TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 AND INDEPENDENT AUDITOR S REPORT

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1 TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AND INDEPENDENT AUDITOR S REPORT (CONVENIENCE TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH)

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7 FINANCIAL STATEMENTS CONTENT PAGE THE STATEMENT OF FINANCIAL POSITION 1-2 THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 3 THE STATEMENT OF CHANGES IN EQUITY 4 THE STATEMENT OF CASH FLOWS 5 NOTES TO THE FINANCIAL STATEMENTS 6-70 NOTE 1 COMPANY S ORGANIZATION AND NATURE OF OPERATIONS 6-8 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 9-35 NOTE 3 SEGMENT REPORTING NOTE 4 CASH AND CASH EQUIVALENTS 38 NOTE 5 FINANCIAL LIABILITIES NOTE 6 PREPAID EXPENSES AND DEFERRED INCOME 41 NOTE 7 TRADE RECEIVABLES AND PAYABLES 42 NOTE 8 INVESTMENT PROPERTIES NOTE 9 INVENTORIES NOTE 10 OTHER ASSETS AND LIABILITIES 46 NOTE 11 OTHER RECEIVABLES AND PAYABLES 47 NOTE 12 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD 47 NOTE 13 PROVISIONS 48 NOTE 14 COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES NOTE 15 EQUITY NOTE 16 REVENUE AND COST OF REVENUE 52 NOTE 17 GENERAL ADMINISTRATIVE AND MARKETING, SELLING AND 53 DISTRIBUTION EXPENSES NOTE 18 EXPENSES BY NATURE 54 NOTE 19 OTHER INCOME/EXPENSES 54 NOTE 20 FINANCE INCOME/EXPENSES 55 NOTE 21 EARNINGS PER SHARE 55 NOTE 22 TAX ASSETS AND LIABILITIES NOTE 23 BALANCES AND TRANSACTİONS WITH RELATED PARTIES NOTE 24 FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 25 FINANCIAL RISK MANAGEMENT NOTE 26 SUBSEQUENT EVENTS 68 NOTE 27 ADDITIONAL NOTES: CONTROL OF COMPLIANCE WITH THE PORTFOLIO LIMITATIONS

8 THE STATEMENT OF FINANCIAL POSITION AS OF 31 Audited Audited Current Year Prior Year 31 December 31 December Notes ASSETS Current Assets Cash and cash equivalents 4 602, ,204 Trade receivables 7 172, ,256 Trade receivables from related parties 7, 23 3,882 10,166 Trade receivables from third parties 7 168, ,090 Other receivables 11 1,642 1,221 Other receivables from third parties 1,642 1,221 Inventories 9 1,624,998 1,066,462 Prepaid expenses 6 52,555 96,466 Derivative financial instruments - 1,198 Other current assets ,226 19,475 Total Current Assets 2,601,484 1,901,282 Non-Current Assets Trade receivables 7 33,498 70,926 Trade receivables from third parties 33,498 70,926 Inventories 9-137,135 Investments accounted by equity method , ,158 Investment properties 8 8,282,529 7,753,884 Property, plant and equipment 9,416 2,962 Intangible assets Other intangible assets Prepaid expenses 6 93,002 91,734 Other non-current assets 10-91,031 Total Non-Current Assets 8,734,333 8,476,398 TOTAL ASSETS 11,335,817 10,377,680 Financial statements as at 31 December 2017 were authorized for issue on behalf of the Board of Directors by Deputy General Manager İsmail Kazanç and Accounting Manager Erkan Çetin on 28 February The accompanying notes form an integral part of these financial statements. 1

9 THE STATEMENT OF FINANCIAL POSITION AS OF 31 Audited Current Year Audited Prior Year 31 December 31 December Notes LIABILITIES Current Liabilities Short-term borrowings 5 469, ,096 Short-term portion of long-term borrowings 5 396,372 1,104,235 Other payables 11 35,278 33,420 Other payables to third parties 35,278 33,420 Derivative financial instruments 277 4,450 Trade payables 7 119, ,262 Trade payables to related parties 7, 23 11,171 31,020 Trade payables to third parties 7 108, ,242 Payables related to employee benefits 2,496 2,087 Current tax liabilities Short-term provisions 13 10,527 15,508 Other short-term provisions 10,527 15,508 Other current liabilities 10 5,172 5,871 Deferred income 6 1,176, ,496 Total Current Liabilities 2,215,527 2,386,785 Non-Current Liabilities Long-term borrowings 5 2,740,433 1,798,097 Long-term provisions 13 1, Long-term provisions for employee benefits 1, Deferred income 6-218,450 Total Non-Current Liabilities 2,741,633 2,017,346 EQUITY Equity Attributable to Owners of the Company Share Capital 15 1,000, ,004 Treasury Shares (-) 15 (1,195) (1,195) Share Premium 15 25,770 25,770 Restricted Reserves Appropriated From Profit 65,153 53,732 - Legal reserves 15 65,153 53,732 Prior Years' Profit 15 4,833,821 4,222,854 Net Profit for the Period ,108 1,172,384 Total Equity 6,378,657 5,973,549 TOTAL LIABILITIES AND EQUITY 11,335,817 10,377,680 The accompanying notes form an integral part of these financial statements. 2

10 THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE PERIOD BETWEEN 1 JANUARY-31 Audited Audited Current Period Prior Year 1 January- 1 January- Notes 31 December December 2016 Revenue Cost of Revenue (-) 16 ( ) ( ) Gross Profit Administrative Expenses (-) 17 (44.913) (43.343) Marketing Expenses (-) 17 (11.051) (9.431) Other Income From Operating Activities Other Expenses From Operating Activities (-) 19 (1.754) (10.432) Operating Profit Share of the Company on profit/loss of invesments accounted by equity method OPERATING PROFIT BEFORE FINANCE (EXPENSES) / INCOME Finance Income Finance Expenses (-) 20 ( ) ( ) PROFIT BEFORE TAX Current Tax Expense 22 - (2.717) PROFIT FOR THE PERIOD Earnings per share 21 0,46 1,17 OTHER COMPREHENSIVE INCOME - - TOTAL COMPREHENSIVE INCOME The accompanying notes form an integral part of these financial statements. 3

11 THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 Share Treasury Share Restricted Reserves Prior Years' Net Profit Total Capital Shares Premium Appropriated From Profit Profit for the Period Equity Balances as of 1 January ,000 (1,195) 25,770 37,852 3,345, ,604 4,861,088 Capital Increase Transfers , ,724 (953,604) - Dividend payment (59,927) - (59,927) Total comprehensive income ,172,384 1,172,384 Balances as of 31 December ,004 (1,195) 25,770 53,732 4,222,854 1,172,384 5,973,549 Balances as of 1 January ,004 (1,195) 25,770 53,732 4,222,854 1,172,384 5,973,549 Transfers ,421 1,160,963 (1,172,384) - Capital Increase (*) 499, (499,996) - - Dividend payment (*) (50,000) - (50,000) Total comprehensive income , ,108 Balances as of 31 December ,000,000 (1,195) 25,770 65,153 4,833, ,108 6,378,657 (*) See note 15. The accompanying notes form an integral part of these financial statements. 4

12 THE STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 Audited Audited Current Year Prior Year 1 January- 1 January- Notes 31 December December 2016 Cash flows from operating activities Profit for the period Adjustments related to reconciliation of profit for the period (45.591) ( ) Adjustments related to unrealized foreign exchange loss/(gains) Adjustments related to interest income and expenses Adjustments related to interest income and expenses Adjustments related to doubtful trade receivable provision expenses (3.676) Adjustments related to provisions (3.356) Adjustments related to fair value differences of derivative financial instruments (2.974) Adjustments related to changes in fair values of investment properties 8 ( ) ( ) Adjustments related to undistributed profits of associates accounted by equity method (6.196) (25.845) Adjustments related to tax expense Changes in working capital ( ) ( ) Adjustments related to decrease in trade receivables Adjustments related to decrease in trade payables (22.038) (28.965) Adjustments related to increase in inventories ( ) ( ) Adjustments related to (increase)/decrease in prepaid expenses Adjustments related to increase in deferred income Increase in other current/non-current assets due to operations (36.720) (40.690) Increase/(decrease) in other payables due to operations Cash generated from operations Employment termination benefits payment (421) (179) Other payments (361) (2.357) CASH FLOWS FROM INVESTING ACTIVITIES ( ) ( ) Dividends received Payments for purchase of property, plant and equipment and intangible assets (7.493) (1.057) Payments for purchase of investment properties 8 ( ) ( ) CASH FLOWS FROM FINANCING ACTIVITIES ( ) Interest received Interest paid (97.922) ( ) Proceeds from borrowings Cash used for repayment of borrowings ( ) ( ) Cash inflows from derivative financial instruments Cash outflows from derivative financial instruments (23.450) (2.896) Dividends paid (50.000) (59.927) Net increase/(decrease) in cash and cash equivalents before the effect of exchange rate changes ( ) Effects of exchange rate changes on cash and cash equivalents (6.510) Net increase/(decrease) in cash and cash equivalents ( ) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The accompanying notes form an integral part of these financial statements. 5

13 1. NOTE 1 THE COMPANY S ORGANIZATION AND NATURE OF OPERATIONS Torunlar Gayrimenkul Yatırım Ortaklığı Anonim Şirketi ( Torunlar REIC or the Company ) has been incorporated in 1996, which was registered as Toray İnşaat Sanayi ve Ticaret A.Ş. in İstanbul, Turkey. With a change in the Articles of Association published on Trade Registry Gazette on 25 January 2008, the Company has been converted into Real Estate Investment Company ( REIC ) with the trade name Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. and was registered on 21 January 2008, the Company s stocks have been traded at the Borsa Istanbul since 21 October 2010 and registered to Capital Markets Board (CMB). As of 31 December 2017, Torunlar REIC is active in Turkey and the total number of employees is 176 (31 December 2016: 234) and the main shareholders of Torunlar REIC are Torun family members.(note 15) The Company is registered in İstanbul Trade Registry Office in Turkey in the below address: Rüzgarlıbahçe Mahallesi Selvi Çıkmazı Sokak No: 4 Beykoz İstanbul / Turkey. The Company s main scope of operation is to engage in pre defined objectives and areas stipulated in the Communiqué on real estate investment companies published by the Capital Markets Board of Turkey ( CMB ) such as investing in real estate, capital market instruments based on real estate, real estate projects and capital market instruments. In accordance with the Board of Directors Meeting that was held on 27 September 2016 between TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. and Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş, it has been decided that the TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. completely merged into Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. with all of it s assets and liabilities. This decision has been officialy registered by T.C. İstanbul Registry of Commerce on 27 December 2016 and the merger has been realized. Therefore, the Company has no subsidiaries as of 31 December 2017 and 31 December

14 1. NOTE 1 THE COMPANY S ORGANIZATION AND NATURE OF OPERATIONS (Continued) Joint Ventures The joint ventures of Torunlar REIC operate in Turkey and the nature of their business, the business segment and joint venture partners are as follows (Note 2): Nature of Joint venture Joint venture business partner TTA Gayrimenkul Yatırım Geliştirme Shopping mall Anaterra Gayrimenkul Yatırım ve Yönetim A.Ş. ( TTA ) A.Ş. project İnşaat ve Ticaret TTA TTA Gayrimenkul Yatırım ve Yönetim A.Ş. has been incorporated on 7 January 2010 after winning the tender related to the old cigarette factory and its auxiliary buildings which are located in Samsun, İlkadım district, 205 lot, 2, 8, 9, 10, 11, 12, 13, 14 parcels and 376 lot, 1 parcel and 377 lot, 5 parcel whose ownership is registered to Samsun Metropolitan Municipality. The project includes, by the approval of Samsun Cultural and Natural Heritage Protection Regional Committee; the renovation as shopping mall and/or hotel; constructing two stores underground car park and facilitating the right of operation to Samsun Metropolitan Municipality; operating for 30 years with a limited incorporeal right (permanent and individual usufruct right) on land registry by the same term and providing a certain share of the revenue of shopping mall and/or hotel to Samsun Metropolitan Municipality; delivering the project to Samsun Metropolitan Municipality at the end of the 30 year term. As a result of winning the tender and the agreement made with Samsun Metropolitan Municipality, the earned right as part of the financial leasing is classified as investment property within the scope of TAS 40 and is measured at fair value. In August 2011, shares which were previously owned by Turkmall Gayrimenkul Geliştirme Yönetim ve Yatırım A.Ş. and valued nominally as TL and shares which were previously owned by Ahmet Demir and valued nominally as TL were transferred to Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret A.Ş. After the transfer, the shareholding structure of TTA is 40% Torunlar REIC, 8% Torunlar Gıda Sanayi Ticaret A.Ş., 1% Aziz Torun, 1% Mehmet Torun and 50% Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret A.Ş. The construction of the TTA Bulvar Samsun Mall project has been started in 2011 and the Mall started to operate in July Torunlar Özyazıcı Torunlar Özyazıcı has been incorporated as an ordinary partnership with a joint venture agreement on 26 January The subject of the joint venture is to conduct construction and sales of the housing development project Nishistanbul in Yenibosna İstanbul. This project includes 63 offices, 585 residences and 52 shops in 4 blocks each with 17 floors. In accordance with the revenue sharing agreement signed between Torunlar Özyazıcı and land owner of the project, 31% of total project revenues will be distributed to the land owner and the remaining 69% portion will be shared to between the joint ventures as 60% Torunlar REIC and 40% Özyazıcı İnşaat Elektrik, Makine, Müşavirlik ve Taah. Ltd. Şti.. As of 31 December , the Torunlar Özyazici project partnership, which is a joint venture of the Company, has completed its operations after the sale of all property belonging to the project partnership and completed the dissolution procedures on 30 May The profit from the dissolution of the project partnership has been accounted in the statement of profit or loss and other comprehensive income as of 31 December

15 NOTE 1 - THE COMPANY S ORGANIZATION AND NATURE OF OPERATIONS (Continued) Associates The Associates of Torunlar REIC are incorporated in Turkey and their primary operations and nature of businesses are stated below: Associate Yeni Gimat GYO A.Ş. ( Yeni Gimat ) Netsel Turizm Yatırımları A.Ş. ( Netsel ) Nature of business Owner of Ankamall Shopping Mall and Crowne Plaza Hotel Management of Marmaris Marina Yeni Gimat Yeni Gimat has been incorporated by participation of individual shareholders as founding members on 30 July The Entity owns Ankamall Shopping Mall since 2006 and Ankara Crowne Plaza Hotel since While the Company owns 14,83% of Yeni Gimat shares and Torunlar family members also own another 5% of Yeni Gimat, as a result the Company has significant influence on Yeni Gimat and is also represented in the Board of Directors. The investment in Yeni Gimat is accounted by the equity method in the accompanying financial statements. Netsel Netsel has been incorporated by Net Turizm Ticaret and Sanayi A.Ş. and Yüksel İnşaat A.Ş. on 6 October The coastal property operated by Netsel, has been leased from Ministry of Culture and Tourism for 49 years on 22 December Net Turizm sold its shares to Marmara Bank on 1992 and Yüksel İnşaat sold its shares to Çukurova Group in Following the liquidation process of Marmara Bank, 44,60% of Netsel was sold to Torunlar REIC in accordance with share transfer agreements on 31 May 2005 and 7 June 2005 respectively and 55% of Netsel was transferred to Tek-Art Kalamış and Fenerbahçe Marmara Turizm Tesisleri A.Ş. (a subsidiary of Koç Holding A.Ş.) in accordance with share transfer agreement on 22 August 2005 as a privatization transaction. The remaining 0,40% belongs to Torun family. Due to the significant influence of the Company, Netsel is accounted by the equity method in the accompanying financial statements. 8

16 2. NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 2.1 Basis of presentation Preparation of the financial statements The Company maintains their books of account and prepares their statutory financial statements ( Statutory Financial Statements ) in TL in accordance with the Turkish Commercial Code ( TCC ), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance, accounting principles issued by the TAS/TFRS for listed companies. These financial statements are based on the statutory records, which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the TAS/TFRS Financial Reporting Standards. The financial statements as at 31 December 2017 of the Company, have been approved by the Board of Directors on 28 February General assembly has the right to change the financial statements. Declaration of conformity to TAS The financial statements of the Company have been prepared in accordance with the communiqué numbered II- 14,1 Communiqué on the Principles of Financial Reporting In Capital Markets ( the Communiqué ) announced by the Capital Markets Board ( CMB ) (hereinafter will be referred to as the CMB Accounting Standards ) on 13 June 2013 which is published on Official Gazette numbered In accordance with article 5th of the CMB Accounting Standards, companies should apply Turkish Accounting Standards/Turkish Financial Reporting Standards ( TAS/TFRS ) and interpretations regarding these standards as adopted by the Public Oversight Accounting and Auditing Standards Authority ( POA ). Accounting for the effects of hyperinflation With the decision taken on 17 March 2005, the CMB has announced that, effective from 1 January 2005, for companies operating in Turkey and preparing their financial statements in accordance with CMB Financial Reporting Standards the application of inflation accounting is no longer required. Accordingly, the Company did not apply TAS 29 Financial Reporting in Hyperinflationary Economies issued by IASB in its financial statements for the accounting periods starting 1 January Functional and presentation currency Items included in the financial statements of the company is measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The Company s functional and presentation currency is thousand TL. Joint Ventures Joint Ventures are companies in respect of which there are contractual arrangements through which an economic activity is undertaken subject to joint control by the Company and one or more other parties. The Company exercises such joint control through the power to exercise voting rights relating to shares in the companies as a result of ownership interest directly and indirectly by itself. Joint ventures have been accounted for using the equity method in accordance with clauses of TFRS 11 Joint Arrangements which has been effective from 1 January Under the equity method, investments in the joint ventures are carried in the statement of financial position at cost plus post acquisition changes in the Company s share of net assets of the joint venture and the comprehensive income reflects the share of the results of operations of the joint ventures. Where there has been a change recognized directly in the equity of the joint ventures, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. When the Company has rights only to the net assets of the arrangements, it accounts for its interest using the equity method according to the Standard TAS 28 9

17 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.1 Preparation of the financial statements (con t) Joint Venture (con t) As of 31 December 2017 and 2016 Torunlar REIC s share in the Joint Ventures is a follows: 31 December December 2016 (%) (%) Torunlar Özyazıcı (*) - 60,00 TTA 40,00 40,00 Torunlar Özyazıcı and TTA joint ventures have been incorporated on 26 January 2009 and 18 October 2010, respectively. They were included to consolidate financial statements with proportional consolidation method until 31 December 2012 in accordance with clauses of TAS 31 Interest in Joint Ventures which ceased to be effective on 1 January As of 1 January 2013, they have been included to financial statements with equity method in accordance with TFRS 11 and comparative information in the previous period s financial statements have been restated in this context. (*)Torunlar Özyazici project partnership, which is a joint venture of the Company, has completed its operations after the sale of all property belonging to the project partnership and completed the closing operations on 30 May Interest in Joint Ventures on combined basis 31 December December 2016 Current assets Non-current assets Total Assets Short term liabilities Long term liabilities Equity Total liabilities and equity Net loss for the year (14.722) (14.749) Associates Investments in Associates, over which the company has significant influence, but which it does not control, are accounted for by the equity method of accounting. The company s share of its associates post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the company s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company s interest in the associates. Carrying amount in the date of termination of significant influence, presented with fair value if fair value after this date can be measured securely, otherwise, presented with cost value. 10

18 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.1 Preparation of the financial statements (con t) Associated (con t) Torunlar REIC s effective ownership interests in its associates as at 31 December 2017 and 2016 are as follows (%): 31 December December 2016 (%) (%) Netsel 44,60 44,60 Yeni Gimat 14,83 14,83 Interest in associates on combined basis (*) 31 December December 2016 Total assets Total liabilities Net profit for the year (*) These combined balances represent amounts presented in the financial statements of associates which is accounted by the equity method after their classifications and adjustment entries for the equitymethod. Interest in Yeni Gimat 31 December December 2016 Total assets Total liabilities Net profit for the year Interest in Netsel 31 December December 2016 Total assets Total liabilities Net profit for the year Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Going concern The Company s financial statements are prepared under the going concern assumption. 11

19 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.2. Changes in accounting policies Material changes in accounting policies are corrected, retrospectively; by restating the prior periods financial statements 2.3. Changes in standards and interpretations Company has been performed reviews in the current period which is issued by Turkey Accounting Standards Board (TASB) and TASB Turkey Financial Reporting Interpretations Committee (IFRIC) and is valid for the period that is beginning on 31 December 2017 the new and revised TAS/TFRS on the amendments and interpretations of the Company 'in changes that impact on the financial statements Application of new and revised international financial reporting standarts a) Amendments to TFRSs that are mandatorily effective for the current year Amendments to TAS 12 Recognition of Deferred Tax Assets for Unrealized Losses 1 Amendments to TAS 7 Disclosure Inıtiative 1 Annual Improvements to TFRS Standards Cycle TFRS 12 1 Effective for annual periods beginning on or after 1 January Amendments to TAS 12 Recognition of Deferred Tax Assets for Unrealized Losses The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilize a deductible temporary difference. The application of these amendments has had no impact on the Entity s financial statements Amendments to TAS 7 Disclosure Inıtiative This amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Entity s liabilities arising from financing activities consist of borrowings (note 5) and certain other financial liabilities (Note 5). Annual Improvements to TFRS Standards Cycle TFRS 12: TFRS 12 states that an entity need not provide summarized financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of TFRS 12 for such interests. The application of these amendments has had no effect on the Company s financial statements as none of the Company s interests in these entities are classified, or included in a disposal group that is classified, as held for sale. 12

20 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.4 Application of new and revised international financial reporting standarts(continued) b) New and revised TFRSs in issue but not yet effective: The Company has not applied the following new and revised TAS that have been issued but are not yet effective: TFRS 9 Financial Instruments 1 TFRS 15 Revenue from Contracts with Customers 1 TFRIC 22 Foreign Currency Transactions and Advance Consideration 1 Amendments to TAS 40 Transfers of Investment Property 1 Annual Improvements to TFRS Standards Cycle TFRS 1 1, TAS 28 1 Amendments to TAS 28 Long-term Interests in Associates and Joint Ventures 2 1 Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January TFRS 9 Financial Instruments TFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets / liabilities and for derecognition and for general hedge accounting. Key requirements of TFRS 9: all recognized financial assets that are within the scope of TFRS 9 are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognized by an acquirer in a business combination) in other comprehensive income, with only dividend income generally recognized in profit or loss. 13

21 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.4 Application of new and revised international financial reporting standarts(continued) b) New and revised TFRSs in issue but not yet effective (continued) TFRS 9 Financial Instruments (cont d) with regard to the measurement of financial liabilities designated as at fair value through profit or loss, TFRS 9 requires that the amount of change in the fair value of a financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Under TAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss. in relation to the impairment of financial assets, TFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under TAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized. the new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in TAS 39. Under TFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an economic relationship. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity s risk management activities have also been introduced. Based on an analysis of the Entity s financial assets and financial liabilities as at 31 December 2017 on the basis of the facts and circumstances that exist at that date, the directors of the Company have assessed the impact of TFRS 9 to the Entity s financial statements as follows: Classification and measurement Bills of exchange and debentures classified as held-to-maturity investments and loans carried at amortized cost as disclosed in Note 7: these are held within a business model whose objective is to collect the contractual cash flows that are solely payments of principal and interest on the principal outstanding. The Company evaluates the effects of these standards, amendments and improvements on the financial statements. 14

22 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.4 Application of new and revised international financial reporting standarts(continued) b) New and revised TFRSs in issue but not yet effective (continued) TFRS 15 Revenue from Contracts with Customers TFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. TFRS 15 will supersede the current revenue recognition guidance including TAS 18 Revenue, TAS 11 Construction Contracts and the related Interpretations when it becomes effective. The core principle of TFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation Under TFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in TFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by TFRS 15. In April 2016, the IASB issued Clarifications to TFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance. The Company evaluates the effects of these standards, amendments and improvements on the financial statements. 15

23 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.4 Application of new and revised international financial reporting standarts(continued) b) New and revised TFRSs in issue but not yet effective (continued) TFRS 22 Foreign Currency Transactions and Advance Consideration TFRS 22 addresses how to determine the date of transaction for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (for example, a non-refundable deposit or deferred revenue). The Interpretation specifies that the date of transaction is the date on which the entity initially recognizes the nonmonetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration. 16

24 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.4 Application of new and revised international financial reporting standarts(con t) b) New and revised TFRSs in issue but not yet effective (con t) Amendments to TAS 40 Transfers of Investment Property Amendments to TAS 40: The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that the situations listed in TAS 40 are not exhaustive and that a change in use is possible for properties under construction (i.e. a change in use is not limited to completed properties). The list has been changed to include a detailed list of evidence from paragraphs 57 (a) - (d). Annual Improvements to TFRS Standards Cycle TFRS 1: The amendments delete certain short-term exemptions in TFRS 1 because the reporting period to which the exemptions applied have already passed. As such, these exemptions are no longer applicable. TAS 28: The amendments clarify that the option for a venture capital organisation and other similar entities to measure investments in associates and joint ventures at FVTPL is available separately for each associate or joint venture, and that election should be made at initial recognition of the associate or joint venture. Amendments to TAS 28 Long-term Interests in Associates and Joint Ventures This amendment clarifies that an entity applies TFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The Company evaluates the effects of these standards, amendments and improvements on the financial statements. 17

25 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.5. Comparative information and reclassifications in the previous period s financial statements In order to enable consistent presentation of the financial status and performance trends, the financial statements of the Company are being prepared in comparison to the previous period. When the presentation or the classification of a financial item changes, in order to get the comparability, the previous period s are classified accordingly and related explanations are done. In the current period, the Company has made the following reclassifications in the prior period financial statements. The nature and amount of the classification is explained below: As of 31 December 2016, provision for doubtful receivables amounting to TL 4.306, which is included in other expense from statement of profit or loss and other comprehensive income is reclassified as general administrative expenses in the current period Significant Accounting Policies The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( TFRS ). Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.(note 4) Related parties A related party is a person or entity that is related to reporting entity, the entity that is preparing its financial statements (a) A person or a close member of that person's family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (b) An entity is related to a reporting entity if any of the following conditions applies: (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity) 18

26 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.6. Significant Accounting Policies (con t) Related parties (con t) Close relatives of members of the Board of Directors and Senior Executives, and organizations that Company can able to control directly or indirectly are defined as related parties. Book value of receivables from related parties close to its fair value (Note 23). Foreign Currency Transactions Transactions in foreign currencies are translated into functional currency TL at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to functional currency TL at the exchange rate at that date. Gains or losses on translation of foreign currency denominated transactions to functional currency TL are recognized in profit of loss. Financial Assets Classification The Company has the following financial assets, cash and cash equivalents and trade receivables. The Management does the classification of the financial assets according to their acquired dates. a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Trade receivables generally consist of receivables from sales on credit terms based on preliminary sale agreements and rent receivables from shopping malls. 19

27 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.6. Significant Accounting Policies(con t) Financial Asset (con t) b) Derivative financial instruments The Company applies rate swap, forward and option transactions in order to provide an economic hedge of the company s cash flow risks arising from its borrowings, however; instruments have been accounted under the Other financial liabilities account balance in the financial statements due to not including necessary documentation requirements in terms of risk accounting according to TAS 39 Recognition of financial instruments. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade-date - the date on which the Company commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets except for these that are carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognized at fair value, and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Availablefor- sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method. Derivative financial instruments are initially recognized at cost and subsequently re-measured at fair value. Unrealized gains and losses arising from the changes in the fair values of these instruments are accounted in the statement of comprehensive income. Derivatives which have positive fair value are recognized in assets, derivatives which have negative fair value are recognized in liabilities in the financial statements. Impairments related to trade receivables are explained in the accounting policies related to trade receivables. 20

28 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.6. Significant Accounting Policies(con t) Trade receivables and payables An impairment provision for trade receivables is established if there is objective evidence that the Company will not be able to collect all amounts due in accordance with the original agreement terms. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted based on the original effective interest rate of the originated receivables at inception. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is reversed through other operating income. Advances received Advances received comprise amounts received from customers who entered into preliminary sales contracts with the Company for its housing projects. Therefore, these amounts have been classified as short term based on the estimated delivery date of the underlying housing units. The advances received for other operational activities are classified as short-term and long-term according to nature and duration of advances. Foreign currency advances given to the suppliers and subcontractors within the scope of the projects being developed are not subject to exchange rate valuation. 21

29 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.6. Significant Accounting Policies (con ) Financial liabilities and borrowing costs Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method in financial statements. Borrowings are subsequently stated at amortized cost using the effective yield method in financial statements. For the projects starting after the 1 January 2009, the borrowing costs are capitalized as a part of the qualifying assets which are directly attributable with the construction or production of the regarding assets if it takes significant time to get ready to use or sale ( Qualifying Assets ). The Company has applied allowed alternative treatment in accordance with the previous TAS 23 for periods before 1 January 2009 and started to apply TAS 23 revised for periods starting 1 January Financial lease The Company as the lessee Financial lease Finance leases are capitalized at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Equipment acquired via finance leases are installed in investment properties (elevators, escalators etc.) and therefore considered an integral part of these investment properties. These investment properties are carried at fair value in the financial statements and therefore the cost of this equipment is not accounted for separately. Obligations under finance leases are accounted for under the Financial liabilities account balance on the balance sheet. Investment properties are carried at market value in the financial statements and include these additional components purchased under finance lease. Debts arising from financial lease contracts are shown under "Financial liabilities" in the balance sheet. Interest and foreign exchange differences related to financial leasing are reflected in comprehensive income statements. The Company has sell and leaseback agreements for the acquisition of equipment for the malls. These contracts, in accordance with TAS 27, are essentially treated as a financial liability and recognized as financial liabilities on the financial statements. Assets subject to sell and leaseback contract within the scope of sell and leaseback contract are; air conditioning and cooling systems, elevators and escalators and electronic devices. 22

30 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS(continued) 2.6. Significant Accounting Policies (con t) Financial Lease (con t) Operational leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. The Company as the lessor Operational leases In operational leases, leased assets are classified under investment property in the balance sheet and the lease income received is reflected to the comprehensive income statement on an equal basis over the lease term. Rental income is reflected to the comprehensive income statement on a straight-line basis over the lease term. Rental income, which is the principal activity of the Company, is classified under income (Not 16). Current and deferred income taxes The Company is exempt from corporate income taxes in accordance with paragraph d-4 of Article 5 of the Corporate Income Tax Law. In accordance with paragraph 6-a of Article 94 of the Income Tax Law, the earnings of the real estate investment trusts are subject to withholding taxes, with Council of Ministers decision No, 93/5148, the withholding rate is determined as "0", Therefore, the Company has no tax obligation over its earnings for the related period. The TRN, which was established as a joint stock company and which merged with Torunlar REIC as of 27 December 2016, was taxpayer as of 27 December Accrued corporation tax liability as of this date has been transferred to Torunlar REIC. Employment termination benefits Severance pay according to the current laws and collective bargaining agreements in Turkey, is paid in case of retirement or dismissal. In accordance with the updated TAS 19 Employee Benefits Standard ("TAS 19"), such payments are considered as defined retirement benefit plans. The defined provision for the present value of the defined benefit obligation is calculated using the prescribed liability method. All actuarial gains and losses are recognized in the statement of comprehensive income. As of December 31, 2017, the actuarial gains and losses are not reflected to other comprehensive income 23