Consolidated Annual Accounts. 31 December 2016

Transcription

1 2016 Tripark Business Park Consolidated Annual Accounts 31 December 2016

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3 CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2016 AND 2015 (Expressed in thousands of euros) ASSETS Note 31/12/ /12/2015 Property, plant and equipment - 1 Investment property 6 623, ,967 Non-current financial investments 7, 8 9,776 8,871 Non-current customer receivables 5,470 4,395 Other financial assets 4,306 4,476 TOTAL NON-CURRENT ASSETS 632, ,839 Non-current assets classified as held for sale 5-121,586 Trade and other receivables 6,595 1,998 Trade receivables for sales and services 7, 8 4,745 1,894 Sundry accounts receivable 7, 8 1, Other accounts receivable from public authorities Current financial investments 7, 8 1,348 1,348 Other financial assets 1,348 1,348 Current prepayments and accrued income Cash and cash equivalents 7, 9 20,412 14,152 Cash on hand 20,412 14,152 TOTAL CURRENT ASSETS 28, ,190 TOTAL ASSETS 661, ,029 The accompanying Notes 1 to 28 are an integral part of these financial statements. 3 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

4 Consolidated Balance Sheet at 31 December 2016 and 2015 EQUITY AND LIABILITIES Note 31/12/ /12/2015 Share capital , ,806 Share premium 10 23,722 24,194 Reserves 10 5,284 2,869 Legal reserve 3,704 2,869 Other reserves 1,580 Prior years' losses 10 - (7,307) Consolidated profit for the year 11 26,861 9,939 Treasury shares 10 (1,574) (2,140) TOTAL SHAREHOLDERS' EQUITY 529, ,361 TOTAL EQUITY 529, ,361 Non-current payables 7, 12 5,726 6,009 Other financial liabilities 5,726 6,009 Non-current payables to Group companies and associates 7, 12, ,404 Other payables - 140,404 TOTAL NON-CURRENT LIABILITIES 5, ,413 Short-term provisions 2,223 - Current payables 7, Other financial liabilities - 66 Current payables to Group companies and associates 7, 12, ,204 - Other payables 114,204 - Trade and other payables 9,731 1,883 Payable to suppliers 7, 12 4,506 1,349 Sundry accounts payable 7, Other accounts payable to public authorities 12, 13 5, Current accrued expenses and deferred income TOTAL CURRENT LIABILITIES 126,549 2,255 TOTAL EQUITY AND LIABILITIES 661, ,029 The accompanying Notes 1 to 28 are an integral part of these financial statements. 4 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

5 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 AND THE PERIOD BETWEEN 1 APRIL AND 31 DECEMBER 2015 (Expressed in thousands of euros) Note 31/12/ /12/2015 Revenue 15 35,425 18,732 Staff costs 15,e) (136) (101) Other operating expenses 15,f) (6,738) (3,396) Outside services (3,170) (1,526) Taxes other than income tax (3,541) (1,870) Losses on, impairment of and change in allowances for trade receivables 8 (27) - Investment property depreciation 6 (9,212) (4,728) PROFIT FROM OPERATIONS 19,339 10,507 Finance income Finance costs 16 (1,009) (1,841) On debts to Group companies and associates (990) (1,841) Other finance costs (19) - Impairment and gains or losses on disposals of financial instruments FINANCIAL LOSS (983) (1,680) PROFIT BEFORE TAX 18,356 8,827 Income tax PROFIT FROM CONTINUING OPERATIONS 18,356 8,827 B) DISCONTINUED OPERATIONS 23. Profit for the year from discontinued operations net of tax 5 8,505 1,112 CONSOLIDATED PROFIT FOR THE YEAR 26,861 9,939 The accompanying Notes 1 to 28 are an integral part of these financial statements. 5 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

6 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 AND THE PERIOD BETWEEN 1 APRIL AND 31 DECEMBER 2015 (Expressed in thousands of euros) A) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE. Note 31/12/ /12/2015 Consolidated profit for the year 11 26,861 9,939 Income and expense recognised directly in consolidated equity - - Transfers to the consolidated income statement - - TOTAL RECOGNISED CONSOLIDATED INCOME AND EXPENSE 26,861 9,939 B) CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY Share capital Share premium Reserves Prior years losses Profit for the year attributable to the Parent Treasury shares 1/4/2015 Beginning balance 350, (10,176) 28, ,518 Total recognised consolidated income and expense Transactions with shareholders or owners TOTAL ,939-9, ,806 24, (22,956) - 102,044 Other changes in equity - - 2,869 2,869 (5,738) - - Other changes (2,140) (2,140) 31/12/2015 Ending balance 450,806 24,194 2,869 (7,307) 9,939 (2,140) 478,361 Total recognised consolidated income and expense Transactions with shareholders or owners ,861-26,861 24,000 6, (6,676) - 23,324 Other changes in equity - - 2, (3,263) - - Other changes - (6,472) (13) 6, /12/2016 Ending balance 474,806 23,722 5,284-26,861 (1,574) 529,099 The accompanying Notes 1 to 28 are an integral part of these financial statements. 6 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

7 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 AND THE PERIOD BETWEEN 1 APRIL AND 31 DECEMBER 2015 (Expressed in thousands of euros) Note CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year before tax 9 31,539 9,939 From continuing operations 18,356 8,827 From discontinued operations 5 13,183 1,112 Adjustments for: 4,072 5,774 Investment property depreciation 6 9,212 4,728 Loss from disposal of investment property (8,431) - Changes in provisions 2,308 (634) Finance income 16 (26) (17) Finance costs 16 1,009 1,841 Impairment and gains or losses on disposals of financial instruments 16 - (144) Changes in working capital (2,688) (5,793 Trade and other receivables (4,603) (5,157) Other current assets (65) (2,512) Trade and other payables 3, Other non-current assets and liabilities (1,188) 1,483 Other cash flows from operating activities (780) 161 Interest payments (806) - Interest received CASH FLOWS FROM OPERATING ACTIVITIES 32,143 10,081 CASH FLOWS FROM INVESTING ACTIVITIES Payments due to investments (153,381) (177,783) Net outflows of cash due to business combinations 21 (138) (58,742) Investment property 6 (153,243) (119,041) Proceeds from disposals 130,026 - Investment property 130,026 - CASH FLOWS FROM INVESTING ACTIVITIES (23,355) (177,783) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds and payments relating to equity instruments 23,876 99,904 Issuance of equity instruments (+) 10 30, ,000 Dividends paid (6,676) (22,956) Purchase of treasury shares (2,140) Proceeds and (payments) relating to financial liabilities (26,404) 77,693 Issue of: Payable to Group companies and associates ,000 77,693 Amortisation: Payable to Group companies and associates 19 (140,404) - CASH FLOWS FROM FINANCING ACTIVITIES (2,528) 177,597 NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS 6,260 9,895 Cash and cash equivalents at beginning of year 14,152 4,257 Cash and cash equivalents at end of year 9 20,412 14,152 The accompanying Notes 1 to 28 are an integral part of these financial statements. 7 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

8 Notes to the Consolidated Annual Accounts Avenida América 115

9 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 (Expressed in thousands of euros) NOTE 1. GENERAL INFORMATION a) Parent ZAMBAL SPAIN SOCIMI, S.A., hereinafter the Parent, is a Spanish company with Spanish Tax Identification Number (CIF) A , incorporated for an indefinite period through a deed executed before a Madrid notary on 10 April 2013 and registered in the Mercantile Registry of Madrid in volume 30960, page 164, section 8, sheet M557304, entry no. 1 with registered office in Madrid at José Ortega y Gasset 11, 1º Derecha. On 26 December 2013, the Parent applied to be admitted to the regulated regime established by Law 11/2009, of 26 October, regulating Real Estate Investment Trusts ( REITs ), effective from its incorporation, although the definitive statute was granted by the Spanish Tax Authorities on 28 May 2014, under the aforementioned terms. Subsequently, on 31 March 2014, the company, which had been a Spanish Private Limited Liability Company, became a Spanish Public Limited Liability Company and changed its company name from ZAMBAL SPAIN, S.L. to its current name, adding the abbreviation SOCIMI, S.A. through a deed executed before a notary and registered in the Mercantile Registry of Madrid. The Parent and its Subsidiaries mainly acquire and develop urban properties for lease. On 9 July 2015, the Company changed its corporate purpose to adapt it to faithfully reflect its activity by eliminating the complementary activities it had included. On 26 December 2014, due to the capital increases performed by the Parent, it lost its status as a soleshareholder company when it became part of the shareholder structure of Loire Investments Pte. Ltd (see Note 10). On 9 July 2015, the Parent approved the change to its corporate purpose in its bylaws to faithfully reflect the Company s activity by eliminating the complementary activities. Its corporate purpose is now: (i) The acquisition and development of urban properties for lease. (ii) The holding of equity interests in other REITs or in other non-resident entities in Spain with the same corporate purpose and that operate under a similar regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the bylaws. Tripark Business Park Acquisition Date 2014 A Contemporary building designed by Gabriel Allende and built in 2002, part of the Tripark Business Park. It has four floors above ground and two below ground, and the building has LEED Gold certification. It is 100% leased to Distribuidora Internacional Alimentos, SA (DIA), one of the leading players in the food sector. 9 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

10 Notes to the Consolidated Annual Accounts (iii) The holding of equity interests in other resident or non-resident entities in Spain whose corporate purpose is to acquire urban properties for subsequent leasing, and that operate under the same regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the bylaws, and that fulfil the investment requirements referred to in art. 3 of the REIT Act. (iv) The holding of shares or equity interests in collective real estate investment undertakings regulated by Law 35/2003, of 4 November, on collective investment undertakings. (v) Other activities that complement the aforementioned activities, subject to that established under the REIT Act. In addition, in the same act, the Company resolved to modify its fiscal year, which hereinafter will run from 1 January to 31 December. The Parent forms part of a group of Companies (hereinafter, the Group ), the main shareholder of which is Altaya Pte, Ltd., which has its registered office in Singapore. The ultimate parent of the Group to which it belongs is Investment Beverage Business Fund that has its registered office in Singapore and is listed on the Main Board of the Singapore Exchange LTD under ISIN SG On 30 March 2016, a new member was appointed to the Board of Directors, Catherine Crochet, and Jonathan Andrew Melville Cave was removed. The figures contained in all of the financial statements composing the consolidated financial statements (consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and the notes to the consolidated financial statements) are expressed in thousands of euros, unless otherwise specified. On 28 March 2017, the Directors of the Parent prepared the individual financial statements of the Parent for the year ended 31 December b) Subsidiaries Changes in the scope of consolidation In 2015 the Company became the parent of a group of companies as a result of the following corporate transactions On 18 June 2015, the Company registered the contribution and incorporation of 100% of the equity interests of Serrano 61 Desarrollo, S.L.U. and Preciados 9 Desarrollos Urbanos, S.L.U. with the Mercantile Registry At 31 December 2015, these subsidiaries were dormant companies that had been used for the transaction described in Note 5. On 29 September 2015, the Company acquired all of the equity interests of Inversiones Iberia Nora, S.L.U. and at the date of these interim financial statements, the company owns the building at leased to Vodafone. In accordance with the criteria of Royal Decree 1159/2010, of 17 September, approving the rules for preparing consolidated financial statements, the following is a breakdown of the information related to the various companies that compose the Group at 31 December 2016 and 31 December 2015, as well as the method used for their consolidation: 10 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

11 Notes to the Consolidated Annual Accounts 2016 Companies Country Registered Office Date of Incorporation % Ownership Zambal Spain Socimi, S.A. Spain (1) - Parent Inversiones Iberia Nora, S.L.U. Spain (1) 29 September % 2015 Companies Country Registered Office Date of Incorporation % Ownership Zambal Spain Socimi, S.A. Spain (1) - Parent Serrano 61 Desarrollo, S.L.U. Spain (1) 18 June % Preciados 9 Desarrollos Urbanos, S.L.U. Spain (1) 18 June % Inversiones Iberia Nora, S.L.U. Spain (1) 29 September % Registered Office: (1) Calle José Ortega y Gasset 11, 1º Dcha, Madrid In 2016 and 2015 all of the Group companies were accounted for using the equity method. Except for the Parent, which has been listed on the Alternative Stock Market since 1 December 2015, none of the Subsidiaries indicated are listed. None of the companies are subject to significant restrictions on their ability to transfer funds to the Parent in the form of cash dividends or to repay loans. No subsidiaries have been excluded from the scope of consolidation due to a lack of significant ownership interest in order to fairly present the Group. The fiscal year for all the companies ends on 31 December. Avenida América 115 Acquisition Date 2015 This business park, completed in 2012, is made up by 5 free-standing glass buildings surrounding a central area where the accesses are brought together. Each building has a ground floor plus six over ground floors for office use, and two underground floors used as parking. The whole building is rented on a long-term lease to Vodafone España, S.A.U. and it is the company s Spanish headquarters ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

12 Notes to the Consolidated Annual Accounts NOTE 2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS a) Fair presentation The consolidated financial statements were prepared from the Parent s and the subsidiaries accounting records, which include the necessary adjustments and reclassifications for valuation uniformity with the Parent. The aforementioned consolidated financial statements are presented in accordance with the provisions of: The Spanish Code of Commerce, amended in accordance with Law 10/2007, of 4 July, and other corporate and commercial law. The Spanish National Chart of Accounts approved by Royal Decree 1514/2007, of 20 November, Royal Decree 1159/2010, of 17 September approving the rules for preparing consolidated financial statements and Royal Decree 602/2016, 2 December modifying the 2007 Spanish National Chart of Accounts. The mandatory rules approved by the Spanish Accounting and Audit Institute in order to implement the Spanish National Chart of Accounts and its supplementary rules. All other applicable Spanish accounting legislation. Law 11/2009, of 26 October, regulating Real Estate Investment Trusts (REITs) in relation to the information to be broken down in the notes to the financial statements. The figures contained in these consolidated financial statements are expressed in thousands of euros, unless otherwise stated. b) Non-obligatory accounting principles applied No non-obligatory accounting principles were applied to present fairly the consolidated equity, consolidated financial position and consolidated results of the Group. c) Basis of consolidation The basis of consolidation used is that established in Royal Decree 1159/2010, approving the rules for preparing consolidated financial statements and in the 19th accounting standard for recognising and measuring business combinations approved by Royal Decree 1514/2007 and subsequently amended through Royal Decree 1159/2010. The consolidated financial statements were prepared by fully consolidating all of the companies included within the scope of consolidation. Subsidiaries are all of the entities, regardless of their legal form and registered office, over which the Parent exercises or may exercise, directly or indirectly, control that is understood as the power to govern the financial and operating policies of an entity so as to obtain economic benefits from its activities. When assessing whether the Parent controls another entity the following criteria is considered: whether it has the majority of voting rights, whether it has the power to appoint or dismiss the majority of the members of the administrative body and whether it can obtain, pursuant to agreements reached with third parties, the majority of voting rights. Subsidiaries are consolidated from the date on which control passes to the Parent, and are excluded from consolidation on the date on which control ceases to exist. The acquisition method is used to account for the acquisition of subsidiaries. This method requires identifying the acquiring company, determining the date of acquisition, quantifying the cost, recognising and measuring the identifiable assets acquired and the liabilities assumed; and determining the amount of goodwill or the negative difference ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

13 Notes to the Consolidated Annual Accounts The acquisition cost is the fair value of the assets delivered, of the liabilities incurred or assumed and the equity instruments issued by the acquirer (when the fair value of the business acquired is more reliable, it will be used to estimate the fair value of the consideration delivered), plus the fair value of any contingent consideration (regardless of the likelihood that it can be measured reliably). The assets, liabilities, income and expenses of the subsidiaries are fully consolidated. Full consolidation consists of including in the balance sheet, income statement, the statement of changes in equity and the statement of cash flows for the company that must be consolidated, all of the assets, liabilities, income, expenses, cash flows and other items of the financial statements of the Group companies once the necessary prior eliminations and unifying adjustments have been made in accordance that established in Chapter III of Royal Decree 1159/2010, in particular: 1. The carrying amounts of the investments in the share capital of the subsidiaries is offset, on the date of acquisition, by the proportionate share represented by the aforementioned amounts in relation to the fair value of the assets acquired and liabilities assumed. 2. The difference between the carrying amount of the investments in the subsidiary and the amount of the fair value of the assets acquired and liabilities assumed attributable to the aforementioned ownership interest is recognised, if positive, as goodwill on consolidation. In the exceptional event that it is negative, it is recognised as income in the year on the consolidated income statement or in the event that there are obligations and/or liabilities as a result of the aforementioned combination, as a liability. 3. The assets and liabilities of the Group companies are included on the consolidated balance sheet with the same values with which they appear on the respective balance sheets of the aforementioned companies, except assets acquired and liabilities assumed at the date of acquisition that are included on the consolidated balance sheet at their fair value at the date of acquisition, once the amortisation and depreciation and impairment that have arisen since the aforementioned date have been taken into account. 4. The income and expenses of the subsidiaries are included in the consolidated financial statements. 5. Receivables and payables between companies included in the consolidable group, income and costs related to the transactions between the aforementioned companies, and the results generated as a result of such transactions that were not carried out vis-à-vis third parties are eliminated from the consolidated financial statements. In order to uniformly present the various items composing the accompanying consolidated financial statements, the policies and measurement bases used by the Parent were applied to all of the consolidated companies and in all material respects. In business combinations carried out in stages (those in which the acquiring company obtains control of the acquired company through various independent transactions performed on different dates), the goodwill or negative difference will be obtained by the difference between the cost of the business combination plus the fair value on the date of acquisition of any prior investment of the acquiring company in the acquired company and the value of the identifiable assets acquired less the liabilities assumed. Any gain or loss arising as a result of the fair value measurement on the date control is obtained of the acquirer s prior ownership interest in the acquired company will be recognised in the income statement. If beforehand, the ownership interest in the investee has been measured at fair value, the valuation adjustments pending recognition in profit or loss for the year will be transferred to the income statement. In the applicable cases, the results of the transactions of companies that were acquired or disposed of was included from the date of acquisition or up to the date of disposal, as appropriate. The subsidiaries did not have an ownership interest in the Parent at 31 December 2016 or 31 December The financial information and balance sheet dates of the subsidiaries used in the consolidation process are from 1 January 2016 to 31 December 2016, except for cases in which they have been excluded from the scope of consolidation in which case they would be from 1 January 2016 to the date thereof (for 2015, those corresponding to the period between their inclusion in the scope of consolidation to 31 December 2015), (as regards the Parent, the period between 1 April 2015 and 31 December 2015) ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

14 Notes to the Consolidated Annual Accounts d) Key issues in relation to measurement and uncertainty. Accounting judgments and estimates. The preparation of the consolidate financial statements requires that the Group use certain estimates and judgements with respect to the future that are continuously evaluated and that are based on historical experience and other factors, including expectations of future events that are deemed to be reasonable under the current circumstances. The resulting accounting estimates, per se, rarely match the corresponding outcomes in real life. The estimates and judgements that would pose a significant risk of material adjustments to the carrying amounts of the assets and liabilities in the following year are explained below. Impairment of financial assets On a yearly basis, the Directors of the Parent assess whether there are any indications of impairment on the financial assets by performing impairment tests when appropriate. To that end, the recoverable value of the aforementioned assets is determined. The calculation of fair values may imply the determination of future cash flows and the assumption of hypotheses relating to the future values of the flows and to the discount rates applicable thereto. The related estimates and assumptions are based on historical experience and other factors considered reasonable in accordance with the circumstances surrounding the activity carried out by the Group.. Measurement of non-current assets The measurement of non-current assets, other than financial assets, requires estimates to be made for the purpose of determining their fair value, in order to evaluate any possible impairment, especially in relation to investment property. To determine their fair value, the Directors of the Parent have hired independent experts to measure the investment property based on an estimate of the expected future cash flows from the said assets using an appropriate discount rate to calculate the current value of these cash flows. Income tax The (active) Group Companies have availed themselves of the regime established in Law 11/2009, of 26 October, regulating Real Estate Investment Trust (REITs), which, in practice, means that, provided certain requirements are met, the Company is subject to an income tax rate of 0%. The Directors monitor compliance with the relevant legal requirements for the purpose of securing the tax advantages established therein. In this respect, the Directors consider that such requirements will be met within the established terms and periods and, therefore, have not recognised any type of income tax income or expense Lease term The Group has arranged leases in which it has established minimum terms with certain extension periods. In the majority of cases, the lessees have options for withdrawing from the leases and the unilateral decision whether to extend them ultimately depends on the lessee. In cases in which the Group has an unconditional right to terminate the lease after the minimum period stipulated, in order to measure certain financial liabilities (specifically, with respect to lease guarantees with the explicit interest), which depends on the duration thereof, the assumption made by the Directors of the Group companies is that the said leases will reach the end of their contractual term. In any event, the Directors of the Group companies re-estimate the situation and the term of the leases at each balance sheet date. e) Grouping of items In order to facilitate comprehension of the consolidated balance sheet, the consolidated income statement, the consolidated statement of changes in equity and the consolidated statement of cash flows, certain items included in these consolidated financial statements have been presented grouped together, with the required analysis included in the corresponding notes to the consolidated financial statements ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

15 Notes to the Consolidated Annual Accounts f) Changes in accounting estimates There were no changes in accounting estimates during the year. g) Comparative information Until the period ended 31 December 2015, the Company was not obligated to prepare consolidated financial statements for the Group because the Company was not the parent of a group of companies in accordance with the provisions of art. 42 of the Spanish Code of Commerce. Although under corporate and commercial law the Parent was not obligated to prepare consolidated financial statements at 31 December 2015, as a result of that established in art. 43 bis of the Spanish Code of Commerce introduced by art. 1 of Law 16/2007 because the Parent may avail itself of the dispensations included in the aforementioned article due to its size, it did so because since 1 December 2015 the Parent has been listed on the Alternative Stock Market and in circular 7/2016 it established the requirement to present consolidated financial statements, and its new circular 15/2016 maintains such obligation. The Directors of the Company present, in addition to the figures for 2016 for each item in the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and the notes to the consolidated financial statements, those corresponding to the preceding period that include nine months of activity and thus, are not comparable. At 31 December 2014, the Parent classified two properties as non-current assets held for sale because they met the conditions to be classified as discontinued operations. For such purposes, these financial statements breakdown the items that at 31 December 2016 and 31 December 2015 comprise the net profit from discontinued operations and their related cash flows. Ágora Towers Acquisition Date 2013 Contemporary building designed by Gabriel Allende in This asset is divided in two twin towers, each with 15 floors above ground level and 3 floors below ground level, with direct access from the M-30 satellite highway. The building is fully leased to the Spanish Ministry of Foreign Affairs ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

16 Notes to the Consolidated Annual Accounts NOTE 3. ACCOUNTING POLICIES The principal accounting policies and measurement bases used in preparing these consolidated financial statements are as follows: 3.1. SUBSIDIARIES a) Acquisition of control Acquisition by the Parent (or another Group company) of control of a subsidiary constitutes a business combination that is recognised in accordance with the acquisition method. This method requires the acquiring company to recognise, at the date of acquisition, the identifiable assets acquired and the liabilities assumed in the business combination, and, where applicable, the corresponding goodwill or negative difference. Subsidiaries are consolidated from the date on which control passes to the Group, and are excluded from consolidation on the date on which control ceases to exist. The acquisition cost is calculated as the sum of the fair values on the date of acquisition of the assets delivered, the liabilities incurred or assumed and the equity instruments issued by the acquirer and the fair value of any contingent consideration that depends on future events or the fulfilment of certain conditions that must be recognised as an asset, liability or equity in accordance with its nature. The expenses related to issuing the equity instruments or the financial liabilities delivered are not part of the cost of the business combination and are recognised in accordance with the rules applicable to financial instruments. The fees paid to legal advisors or other professionals who participate in the business combination are recognised as expenses as they are incurred. The expenses incurred internally for these items and, where applicable, those incurred by the entity acquired do not form part of the cost of the business combination. The excess, on the date of acquisition, of the cost of the business combination, over the proportional part of the value of the identifiable assets acquired less the liabilities assumed representing the ownership interest in the company acquired is recognised as goodwill. In the exceptional event that these amounts are greater than the cost of the business combination, the excess is recognised as income in the income statement. b) Basis of consolidation The assets, liabilities, income, expenses, cash flows and other items in the Groups financial statements are fully consolidated in the Group s consolidated financial statements. This method requires the following: 1. Reporting date uniformity. The consolidated financial statements are prepared on the same date and for the same period as the financial statements for the company that must be consolidated. Companies whose balance sheet date differs are included through interim financial statements at the same date and for the same period as the consolidated financial statements. 2. Valuation uniformity. The assets, liabilities, income and expenses and other items in the financial statements for the Group companies were measured following uniform methods. Assets, liabilities, income or expenses that have been measured using criteria that are not consistent with those used on consolidation have been measured again, making the necessary adjustments, for the sole purpose of consolidation. 3. Aggregation. The various items in the individual financial statements previously standardised are aggregated according to their nature. 4. Investment-equity elimination. The fair values representing the equity instruments of the subsidiary owned, directly or indirectly, by the Parent, are offset with the proportional part of the equity items of the aforementioned subsidiary attributable to the said ownership interests, generally, based on the values obtained from applying the acquisition method described above. On consolidation in years following the acquisition of control, the excess or lack of equity generated by the subsidiary from the date of acquisition attributable to the parent is recognised on the consolidated balance sheet under reserves or valuation adjustments based on its nature. The portion attributable to non-controlling interests is recognised under Non-controlling interests ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

17 Notes to the Consolidated Annual Accounts 5. Non-controlling interests. Non-controlling interests are measured based on their effective share of the subsidiary s equity after the aforementioned adjustments have been included. Consolidation goodwill is not attributed to non-controlling interests. The excess between the losses attributable to the noncontrolling interests of a subsidiary and the proportional share of equity that correspond to them is attributed to them even when it implies a deficit balance under the aforementioned heading. 6. Elimination of intragroup items. All receivables, payables, income, expenses and cash flows between Group companies are eliminated. Likewise, all results arising from internal transactions are eliminated and deferred until they are performed vis-à-vis third parties unrelated to the Group. c) Change in ownership interest without loss of control Once control of the subsidiary is obtained, the subsequent transactions that give rise to a change in the Parent s ownership interest in the subsidiary, without loss of control, are treated as a treasury share transaction in the consolidated financial statements, and the following rules apply: a) Neither the amount of goodwill or negative difference recognised nor the other assets and liabilities recognised are changed; b) The profit or loss recognised in the individual financial statements is eliminated on consolidation, and the corresponding adjustment is made to the reserves of the company whose ownership interest is reduced; c) Valuation adjustments and Grants, donations or gifts and legacies received are adjusted to reflect the Group companies share of the subsidiary. d) Non-controlling interests in the equity of the subsidiary will be recognised based on the percentage of ownership that third parties unrelated to the Group hold in the subsidiary once the transaction is performed, including the share in the goodwill recognised in the consolidated financial statements associated with the change made; e) The adjustment necessary based on points a), b) and c) above will be recognised under reserves. d) Loss of control When control of the subsidiary is lost, the following rules are observed: a) For the purpose of consolidation, the profit or loss recognised in the individual financial statements is adjusted; b) If the subsidiary becomes a jointly controlled entity or associate, it is consolidated and initially the equity method is used, taking into account, for the purpose of its initial measurement, the fair value of the ownership interest retained at such date; c) The share of the non-controlling interests in the subsidiary retained after the loss of control that is not included within the scope of consolidation will be measured in accordance with the criteria applicable to financial assets and the fair value on the date on which it is no longer included within the scope of consolidation will be taken as its initial measurement. d) An adjustment is recognised in the consolidated income statement to show the share of the noncontrolling interests in the income and expenses generated by the subsidiary in the year until the date of the loss of control and in the transfer to the income statement of the income and expenses recognised directly in equity FOREIGN CURRENCY TRANSACTIONS a) Functional and presentation currency The items included in the financial statements of each Group company are measured using the currency of the main economic environment in which the company operates (euro). The consolidated financial statements are presented in euros, which is the Group s functional and presentation currency. Specifically, the figures included in these consolidated financial statements are presented in thousands of euros, unless otherwise indicated ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

18 Notes to the Consolidated Annual Accounts b) Transactions and balances Transactions in foreign currencies are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Gains and losses on foreign currencies that arise from settling these transactions and from translating the monetary assets and liabilities denominated in foreign currencies at the year-end exchange rates are recognised in the income statement, except where they differ in equity, such as qualified cash flow hedges or qualified hedges of a net investment INVESTMENT PROPERTY The carrying amount of the land, buildings and other structures maintained to obtain long-term lease income, which are not occupied by the Group, are recognised under Investment property in the consolidated balance sheet of these consolidated financial statements. The assets composing investment property are measured at their cost that corresponds to the acquisition price. The price of acquisition includes, in addition to the amount invoiced by the seller after deducting any discount or reduction in the price, all of the directly related additional expenses that are incurred until the property is ready for its intended use. Subsequently, the aforementioned investment property is measured at cost less any accumulated depreciation and any recognised accumulated impairment losses. The costs of expansion, modernisation or improvements leading to increased productivity, capacity or efficiency or to a lengthening of the useful lives of the assets are capitalised. Maintenance and repair costs that do not lead to a lengthening of the useful lives of the assets are charged to the consolidated income statement for the period in which they are incurred. The finance costs directly attributable to the acquisition or construction of investment property that require more than twelve months to be ready for use are added to their cost until they are brought into operating condition. For investment property that necessarily takes a period of more than twelve months to get ready for its intended use, the capitalised costs include such borrowing costs as might have been incurred before the property is ready for its intended use and that have been charged by the supplier or relate to loans or other specific-purpose or general-purpose borrowings directly attributable to the acquisition or production of the property. Depreciation of these items is carried out systematically and rationally based on the useful life of the property and their residual value, based on the normal decline in value caused by their use and by wear and tear, without prejudice to the technological or commercial obsolescence that may also affect the assets. The estimated useful life of the various components identified under Investment property are the following: Years Civil engineering work (*) 50 Façades and roofs (*) 30 General fixtures 20 Other fixtures 15 (*) These items are recognised under changes in investment property (Note 6) under Buildings. Items recognised under this heading that are under construction for use as investment property or for an as yet determined use, are recognised at cost deducting the recognised impairment losses. Depreciation of these assets, on the same basis as other investment property, commences when the property is ready for its intended use ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

19 Notes to the Consolidated Annual Accounts As a result of the business combination described in Note 21 of these notes to the consolidated financial statements, certain items included under this heading were revalued at the date of the transaction described in the aforementioned note, while the fair value of the others did not change with respect to that presented prior to the aforementioned business combination. In the event investment property is acquired that is later leased to the seller, if the term of the lease is similar to the life of the building, even if there is no purchase option, the portion of the lease corresponding to the building is considered a finance lease and is recognised in the consolidated balance sheet as a credit for the present value of the pending future payments attributable to the lease of the overhang and thereafter, the credit is measured based on the effective rate of profitability, and the income obtained is recognised as finance income. Decreases in the recoverable amount below the carrying amount are charged to the consolidated income statement. At year end, the Company assesses whether there are indications that the investment property is impaired, in which case it estimates the recoverable amount making the appropriate valuation adjustments. Allocation of the aforementioned impairment, and the reversal thereof, is carried out in accordance with that indicated in the accounting policies and measurement bases included in the Spanish National Chart of Accounts. In addition, the depreciation for the following years for the impaired investment property will be adjusted taking into account the new carrying amount IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS The Group does not recognise intangible assets with indefinite useful lives on its balance sheet. At each year-end, the Parent reviews the assets subject to amortisation to verify if there is any event or change in circumstances that indicates that the carrying amount may not be recoverable. An impairment loss is recognised for the excess of the carrying amount of the asset over its recoverable amount, where the latter is understood as the greater of fair value of the asset less costs to sell and value in use. For the purpose of evaluating their impairment losses, assets are grouped into the lowest level with separate identifiable cash flows (cash-generating units). For assets that do not generate independent cash flows, the recoverable amount is determined for the cash-generating units to which the asset belongs. Non-financial assets that have suffered an impairment loss are reviewed at each balance sheet date, to see if the losses have been reversed FINANCIAL ASSETS Acquisitions or disposals of financial assets are recognised on the trade date, i.e., the date on which the Group undertakes to acquire or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the investments have matured or have been transferred and the Group has transferred substantially all the risks and benefits arising from the related ownership. For the purpose of their measurement, the Group determines the classification of its investments when they are initially recognised and reviews the classification at each balance sheet date. The classification depends on the purpose for which the financial assets were acquired, and are measured in accordance the following criteria: Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not traded in an active market. They are generated when the Group supplies money, assets or services directly to a debtor that are not intended for trading. They are considered current assets, except for those maturing within more than 12 months from the balance sheet date, which are classified as non-current assets. In addition, deposits and guarantees provided to third parties are included in this category. Loans and receivables are included under Trade and other receivables in the consolidated balance sheet. Non-current loans and receivables are subsequently recognised at their amortised cost in accordance with the effective interest rate method ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

20 Notes to the Consolidated Annual Accounts Held-to-maturity investments Held-to-maturity financial assets are debt securities with fixed or determinable payments and fixed maturity, which are traded in an active market and that the Company s management has the effective intention and ability to hold to the date of maturity. If the Company sells a material amount of its held-to-maturity financial assets, the entire category would be reclassified as available for sale. These financial assets are considered non-current assets, except for those maturing within less than 12 months from the balance sheet date, which are classified as current assets. Offsetting of financial instruments Financial assets and liabilities are offset and presented as net in the consolidated balance sheet when there is a legally enforceable right to offset the recognised amounts and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Impairment losses on financial assets At each balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a Group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment loss includes indications that certain debtors or a group of debtors are experiencing significant financial difficulties, the default of or delinquency in interest or principal payments, the likelihood that they will become involved in insolvency proceedings or in any other financial reorganisation process, and when observable data indicates that there may be a measurable decrease in the estimated future cash flows as a result of changes in payment conditions or in the economic conditions related to defaults. For loans and receivables, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or a heldto-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the effective annual interest rate determined in accordance with the agreement. As a practical measure, the Group may estimate impairment based on the fair value of an instrument using an observable market price. If in a subsequent period, the impairment amount decreases, and the decrease can objectively be attributed to an event that occurred after the impairment was recognised (such as an improvement in the debtor s credit quality) the reversal of the previously recognised impairment will be recognised in the income statement CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, demand deposits in banks and other short-term highly liquid investments originally maturing within three months or less. The following terms are used in the consolidated statements of cash flows, which was prepared in accordance with the indirect method: Cash flows: inflows or outflows of cash and cash equivalents. Operating activities: payments and collections from the Group s ordinary activities and other activities that are not investing or financing activities. Investing activities: payments and collections that arise from acquisitions and disposals of non-current assets. Financing activities: activities that result in changes in the size and composition of equity and borrowings of the Group that are not operating activities ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

21 Notes to the Consolidated Annual Accounts 3.7. EQUITY The share capital is represented in full by shares. The incremental costs directly attributable to the issue of new shares are recognised in equity as a deduction, net of the corresponding tax effect, from the income obtained. When any Group entity acquires shares of the Parent (treasury shares), the consideration paid, including any directly attributable incremental cost (net of income tax), is deducted from the equity attributable to the shareholders of the Parent until their redemption, re-issue or disposal. When these shares are sold or are later re-issued, any proceeds received, net of any directly attributable incremental cost of the transaction and the corresponding income tax effects, is included in the equity attributable to the shareholders of the Parent FINANCIAL LIABILITIES For measurement purposes, financial liabilities correspond to the following category: Accounts payable This heading includes both trade and non-trade payables. These borrowed funds are classified as current liabilities, unless the Company has the unconditional right to defer settlement at least 12 months after the balance sheet date. These borrowings are initially recognised at fair value, adjusted by any directly attributable transaction costs, and subsequently recognised at cost using the effective interest rate method. This effective interest rate is the discount rate that matches the carrying amount of the instrument to its expected future cash flows until the liability matures. However, trade payables maturing within twelve months where there is no contractual interest rate are measured, both initially and subsequently, at their nominal value when the effect of not discounting the cash flows is not material. These financial liabilities are measured, both initially and subsequently, at their fair value, and the changes that arise in the aforementioned value are recognised in the income statement for the year. Transaction costs directly attributable to the issue are recognised in the income statement in the year in which they arise. A financial liability is derecognised when the corresponding obligation has extinguished BORROWING COSTS General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Finance income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the income statement in the year in which they are incurred CURRENT AND DEFERRED TAXES Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). The current income tax expense is the amount payable by the Group companies as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

22 Notes to the Consolidated Annual Accounts The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured by applying to the temporary difference or tax credit the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising from the initial recognition of goodwill or of other assets and liabilities in a transaction that is not a business combination and affects neither accounting profit (loss) nor taxable profit (tax loss). Deferred tax assets are recognised to the extent that it is considered probable that the Company will have taxable profits in the future against that the deferred tax assets can be utilised. Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognised in equity. With respect to that indicated in the preceding paragraphs and in relation to that explained below, it should be pointed out that the recognition of deferred tax assets and liabilities is revaluated taking into account that the Companies have availed themselves of the REIT regime and, therefore, only the tax assets that are expected to be used or the tax liabilities that are expected to be settled as a result of the failure to comply with the requirements established in the legislation that regulates these types of companies are recognised. On 26 December 2013, and effective from its incorporation, the Parent reported to the Office of the Spanish State Tax Agency corresponding to its tax domicile the decision adopted by its then sole shareholder to avail itself of the special REIT tax regime. Pursuant to Law 11/2009, of 26 October, regulating Real Estate Investment Trusts, entities that opt to apply the special tax regime envisaged in this Law will be subject to an income tax rate of 0%. If any tax loss carryforwards are generated, art. 25 of the consolidated text of the Spanish Income Tax Act, approved by Legislative Royal Decree 4/2004, of 5 March, will not be applicable. Likewise, the system of tax relief and tax credits established in Chapters II, III and IV of this law will not be applicable. With regard to all other matters not envisaged in Law 11/2009 that established in the consolidated text of the Spanish Income Tax Act will be applicable. The entities will be subject to a special tax rate of 19% on the full amount of the dividends or share in profits distributed to shareholders whose ownership interest in the entity s share capital is equal to or greater than 5%, when such dividends are exempt from taxation or taxed at a rate less than 10% at the tax domicile of such shareholders. This tax rate will take into consideration the income tax expense PROVISIONS AND CONTINGENT LIABILITIES Provisions are recognised in the balance sheet when the Company has a present obligation (legal or constructive) as a result of past events, where an outlay of resources will likely be needed to settle the obligation and when the amount can be reliably estimated. No provisions are recognised for future losses from operations. Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even when the probability of an outflow with respect to any item included in the same class of obligations is small. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax interest rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Adjustments made to provisions due to updates are recognised as finance costs on an accrual basis. For provisions maturing within twelve months from year-end or those for which the financial effect is not material, there is no discounting of any kind. When the portion of the payment necessary for settling the provision is refunded by a third party, the refund is recognised as an independent asset, as long as it is practically certain to be received ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

23 Notes to the Consolidated Annual Accounts On the other hand, contingent liabilities are considered to be any obligations arising from past events, the occurrence of which is conditional upon whether one or more future events occur that are beyond the Group s control. These contingent liabilities are not recognised in the financial statements REVENUE RECOGNITION Revenue and expense are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Revenue from sales is recognised when the significant risks and rewards of ownership of the goods sold have been transferred to the buyer, and the Company neither continues to manage the goods nor retains effective control over them. Lease income is recognised on an accrual basis using the straight-line method over the estimated term of the agreement. Interest income from financial assets is recognised using the effective interest method and dividend income is recognised when the shareholder s right to receive payment has been established. Interest and dividends from financial assets accrued after the date of acquisition are recognised as income LEASES Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases. Lease income is recognised on a straight-line basis over the term of the lease. Finance leases At 31 December 2016, none of the Group companies had finance leases. Operating leases Lease income and expenses from operating leases are recognised in income on an accrual basis for the term of the leases and in accordance with the straight-line method. Also, the acquisition cost of the leased asset is presented in the balance sheet according to the nature of the asset, increased by the costs directly attributable to the lease, which are recognised as an expense over the lease term, applying the same method as that used to recognise lease income. A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided DISTRIBUTION OF DIVIDENDS Dividend pay-outs to shareholders of the ultimate Parent are recognised as a liability in the Group s consolidated financial statements in the year in which the dividends are approved by the shareholders of the Group s Parent RELATED-PARTY TRANSACTIONS In general, transactions between group companies are recognised initially at fair value. In the event that the price agreed upon in a transaction differs from its fair value, the difference is recognised in accordance with the economic substance of the transaction. The subsequent valuation is made in accordance with the provisions of the corresponding regulation ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

24 Notes to the Consolidated Annual Accounts The above notwithstanding, in mergers, spin-offs or non-monetary contributions to a company, once the transaction has been completed, the constituent elements of the acquired company are recorded at their corresponding amounts in the consolidated financial statements of the group or subgroup. When the parent of the group or subgroup and its subsidiary are not involved, the financial statements to be considered for these purposes will be those of the larger group or subgroup in which the assets and liabilities are consolidated and whose parent company is a Spanish company. In these cases, any difference that arises between the carrying amount of the acquired company s assets and liabilities (adjusted by the balance of groups of grants, donations and legacies received and valuation adjustments) and any amount of share capital and share premium, where applicable, issued by the absorbing company, is recorded in reserves ENVIRONMENT In view of the Group companies business activity, the Group does not have any environmental expenses, assets, provisions or contingencies that might be material with respect to its consolidated equity, consolidated financial position or consolidated results for the year. Therefore, no specific disclosures relating to environmental issues are included in these notes to the consolidated financial statements GUARANTEES The difference between the fair value of guarantees provided or received for operating leases or for the provision of services and the amount paid -due, for example, to the fact that it is a long-term guarantee without remuneration- is recognised as a prepaid payment or collection for the lease or service, which is allocated to consolidated profit or loss over the lease term. Remunerated guarantees received for long-term leases, are recognised as a financial liability at their fair value when initially recognised (generally, the amount received in cash), which corresponds to the amount that will be reimbursed, less the corresponding explicit interest rate. In order to calculate the fair value of the guarantees the minimum contractual term is used as the remaining period during which the amount may not be returned, without taking into consideration the statistical behaviour of the return. In the case of short-term guarantees, cash flows do not need to be discounted if their effect is not material NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS Los activosnon-current assets are classified as held for sale if it is believed that their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. These assets are recognised at their carrying amount or fair value, whichever is lower, less the costs necessary for their disposal and are not subject to amortisation. Any component of the Group that has been sold or disposed of in any other way or has been classified as held for sale and represents a line of business or significant geographic area of operation, form part of an individual plan or is a subsidiary acquired exclusively for sale is classified as a discontinued operation. The results generated by discontinued operations are recognised in a specific single line in the income statement net of taxes, taking into account that the Company has availed itself of the REITs regime ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

25 Notes to the Consolidated Annual Accounts NOTE 4. FINANCIAL RISK MANAGEMENT 4.1. FINANCIAL RISK FACTORS The Group s activities expose it to various financial risks: market risk (including interest rate risk), credit risk and liquidity risk. The Group s global risk management programme focuses on the uncertainty of financial markets and attempts to minimise the potential adverse effects on its profitability. In the opinion of the Directors of the Parent, there are no financial instruments that have similar characteristics and are affected similarly by changes in economic or other conditions or other variables, otherwise, in their opinion the details provided in these notes to the consolidated financial statements are sufficient. a) Market risk The international economic crisis that has particularly affected the real estate and financial industries in Spain in and of itself represents a significant market risk. (i) Currency risk The Group operates nationally and all of its transactions are performed in euros, its functional currency, therefore, it is not exposed to currency risk as a result of foreign currency transactions. Currency risk may arise on future commercial transactions, balance sheet assets and liabilities and net investments in foreign operations that the Group does not perform. (ii) Price risk Due to the lack of listed financial instruments recognised on its balance sheet, the Group is not exposed to any significant risk in relation to share prices. (iii) Cash flow and fair value interest rate risk The Group s interest rate risk arises mainly from non-current borrowings. Debt issued at floating rates exposes the Group to cash flow interest rate risk. In 2016 loans with variable interest rates were denominated in euros. At 31 December 2016 and 2015, the Company is exposed to this type of risk because it receives financing through loans from its shareholders amounting to 114,204 thousand (2015: 140,404 thousand) that accrue interest at a variable rate tied to Euribor. The aforementioned borrowings accrued interest amounting to 990 thousand (2015: 1,841 thousand). At 31 December 2016 and 2015 the Group has no bank borrowings. The exposure to variable interest rate risk at each balance sheet date is the following 31/12/2016 Tied to Euribor Other reference rates TOTAL Payable to related companies (Notes 7, 12 and 19) (114,204) - (114,204) Cash and cash equivalents (Note 7 and 9) 20,412-20,412 Net cash position (93,792) - (93,792) 31/12/2015 Tied to Euribor Otras referencias TOTAL Payable to related companies (Notes 7, 12 and 19) (140,404) - (140,404) Cash and cash equivalents (Note 7 and 9) 14,152-14,152 Net cash position (126,252) - (126,252) 25 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

26 Notes to the Consolidated Annual Accounts The Group analyses its exposure to interest rate risk dynamically. It simulates various scenarios taking into account refinancing, the renewal of current positions, alternative financing and existing transactions/hedges. Based on these scenarios, the Group calculates the effect a certain change in the interest rate would have on results. The scenarios are only for liabilities that represent the most significant positions that accrue interest. For each simulation, the same change in the interest rate is used. As indicated in Note 19, the Company has a working capital deficiency because of maturity of the loan from Group companies. The aforementioned loan will be capitalised within the framework of a capital increase through a debt-to-equity swap in b) Credit risk In the opinion of the Parent s Directors credit risk is low since the credit quality of the lessees is high, demonstrated by the fact that rent is usually collected in advance on a monthly basis and the other expenses to be distributed among the lessees are not usually older than three months. In addition, the Group hedges this risk by requesting guarantees from its tenants. Therefore, the Group s credit risk management is focused on the following group of financial assets: Balances related to non-current and current financial investments (Notes 7 and 8). Balances related to trade and other receivables (Notes 7 and 8). c) Liquidity risk The Group faces many risks and uncertainties related to the global economy, industry in particular and the credit situation that could have a material impact on its plan. Prudent management of liquidity risk entails the maintenance of sufficient cash and marketable securities, availability of financing through a sufficient level of committed credit facilities and the capacity to settle market positions. The Parent s Directors monitor the Group s projected liquidity reserve (that includes the availability of credit, cash and cash equivalents) on the basis of expected cash flows. The amounts shown in the following table correspond to the expected cash flows (undiscounted) estimated based on the current interest rate. The balances payable within 12 months are equivalent to their carrying amount, given that the effect of the discount is not material. Within one year From 1 to 2 years From 2 to 5 years More than 5 years At 31/12/2016 Payable to related companies (Notes 7, 12 and 19) 114, Trade and other payables (Note 12) 9, Other payables (Note 12) ,726 TOTAL 123, ,726 Within one year From 1 to 2 years From 2 to 5 years More than 5 years At 31/12/2015 Payable to related companies (Notes 7, 12 and 19) - 140, Trade and other payables (Note 12) 1, Other payables (Note 12) 66-1,348 4,661 TOTAL 1, ,404 1,348 4, ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

27 Notes to the Consolidated Annual Accounts 4.2. CAPITAL MANAGEMENT The objectives of capital management at the Group are to safeguard its ability to remain a going concern and, thus, provide returns to its owners, as well as benefits to other shareholders and maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may vary the amounts of the dividends payable to the owners, return capital, issue new shares or sell assets to reduce debt. The Company monitors capital in accordance with the following indices: The leverage ratio is calculated dividing financial debt by equity. Debt is calculated as the total debt maintained with unrelated parties. It was not calculated at 31 December 2016 and 2015 due to the lack of financial debt. Likewise, the index obtained from dividing the net cash position by equity is calculated. 31/12/ /12/2015 Payable to related companies (Note 7, 12 and 19) (114,204) (140,404) Net cash position (93,792) (126,252) Equity 529, ,361 % Debt/Equity (21,58%) (29,35%) % Net cash position/equity (17,73%) (26,39%) Both ratios are within the range considered acceptable by the Directors of the Parent. In addition, their evolution with respect to the preceding year has been very positive. NOTE 5. NON-CURRENT ASSETS HELD FOR SALE At 31 December 2014, the Parent decided to reclassify certain properties as non-current assets held for sale because at that date they met the requirements established in the 7th accounting standard for their recognition and measurement in the Spanish National Chart of Accounts. The impact of the aforementioned transactions on the income statement and the statement of cash flows for the period between 1 April and 31 December 2015 and the year ended 31 December 2016, as well as the impact of the reclassification carried out on the Group s balance sheet is shown below: a) Non-current assets and disposal groups classified as held for sale Non-current assets classified as held for sale 31/12/2015 Cost (*) 122,070 Accumulated depreciation (484) TOTAL 121,586 (*) This cost includes amounts from investment properties under construction capitalised from 1 April 2015 until the balance sheet date amounting to 3,680,102. On 30 July 2015, the Parent signed two private sale and purchase commitments for the equity interests of the investees Serrano 61 Desarrollo, S.L.U. and Preciados 9 Desarrollos Urbanos, S.L.U. The first was modified through three appendices dated 27 October 2015, 17 December 2015 and 21 December 2015, respectively, (the Serrano 61 Sale and Purchase Agreement) and in the case of the second amended through four appendices 27 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

28 Notes to the Consolidated Annual Accounts dated 27 October 2015, 17 December 2015, 21 December 2015 and 26 January 2016, respectively, (the 9 Preciados Sale and Purchase Agreement). The efficacy of both agreements was subject to fulfilment of conditions precedent that were met in full on 16 February 2016, the date on which the sale and purchases were formalised and the sale and purchase agreements were converted into public instruments. Prior to the sale of the aforementioned equity interests, but in the same act, the Parent contributed to the above-mentioned Companies the properties classified as non-current assets held for sale, amounting to 139,237 thousand. After the contribution and prior to the sale of the equity interests, but in the same act, the Parent signed three financing agreements for the properties, the conditions of which are described below: Property Serrano 61 Preciados 9 Preciados 9 Bank Caixa Caixa Caixa Loan Mortgage Mortgage VAT Principal 39,150,500 37,000,000 12,768,000 Once the financing was obtained, the investees proceeded to distribute the share premium amounting to 57,008 thousand The investees selling price amounted to 80,849 thousand. As indicated in Note 19, with the money obtained from the aforementioned transactions and the cash available, the Parent repaid its debts with Group companies early. b) Analysis of profit from discontinued operations 31/12/ /12/2015 Services rendered 523 3,498 Other operating expenses (449) (2,386) Gains or losses on disposals of non-current assets 13,109 - Income Tax (4,678) - Net profit from discontinued operations 8,505 1,112 The cash flows generated by non-current assets held for sale and discontinued operations are as follows 31/12/ /12/2015 Cash flows from operating activities 74 1,112 Cash flows from investing activities 134,704 (3,680) Cash flows from financing activities ,778 (2,568) As a result of the above-mentioned transaction, the Parent did not maintain ownership of the assets for a period of three years, a continued service requirement for assets within the REIT regime and, therefore, it must recalculate the income tax for income for the periods ended 31 March 2014, 31 March 2015 and 31 December 2015, together with the corresponding portion of the current period and the gains on the sale, at 28 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

29 Notes to the Consolidated Annual Accounts the general tax rate for each period. At 31 December 2016 the Group estimated the corresponding income tax that amounted to 4,546 thousand that is pending definitive conclusion once the tax period comes to a close with the understanding that the estimate made corresponds to the most prudent scenario. 31/03/ /03/ /12/ /12/2016 Income and expenses for the year before tax 1,780 1,583 1,112 13,183 Permanent differences Timing differences Offset of prior years' tax losses TOTAL 1,780 1,583 1,112 13,183 In addition, the Group has estimated the late-payment interest corresponding to the periods ended 31 March 2014, 31 March 2015 and 31 December 2015 that amount to 132 thousand. Income tax expense is obtained applying the corresponding tax rates to the perspective tax bases. The Group recognised income tax expense under discontinued operations as it relates to the above-mentioned transaction. Avda. de Burgos 118 Acquisition Date 2015 A stand-alone building located in a prestigious business park, at the junction of the A-1 and M-11 highways and adjacent to the future extension of Madrid s central axis: the Paseo Castellana. The property is fully leased with long-term contract to BMW and serves as their Spanish Head Office ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

30 Notes to the Consolidated Annual Accounts NOTE 6. INVESTMENT PROPERTY The detail of Investment property and of the changes therein is as follows: Land Buildings Other fixtures TOTAL Balance at 31/12/2015 Cost 230, ,552 70, ,213 Accumulated depreciation - (5,631) (4,615) (10,246) Carrying amount 230, ,921 65, ,967 Additions 68,121 84, ,234 Disposals - - (5) (5) Additions due to business combinations Depreciation - (4,729) (4,483) (9,212) 31/12/2016 Ending balance 298, ,862 61, ,122 Cost 298, ,222 70, ,580 Accumulated depreciation (10,360) (9,098) (19,458) Carrying amount 298, ,862 61, ,122 Land Buildings Other fixtures TOTAL Balance at 1/4/2015 Cost 161, ,613 36, ,110 Accumulated depreciation - (3,131) (2,387) (5,518) Carrying amount 161, ,482 33, ,592 Additions Disposals Additions due to business combinations 68,997 70,939 34, ,103 Depreciation - (2,500) (2,228) (4,728) Balance at 31/12/ , ,921 65, ,967 Cost 230, ,552 70, ,213 Accumulated depreciation - (5,631) (4,615) (10,246) Carrying amount 230, ,921 65, ,967 The carrying amounts at 31 December 2015 included the impact of the unrealised gains applied to the business combination described in Note 21. The Parent acquired the following investment property during the year: Leisure centre located in Madrid at Avda. de Manoteras, 40 acquired on 23 May Office building located in Madrid at Avda. de San Luis 77 acquired on 2 December ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

31 Notes to the Consolidated Annual Accounts The acquisition price of all of the investment property acquired in the year ended 31 December 2016 amounted to 148,750 thousand. The difference between the aggregate sum of the acquisition prices of the properties and the capitalised cost corresponding to non-recoverable taxes and to advisory service and legal expenses incurred to perform such transactions amounted to 3,993 thousand. In addition, additional investments were made in the property owned amounting to 500 thousand that were not finalised at the date of these financial statements. a) Impairment losses Accordance with Valuation Standard No. 2 of the Spanish National Chart of Accounts and the Resolution of 1 March 2013 of the Spanish Accounting and Audit Institute, the Company reviews the fair value, useful life and valuation method for the properties it owns at least at the end of each balance sheet date. When the market or any other corresponding value of a property is lower than the amortised value, and the decline in value is considered to be reversible, market value is adjusted by recognising the corresponding write-down. The market value of the properties was determined based on the appraisal conducted by independent valuers. In 2016 the properties owned by the Company were appraised by an independent expert, the aforementioned appraisals were performed on 31 January The appraisals of these real estate assets were carried out under the market value assumption, whereby these valuations were conducted in accordance with the statements of the asset valuation-appraisal method and the guidelines published by the Royal Institution of Chartered Surveyors (RICS) of Great Britain, valuation standards, 8th edition. Market value is defined as the estimated amount for which an asset should be exchanged on the date of valuation between a willing seller and a willing buyer, after a reasonable marketing period, and wherein the parties have acted knowledgeably, prudently and without compulsion. The valuation method adopted in the current year for determining the fair value was the discounted cash flow method. The discounted cash flow method is based on predicting the net income likely to be generated by the assets during a certain period of time, taking into consideration the residual value thereof at the end of this period. The cash flows are discounted at an internal rate of return in order to come up with the present value. This internal rate of return is adjusted to reflect the risk associated with the investment and the assumptions made. The key variables therefore include net income, the estimated residual value and the internal rate of return. The properties were valued on a case-by-case basis, considering each of the leases in force at the end of the period and, where applicable, the likely term thereof. b) Investment property abroad The Group did not have investment property abroad at 31 December 2016 or 31 December c) Fully depreciated investment property The Group did not have fully depreciated investment property on the balance sheet at 31 December 2016 or 31 December d) Insurance The Company takes out all of the insurance policies it considers necessary to cover the risks that might affect its investment property ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

32 Notes to the Consolidated Annual Accounts e) Recognised income and expense from investment property The following income and expenses arising from these property investments were recognised in the income statement: 31/12/ /12/2015 Lease income 30,702 20,369 Other lease-related income 3,100 - Rebilling of expenses 2,146 1,862 Direct operating income (expenses) arising from investment properties that generate lease income (13,834) (8,992) Direct income (expenses) from the disposal of investment properties (*) 8,431 - Direct operating income (expenses) that does not arise from investment properties that generate lease income (**) (3,684) (3,300) (*) Including the gains and the taxes from the sale of non-current assets held for sale recognised in the year. (**) Including independent professional services specific to the management of the Company and other operating income/ (expenses). Princ Building Acquisition Date 2014 The building consists of two blocks with separate entrances and communication cores. It has 8 floors above ground level and three basements and its 100% occupied with a long-term lease by ENAGAS, the main supplier company of natural gas in Spain ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

33 Notes to the Consolidated Annual Accounts NOTE 7. ANALYSIS OF FINANCIAL INSTRUMENTS 7.1. ANALYSIS BY CATEGORY The carrying amount of each of the categories of financial instruments established in the accounting standard for recognising and measuring financial instruments, except cash, is the following: a) Financial assets At 31/12/2016 Financial investments (Note 8) Loans and receivables (Note 8) Cash and cash equivalents (Note 9) TOTAL Other financial assets 4,306 5,470-9,776 NON-CURRENT 4,306 5,470-9,776 Other financial assets 1,348 6,587 20,412 28,347 CURRENT 1,348 6,587 20,412 28,347 TOTAL FINANCIAL ASSETS 5,654 12,057 20,412 38,123 At 31/12/2015 Financial investments (Note 8) Loans and receivables (Note 8) Cash and cash equivalents (Note 9) Total Other financial assets 4,476 4,395-8,871 NON-CURRENT 4,476 4,395-8,871 Other financial assets 1,348 1,965 14,152 17,465 CURRENT 1,348 1,965 14,152 17,465 TOTAL FINANCIAL ASSETS 5,824 6,360 14,152 26,336 The guarantees specific to the real estate activity that are deposited at the IVIMA (an independent body of the Autonomous Community of Madrid, whose current name is the Agencia de Vivienda Social de la Comunidad de Madrid) are recognised under other non-current financial assets as held-to-maturity investments amounting to 4,306 thousand ( 4,476 thousand at 31 December 2015), the maturity of which are based on the leases. b) Financial liabilities Accounts payable (Note 12) 31/12/ /12/2015 Other financial liabilities 5, ,413 Non-current 5, ,413 Other financial liabilities 118,738 1,438 Current 118,738 1,438 TOTAL FINANCIAL LIABILITIES 124, , ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

34 Notes to the Consolidated Annual Accounts 7.2. ANALYSIS BY MATURITY The nominal amounts of payments to be made for financial instruments with fixed or determinable maturities classified by year of maturity are as follows: Financial assets Resto TOTAL Trade receivables (Note 8) 4, ,313 1,625 2,420 10,215 Sundry accounts receivable (Note 8) 1, ,842 Other financial investments (Note 8) 1, ,306 5,654 TOTAL FINANCIAL ASSETS 7, ,313 1,625 6,726 17,711 Financial liabilities Other TOTAL Payables to Group companies (Notes 12 and 19) 114, ,204 Trade payables (Note 12) 4, ,506 Other financial liabilities (Note 12) ,726 5,754 TOTAL FINANCIAL LIABILITIES 118, , ,464 NOTE 8. LOANS AND RECEIVABLES The detail of Loans and receivables at 31 December 2016 and 2015 is as follows: 31/12/ /12/2015 Non-current loans and receivables: Long-term deposits and guarantees given i) 4,306 4,476 Trade receivables for sales and services ii) 5,470 4,395 9,776 8,871 Current loans and receivables: Trade receivables iii) 4, Straight-line recognition of lease payments iii) 206 1,007 Sundry accounts receivable iv) 1, Current financial investments v) 1,348 1,348 Other accounts receivable from public authorities (Note 13) ,943 3,346 17,719 12, ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

35 Notes to the Consolidated Annual Accounts i) The long-term deposits and guarantees given by the lessees that have been deposited in the corresponding official bodies, mainly the IVIMA of Madrid and the Catalan housing Institute. ii) The balance of trade receivables for sales and services at 31 December 2016 amounting to 5,470 thousand ( 4,395 thousand at 31 December 2015) corresponds to the present value (discounted at a rate of 1.35% (1.69% at 31 December 2015) of the invoices not yet issued for the straight-line recognition of the scaled lease payments stipulated in the lease. iii) Trade receivables and the straight-line recognition of lease payments correspond to accounts receivable arising from the Group s activity. 3,100 thousand corresponding to an agreement with a tenant to partially release the property for the potential entry of another tenant are recognised under this heading. iv) The balance of sundry account receivables mainly includes advances paid to the management company to pay fees and taxes on the real estate acquisition made in December. v) At 31 December 2016, the Parent had a fixed-term deposit with BBVA amounting to 1,348 thousand with final maturity in October 2019 and, although it is related to a guarantee to fulfil certain obligations established in the acquisition agreement for one of the investment properties acquired in 2014, it is expected to be settled in The fixed-term deposit accrues interest at an annual rate of 0.01%. Current loans and receivables are recognised at their nominal value that does not significantly differ from their fair value. a) Impairment losses At 31 December 2016 impairment losses on trade receivables were recognised amounting to 27 thousand. At 31 December 2015 there were no mature loans and receivables to be collected and no impairment losses were recognised. b) Breakdown of balances by currency All of the carrying amounts of loans and receivables are listed in euros. NOTE 9. CASH AND CASH EQUIVALENTS For the purposes of the consolidated statement of cash flows, at 31 December 2016 and 2015 cash and other cash equivalents are broken down as follows: 30/12/ /12/2015 Cash 20,412 14,152 TOTAL 20,412 14,152 This heading includes cash (cash on hand, current accounts and demand deposits) and cash equivalents (short-term, highly liquid investments, easily convertible into cash within a maximum period of three months the value of which is subject to an insignificant risk of changes in value). At 31 December 2016 and 2015, there are no restrictions on the use of these balances ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

36 Notes to the Consolidated Annual Accounts NOTE 10. CAPITAL, SHARE PREMIUM AND RESERVES a) Share capital and share premium Number of shares Share capital Share premium TOTAL Balance at 1 January ,806, ,806 24, ,000 Other changes 24,000,000 24,000 (472) 23,528 Balance at 31 December ,806, ,806 23, ,528 Number of shares Share capital Share premium TOTAL Balance at 1 April ,000, , ,000 Other changes 100,806, ,806 24, ,000 Balance at 31 December ,806, ,806 24, ,000 On 10 April 2013, Lexxel Servicios Empresariales, S.L. incorporated Zambal Spain, S.L. through a capital contribution of 3 thousand. The share capital was represented by 3,000 equity interests of 1 par value each. On 10 June 2013, Lexxel Servicios Empresariales, S.L. transferred all of the equity interests of Zambal Spain, S.L. to Automate Invest Holding, S.A., with registered office in Luxembourg for 3 thousand. On 18 June 2013, the then sole shareholder of the Company (Automate Invest Holding, S.A.) constituted a current account with the Company through an initial contribution of 14,400 thousand. From the aforementioned date until December 2013, additional contributions were made amounting to 225,140 thousand. In addition, on 19 June 2013, the then sole shareholder (Automate Invest Holding, S.A.) carried out a capital increase creating 80,000,000 equity interests of 1 par value each through a capital contribution of 80,000 thousand. On 30 December 2013, Automate Invest Holding, S.A., which owned all of the equity interests of Zambal Spain S.L. and a loan of 239,540 thousand plus 851 thousand in interest gave Altaya Pte. Ltd. all of the equity interests and title to the loan and the interest accrued. Therefore, at that date Altaya Pte. Ltd. became the Company s sole shareholder. Until it was capitalised, the aforementioned current account accrued interest at an annual rate of 3-month Euribor +1.1% and the average rate of the aforementioned debt during the period was 1.33%. In addition, at 31 December 2013, the sole shareholder of the Company, Altaya Pte. Ltd., made a shareholder contribution for the full amount of the current account plus the interest accrued for a total of 240,391 thousand. Subsequently, on 31 March 2014, the Parent, which was a Spanish Private Limited Liability Company, became a Spanish Public Limited Liability Company through a deed executed before a notary and registered in the Mercantile Registry of Madrid and, therefore, the 80,003,000 equity interests of 1 par value each became 80,003,000 shares of 1 par value each. At 31 March 2014, the total authorised number of ordinary shares was 80,003,000 shares of 1 par value each. All of the shares issues are fully paid and subscribed by the Sole Shareholder that holds all of the shares: Altaya Pte. Ltd. On 26 December 2014, a resolution was passed to increase the Parent s share capital as follows: 36 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

37 Notes to the Consolidated Annual Accounts Through a debt-to-equity swap amounting to 12,981 thousand and pursuant to the loan entered into by Altaya Pte Ltd for 18,500 thousand. (See Note 19). Through a debt-to-equity swap amounting to 16,625 thousand and pursuant to the loans entered into by Loire Investment Pte Ltd. for 11,000 thousand and 6,500 thousand. (See Note 19). With a charge to the Company s reserves under Other shareholder contributions amounting to 240,391 thousand. Due to errors in the manner in which they were submitted to the registry, these increases were registered on 18 June On 27 October 2015, a resolution was passed to increase the Parent s share capital as follows: Through a debt-to-equity swap amounting to 121,001 thousand and pursuant to the loan entered into by Altaya Pte Ltd for 121,001 thousand. (See Note 19). 97,581,452 shares of 1 par value each with a share premium of 23,419,548 were issued ( 0.24 per share). Through a monetary contribution amounting to 3,999 thousand by Loire Investment Pte Ltd. 3,225,000 shares of 1 par value each with a share premium of 774 thousand were issued ( 0.24 per share). On 27 June 2016, the General Shareholders Meeting passed the following resolutions by absolute majority: Approval of the distribution of profit for the year: - To dividends: 6,676 thousand. - To the legal reserve: 835 thousand. - To offset prior years losses: 835 thousand. Approval of the allocation of 6,472 thousand of the share premium to offset prior years losses. The proposed distribution of dividends became effective 22 July 2016 and, in addition, authorisation was granted to the Board of Directors, with powers of delegation, to increase the share capital in accordance with the provisions of art b) of the Spanish Corporate Enterprises Act during a maximum period of five years through monetary contributions up to a maximum amount equal to half (50%) of the share capital and authorising the Board to exclude pre-emption rights. On 29 November 2016, the General Shareholders Meeting resolved by absolute majority to increase the Company s share capital through a debt-to-equity swap amounting to 30,000 thousand and pursuant to the loan entered into by Altaya Pte Ltd for 30,000 thousand. (see Note 19). 24,000,000 shares of 1 par value each with a share premium of 6,000,000 were issued ( 0.24 per share). The only shareholder that has more than a 5% stake in the company is Altaya Pte Ltd with 453,222,581 shares and a stake of 95.45%. There are no restrictions on the free transferability of the shares. b) Treasury shares The shares of the Parent held by it at 31 December 2016 represent 0.27% of the Parent s share capital (0.38% at 31 December 2015) and total 1,269,021 shares (1,725,520 shares at 31 December 2015), with a value of 1,574 thousand ( 2,140 thousand at 31 December 2015) and an average acquisition price of 1.24 per share. The Parent has fulfilled the obligations arising from art. 509 of the Spanish Corporate Enterprises Act that establishes, in relation to shares listed on an official secondary market that the nominal value of the shares acquired, in addition to those already held by the Parent and its subsidiaries, may not exceed 10% of the share capital. The subsidiaries do not hold treasury shares or shares of the Parent. The aforementioned shares are recognised as a reduction to shareholders equity at 31 December 2016 amounting to 1,574 thousand ( 2,140 thousand at 31 December 2015) ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

38 Notes to the Consolidated Annual Accounts On 27 June 2016, the General Shareholders Meeting approved the authorisation for the derivative acquisition of treasury shares by the Parent or Group companies to comply with the law as it refers to requirements for companies listed on the Alternative Stock Market, revoking the authorisation granted on 9 July c) Reserves 31/12/ /12/2015 Legal reserve 2,869 Other reserves - Prior years' losses - (7,307) 5,284 (4,438) The legal reserve must be established in accordance art. 274 of the Spanish Corporate Enterprises Act, which stipulates, in all cases, that 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. The legal reserve cannot be distributed, and if it is used to offset losses, in the event no other reserves are available for this purpose, it must be restored with future profits. At 31 December 2016, a legal reserve was established amounting to 835 thousand ( 2,869 thousand at 31 December 2015). Prior years losses correspond to the losses in the period ended 31 March 2014 and have been offset with profit from the period ended 31 December 2015 amounting to 835 thousand and subsequently the remainder was offset with the share premium in accordance with the resolutions of the General Shareholders Meeting of 27 June The amount recognised under Other reserves corresponds to the consolidation reserves from subsidiaries. d) Earnings per share Basic earnings per share are calculated by dividing the net profit/(loss) for the year attributable to the owners of the Parent by the weighted average number of ordinary shares outstanding during the year, excluding the weighted average number of treasury shares held in the year. Diluted earnings per share are calculated by dividing the net profit/(loss) for the year attributable to the owners of the Parent by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of ordinary shares that would be issued in the conversion of all of the instruments with a dilutive potential. The Parent does not have any diluted instruments at 31 December 2016 and, therefore, they are not distinguished from one another. The following table shows the income and information regarding the number of shares used to calculate the basic and diluted earnings per share: 31/12/ /12/2015 Net profit 9,939 Weighted average number of ordinary shares issued 452,910, ,935,779 Average number of treasury shares 1,497,271 1,729,696 Basic earnings per share (euros) 0,06 0,03 Diluted earnings per share (euros) 0,06 0, ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

39 Notes to the Consolidated Annual Accounts In relation to the calculation of the earnings-per-share, no transactions were carried out with the ordinary shares or potentially ordinary shares between the date of the consolidated financial statements and the preparation thereof that were not taken into account in the aforementioned calculations for the year ended 31 December 2016 and the period ended 31 December All of the shares issued are fully paid and carry the same voting and dividend rights. There are no restrictions on the free transferability of the shares. e) Reserves at fully consolidated companies At 31 December 2016, the Group has Reserves of consolidated companies amounting to 1,580 thousand corresponding in full to Inversiones Iberia Nora, S.L. At 31 December 2015, the Group did not have Reserves of consolidated companies NOTE 11. PROFIT FOR THE YEAR Proposed distribution of profit The proposed distribution of the profit of the Parent for 2016, which will be submitted to the General Shareholders Meeting, is as follows: 31/12/ /12/2015 Distribution basis Profit 27,489 8,346 27,489 8,346 Amounts used Legal Reserve 2, Prior years' losses Dividends 24,740 6,676 27,489 8,346 Given its status as an REIT, the Company will be required to distribute in the form of dividends to its shareholders, after complying with the related commercial obligations, the profit obtained during the year in accordance with that provided in art. 6 of Law 11/2009, of 26 October, regulating Real Estate Investment Trusts (REITs). In compliance with the REIT regime, the dividend corresponding to the period ended 31 December 2015 was settled on 22 July ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

40 Notes to the Consolidated Annual Accounts NOTE 12. ACCOUNTS PAYABLE The detail of Accounts payable at 31 December 2016 and 2015 is as follows: 31/12/ /12/2015 Non-current accounts payable Non-current payables to Group companies and associates (Note 19) I) - 140,404 Non-current payables to asset suppliers II) - 1,348 Guarantees received III) 5,726 4,661 TOTAL 5, ,413 Current accounts payable Current payables to Group companies and associates (Note 19) I) 114,204 - Deposits received - 66 Trade and other payables IV) 4,506 1,349 Staff Sundry accounts payable V) 8 3 Other accounts payable to public authorities (Note 13) VI) 5, TOTAL 123,935 1,949 TOTAL 129, ,362 i) Non-current payables to Group companies and associates are broken down in Note 19. ii) Non-current payables to asset suppliers corresponded to the amount payable to the supplier of a new investment property acquired in 2014 that will be settled once the seller fulfils the clauses established in the sale and purchase agreement. At 31 December 2016, it was recognised under current provisions. iii) The amount recognised under guarantees received for leases corresponds to guarantees received by Group companies with the following breakdown by company: 31/12/ /12/2015 Zambal Spain Socimi, S.A. 4,226 3,161 Inversiones Iberia Nora, S.L.U. 1,500 1,500 TOTAL 5,726 4,661 Deposits received from lessees for guarantees to guarantee compliance with the agreements signed with them and that mature in accordance with the lease and mainly in more than five years, the fair value of which is similar to the carrying amount. iv) Trade payables are recognised under Suppliers ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

41 Notes to the Consolidated Annual Accounts a) Carrying amount and fair value Except for the discount effect related to the guarantees received explained in the preceding section, the carrying amount of the other debts is similar to that of their fair value, given that the discount affect is insignificant. b) Breakdown of balances by currency All of the carrying amounts of the Group s accounts payable are listed in euros. c) Information on payment periods to suppliers In accordance with the provisions of Law 15/2010, amended by Law 31/2014 and applying the Resolution of the Spanish Accounting and Audit Institute of 29 January 2016, balances with suppliers due and payable at 31 December 2016 and 2015 that may exceed the maximum legal limit established have been reviewed, and all of the payments made during the year were paid within the period established by the law Days Days Average payment period to suppliers 18,05 8,48 Ratio of transactions paid 18,99 7,80 Ratio of transactions payable 3,23 17,33 Thousands of euros Thousands of euros Total payments made Total payments pending The information established in the above table regarding payments to suppliers refers to those that, by nature, are trade payables to suppliers of goods and services, such that it includes the information related to Suppliers under current liabilities in the balance sheet. The maximum legal payment period applicable to the Group in accordance with Law 3/2004, of 29 December, establishing the measures to fight against default in commercial transactions and in accordance with the transitional provisions established in Law 15/2010, of 5 July, is 60 days. Avda. de San Luis 77 Acquisition Date 2016 The asset consists of 14 buildings that form the corporate HQ of Gas Natural in Madrid. The building is located in Avenida de San Luis, 77, in the northern-central part of Madrid city between M-30 and M-40 ring roads. It has direct access to the airport ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

42 Notes to the Consolidated Annual Accounts NOTE 13. TAX MATTERS a) Tax receivables and payables The breakdown by company of tax receivables and payables is as follows: 31/12/ /12/2015 Other accounts receivable from public authorities Zambal Spain Socimi, S.A TOTAL 8 33 Other accounts payable to public authorities Zambal Spain Socimi, S.A. (5,044) (380) Inversiones Iberia Nora, S.L.U. (153) (131) TOTAL (5,197) (511) The breakdown by item of the amounts recognised as tax receivables and payables is as follows: 31/12/ /12/2015 Other accounts receivable from public authorities Tax withholdings 8 33 TOTAL 8 33 Other accounts payable to public authorities VAT payable (513) (504) Income tax payable (4,678) - Social security payable (6) (7) TOTAL (5,197) (511) The reconciliation of net income and expenses for the year to the taxable profit for income tax purposes for 2016 is as follows 31/12/2016 Income Statement Income and expense recognised directly in equity Income and expense for the year 18, Increases Decreases Increases Decreases Income tax Permanent differences Temporary differences - (254) (254) Taxable profit 18, ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

43 Notes to the Consolidated Annual Accounts Income Statement 31/12/2015 Income and expense recognised directly in equity Income and expense for the year 9, Increases Decreases Increases Decreases Income tax Permanent differences Temporary differences - (794) (794) Taxable profit 9,145 In accordance with Royal Decree-law 12/2012, of 30 March, introducing various tax and administrative measures aimed at reducing the public deficit effective for all tax periods beginning from 1 January 2012 the deductibility of finance costs is limited. Thus, only net finance costs up to 30% of operating profit for each year may be deducted. However, 1,000,000 may be deducted even if it exceeds the aforementioned percentage. In addition, for 2014 and 2015 the tax deductibility of amortisations is limited to 30%. On the other hand, on 27 December 2012, through Royal Decree-Law 16/2012, various tax measures were adopted, including (art. 7) limiting the tax deductibility of amortisations for 2014 and 2015 to 30%. Therefore, the amortisation for accounting purposes that is not tax deductible pursuant to that established in this law will be deducted on a straight-line basis during a 10 year period or, optionally, during the useful life of the asset beginning from Due to the amendment introduced by Law 27/2014, of 27 November, the 30% limit set on the tax deductibility of amortisations has no effect beyond 2015 year end, although the limit on the deductibility of finance costs remains. Lastly, under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed have been reviewed by the tax authorities or until the four-year statute-of-limitations period has expired. At 2016year end, the Company has all taxes since incorporation open for review by the tax authorities. The Company s directors consider that the tax returns for the aforementioned taxes have been filed correctly and, therefore, even in the event of discrepancies in the interpretation of current tax legislation in relation to the tax treatment afforded to certain transactions, such liabilities as might arise would not have a material effect on the accompanying financial statements. Due to the change introduced by Law 27/2014, of 27 November, according to which the standard income tax rate was changed from 30% to 28% for tax periods beginning on or after 1 January 2015, and to 25% for tax periods beginning on or after 1 January Given the number of circumstances for unifying and consolidation adjustments and because the Group is not subject to the tax consolidation regime, for interpretation purposes it was deemed appropriate to include information related to the reconciliation of the accounting profit to the taxable profit of the individual companies. In any case, the differences between the information included in these financial statements and those of the Group companies are not considered significant and, therefore, the differences do not distort the reading and interpretation of the aforementioned information. The detail of the temporary differences, by company, is as follows: 31/12/2016 Arising in the year Arising in prior years TOTAL Zambal Spain Socimi, S.A. - (193) (193) Inversiones Iberia Nora, S.L.U. - (61) (61) - (254) (254) 31/12/2015 Arising in the year Arising in prior years TOTAL Zambal Spain Socimi, S.A. - (779) (779) Inversiones Iberia Nora, S.L.U. - (15) (15) - (794) (794) 43 - ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

44 Notes to the Consolidated Annual Accounts NOTE 14. DISCLOSURE REQUIREMENTS ARISING FROM REIT STATUS, (LAW 11/2009) In compliance with the provisions of Law 11/2009, regulating Real Estate Investment Trusts, the following information has been disclosed: At 31 December 2016, the reserves from prior years of the Parent are broken down in Note 10 and no dividends were paid with a charge to the aforementioned reserves. There are no reserves from prior years applicable to the tax regime established in Law 11/2009, amended by Law 16/2012, of 27 December. Likewise, because the Group generated profit for accounting purposes subject to distribution in 2016, the Directors proposed the distribution explained in Note 11 of these notes to the financial statements. With respect to the investment requirements regulated in art. 3 of the REIT Act the Group, of which the Parent is the head, has invested at least 80% of the value of its assets in urban properties for lease and in ownership interests in the share capital of entities regulated in art. 2.1.c of the REIT Act. The properties and shares owned by the Company at the acquisition date thereof are listed below: - Commercial building located in Barcelona at Plaza Catalunya, 23 acquired on 20 June Office building located in Madrid at Avenida San Luis, 25 acquired and 30 September 2013 and finalised on 8 November Office building located in Madrid at calle Serrano Galvache, 26 acquired on 19 December Office building located in Madrid at Paseo de los Olmos 19 acquired on 23 July Office building located in Madrid at calle Jacinto Benavente 2 acquired on 19 December Office building located in Madrid at Avda. de Manoteras, 2 acquired on 23 January % ownership interest in Inversiones Iberia Nora, S.L. (registered under the REIT regime) acquired on 29 September 2015, the company owns the office buildings located in Madrid at Avda. de América 115 (see Note 10). - Leisure centre located in Madrid at Avda. de Manoteras, 40 acquired on 23 May Office building located in Madrid at Avda. de San Luis 77 acquired on 2 December The Company has been listed on the Continuous Market of Bolsas y Mercados Españoles since 1 December 2015, where it fulfils the reporting requirements established in Circular 15/2016 of the Alternative Stock Market. ABC Serrano The ABC Serrano shopping Centre is located between two of the most important commercial streets of Madrid: Serrano and Paseo de La Castellana. The property hosts 50 retail units distributed in three main floors, with a selection of restaurants on the upper floors. In addition, there is a fitness centre operated by Reebok. Property sold at February ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

45 Notes to the Consolidated Annual Accounts NOTE 15. REVENUE AND EXPENSES a) Business segment reporting The Group s main activity is leasing property and there is no other operating segment that represents 10% or more of the revenue and/or the sum of all assets, which must be reported separately in accordance with the provisions of art. 84 of Royal Decree 1159/2010 on rules for preparing consolidated financial statements. b) Revenue by geographical segments The percentage of revenue from the Group s ordinary operations is distributed geographically as follows: Market 31/12/ /12/2015 Barcelona 9% 15% Madrid 91% 85% 100% 100% c) Revenue by activity segments Revenue can be analysed by activity segments as follows: Activity 31/12/ /12/2015 Lease of properties 32,979 17,352 Lease of parking spaces Rebilling of expenses 2,055 1,129 35,425 18,732 d) Foreign currency transactions There were no foreign currency transactions in 2016 and e) Staff costs 31/12/ /12/2015 Wages and salaries Social security 12 4 Other employee benefit costs ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

46 Notes to the Consolidated Annual Accounts The average number of employees at the Group in the period, by professional category, is as follows: 31/12/ /12/2015 Senior executives - - Graduates, other line personnel and clerical staff 1 1 Sales staff The detail of the staff of the Group by gender at the balance sheet date is as follows: 31/12/2016 Men Women TOTAL Senior executives Graduates, other line personnel and clerical staff Sales staff /12/2015 Men Women TOTAL Senior executives Graduates, other line personnel and clerical staff Sales staff In 2016 and 2015 there were no employees with a disability equal to or greater than 33%. f) Other operating expenses The breakdown of Other operating expenses in 2015 and 2016 is as follows: 31/12/ /12/2015 Repairs and upkeep Independent professional services 2,372 1,266 Insurance premiums Bank and similar services Advertising 15 - Supplies Other services Losses on, impairment of and change in allowances for trade receivables Taxes other than income tax 3,541 1,870 TOTAL 6,738 3,396 The amount included under Other taxes corresponds mainly to property tax ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

47 Notes to the Consolidated Annual Accounts NOTE 16. FINANCIAL LOSS The breakdown of the amounts recognised under this heading at 31 December 2016 is as follows: Finance income: 31/12/ /12/2015 From third parties TOTAL Finance costs: From third parties (19) - On debts to Group companies and associates (990) (1,841) TOTAL (1,009) (1,841) Impairment and gains or losses on disposals of financial instruments Gains or losses on disposal or settlement TOTAL TOTAL FINANCIAL LOSS (983) (1,680) Finance costs with Group companies correspond to the interest accrued by the Parent of the Group on the loans received from Altaya PTE, Ltd and Loire Investment, Ltd. (see Note 19). Avda. de San Luis 25 Acquisition Date 2013 The building is located in the North side of Madrid, between the M-30 and M-40 satellite highways and has direct access to the airport. The property consists of five floors, 3 above-ground and is fully leased long-term to UNIDESA, one of the major Spanish media groups and subsidiary company of the Italian media group RCS ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

48 Notes to the Consolidated Annual Accounts NOTE 17. CONTINGENCIES AND GUARANTEES GIVEN a) Contingencies At 31 December 2016 and 2015, none of the Group Companies are involved in lawsuits, legal or arbitration proceedings or any other type of circumstances which could give rise to possible contingent liabilities arising in the ordinary course of business. b) Guarantees Due to property acquisitions, the Parent has provided guarantees to third parties amounting to 1,348 thousand to ensure proper compliance with the clauses established in the sale and purchase agreements (see Note 8). NOTE 18. COMMITMENTS a) Purchase and sale commitments At 31 December 2016 and 31 December 2015, the Group s Companies do not have any firm commitments for the purchase or sale of intangible assets, property, plant and equipment, investment property, inventory or any other significant items, aside from than those included in Note 5 to these consolidated financial statements. b) Operating lease commitments (when the Group is the lessor) The Group Companies rent several premises and buildings under non-cancellable operating leases (see Note 6). These leases have variable terms, clauses by tranches and renewal rights. The future minimum collections (not updated) under non-cancellable operating leases are as follows: 31/12/ /12/2015 Less than 1 Year 35,866 31,038 From 1 to 5 years 134, ,441 Over 5 years 140,852 86,533 NOTE 19. RELATED PARTY TRANSACTIONS The transactions performed with related parties are as follows: a) Transactions performed in the year with Group companies and related parties The amounts of the transactions performed with Group companies and related parties are presented below: At 31/12/2016 Services received Finance costs IBA Capital Partners, S.L. (*) 4,457 - Altaya PTE, Ltd TOTAL EXPENSES 4, ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

49 Notes to the Consolidated Annual Accounts At 31/12/2015 Services received Finance costs IBA Capital Partners, S.L. (*) 2,638 - Loire Investment, Ltd - 23 Altaya PTE, Ltd - 1,818 TOTAL EXPENSES 2,638 1,841 (*) Companies that are direct or indirect investees of one of the Parent s Directors These amounts are included in the acquisition cost of the property except for 2,134 thousand for management fees ( 638 thousand in 2015) that are recognised under Outside services. The services received and the finance costs arise from the Company s normal business transactions and have been performed on an arm s-length basis. On the other hand, no services were provided to Group companies or related parties in b) Balances with Group companies and related parties At 31/12/2016 Loans and payables Altaya PTE, Ltd 114,204 TOTAL EXPENSES 114,204 At 31/12/2015 Loans and payables Altaya PTE, Ltd 140,404 TOTAL EXPENSES 140,404 In the year ended 31 December 2016, the Group had the following loans with its Shareholders: With Altaya it had formalised four loans in the period ended 31 December 2015 and signed two additional loans in the year ended 31 December 2016: a) The first loan dated 4 July 2014 for 18,500 thousand, of which at 31 December 2015, 5,519 thousand had been drawn down after a portion of the loan was capitalised (see Note 10) that accrued interest at a rate of 3% after a 3-month grace period, after the novation of 14 September 2015 its maturity was 31 December 2017 and since 1 April 2015 it has accrued interest at a rate of 2%. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. b) The second loan, dated 9 December 2014 for 10,000 thousand, was drawn down in full on 31 December 2015 and after its novation on 14 September 2015, its maturity was 31 December 2017 and it accrued interest at a rate of 2% after a 6-month grace period. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. c) The third loan, dated 15 January 2015 for 44,000 thousand, was drawn down in full on 31 December 2015 and after its novation on 14 September 2015, its maturity was 31 December 2017 and it accrued interest at a rate of 2% after a 6-month grace period. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

50 Notes to the Consolidated Annual Accounts d) The fourth loan, dated 18 September 2015 for 200,000 thousand, with two tranches: the first tranche was for 121,000 thousand and matured 20 days after its formalisation and was capitalised (see Note 10), the second tranche was for 78,999 thousand and matured on 31 December 2017 and was drawn down in full on 31 December 2015 and accrued interest at a rate of 2%. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. e) The fifth, dated 20 May 2016 for 30,000 thousand, was drawn down in full on 30 June It accrues interest at an annual rate of 2% and matures on 30 September The aforementioned loan was capitalised and the interest repaid (see Note 10). f) The sixth, dated 1 December 2016 for 114,000 thousand, was drawn down in full on 31 December It accrues interest at an annual rate of 2% and matures on 31 March The Company intends to capitalise this loan in the coming months. The fact that the loan matures at short-term does not entail a going concern risk because the Company intends to capitalise the said loan within the framework of a share capital increase through a debt-toequity swap in The interest accrued on all of the aforementioned loans in the year ended 31 December 2016 is 990 thousand ( 1,841 thousand in the period between 1 April and 31 December 2015) and the amount payable, which will be settled at maturity of the loans, is 204 thousand ( 1,886 thousand at 31 December 2015). There is no significant impact on the fair value of non-current payables, understood as amortised cost. The nominal values are considered an approximation of their fair values. Preciados 9 Building in progress to be transformed into a flagship store for the Pull & Bear brand of the Inditex group, with whom a long-term lease has been signed. The property was sold in February ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

51 Notes to the Consolidated Annual Accounts NOTE 20. REMUNERATION OF DIRECTORS AND SENIOR EXECUTIVES a) Remuneration of the members of the Board of Directors The members of the Board of Directors have not received remuneration of any type, nor have they been granted advances or loans in 2016 or 2015 except for the amounts received through their investees listed in Note 19. b) Remuneration of senior executives The Company has not signed any senior executive contracts with its staff and, in addition, in 2016 and 2015, the Company had no staff that could be considered senior executives in accordance with the following definition: They exercise duties related to the Company s general objectives: They directly or indirectly plan, manage and control the Company s activities. They perform their duties independently and under their own responsibility. They are only restricted by the criteria and direct instructions from the legal owner/owners of the Company or the higher governing and administrative bodies that represent the aforementioned owners. c) Information required by art. 229 of the Spanish Corporate Enterprises Act Article 229 of the Spanish Corporate Enterprises Act, approved by Royal Legislative Decree 1/2010, of 2 July imposes on the directors the duty to report to the Board of Directors and, in the absence thereof, to the other directors or, in the event there is only one director, to the General Shareholders Meeting, any direct or indirect conflict of interest they may have with those of the Company. The director in question must refrain from participating in the resolutions or decisions related to the transaction to which the conflict refers. Likewise, directors must report the direct or indirect ownership interest that they and those related to them hold in the share capital of a company engaging in an activity that is identical, similar or complementary to the activity that constitutes the corporate purpose and also must report the positions and functions they exercise therein. In accordance with the provisions of art. 229 of Royal Legislative Decree 1/2010, of 2 July, approving the consolidated text of the Spanish Corporate Enterprises Act, the members the Board of Directors have reported to the Company that, in 2016, they or persons related to them, have not had conflicts of interest, either directly or indirectly, with the interests of Zambal Spain Socimi, S.A. Manoteras Leisure Centre Acquisition Date 2016 The property has a GLA of circa 13,000 sq m and hosts a large cinema operator, with 20 projection rooms and 4,000 seats; as well as 10 retail units leased to leading restaurant chains, providing the asset with a complete and varied leisure offer ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

52 Notes to the Consolidated Annual Accounts NOTE 21. BUSINESS COMBINATIONS On 29 September 2015, the Group acquired 1,198,000 shares of 1 par value each and 10,755 thousand of share premium for a total amount of 181,610 thousand including transaction costs of 2,070 thousand. After the 2015 balance sheet date an adjustment was made to the price based on the tools included in the sale purchase agreement and, therefore, the Parent paid 138 thousand on 29 February The company acquired had been a related company and is now a subsidiary wholly owned by the Parent. The revaluation arose because this transaction was assigned identifiable assets. Based on the analysis of the cost of the business combination, in accordance with the provisions of 19th accounting standard for recognising and measuring business combinations introduced by section 3 of art. 4 of Royal Decree 1159/2010, amending the Spanish National Chart of Accounts, it was deduced that there was a difference between the cost of the business combination and the value of the identifiable assets acquired less the liabilities assumed, included in its fair value, in accordance with the following breakdown: Thousands of euros Shares purchased Shareholders' contribution Transaction costs Adjustment to the price (29 February 2016) 138 TOTAL CONSIDERATION TRANSFERRED Cash Investment property Financial investments Trade and other receivables Other financial liabilities Trade and other payables (881) TOTAL NET IDENTIFIABLE ASSETS The main aspects considered when assigning the preliminary cost were the following: The unrealised gains on the investment properties existing at the date of acquisition (based on their fair value) were allocated based on the discounted future cash flow method by an independent expert. The key hypotheses considered in the valuation of the investment property are included in Note 6 to these notes to the consolidated financial statements. Because the transaction was carry out on 29 September 2015, it had a significant impact on the income statement for the period ended 31 December 2015, due to the business combination, in which Iberia Nora, S.L. (Sole-Shareholder Company) contributed a loss of 1,594 thousand to the Group. The aforementioned impact included the effect of the additional depreciation due to the increase in the value of the fixed assets generated in the process of assigning the price of 270 thousand. The agreement included contingent considerations that were effectively settled on 29 February 2016 amounting to 138 thousand ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

53 Notes to the Consolidated Annual Accounts NOTE 22. INFORMATION ON ENVIRONMENTAL MATTERS The activity performed by the Group companies is not aggressive towards the environment. Thus, the Group does not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its consolidated equity, financial position or the Group s consolidated results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the consolidated financial statements. NOTE 23. FEES PAID TO AUDITORS The fees earned in 2016 by PriceWaterhouseCoopers, S.L. for the audit services provided to the Group companies amounted to 63 thousand and 10 thousand for other review services ( 33 thousand for audit services and 8 thousand for other review services in the period between 1 April 2015 and 31 December 2015). In 2016 services other than audit services were provided by other companies within the PwC network for which 30 thousand were billed ( 54 thousand in the period between 1 April 2015 and 31 December 2015). NOTE 24. EVENTS AFTER THE BALANCE SHEET DATE On 3 March the Alternative Stock Market was notified that the Company had fulfilled circular 15/2016 with regard to reporting, and had obtained confirmation of the aforementioned fulfilment from the regulator. Between 31 December 2016 and the presentation of these consolidated financial statements, no additional significant events have occurred that have not been included in the notes the financial statement. Plaza Catalunya 23 Acquisition Date 2013 This landmark period building is located in one of the premier retail areas of Barcelona, on the Southwest corner of Plaza Catalunya with Las Ramblas. It is fully leased to El Corte Ingles which operates it as a Shopin-Shop with brands such as; Morgan, Kookai, IKKS, Tintoretto, Tommy Hilfiger, Guess, Diesel, Maje, Sandro, Stefanel, amongst others ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Annual Accounts 2016

54 Consolidated Directors Report for 2016 at 31 December 2016 Tripark Business Park

55 CONSOLIDATED DIRECTORS REPORT FOR 2016 (Expressed in thousands of euros) 1. Faithful account of the main business and activities The activity of Zambal Spain Socimi, S.A. and its subsidiaries is based on managing its real estate assets consisting of renting its property, through leases. Since 26 December 2013, and effective from its incorporation, the Parent has availed itself of the regulated regime established by Law 11/2009, of 26 October regulating Real Estate Investment Trusts ( REITs ). The Parent is registered in the Mercantile Registry of Madrid and its registered office is located in Madrid at calle José Ortega y Gasset 11. The Company forms part of a Group of companies, the parent of which is its Sole Shareholder, Altaya Pte. Ltd. (Singapore). The Companies of the Group are devoted to renting the 11 investment properties acquired up until the year ended 31 December 2016 in which they obtained satisfactory consolidated profit from operations and from the disposal of 2 of the investment properties. At 31 December 2016, it has 9 real estate properties under management. The outlook for future rental income put the Group Companies on the course to obtain income that will have a positive impact on the consolidated income statement. The Parent s Board of Directors carries out its activity in accordance with the internal regulations included, mainly, in the Corporate Bylaws and the policies and internal control manuals. The Board of Directors is a supervisory and control body for the companies activity with competence over matters such as approving the general policies and strategies of the Company, the corporate governance policy and the corporate social responsibility policy and the risk control management policy and, in all cases, over compliance with the requirements to maintain the Company s status as an REIT. Share performance: 1,28 1,27 1,26 1,25 1,24 1,23 FEB MAR ABR MAY JUN JUL AGO SEP OCT NOV DIC The attached graph shows the evolution of the share price since 1 January 2016 when it stood at 1.27 per share until 31 December 2016 when it closed at 1.24 per share. 2. Financial aggregates In 2016 the Group s net sales were 35,948 thousand ( 22,231 thousand in the period between 1 April and 31 December 2015) (including those included under discontinued operations), thanks to the consolidation of the contribution of the investment property acquired by the Group Companies in previous years. Profit from operations amounted to 19,339 thousand ( 10,507 thousand in the period between 1 April and 31 December 2015) and profit for 2016 amounted to 28,861 thousand ( 9,939 thousand in the period between 1 April and 31 December 2015). 3. Research and development Given the activity of the Group Companies, the Group had no expenses related to research and development activities. 55- ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Directors Report for 2016

56 Consolidated Directors Report for Significant events after the balance sheet date Between the balance sheet date and the date on which these financial statements were prepared, there were no significant events that are not included in the financial statements. 5. Acquisition of treasury shares On 7 July 2015, Zambal Spain Socimi, S.A. signed a liquidity contract with Santander Investment Bolsa, Sociedad de Valores, S.A.U. to increase liquidity and promote the regularity of the Company s share price. The agreement entered into force on 1 December The shares of the Parent held by it at 31 December 2016 represent 0.27% of the Company s share capital and amount to 1,269,021 shares. The average acquisition price has been 1.24 per share. The aforementioned shares are recognised as a reduction to the Group s consolidated shareholders equity at 31 December 2016 amounting to 1,574 thousand. The average number of shares in 2016 was 452,910,562 shares and the average number of treasury shares in 2016 was 1,497,271 shares. The Parent has fulfilled the obligations arising from art. 509 of the Spanish Corporate Enterprises Act that establishes, in relation to shares listed on an official secondary market that the nominal value of the shares acquired, in addition to those already held by the Parent and its subsidiaries, may not exceed 10% of the share capital. The subsidiaries do not hold treasury shares or shares of the Parent. 6. Dividend policy REITs are governed by the special tax regime established in Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, regulating REITs. Once the related commercial obligations are met, these companies are required to distribute the profit obtained during the year as dividends to their shareholders, which must be distributed within the six months following the end of each year as follows: a) 100% of the profit from dividends or shares in profit distributed by the entities referred to in art. 2.1 of this law. b) At least 50% of the profit generated from the transfer of property and shares or investments referred to in art. 2.1 of this Law, once the periods referred to in Article3.3 of this law have elapsed, subject to compliance of its main corporate purpose. The rest of the profit must be reinvested in other properties or shares subject to compliance with the corporate purpose of the REIT, within a period of three years following the date of transfer. Failing this, the profit must be distributed in full together with, if applicable, the profit generated during the year in which the reinvestment period ends. If the items to be reinvested are transferred prior to the end of the holding period, that profit must be distributed in full together with, if applicable, the portion of this profit allocated to the years in which the Company did not qualify for the special tax regime established in this law. c) At least 80% of the remaining profits obtained. The dividend must be paid within one month following the date of the distribution agreement. When dividends are distributed with a charge to reserves allocated out of profit from a year in which the special tax regime was applicable, they must be distributed in accordance with the provisions of the section above. The Company is obliged to transfer 10% of profit for the year to the legal reserve until the balance of this reserve reaches 20% of share capital. This reserve is not distributable to shareholders until it exceeds 20% of share capital. The bylaws of these companies may not establish any restricted reserve other than the aforementioned reserve. The distribution of dividends for 2015 and the proposed distribution for 2016 are included in Note ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Directors Report for 2016

57 Consolidated Directors Report for Use of financial instruments The Group Companies have not arranged any financial instruments that should have been recognised nor have any arisen from agreements entered into during the year. 8. Financial risk management The Group has a risk control system establish that covers its activity and suits its risk profile. The aforementioned policies are controlled by the Board of Directors. The main risk with regard to achieving the Group s objectives is to meet the regulatory requirements necessary to maintain its status as an REIT. The risk control system also includes management of financial risk. The main financial risks and the procedures for their management are broken down in Note 4 to the accompanying notes to the financial statements. 9. Information on payments to suppliers In accordance with the provisions of Law 15/2010, amended by Law 31/2014 and applying the Resolution of the Spanish Accounting and Audit Institute of 29 January 2016, balances with suppliers due and payable at 31 December 2016 that may exceed the maximum legal limit established have been reviewed, and all of the payments made during the year were paid within the period established by the law Days Days Average payment period to suppliers 18,05 8,48 Ratio of transactions paid 18,99 7,80 Ratio of transactions payable 3,23 17,33 Thousands of euros Thousands of euros Total payments made 10,939 11,409 Total payments pending Staff The average number of employees at the Group in the year, by professional category, is as follows: 31/12/ /12/2015 Senior executives - - Graduates, other line personnel and clerical staff 1 1 Sales staff ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Directors Report for 2016

58 Consolidated Directors Report for 2016 The breakdown of the Group s staff by gender at the balance sheet date is as follows: 31/12/2016 Men Women TOTAL Senior executives Graduates, other line personnel and clerical staff Sales staff /12/2015 Men Women TOTAL Altos directivos Titulados, técnicos y administrativos Comerciales In 2016 there were no employees with a disability equal to or greater than 33%. 11. Environment In view of the Group s business activity, it does not have any environmental assets, provisions or contingencies that might be material with respect to its equity, financial position and results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the financial statements. 12. Significant events after the balance sheet date The main significant events that occurred after the balance sheet are broken down in Note 24 of the accompanying notes to the financial statements. 58- ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Directors Report for 2016

59 PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED DIRECTORS REPORT FOR 2016 On 28 March 2017, the Board of Directors of Zambal Spain Socimi, S.A., in compliance with the requirements established in art. 253 of the Spanish Corporate Enterprises Act and art. 37 of the Spanish Code of Commerce, issue the consolidated financial statements for the Company that comprise the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for 2016, comprised the preceding accompanying documents. SIGNATORIES Chairman: Thierry Yves Marie Julienne Director Guy de Clercq Director: Catherine Crochet Secretary: Ivan Azinovic Gamo 59- ZAMBAL SPAIN AND SUBSIDIARIES Consolidated Directors Report for 2016

60 pwc INDEPENDENT AUDITORS REPORT ON CONSOLIDATED ANNUAL ACCOUNTS To the shareholders of Zambal Spain Socimi, S.A. and Subsidiaries: Report on the consolidated annual accounts We have audited the accompanying consolidated annual accounts of Zambal Spain Socimi, S.A. and Subsidiaries which comprise the balance sheet as at December 31, 20x1, and the income statement, statement of changes in equity, cash flow statement and related notes for the year then ended. Directors responsibility for the consolidated annual accounts The Parent s directors are responsible for the preparation of these consolidated annual accounts, so that present fairly the equity, financial position and financial performance of Zambal Spain Socimi, S.A. and Subsidiaries, in accordance with the financial reporting framework applicable to the Group in Spain, as identified in Note 2 to the accompanying consolidated annual accounts, and for such internal control as directors determine is necessary to enable the preparation of consolidated annual accounts that are free from material misstatement, whether due to fraud or error. Responsibility of the Auditor`s Responsibility Our responsibility is to express an opinion on these consolidated annual accounts based on our audit. We conducted our audit in accordance with legislation governing the audit practice in Spain. This legislation requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated annual accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated annual accounts. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated annual accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Parent s directors of the consolidated annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the consolidated annual accounts taken as a whole. PricewaterhouseCoopers Auditores, S.L., Torre PwC, Pº de la Castellana 259 B, Madrid, Spain Tel.: / , Fax: , M.R. of Madrid, sheet 87,250-1, page 75, volume 9,267, book 8,054, section 3, registered in the Official Registry of Auditors (ROAC) under no. S Spanish Tax Identification Number (CIF): B

61 pwc We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated annual accounts present fairly, in all material respects, the consolidated equity and consolidated financial position of Zambal Spain Socimi, S.A. and Subsidiaries at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with the applicable financial reporting framework, and in particular, with the accounting principles and criteria included therein. Emphasis paragraph We draw attention to Note 2 to the accompanying consolidated annual accounts, which indicates that the figures for the preceding period correspond to the period between 1 April 2015 and 31 December This should be taken into account with regard to the comparability of the figures for the aforementioned period with respect to the figures for the annual period ended 31 December This matter does not change our opinion. Report on other legal and regulatory requirements The accompanying consolidated directors' report contains the explanations which the Parent's directors consider appropriate about the situation of Zambal Spain Socimi, S.A. and Subsidiaries, the development of its business and other matters, and does not form an integral part of the consolidated annual accounts. We have checked that the accounting information in the consolidated directors report is in agreement with that of the consolidated annual accounts for Our work as auditors is limited to checking the directors Report in accordance with the scope mentioned in this paragraph and does not include a review of information other than that obtained from the accounting records of Zambal Spain Socimi, S.A. and Subsidiaries. PricewaterhouseCoopers Auditores, S.L. Goretty Álvarez 5 April 2017 [Stamp reading: AUDITORS SPANISH INSTITUTE OF CHARTERED ACCOUNTANTS PricewaterhouseCoopers Auditores, S.L. Year 2017 No. 01/17/24819 EUR COMPANY STAMP: Auditors report for financial statements subject to the regulations governing audit activities in Spain or internationally.] 2

62 2016 Tripark Business Park Annual Accounts 31 December 2016

63

64 BALANCE SHEET AT 31 DECEMBER 2016 AND 31 DECEMBER 2015 (Expressed in euros) ASSETS Note 31/12/ /12/2015 NON CURRENT ASSETS 632,482, ,382,353 Property, plant and equipment Investment property 7 453,532, ,800,836 Non-current investments in Group companies and associates 8, 9 176,143, ,605,197 Non-current financial investments 8, 10 2,806,217 2,975,783 Other financial assets 2,806,217 2,975,783 CURRENT ASSETS 26,174, ,268,073 Non-current assets held for sale 6-121,586,253 Trade and other receivables 8, 11 6,595,048 1,992,267 Current investments in Group companies and associates 9-8,679 Current financial investments 8, 10 1,347,959 1,347,959 Other financial assets 1,347,959 1,347,959 Current prepayments and accrued income 18 89,126 74,703 Cash and cash equivalents 8, 12 18,142,802 8,258,212 TOTAL ASSETS 658,656, ,650,426 The accompanying Notes 1 to 28 are an integral part of these financial statements. 3 - ZAMBAL SPAIN AnnuaL Accounts 2016

65 Balance Sheet at 31 December 2016 and 31 December 2015 EQUITY AND LIABILITIES Note 31/12/ /12/2015 EQUITY 528,133, ,768,900 SHAREHOLDERS EQUITY 528,133, ,768,900 Share capital ,806, ,806,452 Registered share capital 474,806, ,806,452 Share premium 13 23,721,598 24,193,548 Prior years losses 13 - (7,306,509) Reserves 13 3,690,198 2,869,469 Treasury shares 13 (1,573,646) (2,139,645) Profit for the year 14 27,488,799 8,345,585 NON-CURRENT LIABILITIES 4,226, ,913,141 Non-current payables 8, 15 4,226,240 4,508,765 Other financial liabilities 4,226,240 4,508,765 Non-current payables to Group companies and associates 15, ,404,376 CURRENT LIABILITIES 126,297,334 1,968,385 Short-term provisions 16 2,222,725 - Current payables 15-65,616 Other financial liabilities - 65,616 Current payables to Group companies and associates 15, ,203,778 - Trade and other payables 17 9,479,375 1,596,720 Current accrued expenses and deferred income , ,049 TOTAL EQUITY AND LIABILITIES 658,656, ,650,426 The accompanying Notes 1 to 28 are an integral part of these financial statements. 4 - ZAMBAL SPAIN AnnuaL Accounts 2016

66 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 AND THE PERIOD BETWEEN 1 APRIL AND 31 DECEMBER 2015 (Expressed in euros) INCOME STATEMENT Note 31/12/ /12/2015 Revenue 21 24,549,564 16,079,752 Services rendered 24,549,564 16,079,752 Staff costs 21 (136,125) (100,856) Wages, salaries and similar expenses (120,000) (95,000) Employee benefit costs (16,125) (5,856) Other operating expenses 21 (5,333,993) (3,127,973) Outside services (2,920,726) (1,481,633) Taxes other than income tax (2,385,801) (1,646,340) Other current operating expenses (27,466) - Depreciation of property, plant and equipment and investment property 5, 6, 7 (5,512,251) (3,793,082) PROFIT FROM OPERATIONS 13,567,195 9,057,841 Finance income 22 6,426,334 16,800 Finance costs 22 (1,009,394) (1,840,948) FINANCIAL PROFIT/(LOSS) 22 5,416,940 (1,824,148) PROFIT BEFORE TAX 18,984,135 7,233,693 Income tax PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 18,984,135 7,233,693 Profit for the year from discontinued operations net of tax 6 8,504,664 1,111,892 PROFIT FOR THE YEAR 27,488,799 8,345,585 The accompanying Notes 1 to 28 are an integral part of these financial statements. 5 - ZAMBAL SPAIN AnnuaL Accounts 2016

67 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 AND THE PERIOD BETWEEN 1 APRIL 2015 AND 31 DECEMBER 2015 A) STATEMENT OF RECOGNISED INCOME AND EXPENSE (Expressed in euros) 31/12/ /12/2015 Profit for the year 27,488,799 8,345,585 Income and expense recognised directly in equity - - Transfers to profit or loss - - TOTAL RECOGNISED INCOME AND EXPENSE 27,488,799 8,345,585 The accompanying Notes 1 to 28 are an integral part of these financial statements. B) CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY (Expressed in euros) Share capital Reserves Share premium Prior years' losses Treasury Profit for the year TOTAL 31/03/2015 Ending balance 350,000, (10,175,978) - 28,694, ,518,716 Transactions with shareholders or owners Capital increases 100,806,452-24,193, ,000,000 Distribution of profit - 2,869,469-2,869,469 - (5,738,938) - Distribution of dividends (22,955,756) (22,955,756) Treasury share transactions (Note 13) Total recognised income and expenses (2,139,645) - (2,139,645) ,345,585 8,345,585 31/12/2015 Ending balance 450,806,452 2,869,469 24,193,548 (7,306,509) (2,139,645) 8,345, ,768,900 Transactions with shareholders or owners Capital increases 24,000,000-6,000, ,000,000 Distribution of profit - 834, ,559 - (1,669,118) - Distribution of dividends (6,676,467) (6,676,467) Treasury share transactions (Note 13) , ,999 Other - (13,830) (6,471,950) 6,471, (13,830) Total recognised income and expenses ,488,799 27,488,799 31/12/2016 Ending balance 474,806,452 3,690,198 23,721,598 - (1,573,646) 27,488, ,133,401 The accompanying Notes 1 to 28 are an integral part of these financial statements. 6 - ZAMBAL SPAIN AnnuaL Accounts 2016

68 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 AND THE PERIOD BETWEEN 1 APRIL AND 31 DECEMBER 2015 (Expressed in euros) Note 31/12/ /12/2015 Cash flows from operating activities Profit for the year before tax 14 32,167,046 8,345,585 Adjustments for: - Depreciation of investment property and property, plant and equipment 5, 7 5,512,251 3,793,082 - Loss from disposal of investment property 6 (8,430,968) - - Changes in provisions 16 2,308,132 (634,474) - Finance income 22 (6,426,334) (16,800) - Finance costs 22 1,009,934 1,840,948 Changes in working capital: - Trade and other receivables 11 (4,602,781) (729,618) - Trade and other payables 17 3,204, ,513 - Other current assets and liabilities (80,039) (1,012,185) - Other non-current assets and liabilities (112,959) (16,758) Other cash flows from operating activities: - Interest received 22 26,334 16,800 - Dividends received 25 6,400, Interest payments (805,616) - Cash flows from operating activities 30,168,868 11,691,093 Cash flows from investing activities Payments due to investments: - Investment property 7 (153,243,232) (3,680,102) - Non-current investments in Group companies and associates 9 (138,272) (181,607,876) Proceeds from disposals: - Non-current investments in Group companies and associates 9 5,600, Investment property 6 130,025,900 - Cash flows from investing activities (17,755,604) (185,287,978) Cash flows from financing activities Proceeds and (payments) relating to financial liabilities - Issue of: Payable to Group companies ,000,000 77,693,371 - Amortisation: Payable to Group companies 25 (140,404,376) - Proceeds and (payments) relating to financial liabilities: - Issue of equity instruments and other shareholder contributions 13 30,000, ,000,000 - Dividends paid: 13 (6,676,467) (22,955,756) - Purchase of treasury shares ,169 (2,139,645) Cash flows from financing activities (2,528,674) 177,597,970 Change in cash and cash equivalents 9,884,590 4,001,085 Cash and cash equivalents at beginning of year 8,258,212 4,257,127 Cash and cash equivalents at end of year 18,142,802 8,258,212 The accompanying Notes 1 to 28 are an integral part of these financial statements. 7 - ZAMBAL SPAIN AnnuaL Accounts 2016

69 Notes to The Annual Accounts For the year ended 31 December 2016 Ágora Towers

70 NOTES TO THE ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 (Expressed in euros) 1. GENERAL INFORMATION ZAMBAL SPAIN SOCIMI, S.A., hereinafter the Company, is a Spanish company with Spanish Tax Identification Number (CIF) A , incorporated for an indefinite period through a deed executed before a Madrid notary on 10 April 2013 and registered in the Mercantile Registry of Madrid in volume 30960, page 164, section 8, sheet M557304, entry no. 1 with registered office in Madrid at José Ortega y Gasset 11, 1º Derecha. On 26 December 2013, the Company applied to to be admitted to the regulated regime established by Law 11/2009, of 26 October, regulating Real Estate Investment Trusts ( REITs ), effective from its incorporation, although the definitive statute was granted by the Spanish Tax Authorities on 28 May 2014, under the aforementioned terms. Subsequently, on 31 March 2014, the company, which had been a Spanish Private Limited Liability Company, became a Spanish Public Limited Liability Company and changed its company name from ZAMBAL SPAIN, S.L. to its current name, adding the abbreviation SOCIMI, S.A. through a deed executed before a notary and registered in the Mercantile Registry of Madrid. The Company mainly acquires and develops urban properties for lease. On 9 July 2015, the Company changed its corporate purpose to adapt it to faithfully reflect its activity by eliminating the complementary activities it had included. On 26 December 2014, due to the capital increases performed by the Company, it lost its status as a soleshareholder company when it became part of the shareholder structure of Loire Investments Pte. Ltd (see Note 10). Merger (see Note 13) On 9 July 2015, the Company approved the change to its corporate purpose in its bylaws to faithfully reflect the Company s activity by eliminating the complementary activities. Its corporate purpose is now: (i) The acquisition and development of urban properties for lease. (ii) The holding of equity interests in other REITs or in other non-resident entities in Spain with the same corporate purpose and that operate under a similar regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the bylaws. (iii) The holding of equity interests in other resident or non-resident entities in Spain whose corporate purpose is to acquire urban properties for subsequent leasing, and that operate under the same regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the bylaws, and that fulfil the investment requirements referred to in art. 3 of the REIT Act. (iv) The holding of shares or equity interests in collective real estate investment undertakings regulated by Law 35/2003, of 4 November, on collective investment undertakings. (v) Other activities that complement the aforementioned activities, subject to that established under the REIT Act. In addition, in the same act, the Company resolved to modify its fiscal year, which hereinafter will run from 1 January to 31 December. On 18 June 2015, the Company registered in the Mercantile Registry the companies whose investments are included under Other financial assets as explained in Note 11 of these notes to the financial statements. On 30 March 2016, a new member was appointed to the Board of Directors, Catherine Crochet, and Jonathan Andrew Melville Cave was removed. The Company forms part of a group of Companies (hereinafter, the Group ), the main shareholder of which is Altaya Pte, Ltd. which has its registered office in Singapore. The ultimate parent of the Group to which it belongs is Investment Beverage Business Fund that has its registered office in Singapore and is listed on the Main Board of the Singapore Exchange LTD under ISIN SG ZAMBAL SPAIN AnnuaL Accounts 2016

71 Notes to the Annual Accounts 2. BASIS OF PRESENTATION a) Fair presentation These financial statements were prepared by the Company s Board of Directors in accordance with the regulatory financial reporting framework applicable to the Company, which consists of: The Spanish Code of Commerce, amended in accordance with Law 10/2007, of 4 July, and other corporate and commercial legislation. The Spanish National Chart of Accounts approved by Royal Decree 1514/2007, of 20 November, Royal Decree 1159/2010, of 17 September approving the rules for preparing consolidated financial statements and Royal Decree 602/2016, 2 December modifying the 2007 Spanish National Chart of Accounts. The mandatory rules approved by the Spanish Accounting and Audit Institute in order to implement the Spanish National Chart of Accounts and its supplementary rules. All other applicable Spanish accounting legislation. Law 11/2009, of 26 October, regulating Real Estate Investment Trusts (REITs) in relation to the information to be broken down in the notes to the financial statements. The financial statements for the period ended 31 December 2015 were approved by the General Shareholders Meeting held on 27 June The financial statements, which were formally prepared by the Company s Board of Directors, will be submitted for approval by the General Shareholders Meeting, and it is considered that they will be approved without any changes. The figures contained in these financial statements are expressed in euros, unless otherwise stated. b) Key issues in relation to the measurement and estimation of uncertainty When preparing the financial statements the Company must make estimates and hypotheses in relation to the future that may affect the accounting policies adopted and the assets, liabilities, income and expense amounts and the breakdowns related thereto. Estimates and hypothesis are evaluated on an ongoing basis and are based on past experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates, per se, rarely match the corresponding outcomes in real life. The following is a breakdown of the main estimates made by the Company s Directors: Avda. de San Luis 25 Acquisition Date 2013 The building is located in the North side of Madrid, between the M-30 and M-40 satellite highways and has direct access to the airport. The property consists of five floors, 3 above-ground and is fully leased long-term to UNIDESA, one of the major Spanish media groups and subsidiary company of the Italian media group RCS ZAMBAL SPAIN AnnuaL Accounts 2016

72 Notes to the Annual Accounts Impairment of financial assets On a yearly basis, the Company assesses whether there are any indications of impairment on the financial assets by performing impairment tests when appropriate. To that end, the recoverable value of the aforementioned assets is determined. The calculation of fair values may imply the determination of future cash flows and the assumption of hypotheses relating to the future values of the flows and to the discount rates applicable thereto. The related estimates and assumptions are based on historical experience and other factors considered reasonable according to the circumstances surrounding the activity carried out by the Company. Measurement of non-current assets The measurement of non-current assets, other than financial assets, requires estimates to be made for the purpose of determining their fair value, in order to evaluate any possible impairment, especially in relation to investment property. To determine their fair value, the Directors of the Company hired independent experts to measure the investment property based on an estimate of the expected future cash flows from the said assets using an appropriate discount rate to calculate the current value of these cash flows. Income tax The Company has availed itself of the regime established in Law 11/2009, of 26 October, regulating Real Estate Investment Trust (REITs), which, in practice, means that, provided certain requirements are met, the Company is subject to an income tax rate of 0%. The Directors monitor compliance with the relevant legal requirements for the purpose of securing the tax advantages established therein. In this respect, the Directors consider that such requirements, except those included in Note 6, will be met within the established terms and periods and, therefore, they have recognised an impact on income tax income. c) Comparative information As stated in Note 1, on 9 July 2015 the Company resolved to modify its fiscal year and, therefore, the preceding fiscal period had a duration of less than one year, specifically from 1 April 2015 to 31 December 2015, while the current fiscal included the entire year, i.e., 1 January 2016 to 31 December 2016 and, consequently, the figures for the year are not comparable. At 31 December 2014, the Company classified two properties as non-current assets held for sale because they met the conditions to be classified as discontinued operations. For such purposes, these financial statements breakdown the items that at 31 December 2016 and 31 December 2015 comprise the net profit from discontinued operations and their related cash flows. d) Grouping of items In order to facilitate comprehension of the balance sheet, the income statement, the statement of changes in equity and the statement of cash flows, certain items included in these financial statements have been presented grouped together, with the required analysis included in the corresponding notes to the financial statements ZAMBAL SPAIN AnnuaL Accounts 2016

73 Notes to the Annual Accounts 3. ACCOUNTING POLICIES 3.1 Property, plant and equipment Property, plant and equipment is recognised at its acquisition or production cost less any accumulated depreciation and and recognised accumulated impairment losses. In-house work on non-current assets is calculated by adding the acquisition price of the consumables and the direct or indirect costs allocable to the said assets and is recognised in the income statement. Costs for expanding, modernising or improving property, plant and equipment are incorporated into the asset as increased value of the goods only when they represent an increase in their capacity or productivity, or an increase in their useful life, and provided that it is possible to calculate or estimate the carrying amount of items derecognised from inventory due to their being replaced. Major repair costs are capitalised and depreciated over their estimated useful life, while maintenance expenses are charged to the income statement in the year in which they are incurred. The depreciation of property, plant and equipment, with the exception of land that are not depreciated, is calculated using the straight-line method based on their estimated useful lives and the residual value of the assets. The estimated useful life of the various asset categories are the following: Years Computer hardware 4 The residual value and useful life of the assets is reviewed, adjusting them if necessary, on each balance sheet date. If an asset s carrying amount is greater than its estimated recoverable value, its value is immediately reduced to its recoverable value. Gains and losses on the disposal of property, plant and equipment are calculated by comparing the income obtained from the disposal and the carrying amount that is then recognised in the income statement. Princ Building Acquisition Date 2014 The building consists of two blocks with separate entrances and communication cores. It has 8 floors above ground level and three basements and its 100% occupied with a long-term lease by ENAGAS, the main supplier company of natural gas in Spain ZAMBAL SPAIN AnnuaL Accounts 2016

74 Notes to the Annual Accounts 3.2 Investment property The value of the land, buildings and other structures maintained to obtain long-term lease income, which are not occupied by the Company, are recognised under Investment property in the balance sheet. The assets composing investment property are measured at their cost that corresponds to the acquisition price. The price of acquisition includes, in addition to the amount invoiced by the seller after deducting any discount or reduction in the price, all of the directly related additional expenses that are incurred until the property is ready for its intended use. Subsequently, the aforementioned investment property is measured at cost less any accumulated depreciation and any recognised accumulated impairment losses. Depreciation of these items is carried out systematically and rationally based on the useful life of the property and their residual value, based on the normal decline in value caused by their use and by wear and tear, without prejudice to the technological or commercial obsolescence that may also affect the assets. The estimated useful life of the various components identified under Investment property are the following: Years Civil engineering work (*) 50 Façades and roofs (*) 30 General fixtures 20 Other fixtures 15 (*) These items are recognised under changes in investment property (Note 7) under Buildings. Where applicable, changes that arise from the residual value, useful life and the method of depreciating an asset are recognised as changes in the accounting estimates, except if it is an error. Maintenance and repair expenses for investment property that do not increase the future cash flows of their cash-generating unit or their useful life, are charged to the income statement in the year in which they are incurred. At year end, the Company assesses whether there are indications that the investment property is impaired, in which case it estimates the recoverable amount making the appropriate valuation adjustments. Allocation of the aforementioned impairment, and the reversal thereof, is carried out in accordance with that indicated in the accounting policies and measurement bases included in the Spanish National Chart of Accounts. In addition, the depreciation for the following years for the impaired investment property will be adjusted taking into account the new carrying amount. 3.3 Impairment losses on non-financial assets The Company does not recognise intangible assets with indefinite useful lives on its balance sheet. At each year-end, the Company reviews the assets subject to amortisation to verify if there is any event or change in circumstances that indicates that the carrying amount may not be recoverable. An impairment loss is recognised for the excess of the carrying amount of the asset over its recoverable amount, where the latter is understood as the greater of fair value of the asset less costs to sell and value in use. For the purpose of evaluating their impairment losses, assets are grouped into the lowest level with separate identifiable cash flows (cash-generating units). For assets that do not generate independent cash flows, the recoverable amount is determined for the cash-generating units to which the asset belongs. Non-financial assets that have suffered an impairment loss are reviewed at each balance sheet date, to see if the losses have been reversed ZAMBAL SPAIN AnnuaL Accounts 2016

75 Notes to the Annual Accounts 3.4 Non-current assets held for sale and discontinued operations Non-current assets are classified as held for sale if it is believed that their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. These assets are recognised at their carrying amount or fair value, whichever is lower, less the costs necessary for their disposal and are not subject to amortisation. Any component of the Company that has been sold or disposed of in any other way or has been classified as held for sale and represents a line of business or significant geographic area of operation, form part of an individual plan or is a subsidiary acquired exclusively for sale is classified as a discontinued operation. The results generated by discontinued operations are recognised in a specific single line in the income statement net of taxes, taking into account that the Company has availed itself of the REITs regime. (See Note 6). 3.5 Financial assets For the purpose of their measurement, the Company determines the classification of its investments when they are initially recognised and reviews the classification at each balance sheet date. The classification depends on the purpose for which the financial assets were acquired, and are measured according to the following criteria: a) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not traded in an active market. They are considered current assets, except for those maturing within more than 12 months from the balance sheet date, which are classified as non-current assets. Loans and receivables are included under Trade and other receivables in the balance sheet. Financial assets are initially measured at fair value, including directly attributable transaction costs, and subsequently at amortised cost, recognising interest accrued at their effective interest rate, which is understood to mean the discount rate that is equal to the carrying amount of the instrument including all estimated cash flows up until maturity. However, trade receivables maturing in no more than one year are measured, both at initial recognition and subsequently at their nominal value, provided that the effect of not using the present value of the cash flows is not significant. At the end of each reporting period at least, impairment losses are recognised if there is objective evidence that not all sums owed will be collected. The amount of the impairment loss is the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the effective interest rate at the time of initial recognition. Impairment losses and any subsequent reversal are recognised in the income statement. b) Held-to-maturity investments: Held-to-maturity financial assets are debt securities with fixed or determinable payments and fixed maturity, which are traded in an active market and that the Company s management has the effective intention and ability to hold to the date of maturity. If the Company sells a material amount of its held-to-maturity financial assets, the entire category would be reclassified as available for sale. These financial assets are considered non-current assets, except for those maturing within less than 12 months from the balance sheet date, which are classified as current assets. The valuation criteria for these investments are the same as for loans and receivables. c) Investments in the equity of Group companies, jointly controlled entities and associates: Group companies are those over which the Company, directly or indirectly, through subsidiaries, exercises control in accordance with art. 42 of the Spanish Code of Commerce or when the companies are controlled by any means by one or various individuals or legal entities that act jointly or are under the same management due to resolutions or bylaw clauses. Control is the power to govern the financial and operating policies of a company in order to benefit from its activities, taking into account for these purposes the potential voting rights that may be exercised or converted at the end of the fiscal year held by the Company or third parties. Associates are considered to be those companies over which the Company directly or indirectly exercises significant influence through subsidiaries. Significant influence is the power to participate in the financial and operating policy decisions of a company but is not control or joint control over the company. When assessing the existence of significant influence, potential voting rights that may be exercised or converted at the end of each year are taken into account, as well as the potential voting rights held by the Company or another company ZAMBAL SPAIN AnnuaL Accounts 2016

76 Notes to the Annual Accounts Investments in Group companies, associates and jointly controlled entities are initially recognised at cost that is equivalent to the fair value of the consideration delivered and are subsequently measured at cost, less any accumulated impairment losses. Notwithstanding the foregoing, where investments have been made in a company before it was classified as a group, jointly controlled entity or associate, its carrying amount before such classification is used as the cost of the investment. Prior valuation adjustments recognised directly in equity remain there until they are derecognised. Impairment losses If there is objective evidence that the carrying value is not recoverable, the appropriate valuation adjustments are made for the difference between the carrying amount of the investment and its recoverable amount, which is the higher of fair value less costs to sell and the present value of the cash flows from the investment. Unless there is better evidence of the recoverable amount, when estimating impairment losses it is based on the value of the equity of the investee, adjusted by the amount of the unrealised gains existing at the date of measurement. The valuation adjustment and, where applicable, its reversal is recognised in the income statement for the year in which they occur. In subsequent years, the reversals of the impairment losses are recognised, to the extent that there is an increase in the recoverable amount, up to the carrying amount the investment would have if no impairment loss had been recognised. Impairment losses or reversals are recognised in the abridged income statement, except in cases where it must be recognised in equity. Financial assets are derecognised from the balance sheet when substantially all the risks and rewards incidental to ownership of the leased asset are transferred. In the specific case of accounts receivable, this situation is generally understood to arise if the risks of insolvency and default have been transferred. 3.6 Cash and cash equivalents Cash and cash equivalents includes cash on hand, demand deposits in banks and other short-term highly liquid investments originally maturing within three months or less that are not subject to significant changes in value. On the balance sheet, bank overdrafts are classified as borrowings under current liabilities. At 31 December 2016, the Company had no bank overdrafts. 3.7 Equity Share capital is represented by ordinary shares. The costs of issuing new shares or options are recognised directly against equity, as a reduction in reserves. If the Company acquires any treasury shares, the consideration paid, including any directly attributable incremental cost, is deducted from equity until their redemption, re-issue or disposal. When these shares are sold or are later re-issued, any proceeds received, net of any directly attributable incremental cost of the transactions, is included in equity 3.8 Financial liabilities For measurement purposes, financial liabilities correspond to the following category: Accounts payable: This heading includes both trade and non-trade payables. These borrowed funds are classified as current liabilities, unless the Company has the unconditional right to defer settlement at least 12 months after the balance sheet date ZAMBAL SPAIN AnnuaL Accounts 2016

77 Notes to the Annual Accounts These borrowings are initially recognised at fair value, adjusted by any directly attributable transaction costs, and subsequently recognised at cost using the effective interest rate method. This effective interest rate is the discount rate that matches the carrying amount of the instrument to its expected future cash flows until the liability matures. However, trade payables maturing within twelve months where there is no contractual interest rate are measured, both initially and subsequently, at their nominal value when the effect of not discounting the cash flows is not material. These financial liabilities are measured, both initially and subsequently, at their fair value, and the changes that arise in the aforementioned value are recognised in the income statement for the year. Transaction costs directly attributable to the issue are recognised in the income statement in the year in which they arise. A financial liability is derecognised when the corresponding obligation has extinguished. 3.9 Current and deferred taxes Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). The current income tax expense is the amount payable by the Group companies as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense. The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured by applying to the temporary difference or tax credit the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising from the initial recognition of goodwill or of other assets and liabilities in a transaction that is not a business combination and affects neither accounting profit (loss) nor taxable profit (tax loss). Deferred tax assets are recognised to the extent that it is considered probable that the Company will have taxable profits in the future against that the deferred tax assets can be utilised. Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognised in equity. With respect to that indicated in the preceding paragraphs and in relation to that explained below, it should be pointed out that the recognition of deferred tax assets and liabilities is revaluated taking into account that the Company has availed itself of the REIT regime and, therefore, only the tax assets that are expected to be used or the tax liabilities that are expected to be settled as a result of the failure to comply with the requirements established in the legislation that regulates these types of companies are recognised. On 26 December 2013, and effective from its incorporation, the Company reported to the Office of the Spanish State Tax Agency corresponding to its tax domicile the decision adopted by its then sole shareholder to avail itself of the special REIT tax regime. Pursuant to Law 11/2009, of 26 October, regulating Real Estate Investment Trusts, entities that opt to apply the special tax regime envisaged in this Law will be subject to an income tax rate of 0%. If any tax loss carryforwards are generated, art. 25 of the consolidated text of the Spanish Income Tax Act, approved by Legislative Royal Decree 4/2004, of 5 March, will not be applicable. Likewise, the system of tax relief and tax credits established in Chapters II, III and IV of this law will not be applicable. With regard to all other matters not envisaged in Law 11/2009, that established in the consolidated text of the Spanish Income Tax Act will be applicable. The entity will be subject to a special tax rate of 19% on the full amount of the dividends or share in profits distributed to shareholders whose ownership interest in the entity s share capital is equal to or greater than 5%, when such dividends are exempt from taxation or taxed at a rate less than 10% at the tax domicile of such shareholders. This tax rate will take into consideration the income tax expense ZAMBAL SPAIN AnnuaL Accounts 2016

78 Notes to the Annual Accounts The Company applied for the aforementioned REIT regime on 26 December 2013, without prejudice to the fact that during the year the Company may not comply with all requirements stipulated by law for such regime to be applied, since, pursuant to Transitional Provision One of REIT Act 11/2009, the Company has a period of two years from the date on which it opted to apply the regime to comply with all legal requirements Provisions and contingent liabilities Provisions for environmental restorations, restructuring costs and litigation are recognised when the Company has a present obligation (legal or constructive) as a result of past events, where an outlay of resources will likely be needed to settle the obligation and the amount can be reliably estimated. The provisions for restructuring costs include lease cancellation fees and employee severance pay. No provisions are recognised for future losses from operations. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax interest rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Adjustments made to provisions due to updates are recognised as finance costs on an accrual basis. Provisions maturing within one year or less and for which the financial effect is not material, are not discounted. When the portion of the payment necessary for settling the provision is refunded by a third party, the refund is recognised as an independent asset, as long as it is practically certain to be received. On the other hand, contingent liabilities are considered to be any obligations arising from past events, the occurrence of which is conditional upon whether one or more future events occur that are beyond the Company s control. These contingent liabilities are not recognised for accounting purposes, but rather are disclosed in the notes to the financial statements if they exist Revenue recognition Revenue and expense are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Lease income is recognised on a straight-line basis over the term of the lease. Revenue from sales is recognised when the significant risks and rewards of ownership of the goods sold have been transferred to the buyer, and the Company neither continues to manage the goods nor retains effective control over them. Lease income is recognised on an accrual basis using the straight-line method over the estimated term of the agreement. Interest income from financial assets is recognised using the effective interest method and dividend income is recognised when the shareholder s right to receive payment has been established. Interest and dividends from financial assets accrued after the date of acquisition are recognised as income Foreign currency transactions Functional and presentation currency The Company s financial statements are presented in euros, which is its presentation and functional currency. Transactions and balances Transactions in foreign currencies are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Gains and losses on foreign currencies that arise from settling these transactions and from translating the monetary assets and liabilities denominated in foreign currencies at the year-end exchange rates are recognised in the income statement ZAMBAL SPAIN AnnuaL Accounts 2016

79 Notes to the Annual Accounts 3.13 Employee benefits Termination benefits Termination benefits are paid to employees as a result of the decision taken by the Company to terminate their employment contract before the employee s normal retirement age, or when the employee voluntarily agrees to resign in exchange for such compensation. The Company recognises this compensation when the Company is demonstrably committed to terminate the employment of current employees in accordance with a detailed plan without the possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary termination. Termination benefits that will not be paid in the twelve months following the reporting date are discounted to their present value Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases. Lease income is recognised on a straight-line basis over the term of the lease. Finance leases At 31 December 2016 and 2015, the Company did not have any finance leases. Operating leases Lease income and expenses from operating leases are recognised in income on an accrual basis for the term of the leases and in accordance with the straight-line method. Also, the acquisition cost of the leased asset is presented in the balance sheet according to the nature of the asset, increased by the costs directly attributable to the lease, which are recognised as an expense over the lease term, applying the same method as that used to recognise lease income. A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided Related-party transactions In general, transactions between group companies are recognised initially at fair value. In the event that the price agreed upon in a transaction differs from its fair value, the difference is recognised in accordance with the economic substance of the transaction. The subsequent valuation is made in accordance with the provisions of the corresponding regulation. The above notwithstanding, in mergers, spin-offs or non-monetary contributions to a company, once the transaction has been completed, the constituent elements of the acquired company are recorded at their corresponding amounts in the consolidated financial statements of the group or subgroup. When the parent of the group or subgroup and its subsidiary are not involved, the financial statements to be considered for these purposes will be those of the larger group or subgroup in which the assets and liabilities are consolidated and whose parent company is a Spanish company. In these cases, any difference that arises between the carrying amount of the acquired company s assets and liabilities (adjusted by the balance of groups of grants, donations and legacies received and valuation adjustments) and any amount of share capital and share premium, where applicable, issued by the absorbing company, is recorded in reserves Borrowing Costs The finance costs directly attributable to the acquisition or construction of investment property that require more than twelve months to be ready for use are added to their cost until they are brought into operating condition ZAMBAL SPAIN AnnuaL Accounts 2016

80 Notes to the Annual Accounts 3.17 Guarantees The difference between the fair value of guarantees provided or received for operating leases or for the provision of services and the amount paid -due, for example, to the fact that it is a long-term guarantee without remuneration- is recognised as a prepaid payment or collection for the lease or service, which is allocated to profit or loss over the lease term. Remunerated guarantees received for long-term leases, are recognised as a financial liability at their fair value when initially recognised (generally, the amount received in cash), which corresponds to the amount that will be reimbursed, less the corresponding explicit interest rate. In order to calculate the fair value of the guarantees the minimum contractual term is used as the remaining period during which the amount may not be returned, without taking into consideration the statistical behaviour of the return. In the case of short-term guarantees, cash flows do not need to be discounted if their effect is not material Statement of cash flows The following terms are used in the statement of cash flows: Cash flows: inflows and outflows of cash and cash equivalents (Note 12). Cash flows from operating activities: payments and collections from the Company s typical activities and other activities that are not investing or financing activities. Cash flows from investing activities: payments and collections that arise from acquisitions and disposals of non-current assets. Cash flows from financing activities: payments and collections from the placement and settlement of financial liabilities, equity instruments or dividends. Plaza Catalunya 23 Acquisition Date 2013 This landmark period building is located in one of the premier retail areas of Barcelona, on the Southwest corner of Plaza Catalunya with Las Ramblas. It is fully leased to El Corte Ingles which operates it as a Shop-in-Shop with brands such as; Morgan, Kookai, IKKS, Tintoretto, Tommy Hilfiger, Guess, Diesel, Maje, Sandro, Stefanel, amongst others 19 - ZAMBAL SPAIN AnnuaL Accounts 2016

81 Notes to the Annual Accounts 4. FINANCIAL RISK MANAGEMENT 4.1 Financial risk factors The Company s activities expose it to various financial risks: market risk (including interest rate risk and currency risk), credit risk and liquidity risk. The Company s global risk management programme focuses on the uncertainty of the financial markets and aims to minimise the potential adverse effects on the Company s financial returns. In the opinion of the Directors of the Company, there are no financial instruments that have similar characteristics and are affected similarly by changes in economic or other conditions or other variables, otherwise, in their opinion the details provided in these notes to the financial statements are sufficient. a) Market risk The international economic crisis that has particularly affected the real estate and financial industries in Spain in and of itself represents a significant market risk. a.1) Interest rate risk The Company s interest rate risk arises from its financial debt. The loans granted at floating rates expose the Company to cash flow interest rate risk. In the year ended 31 December 2016 and the period between 1 April 2015 and 31 December 2015, the Company s loans with a floating interest rate were denominated in euros. At 31 December 2016, the Company is exposed to this type of risk because it receives financing through loans from its shareholders amounting to 114,203,778 ( 140,404,376 at 31 December 2015). The aforementioned borrowings, which had accrued interest amounting to 990,505 ( 1,840,948 at 31 December 2015), were remunerated at a floating interest rate tied to Euribor. a.2) Currency risk The Company operates nationally and all of its transactions are performed in euros, its functional currency, therefore, it is not exposed to currency risk as a result of foreign currency transactions. Currency risk may arise on future commercial transactions, balance sheet assets and liabilities and net investments in foreign operations that the Company does not perform. Tripark Business Park Acquisition Date 2014 A Contemporary building designed by Gabriel Allende and built in 2002, part of the Tripark Business Park. It has four floors above ground and two below ground, and the building has LEED Gold certification. It is 100% leased to Distribuidora Internacional Alimentos, SA (DIA), one of the leading players in the food sector ZAMBAL SPAIN AnnuaL Accounts 2016

82 Notes to the Annual Accounts b) Credit risk In the opinion of the Company s Directors credit risk is low since the credit quality of the lessees is high, demonstrated by the fact that rent is usually collected in advance on a monthly basis and the other expenses to be distributed among the lessees are not usually older than three months. In addition, the Company hedges this risk by requesting guarantees from its tenants. Therefore, the Company s credit risk management is focused on the following group of financial assets: Balances related to non-current and current investments in Group companies and associates (Note 9). Balances related to non-current and current financial investments (Note 10). Balances related to trade and other receivables (Notes 11). c) Liquidity risk Prudent management of liquidity risk entails the maintenance of sufficient cash and marketable securities, availability of financing through a sufficient level of committed credit facilities and the capacity to settle market positions. The Company s Directors monitor the Company s projected liquidity reserve (that includes the availability of credit, cash and cash equivalents) on the basis of expected cash flows. The amounts shown in the following table correspond to the expected cash flows (undiscounted) estimated based on the current interest rate. The balances payable within 12 months are equivalent to their carrying amount, given that the effect of the discount is not material. Within one year From 1 to 2 years From 2 to 5 years More than 5 years 31/12/2016 Trade and other payables 9,479, Payable to Group companies and associates 114,203, Other payables 2,222, ,226,240 TOTAL 125,905, ,226,240 Within one year From 1 to 2 years From 2 to 5 years More than 5 years 31/12/2015 Trade and other payables 1,596, Payable to Group companies and associates - 140,404, Other payables 65,616-1,347,959 3,160,806 TOTAL 1,662, ,404,376 1,347,959 3,160,806 As indicated in Note 25, the Company has a working capital deficiency because of maturity of the loan from Group companies. The aforementioned loan will be capitalised within the framework of a capital increase through a debt-to-equity swap in Capital management The objectives of capital management at the Company to safeguard its ability to remain a going concern and, thus, provide returns to its owners, as well as benefits to other shareholders and maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may vary the amounts of the dividends payable to the owners, return capital, issue new shares or sell assets to reduce debt ZAMBAL SPAIN AnnuaL Accounts 2016

83 Notes to the Annual Accounts The Company monitors capital in accordance with the following indices: The leverage ratio is calculated dividing debt by equity. Debt is calculated as the total debt maintained with related parties. It was not calculated at 31 December 2016 due to the lack of financial debt. Likewise, the index obtained from dividing the net cash position by equity is calculated. 31/12/ /12/2015 Net cash position (*) (96,060,976) (132,146,164) Equity 528,133, ,768,900 % Net cash position/equity 18,19% 27,72% (*) The aforementioned amounts are presented in absolute values since the Company had loans with shareholders amounting to 114,203,778 in the year ended December 2016 (at December 2015 they amounted to 114,203,778). The ratio calculated above is within the range considered acceptable by the Directors of the Company Fair Value Fair value is the amount for which a financial instrument could be exchanged between knowledgeable, willing parties in an arm s length transaction. The fair value of the financial instruments traded on active markets is based on the market selling price at year end. The fair value of financial instruments that are not listed on an active market is determined using valuation techniques. The Company mainly uses valuation techniques that use information from recent transactions carried out in accordance with existing market conditions for similar instruments and the estimated discounted cash flows. In order to determine the fair value of the remaining financial instruments, other techniques, such as estimated discounted cash flows, are used. It is assumed that the carrying amount less any provisions for the impairment of accounts receivable and payable approximate their fair value. The fair value of financial liabilities for the purposes of presenting financial information is estimated by discounting future contractual cash flows at the current market interest rate the Company may have for similar financial instruments. Avda. de San Luis 77 Acquisition Date 2016 The asset consists of 14 buildings that form the corporate HQ of Gas Natural in Madrid. The building is located in Avenida de San Luis, 77, in the northern-central part of Madrid city between M-30 and M-40 ring roads. It has direct access to the airport ZAMBAL SPAIN AnnuaL Accounts 2016

84 Notes to the Annual Accounts 5. PROPERTY, PLANT AND EQUIPMENT The details of property, plant and equipment is as follows: Computer hardware TOTAL Balance at 31/12/15 Cost 1,126 1,126 Accumulated depreciation (589) (589) Carrying amount Additions - - Disposals - - Depreciation (282) (282) Balance at 31/12/16 Cost 1,126 1,126 Accumulated depreciation (871) (871) Carrying amount Computer hardware TOTAL Balance at 01/04/15 Cost 1,126 1,126 Accumulated depreciation (376) (376) Carrying amount Additions - - Disposals - - Depreciation (213) (213) Balance at 31/12/15: Cost 1,126 1,126 Accumulated depreciation (589) (589) Carrying amount a) Impairment losses In 2016 and 2015, no valuation adjustments were recognised or reversed for impairment of any of the Company s property, plant and equipment. b) Property, plant and equipment abroad At 31 December 2016 and 2015 the Company had no property, plant and equipment abroad. c) Fully depreciated investment property At 31 December 2016 and 2015, the cost of the Group s fully depreciated items of property, plant and equipment included on the balance sheet amounted to 0 thousand ZAMBAL SPAIN AnnuaL Accounts 2016

85 Notes to the Annual Accounts d) Insurance The Company takes out all of the insurance policies it considers necessary to cover the risks that might affect its property, plant and equipment. e) Assets under operating leases Operating lease expenses corresponding to the rental of items amounting to 0 are recognised on the income statement. 6. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS At 31 December 2014, the Company decided to reclassify certain properties as non-current assets held for sale because at that date they met the requirements established in the 7th accounting standard for their recognition and measurement in the Spanish National Chart of Accounts. The impact of the aforementioned transactions on the income statement and the statement of cash flows for the period between 1 April and 31 December 2015 and the year ended 31 December 2016, as well as the impact of the reclassification carried out on the Company s balance sheet is shown below: a) Non-current assets and disposal groups classified as held for sale Non-current assets classified as held for sale 31/12/15 Cost (*) 122,070,160 Accumulated depreciation (483,907) TOTAL 121,586,253 (*) This cost includes amounts from investment properties under construction capitalised from 1 April 2015 until the balance sheet date amounting to 3,680,102. On 30 July 2015, the Company signed two private sale and purchase commitments for the equity interests of the investees Serrano 61 Desarrollo, S.L.U. and Preciados 9 Desarrollos Urbanos, S.L.U. (see Note 9) The first was modified through three appendices dated 27 October 2015, 17 December 2015 and 21 December 2015, respectively, (the Serrano 61 Sale and Purchase Agreement) and in the case of the second amended through four appendices dated 27 October 2015, 17 December 2015, 21 December 2015 and 26 January 2016, respectively, (the 9 Preciados Sale and Purchase Agreement). The efficacy of both agreements was subject to fulfilment of conditions precedent that were met in full on 16 February 2016, the date on which the sale and purchases were formalised and the sale and purchase agreements were converted into public instruments. Prior to the sale of the aforementioned equity interests, but in the same act, the Company contributed to the above-mentioned Companies the properties classified as non-current assets held for sale, amounting to 139,237,259. After the contribution and prior to the sale of the equity interests, but in the same act, the Company signed three financing agreements for the properties, the conditions of which are described below: Property Serrano 61 Preciados 9 Preciados 9 Bank Caixa Caixa Caixa Loan Mortgage Mortgage VAT Principal 39,150,500 37,000,000 12,768, ZAMBAL SPAIN AnnuaL Accounts 2016

86 Notes to the Annual Accounts Once the financing was obtained, the investees proceeded to distribute the share premium amounting to 57,007,743. The investees selling price amounted to 80,849,140 As indicated in Note 25, with the money obtained from the aforementioned transactions and the cash available, the Company repaid its debts with Group companies early. b) Analysis of profit from discontinued operations 31/12/ /12/2015 Services rendered 523,006 3,498,045 Other operating expenses (449,310) (2,386,153) Gain on disposal of investment property 13,109,215 - Tax (4,678,247) - Net profit from discontinued operations 8,504,664 1,111,892 The cash flows generated by non-current assets held for sale and discontinued operations are as follows: 31 /12/ /12/2015 Cash flows from operating activities 73,696 1,111,892 Cash flows from investing activities 130,025,900 (3,680,102) Cash flows from financing activities ,099,596 (2,568,210) As a result of the above-mentioned transaction, the Company did not maintain ownership of the assets for a period of three years, a continued service requirement for assets within the REIT regime and, therefore, it must recalculate the income tax for income for the periods ended 31 March 2014, 31 March 2015 and 31 December 2015, together with the corresponding portion of the current period and the gains on the sale, at the general tax rate for each period. At 31 December 2016, the Company estimated the corresponding income tax that amounted to 4,546 thousand that is pending definitive conclusion once the tax period comes to a close with the understanding that the estimate made corresponds to the most prudent scenario. 31/03/ /03/ /12/ /12/ 2016 Income and expenses for the year before tax 1,779,969 1,582,973 1,111,892 13,182,911 Permanent differences Timing differences Offset of prior years' tax losses TOTAL 1,779,969 1,582,973 1,111,892 13,182,911 In addition, the Company has estimated the late-payment interest corresponding to the periods ended 31 March 2014, 31 March 2015 and 31 December 2015 that amount to 132 thousand. Income tax expense is obtained applying the corresponding tax rates to the perspective tax bases. The Company recognised income tax expense under discontinued operations as it relates to the abovementioned transaction ZAMBAL SPAIN AnnuaL Accounts 2016

87 Notes to the Annual Accounts 7. INVESTMENT PROPERTY Investment property comprises commercial buildings and offices owned to obtain long-term lease income and that are not occupied by the Company. The changes in the items composing investment property in the year ended 31 December 2016 were as follows: Land Buildings Other fixtures Investment property in the course of construction TOTAL Balance at 01/01/2016 Cost 161,458, ,613,476 36,039, ,110,985 Accumulated depreciation - (5,189,620) (4,120,529) - (9,310,149) Carrying amount 161,458, ,423,856 31,918, ,800,836 Additions 68,125,409 63,463,368 21,154, , ,243,232 Disposals Depreciation - (2,993,376) (2,518,593) - (5,511,969) 31/12/2016 Ending balance 229,583, ,893,848 50,554, , ,532,099 Cost 229,583, ,076,844 57,193, , ,354,217 Accumulated depreciation - (8,182,996) (6,639,122) - (14,822,118) Carrying amount 229,583, ,893,848 50,554, , ,532,099 The changes in the items composing investment property in the period between 1 April and 31 December 2015 were as follows: Land Buildings Other fixtures Investment property in the course of construction TOTAL Balance at 01/04/2015 Cost 161,458, ,613,476 36,039, ,110,985 Accumulated depreciation - (3,130,674) (2,386,606) - (5,517,280) Carrying amount 161,458, ,482,802 33,652, ,593,705 Additions Disposals Depreciation - (2,058,946) (1,733,923) - (3,792,869) Balance at 31/12/ ,458, ,423,856 31,918, ,800,836 Cost 161,458, ,613,476 36,039, ,110,985 Accumulated depreciation - (5,189,620) (4,120,529) - (9,310,149) Carrying amount 161,458, ,423,856 31,918, ,800,836 The Company acquired the following investment property during the year: Leisure centre located in Madrid at Avda. de Manoteras, 40 acquired on 23 May Office building located in Madrid at Avda. de San Luis 77 acquired on 2 December ZAMBAL SPAIN AnnuaL Accounts 2016

88 Notes to the Annual Accounts The Company did not acquire investment property during the year. The acquisition price of all of the investment property acquired in the year ended 31 December 2016 amounted to 148,750,000. The difference between the aggregate sum of the acquisition prices of the properties and the capitalised cost corresponding to non-recoverable taxes and to advisory service and legal expenses incurred to perform such transactions amounted to 3,993,232. In addition, additional investments were made in the property owned amounting to 500,000 that were not finalised at the date of these financial statements. a) Impairment losses In accordance with Valuation Standard No. 2 of the Spanish National Chart of Accounts and the Resolution of 1 March 2013 of the Spanish Accounting and Audit Institute, the Company reviews the fair value, useful life and valuation method for the properties it owns at least at the end of each balance sheet date. When the market or any other corresponding value of a property is lower than the amortised value, and the decline in value is considered to be reversible, market value is adjusted by recognising the corresponding write-down. The market value of the properties was determined based on the appraisal conducted by independent valuers. In 2016 the properties owned by the Company were appraised by an independent expert, the aforementioned appraisals were performed on 31 January The appraisals of these real estate assets were carried out under the market value assumption, whereby these valuations were conducted in accordance with the statements of the asset valuation-appraisal method and the guidelines published by the Royal Institution of Chartered Surveyors (RICS) of Great Britain, valuation standards, 8th edition. Market value is defined as the estimated amount for which an asset should be exchanged on the date of valuation between a willing seller and a willing buyer, after a reasonable marketing period, and wherein the parties have acted knowledgeably, prudently and without compulsion. The valuation method adopted in the current year for determining the fair value was the discounted cash flow method. The discounted cash flow method is based on predicting the net income likely to be generated by the assets during a certain period of time, taking into consideration the residual value thereof at the end of this period. The cash flows are discounted at an internal rate of return in order to come up with the present value. This internal rate of return is adjusted to reflect the risk associated with the investment and the assumptions made. The key variables therefore include net income, the estimated residual value and the internal rate of return. The properties were valued on a case-by-case basis, considering each of the leases in force at the end of the period and, where applicable, the likely term thereof. In the year ended 31 December 2016 and the period ended 31 December 2015, the Company did not recognise any impairment on investment property based on the results of the valuation performed by an independent expert in the said year, whose hypothesis were as follows: Average discount rate 5.32% (2015: 5.26%) and an average exit of 5.67% (2015: 5.57%). b) Investment property abroad At 31 December 2016 and 31 December 2015 the Company had no investment property abroad. c) Fully depreciated investment property The Company did not have fully depreciated investment property on the balance sheet at 31 December 2016 or 31 December d) Insurance The Company takes out the insurance policies it considers necessary to cover the risks that might affect its investment property ZAMBAL SPAIN AnnuaL Accounts 2016

89 Notes to the Annual Accounts e) Recognised income and expense from investment property The following income and expenses arising from these property investments were recognised in the income statement: 31/12/ /12/2015 Lease income 20,838,345 17,939,697 Other lease-related income 3,100,000 - Rebilling of expenses 1,134,225 1,638,100 Net gain on disposal of investment property (*) 8,430,969 - Direct operating income (expenses) arising from investment properties that generate lease income (**) (2,406,837) (7,787,961) Direct operating income (expenses) that does not arise from investment properties that generate lease income (***) (3,607,903) (3,444,251) (*) Including the gains and the taxes from the sale of non-current assets held for sale recognised in the year. (**) Including the dividends received from Group companies. (***) Including the independent professional services specific to the management of the Company and other operating income/(expenses). Avenida de Burgos 118 Acquisition Date 2015 A stand-alone building located in a prestigious business park, at the junction of the A-1 and M-11 highways and adjacent to the future extension of Madrid s central axis: the Paseo Castellana. The property is fully leased with long-term contract to BMW and serves as their Spanish Head Office ZAMBAL SPAIN AnnuaL Accounts 2016

90 Notes to the Annual Accounts 8. Analysis of financial instruments 8.1 Analysis of financial instruments The carrying amount of each of the categories of financial instruments established in the accounting standard for recognising and measuring financial instruments, except cash, is the following: a) Financial assets: 31/12/2016 Financial investments (Notes 9 and 10) Investments in Group companies 176,143,469 Loans and receivables (Note 11) Cash and cash equivalents (Note 12) Other financial assets 2,806, Non-current 178,949, Investments in Group companies - - Other financial assets 1,347,959 6,586,831 18,142,802 Current 1,347,959 6,586,831 18,142,802 31/12/2015 Financial investments (Notes 9 and 10) Investments in Group companies 181,605,197 Loans and receivables (Note 11) Cash and cash equivalents (Note 12) Other financial assets 2,975, Non-current 184,580, Investments in Group companies 6,000 2,679 Other financial assets 1,347,959 1,958,773 8,258,212 Current 1,347,959 1,958,773 8,258,212 The guarantees specific to the real estate activity that are deposited at the IVIMA (an independent body of the Autonomous Community of Madrid, whose current name is the Agencia de Vivienda Social de la Comunidad de Madrid) are recognised under other financial assets as held-to-maturity investments amounting to 2,806,217 ( 2,975,783 in the period ended 31 December 2015), the maturity of which is based on the leases. b) Financial liabilities: At 31/12/2016 Cash and cash equivalents (Note 12) Other financial liabilities 4,226,240 Non-current 4,226,240 Other financial liabilities 118,638,696 Current 118,638,696 At 31/12/2015 Cash and cash equivalents (Note 12) Other financial liabilities 144,913,141 Non-current 144,913,141 Other financial liabilities 1,282,339 Current 1,282, ZAMBAL SPAIN AnnuaL Accounts 2016

91 Notes to the Annual Accounts 8.2 Analysis by maturities The maturities of the financial instruments are broken down in the corresponding notes. 9. Investments in Group companies Current investments in Group companies: Current investments in Group companies at 31 December 2015 amounting to 8,679 included current ownership interests in Group companies (equity instruments) (see Note 27), which were sold at 16 February 2016 (see Note 6), as well as certain loans granted according to the following breakdown: 31 /12/2015 Equity instruments 6,000 Accounts receivable 2,679 TOTAL 8,679 Non-current investments in Group companies: Non-current investments in group companies and Associates amounted to 176,143,469 at 31 December 2016 ( 181,605,197 and 31 December 2015), includes ownership interest in group companies (equity instruments). Current and non-current investments in Group companies and associates: The changes recognised under this heading in 2016 were as follows: Balance at 31/12/2015 Additions Disposals Balance at 31/12/2016 Serrano 61 Desarrollo, S.L.U. 3,000 - (3,000) - Preciados 9 Desarrollos Urbanos, S.L.U. 3,000 - (3,000) - Inversiones Iberia Nora, S.L.U. 181,605, ,272 (5,600,000) 176,143,469 TOTAL 181,611, ,272 (5,606,000) 176,143,469 Current and non-current investments in Group companies and associates: The changes recognised under this heading at 1 April and 31 December 2015 were as follows: Balance at 1/4/2015 Additions Transfers Balance at 31/12/2015 Serrano 61 Desarrollo, S.L.U ,000 3,000 Preciados 9 Desarrollos Urbanos, S.L.U ,000 3,000 Inversiones Iberia Nora, S.L.U ,605, ,605,197 TOTAL - 181,605,197 6, ,611,197 In 2016 the Company performed the following transactions: Serrano 61 Desarrollo, S.L.U.: On 18 June 2015, the Company registered the company s incorporation with 3,000 equity interests of 1 par value each. On 16 February 2016, these equity interests were sold, see Note 6. Preciados 9 Desarrollos Urbanos, S.L.U.: On 18 June 2015, the Company registered the company s incorporation with 3,000 equity interests of 1 par value each. On 16 February 2016, these equity interests were sold, see Note ZAMBAL SPAIN AnnuaL Accounts 2016

92 Notes to the Annual Accounts Inversiones Iberia Nora, S.L.U.: On 29 September 2015, the Company acquired 1,198,000 shares of 1 par value each and 10,755,000 of share premium for a total amount of 181,605,197 including the transaction costs. After the balance sheet date an adjustment was made to the price based on the tools included in the sale purchase agreement and, therefore, the Company paid 138,272 on 29 February On 23 May 2016, the Sole Shareholder resolved to increase the with a charge to Reserves (Shareholder s contributions), increasing share capital by one equity interest of 1 par value, with the share premium of 114,986, On 19 December 2016, the Sole Shareholder of Inversiones Iberia Nora, S.L.U. approved the payout of a dividend with a charge to the share premium amounting to 5,600,000. The breakdown of the percentage of ownership interest and voting rights in the investees at 31 December 2016 is as follows: Inversiones Iberia Nora, S.L.U. Percentage of share capital Voting rights Registered office Direct (%) Indirect (%) Direct (%) Indirect (%) Calle José Ortega y Gasset 11, 1ºDcha, Madrid 100% 0% 100% 0% The information on the shareholders equity of the investees of the Company at 31 December 2016 was as follows: Shareholders equity capital premium the year dividend Share Share Profit for Reserves Interim TOTAL Fair value in the Parent Inversiones Iberia Nora, S,L,U, 1,198, ,689,425 6,853, ,600 (6,400,000) 119,580, ,143,469 The Company performs real estate activity. No impairment is recognised on the unrealised gains included in the valuation of the property owned by the investee. The breakdown of the percentage of ownership interest and voting rights in the investees at 31 December 2015 is as follows: Serrano 61 Desarrollo, S.L.U. Preciados 9 Desarrollos Urbanos, S.L.U. Inversiones Iberia Nora, S.L.U. Registered office Calle José Ortega y Gasset 11, 1º Dcha, Madrid Calle José Ortega y Gasset 11, 1º Dcha, Madrid Calle José Ortega y Gasset 11, 1º Dcha, Madrid Percentage of share capital Voting rights Direct (%) Direct (%) Indirect (%) 100% 100% 0% 100% 100% 0% 100% 100% 0% The information on the shareholders equity of the investees of the Company at 31 December 2015 was as follows: Serrano 61 Desarrollo, S.L.U. Preciados 9 Desarrollos Urbanos, S.L.U. Inversiones Iberia Nora, S.L.U. Share capital Share premium Profit for the year Shareholders contribution Reserves Prior years losses Shareholders contribution Total Fair value in the Parent 3, (663) - - 2,337 3,000 3, (626) - - 2,374 3,000 1,198,000 10,755,000 (700,712) (17,298) (1,494,043) 114,986, ,727, ,605, ZAMBAL SPAIN AnnuaL Accounts 2016

93 Notes to the Annual Accounts The activity of the three companies was real estate, the first two were dormant in the period from 1 April to 31 December Current receivables from Group companies: The changes recognised under this heading in the year ended 31 December 2016 were as follows: Balance at 31/12/2015 Disposals Balance at 31/12/2016 Serrano 61 Desarrollo, S.L.U. 662 (662) - Preciados 9 Desarrollos Urbanos, S.L.U. 626 (626) - Inversiones Iberia Nora, S.L.U. 1,391 (1,391) - TOTAL 2,679 (2,679) - Current receivables from Group companies: The changes recognised under this heading in the year ended 31 December 2015 were as follows: Balance at 31/12/2015 Disposals Balance at 31/12/2016 Serrano 61 Desarrollo, S.L.U Preciados 9 Desarrollos Urbanos, S.L.U Inversiones Iberia Nora, S.L.U. - 1,391 1,391 TOTAL - 2,679 2, FINANCIAL INVESTMENTS Guarantees 31/12/ /12/2015 Non-current financial investments 2,806,217 2,975,783 Fixed-term deposits 1,347,959 Current financial investments 1,347,959 1,347,959 4,154,176 4,323,742 At 31 December 2016 and 2015, the Company had a fixed-term deposit with BBVA amounting to 1,347,959 with final maturity in October 2019 and, although it is related to a guarantee to fulfil certain obligations established in the acquisition agreement for one of the investment properties acquired in 2014, it is expected to be settled in The fixed-term deposit accrues interest at an annual rate of 0.01%. On the other hand, Guarantees includes, mainly, the deposits delivered to the IVIMA for the guarantees for the leases received from the lessees, which mature in accordance with the leases, mainly in more than five years ZAMBAL SPAIN AnnuaL Accounts 2016

94 Notes to the Annual Accounts 11. TRADE AND OTHER RECEIVABLES 31/12/ /12/2015 Trade receivables for sales and services 4,538, ,143 Straight-line recognition of lease payments and advances 205,953 1,007,464 Advances to suppliers 1,823,483 19,050 Accounts receivable 18,590 45,116 Other accounts receivable from public authorities 8,217 33,494 6,595,048 1,992,267 In 2016 accounts receivable suffered impairment losses due to uncollectible receivables amounting to 57,659. In addition, at 31 December 2016, the Company recognised a provision in the balance sheet of 27,466 in relation thereto.in 2015 there were no impairment losses on accounts receivable. In addition, at 31 December 2015, the Company had not recognised any provisions in the balance sheet in relation thereto. Trade receivables due but not impaired amounted to 1,246,447 at 31 December 2016 ( 797,966 and 31 March 2015), which mainly correspond to accounts receivable that are between 2 and 4 months overdue. Trade receivables for sales and services includes 3,100,000 corresponding to an agreement with a tenant to partially release the property for the potential entry of another tenant are recognised under this heading. The carrying amounts of Trade and other receivables are listed in euros. The Company s maximum exposure to credit risk at the date of presentation of the financial information is the fair value of each of the receivables categories indicated above. Ágora Towers Acquisition Date 2013 Contemporary building designed by Gabriel Allende in This asset is divided in two twin towers, each with 15 floors above ground level and 3 floors below ground level, with direct access from the M-30 satellite highway. The building is fully leased to the Spanish Ministry of Foreign Affairs ZAMBAL SPAIN AnnuaL Accounts 2016

95 Notes to the Annual Accounts 12. CASH AND CASH EQUIVALENTS 31/12/ /12/2015 Cash on hand 18,142,802 8,258,212 18,142,802 8,258,212 This heading includes cash on hand and demand deposits. There is no restricted cash or cash equivalents at 31 December 2016 and 31 December For the purposes of the statement of cash flows, cash includes the cash and cash equivalents. 13. CAPITAL, SHARE PREMIUM AND RESERVES a) Share capital and share premium Euros Number of shares Share capital Share premium TOTAL Balance at 1 January ,806, ,806,452 24,193, ,000,000 Other changes 24,000,000 24,000,000 (471,950) 23,528,050 Balance at 31 December ,806, ,806,452 23,721, ,528,050 Number of shares Share capital Share premium TOTAL Balance at 01 April ,000, ,000, ,000,000 Other changes 100,806, ,806,452 24,193, ,000,000 Balance at 31 December ,806, ,806,452 24,193, ,000,000 On 10 April 2013, Lexxel Servicios Empresariales, S.L. incorporated Zambal Spain, S.L. through a capital contribution of 3,000. The share capital was represented by 3,000 equity interests of 1 par value each. On 10 June 2013, Lexxel Servicios Empresariales, S.L. transferred all of the equity interests of Zambal Spain, S.L. To Automate Invest Holding, S.A., with registered office in Luxembourg for 3,000. On 18 June 2013, the then sole shareholder of the Company (Automate Invest Holding, S.A.) constituted a current account with the Company through an initial contribution of 14,400,000. From the aforementioned date until December 2013, additional contributions were made amounting to 225,140,000. In addition, on 19 June 2013, the then sole shareholder (Automate Invest Holding, S.A.) carried out a capital increase creating 80,000,000 equity interests of 1 par value each through a capital contribution of 80,000,000. On 30 December 2013, Automate Invest Holding, S.A., which owned all of the equity interests of Zambal Spain S.L. and a loan of 239,540,000 plus 851,238 in interest gave Altaya Pte. Ltd. all of the equity interests and title to the loan and the interest accrued. Therefore, at that date Altaya Pte. Ltd. became the Company s sole shareholder. Until it was capitalised, the aforementioned current account accrued interest at an annual rate of 3-month Euribor +1.1% and the average rate of the aforementioned debt during the period was 1.33% ZAMBAL SPAIN AnnuaL Accounts 2016

96 Notes to the Annual Accounts In addition, at 31 December 2013, the sole shareholder of the Company, Altaya Pte. Ltd., made a shareholder contribution for the full amount of the current account plus the interest accrued for a total of 240,391,238. Subsequently, on 31 March 2014, the Company, which was a Spanish Private Limited Liability Company, became a Spanish Public Limited Liability Company through a deed executed before a notary and registered in the Mercantile Registry of Madrid and, therefore, the 80,003,000 equity interests of 1 par value each became 80,003,000 shares of 1 par value each. At 31 March 2014, the total authorised number of ordinary shares was 80,003,000 shares of 1 par value each. All of the shares issues are fully paid and subscribed by the Sole Shareholder that holds all of the shares: Altaya Pte. Ltd. On 26 December 2014, a resolution was passed to increase the Company s share capital as follows: Through a debt-to-equity swap amounting to 12,980,762 and pursuant to the loan entered into by Altaya Pte Ltd for 18,500,000. (see Note 25). Through a debt-to-equity swap amounting to 16,625,000 and pursuant to the loans entered into by Loire Investment Pte Ltd. for 11,000,000 and 6,500,000. (see Note 25). With a charge to the Company s reserves under Other shareholder contributions amounting to 240,391,238. Due to errors in the manner in which they were submitted to the registry, these increases were registered on 18 June On 27 October 2015, a resolution was passed to increase the Parent s share capital as follows: Through a debt-to-equity swap amounting to 121,001,000 and pursuant to the loan entered into by Altaya Pte Ltd for 121,001,000. (see Note 25). 97,581,452 shares of 1 par value each with a share premium of 23,419,548 were issued ( 0.24 per share). Through a monetary contribution amounting to 3,999,000 by Loire Investment Pte Ltd. 3,225,000 shares of 1 par value each with a share premium of 774,000 were issued ( 0.24 per share). On 27 June 2016, the General Shareholders Meeting passed the following resolutions by absolute majority: Approval of the distribution of profit for the year: - To dividends: 6,676, To the legal reserve: 834, To offset prior years losses: 834,559 Approval of the allocation of 6,471,950 of the share premium to offset prior years losses. The proposed distribution of dividends became effective 22 July 2016 and, in addition, authorisation was granted to the Board of Directors, with powers of delegation, to increase the share capital in accordance with the provisions of art b) of the Spanish Corporate Enterprises Act during a maximum period of five years through monetary contributions up to a maximum amount equal to half (50%) of the share capital and authorising the Board to exclude pre-emption rights. On 29 November 2016, the General Shareholders Meeting resolved by absolute majority to increase the Company s share capital through a debt-to-equity swap amounting to 30,000,000 and pursuant to the loan entered into by Altaya Pte Ltd for 30,000,000. (see Note 25). 24,000,000 shares of 1 par value each with a share premium of 6,000,000 were issued ( 0.24 per share). The only shareholder that has more than a 5% stake in the company is Altaya Pte Ltd with 453,222,581 shares and a stake of 95.45%. There are no restrictions on the free transferability of the shares. b) Treasury shares The shares of the Company held by it at 31 December 2016 represent 0.27% of the Company s share capital (0.38% at 31 December 2015) and total 1,269,021 shares (1,725,520 shares at 31 December 2015), with a value of 1,573,646 ( 2,139,645 at 31 December 2015) and an average acquisition price of 1.24 per share ZAMBAL SPAIN AnnuaL Accounts 2016

97 Notes to the Annual Accounts The Company has fulfilled the obligations arising from art. 509 of the Spanish Corporate Enterprises Act that establishes, in relation to shares listed on an official secondary market, that the nominal value of the shares acquired, in addition to those already held by the Parent and its subsidiaries, may not exceed 10% of the share capital. The subsidiaries do not hold treasury shares or shares of the Company. The aforementioned shares are recognised as a reduction to shareholders equity at 31 December 2016 amounting to 1,573,646 ( 2,139,645 at 31 December 2015). On 27 June 2016, the General Shareholders Meeting approved the authorisation for the derivative acquisition of treasury shares by the Parent or Group companies to comply with the law as it refers to requirements for companies listed on the Alternative Stock Market, revoking the authorisation c) Reserves 31/12/ /12/2015 Legal reserve 2,869,469 Other reserves - Prior years' losses (7,306,509) 3,690,198 (4,437,040) The legal reserve must be established in accordance art. 274 of the Spanish Corporate Enterprises Act, which stipulates, in all cases, that 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. The legal reserve cannot be distributed, and if it is used to offset losses, in the event no other reserves are available for this purpose, it must be restored with future profits. At 31 December 2016, a legal reserve was established amounting to 834,559 ( 2,869,469 in 2015). Prior years losses correspond to the losses in the period ended 31 March 2014 and have been offset with profit from the period ended 31 December 2015 amounting to 834,559 and subsequently the remainder was offset with the share premium in accordance with the resolutions of the General Shareholders Meeting of 27 June d) Earnings per share Basic earnings per share are calculated by dividing the net profit/(loss) for the year attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the year, excluding the weighted average number of treasury shares held in the year. Diluted earnings per share are calculated by dividing the net profit/(loss) for the year attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of ordinary shares that would be issued in the conversion of all of the instruments with a dilutive potential. The Company did not have any diluted instruments at 31 December 2016 or at 31 December 2015 and, therefore, they are not distinguished from one another. The following table shows the income and information regarding the number of shares used to calculate the basic and diluted earnings per share: Calculation of basic and diluted earnings 31/12/ /12/2015 Net profit 27,488,799 8,345,585 Weighted average number of ordinary shares issued 452,910, ,935,779 Average number of treasury shares 1,497,271 1,729,696 Basic earnings per share (euros) 0,06 0,02 Diluted earnings per share (euros) 0,06 0, ZAMBAL SPAIN AnnuaL Accounts 2016

98 Notes to the Annual Accounts In relation to the calculation of the earnings-per-share, no transactions were carried out with the ordinary shares or potentially ordinary shares between the date of the financial statements and the preparation thereof that were not taken into account in the aforementioned calculations for the year ended 31 December 2016 and the period ended 31 December PROFIT FOR THE YEAR Proposed distribution of profit The proposed distribution of profit for 2016 that will be submitted to General Shareholders Meeting and that approved by the General Shareholders Meeting corresponding to the period between one April and 31 December 2015 are as follows: 31/12/ /12/2015 Distribution basis Profit 27,488,799 8,345,585 27,488,799 8,345,585 Amounts used Legal Reserve 2,748, ,559 Prior years' losses - 834,559 Dividends 24,739,919 6,676,467 27,488,799 8,345,585 Given its status as an REIT, the Company will be required to distribute in the form of dividends to its shareholders, after complying with the related commercial obligations, the profit obtained during the year in accordance with that provided in art. 6 of Law 11/2009, of 26 October, regulating Real Estate Investment Trusts (REITs). In compliance with the REIT regime, the dividend corresponding to the period ended 31 December 2015 was settled on 22 July Avenida América 115 Acquisition Date 2015 This business park, completed in 2012, is made up by 5 free-standing glass buildings surrounding a central area where the accesses are brought together. Each building has a ground floor plus six over ground floors for office use, and two underground floors used as parking. The whole building is rented on a long-term lease to Vodafone España, S.A.U. and it is the company s Spanish headquarters ZAMBAL SPAIN AnnuaL Accounts 2016

99 Notes to the Annual Accounts 15. CURRENT AND NON-CURRENT PAYABLES 31/12/ /12/2015 Non-current payables to Group companies - (140,404,376) Non-current payables to asset suppliers - (1,347,959) Guarantees (4,226,240) (3,160,806) Non-current payables (4,226,240) (144,913,141) Current payables to Group companies (114,203,778) - Deposits received - (65,616) Current payables (114,203,778) (65,616) (118,430,018) (144,978,757) Payable to Group companies includes loans received from the Group for the purchase of investment property. (see Note 25). Non-current payables to asset suppliers corresponded to the amount payable to the supplier of a new investment property acquired in 2014 that will be settled once the seller fulfils the clauses established in the sale and purchase agreement. At 31 December 2016, it was recognised under current provisions. On the other hand, Guarantees mainly includes deposits received from lessees for guarantees to guarantee compliance with the agreements signed with them and that mature in accordance with the lease and mainly in more than five years. There is no significant impact on the fair value of non-current payables. The nominal values are considered an approximation of their fair values. 16. SHORT-TERM PROVISIONS 31/12/ /12/2015 Property tax (1,445,035) - Taxes other than income tax (777,690) (2,222,725) - The balance provisioned of 31 December 2016 corresponds to the property tax accrued for the property that the Company owned and for which it has not received the settlement for the current year. Other taxes corresponds to taxes that have not been settled because the Company is contesting them. 17. TRADE AND OTHER PAYABLES 31/12/ /12/2015 Payable to suppliers (4,140,261) (810,367) Retentions (266,912) (383,510) Sundry accounts payable (7,745) (2,846) Remuneration payable (20,000) (20,000) Other accounts payable to public authorities (Note 19) (5,044,457) (379,997) (9,479,375) (1,596,720) 38 - ZAMBAL SPAIN AnnuaL Accounts 2016

100 Notes to the Annual Accounts Information on payments to suppliers pursuant to Law 15/2010 In accordance with the provisions of Law 15/2010, amended by Law 31/2014 and applying the Resolution of the Spanish Accounting and Audit Institute of 29 January 2016, balances with suppliers due and payable at 31 December 2016 that may exceed the maximum legal limit established have been reviewed, and all of the payments made during the year were paid within the period established by the law Days Days Average payment period to suppliers 17,81 7,4 Ratio of transactions paid 18,76 7,8 Ratio of transactions payable 3,23 1,08 Euros Euros Total payments made 10,691,059 11,408,914 Total payments pending 693, ,731 The information set out in the above table regarding payments to suppliers refers to those which, by nature, are trade payables to suppliers of goods and services, such that it includes the information related to Suppliers under current liabilities in the balance sheet. The maximum legal payment period applicable to the Company in accordance with Law 3/2004, of 29 December, establishing the measures to fight against default in commercial transactions and in accordance with the transitional provisions established in Law 15/2010, of 5 July, is 60 days. 18. CURRENT ACCRUED EXPENSES AND DEFERRED INCOME The balance included under this heading under current liabilities amounting to 391,456 ( 306,049 and 31 December 2015) corresponds mainly to advance billings of leases in which the Company is the lessor. 19. TAX MATTERS The reconciliation of net income and expenses for the year to the taxable profit for income tax purposes for 2016 and for the period between 1 April and 31 December 2015 is as follows: Income Statement 31/12/2016 Income and expense recognised directly in equity Income and expense for the year 18,984, Increases Decreases Increases Decreases Income tax Permanent differences - 34,744 34, Temporary differences - (193,000) (193,000) Taxable profit 18,825, ZAMBAL SPAIN AnnuaL Accounts 2016

101 Notes to the Annual Accounts Income Statement 31/12/2015 Income and expense recognised directly in equity Income and expense for the year 7,233, Increases Decreases Increases Decreases Income tax Permanent differences Temporary differences - (779,224) (779,224) Taxable profit 6,454,469 Increases and decreases due to temporary differences relate to the following matters: 31/12/ /12/2015 Limit on amortisation for tax purposes (reversal) (193,000) (144,750) Provisions/(Reversal) of provisions (Note 16) - (634,474) (193,000) (779,224) In accordance with Royal Decree-law 12/2012, of 30 March, introducing various tax and administrative measures aimed at reducing the public deficit effective for all tax periods beginning from 1 January 2012 the deductibility of finance costs is limited. Thus, only net finance costs up to 30% of operating profit for each year may be deducted. However, 1,000,000 may be deducted even if it exceeds the aforementioned percentage. In addition, for 2014 and 2015 the tax deductibility of amortisations is limited to 30%. On the other hand, on 27 December 2012, through Royal Decree-Law 16/2012, various tax measures were adopted, including (art. 7) limiting the tax deductibility of amortisations for 2014 and 2015 to 30%. Therefore, the amortisation for accounting purposes that is not tax deductible pursuant to that established in this law will be deducted on a straight-line basis during a 10 year period or, optionally, during the useful life of the asset beginning from Due to the amendment introduced by Law 27/2014, of 27 November, the 30% limit set on the tax deductibility of amortisations has no effect beyond 2015 year end, although the limit on the deductibility of finance costs remains. Lastly, under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed have been reviewed by the tax authorities or until the four-year statute-of-limitations period has expired. At 2016 year end, the Company has all taxes since incorporation open for review by the tax authorities. The Company s directors consider that the tax returns for the aforementioned taxes have been filed correctly and, therefore, even in the event of discrepancies in the interpretation of current tax legislation in relation to the tax treatment afforded to certain transactions, such liabilities as might arise would not have a material effect on the accompanying financial statements. Due to the change introduced by Law 27/2014, of 27 November, according to which the standard income tax rate was changed from 30% to 28% for tax periods beginning on or after 1 January 2015, and to 25% for tax periods beginning on or after 1 January On the other hand, on 3 December 2016 Royal Decree-Law 3/2016, of 2 December adopting relevant amendments to income tax applicable in 2016 was published in the Official State Gazette (BOE). In addition to other matters, this entails: New mechanisms for reversing impairment on ownership interests that the previous legislation considered deductible: reversal of yearly amount, in five years, automatically (more if required by the general rules) ZAMBAL SPAIN AnnuaL Accounts 2016

102 Notes to the Annual Accounts New limits on the deductibility of capital goods: deductibility ranges from 60%/70%, 50% ( million of revenue), and tax deductions to avoid double taxation (if the Company has more than 20 million in revenue, 50%). Special instance of non-applicability of limits with regard to automatic reversal of impairment (+90% deductible expenses when they were generated on the capital goods due to deductible impairment). The balances at 31 December 2016 and 31 December 2015 are as follows: The balances at 31 December 2016 and 31 December 2015 are as follows: 31/12/ /12/2015 Withholdings 8,217 33,494 Current assets (Note 11) 8,217 33,494 VAT 359, ,240 Income tax (Note 6) 4,678,247 - Social Security and others 6,631 6,757 Current liabilities (Note 16) 5,044, , DISCLOSURE REQUIREMENTS ARISING FROM REIT STATUS, (LAW 11/2009) In compliance with the provisions of Law 11/2009, regulating Real Estate Investment Trusts, the following information has been disclosed: At 31 December 2016, the reserves from prior years of the Company are broken down in Note 13 and no dividends were paid with a charge to the aforementioned reserves. There are no reserves from prior years applicable to the tax regime established in Law 11/2009, amended by Law 16/2012, of 27 December. Likewise, because the Group generated profit for accounting purposes subject to distribution in 2016 and 2015, the Directors proposed the distribution explained in Note 13 of these notes to the financial statements. With respect to the investment requirements regulated in art. 3 of the REIT Act the Group, of which the Company is the head, has invested at least 80% of the value of its assets in urban properties for lease and in ownership interests in the share capital of entities regulated in art. 2.1.c of the REIT Act. The properties and shares owned by the Company at the acquisition date thereof are listed below: Commercial building located in Barcelona at Plaza Catalunya, 23 acquired on 20 June Office building located in Madrid at Avenida San Luis, 25 acquired and 30 September 2013 and finalised on 8 November Office building located in Madrid at calle Serrano Galvache, 26 acquired on 19 December Office building located in Madrid at Paseo de los Olmos 19 acquired on 23 July Office building located in Madrid at calle Jacinto Benavente 2 acquired on 19 December Office building located in Madrid at Avda. de Manoteras, 2 acquired on 23 January % ownership interest in Inversiones Iberia Nora, S.L. (registered under the REIT regime) acquired on 29 September 2015, the company owns the office buildings located in Madrid at Avda. de América 115 (see Note 9). Leisure centre located in Madrid at Avda. de Manoteras, 40 acquired on 23 May Office building located in Madrid at Avda. de San Luis 77 acquired on 2 December The Company has been listed on the Continuous Market of Bolsas y Mercados Españoles since 1 December 2015, where it fulfils the reporting requirements established in Circular 15/2016 of the Alternative Stock Market ZAMBAL SPAIN AnnuaL Accounts 2016

103 Notes to the Annual Accounts 21. REVENUE AND EXPENSE a) Revenue The percentage of revenue from the Company s ordinary operations is distributed geographically as follows: Market 31/12/ /12/2015 Barcelona 13% 17% Madrid 87% 83% 100% 100% Activity 31/12/ /12/2015 Lease of properties 23,115,970 14,924,104 Lease of parking spaces 390, ,148 Rebilling of expenses 1,042, ,500 Other 3,100,000 24,549,564 16,079,752 b) Foreign currency transactions There were no foreign currency transactions during the year. c) Staff costs 31/12/ /12/2015 Wages and salaries 120,000 95,000 Social security 11,940 3,481 Other employee benefit costs 4,185 2, , ,856 The average number of employees at the Group in the period, by professional category, is as follows: 31/12/ /12/2015 Senior executives - - Graduates, other line personnel and clerical staff 1 1 Sales staff ZAMBAL SPAIN AnnuaL Accounts 2016

104 Notes to the Annual Accounts The breakdown of the Company s staff by gender at the balance sheet date is as follows: 31/12/2016 Men Women TOTAL Senior executives Graduates, other line personnel and clerical staff Sales staff /12/2015 Men Women TOTAL Senior executives Graduates, other line personnel and clerical staff Sales staff In 2016 there were no employees with a disability equal to or greater than 33%. d) Other operating expenses The detail of Other operating expenses in the income statements is as follows: 31/12/ /12/2015 Outside services: Repairs and upkeep 226, ,951 Independent professional services 2,275,178 1,241,752 Insurance premiums 108,024 76,963 Bank and similar services 9,776 10,454 Advertising and public relations 15,082 - Supplies 119,166 2,864 Other services 166,617 6,649 Other operating expenses 27,466 2,948,192 1,481,633 Taxes other than income tax 2,385,801 1,646,340 5,333,993 3,127, ZAMBAL SPAIN AnnuaL Accounts 2016

105 Notes to the Annual Accounts 22. FINANCIAL PROFIT/(LOSS) 31/12/ /12/2015 Finance income: From marketable securities and other financial instruments - From Group companies and associates (Note 9) 6,400, From third parties 26,334 16,800 6,426,334 16,800 Finance costs: On debts to Group companies and associates (990,505) (1,840,948) Other (18,889) - (1,009,394) (1,840,948) Financial profit/(loss) 5,416,940 (1,824,148) ABC Serrano The ABC Serrano shopping Centre is located between two of the most important commercial streets of Madrid: Serrano and Paseo de La Castellana. The property hosts 50 retail units distributed in three main floors, with a selection of restaurants on the upper floors. In addition, there is a fitness centre operated by Reebok. Property sold at February ZAMBAL SPAIN AnnuaL Accounts 2016

106 Notes to the Annual Accounts 23. CONTINGENCIES a) Contingent liabilities The Company does not have liabilities for lawsuits arising in the ordinary course of business, other than those already provisioned. In addition, due to property acquisitions, the Company has provided guarantees to third parties amounting to 1,347,959 to ensure proper compliance with the clauses established in the sale and purchase agreements (see Note 7). b) Commitments Fixed asset purchase commitments There are no significant investment commitments in relation to asset purchases at the balance sheet date. Operating lease commitments The Company rents several premises and buildings under non-cancellable operating leases (see Note 7). These leases have variable terms, clauses by tranches and renewal rights. The future minimum collections (not updated) under non-cancellable operating leases are as follows: 31/12/ /12/2015 Less than 1 Year 26,865,811 21,329,629 From 1 to 5 years 98,286,934 62,606,591 Over 5 years 75,602,398 56,597, REMUNERATION OF DIRECTORS AND SENIOR EXECUTIVES a) Remuneration of the members of the Board of Directors The members of the Board of Directors have not received remuneration of any type, nor have they been granted advances or loans in 2016 or in the period between 1 April and 31 December 2015 except for the amounts received through their investees listed in Note 25. b) Remuneration of senior executives The Company has not signed any senior executive contracts with its staff and, in addition, in 2016 and in the period between 1 April and 31 December 2015, the Company had no staff that could be considered senior executives in accordance with the following definition: They exercise duties related to the Company s general objectives: They directly or indirectly plan, manage and control the Company s activities. They perform their duties independently and under their own responsibility. They are only restricted by the criteria and direct instructions from the legal owner/owners of the Company or the higher governing and administrative bodies that represent the aforementioned owners. The Company s key planning, management and control decisions and decisions that affect its economic and strategic policies are made by the Board of Directors. c) Information required under art. 229 of the Spanish Corporate Enterprises Act Article 229 of the Spanish Corporate Enterprises Act, approved by Royal Legislative Decree 1/2010, of 2 July imposes on the directors the duty to report to the Board of Directors and, in the absence thereof, to the 45 - ZAMBAL SPAIN AnnuaL Accounts 2016

107 Notes to the Annual Accounts other Directors or, in the event there is only one director, to the General Shareholders Meeting, any direct or indirect conflict of interest they may have with those of the Company. The director in question must refrain from participating in the resolutions or decisions related to the transaction to which the conflict refers. Likewise, directors must report the direct or indirect ownership interest that they and those related to them hold in the share capital of a company engaging in an activity that is identical, similar or complementary to the activity that constitutes the corporate purpose and also must report the positions and functions they exercise therein. In accordance with the provisions of art. 229 of Royal Legislative Decree 1/2010, of 2 July, approving the consolidated text of the Spanish Corporate Enterprises Act, the members the Board of Directors have reported to the Company that, in 2016, they or persons related to them, have not had conflicts of interest, either directly or indirectly, with the interests of Zambal Spain Socimi, S.A. On 30 March 2016, a new member was appointed to the Board of Directors, Catherine Crochet, and Jonathan Andrew Melville Cave was removed. 25. OTHER TRANSACTIONS WITH RELATED PARTIES The transactions performed with related parties are as follows: a) Transactions performed in the year with Group companies and related parties The amounts of the transactions performed with Group companies and related parties are presented below: At 31/12/2016 Services received Finance costs IBA Capital Partners, S.L. (*) Altaya PTE, Ltd TOTAL EXPENSES At 31/12/2015 Services received Finance costs IBA Capital Partners, S.L. (*) Loire Investment, Ltd Altaya PTE, Ltd TOTAL EXPENSES (*) Companies that are direct or indirect investees of one of the Parent s Directors These amounts are included in the acquisition cost of the property except for 2,133,502 for management fees ( 637,748 in 2015) that are recognised under Outside services. The services received and the finance costs arise from the Company s normal business transactions and have been performed on an arm s-length basis. On the other hand, no services were provided to Group companies or related parties in b) Balances with Group companies and related parties At 31/12/2015 Loans and payables Altaya PTE, Ltd 114,203,778 TOTAL EXPENSES 114,203, ZAMBAL SPAIN AnnuaL Accounts 2016

108 Notes to the Annual Accounts At 31/12/2015 Loans and receivables Serrano 61 Desarrollo, S.L.U. 662 Preciados 9 Desarrollos Urbanos, S.L.U. 626 Inversiones Iberia Nora, S.L.U. 1,391 TOTAL EXPENSES 2,679 At 31/12/2015 Loans and payables Altaya PTE, Ltd 140,404,376 TOTAL EXPENSES 140,404,376 In the year ended 31 December 2016, the Company had the following loans with its Shareholders: With Altaya it had formalised four loans in the period ended 31 December 2015 and signed two additional loans in the year ended 31 December 2016: a) The first loan dated 4 July 2014 for 18,500,000, of which at 31 December 2015, 5,519,238 had been drawn down after a portion of the loan was capitalised (see Note 13) that accrued interest at a rate of 3% after a 3-month grace period, after the novation of 14 September 2015 its maturity was 31 December 2017 and since 1 April 2015 it has accrued interest at a rate of 2%. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. b) The second loan, dated 9 December 2014 for 10,000,000, was drawn down in full on 31 December 2015 and after its novation on 14 September 2015, its maturity was 31 December 2017 and it accrued interest at a rate of 2% after a 6-month grace period. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. c) The third loan, dated 15 January 2015 for 44,000,000, was drawn down in full on 31 December 2015 and after its novation on 14 September 2015, its maturity was 31 December 2017 and it accrued interest at a rate of 2% after a 6-month grace period. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. d) The fourth loan, dated 18 September 2015 for 200,000,000, with two tranches: the first tranche was for 121,001,000 and matured 20 days after its formalisation and was capitalised (see Note 13), the second tranche was for 78,999,000 and matured on 31 December 2017 and was drawn down in full on 31 December 2015 and accrued interest at a rate of 2%. The aforementioned loan, together with its capitalised interest, was repaid on 29 February 2016 in accordance with the notification issued by the Company. e) The fifth, dated 20 May 2016 for 30,000 thousand, was drawn down in full on 30 June It accrues interest at an annual rate of 2% and matures on 30 September The aforementioned loan was capitalised and the interest repaid (see Note 13). f) The sixth, dated 1 December 2016 for 114,000,000, was drawn down in full on 31 December It accrues interest at an annual rate of 2% and matures on 31 March The Company intends to capitalise the loans in the coming months and, thereby, stabilise the working capital deficiency present in these financial statements. The fact that the loan matures at short-term does not entail a going concern risk because the Company intends to capitalise the said loan within the framework of a share capital increase through a debt-to-equity swap in The interest accrued on all of the aforementioned loans in the year ended 31 December 2016 is 990,505 ( 1,818,010 in the period between 1 April and 31 December 2015) and the amount payable, which will be settled at maturity of the loans, is 203,778 ( 1,886,138 at 31 December 2015). There is no significant impact on the fair value of non-current payables, understood as amortised cost. The nominal values are considered an approximation of their fair values ZAMBAL SPAIN AnnuaL Accounts 2016

109 Notes to the Annual Accounts 26. INFORMATION ON THE ENVIRONMENT In view of the business activities carried on by the Company, it does not have any environmental assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the financial statements. 27. EVENTS AFTER THE BALANCE SHEET DATE On 3 March the Alternative Stock Market was notified that the Company had fulfilled circular 15/2016 with regard to reporting, and had obtained confirmation of the aforementioned fulfilment from the regulator. Between the balance sheet date and the date on which these financial statements were prepared, there were no additional significant events that are not included in the financial statements 28. FEES PAID TO AUDITORS The fees earned in 2016 by PriceWaterhouseCoopers, S.L. for the audit services provided to the Company amounted to 55,000 and 10,000 for other review services ( 32,500 for audit services and 8,000 for other review services in the period between 1 April 2015 and 31 December 2015). In 2016 services other than audit services were provided by other companies within the PwC network for which 29,500 were billed ( 54,000 in the period between 1 April 2015 and 31 December 2015) ZAMBAL SPAIN AnnuaL Accounts 2016

110 Directors Report for 2016 at 31 December 2016 Avenida de Burgos 118

111 DIRECTORS REPORT FOR FAITHFUL ACCOUNT OF THE MAIN BUSINESS AND ACTIVITIES The activity of Zambal Spain Socimi, S.A. is based on managing its real estate assets consisting of renting its property, through leases. Since 26 December 2013, and effective from its incorporation, the Company has availed itself of the regulated regime established by Law 11/2009, of 26 October regulating Real Estate Investment Trusts ( REITs ). The Company is registered in the Mercantile Registry of Madrid and its registered office is located at calle José Ortega y Gasset 11. The Company forms part of a Group of companies, the parent of which is its Sole Shareholder, Altaya Pte. Ltd. (Singapore). The Company is devoted to renting the 11 investment properties acquired up until the year ended 31 December 2016 in which they obtained satisfactory profit from operations and from the disposal of 2 of the investment properties. At 31 December 2016, it has 9 real estate properties under management. The outlook for future rental income put the Company on the course to obtain income that will have a positive impact on the income tatement. The Company s Board of Directors carries out its activity in accordance with the internal regulations included, mainly, in the Corporate Bylaws and the policies, practices, conduct and internal control manuals. The Board of Directors is a supervisory and control body for the company s activity with competence over matters such as approving the general policies and strategies of the Company, the corporate governance policy and the corporate social responsibility policy and the risk control management policy and, in all cases, over compliance with the requirements to maintain the Company s status as an REIT. Share performance: 1,28 1,27 1,26 1,25 1,24 1,23 FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DIC The attached graph shows the evolution of the share price since 1 January 2016 when it stood at 1.27 per share until 31 December 2016 when it closed at 1.24 per share. Preciados 9 Building in progress to be transformed into a flagship store for the Pull & Bear brand of the Inditex group, with whom a long-term lease has been signed. The property was sold in February ZAMBAL SPAIN Directors Report 2016

112 Directors Report for FINANCIAL AGGREGATES In 2016 the Company s net sales were 25,072,570 ( 19,577,797 in the period between 1 April and 31 December 2015) (including those included under discontinued operations), thanks to the consolidation of the contribution of the investment property acquired by the Company in previous years. Profit from operations amounted to 13,567,195 ( 9,057,841 in the period between 1 April and 31 December 2015) and profit for 2016 amounted to 27,488,799 ( 8,345,585 in the period between 1 April and 31 December 2015). 3. RESEARCH AND DEVELOPMENT Given the activity of the Company, it had no expenses related to research and development activities. 4. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE Between the balance sheet date and the date on which these financial statements were prepared, there were no events significantly affecting them that are not included in the financial statements. 5. ACQUISITION OF TREASURY SHARES On 7 July 2015, Zambal Spain Socimi, S.A. signed a liquidity contract with Santander Investment Bolsa, Sociedad de Valores, S.A.U. f to increase liquidity and promote the regularity of the Company s share price. The agreement entered into force on 1 December The shares of the Company held by it at 31 December 2016 represent 0.27% of the Company s share capital and amount to 1,269,021 shares. The average acquisition price has been 1.24 per share. The aforementioned shares are recognised as a reduction to the Company s shareholders equity at 31 December 2016 amounting to 1,573,646. The average number of shares in 2016 was 452,910,562 shares (373,935,779 shares in the period ended 31 December 2015) and the average number of treasury shares in 2016 was 1,497,271 shares. The Company has fulfilled the obligations arising from art. 509 of the Spanish Corporate Enterprises Act that establishes, in relation to shares listed on an official secondary market, that the nominal value of the shares acquired, in addition to those already held by the Parent and its subsidiaries, may not exceed 10% of the share capital. The subsidiaries do not hold treasury shares or shares of the Parent. Manoteras Leisure Centre Acquisition Date 2016 The property has a GLA of circa 13,000 sq m and hosts a large cinema operator, with 20 projection rooms and 4,000 seats; as well as 10 retail units leased to leading restaurant chains, providing the asset with a complete and varied leisure offer ZAMBAL SPAIN Directors Report 2016