2006, the valuation has been performed quarterly. Up to 2005 the valuation was performed once a year. The valuations are prepared by considering the aggregate of the net annual rents receivable from the properties and where relevant, associated costs. A yield which refl ects the risks inherent in the net cash fl ows is then applied to the net annual rentals to arrive at the property valuation. The discount rate used for valuation ranges from 6.85% to 14.23% depending on the country and the risk assessment of the asset. Valuations refl ect, where appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of vacant accommodation and the market s general perception of their credit-worthiness; the allocation of maintenance and insurance responsibilities between lessor and lessee; and the remaining economic life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and where appropriate counter notices have been served validly and within the appropriate time. Any gain or loss arising from a change in fair value is recognised in the income statement. When the Group begins to redevelop an existing investment property for continuous future use as investment property, the property remains as investment property, which is valued at fair value and is not reclassifi ed as property, plant and equipment during redevelopment. If the Group begins to use an investment property for its administrative purposes or as part of the ordinary business activities of the Group, it is reclassifi ed as other property, plant and equipment and its fair value at the date of reclassifi cation becomes its cost for accounting purposes. Investment property under development Property that has been acquired and is being or will be developed for future use as investment property is classifi ed as investment property under development (development properties) and stated at cost. Upon the completion, the property is transferred to investment property and valued at fair value. At the date of transfer, the difference between the fair value and the cost is recorded in the consolidated income statement. The criteria for a transfer and a resulting revaluation of a development property differed slightly in If the same accounting policy had been valid in the year 2005, no material change in the valuation would have been necessary. Comparative numbers for 2005 were reclassifi ed. All costs directly associated with the purchase and development of a property, and all subsequent capital expenditures in this respect that qualifi es as acquisition costs are capitalised. Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is determined by reference to the actual rate payable on borrowings for development purposes or, with regard to the respective part of the development cost fi nanced out of general funds, by the average rate. 79

84 Meinl European Land 2006 Land Land is treated as Investment property under development (see above) until appropriate building permits in connection with the planned development on the land have been granted and activities in connection with development of the property (i.e. construction) have commenced. After satisfaction of these conditions, land is stated under Investment property and revalued to its fair value. The fair value of such land at 31 December 2006 was determined based on the value for which such land could be sold in the market, which was determined by Cushman & Wakefi eld to be the fair value of the completed project less cost to complete and an appropriate developer s profi t. Determining whether goodwill is impaired requires an estimation of the recoverable amount of the cash-generating units to which goodwill has been allocated. Cash-generating units are defi ned to equal the geographical segments of the Group. The recoverable amount is the higher amount of the fair value less cost to sell or value in use of the cash generating unit. Determination of the value in use requires the Company to estimate the future cash fl ows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Fair value less cost to sell is based on the fair value of portfolios of investment properties derived from quoted market prices or most recent transactions less cost of disposal. An impairment loss in respect of goodwill is not reversed. Other tangible assets Other tangible assets are stated at cost less accumulated depreciation and impairment losses. Depreciation is provided in equal annual instalments over the estimated useful lives of the assets. The useful lives of the assets are 5 10 years. Depreciation is charged on an asset from its acquisition date to the date of its disposal. Intangible fixed assets Intangible assets are defi ned as identifi able, non-monetary assets without physical substance, which can be expected to generate a future economic benefi t. Further, based on Group policy, intangible assets include intangible assets with an estimated useful life greater than one year. Intangible assets that are acquired by the Group, which have fi nite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation of intangible fi xed assets is recorded on a straight line basis over their estimated useful lives. The useful lives of the assets are 4 10 years. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Amortisation is charged on an asset from its acquisition date to the date of its disposal. Goodwill Goodwill represents the excess of the cost of the acquisition over the fair value of the Group s share of the net identifi able assets acquired. Excess of the fair value of the Group s share over the cost of acquisition is recognised immediately on acquisition in the income statement, unless the transaction is not fully completed and the costs of acquisition are not yet fi nally determined. Under these circumstances, the recognition in the consolidated income statement is deferred until the transaction is completed. Other assets Other assets are stated at their cost less impairment losses. Properties for sale Trading properties (inventory) are shown at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to complete the sale. Trade and other receivables, prepayments Trade and other receivables and prepayments are measured at fair value which is estimated as the present value of future cash fl ows, discounted at the effective interest rate. Appropriate allowances for estimated uncollectible amounts are recognised in profi t or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset s carrying amount and the present value of estimated future cash fl ows discounted at the effective interest rate computed at initial recognition. Financial instruments Financial instruments are classifi ed as at fair value through profi t or loss if they are held for trading or are designated as such upon initial recognition. Such designation is made if such instrument is part of a portfolio of that are managed together. Financial instruments at fair value through profi t or loss are measured at fair value, and changes therein are recognised in the income statement. Goodwill is measured at cost less accumulated impairment losses. Where the Group has the intent and ability to hold debt securities to maturity, they are classifi ed as held to maturity and they are stated at 80

85 Financial Statements amortised cost, using the effective interest method, less impairment losses. Other security investments held by the Group are classifi ed as available-for-sale and are stated at fair value, with any resulting gain or loss being recognised directly in equity, except for impairment losses and foreign exchange gains and losses which are recognised in income statement. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in the income statement. Where these investments are interest-bearing, interest calculated using the effective interest rate method is recognised in the income statement. Investments are recognised and derecognised on the settlement date. Financial liabilities Financial liabilities are recorded at the proceeds received, net of direct issuance costs and are amortized to the settlement amount using the effective interest method. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Leasing Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classifi ed as operating leases. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignifi cant risk of changes in value. Impairment At each balance sheet date, the Group reviews the carrying amounts of the Group s assets, other than investment properties measured at fair value and deferred tax assets, to determine whether there is any indication of impairment loss. If any such indication exists, the asset s recoverable amount is estimated. Assets held under fi nance leases are recognised as investment properties of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a fi nance lease obligation. Lease payments are apportioned between fi nance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. An intangible asset with an indefi nite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement immediately. Benefi ts received or receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term. Trade and other payables and accrued expenses Trade and other payables and accrued expenses are stated at their cost. The recoverable amount of the Group s assets is calculated as the present value of expected future cash fl ows, discounted at the pre-tax discount rate that refl ects current market assessment of the time value of money and the risk specifi c to the asset. The discount rate used for valuation ranges from 6.85% to 14.23% (2005: 6.91% to 14.75%) depending on the country and the risk assessment of the asset. Share capital Share capital consists of ordinary shares issued by the Company which are recorded at the proceeds received. If there is a difference between the realised proceeds and the nominal values of issued shares, it is recorded as a share premium, net of direct issuance costs. Currency translation The currency translation comprises all foreign currency differences arising from the translation of the fi nancial statements of the foreign entities whose functional currency is not the Euro. Provisions A provision is recognised in the balance sheet if, as a result of a past event, the Group has a present legal or otherwise binding obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects current market assessments of the time value of money and, where appropriate, the risks specifi c to the liability. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes. 81

86 Meinl European Land 2006 Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Utility costs incurred by the Group on properties that are leased to third parties are largely re-invoiced to the lessees, and the subsequent income and expense is recognised on an accruals basis. All other signifi cant operating income or expenses are recognised on an accruals basis. The gain or loss arising on the disposal of properties is determined as the difference between the sales proceeds and the carrying value of the property and is recognised in the income statement when the signifi cant risks and rewards of ownership have been transferred to the buyer. Current tax is based on taxable profi t for the year. Taxable profi t differs from net profi t as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised using the balance sheet liability method. Deferred tax is calculated on all temporary timing differences between the carrying amount of an asset or liability in the IFRS consolidated fi nancial statements and its tax base in the individual company fi nancial statements. This calculation includes probable realisable tax benefi ts from existing tax losses carried forward. Reinvoiceable service charges Reinvoiceable service charges include payments received by the Group for utilities and other services provided to tenants. Generally, reinvoiceable utilities are a pass through item for the Group and the corresponding outgoing payments are shown in a matching expense position reinvoiceable utilities. The rental agreements normally specify which cost items are reinvoiceable for the Group and can be charged to tenants. There are two different categories of reinvoiceable income and expenses: utilities such as gas, water, electricity or telephone services which can be measured individually for each tenant. These services are invoiced and charged to tenants on an ongoing monthly basis; and fi xed cost items such as centre management, marketing, cleaning or security services which cannot be directly measured individually for each tenant. These costs are normally calculated on a pro-rata basis per square metre occupied by each tenant and are invoiced and charged to tenants once or twice a year. Tenants are normally required to make a security deposit and monthly pre-payments for the reinvoiceable service charges. Once a year, the pre-payments are netted against the actual cost and the difference is settled between the Group and the tenants. To the extent that there are vacancies in a property, the Group has to bear the cost of covering the allocated and pro-rata reinvoiceable service charges. Interest income and expenses, other financial income and expenses Interest income and expenses are accounted for using the effective interest method. Other fi nancial income and expenses comprises mainly of foreign currency gains and losses. Taxation The tax expense represents the sum of the current tax and deferred tax. The measurement of deferred tax liabilities on investment property refl ects the tax consequences that would follow from the manner in which management expects, at the balance sheet date, to recover the carrying amount of investment properties. Therefore, the Group divides temporary differences into temporary differences which will be recovered through use, where the Group uses the tax rate of the countries where the properties are located, and temporary differences which will be recovered through the sale of properties performed via sale of shares, where a tax rate of zero is applied, since such sales are tax free. The percentage of temporary differences which will be recovered through use depends on the number of years management expects to hold the respective investment properties and varies from 35% to 80%. The estimates regarding the potential tax consequences from taxable temporary differences relating to investment properties have been improved compared to prior year. If the same estimates were applied in prior year, deferred tax liabilities would have been lower by TEUR 17,172. Future changes in tax rates are considered if the relevant legal amendment has been passed as of the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be recovered. Earnings per share Earnings per share are calculated by dividing profi t after taxation for the year by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share equal basic earnings per share because no instruments with a dilutive effect were outstanding. Partly paid shares are included in the average number of shares on a proportionate base. 82

87 Financial Statements 3. Investment properties The current portfolio of investment properties of the Group consists of 28 (2005: 27) properties in Hungary, 102 (2005: 101) properties in the Czech Republic, 2 (2005: 2) properties in Slovakia, 15 (2005: 13) properties in Poland, 1 (2005: 1) property in Romania, 7 (2005: 3) properties in Russia, 1 (2005: nil) property in Turkey and 1 (2005: 1) property in Latvia. Four (2005: 4) of the properties in the Czech Republic are refi nanced on the basis of fi nancial lease contracts TEUR TEUR Balance at 1 January 456,122 1,067,671 Additions acquisition of new companies 485,017 29,155 Additions ,323 Transfer from investment properties under development 60, ,264 Transfer to properties for sale (15,011) Disposals (5,817) (13,306) Fair value adjustment 86, ,756 Balance at 31 December 1,067,671 1,688,863 Land 25, ,489 Commercial properties 1,041,742 1,558,374 Total 1,067,671 1,688,863 Fair value adjustments for land in 2006 amounted to TEUR 90,108 (2005: TEUR 17,127). 4. Investment properties under development TEUR TEUR At 1 January 1,433 37,434 Translation difference 45 (921) Additions acquisition of new companies 24,187 67,109 Additions cost of land and construction 70, ,302 Disposals (86) (755) Transfer to investment properties (60,038) (131,264) Interest capitalized 1,474 1,327 At 31 December 37, ,232 Land (35,985) Construction costs (60,038) (95,279) (60,038) (131,264) Movement in number of investment properties under development Properties at 1 January 8 12 Additions 6 15 Transfer to investment properties (2) (6) Balance at 31 December Furniture, equipment and motor vehicles Movement in number of investment properties TEUR TEUR Properties at 1 January Additions 17 4 Transfer from development projects 2 6 Transfer to properties for sale (29) Disposals (1) (1) Balance at 31 December Investment properties include four properties under fi nance leases with a fair value of TEUR 12,003 (2005: TEUR 13,931). The Group has pledged a total of 144 properties (2005: 158 properties) with a market value of TEUR 898,518 (2005: TEUR 797,364) in favour of bondholders and various commercial banks (including properties held as fi nancial leases) TEUR TEUR Cost At 1 January 2,124 4,891 Translation difference Additions acquisition of new companies 2, Additions 706 1,019 Disposals (306) (856) Reclassifi cation to investment properties under development 9 (1,174) At 31 December 4,891 4,838 Depreciation At 1 January 716 1,299 Translation difference 17 2 Charge for the year Eliminated on disposal (104) (439) Reclassifi cation to investment properties under development 675 At 31 December 1,299 2,459 Net book value at 31 December 3,592 2,379 83

88 Meinl European Land Goodwill TEUR TEUR Cost At 1 January 26,196 42,196 Recognised on acquisition of subsidiary 16,000 3,867 At 31 December 42,196 46,063 Accumulated impairment losses At 1 January 652 2,552 Impairment losses for the year 1,900 1,271 At 31 December 2,552 3,823 Carrying amount 39,644 42,240 Impairment of goodwill TEUR TEUR Impairment of goodwill 1,900 1,271 Write off of negative goodwill (669) (946) Total 1, Other assets TEUR TEUR Intangible assets 2,049 Other assets 4, At 31 December 4,198 2,798 Intangible assets contain mainly software. 9. Properties for sale TEUR TEUR At 1 January 16,511 Transfer from investment properties 15,011 Additions 1,500 Disposals (16,511) At 31 December 16,511 As at 31 December 2006 there are no properties held for sale (2005: 29). 7. Deferred tax assets TEUR TEUR Arising on investment property 205 1,228 Arising on other assets Arising on liabilities and provisions 3,063 Arising on tax losses carry forward 4,819 3,896 Other temporary differences Total 5,860 8,515 All properties, recorded as for sale in the year 2005, were sold in September 2006 as parts of the disposal of Alfa Piac Invest, Kft. and Manhattan Development Invest, Kft. which were demerged from Alfa Piac, Kft. and Manhattan Development, Kft. respectively. 10. Trade receivables TEUR TEUR Trade receivables 7,366 12,281 Total 7,366 12, TEUR TEUR Brought forward 110 5,860 Foreign exchange differences on opening balances Change due to acquisition of new subsidiaries 1 Credit to income for the year 5,665 2,632 Carried forward 5,860 8,515 See also note TEUR TEUR Remaining term under 1 year 7,366 12,247 Remaining term between 1 and 5 years 34 Total 7,366 12,281 The average maturity of receivables is 22 days (2005: 22), therefore we expect that book value of the receivables does not signifi cantly differ from their fair value. Allowances for bad debts are calculated based on management knowledge of the business and the market on an individual basis. 84

89 Financial Statements 11. Other receivables TEUR TEUR Accrued revenue and deferred expense Accrued interest on securities Deferred expenditure 2,881 3,842 Deposit for leased properties 3, Loan to third parties (incl. interest) 16,713 62,911 Corporation tax and VAT 34,814 46,158 Amounts receivable from sale of properties 3,064 Expenses to be recharged Other 4,068 2,446 Total 65, ,573 Loans to third parties in 2006 mainly consist of the following loans: the loan to Multi Invest Properties Sarl in amount of TEUR 15,000 with interest rate of EURIBOR plus 250 basis points per annum; loan to Euro Mall Polska XX, Sp. z o.o., in the amount of TEUR 4,004 with interest rate of WIBOR plus 250 basis points per annum; loan to Euro Mall Polska XIX, Sp. z o.o. in the amount of TEUR 2,630 with interest rate of WIBOR plus 250 basis points per annum and loan to Euro Mall Polska XVI, Sp. z o.o. in the amount of TEUR 15,810 with interest rate of WIBOR plus 250 basis points per annum. 12. Financial instruments 14. Cash and cash equivalents TEUR TEUR Balances at banks 2,092,182 4,867,800 Cash in hand Total cash and cash equivalents 2,092,182 4,867,800 Balances at banks consist mainly of deposits at Meinl Bank which are available at short term. The interest rates on such deposits are based on EURIBOR. 15. Shareholders equity Issued share capital As at 31 December 2006 the authorised share capital consisted of 225 million shares with a par value of EUR 5 each and 150 million shares with a par value of EUR TEUR TEUR Group and parent company Issued and fully paid 120,000,001 ordinary shares of EUR 5 each 600, ,000,001 ordinary shares of EUR 5 each 1,125,000 Issued and partly paid 150,000,000 ordinary shares of EUR 5 each 1,500 Total 600,000 1,126, TEUR TEUR Bonds issued by Meinl Bank 20,762 21,045 Bonds issued by EXIDA 9,000 9,000 Bonds issued by Somal Invest 48,117 UCS A/S - Shares 6,521 Other fi nancial instruments 18 Total 84,400 30,063 All fi nancial instruments are held to maturity. 13. Prepayments TEUR TEUR Deposits for utilities Accrued income on utilities Prepaid utilities Advances for constructions 3,403 Advances for development projects 3,370 Prepayment for shares of OOO Stroyremontaz 11,276 Other prepaid expenses Total 2,025 19,754 In March 2006 the Board of Directors agreed the issue of 60 million new shares. Following the increase, 180 million shares were listed on the Vienna Stock Exchange. In March 2006, the Board of Directors agreed an additional issue of 150 million new shares of EUR 5.00 each, partly paid up as to EUR 0.01, which are not listed on any stock exchange. The Company has an option to call for the payment of the residual amount which the Company can exercise until In November 2006 the Board of Directors agreed the issue of 45 million new shares. Following the increase, 225 million shares were listed on the Vienna Stock Exchange. The Company has 2 classes of ordinary shares. The holders of the fi rst class of shares are entitled to receive dividends and are entitled to one vote per share at meetings of the Company, the holders of the second class of shares are entitled to one vote per share at meetings of the Company and are entitled to receive dividends proportionate to the value of the paid-in capital. In year 2006, there was no dividend declared (2005: nil). 85

90 Meinl European Land 2006 Share premium Share premium on the 105 million new shares was TEUR 1,053,547 which increased the amount at 31 December 2006 to TEUR 1,906,213 (2005: TEUR 852,666). There was no share premium on the issue of the 150 million partly paid shares issued in March Any share premium on the partly paid shares will be effective upon the exercise of the call option. 16. Borrowings TEUR TEUR Bonds 322, ,808 Commercial paper 1,200,000 2,300,000 Loans 170,166 75,240 Other ,996 Total 1,693,826 3,312,044 The borrowings are repayable as follows: 2006 Bonds Commercial Bank Other Total issued paper loans TEUR TEUR TEUR TEUR TEUR Due within one year 38,053 2,300,000 7,880 7,643 2,353,576 In second year 5,366 2,097 7,463 In third to fi fth years inclusive 33,604 37,668 5,509 76,781 After fi ve years 849,151 24, ,224 Total 920,808 2,300,000 75,240 15,996 3,312,044 Amount due within 12 months 38,053 2,300,000 7,880 7,643 2,353,576 (included under current liabilities) Amount due after more than 12 months 882,755 67,360 8, , Bonds Commercial Bank Other Total issued paper loans TEUR TEUR TEUR TEUR TEUR Due within one year 1,169 1,200,000 8, ,210,749 In second year 1,167 19,315 20,482 In third to fi fth years inclusive 38,349 17,316 55,665 After fi ve years 282, , ,930 Total 322,697 1,200, , ,693,826 Amount due within 12 months 1,169 1,200,000 8, ,210,749 (included under current liabilities) Amount due after more than 12 months 321, , ,077 Bonds Apart from bonds issued prior to 31 December 2005, the Company issued additional bonds in 2006 under a new MTN Programme. The principal amount of the bonds placed was TEUR 600,000 with a fi xed interest rate of 5.375%. The amounts above are shown net of issuance costs, which are being amortised, over the term of the bond (until August 2013). The proceeds from this bond issue are used to fi nance the acquisition of additional properties. The bonds issued under the new MTN Programme are unsecured. 86

91 Financial Statements 2006 Bond/Issue year Currency Interest rate Maturity Book value Fair Value Effective TEUR TEUR interest rate Meinl European Land 1997 EUR 7.100% ,886 37, % Manhattan Development 2001 EUR 6.800% ,086 36, % Meinl European Land 2003 EUR 6.000% ,847 33, % Meinl European Land 2003 EUR variable ,399 69, % Meinl European Land 2005 EUR 4.350% ,679 48, % Meinl European Land 2005 EUR variable ,867 85, % Meinl European Land 2005 CZK variable ,357 33, % Meinl European Land 2006 EUR 5.375% , , % Total 920, , % 2005 Bond/Issue year Currency Interest rate Maturity Book value Fair Value Effective TEUR TEUR interest rate Meinl European Land 1997 EUR 7.100% ,349 43, % Manhattan Development 2001 EUR 6.800% ,774 36, % Meinl European Land 2003 EUR 6.000% ,727 34, % Meinl European Land 2003 EUR variable ,146 67, % Meinl European Land 2005 EUR 4.350% ,358 68, % Meinl European Land 2005 EUR variable , , % Meinl European Land 2005 CZK variable ,619 34, % Total 322, , % Commercial Paper In 2006, the Company issued a Commercial Paper with a total amount of TEUR 2,300,000 (2005: TEUR 1,200,000) with an interest rate of 3.658%. The commercial paper was repayable at the end of January 2007 (2005: end of January 2006). 87

92 Meinl European Land 2006 Loans 2006 Borrower Currency Interest rate Maturity Book value Fair Value Effective TEUR TEUR interest rate Raiffeisen Bank, Budapest EUR 6.754% % Raiffeisen Bank, Praha CZK 8.800% % Bank für Arbeit und Wirtschaft AG EUR 6.800% ,886 3, % Bank für Arbeit und Wirtschaft AG EUR 6.235% ,079 19, % HVB Bank Slovakia, a.s. EUR variable ,661 11, % HVB Bank Slovakia, a.s. EUR 5.400% ,178 4, % HVB Bank Slovakia, a.s. EUR 5.400% ,322 2, % EUROHYPO AG EUR 6.070% ,084 14, % EUROHYPO AG EUR 6.370% % VOLKSBANK AG EUR variable ,110 4, % VOLKSBANK AG EUR variable ,305 3, % FHB Bank HUF variable % Erste Bank AG EUR variable ,534 6, % Other (overdrafts) n/a n/a n/a n/a Total 75,240 73, % 2005 Borrower Currency Interest rate Maturity Book value Fair Value Effective TEUR TEUR interest rate Raiffeisen Zentralbank Osterreich AG EUR 6.235% ,733 1, % Raiffeisen Bank, Budapest EUR 6.754% ,134 1, % Raiffeisen Bank, Praha CZK 8.800% % Bank für Arbeit und Wirtschaft AG EUR 5.900% ,907 5, % Bank für Arbeit und Wirtschaft AG EUR 5.900% % Bank für Arbeit und Wirtschaft AG EUR 6.235% ,595 22, % HVB Bank Slovakia, a.s. EUR variable ,153 8, % HVB Bank Slovakia, a.s. EUR 5.400% ,970 15, % EUROHYPO AG EUR 6.370% ,029 15, % VOLKSBANK AG EUR variable ,257 9, % NY Kredit EUR 2.334% ,444 51, % HVB bank Latvia AS EUR variable ,098 18, % Erste Bank AG EUR variable ,076 7, % Total market value 170, , % 88

93 Financial Statements 17. Liabilities from financial leases Liabilities from fi nancial leases are mainly from leasing of four properties in the Czech Republic. The term of the leases are for 15 years and will terminate in 2013 for the property in Velka Ohrada, Prague 13, in 2014 for the properties in Prague 5 Luka and in Nymburk, and in 2018 for the property in Klasterec nad Ohři. Lease payments are made on a monthly basis as follows: TEUR TEUR TEUR TEUR NPV Undiscounted NPV Undiscounted Lease Payments Lease Payments Due next year ,000 1,071 Due in 2 5 years 3,511 3,928 2,837 3,885 Due after 5 years 2, Total 7,410 8,755 3,837 4,956 Amount due for settlement within 12 months (shown under current liabilities) ,000 1,071 Amount due for settlement after 12 months 6,447 7,773 2,837 3,885 All lease obligations are denominated in EUR. The decrease in NPV is caused by a netting of paid advances for residual value into the calculation which in 2005 were shown under other receivables. The fair value of the Group s lease obligations approximates their carrying amount. The Group s obligations under fi nance leases are secured by the lessors charges over the leased assets. 18. Deferred tax liabilities TEUR TEUR Arising on investment properties 48,058 49,321 Arising on other assets 396 Arising on liabilities and provisions 201 4,443 Other temporary differences 4,056 1,753 Total 52,315 55, TEUR TEUR Brought forward 28,822 52,315 Foreign exchange differences on opening balances (301) 59 Change due to acquisition of new subsidiaries 20,871 2,604 Charge to income for the year 2, Carried forward 52,315 55,913 See also note Trade payables TEUR TEUR Remaining term under 1 year 9,785 15,777 Remaining term between 1 and 5 years Remaining term over 5 years Total 9,785 15,777 Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 22 days (2005: 22). Management considers that the carrying amount of trade payables approximates to their fair value. 20. Payables related to acquisitions TEUR TEUR Alfa Piac, Kft, - shares 4,000 4,000 Galeria Copernicus, Sp. z o.o. - investment properties 8,155 1,039 Manhattan Development, Sp. z o.o. - investment properties 2,136 Palm, s.r.o. - investment properties 194 SIA Shopping center - investment properties 525 CH Felin - investment properties 1,706 Other 1,999 3,592 Total 16,290 11,056 89

94 Meinl European Land Accrued expenditure TEUR TEUR Estimated payables for utilities 1,018 1,064 Prepaid utilities Deferred consultancy expenses 56 Accrued interest on borrowings ,112 Audit fee Accrued expenses 1, Accrued fees for purchase of shares 4,338 Other 1,603 2,067 Total 4,536 28, TEUR TEUR Accrued expenditure Remaining term under 1 year 4,536 28,540 Remaining term between 1 and 5 years Remaining term over 5 years Total 4,536 28, Other payables TEUR TEUR Interest accrued 5, Amounts payable to employees Overpayment of debtors 143 2,560 Taxes and social security 3,099 3,345 Deposit for utilities from tenants 3,909 5,275 Deposit for rent from tenants 4,197 Payables to UCS/AS 9,263 Total 22,380 15, Rental income The main revenue of the Group is from rents. The rental income in year 2006 is TEUR 96,451 (2005: TEUR 60,199) Country TEUR TEUR Czech Republic 21,460 21,384 Hungary 6,924 9,417 Poland 13,271 27,241 Romania 1,102 1,197 Russia 11,724 29,485 Slovakia 5,718 6,325 Latvia 1,402 Turkey Estonia Total 60,199 96,451 The Group has the following minimum lease rentals due under non-cancellable operating leases in aggregate and for each of the following periods: TEUR TEUR Due within 1 year 89, ,929 Due between 1 & 5 years 330, ,756 Due in more than 5 years 500, ,752 Indefi nite period rents per year 3,355 The Group rents its premises for fi xed or indefi nite periods. The average notice period at indefi nite term rent is 3 months. 25. Profit on sale of property The Group sold 1 building in the Czech Republic which was recorded as an investment property in year Income from the sale of property which was classifi ed as held for sale is included in Other fi nancial income and expenses (note 32). 23. Provisions TEUR TEUR At 1 January Use of provision (465) (43) Addition of provision Currency translation adjustments 5 At 31 December The profi t on sale of property in 2006 amounted to TEUR 29 (2005: TEUR 43). 90

95 Financial Statements 26. Reinvoiceable service charges 30. Other operating expenses TEUR TEUR Service charge income 20,345 24,600 Service charge expense (18,022) (22,496) Net reinvoiced service charges 2,323 2, Consultancy and other operating income TEUR TEUR Insurance income 8 18 Release of provision Release of bad debt provisions Management fee 2,130 Other services relating to rent 1,395 Other 749 1,356 Total 945 5, Employment costs The following tables summarise the average number of the Group s employees for the years ended 31 December 2006 and 2005: TEUR TEUR Employment cost (4,046) (6,609) Average number of employees TEUR TEUR Consultancy and advisory fees (18,448) (37,302) Marketing & advertising (2,571) (5,142) Insurance expense (469) (521) Bad debt provisions (457) (2,282) Audit fee (645) (961) Travel and transport (440) (686) Repairs and maintenance (1,446) (1,719) Rent (1,371) (1,680) Telecommunication and IT (359) (577) Real estate tax and tax penalties (1,740) (3,198) Stock exchange fees (154) Other maintanance (759) (3,838) Other (2,062) (2,609) Total other operating expenses (30,921) (60,515) 31. Interest income and interest expenses The interest income was derived mainly from bank deposits. The Group s interest expenses consist of interest expenses on bonds in amount TEUR 30,929 (2005: TEUR 10,777) and interest expenses on commercial paper in amount TEUR 17,209 (2005: TEUR 1,988). The remaining amount mainly relates to interest expenses on loans. 32. Other financial income and expenses The number of employees is based on the average recalculated headcount. 29. Owner part of non-rented areas The owner part of non-rented areas consists mainly of utilities and third party maintenance costs of vacant and common areas in shopping centres TEUR TEUR Unrealized valuation gains/(losses) (17) Profi t on disposals 506 3,330 Foreign exchange gains 10 6,875 Bank costs and other fi nancial expenses 443 (2,126) Total other financial income and expenses 942 8,079 The profi t on disposals consist of profi t from sale of Alfa Piac Invest, Kft. and Manhattan Development Invest, Kft. 91

96 Meinl European Land Taxation The Company has been granted Exempt Company status in Jersey and is therefore liable to an annual fee of GBP 600. This is included as other operating expense in the consolidated income statement as it is TEUR TEUR not dependant on the parent company s results. The taxation charge for the year is made up of: Income tax: current year charge (796) (2,871) The subsidiary companies are subject to income taxes for their respective Deferred tax (charge)/credit 2,742 1,697 businesses in countries of their registration at the rates Tax adjustment of previous years (489) prevailing in these jurisdictions. To the best of managements knowledge, Total tax (charge)/credit 1,946 (1,663) no claims have arisen from taxes on income or capital. Furthermore, management has no knowledge about taxes due in other countries. Reconciliation between the current year income tax charge and the accounting profi t before tax of the subsidiary undertakings is shown below: TEUR % TEUR % Profi t before taxation 112, ,108 Income tax using the average applicable tax rates 19,533 17% 45,748 17% Tax exempt expenses/revenues (incl. valuation gains) (18,570) 17% (21,823) 8% Tax effect of losses previously not recognised 0% (1,643) 1% Tax effect from change in estimates relating to investment properties 0% (17,172) 6% Tax effect of intercompany eliminations (1,064) 1% (1,086) 0% Difference in tax rates and FX differences (752) 1% (816) 0% Other (1,093) 1% (1,545) 1% Tax expense/(gain) (1,946) 1,663 Effective tax rate 0% 1% On consolidation all intercompany income and expenses are eliminated. These items may be tax deductible or taxable in the jurisdictions in which they are recognised. This has the effect of increasing the profi ts allocated to the subsidiaries without a corresponding increase in the tax expense. Czech subsidiaries reported a taxable loss amounting to TEUR 4,445 (2005: TEUR 7,461). This loss can be offset over the next 5 years to reduce the tax base. Deferred tax assets in the amount of TEUR 520 have not been recognised in respect of these tax losses because it is not probable that future taxable profi t will be available against which the Group can utilise these benefi ts. Slovak subsidiaries reported a taxable loss amounting to TEUR 4,530 (2005: TEUR 0). This loss can be offset over the next 5 years to reduce the tax base. Deferred tax assets in the amount of TEUR 40 have not been recognised in respect of these tax losses because it is not probable that future taxable profi t will be available against which the Group can utilise these benefi ts. Russian subsidiaries reported a taxable loss amounting to TEUR 3,355 (2005: TEUR 8,293 ). This loss can be offset over the next 10 years to reduce the tax base, but thereby not exceeding 10% of the taxable profi t each year. Deferred tax assets in the amount of TEUR 3,355 have not been recognised in respect of these tax losses because it is not probable that future taxable profi t will be available against which the Group can utilise these benefi ts. 92

97 Financial Statements The Group is liable for taxation on taxable profi ts in the following jurisdictions at the rates below: Jersey 0% 0% Czech Republic 26% 24% Hungary 18% 16% Poland 19% 19% Romania 25% 16% Russia 24% 24% Slovakia 19% 19% Denmark 28% 28% Cyprus 10% 10% Turkey 20% 20% Latvia 15% 15% Estonia 23% 23% Italy 33% 33% 34. Earnings per share The calculation of basic earnings per share at 31 December 2006 was based on the profi t after tax attributable to ordinary shareholders of TEUR 230,439 (2005: 114,305 TEUR) and weighted average number of ordinary shares outstanding of 175,925,754 (2005: 88,898,631). The Company has 2 classes of ordinary shares. The holders of the fi rst class of shares are entitled to receive dividends and are entitled to one vote per share at meetings of the Company, the holders of the second class of shares are entitled to one vote per share at meetings of the Company and are entitled to receive dividends proportionate to the value of the paid-in capital. These shares were issued in March 2006 at volume 150,000,000. As the Company has not called for the payment of the outstanding balance of the shares, the basic and diluted earnings per share are equal. 35. Segment reporting During the fi nancial year 2006, the Board of Directors changed the management and internal reporting structure of the Group, whereby it changed the focus from geographical areas to business segments. The Group s primary segment reporting is by business sector with geographical reporting being the secondary format. Comparative data for the business segments for year 2005 has been included. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments (other than investment property) and related revenue, loans and borrowings and related expenses, corporate assets (primarily the Group s headquarters) and head offi ce expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one period. Business Segment The Group operates in several kinds of sectors, which differs by fl oor area and by catchment areas. According to defi nitions and descriptions from the International Council of Shopping Centres (ICSC) recommendations for Europe, sectors can be divided in two groups shopping centres and others. Shopping Centres A Shopping Centre is a retail property that is planned, built and managed as a single entity. It comprises of retail stores, malls and other communal areas with on-site parking and has a minimum gross leasable area of sqm. The Shopping Centre may be enclosed, open air or partly enclosed. The Group registers following sectors: A Regional shopping centre has gross leasable area of between 40,000 sqm 100,000 sqm. It attracts shoppers from a large catchment area because it has a large number of large branded anchor stores which provide a full and in depth retail offer. A Sub regional shopping centre usually has a fl oor area of between 15,000 sqm 40,000 sqm. The catchment population comes from within a 30 minutes drive time to a maximum 1 hour drive time and the main anchor in central and Eastern Europe is a hypermarket with other large fashion brands. Others If the centre is not more than 5,000 sqm and has over 10 retail units then it is not defi ned as a shopping centre. A Neighbourhood centre has a fl oor area of between 5,000 sqm 15,000 sqm and provides convenience shopping for an immediate catchment population. The main anchor is a supermarket. A Convenience centre usually has a gross leasable area of 1,000 sqm, has at least three retail stores and is managed as a single entity with on-site parking. Stand alone retail warehouse/food store is a retail warehouse, hypermarket or supermarket usually of 1,000 sqm 10,000 sqm with less than three retail stores. Retail warehouse park/power centre is a group of retail warehouses with on site car parking with a fl oor area usually of 25,000 sqm 60,000 sqm. Warehouse/Logistics park is a single or a group warehouses, logistics or distribution buildings. If more than one, it is known as a centre or park. 93

98 Meinl European Land 2006 Geographical segments Information presented on geographical segments is based on the geographical location of investment properties. The Group operates in the following countries, the Czech Republic, Hungary, Poland, Slovakia, Romania, Russia, Latvia, Estonia and Turkey. Further the Group has its holding companies in Cyprus, Denmark, Italy and a parent company in Jersey. Segments by business sectors in 2006 Regional Sub Regional Neighbourhood Convenience Stand Alone Retail Shopping Shopping Centre Centre Warehouse/ Centre Centre Food Store TEUR TEUR TEUR TEUR TEUR Rental income 55,943 26,385 2,634 8,090 Profi t on sale of property, plant and equipment (6) 7 Reinvoiceable utilities 15,821 3, Other operating income 1, Total revenue 73,600 30,353 3,056 8,453 Net operating profi t 78,920 (14,249) (2,676) 30,183 Investment properties 867, ,724 42, ,379 Investment properties under development 3, Other assets 59,091 37,009 1,882 31,899 Total assets 930, ,581 44, ,712 Depreciation & amortisation Revaluation 52,572 (23,868) (2,881) 27,962 Retail Warehouse Warehouse/ Other types Other Total Park/ Logistics of Power Centre Park properties TEUR TEUR TEUR TEUR TEUR Rental income 1,494 1, ,451 Profi t on sale of property, plant and equipment Reinvoiceable utilities ,457 24,600 Other operating income 536 3,026 5,862 Total revenue 1,494 1, , ,942 Net operating profi t (1,838) (1,679) 85,410 77, ,562 Investment properties 19,210 13, ,569 1,688,863 Investment properties under development ,421 67, ,232 Other assets ,266 4,935,766 5,102,403 Total assets 19,210 14, ,256 5,002,880 6,896,498 Depreciation & amortisation (1,247) (1,247) Revaluation (1,838) (1,680) 85,036 83, ,756 94

99 Financial Statements Segments by business sectors in 2005 Regional Sub Regional Neighbourhood Convenience Stand Alone Retail Shopping Shopping Centre Centre Warehouse/ Centre Centre Food Store TEUR TEUR TEUR TEUR TEUR Rental income 30,132 15,222 2,949 8,914 Profi t on sale of property, plant and equipment (73) (4) 360 Reinvoiceable utilities 9,482 3,721 1, Other operating income Total revenue 39,955 18,971 4,476 10,220 Net operating profi t 13,111 8, ,888 Investment properties 635, ,366 41, ,993 Investment properties under development Other assets 65,339 9,293 10,179 31,404 Total assets 701, ,659 51, ,397 Depreciation & amortisation Revaluation 38,699 33,847 1,571 2,484 Retail Warehouse Warehouse/ Other types Other Total Park/ Logistics of Power Centre Park properties TEUR TEUR TEUR TEUR TEUR Rental income 1, (51) 60,199 Profi t on sale of property, plant and equipment (137) (103) 43 Reinvoiceable utilities ,578 20,345 Other operating income Total revenue 1, ,811 81,532 Net operating profi t 1, (146) 86, ,326 Investment properties 13,756 14,420 1,067,671 Investment properties under development 37,434 37,434 Other assets ,658 2,200,502 2,321,544 Total assets 38 13,887 56,512 2,200,502 3,426,649 Depreciation & amortisation (1,901) (1,901) Revaluation 1,308 1,259 (9,425) 18,700 88,443 95

100 Meinl European Land 2006 Geographical segments in 2006 Czech Rep. Hungary Slovakia Poland Russia Latvia Romania Turkey Estonia Other* Total TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR Rental income 21,384 9,417 6,325 27,241 29,485 1,402 1,197 96,451 Profi t on sale of property, plant and equipment 17 (5) (11) Reinvoiceable utilities 4,693 3,441 2,670 11,544 1, ,600 Consultancy income and other operating income ,209 2, (347) 5,862 Total revenue 26,856 13,025 9,582 40,983 33,231 2,195 1,417 (347) 126,942 Net operating profi t 7,581 17,950 16, ,773 65,136 10,929 14,817 18,496 (13,942) 251,562 Segment assets 353, ,701 98, , ,622 63,342 39,136 51,531 4,939,769 6,896,498 Segment liabilities 292,150 94,370 58, , ,291 37,112 9,546 22,026 2,102,743 3,442,143 Addition to property, plant and equipment 4,978 1, , ,096 24,735 17, , ,841 Depreciation and amortisation (212) (116) (108) (199) (141) (1) (470) (1,247) Revaluation (3,523) 13,082 12, ,848 50,706 10,154 14,111 18, ,756 * Other countries comprise parent company in Jersey, holding companies in Cyprus, Denmark and Italy and consolidation entries. Geographical segments in 2005 Czech Rep. Hungary Slovakia Poland Russia Romania Latvia Other* Total TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR Rental income 21,460 6,924 5,718 13,271 11,724 1,102 60,199 Profi t on sale of property, plant and equipment (42) 334 (249) 43 Reinvoiceable utilities 7,593 2,413 2,155 7, ,345 Consultancy income and other operating income Total revenue 29,203 9,772 8,057 20,749 12,411 1,340 81,532 Net operating profi t 36,495 3,324 24,049 39,479 11,762 3,591 8,186 (12,560) 114,326 Segment assets 341, ,190 83, , ,938 25, ,657 2,093,890 3,426,649 Segment liabilities 273,626 97,210 57, , ,832 10,621 89, ,044 1,805,974 Addition to property, plant and equipment 28,674 47, , , , ,076 Depreciation and amortisation (1,451) 7 (120) (290) (5) (1) (41) (1,901) Revaluation 21,826 (1,712) 19,098 34,273 10,186 (3,612) 8, ,443 * Other countries comprises parent company in Jersey, holding companies in Cyprus and consolidation entries. 96

101 Financial Statements 36. Parent company unconsolidated financial statements In accordance with the Companies (Jersey) Law 1991, Meinl European Land Limited (the Company) has prepared its unconsolidated fi nancial statements together with its additional information. Signifi cant accounting policies of the Company are the same as of the Group as described in note 2. Company Balance Sheets of Meinl European Land Limited at 31 December Note TEUR TEUR TEUR TEUR Assets Non-current assets Financial investments ,609 90,689 Other assets ,414 46,203 43, ,892 Current assets Other receivables ,359 1,376,472 Financial instruments ,879 30,045 Cash and cash equivalents ,040,762 4,798,674 2,960,000 6,205,191 Total assets 3,003,023 6,342,083 Shareholders equity and liabilities Shareholders equity Issued share capital ,000 1,126,500 Share premium 852,666 1,906,213 Income account surplus 50,687 96,202 1,503,353 3,128,915 Non - current liabilities Long term borrowings , ,836 Current liabilities Trade payables ,067 1,551 Payables relating to acquisitions ,000 4,021 Provision Other payables ,158 18,436 Short-term borrowings ,201,169 2,338,053 1,211,665 2,362,332 Total shareholders equity and liabilities 3,003,023 6,342,083 97

102 Meinl European Land 2006 Company Income statement of Meinl European Land Limited for the year ended 31 December Note TEUR TEUR TEUR TEUR Consultancy and other operating income 2 Revenues 2 Other operating expenses (14,295) (35,867) Operating expenses (14,295) (35,867) Net operating loss (14,295) (35,865) Interest income , ,227 Interest expense (13,868) (47,335) Other fi nancial income and expenses ,376 (7,512) 61,466 81,380 Profit before taxation 47,171 45,515 Taxation charge/(credit) for the year Profit after taxation for the year 47,171 45,515 98

103 Financial Statements Financial investments Place of Ownership Value incorporation Name of subsidiary and operation Principal activity % % TEUR TEUR MD Russia Holding Ltd. Cyprus Holding company 100% 100% 1 1 MD Time Holding Ltd. Cyprus Holding company 45% 45% 3,687 3,687 MD CE Holding Ltd. Cyprus Holding company 100% 100% 1 1 Manhattan Real Estate Management SK, s.r.o. Slovakia Management company 0% 100% 5 Manhattan Real Estate Management, s.r.o. Czech Republic Management company 0% 100% 7 7 Manhattan Real Estate Management Kft. Hungary Management company 100% 100% 530 Manhattan Real Estate Management Sp. z o.o. Poland Management company 0% 100% Trabzon Ticaret Mekezi, A.S. Turkey Property investment 0% 100% 9,337 Multi Turkmall Ticaret, A.S. Turkey Property investment 0% 80% 23 Mall Gallery I Ltd. Cyprus Property investment 0% 100% 46,515 Mall Gallery II Ltd. Cyprus Property investment 0% 100% 30,228 Alfa Piac, Kft. Hungary Property investment 100% 0% 4,628 Manhattan Development SK a.s. Slovakia Property investment 100% 0% 35 Manhattan Development, Kft. Hungary Property investment 100% 0% 17,885 SIA Shopping Center Latvia Property investment 75.9% 0% 10 Total 26,609 90,689 In year 2006, companies Alfa Piac, Kft, Manhattan Development SK, Manhattan Development, Kft and SIA Shopping Centre are fully owned by MD CE Holding Limited Other assets Other assets increase from TEUR 16,414 in 2005 to TEUR 46,203 in 2006 for additions of TEUR 29,789 into investment to properties in subsidiaries Other receivables TEUR TEUR Amounts from subsidiary undertakings 827,291 1,330,255 Accrued interest on fi nancial instruments 311 Loan to third parties (incl. interest) 13,757 42,847 Prepayments 3,370 Total 841,359 1,376, Cash and cash equivalents TEUR TEUR Balances at banks 2,040,762 4,798,664 Cash in hand Cash and cash equivalents total 2,040,762 4,798,664 Balances at banks consist mainly of deposits at Meinl Bank which are available at short term. The interest rates on such deposits are based on EURIBOR Shareholder s equity Shareholder s equity of the Company is described in note Financial instruments The Company owns the following held-to-maturity investments: TEUR TEUR Bonds issued by Meinl Bank 20,762 21,045 Bonds issued by EXIDA 9,000 9,000 Bonds issued by Somal Invest 48,117 Total 77,879 30,045 99

104 Meinl European Land Borrowings TEUR TEUR Bonds issued 289, ,889 Commercial paper 1,200,000 2,300,000 Total 1,489,174 3,188,889 The borrowings are repayable as follows: 2006 Bonds Commercial Total issued paper TEUR TEUR TEUR Due within one year 38,053 2,300,000 2,338,053 In second year In third to fi fth years inclusive After fi ve years 850, ,836 Total 888,889 2,300,000 3,188,889 Amount due within 12 months 38,053 2,300,000 2,338,053 (included under current liabilities) Amount due after more than 12 months 850, , Bonds Commercial Total issued paper TEUR TEUR TEUR Due within one year 1,169 1,200,000 1,201,169 In second year 1,167 1,167 In third to fi fth years inclusive 38,349 38,349 After fi ve years 248, ,489 Total 289,174 1,200,000 1,489,174 Amount due within 12 months 1,169 1,200,000 1,201,169 (included under current liabilities) Amount due after more than 12 months 288, ,005 Further information about bonds is discussed in note Trade payables TEUR TEUR Remaining term under 1 year 1,067 1,551 Total 1,067 1,551 Trade and other payables principally comprise amounts outstanding for ongoing costs. The average maturity period of trade payables are 45 days (2005: 45). The directors consider that the carrying amount of trade payables approximates to their fair value Payables related to acquisitions In 2006 and in 2005, payables related to acquisitions contain TEUR 4,000 which is the amount payable by the Company for the purchase of Alfa-Piac, Kft Other payables TEUR TEUR Interest accrued and payable 5,158 18,436 Payables related to acquisitions Total 5,158 18, Provisions TEUR TEUR At 1 January Use of provision Addition of provision Currency translation adjustments At 31 December Other operating expenses TEUR TEUR Consultancy & advisory fees 13,436 33,125 Legal fees 111 Audit fees Marketing & advertising 1,603 Other Total other operating expenses 14,295 35, Interest income and interest expenses The interest income was derived mainly from loans to subsidiaries TEUR 71,866 (2005: TEUR 37,301) and from bank deposits in total amount TEUR 64,361 (2005: TEUR 17,657). The Company s major interest expense in 2006 (TEUR 28,600) is the interest payable on the following bonds 1) EUR bonds issued in 1997 and due in 2007, interest of 7.1% payable on an annual basis in November respectively of every year 100

105 Financial Statements 2) EUR bonds issued in 2003 and due in 2013, interest of 6% for tranche A and SWAP 10Y EURO (30/360) for tranche B payable on an annual basis in July respectively of every year 3) EUR bonds issued in 2005 and due in 2015, interest of 4.35% payable on an annual basis in August respectively of every year 4) EUR bonds issued in 2005 and due in 2017, interest of 4% payable on an annual basis in August respectively of every year 5) CZK bonds issued in 2005 and due in 2014, interest of 6M Pribor + 120bps payable on an annual basis in August respectively of every year 6) EUR bonds issued in 2006 and due in 2013, interest 5.375% payable on an annual basis in August respectively of every year Other financial income and expenses TEUR TEUR Depreciation of premium discounts (694) (1,449) Net profi t from sold securities 4,453 Exchange rate difference 20,169 (10,359) Other (99) (157) Total 20,376 (7,512) Taxation The income tax rate in Jersey is 0%, therefore the tax expenses of the Company is nil. 37. Newly acquired subsidiaries In 2006, the Group acquired 13 new companies, 3 in the Czech Republic, 2 in Poland, 2 in Turkey, 3 in Russia, 1 in Italy, 1 in Hungary and 1 in Estonia. Further, the Group established 5 new companies in Russia, 2 in Cyprus, 1 in the Czech Republic and 1 in Slovakia. Country Name of property Ownership Share capital Date of acquisition/ in TEUR establishment Czech Republic Magnum CZ Global spol. s r.o. 100% Czech Republic Magnum CZ Pardubice spol. s r.o. 100% Czech Republic Magnum CZ Bytový Park spol. s r.o. 100% Czech Republic Manhattan Real Estate Management, s.r.o. 54% Russia LLC Bugri 54% Russia ZAO Dialog 45% Russia ZAO Megapolis 45% Russia OOO Manhattan Signalny 100% Russia OOO Manhattan Bratevo 100% Russia OOO Sodruzestvo 45% Russia OOO Vremya 45% Russia OOO MD Togliatti 45% Slovakia Manhattan Real Estate Management, s.r.o. 100% Poland NEPH Jesztrabie Zdroj Sp.z o.o. 100% Poland Multi Veste Poland 2, Sp. z o.o. 100% Hungary Durmont, Kft. 100% Turkey Trabzon Ticaret Merkezi, A.S. 100% 4, Turkey Multi Turkmall Ticaret, A.S. 100% Estonia OŰ Arvano 100% Cyprus Mall Gallery I Ltd. 100% 1, Cyprus Mall Gallery II Ltd. 100% Italy Thesis Spa 54% 7, In the year 2006, Magnum CZ Global spol. s r.o., Magnum CZ Pardubice spol. s r.o. and Magnum CZ Bytový Park spol. s r.o. merged into Manhattan Development, a.s. Pre-acquisition carrying amounts were determined based on applicable IFRSs immediately before the acquisition. The goodwill recognised on the acquisition is attributable mainly to the synergy effects expected to be achieved from integrating the companies into the Group s existing businesses. 101

106 Meinl European Land 2006 Details of newly acquired companies are stated below: Czech Republic Magnum Magnum Magnum Pardubice Global Bytovy Park Total TEUR TEUR TEUR TEUR Investment properties 9,829 2, ,205 Other tangible and intangible assets 5 5 Financial investments Deferred tax assets Receivables and other assets 7 1, ,308 Cash and cash equivalents Bank borrowings 4,536 1, ,499 Trade liabilities 8 (2) 1 7 Other liabilities 1, ,121 Deferred tax liabilities 1, ,419 Provisions Acquired net assets/(liabilities) 3,029 2, ,661 Goodwill (2,829) 4, ,365 Purchase price paid (200) (6,635) (191) (7,026) Cash and cash equivalent acquired Net cash flow arising on acquisition (200) (6,472) (165) (6,837) Poland and Estonia Multi Veste Neph Poland 2 Jestrzabie Sp. z o.o. Zdroj Sp. z o.o. OŰ Arvano Total TEUR TEUR TEUR TEUR Investment properties Other tangible and intangible assets 9,244 14,354 23,598 Financial investments Deferred tax assets Receivables and other assets 1, ,476 Cash and cash equivalents 1, ,139 Bank borrowings 12,171 2,910 15,081 Trade liabilities Other liabilities 7,077 7,077 Deferred tax liabilities Provisions Acquired net assets/(liabilities) (31) 3, ,873 Goodwill Purchase price paid (20) (3,992) (3) (4,015) Cash and cash equivalent acquired 1, ,139 Net cash flow arising on acquisition 1,099 (3,975) (2,876) 102

107 Financial Statements Russia and Italy Thesis LLC Bugri ZAO Dialog ZAO Megapolis Total TEUR TEUR TEUR TEUR Investment properties Other tangible and intangible assets 14,089 1,601 1,367 17,057 Financial investments 21,018 21,018 Deferred tax assets Receivables and other assets 286 5, ,261 Cash and cash equivalents ,447 Bank borrowings 10,230 29,886 2,256 2,384 44,756 Trade liabilities Other liabilities ,187 Deferred tax liabilities Provisions Acquired net assets/(liabilities) 10,785 (10,987) 22 (72) (252) Minority interest (4,961) 5, Fixed assets 7,156 6,405 13,561 Goodwill (22) Purchase price paid (12,980) (472) (13,452) Cash and cash equivalent acquired ,447 Net cash flow arising on acquisition (12,962) (70) (12,005) Hungary and Turkey Trabzon Multurkmall Ticaret MD Invest Kft. On Emlak Merkezi Total TEUR TEUR TEUR TEUR Investment properties 2,567 2,567 Other tangible and intangible assets 4,360 4,384 8,744 Financial investments Deferred tax assets Receivables and other assets 30 1, ,260 Cash and cash equivalents 4,387 4,387 Bank borrowings 1,076 8,008 9,084 Trade liabilities Other liabilities Deferred tax liabilities Provisions Acquired net assets/(liabilities) 1,246 1,564 4,863 7,673 Fixed assets 4,616 4,616 Goodwill 100 (1,541) (142) (1,583) Purchase price paid (1,346) (23) (9,337) (10,706) Cash and cash equivalent acquired 4,387 4,387 Net cash flow arising on acquisition (1,346) 4,364 (9,337) (6,319) 103

108 Meinl European Land Sold subsidiaries In 2006, the Group sold 29 properties in Hungary and 1 property in the Czech Republic with total value of TEUR 16,728 and area of 37,469 sqm. In Hungary, due to the planned disposal, the Group demerged the required properties into new companies (Alfa Piac Invest, Kft. and Manhattan Development Invest, Kft.) which were subsequently sold in September Details of the sold companies are stated below: Manhattan Development Alfa Piac Invest, Kft. Invest, Kft. Total TEUR TEUR TEUR Investment property 11,615 1,475 13,090 Other tangible and intangible assets Financial investments Deferred tax assets Receivables and other assets Cash and cash equivalents Bank borrowings 2, ,263 Trade liabilities 1 1 Other liabilities Deferred tax liabilities Provisions Net assets sold 9, ,174 Attributable goodwill Purchase price received 14, ,189 Cash and cash equivalent disposed Net cash inflow arising on disposal 13,785 (7) 13, Risk Management Group management constantly assesses and reports the risk exposures of individual companies and the Group as a whole to the Board of Directors. Together with the monthly management reporting, board meetings are held at least quarterly. Since 2004, the Company is active in property development and is therefore exposed to certain development risks. Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group s principal fi nancial assets are bank balances and cash, trade and other receivables and fi nancial investments, which represent the Group s maximum exposure to credit risk in relation to fi nancial assets. The Group s credit risk is primarily attributable to its trade receivables and fi nancial instruments. The Group attempts to minimise concentration of credit risk by spreading the exposure over a large number of counterparties and customers and countries. Further the Group requires from tenants a provision of collaterals which would cover the risk of possible default. To decrease default risk arising from fi nancial instruments, investments are allowed only in liquid securities and only with counterparties with suffi cient credit rating. Liquidity risk The Group s liquidity requirements arise primarily from the need to fund its development projects, property acquisitions and other capital expenditures, debt servicing costs, property management services and operating expenses. To date, these have been funded through a combination of equity funding, bond issues, commercial paper issued and bank borrowings, and, to a lesser extent, from cash fl ow from operations (including rental income and service charges). In 2006, the Group s increased levels of investment have resulted in greater working capital requirements, which have been funded principally from the Group s existing capital resources as well as by increased rental income and service charges from the Group s expanding investment property portfolio. The Group expects to continue to meet its short-term liquidity requirements through cash generated from operations and cash on deposit and to meet future capital requirements for property acquisitions and funding of development projects (in particular the future potential pipeline) from these resources as well as bank loans, further bond issues and further equity offerings. It is the Group s policy that external borrowings will not exceed 60% of the funds used to acquire or develop investments. The Group s policy with respect to funding development projects is to ensure that it maintains suffi cient funding resources to allow it to undertake projects without having to raise fi nance specifi cally for individual projects. Particularly given the nature of the Group s target markets and the inherently more speculative nature of development compared to acquisition of standing investments, fi nancing of individual development projects may be complex and may not necessarily be available in amounts which are consistent with the Group s aim to maintain a balance of its debt and equity funding. The Directors believe that this approach to funding its future development pipeline is important to the Group s ability to expand successfully in its target markets and thereby generate future rental income and capital 104

109 Financial Statements growth by allowing it to act quickly to exploit opportunities as they arise and in a fl exible manner. Market risk In certain jurisdictions, the Group is exposed to tenants default risk due to its reliance on one or a few major tenants in such jurisdictions. The Group attempts to minimise this risk by expanding the tenant mix and reducing its exposure to any single client and by expanding its business across Central and Eastern Europe. The directors carefully consider their ability to rent out premises when they assess the purchase of property. Currently, the Group has not encountered any signifi cant diffi culties in renting empty premises. The total vacancy rate for the Group is around 5% at 31 December 2006, which is considered to be normal for the industry (2005: 6%). Czech Republic Omega Retail (former Julius Meinl) discontinued its activity in the Czech Republic and as a consequence nearly all lease contracts were renegotiated with AHOLD. These lease agreements expire in Rental agreements with Interspar will not expire before % of rental income originates in Spar and 24% originates in AHOLD. The remainder, 61% of rental income is not covered by AHOLD or Spar and originates from international and national tenants. There is therefore no other single signifi cant exposure on other tenants. Hungary Lease agreements covering the 16% of the portfolio that is rented to the Spar Group expire in Further 11% of rental income is from Penny market. The remaining part of rental income originates from international and national tenants. There is therefore no other single signifi cant credit exposure on other tenants and the income stream is relatively stable. Slovakia The lease agreement with AHOLD expires in year 2017 which covers about 37% of rental income. The rest of rent income originates from international and national tenants. There is therefore no other single signifi cant credit exposure on other tenants and the income stream is relatively stable. Poland Lease agreements with Nomi S.A. which covers about 8% of rental income expire between The rest of the rental income originates from international and national tenants. There is therefore no other single signifi cant credit exposure on other tenants and the income stream is relatively stable. Romania The lease agreement with Praktiker Romania expires in year There are no vacant spaces in Romania in Russia The lease agreement with Great-B which covers about 6% expires in The rest of the rental income originates from international and national tenants. There is therefore no other single signifi cant credit exposure to other tenants and the income stream is relatively stable. Foreign exchange risk The Group is exposed to foreign currency risk via its transactions in foreign currencies and via its asset presentation. To eliminate the risk of transactions in foreign currencies, the Group attempts, wherever it is possible, to match its incomes with its expenses in the same currency, reducing the currency volatility. The inherent hedge in this strategy is, in the opinion of the Board of Directors, the best method for covering currency risks. Financing is largely denominated in the same currency as the rental income fl ows from the fi nanced properties. The Group currently has 29% of rental income denominated in EUR, 50% in USD and 20% in local currencies. Rental income denominated in USD is generated solely from Russia. In contrast to other countries within the Group, where the market is EUR denominated, in Russia the market is a USD denominated market. The Group has a short to medium term exposure to foreign exchange fl uctuations between the Euro and local currencies as the properties acquired in the Group have been largely fi nanced in Euro. Furthermore, there is exposure to foreign exchange fl uctuations between the EUR and USD due to the USD denominated rent market in Russia. However, the Russian loans are denominated in USD and 93% of Russian rents are in USD. Through this, the directors believe that they will adequately manage their exposure to adverse foreign exchange fl uctuations. Interest rate risk Interest rates fl uctuate as a result of numerous general economic factors and are highly sensitive to governmental monetary policies, domestic and international economic and political conditions, the condition of fi nancial markets and infl ation rates. Interest rates on real estate loans are also affected by other factors specifi c to real estate fi nance and equity markets, such as changes in real estate values and overall liquidity in the real estate debt and equity fi nancial markets. Increases in interest rates could adversely affect the Group s ability to fi nance or refi nance additional borrowings, as the availability of fi nancing and refi nancing proceeds may be reduced to the extent that income from properties does not increase commensurately to maintain debt service coverage. Sensitivity risk analysis In managing interest rates the Group aims to reduce the impact of 105

110 Meinl European Land 2006 short term fl uctuations on the Group s earnings. Over the long-term, however, permanent changes in foreign interest rates may have an impact on profi t. At 31 December 2006 it is estimated that a general increase of one percentage point in interest rates would increase the Group s interest expenses and subsequently reduce profi t by approximately TEUR 655. In 2002 the Company concluded a management agreement with Meinl European Real Estate Limited, a wholly owned subsidiary of Meinl Bank AG. Under this management agreement, the Board of Directors of Meinl European Land delegated all operational decisions to Meinl European Real Estate Limited as the manager. Based on the above mentioned agreement, the Company is obliged to pay a management fee amounting to 0.5% per annum of the fair value of the portfolio to Meinl European Real Estate Limited. 40. Transactions with related parties To the best of management s knowledge, during the year ended 31 December 2006, no single shareholder of Meinl European Land Limited held more than 5% of the shares. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the year, the Company did not enter into any transactions with its directors. Directors do not own shares of the Company. Furthermore, the majority of the cash balances held with banks are deposited with Meinl Bank. In addition, commercial paper was also placed through Meinl Bank. 42. Contingencies As of 31 December 2006, the Company and/or Group was involved in no legal dispute, the outcome of which would signifi cantly impact the Group. The assessment of these cases has been made internally and if necessary by external experts. 43. Subsequent events In February 2007, the Company issued 75,000,000 new shares at a subscription price of EUR per share. The Company did not conclude any contract with Dominion Corporate Services Limited except the contract for services connected with serving as the Company secretary for total fee of TEUR 69 (2005: TEUR 22). The key management personnel have been identifi ed as being the Directors of the Company. In 2006 the remuneration to the Board of Directors amounted to TEUR 74 (2005: TEUR nil). As mentioned in note 41, the Company concluded a management agreement with Meinl European Real Estate Limited. Under this agreement the Group is obliged to pay a management fee and there is no recharge of any emoluments paid to the Directors by Meinl European Real Estate Limited or by any other company. With the exception of the remuneration paid directly by the Company to the Board of Directors, it is therefore not possible to make a reasonable apportionment of the overall emoluments and accordingly no overall emoluments in respect of the Directors applicable to the Company have been disclosed. In January 2007, the Company established a new service company MFM Services s.r.o. At the beginning of 2007, the Group acquired 4 new companies Bulkom Vitosha EOOD in Bulgaria, OOO Stroyremontaz in Russia, Dalsen Services in Cyprus and OJSC Ipodrome in Ukraine. On the 31 January 2007, Dominion Fund Administrators Limited resigned as Secretary of the Company and Bedell Secretaries Limited was appointed instead. In connection with this Sue Fossey and Peter Richardson resigned as directors of the Company and Michael Henry Richardson and Peter Byrne were appointed as new directors of the Company. On the 31 January 2007, the Company decided to change its registered offi ce to 26 New Street, St. Helier, Jersey, Channel Islands, JE2 3RA. 41. Significant transactions The Meinl Bank Group provided various investment banking services to the Group during the year. The most signifi cant transaction related to services provided under a Placement and Market-Maker-Agreement for which a fee of six percent from the gross proceeds of the capital increase was paid and a guarantee commission of 0.75 percent. Furthermore, a license agreement was concluded with respect to certain trademarks owned by Meinl Group, whereby the Company agreed to pay a quarterly fee of 0.075% of net equity and long term debt of the Group. Committed development projects As per April 2007 the Company had secured 38 development projects representing a total investment volume of approximately EUR 3.5bn. The vast majority of these projects are situated in Russia, Poland and Turkey. Completion of these developments is planned within the period The total portfolio consisting of the Group s current standing investments plus the above mentioned committed developments is expected to generate rental income of approximately EUR 500m per annum. 106

111 Independent Auditors Report to the Members of Meinl European Land Limited Independent Auditors Report to the Members of Meinl European Land Limited We have audited the group fi nancial statements (the fi nancial statements ) of Meinl European Land Limited for the year ended 31 December 2006 which comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes. These fi nancial statements have been prepared under the accounting policies set out therein. This report is made solely to the company s members, as a body, in accordance with Article 110 of the Companies (Jersey) Law Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the fi nancial statements. It also includes an assessment of the signifi cant estimates and judgements made by the directors in the preparation of the fi nancial statements, and of whether the accounting policies are appropriate to the group s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with suffi cient evidence to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements. Respective responsibilities of directors and auditors As described in the Statement of Directors Responsibilities on page 70, the company s directors are responsible for preparation of the fi nancial statements in accordance with applicable law and International Financial Reporting Standards. Our responsibility is to audit the fi nancial statements in accordance with the relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the fi nancial statements give a true and fair view and are properly prepared in accordance with the Companies (Jersey) Law We also report to you if, in our opinion, the company has not kept proper accounting records or if we have not received all the information and explanations we require for our audit. We read the Directors Report accompanying the fi nancial statements and consider the implications for our report if we become aware of any apparent misstatements within it. Opinion In our opinion the fi nancial statements: give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the group s affairs as at 31 December 2006 and of the group s profi t for the year then ended; and have been properly prepared in accordance with the Companies (Jersey) Law April 2007 KPMG Channel Islands Limited Chartered Accountants 5 St Andrew s Place Charing Cross St. Helier Jersey JE4 8WQ 107

112 Meinl European Land 2006 Officers and Professional Advisors 108

113 Officers and Professional Advisors Directors Georg Josef Kucian Karel Römer Heinrich Schwägler Wolfgang Lunardon Michael Henry Richardson Peter Byrne Independent Auditors KPMG Channel Islands Limited Chartered Accountants 5 St. Andrew s Place St Helier Jersey JE4 8WQ Administrator and Registrar Bedell Secretaries Limited 26 New Street St Helier Jersey JE2 3RA Secretary Bedell Secretaries Limited 26 New Street St Helier Jersey JE2 3RA Registered Office 26 New Street St Helier Jersey JE2 3RA Investor Relations Meinl European Land Limited 26 New Street St Helier Jersey JE2 3RA ir@meinleuropeanland.com ir@meinleuropeanland.com 109

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