CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 For the year ended December 31, 2014 CONSOLIDATED FINANCIAL STATEMENTS 2014

2 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income 2

3 of financial position of changes in equity of cash flows Notes to the consolidated financial statements Content Declaration of the Members of the Board of Directors 2 3 Board of Directors Report 4 21 Independant auditors report of comprehensive income of financial position of changes in equity of cash flows Notes to the consolidated financial statements

4 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income DECLARATION OF THE MEMBERS OF THE BOARD OF DIRECTORS AND THE COMPANY OFFICIALS RESPONSIBLE FOR THE PREPARATION OF THE FINANCIAL STATEMENTS In accordance with Article 9 sections (3c) and (7) of the Transparency Requirements Law 2007 ( the Law ) we, the members of the Board of Directors and the Company official responsible for the drafting of the financial statements of Primecity Investments PLC (the Company ) for the year ended December 31, 2014, on the basis of our knowledge, declare that: (b) The Board of Directors report provides a fair view of the developments and the performance as well as the financial position of the Company as a whole, together with a description of the main risks and uncertainties which they face. (a) The annual financial statements of the Company which are presented on pages 28-59: (i) have been prepared in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the provisions of Article 9, section (4) of the law, and Philipp von Bodman Larnaca, Cyprus, March 31, 2015 (ii) provide a true and fair view of the particulars of assets and liabilities, the financial position and profit or loss of Primecity Investments PLC and the subsidiary companies included in the financial statements as a whole ( the Group ) and 2

5 of financial position of changes in equity of cash flows Notes to the consolidated financial statements 3

6 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income Key financials Revenue () EBITDA () Adjusted EBITDA () Net profit () EPS (basic) (In euro) Cash Flow from Operations () FFO I () FFO I per share (In euro) FFO II () OPERATIONAL RESULTS Dec 13 Dec 14 change 9,873 25, % Dec 13 Dec 14 change 34, , % Dec 13 Dec 14 change 7,492 21, % Dec 13 Dec 14 change 29, , % Dec 13 Dec 14 change % Dec 13 Dec 14 change 5,154 19, % Dec 13 Dec 14 change 3,026 13, % Dec 13 Dec 14 change % Dec 13 Dec 14 change 3,026 36,641 1,111% 4

7 of financial position of changes in equity of cash flows Notes to the consolidated financial statements KEY FINANCE RATIOS Dec 13 Dec 14 Dec 14 assuming conversion* 32% 40% 18% Dec 13 Dec 14 Dec 14 assuming conversion* 45% 42% 60% Dec 13 Dec 14 change 103, , % Loan-To-Value Equity Ratio EPRA NAV () *Assuming convertibles conversion. The convertible bond is in the money. ASSET DATA Dec 13 Dec 14 Apr Dec 13 Dec 14 Apr 15 2,700 5,000 6,200 Hotel Assets Hotel Rooms 5

8 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income Highlights & Achievements Total increase of 18 hotel properties in 2014 out of which 12 were acquired since the IPO. The portfolio grew by additional 8 hotel properties until April hotel properties were sold at the end of the year Run rate of lease revenue increased to 36 million as of April 2015 Issuance of convertible bonds at a principal amount of 100 million in November 2014, with a tap up of 50 million in principal amount in February 2015 Maintaining a conservative capital structure with a LTV of 40% (18% assuming conversion) and an Interest Coverage Ratio of 4.2 Listed on the Euronext Paris Stock Exchange since November 2014 Hotel Asset Growth April 2015 Financial Position Highlights As of Dec 2014 Dec 2013 Cash and liquid assets 63,404 2,707 Total Assets 513, ,662 Investment Property 1) 442, ,385 Total Equity 213,079 84,500 EPRA NAV 361, ,044 Loans and borrowings 144,544 60,262 Convertible bonds 96,728 - Loan To Value 40% 32% Loan To Value assuming conversion 2) 18% 32% Equity Ratio 42% 45% Equity Ratio assuming conversion 2) 60% 45% 1) including advanced payment 2) the convertible bond is in the money and has started to be converted 6

9 of financial position of changes in equity of cash flows Notes to the consolidated financial statements THE COMPANY Primecity Investment PLC ( PCI or the Company ) and its investees (the Group ) Board of Directors hereby submits their report as of December 31, The figures presented in this Board of Directors Report are based on the consolidated financial statements as of December 31, 2014, unless stated otherwise. Hamburg Stralsund PCI is a specialist hotel investing company focused on investing in and repositioning of underperforming hotel properties in key German locations. Bremen As of April 2015, PCI s total portfolio includes approximately 6,200 hotel rooms in 42 hotel properties (the Portfolio ). In December 2014 these amounted to 5,000 and 34 respectively. The hotel properties are located in German key locations which enjoy high tourism, business and exhibitions, such as Berlin, Frankfurt, Dresden, Düsseldorf, Hamburg, Bremen, Mannheim and Leipzig. Osnabrück Bielefeld Dortmund Duisburg Neuss Düsseldorf Mettmann Cologne Hanover Braunschweig Kassel Halle Potsdam Dessau Leipzig Berlin Dresden Frankfurt Mainz Mannheim Saarbrücken Baden-Baden Stuttgart Bad Reichenhall 7

10 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income Company Strategy Repositioning underperforming hotel properties in attractive locations in Germany PCI targets its investments in underperforming assets which are located in touristic and commercially attractive locations in Germany. These markets offer favorable fundamentals that will support profits and growth in the foreseeable future. The Portfolio is located in more than 20 attractive tourism and business locations such as Berlin, Hamburg, Bremen, Mannheim, Frankfurt, Dresden, Düsseldorf and Leipzig. PCI believes its business platform profits from its skilled personnel and reliable practices that enable the Company to continue to perform strongly and to further expand in the hotel property market. The Company also thinks that the business environment will provide abundant acquisition opportunities in the attractive markets it targets, to support its external growth strategy in the medium to long term. PCI positions itself as an expert for optimizing the value chain - starting from the acquisition stage, whereby it benefits from strong connections to deal sources, through forming the most advantageous management and operational structure for each hotel asset individually. PCI is an asset owner and does not participate in the daily operations of hotels. Deal Sourcing and Acquisition The Company has established a strong deal sourcing network, based on over 11 years experience and the reputation of a reliable deal maker, from more than 120 turnaround cases. The sourcing network includes among others, banks, investment funds, brokers and other real estate companies seeking to remove underperforming hotels from their portfolio. Over the years of activity in the market, the Company has positioned itself as a preferred buyer, resulting in a vivid and diverse deal flow of off market deals. The Company has developed the ability to identify and cherry pick the properties with the highest potential in the market. For its acquisitions the Company is applying the following specific criteria structure: Low acquisition price Significant upside potential High cash flow generation Repositioning potential Branding opportunities Due Diligence and Execution As part of the due diligence phase, the Company measures and analyzes the compatibility of the potential acquisition with the entire portfolio and seeks synergy effects. In parallel, the due diligence team examines both the financial and legal aspects of the deal carefully and thoroughly. Once the deal is approved, PCI has the capability to execute rapidly and smoothly. PCI is not bound by any investment mandates or multi-step decision processes. Thus, PCI has established itself as a reliable deal partner with a proven track-record. Deal sourcing Continuous through various channels Asset cherry-picking Due diligence Assessment of all value drivers Careful analysis of opportunities Execution Attractive financing due to track-record and relationships Turnaround process Repositioning of product Optimal branding Targeted capex Asset & portfolio management Benefit from high-yielding property 8

11 of financial position of changes in equity of cash flows Notes to the consolidated financial statements Turnaround process After the takeover stage, the Company repositions the asset, by fitting each property with a detailed tailor-made business plan. PCI has a strong expertise in modernisation application and optimal brand repositioning. Thus the turnaround process starts with selecting the ideal market position such as the brand and star category, in view of a comprehensive demand and supply analysis of the specific location. The turnaround includes targeted capex and refurbishment activities, which on one hand support implementation of the repositioning plan and on the other enables reduction of non-recoverable costs in the future. During the positioning phase, PCI integrates the asset into its network with advanced in-house proprietary IT software and marketing systems, which were developed to adapt to every asset s specific needs. The unique platform is a deciding component in enabling the tenant to exceed market averages in cost savings, revenue generation and thus profitability. Asset & portfolio management After the repositioning process the Company leases out the hotel to external partners. The hotel operators are carefully selected according to their capabilities and track record, and PCI customarily cooperates with stable and experienced operators. An integral component of the business plan is a long term fixed rental lease, which increases the cash flow visibility and decreases the dependency on the operational business. PCI keeps supporting the operator with cost saving measures, mainly derived from economy of scale benefits and bargaining power of the Company. The turnaround process is achieved through the access of synergies from extensive accumulated experience and market knowledge with regards to high-potential underperforming properties, which is the Company s most unique sustainable competitive advantage. 9

12 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income Company Strategy A unique value creation approach PCI creates value through a repositioning process based on proprietary market intelligence and tacit industry knowledge built up over 11 years. The repositioning process involves influencing many different value creation levers. PCI s area of expertise and operational focus is in responding to the growing demand for hotels of 3 to 4 star categories, by efficiently utilizing abundantly available distressed and underperforming properties, from all brands and star categories. These properties attract little investor attention because of the profound know-how and experience required to correctly address their unique challenges. The Company s management believes it is well positioned in this exclusive niche, benefitting from the demand gap, where it can most efficiently tap into its strongest competitive advantages. The Company produces significant value throughout the turnaround process, reflecting the stabilizations and high cash flow yields of the repositioned properties. The Company s abilities enable it to crystalize value in hotel assets by achieving the optimal positioning based on proprietary market intelligence. Going forward with both hold and sell strategies once properties potential is realized The Company will hold onto properties where it believes it can create more value with further asset management. Once the property has been stabilized, PCI has the ability to choose whether to hold an asset as a cash cow and benefit from a stabilized high yield, or to sell assets on an opportunistic basis. In 2014 alone, PCI has disposed and signed disposal agreements with an average Equity IRR of over 60%. 10

13 of financial position of changes in equity of cash flows Notes to the consolidated financial statements ASSET REPOSITIONING Distressed Assets (all categories) Demand Gap Stabilised Assets (3-4 stars) 1 Initial capex & re-branding 2 Cost and top line synergies from network integration 3 Repositioning of asset Optimal brand Optimal operator Upgraded marketing platform Proprietary Market Intelligence Optimal size and room count Optimal category Reduced cost structure 11

14 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income KEY STRENGTHS Highly diversified portfolio with significant repositioning potential The current Portfolio enables the Company on one hand to benefit from economy of scale and on the other provides a diverse and well allocated portfolio throughout Germany with different branding and operators. PCI s assets are branded with international brands such as Wyndham, Radisson Blu and Mercure, and the majority consists of 4 star hotels, responding to the highest demand market of star category. PCI hotels are branded with 6 leading franchising partners offering several subbrands, which provides PCI with economy of scale as well as flexibility and bargaining power with each franchisor. The choice of franchisor plays an integral part in the turnaround success of the assets. Thus PCI chooses franchisors with strong brands, a competitive booking platform and a large scale of categories which provides a high flexibility for PCI s assets branding. LOGO Nº dossier : E Date : 31/05/11 Validation DA/DC : Validation Client Hotel Star Category (by Value) 3 Stars 16% 2 Stars 4% 4 Stars 80% 12

15 of financial position of changes in equity of cash flows Notes to the consolidated financial statements 13

16 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income KEY STRENGTHS Unique business platform supports internal and external growth PCI s business platform provides efficient in-house asset management of its existing portfolio while supporting the Company s strategy for further growth. In particular, its advanced proprietary IT software system enables the Company s management to closely monitor its portfolio s performance and the performance of the operators and whether they follow the business plan set forth, as well as to constantly analyze growth opportunities in different schemes. Management believes that the Portfolio has the capacity to grow its operations at marginal costs to the platform, and further create economies of scale. The integrated nature of its platform also means that PCI is well positioned to make business decisions swiftly, responding efficiently to market opportunities. Acquisition, opportunities and DEAL flow PCI s established reputation in various local markets as well as on the national level provides access to multiple investment opportunities often before they are widely promoted or publicized, and frequently at appealing conditions, reflecting the Company s perceived quality as counterparty and its proven track-record and reputation. The advantage has also extended to improved access to financing and helped creating strong relationships with debt providers. PCI is uniquely positioned in Europe as no listed pure play hotel investment company exists, enabling the Company to grow quickly with low competition on a national level. 14

17 of financial position of changes in equity of cash flows Notes to the consolidated financial statements Track record of rapid deal execution Certainty of execution guaranteed through a solid funding structure and extensive execution experience provide PCI a competitive advantage in the distressed deal market. The seller and the bank are looking to execute the deals as fast as possible and a liquidity injection is needed in a short time. Rapid and effective execution capabilities enable PCI to avoid public auctions and bid up costs to reach attractive prices. Additionally, PCI s reputation and track record has rooted the Company s connection to the strongest international hotel brands, enabling PCI to select the most suitable brand for each asset. Strong track record of value creation and repositioning assets PCI has steadily demonstrated its skill in acquiring properties with significant potential, and in designing and implementing specific strategies for each asset. PCI s continuous asset management efforts result not only in improved portfolio yields, but also in tangible long term value creation that is immediately captured in PCI s financial performance. Moreover, PCI has proven its ability to realize capital gains and provide shareholders with high returns. Healthy capital structure providing financial flexibility for future growth PCI s ability to finance its assets, which either were distressed or could not be refinanced under the previous management, with favourable conditions demonstrates the Company s competitive strength. PCI has established a strong financing network and its Portfolio is currently financed by 7 different banks through 16 separate loans. All loans are non-recourse, non-cross collateral and non-cross-default. PCI constructs a specific financing structure for each property fitting to the property s business plan. The financial conditions are based on a stable and operational asset with a long term fixed lease agreement, providing a low cost of debt. PCI s cost of bank debt is 3% and 90% of the debt is hedged against interest rate risks, bringing volatility and uncertainty to a minimum. In November 2014, PCI issued a convertible bond (ISIN: XS ) with a principle amount of 100 million and a 5 year maturity which is listed on the Frankfurt Stock Exchange. The convertible bond is in the money and has started to be converted into equity. In February 2015, PCI tapped up its convertible bond by an additional 50 million, which increases the fully diluted basic shares to 150 million. The current loan to value ratio of 40% and an Interest Coverage Ratio of 4.2 reflect PCI s conservative leverage with a high headroom and financial flexibility for further external growth. The LTV financial headroom on each loan increases over time with the continuous value creation. 15

18 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income NOTES ON BUSINESS PERFORMANCE CONSOLIDATED PROFIT AND LOSS KEY FIGURES for the year ended Dec 31 Revenue 25,563 9,873 Capital gains, property revaluations and other income 102,758 26,768 Property operating expenses (1,854) (1,262) Administrative & other expenses (1,973) (1,119) Operating profit 124,494 34,260 Adjusted EBITDA 21,736 7,492 Finance expenses (5,287) (3,770) Other financial results (5,789) (76) Current tax (2,897) (696) Deferred tax (6,527) 274 Profit for the year 103,994 29,992 Revenue Revenue increased in 2014 by 159% to 25.6 million from 9.9 million in The substantial increase results mainly from the additional lease revenue of newly acquired assets and the initial consolidation of two companies held previously as joint ventures as well as from rent increase of existing properties. As the disposals of assets occurred at the end of 2014 the revenue was hardly offset by less rental income. As most of the newly acquired properties in 2014 have been acquired in the second half of 2014 and thus did not contribute to PCI s revenue on a full year basis the year-end revenue does not reflect the current portfolios full potential. Due to further acquisitions in 2015 the lease revenue run rate (monthly annualized) as of April 2015, reflecting the full effect of the April portfolio, excluding any rent increases, increased to 36 million. CAPITAL GAINS, PROPERTY REVALUATIONS AND OTHER INCOME for the year ended Dec 31 Total 102,758 26,768 All property valuations have been determined by independent external, market leading valuators. The capital gains, property revaluations and other income increased in 2014 by 284% to million. The increase derives mainly from the substantial increase in profit arising from business combination reflecting the demonstrated ability of Primecity to acquire attractive properties at under market prices resulting in bargain purchases. Profit arising from business combination occurs through a share deal in business acquisitions if the fair value of the total identifiable net assets exceeds the purchase price. Furthermore, the capital gains, property revaluations and other income have increased as result of investment property revaluation derived from property improvements and from the value creation process. 16

19 of financial position of changes in equity of cash flows Notes to the consolidated financial statements Property operating expenses for the year ended Dec 31 Purchased services (999) (248) Maintenance and refurbishment (745) (427) Other operating costs (46) (38) One-time expenses (64) (549) Total (1,854) (1,262) Property operating expenses increased in 2014 by 47% to 1.9 million, or 151% excluding one-time expenses, in rate with the revenue increase of 159%. The increase in property operating expenses derives mainly from an increase in purchased services and maintenance expenses and was offset in part by a decrease in one-time expenses. Purchased services, the largest portion of the operating expenses, are ancillary costs which are related to the property operating income. Thus, these expenses naturally increase with portfolio growth and are covered by the tenants. Maintenance and refurbishment expenses increased also with the growth of the portfolio. The expenditures are kept low as significant investments are already included in the acquisition price and executed in the turnaround and repositioning stage. Furthermore, as part of the lease agreement with the operator, the vast of the ongoing maintenance expenses is paid directly by the tenant. Administrative & other Expenses for the year ended Dec 31 Payroll and administrative expenses (1,608) (1,050)* Year end closing, accounting and audit expenses (210) (50) Legal and professional fees (66) (7) Marketing and other expenses (89) (12) Total (1,973) (1,119) * Reclassified Administrative and other expenses are costs related to personnel expenses, management s IT system, legal and professional fees and marketing expenses. Administrative & other expenses have increased in 2014 by 76% to 2.0 million from 1.1 million in The increase is due to external growth from acquisition of properties. Administrative expenses tend to have more fixed nature items, and are therefore less correlated with the portfolio growth than the property operating expenses, increasing efficiency and economies of scale, thus creating an operational profit leverage as Primecity s portfolio grows further. Primecity believes that the current platform has the ability to support further portfolio growth at marginal costs. 17

20 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income NOTES ON BUSINESS PERFORMANCE Net Finance Expenses for the year ended Dec 31 Finance expenses (5,287) (3,770) Other financial results (5,789) (76) Total (11,076) (3,846) The net finance expenses increased from 2013 to 2014 by 7.2 million. The increase derives mainly from the increase in other financial results, largely due to a non-cash effect of negative results of derivative financial instruments as well as non-recurring provisions and fees. The increase in finance expenses of 40% is an effect of the growth of the Company and results from a greater amount of bank loans and the issuance of the convertible bond. TAXATION for the year ended Dec 31 Current tax (2,897) (696) Deferred tax (6,527) 274 Total (9,424) (422) The increase in tax expenses in 2014 compared to 2013 results mainly from the increase in deferred taxes, a non-cash result accompanying the profit from revaluations of investment property. Current taxes, comprised of corporation and property tax, have increased in line with the growth of the Company s portfolio. PROFIT FOR THE YEAR for the year ended Dec 31 Profit for the year 103,994 29,992 Basic earnings per share Diluted earnings per share Weighted average basic shares 100, ,000 Weighted average basic shares (diluted) 104, ,000 Fully diluted basic shares 133, ,000 The profit for 2014 has increased by 74 million to 104 million, reflecting an increase of 247% compared to The net profit result is mainly driven by significant increases in revenues and capital gains, property revaluations and other income a combined result of the growth of the Company, the successful materializing of turnover of its assets and improved profitability. Cash Flow for the year ended Dec 31 Net cash provided by operating activities 19,765 5,154 Net cash used in investing activities (67,083) (29,430) Net cash provided by financing activities 50,891 25,377 Net increase in cash and cash equivalents 3,573 1,101 Cash and cash equivalents have increased in 2014 by 3.6 million. The increase results mainly from the strong increase of over 280%, which amounts to million, in net cash provided by operating activities while in line with Primecity s growth strategy investments stayed strong with an increase in net cash used in investing activities by 128%. The increase in net cash used in investing activities was offset partly by profitable disposals of assets. The increase in net cash provided by financing activities refers mainly to the bond issuance in November of 2014 of 100 million. The increase was offset in part by bank loan repayments. 18

21 of financial position of changes in equity of cash flows Notes to the consolidated financial statements Assets Liabilities December 2014 December 2013 Non-current assets 448, ,210 Investment property* 442, ,385 Current assets 65,070 3,452 Total assets 513, ,662 *including advanced payments for investment properties The total assets as of year-end 2014 amount to million, compared to EUR million at year-end The total assets have increased by 327 million over the past year, reflecting a 175% increase in comparison to December The increase reflects the growth of the Company, seen in the growth in investment property of 183% to 442 million as well as the consolidation of two assets held previously as joint ventures. In addition, the current assets as of year-end 2014 include a considerable amount of cash and liquid assets, the excess amount of the convertible bond issuance in Q and the disposals in December EPRA NAV December 2014 December 2013 Total Equity 213,079 84,500 Fair Value measurements of derivative financial instruments 4,995 3,096 Deferred tax liabilities 46,614 15,448 Convertible bond* 97,254 - EPRA NAV 361, ,044 *the convertible bond is in the money. The amount includes accrued interest. December 2014 December 2013 Loans and borrowings 137,689 57,309 Convertible bonds 96,728 - Deferred tax liabilities 46,614 15,448 Other long term liabilities 6,338 25,300 Current liabilities 12,796 4,105 Total 300, ,162 The increase in liabilities is attributed mainly to the increase in bank loans and the issuance of the convertible bonds in November The additional raised funds were used to finance the Company s growth. The increase in the bank loans during 2014 is due to financing received on existing assets of the Company, on newly acquired assets as well as from the consolidation of two assets held previously as joint ventures. The issuance of the convertible bonds allows for a better diversification of the Company s debt and demonstrates the Company s access to public capital. Despite this substantial growth in liabilities, Primecity improved its conservative capital structure, illustrated by its LTV of 40%. Primecity s deferred tax liabilities rose in line with acquisitions and reflect the Company s conservative stance, assuming property disposals through asset deals with a full German real estate tax effect of %. The convertible bond is in the money and first conversions have begun in Further conversions were made in 2015 and therefore the instrument has equity characteristics. December 2014 December 2013 Total bank debt 144,544 60,263 Cash and liquid assets 63,404 2,707 Total net debt without convertible bond 81,140 57,556 Convertible bond 96,728 - Total net debt with convertible bond 177,869 57,556 The EPRA NAV rose in 2014 to 362 million from 103 million in December 2013, an increase of 251%. The rise is primarily attributed to the 104 million profit generated in 2014, additional deferred tax liabilities of 31 million created due to the initial consolidation, capital gains results and the inclusion of the convertible bonds, which are in the money. 19

22 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income NOTES ON BUSINESS PERFORMANCE FFO (FUNDS FROM OPERATIONS) AND ADJUSTED EBITDA FFO for the year 2014 amounts to 13.6 million, an increase of 348% compared to The result reflects the operational growth of an adjusted EBITDA of 190% from acquisitions alongside the outcome of the successful turnaround of PCI s properties. As finance expenses increased less than the operational results the FFO growth exceeds the growth of the adjusted EBITDA. for the year ended Dec 31 EBITDA 124,494 34,260 Capital gains, property revaluations and other income (102,758) (26,768) Adjusted EBITDA 21,736 7,492 Finance Expense (5,287) (3,770) Current tax (2,897) (696) FFO I 13,552 3,026 FFO I per share FFO II for the year ended Dec 31 FFO I 13,552 3,026 Result from disposal gain* 23,089 - FFO II 36,641 3,026 FFO II per share *) the excess amount of the sale price to the cost price of the properties FFO II amounted to 37 million in This strong result mirrors PCI s sourcing abilities as well as its conservative valuation stance and also reflects the Company s opportunistic disposal strategy. FFO II is computed by adding gains from the disposal of investment property and inventories to FFO I. Loan-To-Value for the year ended Dec 31 Investment property* 442, ,385 Equity accounted investees - 25,372 Total Debt 241,272 60,263 Cash and liquid assets 63,404 2,707 LTV 40% 32% *including advanced payments for investment properties Total Debt without convertible bond 144,544 60,263 LTV assuming conversion 18% 32% The low loan-to-value ( LTV ) demonstrates the Company s conservative approach on financial leverage and indicates the scope of Primecity s ability to raise further debt going forward. As of December 2014 the LTV was 40%, indicating a continuously strong financing composition. Assuming conversion of the convertible bond, which is in the money, the ratio is 18%. The Loan-to-value ( LTV ) is computed by subtracting cash and liquid assets from the sum of bonds and loans and borrowings and dividing by the sum of investment properties, advanced payments, investments in equity accounted investees and trading properties. 20

23 of financial position of changes in equity of cash flows Notes to the consolidated financial statements DISCLAIMER The financial data and results of the Group are affected by financial and operating results of its subsidiaries. Significance of the information presented in this report is examined from the perspective of the Company including its portfolio with the joint ventures. In several cases, additional information and details are provided in order to present a comprehensive representation of the subject described, which in the Group s view is essential to this report. By order of the Board of Directors, Larnaca, Cyprus, March 31, 2015 Elena Koushos Director Philipp von Bodman Director, CEO Jelena Afxentiou Director 21

24 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF Primecity Investment PLC Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Primecity Investment PLC ( the Company ) and its subsidiaries (together with the Company, the Group ) on pages 24 to 55 which comprise the consolidated statement of financial position as at December 31, 2014, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Board of Directors responsibility for the consolidated financial statements The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors as well as evaluating the overall presentation of the consolidated financial statements. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap Report on other legal requirements Pursuant to the requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009, we report the following: We have obtained all the information and explanations we considered necessary for the purposes of our audit. In our opinion, proper books of account have been kept by the Company. The consolidated financial statements are in agreement with the books of account. In our opinion and to the best of the information available to us and according to the explanations given to us, the consolidated financial statements give the information required by the Cyprus Companies Law, Cap. 113, in the manner so required. In our opinion, the information given in the report of the Board of Directors is consistent with the consolidated financial statements. Other matter This report, including the opinion, has been prepared for and only for the Company s members as a body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. Antoniades Panicos, FCCA Certified Public Accountant and Registered Auditor for and on behalf of KPMG Limited Certified Accountants and Registered Auditors Larnaca, March 31, 2015 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 22

25 of financial position of changes in equity of cash flows Notes to the consolidated financial statements 23

26 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Note For the year ended December 31, Revenue 25,563 9,873 Capital gains, property revaluations and other income 5 102,758 26,768 Property operating expenses 6 (1,854) (1,262) Administrative and other expenses 7 (1,973) (1,119) Operating profit 124,494 34,260 Finance expenses 8a (5,287) (3,770) Other financial results 8b (5,789) (76) Net finance expenses (11,076) (3,846) Profit before tax 113,418 30,414 Current tax expenses 9b (2,897) (696) Deferred tax expenses 9c (6,527) 274 Tax and deferred tax expenses (9,424) (422) Profit for the year 103,994 29,992 Other comprehensive income for the year - - Total comprehensive income for the year 103,994 29,992 Profit attributable to: Owners of the Company 96,832 29,937 Non-controlling interests 7, ,994 29,992 Net earnings per share attributable to the owners of the Company (in euro): Basic earnings per share 10a Diluted earnings per share 10b The notes on pages 32 to 55 form an integral part of these consolidated financial statements.

27 of financial position of changes in equity of cash flows Notes to the consolidated financial statements The notes on pages 32 to 55 form an integral part of these consolidated financial statements. 25

28 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at December 31, Assets Note Equipment and intangible assets 4,479 - Investment property , ,870 Advanced payment for investment property 20,133 3,515 Equity-accounted investees 12-25,372 Deferred tax assets 9C Other long term financial assets Non-current assets 448, ,210 Cash and cash equivalents 4,692 1,119 Short term deposits 1,718 1,588 Trade securities at fair value through profit and loss 56,994 - Trade and other receivables 13 1,090 (*) 694 Other financial assets 576 (*) 51 Current assets 65,070 3,452 Total assets 513, ,662 (*) Reclassified. 26 The notes on pages 32 to 55 form an integral part of these consolidated financial statements.

29 of financial position of changes in equity of cash flows Notes to the consolidated financial statements As at December 31, Equity Note Share capital 14 1,002 9 Premium and other capital reserves 14 1,747 - Retained earnings 176,625 78,319 Equity attributable to the owners of the Company 179,374 78,328 Non-controlling interests 33,705 6,172 Total equity 213,079 84,500 Liabilities Loans and borrowings ,689 57,309 Convertible bonds 15B 96,728 - Derivative financial instruments 16 4,995 3,096 Deferred tax liabilities 9C 46,614 15,448 Other long term liabilities 1,343 (*) 22,204 Non-current liabilities 287,369 98,057 Current portion of long term loans 15 6,855 2,953 Trade and other payables 17 3, Provisions and current liabilities 2, Current liabilities 12,796 4,105 Total liabilities 300, ,162 Total equity and liabilities 513, ,662 (*) Reclassified. The Board of Directors of Primecity Investment PLC authorized these consolidated financial statements for issuance on March 31, 2015 Elena Koushos Director Philipp von Bodman Director, CEO Jelena Afxentiou Director The notes on pages 32 to 55 form an integral part of these consolidated financial statements. 27

30 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended December 31, 2014 Share capital Attributable to the owners of the Company Premium and other capital reserves Retained earnings Total Noncontrolling interests Total equity Balance as at December 31, ,319 78,328 6,172 84,500 Profit for the year ,832 96,832 7, ,994 Other comprehensive income for the year Total comprehensive income for the year ,832 96,832 7, ,994 Non-controlling interests arising from initially consolidated companies and other transactions - - 1,474 1,474 20,371 21,845 Issuance of shares and changing nominal par value Equity component related to convertible bonds - 1,067-1,067-1,067 Issuance of shares related to conversion of convertible bonds Balance as at December 31, ,002 1, , ,374 33, ,079 Balance at December 31, ,382 48,391 1,635 50,026 Profit for the year ,937 29, ,992 Other comprehensive income for the year Total comprehensive income for the year ,937 29, ,992 Non-controlling interests arising from initially consolidate companies ,482 4,482 Balance as at December 31, ,319 78,328 6,172 84, The notes on pages 32 to 55 form an integral part of these consolidated financial statements.

31 of financial position of changes in equity of cash flows Notes to the consolidated financial statements The notes on pages 32 to 55 form an integral part of these consolidated financial statements. 29

32 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from operating activities For the year ended December 31, Profit for the year 103,994 29,992 Adjustments for the profit: Capital gains, property revaluations and other income (102,758) (26,768) Finance expenses, net 11,076 3,846 Tax and deferred tax expenses 9, ,736 7,492 Changes in: Trade and other receivables 1,052 (364) Trade and other payables (1,441) (1,262) Provisions for other liabilities and charges 275 (15) 21,622 5,851 Tax paid (1,857) (697) Net cash provided by operating activities 19,765 5,154 Cash flows from investing activities Proceeds from disposal of (investments in) investment property, net 35,491 (3,788) Acquisition of subsidiaries, net of cash acquired (41,608) (24,070) Proceeds from / (purchase of) investment in trade securities and other financial assets (60,966) (1,572) Net cash used in investing activities (67,083) (29,430) Cash flows from financing activities Proceeds from issuance of convertible bonds, net 98,218 - Amortization of loans from financial institutions (9,091) (2,358) Repayment of loans from financial institutions (34,816) - Proceeds of loans from related companies and shareholders, net 1,482 27,666 Finance expenses paid, net (4,902) 69 Net cash provided by financing activities 50,891 25,377 Increase in cash and cash equivalents 3,573 1,101 Cash and cash equivalents at the beginning of the year 1, Cash and cash equivalents at the end of the year 4,692 1, The notes on pages 32 to 55 form an integral part of these consolidated financial statements.

33 of financial position of changes in equity of cash flows Notes to the consolidated financial statements The notes on pages 32 to 55 form an integral part of these consolidated financial statements. 31

34 Declaration of the Members of the Board of Directors Board of Directors Report Independent auditors report of comprehensive income NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, General (a) Incorporation and principal activities Primecity Investment PLC ( the Company ) (ex: Primecity Investment Limited ) was incorporated on August 10, 2004 as a private limited liability company under the Cyprus Companies Law, Cap Its Registered Office is at Faros Avenue, Spyros Thalassines Alkyonides, Pervolia 7560, Larnaca, Cyprus. On June 18, 2014, the company s name was changed from Stileforce Enterprises Limited to Primecity Investment Limited. Following that, on September 16, 2014, the name of the Company was changed to Primecity Investment PLC. The Company is a holding company which holds, together with its investees (hereinafter the Group ) real estate properties in Germany. Its vision is buying, redeveloping, turning around and optimizing the real estate properties. As of December 31, 2014 the Group s portfolio consists of more than 5,000 hotel rooms. These consolidated financial statements for the year ended December 31, 2014 consist of the financial statements of the Group. (B) Listing on the Paris Stock Exchange On October 31, 2014, the Company was listed on the NYSE Euronext Paris Stock Exchange in the Marché Libre - XMLI stock market segment. The Company registered 200,000,000 ordinary shares with a par value of euro 0.01 per share, out of which 100,000,000 and an additional amount from converted bond units were fully paid. (C) Capital and bonds increases In July 2014, the Company increased its registered and fully paid share capital from 5,000 shares of euro 1.71 to euro 100,000,000 shares of euro 0.01 per share (see note 14). On November 13, 2014, the Company successfully completed the placement of convertible bonds, convertible into ordinary shares of the Company for an aggregate principal amount of euro 100 million (see note 15B). (D) Definitions In these financial statements: The Company The Group Subsidiaries Associates Investees Primecity Investment PLC The Company and its investees Companies that are controlled by the Company (as defined in IFRS 10) and whose financial statements are consolidated with those of the Company Companies over which the Company has significant influence (as defined in IAS 28) and that are not subsidiaries. The Company s investment therein is included in the consolidated financial statements of the Company using equity method of accounting Subsidiaries, jointly controlled entities and associates Related parties As defined in IAS basis of preparation (a) Statement of compliance These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRS). (b) Basis of measurement The consolidated financial statements have been prepared on a going concern basis, applying the historical cost convention, except for the measurement of the following: Investment properties are measured at fair value; Investments in equity accounted investees; Trade securities at fair value through profit and loss; Derivative financial instruments; Deferred tax assets and liabilities. Certain balance sheet items related to the year ended December 31, 2013 have been reclassified to enhance comparability with 2014 figures and to better present the Company`s results, and are shown with the comment reclassified. The consolidated financial statements were authorized to be issued by the Board of Directors on March 31,

35 of financial position of changes in equity of cash flows Notes to the consolidated interim financial financial statements 2. basis of preparation (C) Use of estimates and judgments The preparation of consolidated financial statements in accordance with IFRS requires from Management the exercise of judgment, to make estimates and assumptions that influence the application of accounting principles and the related amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and various other factors that are deemed to be reasonable based on current knowledge available at that time. Actual results may deviate from such estimates. The estimates and underlying assumptions are revised on a regular basis. Revisions in accounting estimates are recognized in the period during which the estimate is revised, if the estimate affects only that period, or in the period of the revision and future periods, if the revision affects the present as well as future periods. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the consolidated financial statements are described below: Fair value of investment property The fair value measurement of investment property requires valuation experts and the Company s management to use certain assumptions regarding rates of return on the Group s assets, future rent, occupancy rates, contract renewal terms, the probability of leasing vacant areas, asset operating expenses and the implications of any investments made for future development purposes in order to assess the future expected cash flows from the assets. Any change in the assumptions used to measure the investment property could affect its fair value. The Group uses external valuation reports issued by independent professionally qualified valuers to determine the fair value of its investment properties. Changes in their fair value are recognized in the consolidated statement of comprehensive income. Impairment of investments in associates The Group periodically evaluates the recoverability of investments in associates whenever indicators of impairment are present. Indicators of impairment include such items as declines in revenues, earnings or cash flows or material adverse changes in the economic or political stability of a particular country, which may indicate that the carrying amount of an asset is not recoverable. If facts and circumstances indicate that investment in associates may be impaired, the estimated future undiscounted cash flows associated with these associates would be compared to their carrying amounts to determine if a write down to fair value is necessary. Tax and deferred tax expenses Significant judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Impairment of intangible asset Intangible assets are initially recorded at acquisition cost and are amortized on a straight line basis over their useful economic life. Intangible assets that are acquired through a business combination are initially recorded at fair value at the date of acquisition. Intangible assets with an indefinite useful life are reviewed for impairment at least once per year. The impairment test is performed using the discounted cash flows expected to be generated through the use of the intangible assets, using a discount rate that reflects the current market estimations and the risks associated with the asset. When it is impractical to estimate the recoverable amount of an asset, the Group estimates the recoverable amount of the cash generating unit in which the asset belongs to. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units of the Group on which the goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash generating units using a suitable discount rate in order to calculate present value. Legal claims In estimating the likelihood of outcome of legal claims filed against the Company and its investees, the Group relies on the opinion of their legal counsel. These estimates are based on the legal counsel s best professional judgment, taking into account the stage of proceedings and historical legal precedents in respect of the different issues. Since the outcome of the claims will be determined in courts, the results could differ from these estimates. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Fair value hierarchy Please see note 11(b) and 19(iv). (d) Functional and presentation currency The consolidated financial statements are presented in euro, rounded to the nearest thousand (euro 000), except when otherwise indicated. 33