INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP I. CONSOLIDATED FINANCIAL HIGHLIGHTS GENERAL INFORMATION...

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1 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP ENDED SEPTEMBER 30th 2015

2 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP TABLE OF CONTENTS I. CONSOLIDATED FINANCIAL HIGHLIGHTS GENERAL INFORMATION INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS Note1. INVESTMENT PROPERTY Note2. OTHER NON-CURRENT FINANCIAL ASSETS Note3. OTHER NON-CURRENT ASSETS Note4. INVENTORIES Note5. OTHER RECEIVABLES AND OTHER CURRENT ASSETS Note6. TRADE RECEIVABLES Note7. OTHER CURRENT FINANCIAL ASSETS Note8. CASH AND CASH EQUIVALENTS Note9. EQUITY Note10. BANK BORROWINGS AND OTHER FINANCIAL LIABILITIES Note11. LIABILITIES UNDER NOTES IN ISSUE Note12. OTHER LIABILITIES AND PROVISIONS Note13. TRADE PAYABLES Note14. RENTAL INCOME Note15. GAIN AND LOSS ON INVESTMENT PROPERTY REVALUATION Note16. GUARANTEES AND SURETIES Note17. SECURITY ESTABLISHED ON THE GROUP S ASSETS Note18. EARNINGS PER SHARE Note19. CAPITAL MANAGEMENT Note20. TAX SETTLEMENTS Note21. EVENTS SUBSEQUENT TO THE REPORTING DATE INTERIM CONDENSED FINANCIAL STATEMENTS OF CAPITAL PARK SPÓŁKA AKCYJNA

3 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP I. CONSOLIDATED FINANCIAL HIGHLIGHTS Sep Dec PLN 000 EUR 000 PLN 000 EUR 000 Total assets 1,967, ,125 1,858, ,093 Investment property 1,796, ,803 1,595, ,442 Cash and cash equivalents 55,645 13, ,586 39,787 Equity 938, , , ,874 Non-current liabilities 953, , , ,623 Current liabilities 74,985 17, ,771 39,596 9 months months 2014 PLN 000 EUR 000 PLN 000 EUR 000 Operating income 55,192 13,272 37,575 8,989 Revaluation of properties (32,862) (7,902) 12,697 3,037 Profit before tax (31,798) (7,647) 13,308 3,183 Net profit (34,559) (8,310) 10,433 2,496 Cash flows from operating activities 9,002 2,165 13,076 3,128 Cash flows from investing activities (247,665) (59,556) (238,208) (56,983) Cash flows from financing activities 124,722 29, ,729 64,524 3

4 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP 1. GENERAL INFORMATION 1.1. PARENT Name: Legal form: Registered office: Country of incorporation: Principal business activities: Capital Park S.A. Joint-stock company (spółka akcyjna) ul. Klimczaka 1, Warsaw, Poland Poland holding management activities development of building projects buying and selling of own real estate renting and operating of own real estate Registry court: District Court for the Capital City of Warsaw in Warsaw, 13th Commercial Division of the National Court Register National Court Register (KRS) number: Industry Identification Number (REGON) DURATION OF THE GROUP The Parent (Capital Park S.A.) and the other Group entities were incorporated for an indefinite period PRESENTED PERIODS COMPARATIVE DATA These interim condensed consolidated financial statements contains data for the third quarter of 2015 and nine months endeed September 30th The comparative data in the consolidated financial statements is presented: in the interim condensed consolidated and standalone statement of profit or loss and other comprehensive income and consolidated as well as standalone statement of cash flows for the period January 1st September 30th 2014, in the interim condensed consolidated and standalone statement of financial position as at September 30th 2014 and December 31st 2014, in the interim condensed consolidated and standalone statement of changes in equity for the periods January 1st September 30th 2014 and July 1st December 31st 2014, and has been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (IFRS). 4

5 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP 1.4. MEASUREMENT OF ITEMS DENOMINATED IN FOREIGN CURRENCIES The following exchange rates are used in these financial statements: EUR/PLN Exchange rate effective for the end of the reporting period Jan Sep Jan Dec Jan Sep Average exchange rate in the reporting period LAWYERS Ishikawa Brocławik Sajna Sp.p. Adwokaci i Radcowie Prawni Al. Słowackiego 66, Kraków, Poland 1.6. BANKS AND FINANCIAL INSTITUTIONS Bank Polska Kasa Opieki S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Alior Bank S.A., Bank BGŻ BNP Paribas S.A.. Pekao Bank Hipoteczny S.A., Getin Noble Bank S.A., mleasing Sp. z o. o., mbank S.A., Raiffeisen-Leasing Polska S.A., Raiffeisen Bank Polska S.A., Bank Zachodni WBK S.A., BOŚ Bank S.A, The Royal Bank of Scotland PLC, Hypo Noe Gruppe Bank AG CAPITAL PARK S.A. S SHAREHOLDING STRUCTURE As at September 30th 2015, shareholders holding 5% or more of total voting rights at the General Meeting of the Parent were as follows: Number of % ownership Number of % of total Shareholder shares interest voting rights voting rights CP Holdings S. à r. l. 76,959, % 76,959, % Jan Motz 2,805, % 5,571, % MetLife OFE S.A. 5,563, % 5,563, % Other 20,019, % 20,019,090 18,52% Total 105,348, % 108,113, % As at the date of these interim condensed financial statements, shareholders holding 5% or more of total voting rights at the General Meeting of the Parent were as follows: Number of % ownership Number of % of total Shareholder shares interest voting rights voting rights CP Holdings S. à r. l. 76,869, % 76,869, % Jan Motz 2,805, % 5,571, % MetLife OFE S.A. 5,563, % 5,563, % Other 20,109, % 20,109,090 18,60% Total 105,348, % 108,113, % 5

6 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP 1.8. STRUCTURE OF THE GROUP Companies directly and indirectly related to the Parent, consolidated as at September 30th 2015: Ownership interest and voting No. Name Registered office Principal business activity rights held (%) 1 Alferno Investments Sp. z o.o. Warsaw Development of building projects 100% 2 ArtN Sp. z o.o. 1 Warsaw Development of building projects 100% 3 Aspire Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 4 Capital Park Gdańsk Sp. z o.o. Warsaw Construction of buildings and property management 100% 5 Capital Park Kraków Sp. z o.o. Warsaw Development of building projects and property management 100% 6 Capital Park Racławicka Sp. z o.o. Warsaw Construction of buildings and property management 100% 7 Capital Park Opole Sp. z o.o. 2 Warsaw Construction of buildings and property management 100% 8 CP Development S. à r. l. Luxembourg Activities of holding companies 100% 9 CP Invest S.A. Warsaw Activities of holding companies 100% 10 CP Management Sp. z o.o. Warsaw Construction of buildings and property management; 100% management of Group s projects 11 CP Property Sp. z o.o. 10 Warsaw Activities of holding companies 15% 12 CP Property Sp. z o.o. SPV1 SK 3 Warsaw Retail property management 15% 13 CP Property Sp. z o.o. SPV2 SK 3 Warsaw Retail property management 15% 14 CP Property Sp. z o.o. SPV3 SK 3 Warsaw Retail property management 15% 15 CP Property Sp. z o.o. SPV4 SK 3 Warsaw Retail property management 15% 16 CP Property Sp. z o.o. SPV5 SK 3 Warsaw Retail property management 15% 17 CP Property Sp. z o.o. SPV6 SK 3 Warsaw Retail property management 15% 18 CP Property S. à r.l. Luxembourg Activities of holding companies 15% 19 CP Property S.C. SP Luxembourg Activities of holding companies 15% 20 CP Retail BV The Netherlands Activities of holding companies 100% 21 CP Retail ( SPV1 ) Sp. z o.o. 12 Warsaw Construction of buildings and property management 100% 22 CP Retail (SPV2) Sp. z o.o. Warsaw Construction of buildings and property management 100% 23 Dakota Investments Sp. z o.o. 12 Warsaw Construction of buildings and property management 100% 24 Diamante Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 25 DT-SPV 12 Sp. z o.o. 4 Warsaw Construction of buildings and property management 100% 26 Elena Investments Sp. z o.o. 2 Warsaw Construction of buildings and property management 100% 27 Emir 30 Sp. z o.o. Warsaw Construction of buildings and property management 100% 28 Fundacja Otwartego Muzeum 5 Dawnej Fabryki Norblina Warsaw Foundation 100% 29 Hazel Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 30 Marcel Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 31 Marlene Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 6

7 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP Warsaw Private equity investment fund 15% Ownership interest and voting No. Name Registered office Principal business activity rights held (%) 32 Nerida Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 33 Orland Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 34 Patron Wilanow S. à r. l. 6 Luxembourg Activities of holding companies 64% Real Estate Income Assets Fundusz 35 Inwestycyjny Zamknięty Aktywów Niepublicznych 7 36 Sagitta Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 37 Sander Investments Sp. z o.o. Warsaw Development of building projects 100% 38 Sapia Investments Sp. z o.o. Warsaw Development of building projects 100% 39 Sapia Investments Sp. z o.o. Sp.Kom. 8 Warsaw Development of building projects 67% 40 Silverado Investments Sp. z o.o. 11 Warsaw Construction of buildings and property management 100% 41 Rezydencje Pałacowa Sp. z o.o. 9 Warsaw Development of building projects 64% 42 RM1 Sp. z o.o. 9 Warsaw Construction of buildings and property management 64% 43 Vera Investments Bis Sp. z o.o. 2 Warsaw Construction of buildings and property management 100% 44 Zoe Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 45 Sporty Department Store Sp. z o.o. ⁵ Warsaw Retail sale 100% 46 Oberhausen Sp. z o. o. 13 Warsaw Construction of buildings and property management 53% Notes: Subsidiary of CP Development S. à r. l. Subsidiaries of CP Management Sp. Ltd. Subsidiaries of Real Estate Income Assets Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych and CP Property Sp. z o.o. (general partner, holds 1% of shares in each company, and 0.1% share in the companies profits). The Company holds indirectly 15% of the share capital in these companies; however, it has full power to control the entities under relevant management contracts. Subsidiary of Vera Investments Bis Sp. z o.o. and CP Management Sp. z o.o. Subsidiary of ArtN Sp. z o.o. The Company holds 50% of the share capital and voting rights in Patron Wilanow S. à r. l., and the right to a 64% share in its profits. Subsidiary of CP Retail B. V. The Company holds 15% of certificates, however, it has full power to control the entities under relevant management contracts. Subsidiary of Sapia Investments Sp. Ltd. A 33% interest in the company is held by a third party. Subsidiaries of Patron Wilanow S. à r.l. The Company indirectly holds 50% of the share capital and voting rights in Rezydencje Pałacowa Sp. z o.o. and RM1 Sp. z o.o., as well as the right to a 64% share in their profits. Subsidiaries of Real Estate Income Assets Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych. The Group indirectly holds 15% of shares in the company s share capital. Subsidiary of DT-SVPV 12 Sp. z o. o. Subsidiaries of CP Retail B.V. Entity jointly controlled by CP Retail B.V., which holds a 53% interest under a JV agreement; the remaining 47% are held by Galaxy Real Estate Sp. z o.o., an Akron Group company. Basis of full consolidation of the assets, liabilities, profit or loss of the REIA FIZ AN Group entities, i.e. subsidiaries of CP Retail B.V., that is: CP Property Sp. z o.o.; CP Property Sp. z o.o. SPV 1 SK, CP Property Sp. z o.o. SPV 2 SK, CP Property Sp. z o.o. SPV 3 SK, CP Property Sp. z o.o. SPV 4 SK, CP Property Sp. z o.o. SPV 5 SK, CP Property Sp. z o.o. SPV 6 SK, CP Property S. C. SP, CP Property S. à r. l. and Real Estate Income Assets Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych ("FIZ AN"; closed end private equity investment fund). 7

8 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP On May 13th 2013, Capital Park S.A. and Open Finance Towarzystwo Funduszy inwestycyjnych S.A. ("TFI") executed an agreement to establish an investment fund whose principal business activity would be property management to pay dividends to investors in REIA FIZAN investment certificates. Under the agreement and pursuant to Art of the Act on Investment Funds, the management of REIA FIZAN investment portfolio was transferred to CP Management Sp. z o.o., a subsidiary of CP S.A. with qualified asset-management resources. On May 16th 2013, CP Management, a subsidiary of Capital Park S.A., executed an agreement with TFI for the management of REIA FIZAN. Under the agreement CP Management Sp. z o.o. has full discretion to make decisions regarding REIA FIZAN s investment policy; in particular, it may make investment decisions concerning REIA FIZAN assets, place bids and negotiate terms of transactions to buy or sell assets. Also, pursuant to the above agreement, CP Management Sp. z o. o. s fees depends on the net asset value of the portfolio of assets under its management. CP Management Sp. z o.o. also renders property management services to the Special Purpose Vehicles in which REIA FIZAN invests, i.e.: CP Property Sp. z o.o. SPV 1 SK, CP Property Sp. z o.o. SPV 2 SK, CP Property Sp. z o.o. SPV 3 SK, CP Property Sp. z o.o. SPV 4 SK, CP Property Sp. z o.o. SPV 5 SK; CP Property Sp. z o.o. SPV 6 SK. In particular, CP Management Sp. z o.o. s services consist in property administration, negotiating terms of rental contracts with tenants, searching for additional sources of revenue, preparing investment budgets, settlements of service costs with tenants, and maintaining relations with external institutions. The terms of the agreements described above expose CP Management Sp. z o.o. to risks and benefits related to changes in REIA FIZAN s net asset value, and to SPVs results on property rentals. In accordance with IFRS 27, effective for financial statements for annual periods beginning on or after January 1st 2013, and with IFRS 10, applicable to the Company as of January 1st 2014, an investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Given the provisions of the management agreements and the IFRS principles regarding control, the Capital Park Group assumes that it controls operations of these entities and is exposed to their profit or loss. The management agreements have been entered into for a period of three years, i.e. they will expire in 2016 if terminated by the Service Buyer. Otherwise, they will be automatically extended by further five years. The Group intends to continue its involvement in the REIA FIZ AN project in the coming years. Consequently, the Group consolidates profit or loss, assets and liabilities of the above mentioned entities with the full method, and discloses non-controlling interests corresponding to this part of the assets, liabilities, profit or loss which is attributable to the investment certificates sold to investors outside the Group. Method used to account for interests in jointly-controlled entities, i.e. Patron Wilanów S. à r. l., Rezydencje Pałacowa Sp. z o. o., RM 1 Sp. z o. o., and Oberhausen Sp. z o.o. (equity-accounted investees) In accordance with Appendix C to IFRS 11 Joint Arrangements, the Group discloses its equity interests in jointlycontrolled entities at cost net of the aggregate results generated by these entities from the acquisition date to the reporting date which are attributable to non-controlling interests (equity method). All Group s receivables from and liabilities towards these entities are classified as transactions with non-related entities. 8

9 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP Changes in the Group s structure during the reporting period, i.e. January 1st September 30th 2015 On March 20th 2015, Sporty Department Store Sp. z o.o. was established, with the following shareholders: ArtN Sp. z o. o., a subsidiary of CP S.A., holding 90% of the shares, and Ms Kinga Nowakowska, holding 10% of the shares. The company is to conduct retail sale of sports equipment in specialized stores. On April 1st 2015, CP Retail B.V. of the Netherlands, a subsidiary of Capital Park S.A., acquired a 53% interest, with a nominal value of PLN 5 thousand, in the share capital of Oberhausen Sp. z o.o. of Warsaw. The remaining 47% interest in the company is held by Galaxy Real Estate Sp. z o.o., an Akron Group company. The agreement provides for the acquisition, alteration and management of a shopping centre in Gdańsk. On July 13th 2015, the share capital of Oberhausen Sp. z o.o. was increased from PLN 10 thousand to PLN 15 thousand through the issue of 100 new shares, which were subscribed for by existing shareholders in proportion to their interests in the joint venture. CP Retail B.V., a subsidiary of Capital Park S.A., acquired 53 shares for a price of PLN 2,372 thousand, paid in cash. The share premium, i.e. PLN 2,369 thousand, was allocated to the company s statutory reserve funds REPRESENTATIONS OF THE MANAGEMENT BOARD The Parent s Management Board hereby represents that, to the best of its knowledge, these consolidated financial statements and the comparative data have been prepared in compliance with the applicable accounting policies applied by the Group, and give a true, fair and clear view of the Group s assets, financial standing and financial performance. These financial statements have been prepared on the assumption that the Capital Park Group will continue as a going concern in the foreseeable future. At the date of signing these financial statements, the Parent s Management Board was aware of no facts or circumstances that would indicate a threat to the Group s continuing as a going concern in the 12 months after the reporting date, as a result of any planned or forced discontinuation or material downsizing of its existing operations. These interim condensed consolidated financial statements for the third quarter of 2015 have been prepared in accordance with IAS 34 Interim Financial Reporting and the Regulation of the Minister of Finance on current and periodic information to be published by issuers of securities and conditions for recognition as equivalent of information whose disclosure is required under the laws of a non-member state, dated February 19th 2009 (Dz.U. No. 33, item 259, as amended). 9

10 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP APPROVAL OF FINANCIAL STATEMENTS These interim condensed consolidated financial statements were approved for issue and signed by the Parent s Management Board on November 13th Warsaw, November 13th 2015 SIGNATURE OF THE PERSON WHO PREPARED THE FINANCIAL STATEMENTS: Małgorzata Koc Chief Accountant SIGNATURES OF MANAGEMENT BOARD MEMBERS: Jan Motz President of the Management Board Michał Koślacz Member of the Management Board Marcin Juszczyk Member of the Management Board Jerzy Kowalski Member of the Management Board 10

11 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP 2. INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Note Sep Dec Sep Non-current assets Investment property 1 1,796,333 1,595,986 1,586,192 Deferred tax assets 20,227 20,265 13,411 Other financial assets 2 23,990 19,922 32,771 Other non-current assets 3 1, ,312 Current assets 1,842,122 1,636,829 1,635,686 Inventory 4 18,803 24,452 31,719 Other receivables and other current assets 5 26,136 16,149 21,495 Trade receivables 6 7,141 5,933 3,811 Other financial assets 7 17,396 5,809 5,752 Cash and cash equivalents 8 55, , , , , ,388 TOTAL ASSETS 1,967,243 1,858,758 1,811,074 EQUITY AND LIABILITIES Note Sep Dec Sep Equity Share capital 9 105, , ,744 Statutory reserve funds 858, , ,320 Other capital reserves 9 14,527 12,568 14,728 Exchange differences on translating foreign operations (4,477) 397 (2,271) Retained earnings/(deficit) (61,014) Net profit/(loss) for the current period (38,233) (61,468) 7,496 Non-controlling interests 9 63,985 64,776 71, , ,791 1,055,214 Non-current liabilities Bank borrowings and other financial liabilities , , ,953 Liabilities under notes in issue , , ,561 Other liabilities and provisions 12 6,629 3,665 3,935 Deferred tax liabilities 18 15,502 13,309 16, , , ,847 Current liabilities Bank borrowings and other financial liabilities 10 35,051 44,739 38,645 Liabilities under notes in issue 11 1,038 67,398 2,222 Trade payables 13 14,325 14,569 20,372 Other liabilities and provisions 12 24,572 42,065 17,774 74, ,771 79,013 TOTAL EQUITY AND LIABILITIES 1,967,243 1,858,758 1,811,074 11

12 INTERIM CONDENSED CONSOLIDATED QUARTERLY REPORT OF THE CAPITAL PARK GROUP 3. INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Note 3rd quarter months rd quarter months 2014 Rental income 14 19,506 54,502 14,117 35,789 Property operating expenses (4,976) (14,761) (4,200) (10,004) Net operating profit 14,530 39,741 9,917 25,785 Income from property management Loss (gain) on disposal of investment property (918) (918) (56) (611) Other revenue ,702 Cost of operation of SPVs (1,188) (4,285) (2,362) (5,471) General and administrative expenses (1,958) (5,215) (1,271) (3,458) Renovation and repair of property (129) (451) (455) (525) Cost of share-option plan measurement (615) (2,084) (1,734) (5,202) Loss on investment property revaluation 15 15,250 (32,862) (152) 12,697 Share in net profit/loss of equity-accounted entities 851 2,907 (445) (1,451) Operating profit 26,296 (1,559) 4,630 24,161 Interest income 657 2,046 1,372 3,607 Interest expense (7,287) (24,904) (4,634) (11,101) Loss on measurement of financial liabilities (16,543) (7,380) (1,495) (3,359) Profit (loss) before tax 3,123 (31,797) (127) 13,308 Income tax 1,351 (2,762) (200) (2,875) Net profit (loss) 4,474 (34,559) (327) 10,433 Exchange differences on translating foreign operations 635 (4,874) (2,651) (331) Total comprehensive income (39,433) (2,978) 10,102 Net profit attributable to owners of the parent (38,233) 7,496 Net loss attributable to non-controlling interests 3,674 2,937 Net earnings/(loss) per share (PLN) Basic (0.36) 0.07 Diluted (0.36) 0.07 The entire profit was generated from continuing operations. 12

13 4. INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Statutory reserve funds Capital reserves from issue of shares pending registration Other capital reserves Exchange differences on translating foreign operations Retained earnings/(deficit) Net profit/(loss) for the current period Non-controlling interests Total equity Equity as at Jan , , , (61,468) 64, ,791 Issue of shares Share-based payments , ,959 Profit distribution (61,468) 61, Dividend payment (4,465) (4,465) Total comprehensive income (4,874) 0 (38,233) 3,674 (39,433) Equity at Sep , , ,527 (4,477) (61,014) (38,233) 63, ,456 Equity as at Jan , , ,185 9,526 (1,940) (25,097) 25,551 68,807 1,038,400 Issue of shares 30, ,511 (217,185) ,511 Share-based payments , ,202 Profit distribution ,551 (25,551) 0 0 Total comprehensive income (331) 0 7,496 2,937 10,101 Equity at Sep , , ,728 (2,271) 454 7,496 71,743 1,055,214 Equity as at Oct , , ,728 (2,271) 454 7,496 71,743 1,055,214 Share-based payments (2,160) (2,160) Dividend payment (4,113) (4,113) Total comprehensive income ,668 0 (68,964) (2,855) (69,152) Equity as at Dec , , , (61,468) 64, ,791 13

14 5. INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES 9 months months 2014 Profit/(loss) before tax (31,797) 13,308 Foreign exchange losses (702) (545) Interest and profit distributions 21,419 (5,666) Loss (profit) from investing activities 22,761 12,444 Change in receivables (11,408) (13,166) Change in liabilities, net of borrowings 9,132 11,090 Valuation of employee share plan 1,959 5,202 Change in other assets (4,112) (10,379) Change in provisions 4,786 (3,670) Impairment losses 5,526 8,518 Amortisation and depreciation Other adjustments Total adjustments 49,728 4,136 Cash from operating activities 17,931 17,444 Income tax refunded/(paid) (336) (323) Change in VAT from investing activities (8,593) (4,045) A. Net cash from operating activities 9,002 13,076 INVESTING ACTIVITIES Interest on deposits 747 2,501 Proceeds from disposal of investment property and inventories 2,856 2,595 Other cash provided by investing activities Purchase of investment property (242,398) (241,713) Purchase of shares (2,379) (65) Loans advanced (5,492) (1,489) Purchase of intangible assets and property, plant and equipment (999) (233) B. Net cash from investing activities (247,665) (238,208) FINANCING ACTIVITIES Proceeds from issue of shares 0 131,795 Proceeds from issue of notes 46,115 55,000 Proceeds from borrowings 196, ,655 Dividends and other distributions to owners (4,465) (4,113) Interest (28,302) (12,142) Redemption of notes (65,000) (35,000) Repayment of borrowings, lease payments (20,603) (17,466) C. Net cash from financing activities 124, ,729 D. Total net cash flows (113,941) 44,597 E. Net (decrease)/increase in cash and cash equivalents: (113,941) 44,597 F. Cash and cash equivalents at beginning of period 169,586 68,014 G. Cash and cash equivalents at end of period 55, ,611 14

15 6. SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS 6.1 STATEMENT OF COMPLIANCE These interim condensed consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as endorsed by the European Union and in effect on September 30th In accordance with IAS 1 Presentation of Financial Statements, the IFRS comprise the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). 6.2 BASIS OF PREPARATION The data contained in these interim condensed consolidated financial statements is presented in thousands of PLN (the Group s functional currency and presentation currency), rounded to the nearest thousand. These interim condensed consolidated financial statements were reviewed by an independent auditor. The auditor s report is attached to these consolidated financial statements. 6.3 BASIS OF CONSOLIDATION Subsidiaries Subsidiaries are all entities over which the Group has control and power to govern their financial and operating policies. Such power is usually derived from the holding of the majority of voting rights in the entity s governing bodies. While assessing whether the Group controls a given entity in accordance with IFRS 10, it takes into consideration the existence and effect of potential voting rights which may be exercised or converted at a given time as well as whether it is exposed to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In order to determine the status of each entity whose financial data may be subject to consolidation, the Group analyses whether it has retained control over the entity in line with the criteria described above as at the end of each reporting period, i.e. as at the end of each calendar quarter. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, unless the control is temporary. The Group applies the acquisition method to account for business combinations. The consideration transferred in a business combination is measured at fair value, calculated as the sum of the acquisition-date net fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer, in accordance with IFRS 3. Any excess of the acquisition cost over the fair value of the Group s interest in the identifiable net assets acquired is recognised as goodwill. If the acquisition cost is lower than the fair value of the net assets of the acquiree, the difference is recognised directly in profit or loss. The Group ceases to consolidate an entity from the moment it loses control of the entity. The Parent s control over a subsidiary ceases when it loses the power to govern the financial and operating policies of the subsidiary. Control may be lost with or without a concurrent change in the absolute or relative interest in the entity. 15

16 Jointly-controlled entities Jointly-controlled entities, i.e. entities with respect to which the Group does not have the full power to control their financial and operating policies despite having a majority share in their profit or loss, are accounted for in these consolidated financial statements using the equity method, in accordance with IFRS 11. Shares and investment certificates held by non-controlling interests and transactions with non-controlling interests Shares and investment certificates held by non-controlling interests include shares and investment certificates in consolidated companies held by non-group entities. Non-controlling interests are measured at the acquisition-date net assets of the related entity attributable to non-group entities. Identified non-controlling holdings of shares and investment certificates in net assets of consolidated subsidiaries are recognised in the Group s statement of financial position under equity separately from the Parent s ownership interest in such net assets. Non-controlling holdings of shares and investment certificates in net assets of a consolidated entity are determined for each reporting date; these include: the value of shares and investment certificates held by non-controlling interests at the original combination date, calculated in accordance with IFRS 3, changes in equity attributable to shares and investment certificates held by non-controlling interests from the combination date to the reporting date. Profit and loss and each component of other comprehensive income are attributed to owners of the Parent and noncontrolling interests. Total comprehensive income is attributed to owners of the Parent and non-controlling interests, even if as a result the value of the non-controlling interests becomes negative. Consolidated companies These interim condensed consolidated financial statements for the third quarter ended September 30th 2015 cover the entities listed in Section 1.8 of these financial statements. Methods of accounting Subsidiaries with respect to which the Group has the full power to control their financial and operating policies are consolidated with the full method. In the case of subsidiaries of REIA FIZ AN (listed in Section 1.8 above), in which the Group holds a 15% equity interest, equity holdings of non-controlling interests were determined. The shares held by the Group in Sapia Investments Spółka z ograniczoną odpowiedzialnością Spółka Komandytowa, representing less than a 100% interest in its share capital, are classified in consolidated equity as non-controlling interests. The interests held in entities jointly controlled by the Company, that is: Patron Wilanów S.à r.l., Rezydencje Pałacowa Sp. z o.o., RM 1 Sp. z o.o., and Oberhausen Sp. z o.o., are accounted for using the equity method, which means that the Group includes only net profit/(loss) of those entities in its consolidated data (in proportion to the Group s share in net profit/(loss) of those companies). The basis of consolidation of the financial data of subsidiaries is presented in detail in Section 1.8 of these interim condensed financial statements. 16

17 6.4 SIGNIFICANT ACCOUNTING POLICIES Investment property Investment property includes land and buildings, or parts of land or buildings, owned, held in perpetual usufruct or leased by a Group company, which are used to generate economic benefits from their fair value growth or rental income (or both). Investment property measured at fair value also includes investment property under construction, i.e. before it is placed into service, as well as projects that the Group is planning to implement in the coming years, as the Management Board does not rule out the possibility of selling a property at any stage of project execution. Properties which are held partially for capital appreciation or to earn rentals and partially used the Group s own needs as owner-occupied property are accounted for in line with the policies applicable to the prevailing portion (no less than 90% of the area) of the property, with due regard for the materiality principle. A property is classified as investment property upon initial recognition. An item may be reclassified from investment property into another asset category based on the Management Board s decision to change the intended purpose or function of a given asset. Investment property is recognised as an asset if it is probable that the future economic benefits associated with the investment property will flow to the entity and the cost of the investment property can be measured reliably. Investment property is initially measured at cost, including transaction costs, i.e. costs directly related to the purchase transaction (legal fees, commission of purchase of property, taxes and charges relating to the purchase of property). The initial cost of an interest in property held under a lease is determined as prescribed for a finance lease by IAS 17, i.e. at the lower of the fair value and the present value of minimum lease payments. The value of investment properties which are self-constructed buildings is established in accordance with IAS 16. The cost of self-constructed property is its cost determined at the date on which construction works are completed and the property is made ready for use. The cost of investment property includes the following costs incurred until a given property is placed in service: direct construction costs, designing costs, and all other costs incurred in order to carry out the construction process as intended by the entity s Management Board, indirect costs of advisory services strictly related to supporting and managing the construction process, and costs of intermediation in transactions made as part of project implementation, taxes and other public charges (including primarily perpetual usufruct charges and real property taxes paid throughout the construction process), finance costs incurred in relation to external financing (in accordance with IAS 16), including in particular interest on credit facilities, loans, notes and bonds, to the extent they finance expenditure on the construction of investment property, foreign exchange differences on foreign-currency denominated liabilities related to financing of investment expenditure (apart from exchange differences on borrowings), and fees related to raising financing for the investment project, any costs incurred in connection with any present or future revenue that the entity expects to generate (costs of finding tenants, costs of adapting premises to the tenants requirements that can be allocated to specific lease agreements entered into for a definite term). Subsequent to initial recognition, at least for each reporting date, investment property is measured at fair value, reflecting market conditions prevailing at the reporting date. Fair value is defined as the amount at which a property 17

18 could be exchanged in an arm s length transaction between informed and willing parties. Fair value reflects, in particular, rental income from existing rental contracts, reasonable and justified expectations of rental income from future contracts as viewed by the market, as well as reliably estimated cash inflows from investment property. Gains or losses arising from changes in the fair value of investment property are recognised in the statement of comprehensive income in the period in which they arise. Properties for which sale agreements have been concluded are measured at the selling price specified in such agreements. In all other cases, the Management Board adopts a conservative approach and determines the fair value based on the lower of the available valuation estimates, such as: estimate surveys prepared by independent expert appraisers, managerial valuations and in-house appraisals of properties. The fair value of properties is determined by independent property appraisers using valuation methods that are most appropriate to a given property. These are: 1. Income approach, investment method, discounted cash flow (DCF) model it is applied to investment property that generates variable rental income and consists in aggregating discounted cash flows for an adopted forecast period and residual value of the property, 2. Income approach, investment method, direct capitalisation model it is applied to investment property that generates fixed rental income; the value of investment property is calculated as the product of annual income that can be generated by the property and the capitalisation rate, 3. Comparison approach (pairwise comparison or average price adjustment) this approach is used to value investment property for which data on comparable property sale transactions on a given market is available as well as land and residential property. 4. Mixed approach, residual method this approach is generally used to determine the value of investment property under construction, which is calculated as the property s target value (estimated based on the income approach or comparison approach) less any capital expenditure to be incurred as at the valuation date. Estimate surveys prepared by independent expert appraisers and managerial valuations are updated at least at the end of each financial year. If at the end of any specific interim reporting period the valuations referred to above are not updated, the value of investment property increases by the amount of investment expenditure made on the property since its last valuation date, and also changes depending on the movement in the price of the euro, in which investment property is measured. The effects of fair value measurement of investment property are taken to profit or loss in the year when such measurement was made, and are presented by the Group in the operating part of its statement of profit or loss and other comprehensive income. Investment property is derecognised upon its sale or when it is permanently withdrawn from use, if no future economic benefits are expected from its sale. All gains or losses arising from sale or discontinuation of use of investment property, that is the difference between net proceeds from sale and the carrying amount of the asset, are recognised in profit or loss for the current period. Investment property and all related revenue and costs are classified into one of the Group s business segments, including Office Projects, Mixed-Use Projects, Retail Projects and the Value Added Segment. 18

19 Inventory Under inventory, the Group discloses only residential property development projects. Inventory is recognised at the lower of cost and net realisable value. Cost comprises: perpetual usufruct right or ownership title to land, construction costs related to work performed on construction sites by subcontractors, capitalised costs comprising planning and design costs, as well as other construction costs. Borrowing costs include mainly interest paid, fees and commissions, as well as foreign exchange differences on repayment of borrowings contracted to finance property development projects. The Group capitalises only those borrowings that are related to active property development or construction work stages of the investment process, in the periods covered by such work. If property development or construction work is suspended or discontinued, the borrowing costs related to the suspension period are recognised in profit or loss for the current period. Cost does not include: cost of material lost and value of work lost, cost of maintenance and holding a property after an occupancy permit has been obtained, administrative and management costs other than those relating to adaptation of inventory items, and distribution costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale. Changes in inventory are accounted for using the specific identification method. The cost of producing an inventory item is determined on its placement in service by dividing total production cost by the individual inventory items, taking into account the floor areas of apartments/houses in the same location. In the case of show apartments/houses, their value is additionally increased by expenditure incurred on finishing the apartment/house. Subsequent to initial recognition, at least for each reporting date, if the carrying amount of inventory is higher than its net realisable value, inventory is written down to net realisable value. Reasons for such write downs may include a decrease in market prices of apartments or houses, or damage to flats or houses. The Company examines whether a decrease in market prices occurred by obtaining information on comparable transactions executed on the market and by analysing estimate surveys prepared by independent expert appraisers, which usually rely on comparative methods to determine the market value (with the market value substantially corresponding to net realisable value). Write-downs may be reversed, in whole or in part, if it is found that the reasons due to which they were recognised have ceased to exist. Shares in subsidiaries and jointly controlled entities Investments in subsidiaries and jointly controlled entities are accounted for at cost in accordance with IAS 27. The Company tests the investments for impairment in accordance with IAS 36 at the end of each reporting period or more frequently. Impairment indications that require an impairment test to be performed for a given investment in a subsidiary or a jointly controlled entity include: - a material difference between the value of the investee recognised in the accounting records by the Company as the parent and the value of the subsidiary s or jointly controlled entity s net assets which is attributable to the Company as the parent; 19

20 - significantly lower profit or incurred loss, in particular if the loss is significantly higher than assumed in the budget, or cash flows significantly worse than assumed in the budget. In order to measure investments in subsidiaries and jointly controlled entities the Company determines the amount of future cash flows to be generated by a subsidiary or jointly controlled entity (ability to pay out dividend). The amount of future cash flows also includes proceeds from sale of shares in a given subsidiary or jointly controlled entity, if such transaction is planned in the assumed time horizon. Cash flows from financing activities and taxes are not included in future cash flows, as they are reflected in the discount rate. Estimation of an investee s ability to pay out dividend should be based on reliable and realistic assumptions as to the future performance of the investee, taking into account predictable market conditions in the foreseeable future, and the result should be discounted to the present value of future cash flows. Subsequently, the part of future cash flows to be generated by a subsidiary which is attributable to the Company as the parent is compared with the investee s value in the accounting records. In specific cases, where future cash flows to be generated by subsidiaries and jointly controlled entities are negative, in addition to the impairment loss equal to the investee s carrying amount the Company recognises a liability in the amount corresponding to the share in the investee s profit or loss that exceeds the value of its net assets. Impairment losses are recognised immediately in the statement of profit or loss under finance costs. If following an impairment test for an investment in a subsidiary and jointly controlled entity it occurs that the impairment indication no longer exists, the relevant impairment loss is reversed and the resulting gains are recognised under other finance income. Intangible assets Intangible assets are identifiable non-monetary assets without physical substance, including: economic copyrights, neighbouring rights, licences (including software licences), other permits and licences, rights to inventions, patents, trademarks, utility models and design patterns, know-how, goodwill, prepayments for intangible assets. An intangible asset may be purchased or self-created but it is recognised if and only if: 1. it is probable that future economic benefits that are attributable to the asset will flow to the Company; and 2. the cost of the asset can be measured reliably. Initially, intangible assets are measured at cost. At the end of the reporting period, intangible assets are measured at initial value less accumulated amortisation and impairment losses, if any; the initial value is: for goodwill the initial value determined in accordance with IFRS 3; for other intangible assets their cost. 20

21 On recognition of an intangible asset the Company assesses whether its useful life is finite or indefinite and, if finite, it determines the amortisation method and rate. Planned amortisation charges for intangible assets are recognised as amortisation expense and are made according to the following rules: amortisation charges are calculated using the straight-line method on a monthly basis; amortisation charges are made starting from the month following the month in which the asset is available for use, until the end of the month in which the total amortisation charges are equal to the asset s initial value, or in which the intangible asset is no longer used or is classified as held for sale in accordance with IFRS 5; amortisation charges for intangible assets are determined based on expected useful lives of the assets, intangible assets with initial unit value of less than PLN 2 thousand may be amortised on a one-off basis at the rate of 100% at the time they are placed in service. The Company applies the following useful lives for intangible assets: software licences 2 years, other intangible assets 5 years. The period and method of amortisation are reviewed in the last quarter of each financial year. Any changes are recognised under intangible assets prospectively, i.e. with effect from the first day of the next financial year. At the end of each reporting period, the Company tests intangible assets for impairment in accordance with IAS 36. If there is an indication of impairment, the Company determines the amount of impairment loss on the asset. Impairment losses are recognised immediately in the statement of profit or loss under other expenses. Goodwill and intangible assets with indefinite useful lives are not amortised. They are tested for impairment at the end of each financial year and each time when there is an indication of impairment. On disposal of an intangible asset, its initial value and accumulated amortisation are derecognised, and the amount from disposal is recognised in the statement of profit or loss under other income or other expenses. Gain or loss on disposal of an intangible asset is presented as net gain or loss. Property, plant and equipment Property, plant and equipment comprise non-current assets that are held for use in the supply of goods or services or for administrative purposes, and are expected to be used for more than one year. Property, plant and equipment include in particular: plant, equipment and other items, leasehold improvements, property, plant and equipment under construction, prepayments for property, plant and equipment under construction. Property, plant and equipment are initially recognised at cost. At the end of each reporting period, items of property, plant and equipment are carried at cost less accumulated depreciation and impairment. 21

22 Planned depreciation charges for items of property, plant and equipment are recognised as depreciation expense and are made according to the following rules: depreciation charges are calculated using the straight-line method on a monthly basis; depreciation charges are made starting from the month in which the asset is available for use, until the end of the month in which the total depreciation charges are equal to the asset s initial value, or in which the asset is no longer used or is classified as held for sale in accordance with IFRS 5; items of property, plant and equipment with initial unit values of less than PLN 2 thousand may be depreciated on a one-off basis at the rate of 100% at the time they are placed in service. The Company uses the following useful lives for property, plant and equipment: 1. leasehold improvements the useful life is determined based on the lease agreement for given premises, 2. computer hardware three years, 3. other items of property, plant and equipment based on their assumed useful lives. The period and method of depreciation are reviewed in the last quarter of each financial year. Any changes are recognised under property, plant and equipment prospectively, i.e. with effect from the first day of the next financial year. At the end of each reporting period, the Company tests items of property, plant and equipment for impairment in accordance with IAS 36. If there is an indication of impairment, the Company determines the amount of impairment loss on the asset. Impairment losses are recognised immediately in the statement of profit or loss under other expenses. On disposal of an item of property, plant and equipment, its initial value and accumulated depreciation are derecognised, and the amount from disposal is recognised in the statement of profit or loss under other income or other expenses. Gain or loss on disposal of property, plant and equipment is presented as net gain or loss. At least once every four years all items of property, plant and equipment are subject to a physical count. The count results are compared against property plant and equipment disclosed in the accounting records, and any differences are charged to other income or expenses in the period in which the count is performed. Leases Lease agreements which transfer substantially all the risks and rewards incidental to ownership of an asset to the Company are classified as finance leases. In particular, the Company classifies as a finance lease all agreements under which: the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; leased assets are of such a specialised nature that only the lessee can use them without major modifications (applicable to production plant and equipment). Finance leases are recognised as assets at the inception of the lease at the lower of the fair value of the leased asset or the present value of minimum lease payments. Property leased under finance leases is recognised under investment property and is measured in accordance with the valuation policies applicable to investment property. 22

23 The Group classifies its finance lease agreements as investment property since the leased properties are of the same nature as the Group s other properties. Minimum lease payments are divided into principal and interest using the internal rate of return (IRR) method. As at the end of each reporting period, the Company performs a valuation of investment property held under finance lease agreements in accordance with the valuation policies applicable to investment property. Gains and losses arising from their impairment are recognised in the statement of profit or loss under other expenses. A lease is classified as an operating lease if a significant portion of the risks and rewards of ownership are retained by the lessor (financing party). Lease payments under an operating lease are charged to expenses on a straight-line basis over the lease term. Other financial assets (financial instruments other than derivatives) Loans, receivables and bank deposits are recognised at the date of origination. All other financial assets (including assets measured at fair value through profit or loss) are recognised at the transaction date, on which the Company becomes a party to a mutual liability pertaining to a given financial instrument. The Company derecognises a financial asset upon the expiry of its contractual rights to cash flows from that asset or upon transfer of those rights in a transaction transferring substantially all material risks and rewards of ownership of the asset. Any interest in the transferred financial asset which is created or remains to be owned by the Company is disclosed as an asset or liability. A financial asset and a financial liability are offset and the net amount is presented in the statement of financial position when, and only when, the Company has a legally enforceable right to set off the recognised amounts or intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The Company classifies financial instruments other than financial derivatives under the following categories: financial assets at fair value through profit or loss, financial assets held to maturity, loans and receivables, and financial assets available for sale. Financial assets at fair value through profit or loss Financial assets are classified as an investment measured at fair value through profit or loss if they are held for trading or were designated as measured at fair value through profit or loss at their initial recognition. Financial assets are designated as assets at fair value through profit or loss if the Company actively manages such investments and makes decisions concerning their purchase or sale based on their fair value. Transaction cost relating to an investment is recognised in profit or loss of the period at the time it is incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes in their fair value are recognised in profit or loss of the period. All profits or losses relating to such investments are recognised in profit or loss of the period. Financial assets at fair value through profit or loss include equity securities that would otherwise be classified as held for sale. 23

24 Financial assets held to maturity If the Company intends and is able to hold debt securities to maturity, such debt securities are classified as financial assets held to maturity. Financial assets held to maturity are initially recognised at fair value plus directly attributable transaction cost. Subsequently, financial assets held to maturity are measured at amortised cost with the use of the effective interest rate method, less impairment losses, if any. If a larger-than-insignificant amount of financial assets held to maturity is disposed of or reclassified earlier than close to their maturity, the Company reclassifies all investments held to maturity to investments available for sale and until the end of a given financial year and throughout the next two financial years the Company may not recognise purchased investments as financial assets held to maturity. Financial assets held to maturity include bonds and notes. Loans and receivables Loans and receivables are financial assets with determined or determinable payments, which are not listed on any active market. Such assets are initially recognised at fair value plus directly attributable transaction costs. Subsequently, loans and receivables are measured at amortised cost with the use of the effective interest rate method, less impairment losses, if any. The Company also discloses cash and cash equivalents, as well as trade receivables under loans and receivables. At least at the end of each financial year all financial assets, in particular loans, are reviewed in accordance with the prudent valuation principle. Indications of loan impairment include: default in scheduled payments of interest or loan repayments despite lapse of the payment date; concerns about the borrower s financial standing which may cause difficulties in repayment of the loan and interest; borrower s negative net asset value, information on the borrower entering bankruptcy proceedings. If any of the above indications occurs, the recoverable amount of the receivables should be determined, which in principle corresponds to their fair value. The difference between the carrying amount and newly determined fair value is the amount of the impairment loss. Impairment losses are recognised under finance costs in the statement of profit or loss and other comprehensive income in the period of fair value measurement. If following a measurement of receivables in a subsequent reporting period it occurs that the impairment indication no longer exists, the recognised impairment loss is reversed. The resulting gains are recognised under other finance income. Financial assets available for sale Financial assets available for sale are non-derivative financial assets that are designated as available for sale or are not classified in any of the categories of financial assets specified above. 24

25 Subsequent to initial recognition, financial assets available for sale are measured at fair value, and changes in the fair value other than impairment losses and exchange differences on available-for-sale debt instruments are recognised in other comprehensive income and presented in equity as fair value reserve. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss of the period. Financial assets available for sale include equity and debt securities. Cash and cash equivalents Cash and cash equivalents include cash in hand, cash at bank, cash in transit, as well as bank deposits, other securities, and interest on financial assets, which are payable or due within three months from the date of their receipt, issue, purchase or placement. Domestic assets are recognised in the accounting records at nominal value during the financial year and as at the end of the reporting period. The nominal value includes interest accrued or deducted by the bank, if any. At the end of the reporting period, assets denominated in foreign currencies are translated at the mid rate quoted for a given currency by the National Bank of Poland for that date. During the year, inflows to and outflows from foreign currency accounts are measured in accordance with the following rules: completed transactions involving sale or purchase of a foreign currency are accounted for at the buy or sell rate used in the transaction, if there is no purchase or sale of a foreign currency, the inflows to and outflows from a foreign currency account are measured using the mid rate quoted by the National Bank of Poland for the day preceding the transaction date, a decrease in foreign-currency cash in foreign currency accounts and in hand is measured using the FIFO method. Trade receivables In these financial statements, receivables are classified into current and non-current. Receivables maturing in more than 12 months after the reporting date are disclosed as non-current, and those maturing sooner or held for trading are presented as current receivables. At the acquisition date or the date when a receivable otherwise arises, current receivables are recognised at their nominal amounts, i.e. their amounts as determined on the origination date. At the reporting date, receivables are measured at the amount of payment due, net of impairment losses, if any. Impairment losses on receivables are estimated as follows: on receivables from debtors that have been placed in liquidation or declared bankrupt up to the receivable amount in respect of which no guarantee or other security has been provided and which has been notified to a liquidator or judge commissioner in bankruptcy proceedings; on receivables from debtors in the case of whom a bankruptcy petition has been dismissed on the grounds that the debtor s assets are insufficient to cover the costs of the bankruptcy proceedings in the full amount of the receivable, 25

26 on receivables which are questioned by debtors and which are past their due dates, where, based on an assessment of the debtor s assets and financial standing, the debtor is unlikely to pay the receivable in the full contractual amount up to the receivable amount in respect of which no guarantee or other security has been provided; on receivables which are equivalent to an increase in receivables in respect of which impairment losses have been recognised up to such amounts, until received or written off, on receivables which are past due and in the case of which there is considerable risk that they will not be collected, as determined by the Management Board on a case-by-case basis in a reliably estimated amount; on receivables which are not past due but in the case of which there is considerable risk that they will not be collected, as determined by the Management Board on a case-by-case basis in a reliably estimated amount; in line with the prudence principle, an impairment loss equal to 100% of the value is recognised on any interest accrued on past-due receivables from customers; such impairment is recognised immediately as interest accrues and is posted in the accounting books (the impairment loss is charged to finance costs). Impairment losses on receivables are posted to other expenses or finance costs, as appropriate depending on the type of receivables concerned. Receivables that have been cancelled or have become time barred or unrecoverable reduce the amount of impairment losses previously recognised on such receivables. If no impairment losses have been recognised on such receivables or the impairment losses that have been recognised were lower than the full amount of the receivables, the receivables are charged to other expenses or finance costs, as appropriate. If the reason for an impairment loss ceases to exist, the equivalent of the amount in respect of which impairment has been recognised is added to the amount of the given receivable as well as other income or finance income, as appropriate. Impairment losses are presented in other expenses or finance costs, depending on the type of receivable that they refer to. On initial recognition, foreign-currency receivables are measured at the mid rate quoted by the NBP for the date preceding the receivable origination date (e.g. date of invoice). At the reporting date, foreign-currency receivables are measured at the mid rate quoted by the NBP for the reporting date. Deferred tax assets and liabilities Deferred tax assets and liabilities are identified and recognised using a balance-sheet approach, and are measured at the end of each quarter. Deferred tax assets are recognised for all deductible temporary differences and for tax losses carried forward and unused tax credits, to the extent it is probable that taxable income will be available in the future against which such deductible temporary differences, tax losses and tax credits can be utilised; except to the extent that the deferred tax assets related to deductible temporary differences arise from the initial recognition of an asset or liability in a transaction which is not a business combination, and, at the time of the transaction, affects neither accounting profit before tax nor taxable income (tax loss), and 26

27 in the case of deductible temporary differences arising from investments in subsidiaries or associates and interests in joint ventures, the related deferred tax assets are recognised in the statement of financial position to the extent it is probable that in the foreseeable future the temporary differences will be reversed and taxable income will be generated which will enable the deductible temporary differences to be offset. except to the extent that the deferred tax asset arises from fair-value measurement of investment property in companies covered by the Group s restructuring plan. Such plan assumes that when an asset is realised, subject to meeting certain conditions provided in applicable laws, the relevant transactions will not be subject to taxation, and therefore the deferred tax asset will not be realised. The deferred tax asset is reviewed at each reporting date it is examined whether it is probable that taxable income will be generated against which the deductible temporary differences, tax losses and tax credits can be offset, i.e.: whether there exist sufficient taxable temporary differences in respect of which deferred tax liability has been recognised, or whether it is probable that sufficient income will be generated to allow the deductible temporary differences, tax losses and tax credits to be offset (generation of sufficient income is deemed to be probable if so provided in the budgets for the following years). Deferred tax liability is recognised for taxable temporary differences: except to the extent that the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and, at the time of the transaction, affects neither accounting profit before tax nor taxable income (tax loss), and in the case of taxable temporary differences associated with investments in subsidiaries or associates and interests in joint ventures, unless the investor is able to control the timing of reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future, except to the extent that the deferred tax liability arises from fair-value measurement of investment property in companies covered by the Group s restructuring plan. Such plan assumes that when an asset is realised, subject to meeting certain conditions provided in applicable laws, the relevant transactions will not be subject to taxation, and therefore the deferred tax liability will not be realised. The carrying amount of deferred tax liabilities is reviewed at each reporting date and is subject to appropriate reduction to the extent that a tax liability is no longer likely to arise. Deferred tax assets and deferred tax liabilities are calculated using tax rates expected to be effective at the time of realisation of particular asset or liability, based on tax rates (and tax legislation) effective at the reporting date or tax rates (and tax legislation) which at the reporting date are certain to be effective in the future. The Group offsets deferred tax assets against deferred tax liabilities only if it holds an enforceable title to offset current tax assets against current tax payables, and the Group expects that realisation of deferred tax assets and liabilities related to the same item will occur at the same time. The Group offsets deferred tax related to income and costs from revaluation of investment property, financial instruments and other receivables and payables. Deferred tax assets and liabilities are recognised in accounting records by posting, at the end of the reporting period, only the change in the balances of the deferred tax assets and deferred tax liabilities as determined at the end and beginning of the reporting period. 27

28 If any recognised deferred tax assets or deferred tax liabilities relate to business transactions whose outcome affects net profit or loss, then such deferred tax assets or liabilities are recognised in correspondence with profit or loss. Deferred tax assets and deferred tax liabilities related to transactions which are charged to equity are also taken to equity rather than to profit or loss. Where IAS 12 so requires, deferred tax is disclosed as an adjustment to goodwill. Accruals and deferrals Prepayments include costs that can be attributed to more than one reporting period. Prepayments include such items as: prepaid costs of goods and services to be received in future periods, such as subscriptions, insurance premiums, rents or leases accounted for on a straight-line basis; prepaid costs of electricity, gas, transport or utility services accounted for on a straight-line basis; initial fees paid upon execution of lease agreements accounted for on a straight-line basis over the lease term; costs of major renovations and repairs accounted for on a straight-line basis over periods of one to three years, depending on the decision of the Company s Management Board; real property tax, annual charges for perpetual usufruct of land accounted for on a straight-line basis; transfer of the excess of the costs of construction services in progress, as determined at the reporting date, over the costs of such services that are commensurate with revenue accounted for in accordance with the principles applicable to accounting for construction services; share issue costs until the issue date accounted for on the issue date. Under the straight-line method the cost items listed above are accounted for over time. At least at the end of each financial year, all items of prepayments and deferred income are reviewed to ensure whether they are still justified. All assets that cannot be directly attributed to revenue of future reporting periods should be charged to current profit or loss. Accrued expenses include: costs of performance of construction contracts in progress, as referred to in IAS 11 Construction Contracts; liabilities under uninvoiced deliveries and services received by the Company; however, in the financial statements such items are recognised under trade payables, also when the Company may be required to use estimates to determine the exact quantity and/or price of deliveries/services. Deferred income includes: prepayments and advances received for work or services to be performed in subsequent reporting periods; payments received or receivables invoiced in advance for work or services to be performed in subsequent reporting periods including mainly prepaid rents or lease payments received as well as other prepayments received, accounted for in equal monthly instalments over the term of the agreement; contractual penalties not yet received and compensation sought in court proceedings charged to other income at the time the income is received. 28

29 Equity Equity is measured at nominal amounts. Share capital is disclosed in the amount specified in the Articles of Association and resolutions on an increase / cancellation of share capital, entered in a relevant court register. Until a share capital increase is registered, the amounts contributed by shareholders are recognised in the accounting records as settlements, and are presented in financial statements as other capital reserves. Any difference between the fair value of consideration received and the par value of shares is recognised in statutory reserve funds under share premium account. Share issue costs incurred upon establishment of a joint-stock company or share capital increase reduce statutory reserve funds up to the amount of the excess of the issue proceeds over the par value of shares. Other capital reserves mainly include capital from the settlement of the acquisition of Art Norblin shares and capital from measurement of the incentive scheme (compensation in the form of shares in the Parent). Share-based payments Incentive Scheme The fair value of an option to subscribe for Capital Park S.A. shares is recognised under costs of salaries and wages with a corresponding increase in equity. The fair value is determined as at the date of share option grant to eligible persons and recognised over the vesting period. The amount charged to costs is adjusted to reflect the current number of options granted for which the conditions of employment and non-market vesting conditions are met. In the case of share-based payment conditions other than vesting conditions, the fair value of awards granted as share-based payments is measured in such a way as to reflect such other conditions but is not remeasured if there are differences between expected and actual results. The amount of the liability is reviewed at the end of each reporting period and at the date of settlement. Changes in the fair value of the liability are recognised as personnel costs in profit or loss of the period. In addition to prior years profits and losses, retained earnings also include the effect of material prior year errors. A material prior year error is an error as a result of which any of the following conditions is met: profit before tax deviates by more than 10% and total assets deviate by more than 1%, profit before tax deviates by more than 10% and net revenue deviates by more than 1%. The Company corrects material prior period errors and restates relevant data retrospectively, where practicable. Correction of a material prior year error is recognised on a net basis, i.e. after accounting for the effect of the error on tax liabilities (both current and deferred). Prior years profits, including profits that were allocated to statutory reserve funds and reserve capital, may be paid out to shareholders as dividend only after any prior years losses are covered and provided that the minimum amount of the statutory reserve fund is reached, i.e. one-third of the share capital, as specified for joint stock companies in the Commercial Companies Code. Financial liabilities other than derivative instruments The Group recognises subordinated liabilities and liabilities under outstanding debt securities at the date on which they arise. All other financial liabilities, including liabilities at fair value through profit or loss, are recognised at the 29

30 trade date, or the date on which the Group becomes party to an agreement under which it is obliged to deliver the financial instrument. Upon initial recognition, the Company measures financial liabilities at fair value adjusted for transaction costs which may be directly attributed to the acquisition or issue of a given financial liability. The Group derecognises a financial liability when it has been repaid or cancelled or becomes time barred. Derivative financial instruments The Group uses derivative financial instruments to hedge its currency and interest rate risk exposure. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the hybrid (combined) instrument is not measured at fair value through profit or loss. On initial designation of a derivative financial instrument as a hedging instrument, each Group company formally documents the relationship between the hedging instrument and the hedged item. The relevant documentation describes the risk management objective, a strategy for undertaking the hedge and the hedged risk, as well as methods to be used by each Group company to assess the hedging instrument s effectiveness. Each Group company makes an assessment, both at the time when a hedge is undertaken and in subsequent periods, whether it is justified to expect that the hedging instruments will remain highly effective in offsetting changes in fair value or cash flows of the respective hedged items attributable to the hedged risk, as well as whether actual results are within a range of %. Cash flow hedges of future transactions are applied to highly probable future transactions bearing risk of changes in cash flows whose effects would be recognised in profit or loss of the period. Derivative financial instruments are initially recognised at fair value. Transaction costs are recognised in profit or loss of the period at the time they are incurred. Subsequent to initial recognition, the Company measures derivative financial instruments at fair value, with gains and losses arising from changes in fair value recognised in finance income or costs, or as an increase in investment property if the derivative is used to hedge cash flows relating to selfconstructed investment property. Provisions Provisions under IAS 37 are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. If the Group anticipates that the costs for which provisions have been recognised will be recovered, e.g. under an insurance agreement, the recovery of such costs is recognised as a separate asset, but only when it is practically certain to occur. Provisions are recognised based on reliable estimates made by the Management Board of each Group company. At each reporting date, the Company verifies the validity and the amount of provisions. Recognised or increased provisions are charged to costs of core operations, finance costs or capital expenditure on property or inventory, depending on what circumstances the future obligation relates to. Provisions are used when the liability for which the provision has been recognised arises; use of provisions is accounted for as a decrease in the provision amount and an increase in the liability amount. A provision may be used solely for the purpose for which it has been recognised. If the risk for which a provision has been recognised decreases or ceases to exist, unused 30

31 provisions reduce costs of core operations or increase other income or finance income (depending on the cost category to which the provision was charged) at the date on which it is determined that the provision is no longer necessary. Provisions are recognised for: 1. restructuring and liquidation the provision is based on expenditure inextricably related to restructuring but unrelated to the Company s day-to-day activities; for instance, the provision may include severance payments and compensation under labour law or costs of liquidation of businesses covered by restructuring, such as costs or losses under penalties or compensation for cancellation or non-performance of executed contracts; a restructuring provision does not include costs related to future operations, including costs of marketing, training of remaining staff, changing remaining staff members job assignments, implementing new systems and distribution networks, etc. Restructuring provisions are charged to other expenses; 2. guarantees and sureties issued the need to recognise a provision is assessed based on the analysis of whether the entity to which the guarantee or surety has been granted is likely to continue to perform the obligations secured by the guarantee or surety; if the entity to which the guarantee or surety has been granted is in poor condition, the provision amount will depend on the Company s expectations regarding the likelihood of the liability being paid by the entity; the issue of a guarantee or surety is not a basis for recognition of a provision, but it requires recognition of a contingent liability; 3. results of court proceeding the need to recognise a provision is assessed based on the progress of the proceedings or opinions of legal advisers; when determining the provision amount, the Company should account not only for the claim defined in the statement of claim, but also for the cost of litigation; 4. expected losses on executed contracts. Trade payables and other liabilities In these financial statements, liabilities are classified into current and non-current. Liabilities maturing in more than 12 months after the reporting date are disclosed as non-current, and those maturing sooner or held for trading are presented as current liabilities. Current liabilities, including current trade payables, liabilities under salaries and wages and public charges are measured at amounts payable at the reporting date. The amount payable accounts for the obligation to accrue interest, for instance default interest, payable at the reporting date. At the date when a liability arises, current liabilities are recognised at their nominal amount, i.e. their amount as determined on the origination date. On initial recognition, foreign-currency liabilities are measured at the mid rate quoted by the NBP for the date preceding the liability origination date (e.g. date of invoice). At the reporting date, foreign-currency liabilities are measured at the mid rate quoted by the NBP for the reporting date. Other liabilities include chiefly rental deposits (security for rental contracts), retainages from general contractors (performance bonds and security deposits where no performance bond is provided), taxes payable, as well as liabilities under received prepayments, which are to be settled by delivery of merchandise and tangible assets, or performance of services. 31

32 Operating income Revenue represents the inflow of economic benefits during a given period, arising in the ordinary course of the Group s business and resulting in an increase in equity other than through contributions by the shareholders. The Group classifies the following items as revenue from operating activities: income from the lease of office and retail space, including compensations received from tenants on early terminations of the rental agreements as well as income from recharge invoices and service charges (which are payable by tenants to cover the cost of using the properties and the cost of services provided by the Group companies under rental agreements). gains on disposal of investment property, apartments and houses, income from the management of property and investment portfolio. The Group presents its rental income based on the average rent for the rental agreement term, which means that any changes in the rent rate during the rental term (rent free periods) are recognised on an accrual basis. Revenue is measured at fair value of the consideration received or receivable, net of VAT and discounts, if any. Sales revenue is recognised in accounting records at the time it is due and payable under the terms of the relevant lease contracts. In the case of sale of apartments or houses, revenue is deemed earned when: the entire price has been paid, or all the risks and rewards incidental to the possession of the asset being sold have been transferred to the buyer, which usually takes place upon execution of a notarial deed or a hand-over report. Operating expenses The Group classifies the following items as operating expenses: costs of operating the office and retail properties and direct property operating expenses, which include primarily the following items: cost of utility services and other materials; cleaning and security services; costs of property management and technical support services; charges payable to housing cooperatives or commonhold associations; real estate taxes and perpetual usufruct charges; insurances; as well as remuneration of staff employed directly on the properties; costs of operating the special purpose vehicles, which include costs of salaries and administrative expenses associated with the SPVs existence as business entities, as well as other operating expenses unrelated to the properties as such; general and administrative expenses, which include costs of salaries and administrative expenses such as consultancy costs, office expenses, legal costs, commissions, depreciation of property, plant and equipment of the parent Capital Park S.A. and of CP Management Sp. z o.o. as the entity providing support services to other Group companies; cost of renovations and repairs of property, distribution costs; cost of valuation of the share-option plan for the Management Board members, 32

33 Gains/losses on investment property revaluation and write-downs on inventories, comprising primarily gains and losses on remeasurement of fair value of investment properties, which reflect changes in their fair value in a given period. The share of net profits/losses of equity-accounted entities reflects the results generated in the reporting period by the entities disclosed in the consolidated financial statements as joint ventures, which are attributable to the Group's interests in those entities. Determination of net operating profit from core operations Net operating profit is calculated as rental income from completed properties less direct property operating expenses. Operating profit is calculated as net operating profit plus items of other income items and less items of other expenses. The Group s profit or loss is closely linked to price movements in property markets, which are driven by rent levels, occupancy rates, changes in yields, changes in interest rates, construction costs, availability of bank financing, EUR/PLN exchange rates, and overall credit market conditions. Finance income and costs Interest income and expense are accounted for using the accrual method. Other finance income and costs consist mainly of realised and unrealised foreign exchange differences arising in connection with repayment and measurement of financial liabilities. Borrowing costs are charged to expenses as incurred, except for costs related to production (construction) or acquisition of assets. Such borrowing costs are capitalised, provided that it is probable that they will generate economic benefits in the future. Borrowing costs are capitalised under investment property or inventory, depending on the type of the property. Current income tax Current tax payable and current tax assets for the current period and for previous periods are measured at the amounts expected to be paid to (or recovered from) tax authorities. Dividend payment Dividends are recognised when the shareholder s right to receive payment is established. Format of statement of cash flows The statement of cash flows is prepared using the indirect method. The indirect method consists in adjusting profit or loss for: results of non-monetary transactions such as changes in the balance of receivables and liabilities, accruals and deferrals, amortisation and depreciation, and foreign-exchange gains and losses cash inflows and outflows from investing and financing activities. The Group shows its cash flows broken into: 33

34 operating activities presenting cash inflows from and outflows on the Group s core operations, as well as any other cash flows which are not classified in any of the activities listed below, investing activities presenting cash inflows from and outflows on acquisition and sale of non-current and current investments other than cash, as well as all inflows and outflows related to operations in the residential business segment, financing activities presenting changes in the amount and structure of the Group s equity and debt. Operating activities Cash flows from operating activities originate chiefly in the Group s core revenue-generating operations. The cash flows are derived from transactions and other events which are taken into account when calculating the Group s profit or loss, such as: cash from sale of services and re-invoicing of costs to tenants, cash paid for supplies of goods and services, taxes received and paid, including income tax, employee benefits paid, other inflows and outflows related to the Group s core operations. Investment activities Cash from (or used in) investing activities represents expenditure which will generate revenue and cash in the future, as well as cash from disposal of assets whose useful lives were longer than the standard lifecycle of the services rendered by the Group companies. This includes in particular the cash effect of the following types of transactions: inflows and outflows relating of acquisition or disposal of subsidiaries or their business units, cash and cash equivalents of subsidiaries acquired or disposed of, inflows and outflows relating to acquisition and disposal of property, plant and equipment and intangible assets, including prepayments, inflows and outflows relating to acquisition and disposal of investments in property, including prepayments, inflows and outflows relating to acquisition and disposal of investments in residential property, including prepayments, cash received and paid in connection with realisation of financial instruments, except where realisation of a financial instrument is closely related to operating or financial activities, proceeds from cash deposited in bank accounts. Financing activities Cash flows from financing activities represent inflows and outflows relating to the financing of the Group s operations, which serve to estimate future cash flows of entities supplying the Group with capital. Cash flows from financing activities include in particular: proceeds from issues of shares or other financial instruments, cash paid to shareholders as share in profit and equity, proceeds from and repayment of bank and non-bank borrowings, issued bonds, and other securities, lease payments made. 34

35 6.5 FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY Items of these interim condensed consolidated financial statements are measured in the currency of the primary economic environment in which the Group operates ( functional currency ). These interim condensed consolidated financial statements are presented in the Polish złoty (PLN), which is the functional currency and presentation currency of the Group. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction dates. Any currency exchange gains or losses arising on settlement of such transactions or on balancesheet measurement of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. 6.6 MATERIAL ESTIMATES AND JUDGEMENTS While preparing these interim condensed consolidated financial statements, the Parent s Management Board has to make certain estimates and judgements, which affect the values and manner of presentation of items disclosed in the financial statements. The majority of estimates are based on analyses of the market conditions, as well as the laws and tax regulations effective in a given financial period. While the adopted assumptions, estimates and judgements are based on the Management Board s best knowledge, actual figures may differ from forecasts, particularly in the event of any changes in the market, legal or tax environment. The estimates and related assumptions are reviewed and any resulting changes are disclosed in the period in which they are made, or in the current and future periods if a change in estimate affects both current and future periods. 6.7 MANAGEMENT BOARD S MATERIAL ESTIMATES AND ASSUMPTIONS Assumption of having control of REIA FIZ AN despite holding a minority interest, i.e. 15% of investment certificates For assumptions made in determining whether the entity controls REIA FIZ AN, see Note 1.8. Fair value disclosure of investment property A property is classified as investment property upon initial recognition, based on a decision made by the Group s Management Board reflecting the assumptions as to the manner in which a given property will be used. Investment property is recognised as an asset if it is probable that the future economic benefits associated with the investment property will flow to the entity and the cost of the investment property can be measured reliably. Investment property is measured at fair value, reflecting market conditions prevailing at the reporting date. Fair value is defined as the amount at which a property could be exchanged in an arm s length transaction between informed and willing parties. Fair value reflects, in particular, rental income from existing lease contracts, reasonable and justified expectations of rental income from future contracts as viewed by the market, as well as reliably estimated cash outflows on the investment property. The fair value of properties is determined by independent property appraisers using valuation methods that are most appropriate to a given property. For the manner of determining the fair value of investment property, see Note 1. Notwithstanding the professional nature of investment property valuation methodologies, any adopted assumptions are largely subjective as they refer to future (and therefore uncertain) events. The Group s Management Board seeks 35

36 to determine property value in line with the prudence principle, which means that from among a wide range of data taken as the basis for a valuation the most pessimistic and the most optimistic data is eliminated. The Management Board closely monitors the economic situation in Poland and abroad. Changes in the market environment strongly affect the value of the Group s properties. Investment property is sensitive to many factors, in particular to changes in yields and EUR/PLN exchange rate, because in large part investment property valuations are based on EUR-denominated rents. An increase/decrease in the EUR/PLN exchange rate is reflected directly in higher/lower value of a given property expressed in PLN, resulting in a gain/loss on investment property revaluation. For information on the effect of foreign exchange movements on the property value, see Note 15. Deferred tax on investment property revaluation The Group does not recognise deferred tax assets and liabilities in respect of differences between the carrying amounts and tax bases of those properties which represent the Group s investments that the Group plans to exit by selling shares in the companies holding the properties. Should the Group fail to effect such transactions on the expected terms and conditions, the Group would be required to recognise a deferred tax of up to PLN thousand, which would reduce its net assets as at September 30th 2015 by that amount. 6.8 KEY EVENTS IN Q New credit facility agreement with PKO BP On September 14th 2015, Capital Park S.A. made the first draw-down under a credit facility agreement with Powszechna Kasa Oszczędności Bank Polski for the total amount of EUR 1,240, contracted to finance the purchase of commercial property at ul. Pileckiego in Warsaw. The facility bears interest at a variable rate equal to 3M EURIBOR plus margin. The final repayment date of the facility is September 14th Purchase of commercial property at ul. Pileckiego in Warsaw On August 31st 2015, CP Retail SPV 1 Sp. z o.o. of the Capital Park Group purchased commercial property with a total usable area of 1,000 m2, located at ul. Pileckiego in Warsaw. Opening of Royal Wilanów On August 18th 2015, the Group obtained an occupancy permit for a part of the mixed-use (office and retail) project Royal Wilanów (project owned by subsidiary Hazel Investement Sp. z o.o.). Disbursement of the Delta construction loan On August 28th 2015, the Group made the first draw-down under the loan to finance the further construction of Phase2 of the Eurocentrum Office Complex - Delta building (as at September 30th 2015 the total of loan drawn is PLN 19,547 thousand), and a draw-down of EUR 5,646 thousand to refinance existing liabilities. Creation of mortgages over investment property On July 30th 2015, the District Court for the Capital City of Warsaw Mokotów in Warsaw, 7th Land and Mortgage Register Division, entered (i) a joint contractual mortgage of up to EUR 24m, and (ii) a joint contractual mortgage of up to PLN 50m, for the benefit of Pekao Bank Hipoteczny S.A. 36

37 Also on July 30th 2015, the District Court for the Capital City of Warsaw Mokotów in Warsaw, 7th Land and Mortgage Register Division, entered a change in the amount of joint contractual mortgage from EUR 148m to EUR 193m, for the benefit of Bank Polska Kasa Opieki S.A. The above mortgages are created over the property located at Al. Jerozolimskie in Warsaw, which is owned by Dakota Investments Sp. z o.o., a Capital Park Group company. The mortgages serve as security in respect of monetary claims under the credit facility agreement of June 27th 2012, as amended. Annex to the general contractor agreement On July 7th 2015, Hazel Investments Sp. z o. o., a Capital Park Group company, and Erbud S.A., a construction company, signed an annex amending the general contractor agreement relating to the Royal Wilanów project. The annex defines the scope of additional, substitute, and cancelled works, providing for an additional lump-sum fee of PLN 2,886, payable to the general contractor. Furthermore, the annex confirmed that the provisional amount for finishing works, as provided for in the Agreement, the use of which depended on the project owner s instructions, had been partially used (i.e. the amount of PLN 7,682,214.10). Forward contract conclusion On August 26th 2015, Dakota Investments, a subsidiary of the parent company Capital Park concluded the forward agreement with amount EUR thousand. 6.9 FACTORS AND EVENTS, IN PARTICULAR OF NON-RECURRING NATURE, WITH A MATERIAL EFFECT OF FINANCIAL PERFORMANCE Investment property is sensitive to many factors, in particular to changes in yields and EUR/PLN exchange rate, because in large part investment property valuations are based on EUR-denominated rents. An increase/decrease in the EUR/PLN exchange rate is reflected directly in higher/lower value of a given property expressed in PLN, resulting in a gain/loss on investment property revaluation SEASONAL AND CYCLICAL CHANGES IN THE BUSINESS OF CAPITAL PARK S.A. The Group s business is not subject to any significant seasonal or cyclical fluctuations ISSUE, REDEMPTION AND REPAYMENT OF EQUITY AND NON-EQUITY SECURITIES Redemption of the last part of Series A notes On July 9th 2015, Capital Park S.A. carried out a redemption of the last part of notes, i.e. 100 thousand Series A bearer notes with a nominal value of PLN 100 per note and a total value of PLN 10,000 thousand. The Company raised cash for the early redemption by way of an issue of Series E notes on March 15th Payments of interest on the notes On August 31th 2015, Capital Park S.A. paid the interest on Series F notes totalling PLN 500 thousand. On September 16th 2015, Capital Park S.A. paid the interest on Series E notes totalling PLN 168 thousand. On September 21th 2015, Capital Park S.A. paid the interest on Series D notes totalling PLN 812 thousand. 37

38 On September 21th 2015, Capital Park S.A. paid the interest on Series C notes totalling PLN 702 thousand. Issue of Series G notes On August 14th 2015, Capital Park S.A. issued 18,837 3-year unsecured Series G notes with a total value of PLN 1,884 thousand. Interest on the notes is payable on a quarterly basis, at a variable rate of 3M WIBOR plus a margin of 4.3%. The offering of series G notes was carried out under the public note issue programme of up to PLN 100m, and was the last of the public offerings to be carried out under the prospectus approved by the Polish Financial Supervision Authority on November 14th DIVIDEND PAID OR DECLARED In the third quarter of 2015, the Company did not pay or declare any dividend MANAGEMENT BOARD S POSITION ON THE FEASIBILITY OF MEETING PREVIOUSLY PUBLISHED ANNUAL PROFIT FORECASTS The Management Board did not publish or declare to publish any financial forecasts COURT PROCEEDINGS There are no court, arbitration or administrative proceedings pending with respect to any liabilities or claims of the Capital Park Group companies whose value would represent 10% or more of the Capital Park Group s equity OTHER INFORMATION WHICH IS, ACCORDING TO THE COMPANY, MATERIAL FOR THE ASSESSMENT OF THE STAFFING LEVELS, ASSETS, FINANCIAL STANDING AND FINANCIAL PERFORMANCE, OR CHANGES IN ANY OF THE FOREGOING, AND INFORMATION MATERIAL FOR THE ASSESSMENT OF THE COMPANY S ABILITY TO FULFIL ITS OBLIGATIONS None FACTORS WHICH, IN THE COMPANY'S OPINION, WILL AFFECT THE COMPANY'S PERFORMANCE IN THE NEXT QUARTER, OR IN A LONGER TERM None. 38

39 6.17 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note1. INVESTMENT PROPERTY Investment property is the property owned or held in usufruct by the Group, or property leased/used by the Group under finance lease agreements. In accordance with IAS 40, all properties are measured at fair value. The Management Board closely monitors the economic situation in Poland and abroad. Changes in the market environment strongly affect the value of the Group s properties. Investment property is sensitive to many factors, in particular to changes in yields and EUR/PLN exchange rate, because in large part investment property valuations are based on EUR-denominated rents. An increase/decrease in the EUR/PLN exchange rate is reflected directly in higher/lower value of a given property expressed in PLN, resulting in a gain/loss on investment property revaluation. The Group s portfolio is divided into business segments, which comprise the following four core sectors: (i) office, (ii) mixed-use, (iii) retail, and (iv) value added. Type of project Office Mixed-use Retail Other Number of projects Interest value as at Sep Sep Dec Sep % 762, , , % 651, , , % 292, , , % 89,508 91,887 94, % 1,796,333 1,595,986 1,586,192 Sep Dec Gross carrying amount at beginning of period 1,595, ,653 Increase, including: 222, ,165 purchase of investment property 8,371 26,938 capitalisation of subsequent expenditure 1 214, ,227 net profit from property revaluation at fair value 0 0 Decrease, including: (22,358) (53,832) sale of investment property (1,746) (3,335) net loss from property revaluation at fair value (20,612) (50,497) Gross carrying amount at end of period [PLN 000] 1,796,333 1,595,986 Gross carrying amount at end of period [EUR 000] 423, ,442 1 Such capitalised expenditure primarily includes: construction costs, costs of architectural design, costs of advisory services, financing costs (interest on borrowings and notes, fees and commissions, foreign exchange differences on interest on liabilities denominated in foreign currencies), legal costs, taxes and other charges (mainly perpetual usufruct charges and real property taxes payable during the construction period), costs incurred in connection with any present or future income planned to be generated by the companies (costs of tenant acquisition and costs of adapting the rented space to tenants requirements, which can be attributed to specific rental contracts executed for a specific period), and costs of auxiliary services charged from the SPVs by CP Management Sp. z o.o., a Group company, for managing property development projects. The value of auxiliary services charged to investment property is calculated based on the costs directly attributable to investment projects. The actual costs attributable to investment projects are accounted for at the end of each financial year. In the course of the year, the value of auxiliary services is estimated based on approximate cost data. 39

40 Under finance lease agreements, the Group uses properties owned by the lessor as the financing entity. Therefore, the Group s rights with respect to the properties are limited. At the reporting date, the Group held three properties under finance lease agreements, with a value of PLN 69,606 thousand. Disclosures in accordance with IFRS 13 (based on significant unobservable inputs, Level 3) Acting in accordance with the guidelines set forth in IFRS 13, the Group s Management Board performed an analysis of the methodology applied to determine the fair value of investment properties as at September 30th 2015 and December 31st 2014, and arrived at a conclusion that the methodology was based on level 3 of the fair value measurement hierarchy: there were no current transactions with similar terms and the valuation of investment property was made in reliance on a number of assumptions which had a material impact on the final determination of the fair value. The fair value of properties is determined by independent property appraisers using valuation methods that are most appropriate to a given property. These are: Income approach, investment method, discounted cash flow (DCF) model This approach is used mainly for valuation of completed commercial property projects. The discounted cash flow method involves discounting of a series of cash flows the real property is expected to generate in an assumed forecast period, which is ten years for the purpose of this analysis. Discounted residual value of the real property is added to the discounted cash flows. Mixed approach, residual method This approach is generally used to determine the value of investment property under construction, which is calculated as the property s target value (estimated based on the income approach or comparison approach) less any capital expenditure to be incurred as at the valuation date. It is used for valuation of properties where the investment process has not been completed, including retail, office and mixed retail-office properties. The target value, i.e. after completion of the development project, was determined based on the income approach, using the investment method, direct capitalisation model. Income approach, investment method, direct capitalisation model It is applied to investment property that generates fixed lease income or does not generate lease income due to the lack of tenants. The value of investment property is calculated as the product of annual income that can be generated by the property and the capitalisation rate. Comparison approach (pairwise comparison or average price adjustment) This approach is used to value investment property for which data on comparable property sale transactions on a given market is available as well as land and residential property. Valuation of these types of property involves an analysis of similar properties which are being sold on the market and for which the characteristics that determine the purchase price and the terms of the transactions are known. Since very few comparable transactions are executed on the market and the prices of such transactions differ widely, the valuation was performed using the pairwise comparison method. The Group uses this approach mainly to value undeveloped properties or developed properties with unspecified use, on which no capital expenditure has been made, and to value apartments for resale. 40

41 Note2. OTHER NON-CURRENT FINANCIAL ASSETS Sep Dec Sep Interest in the Patron Wilanów joint venture 16,529 12,098 20,919 Interest in the Oberhausen joint venture 7, Valuation of derivative financial instruments 0 7,824 11,852 23,990 19,922 32,771 The change in derivative financial instrument valuation assets is attributable to the reclassification of those assets into current assets as at September 30th 2015, in accordance with the forward contract maturity date, which falls within 12 months of the reporting date. The Group presents interests in joint ventures that are accounted for using the equity method. The carrying amount of joint ventures comprises the value of interests in such joint ventures and loans advanced to such joint ventures, plus accrued interest and less impairment losses. The Group presents interests in joint ventures on a net basis, i.e. less liabilities related to participation in the joint ventures, which equal the estimated future cash flows related to coverage of losses on joint ventures. The table below presents details of the valuation of interests in joint ventures and general information on the agreement concluded, as well as key financial data. Interest in the Patron Wilanów joint venture Sep Dec Sep Interest value 6,637 6,637 6,637 Impairment losses on interests (6,637) (6,637) (6,637) Non-current loans advanced 29,828 28,780 31,117 Impairment losses on loans (4,000) (4,000) (4,000) Liabilities related to estimated future cash flows (9,299) (12,682) (6,198) 16,529 12,098 20,919 Interest in the Oberhausen joint venture Sep Dec Sep Interest value 2, Impairment losses on interests (472) 0 0 Non-current loans advanced 5, Impairment losses on loans Liabilities related to estimated future cash flows ,

42 Note3. OTHER NON-CURRENT ASSETS Sep Dec Sep Property, plant and equipment Non-current prepayments and accrued income Non-current receivables ,772 Intangible assets , ,312 In the reporting period, the Group held property, plant and equipment classified as buildings and structures, plant and equipment, and other property, plant and equipment. The Group did not recognise any impairment loss on property, plant and equipment. All property, plant and equipment are owned by the Group and there are no restrictions on their use. In the period covered by these consolidated financial statements, the Group held intangible assets classified as software and other. The Group did not recognise any impairment loss on intangible assets. Note4. INVENTORIES Under inventory the Group discloses four residential projects, whose total value as at September 30th 2015 was PLN 18,803 thousand (December 31st 2014: PLN 24,452 thousand). Sep Dec Carrying amount at beginning of period 24,452 33,733 Increase, including: Capital expenditure Decrease, including: (6,001) (9,646) Sale of apartments and houses 0 (5,021) Impairment losses (6,001) (4,625) Carrying amount at end of period 18,803 24,452 Note5. OTHER RECEIVABLES AND OTHER CURRENT ASSETS Sep Dec Sep Receivables from the government 16,686 6,124 11,930 Current prepayments and accrued income 2, ,290 Other receivables 1,510 3,625 7,275 Prepayments for property 5,600 5, ,136 16,149 21,495 Under receivables from the government the Group mainly discloses VAT receivables which the Group companies recover on an ongoing basis in the course of their investment activities. 42

43 Note6. TRADE RECEIVABLES Sep Dec Sep Trade receivables (gross) 7,561 6,351 4,051 Impairment losses (420) (418) (240) Trade receivables (net) 7,141 5,933 3,811 The Group does not carry any material disputed trade receivables. Note7. OTHER CURRENT FINANCIAL ASSETS Sep Dec Sep Current loans advanced* 5,981 5,809 5,752 Valuation of derivative financial instruments 11, RAZEM 17,396 5,809 5,752 * Loans granted to Jan Motz for the purchase of a property in Krynica. Valuation of derivative financial instruments includes measurement of a forward contracts used to hedge future cash flows from planned conversion of the construction credit facility used to finance the Eurocentrum project (Phase 1 and 2). Upon completion of the construction process, the PLN-denominated facilities will be repaid with a new facilities, denominated in a foreign currency. Forwards contracts were entered into with Pekao S.A., with the settlement date of March 31st The increase in derivative financial instrument valuation assets is attributable to the reclassification of those assets to current assets as at September 30th 2015, in accordance with the forward contract maturity date, which falls within 12 months of the reporting date. Note8. CASH AND CASH EQUIVALENTS Sep Dec Sep Cash in hand and at banks: 38,969 32,216 26,737 Pekao S.A. 10,646 14,428 11,497 mbank S.A. 2,733 3,644 1,746 PKO BP S.A. 8,426 3,494 2,208 Getin Noble Bank S.A. 2,981 1,327 1,655 BZ WBK S.A. 1,711 2,251 3,393 Raiffeisen Bank Polska S.A. 9,459 3,444 2,387 BNP Paribas Bank Polska S.A. 1,529 2,207 1,024 RBS ,053 Other (including cash in hand) ,774 Other cash: 16, ,370 85,874 Current deposits with maturities of up to three months 14, ,018 45,553 Overnight deposits 1,885 9,352 40,321 55, , ,611 43

44 Cash and cash equivalents include restricted cash of PLN 10,028 thousand at September 30th 2015 (December 31st 2014: PLN 14,577 thousand). The restricted cash is held (blocked) in bank accounts as security for repayment of borrowings and lease liabilities incurred by the Group companies. Note9. EQUITY The structure of the Company s share capital at September 30th 2015 is presented below: Series/issue and type of shares Number of shares Par value (PLN) Par value of series / issue Form of payment Registration date Series A, ordinary bearer non-preferred shares 100, ,000 cash contribution Series B, ordinary bearer non-preferred shares 71,693, ,693,301 Series C, ordinary bearer non-preferred shares 20,955, ,955,314 Series D, ordinary bearer non-preferred shares 604, ,024 Series E, ordinary bearer non-preferred shares 9,230, ,230,252 Series F, ordinary registered preferred shares (voting preference) 2,765, ,765, ,348, ,348,131 cash contribution and noncash contribution cash contribution cash contribution non-cash contribution cash contribution The par value of all outstanding shares is PLN 1 (one złoty) per share. The shares are fully paid, and the rights conferred by the shares are not restricted in any way. The Company s shareholding structure, including shares held by Members of the Management Board, as at September 30th 2015: Shareholder Number of shares % ownership interest Number of voting rights % of total voting rights CP Holdings S. à r. l. 76,959, % 76,959, % Jan Motz 2,805, % 5,571, % Jerzy Kowalski 2,792, % 2,792, % Michał Koślacz 320, % 320, % Marcin Juszczyk 302, % 302, % Other 22,167, % 22,167, % Total 105,348, % 108,113, % 44

45 The Company s shareholding structure, including shares held by Members of the Management Board, as at the date of issue of these interim condensed consolidated financial statements: Shareholder Number of shares % ownership interest Number of voting rights % of total voting rights CP Holdings S. à r. l. 76,869, % 76,869, % Jan Motz 2,805, % 5,571, % Jerzy Kowalski 2,792, % 2,792, % Michał Koślacz 320, % 320, % Marcin Juszczyk 302, % 302, % Other 22,257, % 22,257, % Total 105,348, % 108,113, % On January 14th 2015, Marcin Juszczyk and Michał Koślacz exercised their rights under subscription warrants by acquiring 302,012 Series D shares each, at the nominal price of PLN 1 per share. On March 3rd 2015, Series D shares were registered with the National Court Register. As a result, the Company s share capital was increased from PLN 104,774,107 to PLN 105,348,131, by way of an issue of 604,024 Series D ordinary bearer shares, as part of a conditional share capital increase through the exercise of rights attached to 604,024 subscription warrants. OTHER CAPITAL RESERVE Sep Dec Sep Capital from changes in Group s structure 7,792 7,792 7,792 Capital from measurement of share-option plan for Management Board members 6,735 4,776 6,936 14,527 12,568 14,728 INCENTIVE SCHEME FOR MEMBERS OF THE MANAGEMENT BOARD The objective of the Incentive Scheme is to provide incentives that will encourage, retain and motivate the Eligible Persons (at the scheme inception date members of the Company s Management Board) to work towards the Company s shareholder value growth. These incentives consist in enabling the Eligible Persons to acquire Company Shares. The key assumptions of the Incentive Scheme are set out in a resolution of the Extraordinary General Meeting of Capital Park S.A. of September 30th 2013 and the Rules of the Incentive Scheme (attached to the resolution). Key terms of the Incentive Scheme The Incentive Scheme is addressed to Jan Motz, Jerzy Kowalski, Michał Koślacz and Marcin Juszczyk, as long as they remain members of the Company s Management Board. As part of the Incentive Scheme, the Company is authorised to issue up to 7,218,738 registered subscription warrants carrying rights to acquire a total of 7,218,738 Series D ordinary bearer shares in the Company. The subscription warrants will be issued in series from A to G, and granted free of charge. The subscription warrants may be inherited, but may not be encumbered and are not transferable. The date of allotment of Series A warrants may fall no later than one month after the allotment of shares in the public offering. The allotment date for Series B to Series G warrants falls no later than two months after the publication of the full-year or half-year financial statements, audited or reviewed by a qualified auditor. 45

46 On the date of allotment of Series A warrants a total of 604,024 Series A warrants were granted to Marcin Juszczyk and Michał Koślacz. The number of Series B to Series G warrants allotable on future allotment dates will depend on the following economic criteria: increase in net asset value at the allotment date and increase in the market price of Company shares on the allotment date. Each warrant will confer the right to acquire one Series D share, at an issue price of PLN 1 per share. All rights to acquire Series D shares under the warrants will expire on December 31st The Black-Scholes model was applied for valuation of the subscription warrants under the Incentive Scheme. As part of remeasurement of the Incentive Scheme as at December 31st 2014, it was assumed that a total of 3,558,035 warrants would be exchanged for shares. Based on the assumed number of warrants and the current price of Company shares, the total value of the Incentive Scheme was estimated at PLN 10,958 thousand. The total cost of the Incentive Scheme is expensed over time in proportion to its duration. Pursuant to Resolution No. 1/12/2013 of the Supervisory Board of December 19th 2013, on January 3rd 2014, Marcin Juszczyk and Michał Koślacz were each allotted as part of the Incentive Scheme 302,012 Series A subscription warrants carrying rights to acquire the same number of Series D shares in the Company, at a price of PLN 1 per share. The allotted subscription warrants could be converted into Company shares not earlier than one year after the date of allotment, that is January 3rd On January 14th 2015, Marcin Juszczyk and Michał Koślacz exercised their rights under allotted subscription warrants by acquiring 302,012 Series D shares each, at the nominal price of PLN 1 per share. The warrants which were allotted by Board Mambers, as at September 30th 2015: Board Member Warrants Jan Motz Jerzy Kowalski Michał Koślacz Marcin Juszczyk EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS Sep Dec At beginning of period 64,776 68,807 Dividend paid to investors (4,465) (4,113) Share in profit/loss of subsidiaries 3, At end of period 63,985 64,776 46

47 Note10. BANK BORROWINGS AND OTHER FINANCIAL LIABILITIES Sep Dec Sep Bank borrowings 764, , ,091 Lease liabilities 42, , ,238 Derivative financial instruments (IRS)* 8,524 6,331 4,269 Non-current bank borrowings and other financial liabilities 814, , , , , ,953 Current bank borrowings and other financial liabilities 35,051 44,739 38,645 * Derivatives are used by the Group to hedge against the interest rate and EUR/PLN exchange rate risks related to liabilities incurred, and are not traded Liabilities by maturity: Sep Dec Sep Up to one year 35,051 44,739 38,645 1 year to 3 years 89, , ,789 3 years to 5 years 168,775 58,722 95,221 More than 5 years 521, , , , , ,598 CREDIT FACILITIES Bank Sep Dec Pekao S.A. 101, ,020 44,400 EUR Pekao S.A. 270, , ,992 PLN PKO BP S.A. 178,902 52,558 61,131 EUR PKO BP S.A. 4,436 1,683 20,000 PLN Getin Noble Bank S.A. 47,197 42,623 10,000 EUR Bank BGŻ BNP Paribas 21,953 24,363 6,000 EUR Alior Bank S.A. 28,919 27,117 32,366 PLN Hypo Noe Gruppe Bank AG 108, ,220 PLN Pekao Bank Hipoteczny S.A. 1,573 1,646 26,150 EUR 764, ,827 Credit facility amount as per agreement* Currency Interest rate Repayment 3M EURIBOR + margin from 2015 to M WIBOR + margin by M EURIBOR+margin M WIBOR+margin M EURIBOR+margin by M EURIBOR+margin by M WIBOR+margin by M WIBOR + margin from 2015 to M EURIBOR+margin by 2020 *Amounts in the currency of the agreement. LEASE AGREEMENTS Lessor Sep Dec Initial value* Currency Bank BGŻ BNP Paribas S.A. 20,388 21,294 6,000 EUR mleasing Sp. z o.o. 19,790 21,005 5,742 EUR Raiffeisen Leasing Polska S.A ,908 26,464 EUR Raiffeisen Leasing Polska S.A. 1,858 4,252 5,025 PLN 42, ,459 *Amounts in the currency of the agreement 47

48 Note11. LIABILITIES UNDER NOTES IN ISSUE The Group measures notes at amortised cost (in accordance with IAS 39), which means that the amount of the liability follows from the notes cash-flow profile. Sep 30 Dec 31 Sep 30 Nominal Nazwa banku amount Interest rate Maturity date Series A notes 0 64,374 63, ,000 6M WIBOR + 5% July 2015 Series B notes 34,612 34,446 34,336 35,000 6M WIBOR + 5,5% June 2017 Series C notes 19,572 19,405 19,349 20,000 6M WIBOR + 5.3% September 2017 Series D notes 52,814 52, ,886 3M WIBOR + 4.3% December 2017 Series E notes 10, ,111 3M WIBOR + 4.3% March 2018 Series F notes 32, ,116 3M WIBOR + 4.3% June 2018 Series G notes 1, ,884 3M WIBOR + 4.3% August 2018 Interest accrued 1,038 3,024 2, , , ,783 Long-term notes 152, , ,561 Short-term notes 1,038 67,398 2,222 Note12. OTHER LIABILITIES AND PROVISIONS Sep Dec Sep Other liabilities and provisions 20,180 37,332 15,927 Security deposits from tenants 6,406 3,433 3,231 Taxes, customs duties, social security payable 2,925 2, Performance bonds from general contractors 1,690 2,178 1,215 Deferred income - prepayments for apartments/houses ,201 45,730 21,709 Other liabilities and provisions non-current 6,629 3,665 3,935 Other liabilities and provisions current 24,572 42,065 17,774 Note13. TRADE PAYABLES Sep Dec Sep To other entities 14,325 14,569 20,372 To related entities ,325 14,569 20,372 Note14. RENTAL INCOME Rental income includes rents, service and maintenance charges and direct recharge invoices for service costs. The Group presents rental income by operating segments. The tenant base is highly diversified, with individual tenants shares in total rental income remaining low, under 10%. 48

49 2015 share 9 months months 2014 Retail projects 42% 21,808 17,349 Office projects 52% 28,643 16,916 Mixed-use projects 6% 4,051 1,427 Value Added Segment 0% % 54,502 35,789 The higher, relative to 2014 period, lease income was attributable to: completion of a new Beta-Gama office building at the Eurocentrum complex in Q2 2014, purchase of two new commercial properties in Toruń and Olsztyn in H2 2014, completion of the Vis à Vis local shopping centre in Łódź in December 2014, acquisition of new tenants at the mixed-use building at ul. Sobieskiego in Warsaw, completion of a new Royal Wilanów mixed-use building in Q The Group presents its rental income based on the average rent for the rental agreement term, which means that any changes in the rent rate during the rental term (rent free periods) are recognised on an accrual basis. Note15. GAIN AND LOSS ON INVESTMENT PROPERTY REVALUATION The Group measures its properties at fair value at least at each reporting date. Revaluation gains or losses are recognised in profit or loss of the current period. The Group s profit or loss is closely linked to price movements in property markets, which are driven by rent levels, occupancy rates, changes in yields, changes in interest rates, construction costs, availability of bank financing, EUR/PLN exchange rates, and overall credit market conditions. Loss (gain) on property revaluation 9 months months 2014 Investment property revaluation (20,612) 10,005 Presentation adjustment relating to presentation of rental income based on average rent (6,249) 0 Revaluation of residential properties (6,001) 2,692 (32,862) 12,697 The Group presents its rental income based on the average rent for the rental agreement term, which means that any changes in the rent rate during the rental term (rent free periods) are recognised on an accrual basis. Note16. GUARANTEES AND SURETIES On January 15th, in connection with the EUR 61,131 thousand investment credit facility advanced by PKO Bank Polski S.A. to Hazel Investments Sp. z o.o., the Company s subsidiary, Capital Park S.A. made a commitment to support the Royal Wilanów project and to cover any overrun of the project s costs up to a maximum amount of PLN 34,070 thousand, which represents 10% of the project s costs. 49

50 On March 18th 2013, Capital Park S.A. signed a surety agreement with Alior Bank S.A. (the Bank ) providing for joint and several liability for a facility granted by the Bank to Diamante Investments Sp. z o.o., the Company s a subsidiary, for a total amount of PLN 32,366 thousand; at September 30th 2015 the amount disbursed under the facility was PLN 28,856 thousand. On March 25th 2015, Capital Park S.A. and Alior Bank S.A. (the Bank ), signed an Annex to the surety agreement, providing for joint and several liability for a facility granted by the Bank to Diamante Investments Sp. z o.o., the Company s subsidiary, for a total amount of PLN 28,886 thousand. The surety will remain valid until such time as the Borrower earns a minimum total rental income of PLN 200 thousand per month. On June 8th 2015, Capital Park S.A., Bank Polska Kasa Opieki S.A. of Warsaw, and Dakota Investments Sp. z o.o, the Company s subsidiary, executed a surety agreement whereby Capital Park S.A. provided to the Bank a surety of up to EUR 3,000 thousand in connection with a credit facility agreement executed by the Bank and the subsidiary for the financing of construction of the Eurocentrum office complex located at Al. Jerozolimskie in Warsaw (Phase 1, 2). The surety agreement will remain valid until the DSCR ratio for the constructed property (Eurocentrum Phase 1) reaches 1.0, but no longer than until December 31st On June 26th 2013, Capital Park S.A. also entered into a cost-overrun guarantee agreement with the Bank whereby the Company agreed to support the project (Eurocentrum Phase 1) and cover any cost overruns up to the amount of PLN 23,600 thousand. Furthermore, on June 8th 2015, Capital Park S.A. entered into a cost-overrun guarantee agreement with the Bank whereby the Company agreed to support the project (Eurocentrum Phase 2) and cover any cost overruns up to the amount of PLN 16,350 thousand. Note17. SECURITY ESTABLISHED ON THE GROUP S ASSETS To secure the repayment of Group companies borrowings and notes, including interest, a number of security instruments were provided to financing banks and noteholders, including in particular: promissory notes, representations on submission to enforcement, powers of attorney over bank accounts, assignment of claims under existing and future rental contracts, insurance policies, construction contracts and performance bonds, registered pledges over existing and future shares in subsidiaries, deposits, subordination agreements granting priority for satisfaction of claims under borrowings before any other claims. In addition, a number of mortgages were established on properties owned or held in perpetual usufruct by Group companies, the total value of which as at the date of issue of these interim condensed consolidated financial statements was PLN 1,418,604 thousand and EUR 643,392 thousand. Note18. EARNINGS PER SHARE Basic earnings per share are calculated by dividing the net profit for a given period attributable to holders of ordinary shares by the weighted average number of outstanding ordinary shares in that period. 50

51 Diluted earnings per share are calculated by dividing the net profit for a given period attributable to holders of ordinary shares by the weighted average number of outstanding ordinary shares in that period adjusted for the effect of dilutive options and dilutive redeemable preference shares convertible into ordinary shares. Calculation of loss (earnings) per share assumptions 9 months months 2014 Net profit/loss from continuing operations (38,233) 7,496 Profit/loss from discontinued operations 0 0 Loss (profit) reported for calculating basic earnings per share (38,233) 7,496 Dilutive effect 0 0 Loss (profit) reported for calculating diluted earnings per share (38,233) 7,496 Number of shares outstanding Sep Jun Weighted average number of shares reported for calculating basic earnings per share (thousand shares) 105, ,744 Effect of dilutive ordinary shares 2,450 3,186 share options 2,954 4,097 Weighted average number of ordinary shares reported for calculating diluted earnings per share (thousand shares) 107, ,930 Net loss (earnings) per share (PLN) Basic (0.36) 0.07 Diluted (0.36) 0.07 The entire loss was generated from continuing operations. Note19. CAPITAL MANAGEMENT The main objective of capital management is to maintain a safe capital structure. The Group monitors its capital position using the net debt ratio, calculated as net debt to total equity, as well as the debt ratio, calculated as total liabilities to total equity. Net debt ratio Sep Dec Sep Interest-bearing borrowings, lease liabilities and notes 967, , ,380 Cash and cash equivalents (55,645) (169,586) (112,611) Net debt 912, , ,769 Total equity 938, ,791 1,055,214 Equity and net debt 1,850,569 1,615,564 1,639,983 Net debt ratio 49.3% 39.4% 35.7% Note20. TAX SETTLEMENTS Tax settlements and other regulated areas of activity are subject to inspection by administrative authorities, which are authorised to impose significant fines and other sanctions. The lack of reference to established legal regulations in Poland gives rise to ambiguity and inconsistency of applicable regulations. Differences in the interpretation of tax legislation are frequent, both between governmental authorities and between those authorities and businesses, leading to uncertainty and conflicts. 51

52 Tax settlements may be subject to tax inspection for a period of five years from the end of the calendar year in which the tax payment was made. Such inspections may result in additional tax liabilities being imposed on the Group companies. Note21. EVENTS SUBSEQUENT TO THE REPORTING DATE None. 52

53 7.INTERIM CONDENSED FINANCIAL STATEMENTS OF CAPITAL PARK SPÓŁKA AKCYJNA 7.1 INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION ASSETS Sep Dec Sep Non-current assets Investments in subsidiaries 701, , ,796 Long-term loans advanced to subsidiaries 497, , ,836 Deferred tax assets 23,705 20,773 6,742 Other non-current assets 16,529 12, ,238,673 1,130,287 1,183,419 Current assets Short-term loans advanced to subsidiaries ,117 Trade and other receivables 5,188 3,694 3,500 Current prepayments and accrued income Cash and cash equivalents 14, ,191 42,115 19, ,992 72,784 TOTAL ASSETS 1,258,667 1,257,279 1,256,203 EQUITY AND LIABILITIES Sep Dec Sep Equity Share capital 105, , ,744 Share premium 858, , ,320 Other statutory reserve funds 24,543 24,543 24,543 Capital from measurement of share-option plan 6,735 4,776 6,937 Retained earnings/(deficit) (20,816) 4,198 4,196 Net profit/(loss) for the current period 9,191 (25,015) 28, , ,566 1,027,625 Non-current liabilities Long-term loans from related parties 60,615 57,825 54,974 Liabilities under issue of notes 152, , ,561 Liabilities under bank borrowings 47,167 42,536 41,622 Deferred tax liabilities and other liabilities 13,312 8,610 11, , , ,342 Current liabilities Liabilities under issue of notes 1,038 67,398 2,222 Trade payables Other liabilities and provisions 809 2, ,151 70,398 3,236 TOTAL EQUITY AND LIABILITIES 1,258,667 1,257,279 1,256,203 53

54 7.2 INTERIM CONDENSED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 9 months months 2014 Revenue Dividend income 0 27,618 Other income 0 78 Personnel costs (2,541) (5,202) Other expenses (1,917) (1,809) Impairment losses on shares in subsidiaries 0 0 Operating loss/(profit) (4,344) 20,783 Interest income 23,850 24,092 Interest expense (11,165) (10,883) Other finance costs (620) (1,892) Zysk/Strata na udziałach wycenianych metodą praw własności 3,383 0 Profit/(loss) before tax 11,104 32,100 Income tax (1,913) (3,215) Net loss (profit) 9,191 28,885 Total comprehensive income 9,191 28,885 Net earnings/(loss) per share (PLN) for the year Basic Diluted

55 7.3 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Other statutory reserve funds Capital from measurement of share-option plan Capital reserves from issue of shares pending registration Share Accumulated Net profit/(loss) Share capital premium net profit/(loss) for the year Total equity Equity at Jan , ,320 24,543 4, ,198 (25,015) 971,566 Issue of shares Share-based payments , ,959 Profit for the year ,191 9,191 Profit distribution (25,015) 25,015 0 Equity at Sep , ,320 24,543 6,735 0 (20,816) 9, ,321 Equity at Jan , , , ,185 4,196 24, ,026 Issue of shares 30, , (217,185) 0 0 1,511 Share-based payments , ,042 Profit for the year (25,015) (25,015) Profit distribution , (24,543) 2 Equity at Dec , ,320 24,543 4, ,198 (25,015) 971,566 55

56 7.4 INTERIM CONDENSED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES 9 months months 2014 Profit/(loss) before tax 11,104 32,100 Foreign exchange gains/(losses) (243) (31) Interest and profit distributions (dividends) (11,063) (5,273) Loss (profit) from investing activities (3,383) (6,289) Change in receivables (1,494) (13,883) Change in liabilities, net of borrowings and other debt instruments 732 (3,239) Valuation of employee share plan 1,959 5,202 Change in other assets (94) 150 Change in other provisions (2,150) (2,371) Other adjustments 4 12 Total adjustments (15,732) (25,722) A. Net cash from operating activities (4628) 6,377 INVESTING ACTIVITIES Loan repayments received from related parties 4,381 9,227 Interest received 624 2,360 Other cash provided by investing activities Acquisition of property, plant and equipment (4) (58) Loans granted to related parties (83,258) (106,342) Purchase of shares (45,800) Dividends received 0 27,618 B. Net cash from investing activities (78,257) (112,862) FINANCING ACTIVITIES Proceeds from bonds issue 46,115 55,000 Proceeds from issue of shares 0 131,795 Proceeds from borrowings 5,200 0 Interest paid (11,843) (10,093) Bonds redemption (65,000) 35,000 Repayment of borrowings from related parties 0 (4,775) C. Net cash from financing activities (25,528) 136,928 D. Total net cash flows (108,413) 30,443 E. Net (decrease)/increase in cash and cash equivalents: (108,413) 30,443 F. Cash and cash equivalents at beginning of the year 123,191 11,672 G. Cash and cash equivalents at end of the year 14,778 42,115 56

57 Warsaw, November 13th 2015 SIGNATURE OF THE PERSON WHO PREPARED THE FINANCIAL STATEMENTS: Małgorzata Koc Chief Accountant SIGNATURES OF MANAGEMENT BOARD MEMBERS: Jan Motz President of the Management Board Michał Koślacz Member of the Management Board Marcin Juszczyk Member of the Management Board Jerzy Kowalski Member of the Management Board 57

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