Translation of consolidated financial statements originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails. HISPANIA ACTIVOS INMOBILIARIOS, S.A. and Subsidiaries Interim Consolidated Abridged Financial Statements and abridged explanatory notes for the five-year and nine-day period from the date of incorporation on 23 January 2014 to 30 June 2014, prepared in accordance with International Financial Reporting Standards.
TABLE OF CONTENTS INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 1 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 2 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 3 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS... 4 ABRIDGED EXPLANATORY NOTES: 1. INTRODUCTION AND GENERAL CORPORATE INFORMATION... 5 2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS... 6 3. DISTRIBUTION OF THE PARENT S PROFIT... 9 4. ACCOUNTING POLICIES... 9 5. EARNINGS PER SHARE... 15 6. SEGMENT REPORTING... 16 7. INVESTMENT PROPERTY... 17 8. CURRENT FINANCIAL ASSETS... 18 9. CASH AND CASH EQUIVALENTS... 18 10. EQUITY... 18 11. TAX MATTERS... 20 12. REVENUE AND EXPENSES... 21 13. REMUNERATION AND OTHER BENEFITS OF DIRECTORS AND SENIOR EXECUTIVES. 22 14. EVENTS AFTER THE REPORTING PERIOD... 23 MANAGEMENT REPORT. 27 0
HISPANIA ACTIVOS INMOBILIARIOS, S.A. and Subsidiaries CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2014 (Euros) ASSETS Note 30 June 2014 (*) LIABILITIES AND EQUITY Note 30 June 2014 (*) Intangible assets 34,302 Share capital 10 55,060,000 Investment property 7 132,393,774 Share premium 10 483,048,689 Equity instruments 350,000 Shareholders' contribution 10 540,000 Non-current financial assets 701,484 Profit for the period 364,229 Non-current deferred tax assets 11 5,115,002 Equity attributable to shareholders of the Parent 539,012,918 NON-CURRENT ASSETS 138,594,562 EQUITY 539,012,918 Non-current deferred tax liabilities 11 40,314 Other non-current financial liabilities 2,050,057 NON-CURRENT LIABILITIES 2,090,371 Inventories 657,999 Trade and other receivables 298,828 Other current financial liabilities 6,121 Accounts receivable from public authorities 11 1,591,890 Trade and other payables 3,585,710 Other current financial assets 8 361,315,197 Accounts payable to public authorities 11 244,791 Current prepayments and accrued income 32,112 Cash and cash equivalents 9 42,449,323 CURRENT ASSETS 406,345,349 CURRENT LIABILITIES 3,836,622 TOTAL ASSETS 544,939,911 TOTAL LIABILITIES AND EQUITY 544,939,911 (*) Unaudited. The accompanying Notes 1 to 14 are an integral part of the statement of financial position for the five-month and nine-day period ended 30 June 2014. 1
(*) Unaudited. The accompanying Notes 1 to 14 are an integral part of the consolidated statement of Statement of comprehensive income Note June 2014 (*) Rental income 12.1 554,094 Other operating income 891 Other operating expenses 12.2 (1,681,240) Depreciation and amortisation charge (1,834) Net gains (losses) on disposal of assets 2,220 Loss from operations (1,125,869) Finance income 8,9 801,795 Finance costs (37) Changes in fair value of financial instruments 8 735,642 Profit before tax 411,531 Income tax (47,302) Consolidated profit from continuing operations 364,229 Profit for the period attributable to the Parent 364,229 Basic earnings per share (euros) 0.0066 Diluted earnings per share (euros) 0.0066 Other comprehensive income Consolidated net profit 364,229 Other items of comprehensive profit recognised directly in equity - Transfers to comprehensive profit - Consolidated comprehensive profit 364,229 Comprehensive basic earnings per share (euros) 0.0066 Comprehensive diluted earnings per share (euros) 0.0066 comprehensive income for the five-month and nine-day period ended 30 June 2014. 2
HISPANIA ACTIVOS INMOBILIARIOS, S.A. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FIVE-MONTH AND NINE-DAY PERIOD ENDED 30 JUNE 2014 (Euros) Note Share capital Share premium Shareholders' contribution Reserves Profit attributable to shareholders of the Parent Total equity Balance at 23 January 2014 - - - - - - Total income and expense recognised in the period - - - - 364,229 364,229 Incorporation 10 60,000 - - - - 60,000 Capital increase 10 55,000,000 495,000,000 - - - 550,000,000 Transaction costs 10 - (11,951,311) - - - (11,951,311) Shareholders' contribution 10 - - 540,000 - - 540,000 Balance at 30 June 2014 (*) 55,060,000 483,048,689 540,000-364,229 539,012,918 (*) Unaudited. The accompanying Notes 1 to 14 are an integral part of the consolidated statement of changes in equity for the five-month and nine-day period ended 30 June 2014. 3
Amounts in euros Note June 2014 (*) CASH FLOWS FROM CONTINUING OPERATIONS 1. CASH FLOWS FROM OPERATING ACTIVITIES Profit for the period before tax 411,531 Adjustments to profit Depreciation and amortisation (+) 1,834 Gains/(losses) on disposal of investment property (+/-) (2,220) Finance income (-) 8,9 (801,795) Finance costs (+) 37 Changes in fair value of financial instruments (+/-) 8 (735,642) Adjusted profit/(loss) (1,126,255) Interest received (+) 222,240 Other amounts received/paid (-/+) (658,036) Increase/Decrease in current assets and liabilities (Increase)/Decrease in receivables (298,828) Increase/(Decrease) in payables 2,238,611 Increase/Decrease in other assets and liabilities (25,991) Other non-current assets and liabilities (+/-) 748,573 Total net cash flows from operating activities 1,100,314 2. CASH FLOWS FROM INVESTING ACTIVITIES Investments in (-) Intangible assets (36,136) Investment property 7 (132,046,554) Financial assets 8 (360,350,000) (492,432,690) Disposals of (+) Investment property 255,000 255,000 Total net cash flows from investing activities (492,177,690) 3. CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of equity instruments (+) 10 533,526,699 Total net cash flows from financing activities 533,526,699 4. NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flow for the period from continuing operations 42,449,323 Cash and cash equivalents at beginning of period from continuing operations - Cash and cash equivalents at end of period 42,449,323 (*) Unaudited. The accompanying Notes 1 to 14 are an integral part of the consolidated statement of cash flows for the five-month and nine-day period ended 30 June 2014. 4
HISPANIA ACTIVOS INMOBILIARIOS, S.A. and Subsidiaries Abridged explanatory notes to the Interim Consolidated Abridged Financial Statements for the five-month and nine-day period from its date of incorporation on 23 January 2014 to 30 June 2014. 1. Introduction and general corporate information Hispania Activos Inmobiliarios, S.A. (hereinafter, the Parent) is a public limited liability company with registered office at calle Serrano 30, 3º planta, Madrid, which was incorporated on 23 January 2014 under the corporate name Azora Hispania, S.A., but has operated under its current name, Hispania Activos Inmobiliarios, S.A., since 17 February 2014. Hispania Activos Inmobiliarios, S.A. and its Subsidiaries (hereinafter, the Group or the Hispania Group) mainly engages in the acquisition and development of urban rental property, in holding shares of listed companies investing in the property market and in holding shares in real estate investment undertakings. Hispania Real, S.A. was incorporated on 1 April 2014, with the Parent as the sole shareholder thereof at the date of preparation of these Interim Consolidated Abridged Financial Statements. This company and the Parent are included in the scope of consolidation as of 30 June 2014. The shares representing the share capital of Hispania Activos Inmobiliarios, S.A. have been listed on the electronic trading platform on the Madrid, Barcelona, Bilbao and Valencia stock exchanges since 14 March 2014. On 21 February 2014, the Group's Parent entered into a management agreement with Azora Gestión, S.G.I.I.C., S.A. (the Management Company ) in order to delegate the everyday management of the Group to the Management Company, whereby the Group did not have any employees at the date of these Interim Consolidated Abridged Financial Statements. In view of the Group's business activity, it does not have any environmental expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position and results. Therefore, no specific disclosures relating to environmental issues are included in these abridged explanatory notes to the Interim Consolidated Abridged Financial Statements. 5
2. Basis of presentation of the consolidated Financial Statements a) Basis of presentation These Interim Consolidated Abridged Financial Statements of Hispania Activos Inmobiliarios, S.A. and Subsidiaries for the period ended 30 June 2014 were prepared from the accounting records of the Parent and of the Hispania Group company by the Parent s directors at the Board of Directors Meeting held on 28 July 2014. The accompanying Interim Consolidated Abridged Financial Statements present the consolidated equity and consolidated financial position of Hispania Activos Inmobiliarios, S.A. (the Parent) and its subsidiary (hereinafter, the Group or the Hispania Group), along with the consolidated results of its operations, the changes in consolidated equity and the consolidated cash flows for the five-month and nine-day period ended 30 June 2014. These Interim Consolidated Abridged Financial Statements relate to the five-month and nine-day period from the Parent's date of incorporation on 23 January 2014 to 30 June 2014 and were prepared in accordance with that established in the International Financial Reporting Standards (IFRSs), as adopted by the European Union, issued by the Regulatory Commission of the European Union (hereinafter, EU-IFRSs), which must be complied with for periods beginning on or after 1 January 2014, and in particular with the provisions of International Accounting Standard (IAS) 34, Interim Financial Reporting, taking into account all mandatory accounting principles and rules and measurement bases, as well as the Spanish Code of Commerce, the Spanish Companies Law and the CNMV Securities Market Law. However, since the accounting policies and measurement bases used in preparing the Group's Interim Consolidated Abridged Financial Statements for the period ended 30 June 2014 may differ from those used by certain Group entities, the required adjustments and reclassifications were made on consolidation to unify such policies and bases and to make them compliant with the EU-IFRSs applied by the Group. In order to uniformly present the various items composing the Interim Consolidated Abridged Financial Statements, the policies and measurement bases used by the Parent were applied to all the companies included in the scope of consolidation. 6
b) Adoption of International Financial Reporting Standards Standards and interpretations issued by the IASB but not yet applicable in this period The Group intends to adopt the standards, interpretations and amendments issued by the IASB, which are not of mandatory application in the European Union at the date of preparation of these Interim Financial Statements, when they enter into force, if applicable. The Group is currently analysing their impact. Based on the analyses performed to date, the Group estimates that initial application thereof will not have a significant impact on the Consolidated Financial Statements. c) Functional currency These Interim Consolidated Abridged Financial Statements are presented in euros, the Group's functional currency, because the euro is the currency of the main economic area in which the Group operates. d) Responsibility for the information, and use of accounting estimates and judgements The information in these Interim Consolidated Abridged Financial Statements is the responsibility of the Parent's directors. Estimates based on objective information were made by Parent management in order to measure certain of the assets, liabilities, income, expenses and obligations reported herein. The estimates and policies refer to: - The recovery of tax loss carryforwards and deferred tax assets recognised in the condensed consolidated statement of financial position (see Note 11) - The market value of the investment properties (see Note 7) - Compliance with the requirements for the tax regime applicable to listed companies investing in the property market for subsidiary Hispania Real, S.A. (Note 4.6) Although these estimates were made on the basis of the best information available at the date of authorisation for issue of these Interim Consolidated Abridged Financial Statements, events that take place in the future might make it necessary to change these estimates (upwards or downwards). Changes in estimates would be applied prospectively in accordance with IAS 8, recognising the effects of the change in estimates in the consolidated statement of comprehensive income. e) Basis of consolidation The principal bases of consolidation applied by the Parent s directors in preparing the Interim Consolidated Abridged Financial Statements were as follows: 1. The Interim Consolidated Abridged Financial Statements were prepared from the accounting records of Hispania Activos Inmobiliarios, S.A. and of the company controlled thereby, the Financial Statements of which were prepared by Group 7
management. Control is considered to be held by the Parent when it exercises effective control in accordance with that indicated in point 5 below. 2. The results of the subsidiary incorporated during the period are included in the consolidated statement of comprehensive income from the effective date of acquisition or incorporation. 3. All the accounts receivable and payable and other transactions between the consolidated companies were eliminated on consolidation. 4. Where necessary, the Financial Statements of the subsidiary are adjusted so that the accounting policies used conform to those applied by the Group's Parent. 5. The method used to determine the consolidation method applicable to companies composing the Group was as follows: Full consolidation: - Subsidiaries, taken to be all companies whose financial and operating policies are governed by the Group, generally because it holds more than half of the voting power, are fully consolidated. When assessing whether the Group controls another entity, the existence and effect of any potential voting rights that may be exercised or converted at year-end are taken into account. As of 30 June 2014, Hispania Real, S.A. was the only fully consolidated subsidiary in which the Parent holds all its shares. f) Comparative information There is no comparative information in these Interim Consolidated Abridged Financial Statements, given that both the Parent and the sole subsidiary and, consequently, the Group, were incorporated in the 2014 financial year. g) Seasonality of transactions The Group's main activity consists of the management of investment property and the acquisition and development of urban leasable property. Consequently, no significant seasonality is expected to exist with regard to the Group's transactions. 3. Distribution of the Parent's profit Given the purpose of these Interim Consolidated Abridged Financial Statements, the Parent's Board of Directors did not propose the distribution of profit at 30 June 2014, as this is an interim period. 8
4. Measurement bases 4.1 Investment property Investment property is stated at its fair value at the end of the reporting period and is not depreciated. Investment property includes land, buildings or other constructions held to earn rentals or for the obtainment of gains on the sale as a result of future increases in the respective market prices. Gains or losses arising from changes in the fair value of investment property are recognised in profit or loss in the year in which they arise. These gains or losses are not included in profit from operations. Assets are transferred from investment property under construction to investment property when they are ready for use. When the Group recognises the cost of an asset that replaces another asset already included in this value as a higher fair value of an investment property, the Group reduces the value of the property by the fair value of the asset replaced and recognises this impact under Gains or losses from changes in asset value and impairment in the consolidated statement of comprehensive income. In those cases in which the fair value of a replaced asset cannot be identified, the asset is recognised by increasing the fair value of the property and is subsequently restated periodically by using the appraisals carried out by independent experts as a reference. In accordance with IAS 40, the Group periodically determines the fair value of its investment property. This fair value is determined by using the appraisals carried out by independent third-party experts as reference values at the date of preparation of the consolidated statement of financial position, such that at the end of each period the fair value reflects the market conditions of the investment properties at that date. However, given the acquisition of the Group's investment properties at 30 June 2014 were all acquired in the second quarter of 2014, the Group did not consider it necessary to carry out appraisals by independent third parties at 30 June 2014. For this reason, the Group's directors consider the acquisition price paid for such properties to be the best fair value estimate thereof. 4.2 Financial instruments (not including derivative financial instruments) Financial assets Initial recognition Financial assets are initially recognised at the fair value of the consideration given, plus any directly attributable transaction costs. Subsequent classification and measurement The financial assets held by the Group are classified in the following categories: 9
- Investments accounted for using the equity method are included at the percentage they represent of the associate's equity, adjusted by any unrealised gains existing at the time of acquisition. - Financial assets held of sale include the investments in which the Group does not have significant influence or control, and are measured at fair value, which is the market value or a value calculated using valuation methods such as the discounted cash flow analysis. When it is not possible to determine fair value, they are measured at amortised cost. - Available-for-sale financial assets are measured at fair value and the gains and losses arising from changes in fair value are recognised in equity until the asset is disposed of or it is determined that it has become (permanently) impaired, at which time the cumulative gains or losses previously recognised in equity are recognised in the net profit or loss for the year. - Loans and receivables include the credit facilities granted to third parties and associates that are measured at their nominal value and classified as held for maturity. This heading also includes non-current deposits and guarantees that relate basically to deposits made, in accordance with current legislation, to official bodies for guarantees received from the lessees. - Non-derivative financial assets include the current and non-current fixed-income securities which, in general, are held until maturity and measured at amortised cost. Current fixed-income securities are recognised under Current financial assets. Interest income is calculated in the year in which it accrues on a time proportion basis. Financial liabilities Accounts payable are initially recognised at the fair value of the consideration received, adjusted by the directly attributable transaction costs. These liabilities are subsequently measured at amortised cost. Financial liabilities are derecognised when the obligations giving rise to them cease to exist. Also, when debt instruments are exchanged between the Group and a third party, whenever the various terms and conditions differ substantially, the Group derecognises the original financial liability and recognises the new one. The difference between the carrying amount of the original liability and the consideration paid, including attributable transaction costs, is recognised in the consolidated statement of comprehensive income for the period. The Group considers the terms and conditions of financial liabilities to differ substantially whenever the present value of the discounted cash flows, as per the new terms and conditions, including any fees and commissions paid, net of any fees and commissions received and using the original effective interest rate in discounting, differs by at least 10% from the discounted present value of the cash flows still remaining from the original financial liability. 10
4.3 Accounts receivable Accounts receivables are measured at their recoverable amount, i.e., net, where applicable, of the allowances recognised to cover the balances past due by a certain period of time when the prevailing circumstances arise that reasonably enable the receivables to be classified as doubtful debts. In this regard, the Group did not have any doubtful or impaired assets at 30 June 2014. 4.4 Cash and cash equivalents This heading includes the balances deposited at banks, which are measured at the lower of cost or market value. 4.5 Current / Non-current classification A normal operating cycle is considered to be the period of time that elapses between the acquisition of the assets used when the Group carries out its various activities and their realisation in cash or cash equivalents. The Group's main business is its property rental business, which is considered to have a normal operating cycle that coincides with the calendar year and, therefore, assets and liabilities maturing within no more than twelve months are classified as current and those maturing within more than twelve months as non-current. 4.6 Income tax General regime The expense for Spanish income tax is recognised in the consolidated statement of comprehensive income, except when such expense arises from a transaction whose result is recognised directly in equity, in which case, the related tax is also recognised in equity. The income tax expense represents the sum of the current tax expense and the changes in the deferred tax assets and liabilities recognised. The income tax expense for the period is calculated based on the taxable profit, which differs from the net profit reported in the consolidated statement of comprehensive income because it excludes income and expense items that are taxable or deductible in other years, together with items that are never taxable or deductible. The Group's liability for current income tax is calculated using tax rates which have been approved at the date of the consolidated statement of financial position. On 20 June 2014, the Council of Ministers received a report from the Minister of Public Revenue and Administrations on four Draft Bills intended to reform our tax system, which include the modification of the general 28% tax rate for the 2015 financial year, and 25% for the 2016 financial year. As at the date of preparation of these Interim Abridged Consolidated Financial Statements, the corresponding laws had not been definitively approved, although the Group is in the process of appraising the potential impact of this reform. 11
Regime for listed companies investing in the property market The subsidiary Hispania Real S.A. has elected to become a listed company investing in the property market and reported this decision to the Directorate-General of Taxes by means of a relevant notice on 7 May 2014. This choice will be applicable until the Company decides to waive its applicability or not to comply with the requirements of the regime for listed companies investing in the property market, and will allow the subsidiary, among others to benefit from a 0% interest rate for income tax and a 95% reduction in the transfer and stamp tax arising from the acquisition of properties intended for lease. In accordance with transitory provision one of Act 11/2009, governing Listed Public Limited Investment Companies in the Property Market (Ley 11/2009 por la que se regulan las Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario) the special tax regime may be elected under the terms of article 8 of said Act, even if the requirements it establishes have not been met, on the condition that they are met within two years following the date of election. Hispania Real, S.A. partially meets the requirements of said Law at the date of these Financial Statements, however the Group's directors consider that the necessary processes have been implemented in order to comply with all the requirements prior to expiry of the established deadline. In accordance with the regime for listed companies investing in the property market, the Company will be obliged, among others, to carry out a property rental business and comply with the following requirements: (i) (ii) (iii) (iv) (v) (vi) Invest at least 80% of the gross value of the assets in the lease of urban property assets or land to develop urban property to be leased, provided that development begins in the three years following the acquisition, or in shares of other listed companies investing in the property market, or foreign companies or subsidiaries engaged in the activities mentioned above and with the same distribution requirements. At least 80% of annual net income must come from rental income and dividends or gains in relation to the aforementioned activities. The admitted properties must remain leased for at least three years. Each year listed companies investing in the property market are required to distribute either 100% of the profit obtained from dividends or investments in the profit of admitted investments, 50% of the profit from transfers of admitted assets or 80% of all other profit obtained. The shares of listed companies investing in the property market must be traded on a regulated market or on a multilateral trading facility, either in Spain or another country of the European Union or European Economic Area. Listed companies investing in the property market are taxed at a rate of 0% for income tax. However, if the profits distributed to a shareholder that owns at least 5% of the share capital are exempt or subject to a tax rate lower than 10% at the location of this shareholder, the listed company investing in the property market will be subject to a special tax rate of 19% on the full amount of the dividends or investments in profits distributed to these shareholders. 12
Deferred taxes Deferred tax assets and liabilities are the taxes that are expected to be paid or recovered through the differences between the cumulative asset or liability balances in the Financial Statements and the related tax bases used in the calculation of taxable profit, and they are accounted for using the balance-sheet method, i.e. as the difference between the carrying amount of assets and liabilities and their tax bases. Other deferred tax assets and liabilities associated with properties located in Spain, as a result of applying the fair value in accordance with that established in IAS 40, are calculated by applying a tax rate of 30%. However, tax relief for reinvestment envisaged in Article 42.7 of the Corporate Tax Law, and any tax credits that may be applicable in the future and that may reduce the effective tax rate to be taken into account in calculating deferred tax assets and liabilities are not applied. The Parent has recognised a tax loss during this period mainly as a direct result of the expenses for offering share subscriptions described in Note 10. The accompanying consolidated statement of financial position includes tax assets whose recovery is considered probable over a reasonable period of time. Deferred tax liabilities relate to gains allocated to investment property or changes in the fair value thereof. 4.7 Revenue and expenses Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. However, in accordance with the principles contained in the conceptual framework of IFRSs, the Group recognises revenue when it is earned together with all the associated expenses. Sales of goods are recognised when the assets are delivered and title thereto has been transferred. Dividend income from financial investments is recognised when the shareholder s rights to receive payment have been established. Operating leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases. At 30 June 2014, all of the Group's leases are considered operating leases. Lease income and expenses from operating leases are recognised in the consolidated statement of comprehensive income on an accrual basis. Any collection or payment that might be made when arranging an operating lease will be treated as a prepaid lease collection or payment which will be recognised in the consolidated statement of comprehensive income over the lease term in accordance with 13
the time pattern in which the benefits of the leased asset are provided or received. 4.8 Consolidated statement of cash flows (indirect method) The following terms are used in the consolidated statement of cash flows with the meanings specified: - Cash flows: inflows and outflows of cash and equivalent financial assets, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value. - Operating activities: the principal revenue-producing activities and other activities that are not investing or financing activities. - Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. - Financing activities: activities that result in changes in the size and composition of the equity and borrowings that are not operating activities. 4.9 Related party transactions The Group performs all its transactions with related parties on an arm s length basis. Also, the transfer prices are adequately supported and, therefore, the Parent s directors consider that there are no material risks in this connection that might give rise to significant liabilities in the future. 5. Earnings per share Basic earnings per share are calculated by dividing the net profit attributable to the shareholders of the Parent (after tax and non-controlling interests) by the weighted average number of shares outstanding during that period. Diluted earnings per share are calculated in a similar way to basic earnings per share; however, the weighted average number of shares outstanding is adjusted to take into account the potential dilutive effect of convertible debentures, if any, in force at the end of the period. 6. Segment reporting Basis of segmentation Segment reporting is structured by the Group s various business segments. The lines of business described below were established based on the Group's organisational structure in force at 30 June 2014 and were used by Group management to analyse the financial performance of the various operating segments. The Group engages mainly in the following major lines of business, which provide the basis on which the Group presents the information on its operating segments: - Investment in properties for office use. 14
- Investment in properties for residential use. - Investment in properties for hotel use. All of the Group's activities are carried out in Spain. Basis and methodology for business segment reporting The segment information below is based on monthly reports prepared by Group management and is generated using the same computer application that prepares all the Group's accounting information. Segment revenue relates to ordinary revenue directly attributable to the segment, as well as proceeds from the disposal of investment property. The ordinary revenue of each segment does not include interest or dividend income. The expenses of each segment are calculated on the basis of the expenses incurred in the segment's operating activities that are directly attributable thereto and the loss arising from the disposal of investment property, if any. These allocable expenses do not include interest, the income tax expense or overhead expenses corresponding to general services that are not directly allocated to each business segment and, therefore, that cannot be distributed using reasonable allocation bases. Segment assets and liabilities are those directly related to the segment s operating activities. Segment information for these businesses is presented below: Euros Housing Offices units Hotels Other Group total Revenue and expenses Leases - 318,062 235,367 665 554,094 Net profit (loss) on disposal of assets - 2,220 - - 2,220 Other operating - - - 891 891 income Operating expenses - - - (1,683,074) (1,683,074) Financial profit - - - 1,537,400 1,537,400 Income tax - - - (47,302) (47,302) Total at 30 June 2014-320,282 235,367 (191,420) 364,229 15
Euros Offices Housing units Hotels Other Group total Assets Intangible assets - - 11,870 22,432 34,302 Property, plant and equipment, and investment property (Note 7) 45,186,45 0 64,758,774 22,448,550-132,393,77 4 Non-current financial assets 495,633 205,851 - - 701,484 Other non-current assets - - 350,000 5,115,002 5,465,002 Inventories 67,800 368,800 221,399-657,999 Trade receivables and other current assets Total at 30 June 2014 45,749,88 3-14,034 284,794 405,388,522 65,347,459 23,316,7613 410,525,956 405,687,35 0 544,939,91 1 Euros Liabilities Non-current financial liabilities Offices Housing units Hotels Other Group total 655,812 794,245 600,000-2,050,057 Deferred tax liabilities - - - 40,314 40,314 Current financial liabilities - - - 6,121 6,121 Operating liabilities (suppliers and accounts payable) 786,450 106,793 330,219 2,607,039 3,830,501 Total at 30 June 2014 1,442,262 901,038 930,219 2,653,474 5,926,993 7. Investment property The changes in this heading in the five-month and nine-day period ended 30 June 2014 were as follows: Euros Investment property Total Balance at 23 January 2014 - - Additions 132,646,554 132,646,554 Disposals (252,780) (252,780) Balance at 30 June 2014 132,393,774 132,393,774 The additions made in the first half of 2014 relate mainly to the acquisition of the following properties: On 16 April 2014, the Hispania Group acquired the Guadalmina SPA & Golf Resort hotel in Marbella for EUR 22.4 million (non-recoverable expenses and taxes included), fully paid with shareholders' equity of Hispania. On 12 May 2014, the Hispania Group announced the acquisition of 213 housing units in the Isla del Cielo residential complex in the Diagonal Mar park in Barcelona. The acquisition price amounted to EUR 65 million (non-recoverable expenses and taxes 16
included) and was paid in full with shareholders' equity of Hispania. The acquisition also included 237 underground parking places within the residential complex. On 27 May 2014, The Hispania Group acquired two floors of the Murano building in Madrid for EUR 4.3 million (non-recoverable expenses and taxes included). Subsequent to the end of the period on 30 June 2014, the Group acquired the rest of the building as part of the transaction to acquire the real estate company Oncisa, S.L. (see note 14). On 27 June 2014, the Hispania Group announced the acquisition of two office buildings in the Plaza de Les Glòres area in Barcelona for EUR 40.9 million (non-recoverable expenses and taxes included), fully paid with shareholders' equity of Hispania. 8. Current financial assets Other current financial assets in the condensed consolidated statement of financial position includes mainly the interest in investment funds and time deposits which the Group has the ability to convert into cash in the short term. The redemption value of the investment fund has been changed during this period, giving rise to EUR 735.642 in income for the Group. Time deposits also generated EUR 540.313 in interest income. 9. Cash and cash equivalents At 30 June 2014, this heading includes cash and cash equivalents amounting to EUR 42,449,323. There are no restrictions on the use of this type of balance. These balances generated interest income for the Group of EUR 261.482. 10. Equity Share capital Incorporation On 23 January 2014, Azora Altus, S.L. incorporated the Parent with a share capital of 60.000 fully subscribed and paid shares of EUR 1 par value each. Capital increases On 18 February 2014, Azora Altus, S.L., the sole shareholder of the Parent at the time, resolved to increase share capital by EUR 500,000,000 through the issue of 50,000,000 ordinary shares of EUR 1 par value each with a share premium of EUR 9 each, offering the newly-issued shares through an offer of subscription. This sole shareholder resolved to apply for the admission to listing of all the shares on the Madrid, Barcelona, Bilbao and Valencia stock exchanges, and their inclusion in the Spanish Stock Market Interconnection System. Within the framework for this process, Goldman Sachs International and UBS Limited were appointed global coordinators. It was also decided 17
that the coordinators would be granted an green shoe option of 5,000,000 shares, the issue of which was approved on this same date with the same nominal value and share premium as before. The information prospectus relating to the subscription offer and the admission to listing of the aforementioned shares was approved by the Spanish National Securities Market Commission and recorded in its official registers on 3 March 2014. The capital increase was also approved and registered on 31 March 2014. On 12 March 2014, the Parent ended the book building period early, and on 13 March executed a public deed, closed the period for the share capital increase and awarded the shares at the price established in the offer of EUR 10 per share, thereby admitting the new shares to trading on 14 March 2014. Lastly, on 25 March 2014, Goldman Sachs and UBS reported that the greenshoe option was fully exercised. Consequently, at 30 June 2014, the share capital was represented by 55,060,000 fully subscribed and paid shares of EUR 1 par value each. All shares are book entries. Expenses for these issues totalled EUR 11,951,311, less the related deferred taxes. In accordance with the information provided to the Spanish National Securities Market Commission regarding corporate holdings, the significant shareholders with direct or indirect ownership interest in the Parent's share capital at 30 June 2014 are as follows: Name or company name of the shareholder: Percentage of ownership Direct Indirect Total. - 16.709 SOROS FUND MANAGEMENT LLC - 16.709 16.709 PAULSON & CO. INC - 16.709 16.709 - - TAMERLANE, S.A.R.L. 5.449-5.449 CREDIT SUISSE GROUP - 4.999 4.999 COHEN & STEERS, INC. - 4.071 4.071 APG ASSET MANAGEMENT N.V. 4.148-4.148 DEUTSCHE BANK, A.G. 3.210-3.210 - The Parent is unaware of other ownership interests which, despite being lower than the percentage established, enable significant influence to be exercised. Legal reserve Under the Consolidated Spanish Companies Law, 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. 18
The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Otherwise, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose. Shareholders' contribution On 17 February 2014, Azora Altus, S.L. decided to make a monetary contribution in cash to the Parent's shareholders' equity of EUR 540,000. 11. Tax matters The income tax for the period is calculated based on the taxable profit, which differs from the net profit reported in the consolidated statement of comprehensive income because it excludes income and expense items that are taxable or deductible in other years, together with items that are never taxable or deductible. The Group's assets and liabilities for current income tax are calculated using tax rates which have been approved at the date of the interim consolidated statement of financial position. The detail of the balances receivable from and payable to public authorities in the accompanying condensed consolidated statement of financial position is as follows: 30 June 2014 Euros Deferred tax assets 5,115,002 Accounts receivable from public authorities 1,591,890 VAT 1,532,110 Tax withholdings and prepayments 59,780 Total accounts receivable 6,706,892 Non-current deferred tax liabilities 40,314 Accounts payable to public authorities 244,791 Tax withholdings payable 244,791 Total accounts payable 285,105 Income tax The detail of Income tax in the statement of comprehensive income for this period ended 30 June 2014 is as follows: 30 June 2014 Euros Income statement Equity Income tax expense - - Changes due to deferred tax assets and liabilities Recognition of tax loss carryforwards and other temporary differences (6,988) 5,121,990 19
Differences between the value of investment property for accounting and tax purposes (40,314) - Income tax (47,302) 5,121,990 Below is the reconciliation between the pre-tax accounting profit and taxable profit following temporary differences: 30 June 2014 Euros Income statement Equity Total Profit before tax 411,531 (17,073,301) (16,661,770) Consolidation adjustment without any tax effect (121,273) - (121,273) Consolidation adjustment with tax effect (134,380) - (134,380) Unadjusted taxable profit 155,878 (17,073,301) (16,917,423) Profit subject to the regime for listed companies investing in the property (132,584) - (132,584) market Temporary differences 40,864-40,864 Final taxable profit 64,158 (17,073,301) (17,009,143) The deferred tax asset recognised relates to the tax loss carryforwards recognised as they are expected to be used within a reasonable period of time, and to the temporary differences for the period arising from the limits to the deductibility of the depreciation recognised for tax purposes. 12. Revenue and expenses 12.1 Rental income The amount recognised under this heading at 30 June 2014 relates to rental income arising from the Group's property rental business. 12.2 Other operating expenses Operating expenses relate mainly to the management fees of Azora Gestión, S.G.I.I.C., S.A. amounting to EUR 997,951. 12.3. Related party transactions The Group does not have any transactions with related parties other than those described in Note 12.2, which amount to EUR 848,866 and have yet to be paid at 30 June 2014. 12.4 Results by company 20
The contribution of each consolidated company to the consolidated profit for the year was as follows: Euros 30 June 2014 Hispania Activos Inmobiliarios, S.A. 47,940 Hispania Real, S.A.U. 316,289 Total 364,229 13. Remuneration and other benefits of directors and senior executives Remuneration of directors The remuneration earned during the period of five months and nine days in the 2014 financial year by the current members of the Parent's Board of Directors in the form of wages and salaries, incentives, attendance fees and bylaw-stipulated directors' emoluments amounted to EUR 130 thousand. The detail of this remuneration is as follows: Euros Remuneration received by directors 30 June 2014 Directors' remuneration 79,891 Additional remuneration of the Executive Committee 11,836 Additional remuneration of the Audit and Control Committee 11,836 Additional remuneration of the Nomination and Remuneration Committee 5,918 Total 109,481 At 30 June 2014, no advances or loans were granted to the joint and several directors and no obligations were assumed on their behalf by way of guarantees. 14. Subsequent events The following significant events have taken place subsequent to the end of the period: On 8 July 2014, the Hispania Group announced that it had acquired a 90% interest in the share capital of the real estate company Oncisa, S.L. through the subscription of a capital increase for EUR 80.2 million, fully paid with shareholders equity of Hispania. Oncisa, S.L., a real estate company of the ONCE group of companies and its foundation, manages 46,416 m 2 of offices, distributed over 9 properties valued at EUR 120.4 million, including debt. Eight of the assets are located in Madrid and one of them is in Málaga. On 9 July 2014, the Hispania Group announced the acquisition of an office building in Madrid for EUR 15 million, fully paid with shareholders' equity of Hispania. The property is located at C/ Comandante Azcárraga, 3 and has a gross leasable area of 5.137 square meters, distributed over 7 floors, with more than 194 parking places. 21
On 25 July 2014 the Hispania Group acquired the ICL Group, a property portfolio comprising four office and two hotel buildings, all located in the Community of Madrid, for a total amount of EUR 42.15 million, fully paid with shareholders equity of Hispania. Signature of the Directors The Abridged Consolidated Half Year Financial Statements for the period of five months and 9 days ended 30 June 2014 of Hispania Activos Inmobiliarios, S.A. and its subsidiary, consisting of the statement of financial position at 30 June 2014, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows, as well as the abridged explanatory notes, have been prepared by the Board of Directors of Hispania Activos Inmobiliarios, S.A. in its meeting of 28 July 2014. The Abridged Consolidated Financial Statements are set out on 28 sheets of ordinary paper, which have been signed off by the Secretary to the Board. For the purposes of Royal Decree 1362/2007, of 19 October (art. 8.1 b) and art. 10) the undersigned Directors of Hispania Activos Inmobiliarios, S.A make the following liability statement: To the extent of their knowledge, the Abridged Consolidated Half Year Financial Statements have been prepared pursuant to accounting principles in force, show a true image of the equity, financial position and income of the issuing company and the companies forming part of its consolidated group as a whole. In witness whereof, the Directors sign below: RAFAEL MIRANDA ROBREDO Chairman of the Board of Directors Chairman of the Executive Committee Member of the Appointments and Remuneration Committee JOAQUÍN AYUSO GARCÍA Member of the Board of Directors Member of the Executive Committee Member of the Audit Committee 22
JOSÉ PEDRO PÉREZ-LLORCA Y RODRIGO, Member of the Board of Directors Member of the Audit Committee Chairman of the Appointments and Remuneration Committee LUÍS ALBERTO MAÑAS ANTÓN. Member of the Board of Directors Chairman of the Audit Committee Mª CONCEPCIÓN OSÁCAR GARAICOECHEA. Member of the Board of Directors Member of the Appointments and Remuneration Committee FERNANDO GUMUZIO ÍÑIGUEZ DE ONZOÑO Member of the Board of Directors Member of the Executive Committee 23
INTERIM MANAGEMENT REPORT Evolution of the real estate market After the severe recession registered in Spain between 2008 and 2012, after the second half of 2013 an economic growth process started with prospects of gradual consolidation in the medium term, as a result of the improvement foreseen for European Union countries and the structural reforms undertaken in Spain. This evolution has had a significant impact on the behaviour of the Spanish real estate industry. The gradual recovery of economic activity and employment, the strengthening of Spain s economic solvency and financial system, the containment of the trend of the reduction of prices of real estate asset, and the interest of new investors, mainly international investors, in the Spanish real estate industry, which has led to significant operations formalised in recent months, should be highlighted. In this sense, according to the professional information of financial analysts, the expectations of improvement of the real estate industry can be expected to improve in 2014-15, with particular relevant at this initial stage of the office building segment, with Madrid and Barcelona being the main references for investment opportunities. Main risks The Company will be exposed to the evolution of the Spanish real estate market. Investment in residential properties, offices, hotels, and other real estate assets is subject to specific risks proper to each of these kinds of assets. The due diligence performed regarding the investment operations performed and future operations to be performed may not identify all the risks and liabilities arising from them. The Company may depend on the action of third-party contractors and the projects under development, in construction, or being renovated may be delayed, not be completed, or not achieve the results expected. The SOCIMI system (including its interpretation) is relatively new and may be changed. Application of the SOCIMI special tax system to Hispania Real Socimi S.A. is conditional upon mandatory fulfilment of certain requirements. Evolution of the Group business A) Flotation On 14 March 2014, Hispania was floated in the Spanish Stock Exchange, with an initial capital of 550,000 thousand euros, in order to benefit from the opportunity currently offered by the Spanish real estate market through the creation of high quality assets, investing mainly in the residential, hotel, and office sectors. On 1 April 2014, Hispania Activos Inmobiliarios, S.A. incorporated by means of a public deed the subsidiary 100% owned by the latter Hispania Real SOCIMI, S.A.U., which 24