FULL-YEAR CONSOLIDATED FINANCIAL STATEMENTS OF THE CAPITAL PARK GROUP

Transcription

1 FULL-YEAR CONSOLIDATED FINANCIAL STATEMENTS OF THE CAPITAL PARK GROUP

2 TABLE OF CONTENTS I. REPRESENTATIONS OF THE MANAGEMENT BOARD... 3 II. CONSOLIDATED FINANCIAL HIGHLIGHTS GENERAL INFORMATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1. INVESTMENT PROPERTY Note 2. OTHER NON-CURRENT FINANCIAL ASSETS Note 3. OTHER NON-CURRENT ASSETS Note 4. INVENTORY Note 5. OTHER RECEIVABLES AND OTHER CURRENT ASSETS Note 6. TRADE RECEIVABLES Note 7. OTHER CURRENT FINANCIAL ASSETS Note 8. CASH AND CASH EQUIVALENTS Note 9. EQUITY Note 10. BANK BORROWINGS AND OTHER FINANCIAL LIABILITIES Note 11. LIABILITIES UNDER NOTES IN ISSUE Note 12. OTHER LIABILITIES AND PROVISIONS Note 13. TRADE PAYABLES Note 14. RENTAL INCOME Note 15. OPERATING EXPENSES BY NATURE Note 16. GAIN AND LOSS ON INVESTMENT PROPERTY REVALUATION Note 17. FINANCE INCOME AND COSTS Note 18. CURRENT AND DEFERRED INCOME TAX Note 19. GUARANTEES AND SURETIES Note 20. SECURITY ESTABLISHED ON THE GROUP S ASSETS Note 21. OTHER CONTRACTUAL OBLIGATIONS AND COMMITMENTS Note 22. CAPITALISED BORROWING COSTS Note 23. OPERATING SEGMENTS Note 24. EARNINGS PER SHARE Note 25. FINANCIAL INSTRUMENTS Note 26. FINANCIAL RISK MANAGEMENT Note 27. CAPITAL MANAGEMENT Note 28. WORKFORCE Note 29. REMUNERATION OF MEMBERS OF THE CORPORATE BODIES Note 30. TRANSACTIONS WITH THE QUALIFIED AUDITOR Note 31. RELATED-PARTY TRANSACTIONS Note 32. TAX SETTLEMENTS Note 33. EVENTS SUBSEQUENT TO THE REPORTING DATE

3 I. REPRESENTATIONS OF THE MANAGEMENT BOARD Representation of Capital Park S.A. s Management Board on the reliability of the full-year consolidated financial statements and the Directors Report on the Group s operations The Management Board of Capital Park S.A. represents that, to the best of its knowledge, these full-year consolidated financial statements of the Capital Park Group and the comparative data have been prepared in compliance with the applicable accounting standards and give a true, fair and clear view of the Group s assets, financial position and financial performance. These financial statements give a true picture of the Group s development, achievements and standing; they also include a description of key risks and threats. 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. Warsaw, March 19th 2015 SIGNATURES OF MANAGEMENT BOARD MEMBERS: Jan Motz President of the Management Board Jerzy Kowalski Member of the Management Board Marcin Juszczyk Member of the Management Board Michał Koślacz Member of the Management Board 3

4 Representation of the Capital Park S.A. s Management Board on the auditor of the full-year consolidated financial statements of the Group The Management Board of Capital Park S.A. represents that the auditing firm and the auditor who audited the fullyear consolidated financial statements of the Capital Park Group met the conditions required to issue an impartial and independent auditor s opinion and report, in accordance with the applicable laws and professional standards. Warsaw, March 19th 2015 SIGNATURES OF MANAGEMENT BOARD MEMBERS: Jan Motz President of the Management Board Jerzy Kowalski Member of the Management Board Marcin Juszczyk Member of the Management Board Michał Koślacz Member of the Management Board 4

5 II. CONSOLIDATED FINANCIAL HIGHLIGHTS Dec Dec * PLN 000 EUR 000 PLN 000 EUR 000 Total assets 1,871, ,068 1,620, ,852 Investment property 1,595, ,442 1,321, ,686 Cash and cash equivalents 169,586 39,787 68,014 16,400 Equity 979, ,874 1,038, ,386 Non-current liabilities 722, , , ,767 Current liabilities 168,771 39,596 44,372 10, months months 2013* PLN 000 EUR 000 PLN 000 EUR 000 Operating income 56,393 13,461 40,475 9,612 Revaluation of properties (60,976) (14,555) 25,323 6,014 Profit before tax (64,371) (15,366) 33,472 7,949 Net profit (63,615) (15,185) 27,448 6,518 Cash flows from operating activities 22,632 5,402 10,483 2,489 Cash flows from investing activities (279,595) (66,740) (53,471) (12,698) Cash flows from financing activities 358,535 85,584 46,652 11,079 * The table presents comparative data based on the financial statements as at December 31st 2013 that have been restated in connection with retrospective application of IFRS 11. Details of the restatement are presented in Section 6.6 of these financial statements. 5

6 FULL-YEAR CONSOLIDATED FINANCIAL STATEMENTS OF THE CAPITAL PARK GROUP FOR

7 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. Marynarska 11, 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 These full-year consolidated financial statements contain data for the period January 1st December 31st The comparative data in thee consolidated financial statements is presented: in the consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows for the period January 1st December 31st 2013, in the consolidated statement of financial position as at December 31st 2013, in the consolidated statement of changes in equity for the period January 1st December 31st 2013, and has been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (IFRS). Comparative data has been presented on the basis of restated financial statements as at December 31st For details of the restatement, see Section 6.6 of these financial statements. 7

8 1.4. MEASUREMENT OF ITEMS DENOMINATED IN FOREIGN CURRENCIES The following exchange rates are used in these financial statements: EUR/PLN Jan 1 Dec Jan 1 Dec Exchange rate effective for the end of the reporting period Average exchange rate in the reporting period INDEPENDENT AUDITORS PKF Consult Sp. z o.o.; ul. Orzycka 6, suite 1B, Warsaw, Poland 1.6. LAWYERS Ishikawa Brocławik Sajna Sp.p. Adwokaci i Radcowie Prawni Al. Słowackiego 66, Kraków, Poland 1.7. BANKS AND FINANCIAL INSTITUTIONS Bank Polska Kasa Opieki S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Alior Bank S.A., BNP Paribas Bank Polska S.A., BNP Paribas Lease Group sp. z o.o, 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, ING Bank Śląski S.A., The Royal Bank of Scotland PLC CAPITAL PARK S.A. S SHAREHOLDING STRUCTURE At the reporting date, 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. á r. l. 77,759, % 77,759, % Jan Motz 2,805, % 5,571, % Other 24,178, % 24,178, % Total 104,744, % 107,509, % At the publishing date the following shareholders held shares in the Parent: Number of % ownership Number of % of total Shareholder shares interest voting rights voting rights CP Holdings S. á r. l. 77,759, % 77,759, % Jan Motz 2,805, % 5,571, % Other 24,782, % 24,782, % Total 105,348, % 108,113, % 8

9 1.9. STRUCTURE OF THE GROUP a) Below is presented a list of companies directly and indirectly related to the Parent, consolidated as at December 31st 2014: Ownership interest and No. Name Registered office Principal business activity voting 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% 9

10 Ownership interest and No. Name Registered office Principal business activity voting rights held (%) 31 Marlene Investments Sp. z o.o. Warsaw Construction of buildings and property management 100% 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% 35 Real Estate Income Assets Fundusz Inwestycyjny Zamknięty Aktywów Warsaw Private equity investment fund 15% 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. 8 Sp.Kom. 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% 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. 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). 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 FI ZAN investment certificates. Under the agreement and pursuant to Art of 10

11 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 a 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. Change in the method of consolidation of the assets, liabilities, and profit or loss of jointly-controlled entities, that is: Patron Wilanów S. à r.l., Rezydencje Pałacowa Sp. z o.o. and RM 1 Sp. z o.o. In connection with the new IFRS 11 Joint Arrangements, published by the International Accounting Standards Board in June 2011 and effective for annual periods beginning on January 1st 2014, the Group discontinued presentation of the relevant portion of assets and liabilities of the entities specified above. In accordance with Appendix C to IFRS 11 Joint Arrangements, the Group discloses only equity interests in jointlycontrolled entities (it ceased to consolidate them using the proportionate method and accounts for them using the equity method). As a result, there were changes in the comparative data as at June 30th 2013 and December 31st All Group s receivables from and liabilities towards these entities are classified as transactions with non-related entities. The change in accounting for the jointly-controlled entities had no material impact on the Group s equity. Approved/published comparative data and comparative data that has been restated for the purposes of the consolidated statement of financial position, along with an explanation of key changes, are presented in the tables in Note

12 b) Changes in the Group s structure during the reporting period, i.e. January 1st December 31st 2014: Changes in the structure of Real Estate Income Assets FIZ AN (closed end private equity investment fund) In May 2014, the special purpose vehicles of Real Estate Income Assets FIZ AN, i.e. CP Property Sp. z o.o. SPV 1 SKA, CP Property Sp. z o.o. SPV 2 SKA, CP Property Sp. z o.o. SPV 3 SKA, CP Property Sp. z o.o. SPV 4 SKA, CP Property Sp. z o.o. SPV 5 SKA, and CP Property Sp. z o.o. SPV 6 SKA ( SPVs ) changed their legal form from partnerships limited by shares (spółka komandytowo-akcyjna) to limited partnerships (spółka komandytowa). Subsequently, on May 13th 2014 CP Property SCSp of Luxembourg was established and received REIA FIZ AN s contribution in the form of the SPVs. Establishment of new SPVs On April 9th 2014, CP Retail (SPV 1) Sp. z o.o. was established as a company wholly-owned by CP RETAIL B.V. of the Netherlands. The special purpose vehicle was established by the Group to pursue new investment objectives. On August 12th 2014, CP Retail (SPV 2) Sp. z o.o. was established as a company wholly-owned by Capital Park S.A. of Warsaw. The special purpose vehicle was established by the Group to pursue new investment objectives. On September 16th 2014, CP Invest S.A. was established as a company wholly-owned by Capital Park S.A. of Warsaw. The object of the company is to carry out the activities of a financial holding company. Liquidation of SPVs On May 15th 2014, the Extraordinary General Meetings of the following SPVs: Felipe Investments Sp. z o.o., Calista Investments Sp. z o.o., Capital Park Opole Sp. z o.o. Sp. kom., Delphine Investments Sp. z o.o., and Emily Investments Sp. z o.o. resolved to dissolve the companies and close their liquidation. As at December 31st 2014, the operations of all these SPVs had been discontinued and they had been deleted from the National Court Register. Merger of subsidiaries On January 28th 2014, a merger plan was executed to combine the following SPVs of the Group: Roan Investments Sp. z o.o., Pablo Investments Sp. z o.o., Octavio Investments Sp. z o.o., Camael Investments Sp. z o.o., Cressida Investments Sp. z o.o., Makai Investments Sp. z o.o., Capital Park TMI Sp. z o.o., Tetrao Investments Sp. z o.o., Capone Investments Sp. z o.o., Marco Investments Sp. z o.o., Doria Investments Sp. z o.o., Foxy Investments Sp. z o.o., Vika Investments Sp. z o.o., and Vera Investments Sp. z o.o. The merger was effected through incorporation of a new company, Vera Investments Bis Sp. z o.o., to which all assets of the merging companies were transferred in exchange for shares in the new company (merger by formation of a new company - Art of the Commercial Companies Code). The share exchange ratio was 1:1, that is one share in a merging company was exchanged for one share in the new company. The share capital of the new company was PLN 28,255,000, representing the sum of the equity of the merged companies, and was divided into 56,510 shares with a par value of PLN 500 per share. Shares in the new company were subscribed for by the merging companies shareholders at the exchange ratio. Contribution of shares in Dakota Investments Sp. z o.o. to CP Retail B.V. On December 30th 2014, Capital Park S.A. sold its entire shareholding in its subsidiary Dakota Investments Sp. z o.o., owner of a real property located in Warsaw, to its subsidiary CP Retail B.V. by way of a contribution of 103,246 shares with a total par value of PLN 51,623,000 and a carrying amount of PLN 284,516,662 as at December 30th 2014, an equivalent of EUR 67,643,817, made in exchange for 67,643,817 new shares in CP Retail B.V. with a par value of EUR 1 per share. 12

13 1.10. 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 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 December 31st 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). The Parent s Management Board represents that the auditor of these consolidated financial statements was appointed in compliance with the applicable laws, and that both the auditing firm and the auditors who performed the audit met the conditions required to issue an impartial and independent auditor s opinion and report, in accordance with the applicable provisions of Polish law. The auditor was appointed by the Extraordinary General Meeting of Capital Park S.A. by virtue of its Resolution No. 3 of October 13th 2014 on appointment of the auditor. The Extraordinary General Meeting selected the auditor with due regard for the impartiality and objectivity of the selection itself, as well as of the performance of the auditor s tasks. 13

14 1.11. APPROVAL OF FINANCIAL STATEMENTS These consolidated financial statements were approved for issue and signed by the Parent s Management Board on March 19th Warsaw, March 19th 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 14

15 2. CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Note Dec Dec * Non-current assets Investment property 1 1,595,986 1,321,653 Deferred tax assets 18 20,265 11,087 Other financial assets 2 32,604 32,146 Other non-current assets ,649,511 1,365,674 Current assets Inventory 4 24,452 33,733 Other receivables and other current assets 5 16, ,660 Trade receivables 6 5,933 2,243 Other financial assets 7 5,809 5,618 Cash and cash equivalents 8 169,586 68, , ,268 TOTAL ASSETS 1,871,440 1,620,942 EQUITY AND LIABILITIES Note Dec Dec * Equity Share capital 9 104,744 74,559 Statutory reserve funds 858, ,809 Other capital reserves 9 12,568 9,526 Reserve capital under non-registered share capital and statutory reserve funds 0 217,185 Exchange differences on translating foreign operations 397 (1,940) Retained earnings/(deficit) 454 (25,097) Net profit/(loss) for the current period (61,468) 25,551 Non-controlling interests 9 64,776 68, ,791 1,038,400 Non-current liabilities Bank borrowings and other financial liabilities , ,543 Liabilities under notes in issue ,344 98,126 Other liabilities and provisions 12 16,347 8,034 Deferred tax liabilities 18 13,309 11, , ,170 Current liabilities Bank borrowings and other financial liabilities 10 44,739 17,082 Liabilities under notes in issue 11 67,398 3,670 Trade payables 13 14,569 12,254 Other liabilities and provisions 12 42,065 11, ,771 44,372 TOTAL EQUITY AND LIABILITIES 1,871,440 1,620,942 * The table presents comparative data based on the financial statements as at December 31st 2013 that have been restated in connection with retrospective application of IFRS 11 Details of the restatement are presented in Section 6.6 of these financial statements. 15

16 3. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Note 12 months months 2013* Rental income 14 54,833 38,722 Direct property operating expenses 15 (13,312) (9,444) Net operating profit 41,521 29,278 Income from property management Loss (gain) on disposal of investment property (981) 0 Other revenue 1,610 1,219 Cost of operation of SPVs 15 (5,864) (7,061) General and administrative expenses 15 (6,519) (6,345) Renovation and repair of property 15 (976) (1,382) Distribution costs 15 0 (307) Cost of share-option plan measurement 15 (3,906) 1,731 Loss on investment property revaluation 16 (60,976) 25,323 Operating profit (35,160) 42,989 Interest income 17 4,450 2,475 Interest expense 17 (18,906) (15,568) Loss on measurement of financial liabilities 17 (14,755) 3,576 Profit before tax (64,371) 33,472 Income tax 18 5,538 (1,277) Share in net loss of equity-accounted entities (4,782) (4,747) Net profit (63,615) 27,448 Exchange differences on translating foreign operations 2,337 (1,851) Total comprehensive income (61,278) 25,597 Net profit attributable to owners of the parent (61,468) 25,551 Net loss attributable to non-controlling interests (2,147) 1,897 Net earnings/(loss) per share (PLN) Basic (0.59) 0.34 Diluted (0.59) 0.33 The entire profit was generated from continuing operations. * The table presents comparative data based on the financial statements as at December 31st 2013 that have been restated in connection with retrospective application of IFRS 11. Details of the restatement are presented in Section 6.6 of these financial statements. 16

17 4. 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 , , ,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 , ,042 Profit distribution ,551 (25,551) 0 0 Dividend payment (4,113) (4,113) Total comprehensive income ,337 0 (61,468) 82 (59,049) Equity as at Dec , , , (61,468) 64, ,791 Equity as at Jan * 74, , ,840 (1,991) 89,798 (114,895) 2, ,585 Issue of shares , ,185 Share-based payments (1,731) (1,731) Changes in the Group s structure (3,583) (3,583) Profit distribution (114,895) 114, Total comprehensive income ,551 66,342 91,944 Equity as at Dec * 74, , ,185 9,526 (1,940) (25,097) 25,551 68,807 1,038,400 * The table presents comparative data based on the financial statements as at December 31st 2013 that have been restated in connection with retrospective application of IFRS 11 Details of the restatement are presented in Section 6.6 of these financial statements. 17

18 5. CONSOLIDATED STATEMENT OF CASH FLOWS 12 months 12 months OPERATING ACTIVITIES * Profit/(loss) before tax (64,371) 33,472 Foreign exchange losses 11,655 (5,255) Interest and profit distributions (dividends) (14,759) (13,686) Loss (profit) from investing activities 62,266 (40,182) Change in trade receivables (4,022) 35,857 Change in liabilities, net of borrowings 7,989 12,284 Valuation of employee share plan 3,906 (1,731) Change in other assets 7,140 (5,998) Change in provisions 1,181 7,221 Impairment losses 11,522 2,531 Amortisation and depreciation Other adjustments (10) (11,122) Total adjustments 87,272 (19,716) Cash from operating activities 22,901 13,756 Income tax refunded/(paid) (269) (3,273) A. Net cash from operating activities 22,632 10,483 INVESTING ACTIVITIES Interest on deposits 2,932 1,076 Proceeds from disposal of investment property and inventories 3,404 0 Other cash provided by investing activities Proceeds from sale of certificates 0 60,861 Purchase of investment property (282,849) (111,359) Purchase of shares (65) 0 Loans advanced (2,758) (3,957) Purchase of intangible assets and property, plant and equipment (432) (92) B. Net cash from investing activities (279,595) (53,471) FINANCING ACTIVITIES Proceeds from issue of shares 131,795 (1,098) Proceeds from issue of notes 108,886 0 Proceeds from borrowings 198, ,015 Dividends and other distributions to owners (4,113) 0 Interest paid (20,955) (14,879) Redemption of notes (35,000) 0 Repayment of borrowings, lease payments (20,314) (56,386) C. Net cash from financing activities 358,535 46,652 D. Total net cash flows 101,572 3,664 E. Net (decrease)/increase in cash and cash equivalents: 101,572 3,664 F. Cash and cash equivalents at beginning of period 68,014 64,350 G. Cash and cash equivalents at end of period 169,586 68,014 * The table presents comparative data based on the financial statements as at December 31st 2013 that have been restated in connection with retrospective application of IFRS 11 Details of the restatement are presented in Section 6.6 of these financial statements. 18

19 6. SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS 6.1 STATEMENT OF COMPLIANCE These 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 December 31st 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 consolidated financial statements is presented in thousands of Polish złoty (the Group s functional currency and presentation currency), rounded to the nearest thousand. These consolidated financial statements have been prepared applying the historical cost convention, except for investment property and derivative financial instruments measured at fair value through profit or loss, and liabilities under notes in issue measured at amortised cost. These consolidated financial statements have been audited by an independent auditor. The auditor s opinion and report are 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. 19

20 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. The Group applies this accounting policy following amendments to IFRS 10, which are effective for reporting periods beginning on or after January 1st The presentation change concerns all reporting periods presented, starting from the earliest. Accordingly, the financial data for the reporting periods ending on or before December 31st 2012 has been appropriately restated. 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 consolidated financial statements for the period ended December 31st 2014 cover the entities listed in Section 1.9 of these 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 1.9 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. and RM 1 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). 20

21 The basis of consolidation of the financial data of subsidiaries is presented in detail in Section 1.9 of this report. 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). 21

22 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 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. 22

23 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. 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: 23

24 - 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; - 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. 24

25 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. 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. 25

26 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. 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). 26

27 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. 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. 27

28 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. 28

29 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, 29

30 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 30

31 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. 31

32 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. 32

33 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 trade date, or the date on which the Group becomes party to an agreement under which it is obliged to deliver the financial instrument. 33

34 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 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. 34

35 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. 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. 35

36 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, 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. Determination of net operating profit from core operations 36

37 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: 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. 37

38 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. 6.5 AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The accounting policies applied to prepare the 2014 financial statements were consistent with the policies applied to draw up the 2013 financial statements, except for the following new or amended standards and interpretations endorsed by the European Union and effective for annual periods beginning on or after January 1st 2014: a) IFRS 10 Consolidated Financial Statements 38

39 b) IFRS 11 Joint Arrangements c) IFRS 12 Disclosure of Interests in Other Entities d) Amended IAS 27 Separate Financial Statements e) Amended IAS 28 Investments in Associates and Joint Ventures f) Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, and IAS 27 Separate Financial Statements Investment Entities g) Amendments to IAS 32 Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities h) Amendments to IAS 36 Impairment of Assets Recoverable Amount Disclosures for Non-Financial Assets i) Amendments to IAS 39 Financial Instruments: Recognition and Measurement Novation of Derivatives and Continuation of Hedge Accounting j) IFRIC 21: Levies In 2014, the Company adopted all the new and approved standards and interpretations issued by the International Accounting Standards Board and the Interpretations Committee and endorsed by the EU, which apply to the Company s business and are effective for reporting periods beginning on or after January 1st Application of the above amendments to standards had no effect on the Group s accounting policies or the presentation of data in its financial statements, except to the extent discussed in Section 1.9 of these financial statements Method of consolidation of the assets, liabilities, and profit or loss of jointly-controlled entities. As at the date of these separate financial statements, the Company did not apply the following standards, amendments and interpretations which have been published and endorsed for application in the EU but have not yet become effective: a) Amendments to IFRS ( ) changes in the procedure of introducing annual amendments to IFRS effective for reporting periods beginning on or after July 1st 2014, b) Amendments to IFRS ( ) changes in the procedure of introducing annual amendments to IFRS effective for reporting periods beginning on or after July 1st 2014, c) Amendments to IAS 19 Defined Benefit Plans: Employee Contributions effective for reporting periods beginning on or after July 1st Standards and Interpretations adopted by the IASB, but not yet endorsed by the EU: a) IFRS 9 Financial Instruments (of November 12th 2009, with subsequent amendments to IFRS 9 and IFRS 7 of December 16th 2011) The new standard replaces the guidance contained in IAS 39 Financial Instruments: Recognition and Measurement, regarding classification and measurement of financial assets. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables. Financial assets will be classified into one of two categories on initial recognition: - financial assets measured at amortised cost, or 39

40 - financial assets at fair value. A financial asset that meets the following two conditions can be measured at amortised cost: the objective of the entity s business model is to hold the financial asset to collect the contractual cash flows, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. Gains and losses on remeasurement of financial assets measured at fair value are recognised in profit or loss for the reporting period, except for an investment in an equity instrument which is not held for trading. IFRS 9 provides, on initial recognition, an irrevocable election to present all fair value changes from the investment in other comprehensive income (OCI). Such election is irrevocable. The election is available on an individual instrument-by-instrument basis. No amount recognised in OCI may be ever reclassified to profit or loss at a later date. b) IFRS 14 Regulatory Deferral Accounts effective for reporting periods beginning on or after January 1st 2016 The standard was published as part of a larger project entitled Rate-Regulated Activities, which focuses on the comparability of financial statements of entities operating in areas subject to rate regulation by specific regulatory or supervisory bodies (depending on the jurisdiction, such areas often include electricity and heat distribution, electricity and gas sales, telecom services etc.). Rather than addressing a wide range of issues related to accounting policies applicable to rate-regulated activities, IFRS 14 defines only the rules governing disclosure of balances of income or expense accounts that would not be recognised as an asset or liability in accordance with other IFRSs but that qualify for deferral in line with regulations on rate control. IFRS 14 may be applied if an entity conducts rate-regulated activities and has recognised amounts that meet the definition of regulatory deferral account balances in its financial statements prepared in accordance with previous accounting policies. Under IFRS 14, such items should be disclosed in a separate item of assets or liabilities in the statement of financial position. These items are not classified as current or non-current and are not referred to as assets or liabilities. Consequently, deferral accounts presented under assets should be disclosed as deferral account debit balances, whereas accounts under liabilities as deferral account credit balances. The entities should disclose net movements in those balances in profit or loss or other comprehensive income, separately in other comprehensive income and in profit or loss (or in the separate statement of profit or loss). c) IFRS 15 Revenue from Contracts with Customers effective for reporting periods beginning on or after January 1st 2017 IFRS 15 specifies how and when an entity should recognise revenue and requires IFRS reporters to provide relevant disclosures. The standard provides a single, principles based five-step model to be applied for recognition of revenue under all contracts with customers. d) Amendments to IAS 16 Property, Plant and Equipment, and IAS 41 Agriculture: Bearer Plants effective for reporting periods beginning on or after January 1st 2016 The amendment calls that bearer plants, currently regulated under IAS 41 Agriculture, be recognised in line with IAS 16 Property Plant and Equipment, i.e. 40

41 measured at cost or at revaluation. Under IAS 41, all biological assets used in agriculture are measured at fair value less estimated costs to sell. e) Amendments to IAS 16 Property, Plant and Equipment, and IAS 38 Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortisation effective for reporting periods beginning on or after January 1st 2016 The amendments restate that the method used to depreciate property, plant and equipment should reflect the pattern in which the asset s economic benefits are consumed by the enterprise. The amendments to IAS 16 also clarify that the revenue-based method (with depreciation charges recognised proportionately to revenue generated by the entity using the tangible asset) is not correct. The IASB argues that revenue is affected by a number of factors, including inflation, which is in no way connected to the manner of consumption of economic benefits related to property, plant and equipment. As regards intangible assets (amendments to IAS 38), it was decided that in some circumstances the application of revenue-based amortisation is warranted. This may be the case if the entity proves that there is a direct correlation between revenue and consumption of economic benefits produced by the asset and if, at the same time, the asset is a right to collect a given amount of revenue (and will expire once the entity has reached that amount). One example of such an asset is a licence to mine gold until a given revenue is generated. f) Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations effective for reporting periods beginning on or after January 1st 2016 The amendments introduce additional guidelines for acquisitions of shares in join operations which constitute businesses, as defined in IFRS 3. IFRS 11 clarifies that in such circumstances the entity should, to the extent of its participation in the joint operation, apply the principles defined in IFRS 3 Business Combinations (and other IFRSs which are not contrary to IFRS 11) and disclose information required in relation to such combinations. More detailed guidelines concerning recognition of goodwill, impairment tests, etc., are presented in part B of the standard. The Company estimates that the above standards, interpretations and amendments to standards will not have a material bearing on its financial statements. 6.6 RESTATEMENT OF DATA IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION IN CONNECTION WITH AMENDMENTS TO IFRS 11 JOINT ARRANGEMENTS The amendments to IFRS 11 limit the use of the proportionate method in the consolidation of financial statements. Consequently, the shares of Patron Wilanów, Rezydencje Pałacowa and RM1, the Group s jointly controlled entities which were previously consolidated with the proportionate method, are accounted for with the equity method as at December 31st The changes under IFRS 11 should be applied retrospectively, and therefore the consolidated financial data as at December 31st 2013 has been restated in such a manner as if the new policy had been first applied in A relevant part of assets and liabilities of companies whose shares are accounted for with the equity method was excluded from the consolidated comparative data as at December 31st Also, the Group has presented its claims under loans advanced to Patron Wilanów, its jointly-controlled entity. The Group s shares in Patron Wilanów, Rezydencje Pałacowa and RM 1 are measured at fair value based on the companies net assets. Given that the companies net assets as at December 31st 2012 were negative, it was agreed 41

42 that the value of the shares in those companies is zero. If the shares had been accounted for with the equity method as at December 31st 2012, the Group s 2012 profit or loss would have been PLN 4,564 thousand lower, due to an impairment loss on those shares. During restatement of the financial data as at December 31st 2013, the Group s undistributed profit for the period ended December 31st 2012 was reduced by impairment losses of PLN 4,564 thousand on shares in Patron Wilanów, Rezydencje Pałacowa and RM 1. The tables below (on the following pages) present the effects of the restatement of financial data together with explanations of the key changes. 42

43 Restated Change Approved ASSETS Dec Dec Dec Non-current assets Investment property 1,321,653 (9,213) 1 1,330,866 Deferred tax assets 11,087 (1,290) 12,377 Other financial assets 32,146 24,678 Other non-current assets ,365,674 14,176 1,351, ,468 Current assets Inventory 33,733 (29,803) 3 63,536 Other receivables and other current assets 145,660 (446) 146,106 Trade receivables 2,243 (455) 2,698 Other financial assets 5, ,618 Cash and cash equivalents 68,014 (1,765) 69, ,268 (32,469) 287,737 TOTAL ASSETS 1,620,942 (18,293) 1,639,235 EQUITY AND LIABILITIES Dec Dec Dec Equity Share capital 74, ,559 Statutory reserve funds 669, ,809 Other capital reserves 9, ,526 Reserve capital under non-registered share capital and statutory reserve funds Exchange differences on translating foreign operations 217, ,185 (1,940) (136) (1,804) Retained earnings/(deficit) (25,097) (4,564) 4 (20,533) Net profit/(loss) for the current period 25, ,551 Non-controlling interests 68, ,807 1,038,400 (4,700) 1,043,100 Non-current liabilities Bank borrowings and other financial liabilities 420, ,543 Liabilities under notes in issue 98, ,126 Other liabilities and provisions 8,034 4,151 3,883 Deferred tax liabilities 11,467 (589) 12,056 Current liabilities 538,170 3, ,608 Bank borrowings and other financial liabilities 17,082 (12,971) 5 30,053 Liabilities under notes in issue 3, ,670 Trade payables 12,254 (3,309) 15,563 Other liabilities and provisions 11,366 (875) 12,241 44,372 (17,155) 61,527 TOTAL EQUITY AND LIABILITIES 1,620,942 (18,293) 1,639, interest in investment property of a company previously consolidated with the proportionate method receivables under a loan advanced by the Parent to a jointly-controlled company interest in inventories of a company previously consolidated with the proportionate method 4 5 change in undistributed profit resulting from accounting for jointly-controlled companies using the equity method portion of a credit facility liability of a company previously consolidated with the proportionate method 43

44 6.7 FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY Items of the consolidated financial statements are measured in the currency of the primary economic environment in which the Group operates ( functional currency ). These 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. 6.8 MATERIAL ESTIMATES AND JUDGEMENTS While preparing 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. 6.9 MANAGEMENT BOARD S MATERIAL ESTIMATES AND ASSUMPTIONS 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 58,665 thousand, which would reduce its net assets as at December 31st 2014 by that amount. 44

45 6.10 NOTES TO THE FULL-YEAR CONSOLIDATED FINANCIAL STATEMENTS Note 1. 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 Number of projects Share as at Dec Dec Dec Office 6 43% 681, ,069 Mixed-use 4 34% 536, ,813 Retail 47 18% 285, ,303 Value added 11 5% 91,887 94, % 1,595,986 1,321,653 Dec Dec Gross carrying amount at beginning of period 1,321,653 1,158,497 Increase, including: 328, ,156 purchase of investment property 26,938 10,792 capitalisation of subsequent expenditure 1 301, ,289 net profit from property revaluation at fair value 0 27,075 Decrease, including: (53,832) 0 sale of investment property (3,335) 0 net loss from property revaluation at fair value (50,497) 0 Gross carrying amount at end of period [PLN 000] 1,595,986 1,321,653 Gross carrying amount at end of period [EUR 000] 374, ,686 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 the measurement of 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. 45

46 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 a total of 42 properties under finance lease agreements, with a value of PLN 246,480 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 December 31st 2014 and December 31st 2013, 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. Properties valued using the above method jointly account for 53.5% of the Group s investment property portfolio. Below are presented the key assumptions used in the calculation of the fair value of this category of real property: Name Location Status Total area (thousand m2) NOI (PLN 000) Yield Carrying amount (PLN 000) Eurocentrum Office Complex Phase 1 Beta, Gamma Warsaw completed 43 27, % 411,090 Eurocentrum Alfa Warsaw completed 14 7, % 106,291 Racławicka Point Warsaw completed 2 2, % 32,556 Sobieskiego 104 Warsaw completed 4 2, % 34,779 Vis à Vis Radom Radom completed 4 2, % 31,678 Vis à Vis Łódź Łódź completed 6 3, % 38,573 Toruń, Szosa Lubicka Toruń completed 3 1, % 19,435 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. Properties valued using the above method jointly account for 40% of the Group s investment property portfolio. 46

47 Below are presented the key assumptions used in the calculation of the fair value of this category of real property: Name Location Status Total area (thousand m2) NOI (PLN 000) Yield Outlays to be made after Dec Carrying amount (PLN 000) ArtN Warsaw In pipeline 65 63, % 718, ,285 Royal Wilanów Eurocentrum Office Complex Phase 2 Delta Warsaw Warsaw under construction under construction 37 28, % 182, , , % 173, ,661 Piano House Gdańsk In pipeline 5 3, % 36,483 8,914 Topos Kraków In pipeline % 5,156 2,150 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. Properties valued using the above method jointly account for 1% of the Group s investment property portfolio. 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. Properties valued using the above method jointly account for 5.5% of the Group s investment property portfolio. 47

48 Note 2. OTHER NON-CURRENT FINANCIAL ASSETS Under other financial assets the Group discloses loans advanced to jointly-controlled entities and valuation of a financial instrument (forward contact). Non-current investments Dec Dec Loans advanced to jointly-controlled entities 28,780 24,679 Impairment losses on loans advanced to jointly-controlled entities (4,000) 0 Valuation of derivative financial instruments 7,824 7,448 Value of shares in jointly-controlled entities 6,637 6,656 Impairment losses on shares in jointly-controlled entities (6,637) (6,637) 32,604 32,146 Loans advanced comprise claims under loans advanced by Capital Park S.A. to Patron Wilanów, a jointly-controlled entity, plus accrued interest, less impairment loss. Other financial assets mainly include measurement of a forward contract used to hedge future cash flows from planned conversion of the construction credit facility used to finance the Eurocentrum project (Phase 1). Upon completion of the construction process, the PLN-denominated facility will be repaid with a new facility, denominated in a foreign currency. The forward contract was entered into with Pekao S.A., with the settlement date of March 31st 2016 and at the EUR/PLN exchange rate of 4.5. The carrying amount of interests in equity-accounted joint ventures presented by the Group as at December 31st 2014 was zero (the interests were valued at PLN 6,637 thousand and an impairment loss was recognised for the full value of those interests). Note 3. OTHER NON-CURRENT ASSETS Dec Dec Property, plant and equipment Non-current prepayments and accrued income Intangible assets Non-current receivables The Group s property, plant and equipment mainly comprise leasehold improvements at the Group s headquarters. 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. 48

49 Note 4. INVENTORY Under inventory the Group discloses four residential projects, whose total value as at December 31st 2014 was PLN 24,452 thousand (December 31st 2013: PLN 33,733 thousand). The change in inventory relative to the end of 2013 chiefly results from the sale of a residential project (Villa Syrena) and one apartment (in the Rubinowy Dom project). Dec Dec Carrying amount at beginning of period 33,733 35,356 Increase, including: Capital expenditure Impairment losses (derecognition) 0 0 Decrease, including: Sale of apartments and houses (9,646) (1 752) (5,021) 0 Impairment losses (4,625) (1,752) Carrying amount at end of period 24,452 33,733 Note 5. OTHER RECEIVABLES AND OTHER CURRENT ASSETS Dec Dec Receivables from the government 6,124 7,842 Current prepayments and accrued income 800 1,239 Other receivables 3,377 0 Prepayments for property 5,848 0 Receivables from share issue 0 136,579 16, ,660 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. Other receivables include chiefly PLN 2,138 thousand under the sale of a residential project in Elbląg. As at December 31st 2013, under receivables from share issue the Group disclosed cash of PLN 136,579 thousand, which at the reporting date was held by the offering broker (Dom Maklerski mbanku S.A.). On February 14th 2014, the Commercial Court registered the increased share capital of Capital Park S.A. following the Company s initial public offering and the share capital increase resulting from the acquisition of shares by CP Holdings S.á r. l., the Company s shareholder. On February 17th 2014, the proceeds were made available to Capital Park S.A. Current prepayments and accrued income Dec Dec Prepaid auxiliary services Costs of on-going projects Accrued income Other prepayments and accrued income, including taxes ,239 49

50 Note 6. TRADE RECEIVABLES Dec Dec Trade receivables (gross) 6,352 2,418 Impairment losses (419) (175) Trade receivables (net) 5,933 2,243 Aging of trade receivables as at December 31st 2014 and December 31st 2013: Past due 91 >36 < days days As at Dec Total Not overdue days days Trade receivables (gross) 6,352 1,356 3, Impairment losses (419) (342) 0 0 (13) (64) Trade receivables (net) 5,933 1,014 3, As at Dec Trade receivables (gross) 2,418 2, Impairment losses (175) (29) (81) 0 (52) (13) Trade receivables (net) 2,243 2, (0) (0) The Group does not carry any material disputed trade receivables. Note 7. OTHER CURRENT FINANCIAL ASSETS In other financial assets, the Group presents only current loans. Borrower Loan amount as per agreement Carrying amount as at Dec Carrying amount as at Dec Interest rate Jan Motz* 4,916 5,809 5, % Other %-6.77% 4,952 5,809 5,618 *Loans granted for the purchase of property in Krynica. 50

51 Note 8. CASH AND CASH EQUIVALENTS Dec Dec Cash in hand and at banks: 32,216 47,988 Pekao S.A. 14,428 30,159 mbank S.A. 3,644 3,501 PKO BP S.A. 3, Getin Noble Bank S.A. 1,327 1,280 BZ WBK S.A. 2,251 2,633 Raiffeisen Bank Polska S.A. 3,444 3,427 BNP Paribas Bank Polska S.A. 2,207 1,769 RBS 797 4,338 Pekao Bank Hipoteczny S.A Other (including cash in hand) Other cash: 137,370 20,026 Current deposits with maturities of up to three months 128,018 18,511 Overnight deposits 9,352 1, ,586 68,014 Cash and cash equivalents include restricted cash of PLN 14,577 thousand as at December 31st 2014 (December 31st 2013: PLN 15,062 thousand). The restricted cash is held (blocked) in bank accounts as security for repayment of borrowings and lease liabilities incurred by the Group companies. AVAILABLE UNDRAWN CREDIT FACILITIES The Group has access to undrawn funds available under credit facility agreements. As at December 31st 2014, they amounted to PLN 458,741 thousand and included: construction and VAT facility to finance construction of an office building in Warsaw (Royal Wilanów), at Hazel Investments (PLN 226,317 thousand), construction and VAT facility to finance construction of Eurocentrum office buildings (Phase 2) at Dakota Investments (PLN 129,172 thousand), construction and VAT facility to finance construction of Eurocentrum office buildings (Phase 1) at Dakota Investments (PLN 98,003 thousand), construction and VAT facility to finance construction of Street Mall Vis à Vis Łódź at Diamante Investments (PLN 5,249 thousand; as at the date of these consolidated financial statements PLN 3,250 thousand was drawn under the facility). 51

52 Note 9. EQUITY The structure of the Company s share capital as at December 31st 2014 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 Dec Series B, ordinary bearer non-preferred shares 71,693, ,693,301 Series C, ordinary bearer non-preferred shares 20,955, ,955,314 Series E, ordinary bearer non-preferred shares 9,230, ,230,252 cash contribution and non-cash contribution cash contribution non-cash contribution Oct Feb Feb Series F, ordinary registered preferred shares (voting preference) 2,765, ,765,240 cash contribution Dec ,744,107 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. Pursuant to resolutions adopted by the Extraordinary General Meeting on September 30th 2013, the Company s share capital was increased by way of issue of (i) 20,955 thousand Series C shares to be introduced to public trading, and (ii) 9,230 thousand Series E shares offered to the Company s existing shareholder, CP Holdings S. á r.l. On February 14th 2014, the issued Series C and E shares were registered by the Commercial Division of the National Court Register, resulting in an increase of PLN 30,185 thousand in the Company s share capital. The share premium increased the Company s reserves by a total of PLN 188,511 thousand. The Company s shareholding structure, including shares held by Members of the Management Board, as at December 31st 2014: Shareholder Number of shares % ownership interest Number of voting rights % of total voting rights CP Holdings S. á r. l. 77,759, % 77,759, % Jan Motz 2,805, % 5,571, % Jerzy Kowalski 2,792, % 2,792, % Michał Koślacz 18, % 18, % Marcin Juszczyk % % Other 21,367, % 21,367, % Total 104,744, % 107,509, % The structure of the Company s share capital as at the date of these consolidated financial statements was as follows: 52

53 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 Dec 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 cash contribution and non-cash contribution cash contribution cash contribution non-cash contribution Oct Feb Mar Feb Series F, ordinary registered preferred shares (voting preference) 2,765, ,765,240 cash contribution Dec ,348,131 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. The Company s shareholding structure, including shares held by Members of the Management Board, as at the date of these consolidated financial statements: Shareholder Number of shares % ownership interest Number of voting rights % of total voting rights CP Holdings S.à r.l 77,759, % 77,759, % Jan Motz 2,805, % 5,571, % Jerzy Kowalski 2,792, % 2,792, % Michał Koślacz 320, % 320, % Marcin Juszczyk 302, % 302, % Other 21,367, % 21,367, % Total 105,348, % 108,113, % Other capital reserves Capital from changes in the structure of the Group in 2013 (and, respectively, in 2012) Capital from measurement of share-option plan for Management Board members Dec Dec ,792 7,792 4,776 1,734 12,568 9,526 53

54 The increase in capital from measurement of the share-option plan compared with the end of 2013 results from remeasurement of the plan as at December 31st For a detailed description of the share-option plan and rules of its measurement see Note 29 to these financial statements. Equity attributable to non-controlling interests Dec Dec At beginning of period 68,807 2,465 Sale of certificates 0 64,444 Dividend paid to investors (4,113) 0 Share in profit/loss of subsidiaries 82 1,898 At end of period 64,776 68,807 Note 10. BANK BORROWINGS AND OTHER FINANCIAL LIABILITIES Dec Dec Bank borrowings 473, ,765 Lease liabilities 151, ,422 Derivative financial instruments (IRS)* 6,331 1, , ,625 Non-current bank borrowings and other financial liabilities 586, ,543 Current bank borrowings and other financial liabilities 44,739 17,082 * 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: Dec Dec Up to one year 44,739 17,082 1 year to 3 years 294, ,502 3 years to 5 years 58,722 73,110 More than 5 years 233, , , ,625 As at December 31st 2014, liabilities which mature in up to one year included: current portion of non-current borrowings of PLN 31,612 thousand, current portion of non-current finance lease liabilities of PLN 7,395 thousand, current portion of measurement of financial instruments at the end of the reporting period of PLN 5,732 thousand. KEY CREDIT FACILITIES The Group has relations with several banks. Most of the credit facilities contracted by Group companies are investment or construction credit facilities. In their credit facility agreements, Group companies undertook to maintain specific levels of selected financial ratios. The key covenants include maintenance of the Loan to Value and Debt Service Coverage ratios at specified levels. Most of the facilities are denominated in EUR and measured at each 54

55 reporting date. Therefore, any movements in the EUR/PLN exchange rate have a material bearing on the PLNdenominated structure of the Group s statement of financial position. Credit facility agreement with Getin Noble Bank On July 22nd 2013, Capital Park S.A. signed a credit facility agreement with Getin Noble Bank, under which the Company obtained a credit facility of up to EUR 10m to finance its day-to-day operations. The facility bears interest at a variable rate equal to 3M EURIBOR plus margin. The final repayment date of the last disbursement under the facility is December 20th Credit facility agreements with PEKAO S.A. Alfa project On March 6th 2007, Dakota Sp. z o.o., a subsidiary of Capital Park S.A., and Bank Pekao S.A. executed an agreement for a credit facility disbursable in two tranches totalling EUR 5,646 thousand, to refinance the purchase price of a property and all other transaction-related expenses. The facility bears interest at a variable rate equal to 3M EURIBOR plus margin. On June 16th 2014, Annex 7 to the credit facility was signed, whereby the date until which failure to comply with the required DSCR level would not be considered a default under the facility was extended from March 31st 2014 to March 31st The Annex further extended the prepayment deadline by which the credit facility is to be prepaid if the required DSCR level is not met by March 31st 2015 from June 30th 2014 to June 30th On December 19th 2014, Annex 9 to the credit facility was signed, extending the repayment date for Tranche 2 of EUR 5,646 thousand from March 31st 2015 to June 30th At the reporting date, the DSCR covenant was not complied with, mainly owing to loss of revenue due to unrented office space. Consequently, a EUR 1m deposit was established as security for the DSCR ratio. In accordance with the Annex to the facility agreement, non-compliance with the covenant at the reporting date is not considered an event of default. At the same time, the Group is actively seeking tenants for the unrented office space. Beta-Gamma project On June 27th 2012, Dakota Sp. z o.o., a subsidiary of Capital Park S.A., signed a credit facility agreement with Bank Pekao S.A. whereby the Company obtained a PLN 316,820 thousand facility (advanced in the form of a construction loan of PLN 295,820 thousand and a VAT loan of PLN 21,000 thousand) to finance construction of the Eurocentrum Office Complex (Phase 1) and existing debt under bank borrowings. The facility bears interest at a variable rate equal to 3M WIBOR plus margin or 3M EURIBOR plus margin. The final repayment date of the last disbursement is March 31st Delta project On December 19th 2014, Dakota Sp. z o.o., a subsidiary of Capital Park S.A., signed an annex to the credit facility agreement executed with Bank Polska Kasa Opieki S.A. on June 27th 2012, whereby the Company obtained a EUR 36,330 thousand facility (advanced in the form of a construction loan of PLN 129,172 thousand and EUR 5,646 thousand to refinance existing liabilities) to finance construction of the Eurocentrum Office Complex (Phase 2). The facility bears interest at a variable rate equal to 1M WIBOR plus margin, 1M EURIBOR plus margin or 3M EURIBOR plus margin. The final repayment date of the last disbursement is March 31st At the reporting date, the Company had not drawn any amounts under this facility. 55

56 Credit facility agreement with Powszechna Kasa Oszczędności Bank Polski S.A. On June 29th 2012, Hazel Sp. z o.o., a subsidiary of Capital Park S.A., signed a credit facility agreement with PKO BP S.A., whereby it obtained an investment credit facility of EUR 61,131 thousand and PLN 20,000 thousand to finance the Royal Wilanów construction project and all related expenses. The facility bears interest at a variable rate equal to 1M WIBOR or 3M EURIBOR plus margin. The final repayment date of the last disbursement under the facility is September 30th On June 30th 2014, the first tranche of the construction loan was disbursed to be used for payment of amounts due to the general contractor and subcontractors. Credit facility agreement with BNP Paribas S.A. On June 28th 2013, Capital Park Racławicka Sp. z o.o., a subsidiary of Capital Park S.A., signed a credit facility agreement with BNP Paribas S.A., whereby it obtained EUR 6m to refinance existing debt under a credit facility. The facility bears interest at a variable rate equal to 1M EURIBOR plus margin. The final repayment date of the last disbursement under the facility is July 20th Following a decrease in the valuation of the real estate in ul. Racławicka, at the reporting date the LTV covenant was not complied with. Therefore, Capital Park Racławicka Sp. z o.o., acting in consultation with BNP Paribas Bank Polska S.A., agreed to make a prepayment under the credit facility, so at the date of release of these financial statements the company was not in default under the credit facility agreement. Credit facility agreement with Alior Bank S.A. On October 24th 2012, Diamante Investment Sp. z o.o., a subsidiary of Capital Park S.A., signed a credit facility agreement with Alior Bank S.A., whereby it obtained a PLN 32,366 thousand credit facility to finance construction of a shopping centre in Łódź and to refinance a previous credit facility. The facility bears interest at a variable rate equal to 1M WIBOR plus margin. The final repayment date of the facility is October 23rd On December 19th 2014, Annex 4 to the investment credit facility agreement was signed, whereby the availability period of the facility was extended to March 29th The Annex also introduced changes to the repayment schedule based on 226-month amortisation. The investment settlement period was extended until June 30th The first tranche of the facility of PLN 16,501 thousand was disbursed on March 31st 2014, to be used to repay a credit facility advanced by BZWBK to finance the purchase of land. Bank Dec Dec Credit facility amount as per agreement* Currency Interest rate Repayment Pekao S.A. 105, ,059 44,400 EUR 3M EURIBOR +margin from 2015 to 2032 Pekao S.A. 218,817 83, ,820 PLN 3M WIBOR + margin by 2016 PKO BP S.A. 52, ,131 EUR 1M EURIBOR +margin 2024 PKO BP S.A. 1, ,000 PLN 1M WIBOR +margin 2024 Getin Noble Bank S.A. 42,623 40,919 10,000 EUR 3M EURIBOR +margin by 2018 BNP Paribas Bank 24,363 24,570 6,000 EUR 1M EURIBOR +margin by 2018 Alior Bank S.A. 27,117 16,637 32,366 PLN 1M WIBOR +margin by 2022 Pekao Bank Hipoteczny S.A. 1,646 6,083 7,220 PLN 3M WIBOR + margin from 2015 to 2019 *Amounts in the currency of the agreement. 473, ,765 56

57 LEASE AGREEMENTS Lease agreement with mbank Leasing On June 1st 2011, Marcel Investment Sp. z o.o., as the lessee, entered into a lease agreement with mbank Leasing S.A. (formerly: BRE Leasing S.A.), as the financing party, for a commercial property located in Radom. Under the agreement, the financing party agreed to make the property available to the lessee for beneficial use for a period of 10 years (with an early termination option). Upon the lapse of the lease term, the lessee has the right to demand that the financing party enters into an ownership transfer agreement. At the reporting date, the debt service coverage ratio under the agreement, computed as net lease income to debt service cost, was not complied with. In view of the foregoing, the lessee, i.e. Marcel Investment Sp. z o.o. created a security deposit of EUR 158 thousand for the benefit of the lessor to secure lease payments. Following payment of the security deposit, as at the date of these consolidated financial statements the borrower was not considered to be in default under any of the terms of the agreement despite non-compliance with the covenants. Lease agreement with BNP Paribas Lease Group On August 31st 2010, Orland Investment Sp. z o.o., as the lessee, entered into a lease agreement with BNP Paribas Lease Group Sp. z o.o, as the financing party, for a property in Warsaw comprising mixed office and retail space. Under the agreement, the financing party agreed to make the property available to the lessee for beneficial use for a period of 15 years (with an early termination option). Upon the lapse of the lease term, the lessee has the right to demand that the financing party enters into an ownership transfer agreement. Lessor Dec Dec Initial value* Currency BNP Paribas Lease Group Sp. z o.o 21,294 21,708 6,000 EUR mleasing Sp. z o.o. 21,005 21,825 5,742 EUR Raiffeisen Leasing Polska S.A. 104, ,022 26,464 EUR Raiffeisen Leasing Polska S.A. 4,252 4,867 5,025 PLN 151, ,422 *Amounts in the currency of the agreement. Note 11. 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. Series A notes listed on the Catalyst market On July 9th 2012, Capital Park S.A. issued 1,000 thousand bearer notes with a total nominal value of PLN 100m (Series A notes). Series B notes listed on the Catalyst market On June 12th 2014, Capital Park S.A. issued 350 thousand Series B bearer notes with a total nominal value of PLN 35m. The issue proceeds were used to refinance PART of the Series A notes through early redemption, carried out on July 9th Series C notes listed on the Catalyst market On September 23rd 2014, the Group issued 200,000 Series C three-year unsecured bearer notes with a nominal value of PLN 100 each and a total value of PLN 20,000 thousand, maturing on September 23rd The notes bear 57

58 interest at 6M WIBOR plus a margin of 5.3%, payable every six months. The notes were issued to finance the construction of the Eurocentrum project (Phase 2; Delta building). Series D notes listed on the Catalyst market On December 23rd 2014, Capital Park S.A. issued 538,855 Series D notes with a total value of up to PLN 53,886 thousand, maturing on December 23rd The nominal value of one note is PLN 100 and the notes bear interest at 3M WIBOR plus a margin of 4.3%. The purpose of the issue was to finance early redemption of Series A notes, which took place in January Notes listed on the Catalyst market Dec Dec Nominal amount Interest rate Maturity date Series A notes 64,374* 98,126 65,000 6M WIBOR + 5% July 2015 Series B notes 34, ,000 6M WIBOR + 5.5% June 2017 Series C notes 19, ,000 6M WIBOR + 5.3% September 2017 Series D notes 52, ,886 3M WIBOR + 4.3% December 2017 Interest accrued 3,024 3, , , ,886 Long-term notes 106,344 98,126 Short-term notes 67,398 3,670 * PLN 55m worth of Series A notes was redeemed on January 9th Note 12. OTHER LIABILITIES AND PROVISIONS Dec Dec Other liabilities and provisions 37,332 8,886 Liabilities under participation in joint ventures 12,682 4,747 Security deposits from tenants 3,433 3,208 Taxes, customs duties, social security payable 2,787 2,014 Performance bonds from general contractors 2, Deferred income - prepayments for apartments/houses Salaries and wages payable ,412 19,400 Other liabilities and provisions non-current 16,347 8,034 Other liabilities and provisions current 42,065 11,366 The significant increase in other liabilities and provisions is mainly attributable to recognition of liabilities related to uninvoiced work performed by the general contractor at the Eurocentrum (Phase 2), Royal Wilanów and Vis à Vis Łódź projects. As at December 31st 2014, provisions for liabilities under participation in joint ventures stood at PLN 12,682 thousand, which is equivalent to the estimated future cash flows related to coverage of losses on joint ventures. 58

59 Other provisions Dec Dec Provision for audit Costs of uninvoiced services 36,122 8,076 Provision for repair and maintenance costs 1, ,332 8,886 - non-current current 37,332 8,886 Note 13. TRADE PAYABLES Dec Dec to other entities 14,569 12,254 - to related entities ,569 12,254 The increase in trade payables to other entities is attributable to invoiced general contractor work related to the Eurocentrum (Phase 1), Royal Wilanów and Vis à Vis Łódź projects at the end of the reporting period. As at the date of these financial statements, most of these liabilities were paid. Aging of trade payables: Past due but recoverable < >360 As at Dec Total Not overdue days days days days - to related entities to other entities 14,569 14, Trade payables 14,569 14, Past due but recoverable As at Dec Total Not overdue < 90 days days days >360 days - to related entities to other entities 12,254 11, Trade payables 12,254 11, Note 14. 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% share 12 months months 2013 Retail projects 50% 27,293 14,145 Office projects 44% 24,079 22,570 Mixed-use projects 6% 3,296 1,961 Value added projects 0% % 54,833 38,722 59

60 The higher 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, 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. 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. Note 15. OPERATING EXPENSES BY NATURE 12 months months 2013 Amortisation and depreciation Raw material and consumables used 15,526 10,532 Services 2,232 4,070 Taxes and charges 808 2,796 Employee benefit expenses 5,559 4,671 Measurement of the share-option plan 3,906 (1,731) Other costs 2,142 2,105 30,577 22,808 Note 16. 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. Investment property revaluation 2014 share 12 months months 2013 Office properties 73% (36,629) (22,372) Mixed-use properties 4% (2,027) 38,309 Retail properties 24% (12,329) 7,524 Value-added properties (1%) 488 3, % (50,497) 27,075 Investment property revaluation adjustment due to accrual basis presentation of rental income (5,854) 0 Revaluation of residential properties (4,625) (1,752) Total (60,976) 25,323 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. 60

61 Note 17. FINANCE INCOME AND COSTS Interest income 12 months months 2013 Interest on deposits 2,932 1,309 Interest on loans advanced 1,518 1,166 Total 4,450 2,475 Interest expense 12 months 12 months Interest on borrowings and finance leases (15,316) (12,636) Interest on notes (3,450) 0 Interest on borrowings from related parties 0 (2,596) Other interest (140) (336) Total (18,906) (15,568) 12 months 12 months Other finance income and costs Net foreign exchange losses (gains) (8,093) (2,230) Impairment losses on loans advanced (4,000) 0 Issue costs (970) (1,254) Valuation of derivative instruments (936) 7,341 Other (756) (281) Total (14,755) 3,576 Net foreign exchange losses result from measurement of liabilities denominated in foreign currencies, mainly bank borrowings and lease liabilities. The measurement of financial instruments includes in particular measurement of the forward contract in the amount of PLN 7,510 thousand, which is used to hedge cash flows from planned conversion of the construction credit facility used to finance the Eurocentrum project (Phase1). Note 18. CURRENT AND DEFERRED INCOME TAX 12 months months 2013 Current income tax (1,798) 2,712 Deferred income tax 7,336 (3,989) Tax expense recognised in the consolidated statement of comprehensive income 5,538 (1,277) Current income tax 12 months months 2013 Profit before tax (64,371) 33,472 Income tax 5,538 (1,277) Effective income tax rate (share of income tax in profit before tax) 8.60% 3.81% 61

62 Deferred tax assets Dec recognised reversed used Dec Losses deductible from future taxable income 14,028 7,574 (3,065) (230) 9,749 Unpaid interest 3,342 2,250 (245) (1) 1,338 Foreign exchange losses 1,998 1, Other Total 20,265 12,719 (3,310) (231) 11,087 Deferred tax liabilities Dec recognised reversed used Dec Unpaid interest 9,405 1,419 0 (2) 7,987 Foreign exchange gains 0 0 (61) 0 61 Revaluation of investment property 2,287 1,052 0 (252) 1,487 Valuation of financial instruments 0 0 (1,931) 0 1,932 Other 1,617 1, Total 13,309 4,088 (1,992) (254) 11,467 Note 19. 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. 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 subsidiary, for a total amount of PLN 32,366 thousand; as at December 31st 2014 the amount disbursed under the facility was PLN 27,117 thousand. The surety will remain valid until the borrower presents to the Bank rental contracts for an aggregate amount of rentals at EUR 335 thousand a year, obtains a valid occupancy permit, and establishes mortgages in favour of the Bank on land lots owned by the borrower, in accordance with the terms of the facility agreement. As at December 31st 2014, all conditions for the release of the surety were met. For procedural reasons, the annex will expire in March On June 26th 2013, Capital Park S.A., Bank Pekao S.A., and Dakota Investments Sp. z o.o, a subsidiary of the Company, executed a surety agreement whereby Capital Park S.A. provided to the Bank a guarantee of up to PLN 1,000 thousand in connection with a PLN 295,820 thousand credit facility agreement of June 27th 2012 executed by the Bank and the subsidiary for the financing of construction of the Eurocentrum office complex located at Al. Jerozolimskie in Warsaw. 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 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. 62

63 Note 20. 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 by the Group companies, the total value of which as at December 31st 2014 was PLN 1,131,993 thousand and EUR 459,891 thousand. Note 21. OTHER CONTRACTUAL OBLIGATIONS AND COMMITMENTS As at December 31st 2014, the Group had the following investment commitments arising from contracts for current or planned construction project: PLN 67,573 thousand under an agreement with the general contractor and other subcontractors for the Royal Wilanów project, EUR 119,319 thousand under an agreement with the general contractor and other subcontractors for the Eurocentrum (Phase 2) project. EUR 4,795 thousand under an agreement with the general contractor and other subcontractors for the Kraków Pawia project. These commitments will be financed with cash held by the Group and under existing credit facility agreements. Note 22. CAPITALISED BORROWING COSTS In accordance with IAS 23, the Group recognises borrowing costs incurred as part of a construction process as an increase in the value of the investment property and related inventories. These are mainly cost of credit facilities and notes which were used to finance the project (interest expense, fees and exchange rate differences). Dec Dec Investment property 17,745 12,085 Inventory ,747 12,087 63

64 Note 23. OPERATING SEGMENTS The Group s business falls into the following four reporting segments, which form strategic and organisationally separate business divisions. The Group s reporting segments conduct the following activities: Office Segment development or re-development, revitalisation and commercialisation, as well as management of office projects. Retail Segment development or re-development, revitalisation and commercialisation, as well as management of retail projects. Mixed-Use Segment development or re-development, revitalisation and commercialisation, as well as management of mixed-use projects. Value Added Segment development and sale of residential projects and other projects not classified above. In each of the segments, the Group purchases properties for development or redevelopment, prepares designs, manages administrative work, arranges financing and performs construction work, while seeking potential tenants. On completion of the construction work, the Group either administers or sells the existing building. Below are presented the Capital Park Group s investment properties and their allocation to the Group s operating segments. Office Segment Entity Project Capital Park Racławicka Sp. z o.o. Racławicka Point Dakota Investments Sp. z o.o. Eurocentrum Alfa building Dakota Investments Sp. z o.o. Eurocentrum Beta and Gamma buildings (Phase 1) Dakota Investments Sp. z o.o. Eurocentrum Delta building (Phase 2) Elena Investments Sp. z o.o. Piano House Sagitta Investments Sp. z o.o. Topos The Group s property portfolio in the Office Segment comprises six projects. The largest one is the Eurocentrum Office Complex, located in Warsaw, in Al. Jerozolimskie, comprising the existing Alfa, Beta and Gamma buildings (completed on May 29th 2014) and the Delta building currently under construction. Retail Segment Entity Aspire Investments Sp. z o.o. Aspire Investments Sp. z o.o. Aspire Investments Sp. z o.o. Diamante Investments Sp. z o.o. Marcel Investments Sp. z o.o. Nerida Investments Sp. z o.o. Zoe Investments Sp. z o.o. Vera Investments Bis Sp. z o. o. Real Estate Income Assets FIZ AN Project Piłsudskiego, Olsztyn KEN, Warsaw Szosa Lubicka, Toruń Vis à Vis Toruń Street Mall Vis à Vis, Łódź Street Mall Vis à Vis, Radom Capitol, Lidzbark Warmiński, Leszno, Warsaw Biskupa Domina, Koszalin 64

65 In the Retail Segment, the Group has 47 investment projects. The properties included in the retail portfolio are situated in city-centre locations all over Poland. Most of the retail projects have been completed. Mixed-Use Segment Entity ArtN Sp. z o. o. Capital Park Gdańsk Sp. z o.o. Hazel Investments Sp. z o.o. Orland Investments Sp. z o.o. Project Warszawa Żelazna Neptun House Royal Wilanów Warsaw, Sobieskiego In the Mixed-Use Segment, the Group has four projects. In common with the other segments described above, they are both finished projects and projects in preparation. They are projects combining office and retail functions, and in some cases also other functions, with each function accounting for a significant portion of the total space. Value Added Segment Entity Capital Park Kraków Sp. z o.o.* CP Management Sp. z o.o. CP Management Sp. z o.o. CP Management Sp. z o.o. CP Management Sp. z o.o. CP Management Sp. z o.o. CP Management Sp. z o.o. CP Management Sp. z o.o. Dakota Investments Sp. z o.o. Emir 30 Sp. z o.o. Marlene Investments Sp. z o.o. Sander Investments Sp. z o.o.* Sapia Investments Sp. z o.o. Sp. Kom.* Vera Investments-Bis Sp. z o.o.* Vera Investments Bis Sp. z o. o. Project Apartamenty Stachowicza, Kraków Al. Słomińskiego 10, Gdańsk Kościuszki, Tuchola, Kopernika, Grudziadz Pomorzanin, Bydgoszcz Polonia, Włocławek Tivoli, Grudziądz kino Świt (Świt movie theatre), Brodnica, Eurocentrum Crown, Warsaw Unieście Święcajty, Mazury Rubinowy Dom, Bydgoszcz Śmiała, Warsaw Chełmińska, Grudziądz Marynarz, Gdynia * Projects presented in inventory. The last segment is the Value Added Segment, which comprises 15 projects. It includes the Group s residential projects as well as other projects not classified under any of the other segments. Presented below are financial highlights for the individual segments as at December 31st 2014 and December 31st 2013: 65

66 Dec Office Segment Retail Segment Mixed-Use Segment Value Added Segment Other Total Segment s revenue from sales to third-party 27,263 23,568 4, ,393 customers Operating expenses (11,626) (4,584) (3,942) (2,378) (8,047) (30,577) Segment s operating profit/loss (before 15,637 18, (1,484) (7,919) 25,816 property revaluation) Finance costs (9,375) (8,444) (1,591) (10,955) (3,296) (33,661) Finance income ,297 2,598 4,450 Segment s profit/loss before extraordinary items (before property 6,612 10,726 (975) (11,142) (8,616) (3,395) revaluation) Gain/loss on investment property revaluation (41,265) (12,789) (2,784) (4,138) 0 (60,976) Segment s profit/loss before tax (34,653) (2,063) (3,758) (15,280) (8,617) (64,371) Segment s assets 765, , , ,674 14,015 1,871,440 Segment s liabilities 376, , ,612 24, , ,649 Office Segment Retail Segment Mixed-Use Segment Value Added Segment Other Total Dec Income from external customers 14,205 22,531 2, ,474 Operating expenses (7,636) (4,284) (3,104) (1,290) (6,494) (22,808) Segment s operating profit/loss (before property revaluation) 6,569 18,247 (511) (812) (5,827) 17,667 Finance costs (4,919) (5,209) (737) (4,147) (4,322) (19,334) Finance income 6,821 (1,236) (436) 5,022 (355) 9,816 Segment s profit/loss before extraordinary items (before property 8,471 11,802 (1,684) 65 (10,505) 8,149 revaluation) Gain/loss on investment property revaluation (22,372) 7,524 38,309 1, ,323 Segment s profit/loss before tax (13,901) 19,326 36,625 1,927 (10,505) 33,472 Segment s assets 574, , , , ,005 1,620,942 Segment s liabilities 224, ,130 33,372 11, , ,542 The Group s revenue is earned in Poland. There are no transactions between the Group s segments that would need to be eliminated, and there is no income or costs relating to discontinued operations. 66

67 Note 24. 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. 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 12 months months 2013 Net profit/loss from continuing operations (61,468) 25,551 Profit/loss from discontinued operations 0 0 Loss (profit) reported for calculating basic earnings per share Dilutive effect Loss (profit) reported for calculating diluted earnings per share (61,468) 25, (61,468) 25,551 Number of shares outstanding Dec Dec The weighted average number of shares reported for calculating basic earnings per share 104,744 74,559 Effect of dilutive ordinary shares 2,666 3,383 share options 3,554 4,097 The weighted average number of ordinary shares reported for calculating diluted earnings per share 107,410 77,942 Net loss (earnings) per share (PLN) Basic (0.59) 0.34 Diluted (0.59) 0.33 The entire profit was generated from continuing operations. Note 25. FINANCIAL INSTRUMENTS The primary financial instruments used by the Group s companies include credit facilities, loans, notes/bonds, finance lease agreements, derivatives, and trade payables. The Group uses credit facilities, loans and finance lease agreements to finance its day-to-day operations. The Group companies hold financial assets, such as trade receivables, loans advanced, derivatives, cash, and short-term deposits. According to its policy, the Group does not trade in financial instruments. The table below presents a comparison of all carrying amounts and fair values of the Group s financial instruments, broken down into individual classes and categories of assets and liabilities. 67

68 Fair values of individual categories of financial instruments: FINANCIAL ASSETS Carrying amount (fair value) Dec Dec Financial instrument category Trade and other receivables 52, ,201 Receivables and loans Trade receivables 5,933 2,243 Other receivables 16, ,661 Loans advanced 30,590 30,297 Financial assets at fair value through profit or loss, including: 7,823 7,448 Financial assets at fair value Derivative financial instruments 7,823 7,448 through profit or loss Cash and cash equivalents 169,586 68,014 Receivables and loans FINANCIAL LIABILITIES Carrying amount (fair value) Financial instrument category Dec Dec Interest-bearing borrowings, including: 647, ,561 Other financial liabilities Bearing interest at variable rates 647, ,561 Bearing interest at fixed rates 0 0 Other financial liabilities, including: 157, ,860 Other financial liabilities Finance lease liabilities 151, ,422 Derivative financial instruments (IRS) 6,331 1,438 Trade payables and other liabilities 72,981 31,654 Other financial liabilities Trade payables 14,569 12,254 Other liabilities 58,412 19,400 Credit risk exposure is capped at fair value. The carrying amounts of both financial assets and financial liabilities are equal to their fair values, which follows from the fact that the Group measures derivative financial instruments at fair value, while other items are measured at values at which individual assets or liabilities could be sold or purchased. Note 26. FINANCIAL RISK MANAGEMENT The Group s business activities expose it to a number of various financial risks, in particular interest rate risk, currency risk, credit risk, and liquidity risk. The Parent s Management Board verifies and establishes rules for managing each of these types of risk; the rules are briefly discussed below. The Group also monitors the risk of market prices with respect to the financial instruments it holds. 68

69 FINANCIAL RISK FACTORS Financial assets and liabilities as at December 31st 2014 and December 31st 2013 Dec Dec Type of assets, liabilities and receivables exposed to market risk Investment property Financial liabilities Loans and receivables Total exposed to currency risk exposed to interest rate risk Total exposed to currency risk exposed to interest rate risk 1,595,986 1,595, ,321,653 1,321, , , , , , , , , , ,297 INTEREST RATE RISK The Group is exposed to interest rate risk related to the nature of its business and the type of financing sources used (interest and principal payments). Bank and non-bank borrowings, as well as variable-rate debt instruments make the Group s cash flows sensitive to interest rate fluctuations. The Group monitors its interest rate risk exposure on an ongoing basis and assesses its potential impact on the Group s profit or loss. To minimise the exposure, the Group enters into derivative transactions, including interest rate swaps and CAP options. The table below presents sensitivity of the profit or loss before tax for the twelve months of 2014 and 2013 to probable fluctuations in interest rates on a ceteris paribus assumption (related to interest-bearing assets and liabilities): 12 months months 2013 Effect on profit or loss before tax and equity 1pp increase in interest rates 1pp decrease in interest rates 1pp increase in interest rates 1pp decrease in interest rates Financial liabilities (7,990) 7,990 (5,380) 5,380 Loans and receivables 306 (306) 303 (303) Total (7,684) 7,684 (5,077) 5,077 If as at December 31st 2014 annual interest rates on bank and non-bank borrowings and debt securities denominated in PLN had been 1 pp higher/lower compared with the current level, ceteris paribus, the Group s profit or loss for the period and its equity for the twelve months of 2014 would have been PLN 7,684 thousand (twelve months of 2013: PLN 5,077 thousand) lower/higher compared with the current level, mainly due to higher/lower interest expense on borrowings and variable-rate notes. CURRENCY RISK The key sources of currency risk for the Group include the nature of its business (with revenue denominated in EUR), as well as buy and sell transactions and financing cash flows related to repayment of borrowings denominated in currencies other than its functional currency. The Group mitigates the risk by using natural hedges, matching revenues and expenses for the same currency, or by using derivative instruments to hedge its foreign-currency transactions. 69

70 The table below presents sensitivity of the Group s profit or loss before tax (arising from changes in the fair value of assets, including in particular investment property and liabilities) and equity to possible fluctuations in EUR/PLN exchange rate, on a ceteris paribus assumption: Effect on profit or loss before tax and equity Investment property and financial liabilities 1pp depreciation of PLN against EUR* 12 months months pp 1pp appreciation depreciation of PLN against of PLN against EUR* EUR 1pp appreciation of PLN against EUR (12,696) 12,696 (9,934) 9,934 * Exchange rates used: reporting date rate of EUR 1= PLN , and the same rate plus 1pp, i.e. EUR 1 = PLN If the złoty had depreciated/appreciated by 1 percentage point against the euro, ceteris paribus, the Group s profit or loss for the 12 months of 2014 would have been PLN 12,696 thousand higher/lower (12 months of 2013: PLN 9,934 thousand), driven mainly by foreign exchange losses/gains on translation of investment properties and financial liabilities denominated in the euro. CREDIT RISK Credit risk is related primarily to cash and cash equivalents, deposits with banks, loans advanced as well as credit exposure to tenants, which involves mainly unrealised receivables. The Group mitigates the risk by entering into transactions with reputable firms with sound credit standing, by demanding that rental contracts be secured with rental deposits or bank guarantees, usually in the amount of triple monthly rentals, and by diversifying cash deposits (the Group has relationship with a relatively large number of banks). For more details, see Note 8. As regards the Group s financial assets such as cash and cash equivalents, financial assets available for sale and some derivatives, the credit risk exposure is capped at fair value of the instrument. As at December 31st 2014 and December 31st 2013, past due receivables were as follows: Dec Total Not overdue < Past due Trade receivables 5,933 1,014 3, Other receivables 16,149 16, Loans advanced 30,590 30, ,672 47,753 3, >360 Dec Total Not overdue < Past due Trade receivables 2,243 2, Other receivables 145, , Loans advanced 30,297 30, , , >360 70

71 LIQUIDITY RISK The Group seeks to maintain a balance between the continuity of financing of its investment activities and timely repayment of debt by securing financing from various sources, such as bank and non-bank borrowings, notes/bonds or finance leases. The Management Board manages liquidity risk by monitoring budgets of the Group s investment projects and maturities of its financial liabilities, and by projecting operating cash flows. The Management Board monitors performance of all credit facility and lease agreements on an on-going basis. The table below presents the Group s financial liabilities by maturity as at December 31st 2014 and December 31st 2013, based on contractual undiscounted payments. Dec Interest-bearing borrowings and lease liabilities Total > 3 months 3 12 months From 1 to 3 years From 3 to 5 years > 5 years 631,617 8,806 35, ,978 58, ,177 Notes in issue 173,742 3,024 64, , Trade payables and other 72,980 72, liabilities Derivatives 6, , ,670 84, , ,053 58, ,177 Dec Interest-bearing borrowings and lease liabilities Total > 3 months 3 12 months From 1 to 3 years From 3 to 5 years > 5 years 436,187 2,829 14, ,064 73, ,931 Notes in issue 101,796 3, , Trade payables and other liabilities 31,654 31, Derivatives 1, , ,075 38,153 14, ,628 73, ,931 71

72 Note 27. 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 Dec Dec Interest-bearing borrowings, lease liabilities and notes 805, ,421 Cash and cash equivalents (169,586) (68,014) Net debt 635, ,407 Total equity 979,791 1,038,400 Equity and net debt 1,615,564 1,509,807 Net debt ratio 39.4% 31.2% Note 28. WORKFORCE Average number of staff under employment contracts Dec Dec Management Board 4 4 Administration 3 3 Other Note 29. REMUNERATION OF MEMBERS OF THE CORPORATE BODIES Gross remuneration Dec Dec Management Board 5,432 3,986 Supervisory Board ,822 4,341 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). 72

73 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. 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 allottable 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, PLN 8,929 thousand less than as at the end of the previous year. The total cost of the Incentive Scheme is expensed over time in proportion to its duration. Capital reserve from measurement of the Incentive Scheme as at December 31st 2014 was PLN 4,776 thousand. The difference between the value of capital reserve from measurement of the Incentive Scheme as at December 31st 2014 and as at December 31st 2013 was charged to costs, which is presented in the table below: Cost of share-option plan measurement Dec Dec Cost of share-option plan measurement/adjustment to cost of share-option plan measurement 3,042 (1,731) Provision for the cost of bonuses related to warrants ,906 (1,731) 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

74 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. For more information on the Company shares held by Management Board Members, see Note 9 to these financial statements. Note 30. TRANSACTIONS WITH THE QUALIFIED AUDITOR On August 21st 2014, the Extraordinary General Meeting of Capital Park S.A. passed a resolution to appoint PKF Consult Sp. z o.o. as the auditor of the financial statements of Capital Park S.A. for the year ended December 31st 2014 and of the consolidated financial statements of the Capital Park Group for the year ended December 31st Consideration paid or due for the financial year Dec Dec For audit of the full-year separate and consolidated financial statements For other assurance services, including review of the separate and consolidated financial statements Note 31. RELATED-PARTY TRANSACTIONS Receivables from related parties under loans Liabilities to related parties under loans Dec Dec Dec Dec CAPITAL PARK S.A. 425, ,488 57,825 57,190 Subsidiaries 312, ,, , ,748 Total 737, , , ,938 Other receivables from related parties Other liabilities to related parties Dec Dec Dec Dec CAPITAL PARK S.A. 3, Subsidiaries 5,424 4,576 8,371 5,458 Total 8,786 5,551 8,786 5,551 Interest income on loans advanced Interest expense on loans received 12 months months months months 2013 CAPITAL PARK S.A. 18,162 13,773 3, Subsidiaries 16,343 7,299 30,656 20,912 Total 34,505 21,072 34,505 21,072 Revenue from sale of services Cost of purchased services 12 months months months months 2013 CAPITAL PARK S.A. 3, Subsidiaries 14,290 6,375 17,236 6,421 Total 17,887 6,421 17,887 6,421 74

75 In the period January 1st to December 31st 2014, Capital Park S.A. did not conclude any related-party transactions other than on an arm s length basis. Note 32. 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. 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. For more information, see Section 6.9 of these financial statements and the Directors Report on the operations of the Capital Park Group in the period ended December 31st ( Risk factors and threats: risks associated with real estate valuation and presentation of deferred tax ). Note 33. EVENTS SUBSEQUENT TO THE REPORTING DATE Early redemption of part of Series A notes On January 9th 2015, Capital Park S.A. carried out an early redemption of part of notes, i.e. 550,000 Series A bearer notes with a nominal value of PLN 100 per note and a total value of PLN 55,000,000. The Company raised cash for the early redemption by way of an issue of Series D notes with a total nominal value of PLN 53,886,000, carried out on December 23rd The notes were redeemed at their nominal value, however the note holders were paid an early redemption premium of 0.5% of the nominal value, i.e. PLN 0.50 before tax, paid for each redeemed note. The amount to be repaid under the remaining Series A notes equals PLN 10m, and the redemption date is July 9th Interest payments on Series A notes On January 9th 2015, Capital Park S.A. paid interest on Series A notes totalling PLN 2,522,000. Acquisition of Capital Park S.A. shares by Members of the Management Board in exercise of rights under the Incentive Scheme, and introduction of the shares to stock exchange trading On January 14th 2015, Marcin Juszczyk and Michał Koślacz, Members of the Management Board, acquired 302,012 ordinary bearer shares each, at the issue price of PLN 1. The shares were acquired in exercise of rights under the Incentive Scheme, pursuant to Resolution No. 5 of the Company s Extraordinary General Meeting of July 28th 2011 on a conditional increase in the Company s share capital, issue of subscription warrants with the existing shareholders pre-emptive rights in respect of the shares to be issued as part of the conditional share capital and the subscription warrants fully waived, and adoption of the Rules of the 75

76 Incentive Scheme, as amended on September 30th 2013 by virtue of Resolution No. 3 of the Company s Extraordinary General Meeting, pursuant to the statement on exercise of Series A subscription warrants submitted to the registered office of Capital Park S.A. in Warsaw. On February 17th 2015, the Management Board of the Warsaw Stock Exchange passed a resolution to introduce 604,024 Series D ordinary bearer shares to trading on the stock exchange. Establishment of pledges over shares in Dakota Investments Sp. z o.o. On January 30th 2015, the Company s subsidiary CP Retail B.V. of the Netherlands, and Bank Polska Kasa Opieki S.A. of Warsaw and PeKaO Bank Hipoteczny S.A. of Warsaw as the pledgees, executed two agreements creating financial and registered pledges over 4,000 shares in Dakota Investments Sp. z o.o., a subsidiary, with a par value of PLN 500 each. First-ranking registered pledges for up to PLN 891,984,000 and EUR 305,960,000 were created to secure the repayment of amounts due to the banks under credit facility agreements executed to finance the purchase and construction of the Eurocentrum Office Complex project. The shares encumbered with the pledges represent 4% of Dakota Investments Sp. z o.o. s share capital, with a total par value of PLN 51,623,000, and confer the right to 4% of total voting rights at the subsidiary s General Meeting. On January 30th 2015, the Company s subsidiary CP Retail B.V. of the Netherlands, and Bank Polska Kasa Opieki S.A. and PeKaO Bank Hipoteczny S.A. executed annexes to the agreements creating pledges over shares in Dakota Investments Sp. z o.o.. Pursuant to the annexes, Capital Park S.A. established pledges over 24,646 shares in Dakota Investments Sp. z o.o., with a par value of PLN 500 each, in favour of Bank Polska Kasa Opieki S.A. First-ranking registered pledges for up to PLN 648,000,000 and EUR 236,800,000 were created to secure the repayment of amounts due to the banks under credit facility agreements executed to finance the purchase and construction of the Eurocentrum Office Complex project. Registration of an increase in Capital Park s share capital On March 3rd 2015, the District Court for the Capital City of Warsaw in Warsaw, 13th Commercial Division of the National Court Register, registered a share capital increase at the Company from PLN 104,744,000 to PLN 105,348,000, made by way of an issue of 604,024 Series D bearer shares, as part of a conditional share capital increase through the exercise of rights attached to 604,024 subscription warrants. Issue of Series E notes On March 18th 2015, the Group issued 11,145 3-year Series E unsecured bearer notes with a nominal value of PLN 100 each, and a total value of PLN 11,115 thousand, maturing on March 18th The notes bear interest at 3M WIBOR plus a margin of 4.3%, payable on a quarterly basis. The purpose of the issue was to secure financing for the Group s day-to-day operations. New credit facility agreement with PKO BP On March 16th 2015, Capital Park S.A. signed a credit facility agreement with Powszechna Kasa Oszczędności Bank Polski, under which the Company obtained a multi-purpose credit facility of up to EUR 10m to finance investment property purchases. The facility bears interest at a variable rate equal to 3M EURIBOR plus margin or 3M WIBOR plus margin. The final repayment date of the facility is March 15th

77 New credit facility agreement with BOŚ On March 16th 2015, Capital Park Gdańsk Sp. z o.o., a subsidiary of Capital Park S.A., signed credit facility agreements with Bank Ochrony Środowiska S.A., under which the company obtained a credit facility of up to PLN 49.7m to finance the construction of its Neptun House project and a credit facility of up to PLN 1.43m to finance the VAT associated with the investment expenditure. The facilities bear interest at a variable rate equal to 3M EURIBOR plus margin or 3M WIBOR plus margin. The final repayment date of the last tranche is November 30th 2031 in the case of the construction facility and December 31st 2016 in the case of the VAT financing facility. Warsaw, March 19th 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 77

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