RELEVANT FACT. Autonomy Spain Real Estate Socimi, S.A. and its subsidiaries published the following financial information for the first half of 2017:

Transcription

1 September 26, 2017 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. (the "Company"), pursuant to the terms set forth in Article 17 of EU Regulation No. 596/2014 with regard to abuse of markets and Article 228 of the Consolidated Text of the Stock Exchange Law, approved by Royal Legislative Decree 4/2015 dated October 23, and other related provisions, as well as Notice 15/2016 of Mercado Alternativo Bursátil ("MAB"), hereby publishes the following: RELEVANT FACT Autonomy Spain Real Estate Socimi, S.A. and its subsidiaries published the following financial information for the first half of 2017: - Limited Review Report on the Interim Consolidated Financial Statements for the six-month period ending June 30, Interim Consolidated Financial Statements for the six-month period ending June 30, Autonomy Spain Real Estate Socimi, S.A. s selected Financial Information on a stand-alone basis (Balance Sheet and Profit and Loss Statement) for the six-month period ending June 30, Sincerely, Robert Gibbins AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A..

2

3

4 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. and Subsidiaries Interim Consolidated Financial Statements for the six-month period ended 30 June 2017

5 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. AND INTERIM CONSOLIDATED BALANCE SHEET AT 30 JUNE 2017 AND 31 DECEMBER 2016 (Expressed in euro) ASSETS Notes 30 June December 2016 NON-CURRENT ASSETS 93,126,962 93,222,086 Intangible assets Computer software - - Property, plant and equipment 6 70,384 27,912 Data-processing equipment 70,384 27,912 Investment property 7 92,318,286 92,680,063 Land 53,773,250 53,773,250 Buildings 38,545,036 38,906,813 Long-term investments 9, , ,111 Other financial assets 738, ,111 CURRENT ASSETS 5,280,910 4,860,552 Trade and other receivables 463, ,905 Trade receivables for sales and provision of services 9, , ,998 Sundry receivables 9, 10 42, ,244 Other amounts receivable from Public Administrations 10, ,674 52,663 Short-term financial assets 139, ,040 Other financial assets 9, , ,040 Short-term investments in Group companies and associates 9, 10,17 41,056 - Short-term prepayments and accrued income 3,000 - Cash and cash equivalents 11 4,633,540 3,834,607 Cash at bank and in hand 4,633,540 3,834,607 TOTAL ASSETS 98,407,872 98,082,638 The accompanying notes form an integral part of the interim consolidated financial statements for the six-month period ended 30 June 2017.

6 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. AND INTERIM CONSOLIDATED BALANCE SHEET AT 30 JUNE 2017 AND 31 DECEMBER 2016 (Expressed in euro) EQUITY AND LIABILITIES Notes 30 June December 2016 EQUITY 57,379,198 57,025,518 SHAREHOLDERS' FUNDS 58,230,443 58,182,087 Capital ,059,878 5,059,878 Share premium ,695,351 55,695,351 Reserves and prior-year losses 12.3 (2,573,142) (2,968,385) Profit/(loss) for the year , ,243 Measurement adjustments 13 (851,245) (1,156,569) Hedging transactions (851,245) (1,156,569) NON-CURRENT LIABILITIES 38,812,140 39,477,930 Long-term payables 9, 13 38,812,140 39,477,930 Bank borrowings 37,095,485 37,458,843 Derivatives 851,245 1,156,569 Other financial liabilities 865, ,518 CURRENT LIABILITIES 2,216,534 1,579,190 Short-term payables 9, 13 1,386, ,394 Bank borrowings 772, ,328 Other financial liabilities 613, ,066 Short-term payables to Group companies and associates Trade and other payables 830, ,796 Trade payables 9, , ,776 Accrued wages and salaries 9, 13 60,196 85,000 Other amounts payable to Public Administrations 13, , ,020 TOTAL EQUITY AND LIABILITIES 98,407,872 98,082,638 The accompanying notes form an integral part of the interim consolidated financial statements for the six-month period ended 30 June 2017.

7 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. AND INTERIM CONSOLIDATED INCOME STATEMENT FOR THE SIX-MONTH PERIODS ENDED 30 JUNE 2017 AND 2016 (Expressed in euro) Six-month period ended INCOME STATEMENT Notes 30 June June 2016 CONTINUING OPERATIONS Revenue ,884,361 2,816,169 Sales 2,884,361 2,816,169 Raw materials and consumables 16.2 (1,203,739) (1,073,512) Other operating income 32,412 4,275 Staff costs 16.3 (130,761) (113,630) Wages, salaries and similar remuneration (103,421) (85,812) Staff welfare expenses (27,340) (27,818) Other operating expenses 16.4 (498,028) (447,647) External services (438,843) (394,971) Taxes (59,185) (52,676) Depreciation/amortisation of investment property and non-current assets 5, 6, 7 (410,608) (418,972) OPERATING PROFIT/(LOSS) 673, ,683 Financial expenses 16.5 (625,757) (611,328) On payables to third parties (625,757) (611,328) Financial income ,097 On payables to third parties 488 1,097 Exchange differences 16.5 (12) 122 NET FINANCIAL INCOME/(EXPENSE) (625,281) (610,109) PROFIT/(LOSS) BEFORE INCOME TAX 48, ,574 Corporate income tax - - PROFIT/(LOSS) FOR THE YEAR 48, ,574 The accompanying notes form an integral part of the interim consolidated financial statements for the six-month period ended 30 June 2017.

8 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. AND INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 30 JUNE 2017 AND 30 JUNE 2016 (Expressed in euro) A) INTERIM CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE SIX-MONTH PERIODS ENDED 30 JUNE 2017 AND 2016 Note Six-month period ended 30 June June 2016 Results recognised in the consolidated income statement 48, ,574 Income and expense attributed directly to equity On measurement of financial instruments ,324 (964,472) On cash flow hedges ,324 (964,472) Total income and expense attributed directly to equity 305,324 (964,472) TOTAL RECOGNISED INCOME AND EXPENSE 353,680 (807,898) The accompanying notes form an integral part of the interim consolidated financial statements for the six-month period ended 30 June 2017.

9 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. AND B) INTERIM CONSOLIDATED TOTAL STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE SIX-MONTH PERIODS ENDED 30 JUNE 2017 AND 2016 (Expressed in euro) Authorised capital Share premium Reserves and prior-year results Hedging instruments Profit/(loss) for the year TOTAL At 31 December ,059,878 56,695,351 (2,492,493) (545,510) (475,892) 58,241,334 Consolidated total recognised revenues and expenses (964,472) 156,574 (807,898) Distribution of profit/(loss) for the year - - (475,892) - 475,892 - Distribution of share premium - (1,000,000) (1,000,000) At 30 June ,059,878 55,695,351 (2,968,385) (1,509,982) 156,574 56,433,436 Authorised capital Share premium Reserves and prior-year results Hedging instruments Profit/(loss) for the year TOTAL At 31 December ,059,878 55,695,351 (2,968,385) (1,156,569) 395,243 57,025,518 Consolidated total recognised revenues and expenses ,324 48, ,680 Distribution of profit/(loss) for the year ,243 - (395,243) - Distribution of share premium At 30 June ,059,878 55,695,351 (2,573,142) (851,245) 48,356 57,379,198 The accompanying notes form an integral part of the interim consolidated financial statements for the six-month period ended 30 June 2017.

10 AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. AND C) INTERIM CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX-MONTH PERIODS ENDED 30 JUNE 2017 AND 2016 (Expressed in euro) Six-month period ended Note 30 June June 2016 A) CASH FLOWS FROM OPERATING ACTIVITIES 1. Profit/(loss) for the year before tax 48, , Adjustments to results a) Depreciation/amortisation of investment property and non-current assets 5.6, 7 410, ,972 b) Impairment adjustments c) Financial expenses , ,328 d) Financial income 16.5 (488) (1,097) e) Gains/(losses) on exchange 12 (122) f) Other income and expenses Changes in working capital a) Debtors and other receivables 187,391 97,305 b) Other current assets 191,184 (192,334) c) Creditors and other payables 209, ,023 e) Other current liabilities 368,805 46,494 f) Other non-current assets and liabilities (487,147) 84, Other cash flows from operating activities a) Interest paid (566,572) (582,508) 5. Cash flows from operating activities 987, ,510 B) CASH FLOWS FROM INVESTING ACTIVITIES 6. Amounts paid on investments b) Property, plant and equipment 6 (42,884) - c) Investment property 7 (48,420) (122,385) 8. Cash flows from investing activities (91,304) (122,385) C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Collections and payments equity instruments - - a) Issuance of equity instruments Collections and payments financial liability instruments (97,500) (97,500) b) Repayment and redemption of: 2. Bank borrowings 13 (97,500) (97,500) 11. Dividend payments and return on other equity instruments - (1,000,000) b) Return on other equity instruments 17 - (1,000,000) 12. Cash flows from financing activities (97,500) (1,097,500) D) EFFECT OF EXCHANGE RATE FLUCTUATIONS - - E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS 798,933 (307,375) Cash and cash equivalents at beginning of the year 3,834,607 4,162,572 Cash and cash equivalents at year end 4,633,540 3,855,198 The accompanying notes form an integral part of the interim consolidated financial statements for the six-month period ended 30 June 2017.

11 1. GENERAL INFORMATION 1.1. Parent company AUTONOMY SPAIN REAL ESTATE SOCIMI, S.A. (Sociedad Unipersonal) or the parent company is a Spanish company holding tax code A , formed for an indefinite period in a deed executed before a Madrid notary on 10 September 2012, number 1,388 of the notary's record; the Company is entered in the Madrid Mercantile Register, volume 30,234, sheet 204, section eight, page M , entry one. On 23 December 2013, the parent company moved its registered office to Plaza de la Lealtad 4, Entreplanta, Madrid in a deed authorised by a notary and registered in Madrid. On 25 September 2013, the parent company changed its name from NESVILLE INVESTMENTS, S.A. (Sociedad Unipersonal) to NESVILLE INVESTMENTS SOCIMI, S.A. (Sociedad Unipersonal) in a deed authorised by a notary and registered in Madrid; on that same date, the parent company availed itself of the regime provided by Law 11/2009 (26 October) on listed property investment companies ("Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario" or SOCIMI ), with effect as from 1 January On 25 July 2014, the parent company's name was again changed from Nesville Investments SOCIMI, S.A. (Sociedad Unipersonal) to Autonomy Spain Real Estate SOCIMI S.A. (Sociedad Unipersonal) in a public deed executed before a notary and entered in the Madrid Mercantile Register. The parent company files its individual accounts at the Madrid Mercantile Registry and forms the Autonomy Group together with its subsidiaries ( the Group ). The parent company has been listed on the Alternative Stock Market since 24 September 2015, when single shareholder status was lost. The parent company s corporate objects are as follows: a. Acquisition and development of municipal properties for leasing. The development activity includes the preparation of buildings for use in the terms of Law 37/1992 (28 December) on Value Added Tax. b. Holding of shares in listed property development companies ( SOCIMI ) or in other entities not resident in Spain having the same corporate purpose as a SOCIMI and subject to a regime similar to the regime governing SOCIMIs as regards the mandatory profit distribution policy, whether by law or under their by-laws. 1

12 c. Holding of shares in other resident or non-resident entities the main corporate purpose of which is to acquire municipal property for rent, which are subject to the same regime as SOCIMIs as regards mandatory profit distribution, whether by law or under their by-laws, and which fulfil the investment requirements stipulated in Article 3 of Law 11/2009 (26 October) governing SOCIMIs. d. Holding of shares or interests in Collective Property Investment Institutions regulated by Law 35/2003 (4 November) on Collective Investment Institutions. The currency of the principal economic environment in which the Group operates is the euro, which is therefore its functional currency. All the amounts included in these notes to the consolidated annual accounts are expressed in euros unless otherwise stated. Autonomy Spain Real Estate Socimi, S.A. is the parent of a group of companies, subject to Article 42 of the Code of Commerce and Article 1 of the Regulations on the Preparation of Consolidated Annual Accounts introduced under Royal Decree-Law 1159/2010 (27 September). Pursuant to Circular 15/2017 Information to be supplied by expanding companies and SOCIMIs admitted to listing on the Alternative Stock Market, published on 26 July 2017, Appendix I to these interim consolidated financial statements contains the balance sheet and income statement for the six-month period ended 30 June 2017 containing prior-year comparative figures Subsidiaries and consolidation scope changes Subsidiaries are all companies, including special-purpose entities, which are or may be directly or indirectly controlled by the Group. Control is understood as the power to direct a business s financial and operational policy to make a profit from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated as from the date on which control is transferred to the Group and deconsolidated as from the date that control is lost. Set out below are details of the Group's subsidiaries at 30 June 2017 and 2016: - SURFING MOON INVESTMENTS, S.L. (Sociedad Unipersonal) is a Spanish company holding tax code B , incorporated for an indefinite period in a deed authorised by the Madrid notary Mr Miguel Yuste Rojas, substituting for the notary Mr Pablo de la Esperanza Rodríguez, number 5,427 of his record, on 21 August 2012, and corrected by a different deed authorised by the Madrid notary Mr Pablo de la Esperanza Rodriguez on 6 September 2012, number 5,601 of his record, and entered in the Madrid Mercantile Register, volume 30,291, sheet 10, section eight, page M , entry one. 2

13 The company's registered office is at Plaza de la Lealtad 4, Entreplanta, 28014, Madrid (Spain). Its objects encompass the acquisition and development of municipal properties for leasing. The development activity includes the preparation of buildings for use in the terms of Law 37/1992 (28 December) on Value Added Tax. The company is subject to the regime regulated by Law 11/2009 (26 October) on listed property investment companies ( SOCIMI ), both the company and its single shareholder having availed themselves of this regime on 25 September 2013, with effect as from 1 January Pallars , S.L. (Sociedad Unipersonal) is a Spanish company holding tax code B , formed for an indefinite period in a deed executed before a Madrid notary on 26 October 2012, number 1,653 of the notary's record; the Company is entered in the Madrid Mercantile Register, volume 30,373, sheet 100, section eight, page M , entry one. Its objects encompass the acquisition and development of municipal properties for leasing. The development activity includes the preparation of buildings for use in the terms of Law 37/1992 (28 December) on Value Added Tax. The company is subject to the regime regulated by Law 11/2009 (26 October) on listed property investment companies ( SOCIMI ), both the company and its single shareholder having availed themselves of this regime on 25 September 2013, with effect as from 1 January The company's registered office is at Plaza de la Lealtad 4, Entreplanta, 28014, Madrid (Spain). The companies SURFING MOON INVESTMENTS, S.L. (Sociedad Unipersonal) and PALLARS , S.L. (Sociedad Unipersonal) were acquired by Autonomy Spain Real Estate SOCIMI, S.A. (Sociedad Unipersonal) on 21 August and 26 October 2012, respectively, having been included in the Group's consolidation scope on that date. They have the same financial year as the parent company. The consolidation basis for each company complies with Article 2 of the Standards on the Preparation of Consolidated Annual Accounts (NOFCAC), as follows: 1. When the parent company is in any of the following situations in relation to another company (subsidiary): a) The parent company holds a majority of the voting rights. b) The parent company is empowered to appoint or dismiss the majority of the administrative body s members. c) The parent company may cast, by virtue of the agreements concluded with other shareholders, the majority of the voting rights. 3

14 d) The parent company has appointed, with its votes, the majority of the administrative body s members, who hold their positions at the time the consolidated accounts are drawn up and for the two immediately preceding years. This is assumed to be the case when the majority of the members of the subsidiary s administrative body are members of the administrative body or senior managers of the parent company or any other company controlled by the parent company. 2. The parent company holds one half or less than one half of the voting rights, even where it holds few or no shares in another entity, or where management power has not been specified (special-purpose entities) but it has a share of the entity's risks and rewards or the capacity to participate in its operating and financial decisions. At 30 June 2017 and 2016, the following subsidiaries were included in the consolidation scope: 30 June 2017 and 31 December 2016: Name Incorporation Country Shareholder Activity date Direct % interest Indirect Consol. method Companies controlled Surfing Moon Investment, S.L. (Sociedad Unipersonal) Spain Autonomy Spain Real Estate SOCIMI, S.A. Acquisition and development of municipal properties for leasing Full Pallars , S.L. (Sociedad Unipersonal) Spain Autonomy Spain Real Estate SOCIMI, S.A. Acquisition and development of municipal properties for leasing Full On 10 January 2014, the parent company acquired all the shares (3,000 shares) in Subox Investments, S.L. (Sociedad Unipersonal) from Winterfell Investments, S.A. (related company) for the price of one euro. On the same date, the parent company acquired all the shares (3,000 shares) in Unicus Investments, S.L. (Sociedad Unipersonal) from Winterfell Investments, S.A. (related company) for the price of one euro. On 29 July 2016, the parent company sold its shares in Subox Investments, S.L.U. and Unicus Investments, S.L.U. to a Group company for 59,180 and 1, respectively. The two shareholdings were recognised at an aggregate 106,489, so the Company made a loss of 47,309. Both companies formed part of the consolidation scope at 30 June

15 2. BASIS OF PRESENTATION OF THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 2.1. Reporting regulations applicable to the Group The interim consolidated financial statements have been prepared on the basis of the companies accounting records and are presented in compliance with current commercial legislation, the Chart of Accounts introduced under Royal Decree 1514/2007 and the amendments brought into the Chart of Accounts by RD 1159/2010 so as to present fairly the Group s consolidated equity, consolidated financial situation and consolidated results, as well as the veracity of the consolidated cash flows in the consolidated cash flow statement. The Group is subject to the Spanish Companies Act. Additionally, on 25 September 2013, the parent company informed the Tax Agency of its decision to opt for the tax scheme for listed property investment companies ( SOCIMI ), under Law 11/2009 (26 October) and the amendments introduced by Law 16/2012 (27 December) on SOCIMIs. Article 3 of Law 11/2009 (26 October) imposes the following requirements on SOCIMIs: a) They shall have invested at least 80% of the value of their assets in municipal property for leasing, in land to develop such property, provided the development commences within three years as from the acquisition of the land, and in shareholdings or equity interests in the other entities referred to in Article 2.1 of this Law. b) At least 80% of the income for each tax period, excluding income from the transfer of the shares or properties held by the Company in order to pursue its core corporate object, following the end of the maintenance period referred to in the following subsection, shall derive from the leasing of properties and from dividends or shares of profits related to the aforementioned investments. c) The properties forming the Company's assets shall remain leased for at least three years. This period shall include the time during which the properties have been available to let, subject to a maximum of one year. Transitional Provision One of the SOCIMI Law permits the application of the SOCIMI tax scheme in the terms stipulated in Article 8 of that law even if the requirements are not fulfilled when the scheme is initially applied, on the condition that the requirements are met within two years as from the date on which the decision is taken to apply the scheme. On 24 September 2016, the parent company joined the Alternative Stock Market and the directors therefore consider that all the requirements of prevailing legislation have been fulfilled since that date, although compliance is monitored on an ongoing basis. 5

16 2.2. Non-mandatory accounting principles The parent company s Board of Directors has prepared these interim consolidated financial statements taking into consideration all applicable mandatory accounting principles and standards that have a significant effect. No mandatory principle has been omitted Critical measurement issues and estimates of uncertainty The preparation of the interim consolidated financial statements requires the use by the Group of certain estimates and judgements in relation to the future and that are assessed constantly and are based on historical experience and other factors, including expectations of future events considered reasonable in the current circumstances. The resulting accounting estimates will, by definition, seldom match the related actual results. Estimates and assumptions representing a significant risk of material adjustments to the carrying amounts of assets and liabilities within the next financial year are explained below. Fair value of investment property The best evidence of the fair value of investment property in an active market is the price of similar assets. In the absence of such information, the Group or independent valuers contracted for this purpose determine fair value based on a fair value interval. The Group draws on a number of sources to make this judgement, including: i. Current active market prices of properties of different natures, conditions and locations, adjusted to reflect differences with respect to the Group's own assets. ii. Recent prices of properties in other less active markets, adjusted to reflect changes in economic conditions since the transaction date. iii. Discounted cash flows based on estimates derived from the current and projected terms of leases and, if possible, on evidence of market prices of similar properties in the same location, using discount rates that reflect the uncertainty of time. Corporate income tax The Group companies have availed themselves of the scheme provided by Law 11/2009 (26 October) on listed property investment companies (SOCIMIs), which in practice entails that they are subject to 0% corporate income tax, provided certain requirements are met. The directors monitor the fulfilment of legal requirements to maintain the tax advantages provided; they consider that the requirements will be met in the terms and periods stipulated and that no corporate income tax income or expense need be recognised. 6

17 2.4. Comparability The interim consolidated financial statements present, for comparative purposes, for each item in the interim consolidated balance sheet, interim consolidated income statement, interim consolidated cash flow statement, interim consolidated statement of changes in equity and notes to the interim consolidated accounts, the figures for the six-month period ended 30 June 2016, in addition to the figures for the six-month period ended 30 June Grouping of items For clarity, the items presented in the interim consolidated balance sheet, interim consolidated income statement, interim consolidated statement of changes in equity and interim consolidated cash flow statement are grouped together and, where necessary, a breakdown is included in the relevant notes to the interim consolidated accounts Restrictions on the payment of dividends The Group companies are required to transfer 10% of profits for each year to the legal reserve until the balance in this reserve reaches at least 20% of share capital. Unless it exceeds 20% of share capital, the balance in the reserve is not distributable. Once the conditions laid down in applicable legislation and the by-laws have been met, dividends may only be distributed against profit for the year or to freely available reserves if equity is not less or is not consequently reduced to less than share capital. To this effect, profits allocated directly to equity may not be distributed directly or indirectly. If there are prior-year losses reducing the Group companies equity to less than share capital, profits will be used to offset these losses Mandatory distribution of dividends As a SOCIMI, and pursuant to Article 20 of its by-laws, the parent company and its subsidiaries that come under the SOCIMI regime are required to distribute profits obtained for each period as dividends to shareholders, once applicable provisions of commercial legislation are fulfilled, in accordance with Article 6 of Law 11/2009 (26 October) on listed property investment companies (SOCIMIs). 7

18 3. ACCOUNTING POLICIES The main accounting policies applied by the Group to prepare its interim consolidated annual accounts, in accordance with the Chart of Accounts and the regulations governing the preparation of consolidated annual accounts, are as follows: 3.1. Subsidiaries Acquisition of control The acquisition of control by the parent company (or other Group company) over a subsidiary is a business combination recognised using the acquisition method. Under this method, the acquiring entity must recognise, at the acquisition date, the identifiable assets acquired and liabilities assumed in the business combination and, if applicable, the resulting goodwill or negative difference. Subsidiaries are consolidated as from the date on which control is transferred to the Group and are de-consolidated as from the date on which control ceases. Acquisition cost is the sum of the fair values, at the acquisition date, of the assets handed over, liabilities incurred or assumed and equity instruments issued by the acquiring entity, and the fair value of any contingent consideration subject to future events or to the fulfilment of certain conditions that must be recognised as an asset or liability, or in equity, depending on its nature. Costs relating to the issuance of the equity instruments or financial liabilities handed over do not form part of the cost of the business combination and are recognised in accordance with the standards applicable to financial instruments (Note 3.7). Fees paid to legal advisors or other professionals involved in the business combination are expensed when incurred. Related costs generated internally and any costs that may have been incurred by target entity are not included in the cost of the business combination. The excess, at the acquisition date, of the cost of the business combination over the proportional part of the value of the identifiable assets acquired less that of the liabilities assumed, representing the percentage shareholding in the target entity, is recognised as goodwill. In the exceptional event that this amount is higher than the cost of the business combination, the excess is recognised as income in the income statement. Step acquisition When control over a subsidiary is acquired through a number of transactions effected on different dates, the goodwill (or negative difference) is the difference between the cost of the business combination, plus the fair value at the acquisition date of any prior investment of the acquiring entity in the target entity, and the value of the identifiable assets acquired less that of the liabilities assumed. 8

19 Any gain or loss arising from fair value measurement of the prior shareholding at the date on which control is obtained is recognised in the income statement. Where the investment was previously recognised at fair value, measurement adjustments pending allocation to results for the period are taken to the interim consolidated income statement. Consolidation method The assets, liabilities, revenues, costs, cash flows and other items recognised in the Group companies' annual accounts are included in the Group's interim consolidated financial statements using the full consolidation method. This method requires the following procedures: a) Time consistency. The interim consolidated financial statements relate to the same date and period as the interim financial statements of the companies to be consolidated. b) Value consistency. The assets, liabilities, revenues, expenses and other items in the Group companies' interim consolidated financial statements have been measured consistently. Assets, liabilities, revenues and expenses measured using methods not consistent with those applied during consolidation have been remeasured and adjusted for consolidation purposes only. c) Aggregate figures. The items recognised in the interim individual financial statements, following consistency adjustments, are aggregated by nature. d) Investment-equity elimination. The carrying amounts of the subsidiaries equity instruments held directly or indirectly by the parent entity are offset against the proportional part of the equity items of that subsidiary attributable to the shareholding, based generally on values obtained using the acquisition method described previously. In consolidation processes following the period in which control is acquired, any excess or shortfall in equity generated by the subsidiary as from the acquisition date and attributable to the parent entity is presented in the interim consolidated balance sheet in reserves or in measurement adjustments, depending on its nature. The portion attributable to minority shareholders is recognised in Non-controlling interests. 9

20 e) Non-controlling interests. Non-controlling interests are measured based on the actual share in the subsidiary's equity after the abovementioned adjustments. Goodwill on consolidation is not attributed to non-controlling interests. The excess of losses attributable to a subsidiary's minority interests and the portion of its equity pertaining to those interests is attributed to minority interests, even where this results in a debtor balance in that account. The Group has no external shareholders since the subsidiaries are wholly owned by the parent company. f) Eliminations of intragroup items. Receivables, payables, revenues, expenses and cash flows between Group companies are entirely eliminated. All gains and losses from intragroup transactions are eliminated and deferred until they are realised vis-à-vis non-group third parties. Change in shareholding without loss of control Once control over a subsidiary is obtained, subsequent operations giving rise to changes in the parent's shareholding in the subsidiary, without loss of control, are recognised in the interim consolidated financial statements as dealings in own equity instruments, applying the following rules: - The amounts of any goodwill or negative difference recognised, or of other assets and liabilities recognised, are not changed; - Any gain or loss recognised in the interim individual financial statements is eliminated on consolidation and the reserves of the company whose shareholding is reduced are adjusted accordingly; - The items measurement adjustments" and grants, donations and bequests are adjusted to reflect the interest in the subsidiary's capital held by Group companies; - Non-controlling interests in the subsidiary's equity are recognised based on the percentage shareholdings of non-group third parties in the subsidiary, once the operation is completed, including the percentage share of goodwill recognised in the consolidated accounts as a result of the change that has taken place. - The adjustment resulting from points a), b) and c) above is recognised in reserves. 10

21 Loss of control When control over a subsidiary is lost, the following rules are applied: - The gain or loss recognised in the interim individual financial statements is adjusted for consolidation purposes; - If the subsidiary acquires jointly-controlled entity or associate status, it is consolidated initially using the equity method, applying on initial measurement the fair value of the shareholding retained at that date; - The interest in the subsidiary's equity retained following loss of control that is not included in the consolidation scope is measured applying the criteria for financial assets, the initial value being the fair value at the date on which the interest is excluded from the consolidation scope; - An adjustment is recognised in the interim consolidated income statement to reflect noncontrolling interests in the revenues and expenses generated by the subsidiary during the period to the date of loss of control, and in the transfer to the income statement of the revenues and expenses recognised directly in equity Intangible assets As a general rule, intangible assets are initially carried at acquisition price or production cost. They are subsequently measured at cost less related accumulated amortisation and any impairment losses. Intangible assets are amortised over their estimated useful lives. The Group recognises as Computer software costs incurred to acquire and develop computer programs. Computer software maintenance costs are recognised in the interim income statement for the year in which they are incurred. Computer software is amortised on a straight-line basis over 3 years Property, plant and equipment Property, plant and equipment is initially carried at acquisition price and subsequently reduced by accumulated depreciation and any impairment losses. Repair and maintenance costs relating to property, plant and equipment are recorded in the interim consolidated income statement in the year in which they are incurred. Conversely, amounts invested in improvements that help to increase the capacity, efficiency or useful life of the assets are recognised as an increase in their cost. Computer processing equipment is depreciated on a straight-line basis over five years. 11

22 3.4. Investment property The interim consolidated balance sheet item Investment property reflects the values of land, buildings and other installations and constructions that are owned for leasing. The properties are carried at cost, which is their acquisition price. Acquisition price includes, in addition to the amount billed by the seller after deducting any discount or rebate, all directly related additional costs incurred until the property is ready for use. Subsequently, properties are measured at acquisition price less accumulated depreciation and any cumulative impairment adjustments. Properties are depreciated on a systematic and reasonable basis in accordance with their useful life and residual value, taking into consideration the decline in value caused by ordinary wear and tear and including any technical or commercial obsolescence. As regards the Group s properties, a 2% depreciation rate is applied to constructions. Any changes that may arise in their residual value, useful life or depreciation method applied are recognised as changes in accounting estimates, unless they are errors. Investment property maintenance and repair costs that do not improve future cash flows from the cashgenerating unit of which they form part, or its useful life, are charged to the expense accounts included in the interim consolidated income statement for the period in which they are incurred Impairment of intangible assets, PPE and investment property Assets subject to depreciation/amortisation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount, which is the asset's fair value less the higher of costs to sell and value in use. The Group commissions an independent expert, CBRE, to determine the value of all its investment properties at the end of each quarter. These valuations are carried out in accordance with the RICS Appraisal and Valuation Standards published by the UK-based Royal Institution of Chartered Surveyors ("Red Book"). 12

23 For the purposes of calculating the value of investment property, the amount that the Group expects to recover through leasing is taken into consideration. With this aim, cash flow projections are employed, applying the best estimate of lease instalments based on expectations for each asset and taking into account any uncertainty that could reduce cash flows or the discount rate. The value in use of investment property need not be identical to its fair value since value in use relates to specific factors affecting the company, mainly the capacity to impose prices above or below market levels thanks to the acceptance of different risks or the contraction of costs (construction or selling costs, for investment properties in course of construction; refurbishment costs; maintenance costs, etc.) other than the ones applicable to industry companies in general. Estimated yields depend on the type, age and location of the property. Properties have been appraised individually taking into account each lease in force at the year end and any foreseeable leases. The carrying amount of the Group s investment properties is adjusted at each year end, recognising any impairment loss in order to arrive at the recoverable amount when fair value less costs to sell is below the carrying amount. When an impairment loss is reversed, the asset s carrying amount is increased to the adjusted estimate of its recoverable amount, without exceeding the carrying amount that would have been calculated had no impairment loss been recognised in prior years. The reversal of an impairment loss is recognised in the interim consolidated income statement Leases Contracts are classified as finance leases when on the basis of the economic terms it may be inferred that all the risks and rewards of ownership of the leased asset have been transferred to the lessee. Otherwise, the contracts are classified as operating leases. Operating lease Income and expenses deriving from operating leases are taken to the interim consolidated income statement in the year in which they accrue on a straight-line basis over the estimated lease term. The acquisition cost of the leased asset is presented in the interim consolidated balance sheet on the basis of its nature, increased by the amount of directly attributable contractual costs, which are recognised as an expense over the lease term using the same method applied to recognise lease income. Any collection or payment that may be made when an operating lease is arranged is treated as an advance collection or payment and is taken to results over the lease period as the profits from the leased asset are assigned or received. 13

24 3.7. Financial instruments Recognition The Group recognises a financial instrument when it becomes party to a contract or legal business in accordance with the contractual provisions. Debt instruments are recognised as from the date on which the legal right to receive or obligation to pay cash arises. Financial liabilities are recognised on the contract date. Classification and separation of financial instruments Financial instruments are classified at the time of initial recognition as a financial asset, a financial liability or an equity instrument, in accordance with the economic substance of the contractual agreement and the definitions of financial asset, financial liability or equity instrument. The Group classifies financial instruments in different categories, taking into account their characteristics and Management s intentions at the time of initial recognition. Netting principles A financial asset and a financial liability may be netted only when the Group has the enforceable right to offset the amounts recognised and has the intention to settle the net amount or to realise the asset and cancel the liability simultaneously Financial Assets Classification The Group s financial assets are classified in the following categories: a. Loans and receivables: financial assets arising on the sale of assets or the provision of services in relation to the Company s business operations, or financial assets not arising from business transactions that are not equity or derivative instruments, from which collections arise in fixed or determinable amounts, and are not traded in an active market. b. Other financial assets: these include assets derived from guarantee deposits received under operating leases. They are equal to between 90% and 100% of the guarantee deposits received from lessees at fair value. Initial measurement In general, financial assets are initially carried at the fair value of the payment made plus directly attributable transaction costs. 14

25 In the case of equity investments in Group companies affording control over the investee, fees paid to legal advisors or other professionals related to the acquisition of the investment are taken directly to the interim consolidated income statement. Subsequent measurement 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 as from the interim consolidated balance sheet date, which are classified as non-current assets. Loans and receivables are included in Loans to companies and Trade and other receivables in the interim consolidated balance sheet. Financial assets are initially measured at fair value, including directly attributable transaction costs, and are subsequently carried at amortised cost. Accrued interest is recognised at the effective interest rate, which is the discount rate that brings the instrument s carrying amount into line with all estimated cash flows to maturity. Trade receivables falling due in less than one year are carried at face value at both initial recognition and subsequent measurement, provided that the effect of not discounting flows is not significant. At the year end, at least, the necessary value adjustments are made to account for impairment when there is objective evidence that all receivables will not be collected. The amount of the impairment loss is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate prevailing at the date of initial recognition. Value adjustments, and reversals, where applicable, are recognised in the interim consolidated income statement. Write-off of financial assets Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. The write-off of a financial asset entails the recognition of a gain or loss in the amount of the difference between its carrying amount and the sum of the consideration received, net of transaction costs, including assets obtained or liabilities assumed and any deferred loss or gain in income and expenses recognised in interim consolidated equity Financial Liabilities Financial liabilities are the Group's creditors and payables arising from the purchase of goods and services in the ordinary course of business, or financial liabilities not arising from business transactions that cannot be treated as derivative financial instruments. 15

26 Creditors and payables are initially carried at the fair value of the payment received, adjusted for directly attributable transaction costs. The liabilities are subsequently measured at amortised cost. Other financial liabilities include the amount of guarantee deposits received under operating leases, representing 100% of guarantees paid by lessees at fair value. Derecognition of financial liabilities The Group writes off a financial liability or part of a financial liability when it has fulfilled the obligation contained in the liability or is legally released from the basic responsibility contained in the liability, either through legal proceedings or by the creditor. 3.8 Financial derivatives and hedge accounting Financial derivatives are measured at fair value at both initial recognition and subsequent measurement. Resulting gains or losses are recognised depending on whether or not the derivative has been designated as a hedging instrument and, if so, on the nature of the hedge item. Hedging instruments are measured and accounted for by nature insofar as they are not or are no longer effective hedges. The Group designates a derivative contracted to hedge a specific risk associated with a recognised liability or with a highly probable forecast transaction as a hedging instrument (cash flow hedge). The Group documents at inception the relationship between the hedging instruments and hedged items, its risk management objectives and its strategy when arranging a number of hedging transactions. The Group also documents its assessment, at both inception and on an ongoing basis, of whether the derivatives used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the items hedged. The total fair value of a hedging derivative is classified as a non-current asset or liability if the time remaining to maturity of the hedged item is more than 12 months and as a current asset or liability if the time remaining to maturity of the hedged item is less than 12 months. 3.9 Cash and cash equivalents This interim consolidated balance sheet caption includes cash, bank current accounts, deposits and asset repos that meet all of the following requirements: They are convertible into cash. On acquisition, they will mature in three months or less. They are not subject to significant value fluctuation risk. They form part of the Group s ordinary cash management policy. 16

27 3.10 Foreign-currency transactions The Group s functional currency is the euro. Transactions in currencies other than the euro are thus deemed to be denominated in foreign currency and are recorded at the exchange rates prevailing on the transaction dates. At the closing date of these interim consolidated financial statements, monetary assets and liabilities denominated in foreign currency are translated applying the exchange rate in force at the interim consolidated balance sheet date. Gains or losses are taken directly to the interim consolidated income statement in the period in which they arise Current and deferred taxes In accordance with the SOCIMI tax scheme, the Group is subject to 0% corporate income tax. Pursuant to Article 9.2 of Law 11/2009 (26 October) and the amendments brought in by Law 16/2012 (27 December), the Group will be subject to a special 19% tax on gross dividends or shares of profits distributed to shareholders owning 5% or more of the relevant company, where the dividends, for the shareholders, are tax exempt or subject to tax of less than 10% (the amount of tax owed under the Law on Non-Resident Income Tax will be taken into consideration). However, that special tax will not be applicable when the dividends or shares of profits are received by entities engaged in holding shares in other SOCIMIs or in other entities not resident in Spain that have the same corporate object as a SOCIMI and are subject to a tax scheme similar to the SOCIMI scheme as regards the obligation, stipulated by law or in the by-laws, to distribute profits to shareholders owning 5% or more of the entity s capital and paying tax of at least 10% on such dividends or shares of profits. On 25 September 2013, with effect as from 1 January 2013, the parent company and its subsidiaries Surfing Moon Investments, S.L.U. and Pallars , S.L.U. notified their local Tax Administration State Agency Office of the single shareholder's decision to apply the special SOCIMI tax scheme Income and expense Income and expense are recorded on an accrual basis, i.e. in the period in which the income or expense deriving from the goods or services in question is earned or incurred rather than the period in which the cash is actually received or disbursed. Sales revenue is recognised at the time the significant risks and rewards inherent in ownership of the asset sold are transferred to the buyer and current management or effective control over the asset does not continue. Lease income is recognised on an accrual basis applying the straight-line method over the lease term. 17

28 Interest received on financial assets is recognised using the effective interest method and dividends are recognised when the shareholder s right to receive them is declared. In any event, interest and dividends on financial assets accrued after the time of acquisition are recognised as income in the interim consolidated income statement Provisions and contingencies The parent company s directors have prepared the interim consolidated annual accounts distinguishing between: a. Provisions: creditor balances that cover present obligations deriving from past events, the settlement of which is likely to trigger an outflow of funds the amount or timing of which cannot be determined. b. Contingent liabilities: possible obligations resulting from past events, the future materialisation of which is contingent upon the occurrence or otherwise of one or more future events that are beyond the Group's control. These interim consolidated financial statements reflect all provisions in respect of which it is more likely than not that the obligation will have to be fulfilled. Unless they are deemed to be remote, contingent liabilities are not recognised in the interim consolidated financial statements but are reported in the notes to the consolidated accounts. Provisions are carried at the present value of the best possible estimate of the amount necessary to settle or transfer the obligation, taking into account the information available on the event and its consequences. Any adjustments arising on the updating of such provisions are reflected as a financial expense on an accrual basis. The consideration receivable from a third party when the obligation is settled is recognised as an asset, provided there are no doubts that the consideration will be received, except in the event that there is a legal relationship through which a part of the risk has been externalised and whereby the Group is not liable; in this situation, the consideration will be taken into account to estimate the amount of the relevant provision Environmental assets Expenses relating to the decontamination and restoration of contaminated locations, waste disposal and other expenses deriving from compliance with environmental legislation are reflected as an expense in the year in which they arise unless they relate to the purchase cost of assets included in the Group s equity. No significant environmental costs or investments have been incurred or made. 18