annual financial report

Transcription

1 2016 annual financial report

2 Company profile Our business Europe is a leading real estate development and investment company, operating throughout Central and Eastern Europe, and focusing on the development of largescale commercial and residential projects. 2 Our diversified assets portfolio currently consists of: shopping malls and retail properties business parks and office complexes large-scale residential and mixed-use projects Income-yielding residential properties land-bank designated for future projects At the end of 2016, we own, develop and manage properties and projects in Bulgaria, Czech Republic, Germany, Hungary, Latvia, Poland, Romania and Serbia, with on-the-ground teams comprising nearly 200 professionals. Our company s head-office is based in the Netherlands. AFI Europe is part of the AFI Group, an international holdings and investments conglomerate. Total asset value Competitive advantage 1.393m Proven track-record in the development and management of successful large-scale projects and properties Ability to attract and retain high caliber tenants including reputable retailers and multinational corporations Residential projects 4% ( 51m) Land bank Commercial properties 78% ( 1,086m) 18% ( 256m) As at 31 December 2016 based on CBRE valuation as of 30 September 2016, taking into account AFI Europe s actual percentage interest in each project/property The figure for commercial properties includes 297m property held for sale and 58m under development The figures for residential projects and land bank include equity companies n-the-ground presence by in-house multidisciplinary O teams of highly skilled professionals with local knowledge and connections, as well as international networks Good relationships with banks and ability to raise debt financing Mixed portfolio combining income-generating properties and further growth through the development of additional properties in the company s land bank

3 Financial highlights in NOI for ,234 Operating profit for 2016² 121,218 Net profit for ,139 3 Total equity on 31 Dec ,215 Total balance sheet on 31 Dec ,586,634 NOI for , Excluding 3,299 discontinued operation (German portfolio) 2. Excluding 38,237 discontinued operation (German portfolio) 3. Excluding 15,132 discontinued operation (German portfolio) and 3,040 interest expenses in relation to a shareholder loan 4. Including a shareholder s loan of 271, Excluding 5,351 discontinued operation (German portfolio)

4 Financial highlights Countries of operation Romania 2. Czech Republic Serbia 4. Germany 5. Poland 8 6. Latvia 1 7. Bulgaria Hungary 9. Netherlands (Headquarters) Revenues by country 57m 1,393m Asset value by country 78% 0.1% 1% % 2 10% 59% 1% %* 4 7 2% 1% % % % In 2016, taking into account the actual percentage interest in each project, and excluding 6.196m discontinued operation (German portfolio) As at 31 December 2016, based on CBRE valuation as at 30 September 2016, taking into account AFI Europe s actual percentage interest in each project, and including 297m property held for sale

5 Financial highlights Commercial property GLA (m 2 ) 600, , , , , , , ,053* 5 300, , , , , , , , * Including commercial property under development, and AFI Europe s property portfolio in Germany (which transaction for its partial sale was completed in January 2017) Rental income and sale of residential units () 70,000 60,000 60,213 66,243 64,335 62,795* 50,000 47,500 48,860 51,324 40,000 30,000 20,000 10,000 33,384 23,058 33,823 19,459 7,159 13,466 30,374 7,732 10, Rental income Sale of residential units * Excluding 6,196 discontinued operation (German portfolio)

6 Financial highlights Leverage breakdown and key accounting policies As at 31 December 2016, in Leverage breakdown 6 Commercial properties* Commercial properties under development Residential units for sale and under development Land bank Total Assets value 1,110,078 64,837 54, ,187 1,477,247 Bank Loans 500, ,856 13, ,425 Loan to value ratio 45% 0% 37% 5% 36% Net asset value 610,065 64,837 34, , ,822 * Including 297m property held for sale ( 141m German portfolio, 156m Afi Park 4 & 5 in Romania) Key accounting policies Reporting in Euros IFRS accounting since 2005, audited by KPMG Assets valued by independent appraisers at least once a year Investment properties and investment properties under development stated at fair value Figures represent AFI Europe s percentage interest in its subsidiaries and exclude equity companies Commercial properties by country In Country Number of properties GLA m 2 Annual rent income* Market value December 2016** Average occupancy rate Bulgaria ,815 30% Czech Republic ,699 92,931 92% Romania , ,837 98% Serbia ,682 86,364 84% Germany , ,175 93% TOTAL ,655 1,028,122 * Taking into account AFI Europe s actual percentage interest in each property ** Market value based on CBRE valuation as at 30 September 2016

7 Financial highlights Commercial properties In Name Country City Type % Holding GLA* m 2 Market Value December 2016* Annual NOI 2016 Average Occupancy Rate December AFI Cotroceni Romania Bucharest Retail 98% 79, ,805 31,069 99% AFI Park 1 ** Romania Bucharest Offices 100% 12,407 28,975 2,020 97% AFI Park 2 ** Romania Bucharest Offices 100% 12,418 28,597 2, % AFI Park 3 ** Romania Bucharest Offices 100% 12,530 28,297 1, % AFI Park 4+5 ** Romania Bucharest Offices 100% 32,475 70,022 5,154 95% AFI Ploiesti Romania Ploiesti Retail 100% 33,958 68,141 4,965 99% Broadway Palace Czech Republic Prague Retail, offices 100% 8,886 14,105 1,459 71% Classic 7 (1-3) Czech Republic Prague Retail, offices 100% 33,166 78,826 4,240 98% Airport city Belgrade Business Park Varna Serbia Belgrade Offices 53.70% 43,418 86,364 6,682 84% Bulgaria Varna Offices 100% 43,093 22, % AFI Germany Portfolio *** Germany Berlin Rental appartments 100% 75, ,175 6,196 93% TOTAL 386,986 1,028,122 66,655 * Taking into account AFI Europe s actual percentage interest in each property ** Property held for sale *** Property held for sale in 2016 (sale transaction completed in January 2017) Commercial properties under development In Name City % Holding GLA m 2 on full occupancy Annual rent income based Book value Expected cost to complete the project Completion date ACB phase 4.2 Belgrade 53.70% 7,142 1,331 8,346 2,349 Q AFI Vokovice Prague 100% 13,985 3,386 8,375 28,910 Q AFI Karlin Prague 100% 20,528 4,332 19,908 25,512 Q AFI Brasov Brasov 100% 59,488 12,354 13, ,230 Q AFI TECH Park Bucharest 100% 21,924 2,774 7,462 25,701 Q Total ,067 24,177 57, ,702 - Figures reflect AFI Europe s actual percentage interest in each property

8 Main events in 2016 Sale of the Berlin property portfolio In August 2016 AFI Europe signed an agreement for the sale of 18 properties in Berlin for a total purchase price of 125.5m. This transaction was completed in January Earlier in 2016 AFI Europe sold an additional property in Berlin for 9m, as well as 8 properties in other cities in Germany for 20.2m apartments delivered during 2016 During 2016 AFI Europe delivered a total of 127 apartments in its residential projects, including 63 apartments in Sofia, Bulgaria: Lagera Tulip (36) and Vitosha Tulip (27), and 64 apartments in its residential project Osiedle Europejskie in Krakow.

9 Main events in 2016 Additional phase completed in Classic 7 Business Park in Prague The construction of a new office building, which forms the third phase of Classic 7 Business Park, was completed in the second quarter of The building with GLA of 6,094 m 2 is fully leased. 9 Purchase of land for a large-scale project in Belgrade In June 2016 AFI Europe completed the acquisition of a land plot at the city center of Belgrade for 15.8m. The company plans to develop on that site a mixed-use project comprising high-end residential units alongside offices and retail.

10 Main events in 2016 Purchase of land for a new residential project on Sapiezynska 10, Warsaw AFI Europe signed in 2016 a preliminary agreement for purchasing the rights with respect to a land plot at the center of Warsaw. This transaction was completed in February 2017, for a purchase price of PLN 23.3m. The company plans to develop on that plot a project comprising high-end residential units with GSA of 6,000 m Expansion of project Złota 83 in Warsaw In September 2016 AFI Europe completed the purchase of a land plot adjacent to its project on Złota 83 in Warsaw city center, for a purchase price of PLN 11m. This transaction has added 3,000 m 2 to the planned development which now reaches a total GSA of 8,000 m 2.

11 Main events in 2016 Completion of AFI Park 4 & 5 in Bucharest The construction of the fourth and fifth buildings at the AFI Park premium office complex in Bucharest was completed in the first quarter of The buildings, of a total GLA of 32,000 m 2, have a 95% occupancy rate (as of 31 December 2016). 11 Continuous growth of Airport City Belgrade The construction of the eighth office building with 13,308 m 2 in Airport City Belgrade (phase 4.1 of the project) was completed in the first quarter of 2016, and its occupancy rate has reached 90%. In addition, the construction of the project s ninth office building, with 13,641 m 2, has been completed in the first quarter of Furthermore, the building rights at the front plot of the project increased in March 2016 from 46,000 m 2 to 77,000 m 2.

12 Main events in 2016 Purchase of land for a mixed-used project in Brasov In March 2016 AFI Europe acquired a land plot in Brasov, Romania, for approximately 10m, where it plans to develop a mixed-use project that will include a shopping mall with GLA of 40,000 m 2 and an office building with GLA of 18,000 m 2. Construction has started in the first quarter of Property valuation The consolidated financial statements of AFI Europe are prepared in accordance with International Financial Reporting Standards (IFRS), which include the application of the fair value method. Accordingly, the company s properties are appraised on a regular basis by independent experts. During the third quarter of 2016 AFI Europe engaged the services of CBRE for the valuation of all of its investment properties and investment properties under development (IPUD), as well as for the valuation of some of those projects that are classified as inventory in AFI Europe s financial statements. Based on the results of such valuation, AFI Europe recognized a profit from the revaluation of investment property in the amount of approximately 63.8m, and a profit from the revaluation of investment property under development in the amount of approximately 4.6m. On top of the aforementioned profits, the company recognized additional revaluation profits of approximately 39.7m in relation to its discontinued operation in Germany.

13 Highlighted projects AFI Cotroceni (Bucharest, Romania) Developed by AFI Europe and opened in 2009, AFI Cotroceni has become Romania s largest and most dominant shopping mall. 13 Located in the heart of Bucharest, this project has won several awards, including Best Shopping Centre Development, Best Overall Development, Best Shopping Mall and Best Real Estate Project. A new expansion by 8,000 m 2 will lead to the entry of additional major brands to the variety of international retailers in this shopping mall. GLA 88,500 m 2 Occupancy 99% Average footfall 50,000 visitors per day Parking spaces 2,500 NOI m

14 Highlighted projects AFI Park (Bucharest, Romania) AFI Park is an award-winning complex of premium office buildings, developed by AFI alongside the adjacent AFI Cotroceni, with a total GLA of 152,000 m 2. Together, they feature the biggest complex of retail and business in Romania and one of the biggest in CEE. 14 The business park consists of five class A office buildings, surrounding the highly successful shopping mall, and built to the highest international standards. The tenants benefit from a range of advantages, ranging from luxurious modern offices to the vibrant central location. The project was developed in phases. The first building was inaugurated in Buildings 2 and 3 were completed and inaugurated in 2014, and the construction of buildings 4 & 5 was completed in the first quarter of GBA 107,000 m 2 GLA 69,530 m 2 Occupancy: Buildings 1,2,3-100% Buildings 4,5-95%

15 Highlighted projects AFI Ploiesti (Ploiesti, Romania) Opened in October 2013, AFI Ploiesti is the first and only modern shopping mall in the city center of Ploiesti, Romania. 15 The shopping mall offers over 100 national and international leading fashion brands spreading over two floors, along with 13,000 m² of hypermarket store and more than 7,000 m² of entertainment. GLA 33,958 m 2 Occupancy 99% Average footfall 15,000 visitors per day NOI m

16 Highlighted projects Classic 7 Business Park (Prague, Czech Republic) Classic 7 Business Park is a uniquely designed office project that blends past with the present in Holešovice, one of Prague s most vibrant districts. 16 In the project s initial phase two old buildings of a historical steam-mill were restored and redeveloped. Two modern office building have subsequently been added to the project. The office tenants benefit from underground parking lots as well as retail and food venues on the ground level. Winner of the Best Office Project award in the Czech Republic in GLA 33,166 m 2 Occupancy 98% NOI m

17 Highlighted projects Airport City Belgrade (Belgrade, Serbia) Airport City Belgrade is Serbia s leading business park, offering a multi-use commercial facility that merges the latest construction technologies with a tenant-focused approach. 17 The project s nine office buildings and the nearby redeveloped historic hangar are designed, built and operated in a way that implements the concept of city within a city. The construction of the ninth building in the project was recently completed, and additional buildings are planned. GLA 80,853 m 2 Occupancy 84% NOI m

18 Highlighted projects Osiedle Europejskie (Krakow, Poland) This project is a large-scale residential development in one of Krakow s fastest growing districts. It consists of 24 apartment buildings that have already been completed, one that is presently under construction, and six more that are planned. Upon completion, the number of apartments in this project will be 2, The project is designed to satisfy the needs of the modern family, and includes facilities such as playgrounds and an indoor kindergarten. The residents also benefit from both proximity to green areas and excellent access to the city center. Number of apartments sold by the end of ,923 Number of apartments delivered by the end of ,895 Number of apartments upon completion 2,363

19 Highlighted projects Tulipa Třebešín (Prague, Czech Republic) Tulipa Třebešín is one of AFI Europe s newest projects in the city of Prague. 19 Located in Prague 3, this mixed-use project is developed in phases. The project s initial phase, currently under construction, consists of two residential buildings with 183 apartments. The project will ultimately include several apartment buildings, alongside retail and office properties. Ultimately, the gross floor area (GFA) of 83,300 m² will be composed of 75,000 m² residential, 7,700 m² commercial, and 600 m² kindergarten. Land area 47,000 m 2 GFA 83,300 m 2 Number of planned apartments 700

20 Highlighted projects AFI Brasov (Brasov, Romania) Located in the city center of Brasov on a site that is considered to be the city s best location for commercial development, AFI Brasov is a mixed-use project under development, featuring a shopping mall and a Class A office complex. 20 The shopping mall, with a total GLA of 45,000 m 2, will be mostly spread over two levels, emphasizing the entertainment and leisure attractions. As a unique feature, visitors will enjoy a large leisure balcony, that can host events, viewing the Carpathian Mountains. Two high-end office buildings will be developed next to the mall and integrated with it, in two phases, resulting in office space with GLA of 15,000 m2 and 10,000 m2, respectively. Land area 40,000 m 2 GBA 123,000 m 2 GLA 70,000 m 2 Parking spaces 1,500

21 Highlighted projects Skyline Belgrade (Belgrade, Serbia) Skyline Belgrade is AFI s newest project in this fastly developing city, joining the company s two other projects in Belgrade, Airport City and Central Garden. 21 The project is situated at the location of the ruins of the former Ministry of Interior, damaged during NATO s bombing of Serbia in AFI Skyline Belgrade will be a mixed-use project, consisting of three towers with high-end residential units alongside offices and retail. Construction is expected to begin by the end of NSA 25,500 m 2 Office GLA 21,320 m 2 Retail GLA 7,200 m 2

22 Highlighted projects AFI Park (Krakow, Poland) AFI Park is a premium office complex in Krakow, with a total GLA of 24,700 m 2. The project consists of a class A office building developed in two stages, and will be built to the highest international standards. 22 GLA 24,700 m 2 Expected completion 2018

23 Under Development Income generating properties Butterfly (Prague, Czech Republic) The construction of this project in Karlin, resulting in GLA of approximately 20,528 m 2, is underway and is expected to be completed in the fourth quarter of Osiedle Europejskie (Krakow, Poland) On top of the 24 apartment buildings already completed in this project, one is currently under construction and six more are planned. Total number of apartments sold by the end of 2016 is 1,923, of which 1895 have already been delivered. Upon completion, the project will consist of 2,363 in total.

24 Under Development Income generating properties Tulipa Třebešín, (Prague, Czech Republic) The first phase of the project, expected to be completed in March 2017, includes 183 apartments, of which 182 have already been sold. The second phase in this project will comprise 255 additional units, of which 125 have already been sold (49%). The work on this phase started in the third quarter of 2016 and is expected to complete in Central Garden (Belgrade, Serbia) The first and second phases of this project were completed in 2015 and 2016, with the delivery of 169 residential units. The construction of the third phase is currently underway, with 129 additional units being built, of which 101 have been sold, and with an office building of 15,000 m 2 and 400 parking places.

25 Under Development Residential projects AFI Brasov (Brasov, Romania) AFI Brasov is a mixed-use project under development in the city center of Brasov, featuring a shopping mall with GLA of 45,000 m 2, and a Class A office complex with GLA of 25,000 m 2. The construction commenced in 2016 and the delivery of the first office building is expected to occur in the fourth quarter of AFI Tech Park (Bucharest, Romania) An office project in Bucharest, where the first phase is presently under construction with GLA of 21,924 m 2. The entire project will have GLA of 50,000 m 2. The excavation and piling works started in the third quarter of 2016.

26 Under Development Residential projects AFI City (Prague) The construction of the first phase in residential project started in the thrid quarter of 2016 and is expected to complete in he first quarter of Out of the 257 apartments presently being built, 229 have already been sold (89%). 26 AFI Vokovice (Prague) Two office buildings with GLA of 13,985 m², including retail and gastro units on the ground level, and 285 underground parking spaces. The project is under construction and its completion is planned for the third quarter of 2018.

27 AFI Europe N.V. Consolidated financial statements as at and for the year ended 31 December 2016 For the purpose of inclusion in the financial statements of Africa Israel Properties Ltd.

28 Contents 29 Consolidated financial statements 30 Consolidated statement of financial position Consolidated income statement 32 Consolidated statement of comprehensive income 33 Consolidated statement of changes in shareholders equity 34 Consolidated statement of cash flows 35 Notes to the consolidated financial statements 83 Auditors report

29 Consolidated financial statements

30 Consolidated financial statements Consolidated statement of financial position Assets Note 31 December December 2015 Investment in (and loans to) equity accounted investees 6 17,749 16,151 Investment property 7 813, ,326 Investment property under development 8 106, ,203 Inventory , ,007 Property, plant and equipment 1,631 2,126 Deferred tax assets 9 2,250 3,269 Goodwill 1,455 1,455 Trade and other receivables 2,000 1,327 Total non-current assets 1,151,396 1,268,864 Property held for sale 4G,I 296,791 12,224 Inventory 10 54,146 30,449 Trade and other receivables 11 47,184 34,318 Cash and cash equivalents 12 37,117 36,706 Total current assets 435, ,697 Total assets 1,586,634 1,382, Equity 13 Issued capital Share premium reserve 411, ,797 Translation reserve (7,392) (6,695) Hedging reserve, net (2,961) (2,615) Retained earnings (losses) 100,355 23,484 Total equity attributable to equity holders of the parent 502, ,901 Non-controlling interest 50,051 40,697 Total equity 552, ,598 Liabilities Interest-bearing loans and borrowings , ,266 Interest-bearing loans and borrowings from related parties , ,603 Deferred tax liabilities 9 111,780 77,305 Other non-current liabilities 16 8,343 7,908 Total non-current liabilities 785, ,082 Interest-bearing loans and borrowings ,800 85,204 Interest-bearing loans and borrowings from related parties ,303 Trade and other payables 17 51,829 36,614 Advances for selling inventory 10,708 3,760 Total current liabilities 248, ,881 Total liabilities 1,033, ,963 Total equity and liabilities 1,586,634 1,382,561 The financial statements were approved and authorised for issue by the Board of Directors on 13 March 2017 and were duly signed on the Board s behalf by A. Barzilay, CEO and A. Goldstein, CFO. The accompanying notes are an integral part of these consolidated financial statements

31 Consolidated financial statements Consolidated income statement for the year ended 31 December Note (*) 2014 (*) Gross rental income 20 62,795 56,993 58,711 Service charge income 21,165 19,211 18, Service charge expenses (19,364) (18,840) (18,487) Property operating expenses 21 (1,362) (1,216) (1,534) Net rental and related income 63,234 56,148 57,207 Proceeds from sale of properties 10,757 7,732 30,374 Carrying value of properties sold 10 (8,183) (6,695) (28,485) Write-down of inventory to net realizable value 10 - (5,973) (2,623) Loss on disposal of trading property 2,574 (4,936) (734) Net valuation gain on investment properties 7 63,799 42,587 28,037 Net valuation gain (loss) on investment properties under development 8 4,590 (273) 1,536 Administrative expenses 22 (8,155) (7,438) (7,343) Selling and marketing expenses (2,448) (1,830) (1,732) Other income ,568 2,374 Other expenses 23 (3,052) (3,382) (7,004) Net other income (expense) 23 (2,376) (1,814) (4,630) Net operating profit before net financing costs 121,218 82,444 72,341 Financial income ,665 Interest expenses to Africa Properties (3,040) (3,091) (4,343) Financial expenses (29,151) (29,704) (30,609) Net financing costs 24 (31,501) (32,167) 1,713 Profit before tax 89,717 50,277 74,054 Income tax expense 25 (19,683) (11,616) (9,699) profit from continuing operations 70,034 38,661 64,355 Shares of Profit (loss) of equity accounted investees 1,065 (6) (986) Profit from continuing operations 71,099 38,655 63,369 Profit from discontinued operation 28 15,132 8,290 2,028 Profit for the year 86,231 46,945 65,397 Attributable to: Equity holders of the parent 76,871 42,918 62,014 Non- controlling interest 9,360 4,027 3,383 Profit for the year 86,231 46,945 65,397 Basic earnings per share (Euro) Basic Earnings per share (Euro) from continuing operations Basic Earnings per share (Euro) from discontinued operation * Reclassified for further details see note 28- discontinued operation The accompanying notes are an integral part of these consolidated financial statements

32 Consolidated financial statements Consolidated statement of comprehensive income for the year ended 31 December Foreign exchange translation differences from foreign operations (697) 1,212 (1,024) Net realization of translation reserves transferred to profit or loss Net realization of hedging reserves transferred to profit or loss 291-2,037 Reserves from hedge accounting (643) 1,057 (2,033) Net gain (loss) recognized directly in equity (1,049) 2,358 (1,020) Profit for the year 86,231 46,945 65,397 Total recognized income for the year 85,182 49,303 64,377 Attributed to: Equity holders of the parent 75,828 45,077 60,625 Non-controlling interest 9,354 4,226 3,752 Total comprehensive income for the year 85,182 49,303 64,377 The accompanying notes are an integral part of these consolidated financial statements

33 Consolidated financial statements Consolidated statement of changes in shareholders' equity for the year ended 31 December 2016, 2015 and 2014 Issued capital Share premium reserve Translation reserve Hedging reserve Capital reserve from transactions with noncontrolling interest Retained earnings Equity attributable to equity holders of the parent Noncontrolling interest Balance at January 1, 2014 (Audited) ,797 (6,964) (3,116) (1,708) (79,915) 321,024 33, ,856 Total equity 33 Share-based payments Acquisition of non-controlling interests (1,113) (993) Realization of hedging reserve from disposal of subsidiary , ,037-2,037 Adjustments for translation - - (1,032) (1,024) - (1,024) Reserve from hedge accounting (2,402) - - (2,402) 369 (2,033) Net profit for the year ,014 62,014 3,383 65,397 Balance at December 31, 2014 (Audited) ,797 (7,996) (3,473) (1,588) (17,863) 381,807 36, ,278 Balance at January 1, 2015 (Audited) ,797 (7,996) (3,473) (1,588) (17,863) 381,807 36, ,278 Share-based payments Realization of translation reserve from disposal of associate company Adjustments for translation - - 1, ,212-1,212 Reserve from hedge accounting ,057 Net profit for the year ,918 42,918 4,027 46,945 Balance at December 31, 2015 (Audited) ,797 (6,695) (2,615) (1,588) 25, ,901 40, ,598 Balance at January 1, 2016 (Audited) ,797 (6,695) (2,615) (1,588) 25, ,901 40, ,598 Adjustments for translation - - (697) (697) (697) Reserve from hedge accounting (637) - - (637) (6) (643) Net realization of hedging reserves transferred to profit or loss Net profit for the year ,871 76,871 9,360 86,231 Balance at December 31, 2016 (Audited) ,797 (7,392) (2,961) (1,588) 101, ,729 50, ,780 As at December 31, 2016, the authorized, issued and paid-up share capital of the Company comprises 93,000,000 ordinary shares of Euro 0.01 each. See also Note 13(b) for additional information regarding authorized, issued and paid-up share capital of the Company. The accompanying notes are an integral part of these consolidated financial statements.

34 Consolidated financial statements Consolidated statement of cash flows Cash flows from operating activities For the year ended 31 December Profit for the year 86,231 46,945 65,397 Adjustment for: Depreciation Loss from disposable of subsidiary, net - - (766) Loss (gain) from equity accounted investees (1,065) Write-down of inventory to net realized value - 5,973 2,623 Loss on remeasurement to fair value of equity rights in acquire that were held before control was obtained Gains on sale of land - - (14) Change in fair value of investment property under development (4,590) 273 (1,536) Change in fair value of investment property (103,515) (51,624) (32,606) Share-based payment transactions Net finance costs 37,353 35,870 4,639 Income tax expense 36,936 12,949 10,445 51,855 51,030 49,706 Decrease (increase) in Inventories (36,922) (8,158) 24,804 Decrease/(increase) in trade and other receivables 520 (2,033) 452 Increase/(decrease) in trade and other payables 8,630 5,977 (2,335) Increase (decrease) in advance from selling inventory 6,984 3,506 (355) 31,067 50,322 72,272 Income taxes paid (349) (80) (609) Cash flows from operating activities 30,718 50,242 71,663 Cash flows from investing activities Grant of loan to equity accounted investees (151) (2,327) (3,169) Proceeds from sale of shares of subsidiaries ,850 Proceeds from sale of equity accounted investees - - 1,948 Proceeds from sale of assets 21,599 9,589 16,896 Acquisition of subsidiary, net of cash acquired Investments in deposit,net (14,196) 1,796 (6,356) Acquisition of property, plant and equipment (414) (263) (1,135) Investment in investment property (13,926) (8,169) (12,485) Investment of investment property under development (45,271) (45,440) (26,014) Cash flows from investing activities (52,359) (44,298) (4,465) Cash flows from financing activities Acquisition of non-controlling interests - - (993) Repayment of borrowings (58,502) (60,319) (381,533) Proceeds of non-current borrowings 99,924 95, ,314 Repayment of current borrowings, net 12,124 2,331 (28,163) Payment of finance lease liabilities (1,000) (1,014) (1,058) Interest paid (30,409) (29,458) (33,250) Cash flows from financing activities 22,137 7,257 (58,683) Cash and cash equivalents Net increase in cash and cash equivalents ,201 8,515 Cash and cash equivalents at 1 January 36,706 23,459 14,989 Effect of exchange rate fluctuations on cash held (85) 46 (45) Cash and cash equivalents at December 31 37,117 36,706 23, The accompanying notes are an integral part of these consolidated financial statements

35 Notes to the consolidated financial statements

36 Note 1 / Note 2 Note 1 - General AFI Europe N.V. (hereinafter the Company ) was incorporated on April 4, By a resolution dated April 18, 2006, the Shareholder of the Company resolved to change the form of the Company to a Dutch public limited liability company (Naamloze Vennootschap) and to change its name from AIIP Fin B.V. into AFI Europe N.V. The Company is domiciled in Amsterdam, the Netherlands. As from incorporation in 2006, the Company was a wholly-owned subsidiary of Africa Israel International Properties (2002) Ltd. (hereinafter AIIP 2002 ) a company registered in Israel, wholly owned by Africa Israel Properties Ltd. (hereinafter Africa Properties ), an Israeli company listed on the Tel Aviv Stock Exchange, which is approximately 56% owned by Africa Israel Investments Ltd (hereinafter Africa Israel Investments ), the ultimate parent of the Company. The Company is a real estate development and investment company operating in Central and Eastern Europe mainly on the development of commercial and residential projects. Over the past few years, Africa Properties provided the Company with shareholder loans, the aggregate outstanding amount of which, effective as of December 31, 2016, is approximately EUR 271 million (December 31, EUR 197 million). 36 Note 2 - Basis of Preparation A. Statement of compliance The consolidated financial statements have been prepared for the purpose of inclusion in the consolidated financial statements of Africa Properties, in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS ). The consolidated financial statements of the Company for the year ended December 31, 2016 comprise the Company and its subsidiaries (together referred to as the Group ) and the group interest in associates and joint arrangements. The consolidated financial statements were authorized for issue by the company s Board of Directors on March 13, These IFRS consolidated financial statements are not the statutory financials of the Company. The Company has to file financial statements under Dutch Law for the fiscal year ended December 31, 2016 with the Chamber of Commerce of Amsterdam. B. Functional and presentation currency The consolidated financial statements are presented in Euros, which is the Company s functional currency, and have been rounded to the nearest thousands, except when otherwise indicated. The Euro is the currency that represents the principal economic environment in which the Company operates. Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

37 Note 2 C. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following assets and liabilities: investment property and investment property under development measured at fair value; inventory measured at the lower of cost or net realizable value; deferred tax assets and liabilities; financial instruments and derivatives measured at fair value through profit or loss; Investments in associates and joint ventures. For further information regarding the measurement of these assets and liabilities see Note 3 regarding significant accounting policies. 37 The accounting policies have been consistently applied to the results, income and expenses, assets, liabilities and cash flows of entities included in the consolidated financial statements and are consistent with those used in the previous years. D. Operating cycle The Company has two operating cycles. With regards for the entrepreneurial residential sector, the operating cycle of the Company is longer than one year and lasts up to three years. With regards for the Company s other operations, the operating cycle is one year. As a result, current assets and current liabilities include also items the realization of which is intended and anticipated to take place within the operating cycle of up to three years. E. Use of estimates and judgments Use of estimates The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The preparation of accounting estimates used in the preparation of the group s financial statements requires management of the Company to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Company prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

38 Note 2 Information about assumptions made by the Group with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are included in the following notes: Estimate Principal assumptions Possible effects Reference Recognition of deferred tax asset in respect of tax losses The probability that in the future there will be taxable profits against which carried forward losses can be utilized Recognition or reversal of deferred tax asset in profit or loss For information on losses for which a deferred tax asset was recognized, see Note 9 regarding taxes on income. 38 Assessment of probability of contingent liabilities Whether it is more likely than not that an outflow of economic resources will be required in respect of legal claims pending against the Company and its investees Reversal or creation of a provision for a claim For information on the Company s exposure to claims see Note 19 regarding contingent liabilities Fair value measurement of investment property and investment property under development The expected yield on the investment property asset Profit or loss from a change in the fair value of investment property and investment property under construction For information on the effect of changes in the expected yields on the fair value of investment property see Note 7 and 8 regarding investment property and investment property under development Fair value measurement of non-trading derivatives Unobservable inputs used in the valuation model such as discount rates Profit or loss from a change in the fair value of derivative financial instruments For information on a sensitivity analysis of level 3 financial instruments carried at fair value see Note 18 regarding financial instruments Impairment testing of inventory of land and inventory of residential apartments The estimated net realizable value of balances of non-current inventory of land and inventory of residential apartments. The net realizable value of residential apartments is based on the project s estimated revenues and expected costs. The net realizable value of land is based on a valuation prepared using the comparison technique Recognition or reversal of an impairment loss For information on impairment that was recognized see Note 10 regarding inventory of land and residential apartments Determination of fair value Preparation of the financial statements requires the Group to determine the fair value of certain assets and liabilities. Further information about the assumptions that were used to determine fair value is included in the following notes: Note 7 on investment property Note 8 on investment property under development Note 18 on financial instruments When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Level 3: inputs that are not based on observable market data (unobservable inputs).

39 Note 3 Note 3 Significant Accounting Policies A. Basis of consolidation 1. Business combinations The Company implements the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control. The Company exercises discretion in determining the acquisition date and whether control has been obtained. The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred including any amounts recognized in respect of rights that do not confer control in the acquiree as well as the fair value at the acquisition date of any pre-existing equity right of the Group in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed. The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree and equity instruments that were issued by the Group. In a step acquisition, the difference between the acquisition date fair value of the Group s pre-existing equity rights in the acquiree and the carrying amount at that date is recognized in profit or loss under other income or expenses. In addition, the consideration transferred includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in fair value of the contingent consideration classified as a financial liability in profit or loss. If a business combination settles a pre-existing relationship between the acquirer and the acquiree, the Group deducts/adds to the consideration transferred in the business combination the lower of any stated settlement provisions in the contract and the amount by which the contract is favorable or unfavorable for the acquirer, as compared to the terms of current market transactions in identical or similar items, and it recognizes this amount in profit or loss under other income or expenses. Costs associated with the acquisition that were incurred by the acquirer in the business combination such as: finder s fees, advisory, legal, valuation and other professional fees or consulting fees, other than those associated with an issue of debt or equity instruments connected to the business combination, are expensed in the period the services are received. 2. Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control is lost. The accounting policies of subsidiaries will be changed when necessary to align them with the policies adopted by the Group. 3. Non-controlling interests Non-controlling interests comprise the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company and they include additional components such as: the equity component of convertible debentures of subsidiaries, share-based payments that will be settled with equity instruments of subsidiaries and share options of subsidiaries. 39

40 Note 3 Measurement of non-controlling interests on the date of the business combination Non-controlling interests that are instruments that give rise to a present ownership interest and entitle the holder to a share of net assets in the event of liquidation (for example: ordinary shares), are measured at the date of the business combination at either fair value, or at their proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. This accounting policy choice does not apply to other instruments that meet the definition of non-controlling interests (for example: options to ordinary shares). Such instruments will be measured at fair value or in accordance with other relevant IFRS. 40 Allocation of profit or loss and other comprehensive income to the shareholders Profit or loss and any part of other comprehensive income are allocated to the owners of the Company and the non-controlling interests. Total profit or loss and other comprehensive income is allocated to the owners of the Company and the non-controlling interests even if the result is a negative balance of non-controlling interests. Transactions with non-controlling interests, while retaining control Transactions with non-controlling interests, while retaining control, are accounted for as equity transactions. Any difference between the consideration paid or received and the change in non-controlling interests is included in the owners share in equity of the Company directly in a separate capital fund. The amount of the adjustment to non-controlling interests is calculated as follows: For an increase in the holding rate; according to the proportionate share acquired from the balance of non-controlling interests in the consolidated financial statements prior to the transaction. For a decrease in the holding rate; according to the proportionate share realized by the owners of the subsidiary in the net assets of the subsidiary, including goodwill. Furthermore, when the holding rate of the subsidiary changes, while retaining control, the Company re-attributes the accumulated amounts that were recognized in other comprehensive income to the owners of the Company and the non-controlling interests. 4. Loss of control Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. The difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in profit or loss under other income or other expenses. Subsequently the retained interest is accounted for as an equityaccounted investee or as an available-for-sale asset depending on the level of influence retained by the Group in the relevant company. The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities. 5. Investment in associates and joint ventures (equity accounted investees) Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% share in another entity. In assessing significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account. Joint ventures are joint arrangements in which the Group has rights to the net assets of the arrangement.

41 Note 3 Associates and joint ventures are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The cost of the investment includes transaction costs. When a company first obtains significant influence or joint control in an investment that was accounted for as an available-for-sale financial asset until the date of obtaining significant influence or joint control, accumulated other comprehensive income in respect of that investment is transferred at that date to profit or loss. The consolidated financial statements include the Group s share of the income and expenses in profit or loss and of other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to zero. When the Group s share of long-term interests that form a part of the investment in the investee is different from its share in the investee s equity, the Group continues to recognize its share of the investee s losses, after the equity investment was reduced to zero, according to its economic interest in the long-term interests, after the aforesaid interests were reduced to zero. The recognition of further losses is discontinued except to the extent that the Group has an obligation to support the investee or has made payments on behalf of the investee. 6. Loss of significant influence or joint control The Group discontinues applying the equity method from the date it loses significant influence in an associate or joint control in a joint venture and it accounts for the retained investment as a financial asset, or subsidiary, as relevant. On the date of losing significant influence or joint control, the Group measures at fair value any retained interest it has in the former associate or joint venture. The Company recognizes in profit or loss under other income or expenses any difference between the sum of the fair value of the retained interest and any proceeds received from the partial disposal of the investment in the associate or joint venture, and the carrying amount of the investment on that date. The amounts recognized in equity through other comprehensive income with respect to the same associate or joint venture are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate or joint venture had itself realized the same assets or liabilities. 7. Transactions eliminated on consolidation Intra-group balances and any unrealized gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. 8. Property company Upon the acquisition of a property company, the Group exercises discretion when examining whether the transaction constitutes acquisition of a business or acquisition of an asset, for the purpose of determining the accounting treatment of the transaction. When examining whether a property company constitutes a business, the Group examines, inter alia, the nature of the processes in place in the property company, including the extent and nature of the management, security, cleaning and maintenance services that are provided to the tenants. Transactions in which the acquired company is a business are accounted for as a business combination as described above. Conversely, transactions in which the acquired company is not a business are accounted for as the acquisition of a group of assets and liabilities. In such transactions, the cost of acquisition, which includes transaction costs, is allocated proportionately to the acquired identifiable assets and liabilities, based on their proportionate fair value on the acquisition date. In the latter case, no goodwill is recognized and no deferred taxes are recognized in respect of the temporary differences existing on the acquisition date. 41