TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.

Transcription

1 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2011 TOGETHER WITH INDEPENDENT AUDITOR S REPORT (ORIGINALLY ISSUED IN TURKISH)

2 INDEPENDENT AUDITOR S REPORT To the Board of Directors of Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. 1. We have audited the accompanying consolidated financial statements of Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. and its subsidiaries (collectively referred to as the Group ) which comprise the consolidated balance sheet as of 31 December 2011 and the consolidated statements of compehensive income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements 2. The Group management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the financial reporting standards issued by the Capital Markets Board ( CMB ). This responsibility includes: designing, implementing and maintaining internal control relevant to the proper preparation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates tes that are reasonable in the circumstances. Auditor s Responsibility 3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the auditing standards issued by the CMB. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance on whether the consolidated financial statements are free from material misstatement. An audit involves performing audit 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 Group s preparation and fair presentation of the consolidated financial statements 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 Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers Turkey BJK Plaza, Süleyman Seba Caddesi No:48 B Blok Kat 9 Akaretler Beşiktaş İstanbul-Turkey Telephone: +90 (212) Facsimile: +90 (212)

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4 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTENT PAGE CONSOLIDATED BALANCE SHEETS... 1 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME... 2 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY... 3 CONSOLIDATED STATEMENTS OF CASH FLOW NOTE 1 COMPANY S ORGANISATION AND NATURE OF OPERATIONS NOTE 2 BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 SEGMENT REPORTING NOTE 4 CASH AND CASH EQUIVALENTS NOTE 5 FINANCIAL LIABILITIES NOTE 6 OTHER FINANCIAL LIABILITIES NOTE 7 TRADE RECEIVABLES AND PAYABLES NOTE 8 INVESTMENT PROPERTIES NOTE 9 INVENTORIES NOTE 10 PROPERTY, PLANT AND EQUIPMENT NOTE 11 OTHER ASSETS AND LIABILITIES NOTE 12 INVESTMENTS IN ASSOCIATES NOTE 13 GOODWILL NOTE 14 COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES NOTE 15 EQUITY NOTE 16 REVENUES AND COST OF REVENUE NOTE 17 MARKETING, SELLING AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE EXPENSES NOTE 18 EXPENSES BY NATURE NOTE 19 OTHER INCOME/EXPENSES NOTE 20 FINANCIAL INCOME/EXPENSES NOTE 21 EARNINGS PER SHARE NOTE 22 TAX ASSETS AND LIABILITIES NOTE 23 BALANCES AND TRANSACTIONS WITH RELATED PARTIES NOTE 24 FINANCIAL RISK MANAGEMENT NOTE 25 FINANCIAL INSTRUMENTS NOTE 26 SUBSEQUENT EVENTS NOTE 27 OTHER ISSUES THAT SIGNIFICANTLY AFFECT THE FINANCIAL STATEMENTS OR OTHER ISSUES REQUIRED FOR THE CLEAR UNDERSTANDING OF FINANCIAL STATEMENTS NOTE 28 ADDITIONAL NOTES: CONTROL OF COMPLIANCE WITH THE PORTFOLIO LIMITATIONS

5 CONSOLIDATED BALANCE SHEETS AND 2010 ASSETS 31 December 31 December Notes Current assets 841, ,789 Cash and cash equivalents 4 597, ,664 Financial investments 5 58,197 - Trade receivables 7 71,081 49,706 Due from related parties 23 3,307 35,417 Other trade receivables 7 67,774 14,289 Inventories 9 100,805 43,061 Advances given 11 9,742 1,759 Other current assets 11 4,058 39,599 Non-current assets 3,102,280 2,631,050 Financial investments 5-29,459 Trade receivables 7 60,079 4,729 Advances given ,063 61,750 Inventories 9 262,406 6,992 Investments in associates , ,458 Investment properties 8 2,457,490 2,388,865 Tangible assets ,115 Intangible assets Other non-current assets 11 49,093 12,600 Total assets 3,943,551 3,203,839 LIABILITIES AND EQUITY Current liabilities 388, ,544 Financial liabilities 5 289, ,141 Finance lease liabilities - 20 Other financial liabilities 6 1,313 3,877 Advances received 11 52,383 3,110 Trade payables 7 38,864 34,536 Due to related parties 23 6,803 3,501 Other trade payables 7 32,061 31,035 Current income taxes payable Other current liabilities 11 6,282 9,860 Non-current liabilities 1,022, ,212 Financial liabilities 5 811, ,122 Advances received ,785 - Provision for employment termination benefits Other non-current liabilities Total equity 2,532,906 2,369,083 Share capital , ,000 Share premium , ,770 Restricted reserves 15 3,947 3,127 Treasury shares 15 (836) - Retained earnings 15 1,826,713 1,625,941 Net profit of the year , ,245 Total liabilities and equity 3,943,551 3,203,839 Consolidated financial statements as of 31 December 2011 were authorized for issue by Assistant General Manager İsmail Kazanç and Accounting Manager Lütfü Vardı on 5 April 2012 on behalf of Board of Directors. The accompanying notes form an integral part of these consolidated financial statements. 1

6 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2011 AND January- 1 January- Notes Revenues , ,928 Cost of revenues (-) 16 (62,754) (152,910) Gross profit 100,155 80,018 General administrative expenses (-) 17 (13,777) (23,498) Marketing, selling and distribution expenses (-) 17 (10,738) (5,542) Net gain from fair value adjustments on investment properties , ,660 Other income 19 1, Other expenses (-) 19 (7,333) (1,069) Operating profit 252, ,109 Share of profit of associates accounted under equity method 12 45,227 14,725 Financial income 20 52,203 23,077 Financial expenses (-) 20 (170,905) (39,392) Profit before tax from continuing operations 179, ,519 Tax expense from continuing operations (-) 22 (1,801) (1,274) Profit for the year from continuing operations 177, ,245 Other comprehensive income - - Total comprehensive income 177, ,245 Earnings per share (in full TL) 21 0,79 1,16 The accompanying notes form an integral part of these consolidated financial statements. 2

7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 1 JANUARY - 31 DECEMBER 2011 AND 2010 Share Treasury Share Restricted Retained Net income Total capital shares premium reserves earnings for the year equity 1 December , ,127 1,090, ,641 1,805,168 Transfers ,641 (535,641) - Capital contributions 47, , ,670 Total comprehensive income , , December , ,770 3,127 1,625, ,245 2,369,083 1 January , ,770 3,127 1,625, ,245 2,369,083 Transfers ,425 (214,245) - Acquisition of treasury shares - (836) (836) Dividend distribution (12,653) - (12,653) Total comprehensive income , , December ,000 (836) 301,770 3,947 1,826, ,312 2,532,906 The accompanying notes form an integral part of these consolidated financial statements. 3

8 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 1 JANUARY - 31 DECEMBER 2011 AND 2010 Cash flows from operating activities: 4 1 January - 1 January - Notes Total comprehensive income 177, ,245 Adjustments to reconcile net cash generated from operating activities to income before tax: Taxation 1,801 1,274 Net gain from fair value adjustment on investment properties 8,19 (182,534) (166,660) Unrealised foreign exchange losses 126,481 4,804 Interest income 20 (49,639) (18,233) Interest expense 20 48,305 39,208 Share of profit of associates accounted under equity method 12 (45,227) (14,725) Provision expense for doubtful receivables Loss on derivative financial instruments (2,564) (969) Depreciation Provision for employment termination benefits (5) 85 Goodwill transferred to income statement 13-8,250 Other financial income / (expenses) 20 - (129) Net cash before changes in assets and liabilities: 74,643 67,418 Changes in working capital: Change in trade receivables (109,257) 8,738 Change in receivables from related parties 32,110 18,879 Change in inventories (80,381) 49,879 Advances given (54,296) (61,750) Change in trade payables 1,006 22,423 Change in payables to related parties 3,302 3,494 Advances received 260,058 (61,923) Change in other assets (952) (19,444) Change in other liabilities (3,570) 5,499 Taxes paid (1,392) (833) Net cash generated from operating activities 121,271 32,380 Purchase of investment properties (107,699) (131,682) Disposal of investment properties 8-5,907 Purchase of tangible assets 10 (16) (874) Purchase of intangible assets (38) (98) Dividends received from associates 12 6,496 4,745 Net cash used in investing activities (101,257) (122,002) Increase in financial investment (28,738) (29,459) Interest paid 1,257 (26,978) Increase in bank borrowings 575, ,031 Bank borrowings paid (399,047) (120,919) Dividend distribution (12,653) - Acquisition of treasury shares (836) - Increase in due to related parties - 1,982 Capital increase and share premium - 349,670 Net cash generated from financing activities 135, ,327 Net increase in cash and cash equivalents 155, ,705 Cash and cash equivalents at beginning of the year 4 438,664 72,639 Exchange losses on cash and cash equivalents 3, Blocked deposits - (121,447) Cash and cash equivalents at end of the period 4 597, ,217 The accompanying notes form an integral part of these consolidated financial statements.

9 NOTE 1 - COMPANY S ORGANISATION AND NATURE OF OPERATIONS Torunlar Gayrimenkul Yatırım Ortaklığı Anonim Şirketi ( Torunlar REIC or the Company ) has been incorporated on 20 September 1996, which was registered as Toray İnşaat Sanayi ve Ticaret A.Ş. in İstanbul, Turkey. With a change in the Articles of Association published on Trade Registry Gazette on 25 January 2008, the Company has been converted into Real Estate Investment Company ( REIC ) with the trade name Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. and was registered on 21 January 2008, the company s stocks have been traded at the Istanbul Stock Exchange since 21 October As of 31 December 2011, the total number of employees of Torunlar REIC, its Subsidiaries, Joint Ventures and Associates (together referred to as the Group ) is 105 (31 December 2010: 132). Total number of employees of Torunlar REIC is 79 (31 December 2010:34) and the main shareholders of Torunlar REIC are the Torun family members (Note 15). The Company is registered in İstanbul Trade Registry Office in Turkey in the below address: Rüzgarlıbahçe Mahallesi Selvi Çıkmazı Sokak No: 4 Beykoz İstanbul / Türkiye The Company s main scope of operation is to engage in written objectives and subjects stipulated in the Communique on real estate investment companies published by the Capital Markets Board of Turkey ( CMB ) such as investing in real estate, capital market instruments based on real estate, real estate projects and capital market instruments. Subsidiaries The Subsidiaries of Torunlar REIC operate in Turkey and the natures of their business are as follows (Note 2): Subsidiary Toray İnşaat Danış Yapı Adi Ortaklığı ( Toray Danış ) TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. ( TRN ) Nature of business Construction/Contracting Real Estate Project Development and Management Toray Danış The Subsidiary has been incorporated as an ordinary partnership between Torunlar REIC and Danış Yapı Madencilik Nakliyat Petrol Gıda Oto Tamiri ve Yedek Parça Sanayi ve Ticaret Ltd. Şti. on 9 October 2007, for the use of land situated in İstanbul Küçükçekmece Kayabaşı, which has been awarded by a tender of the Housing Development Administration of Turkey ( TOKİ ) to the ordinary partnership for the use of the land as the excavation molding area. The company s operation has been terminated and is in the process of liquidation. 5

10 NOTE 1 - COMPANY S ORGANISATION AND NATURE OF OPERATIONS (Continued) TRN In accordance with the Extraordinary General Assembly Meeting held on 9 March 2010, the Company has transferred Antalya Deepo Mall located in Antalya City, Centre County, Koyunlar Village which was unfavourable for it to retain in its investment portfolio due to its current zoning situation, to a newly incorporated subsidiary of the Company, TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. ( TRN ) by spin-off. Additionally, the immovables located in Antalya city Koyunlar village, which are not included in the shopping mall concept, however considered to be useful to maintain the conceptual integrity and to enable the implementation of additional projects for a future potential parcellation plan are also transferred to TRN. The incorporation of TRN was approved by İstanbul Trade Register as at 31 March Joint Ventures The joint ventures of Torunlar REIC operate in Turkey and the nature of their business, the business segment and joint venture partners are as follows (Note 2): Nature of Joint venture Joint venture business partner Torunlar Özyazıcı Real estate Özyazıcı İnşaat Elektrik, Makine, Proje Ortaklığı ( Torunlar Özyazıcı ) projects Müşavirlik ve Taah. Ltd. Şti. TTA Gayrimenkul Yatırım Geliştirme Shopping mall and Anaterra Gayrimenkul Yatırım ve Yönetim A.Ş.( TTA ) hotel project İnşaat ve Ticaret A.Ş. Torunlar Aşçıoğlu Kapıcıoğlu Real estate Aşçıoğlu İnşaat Taah. Turizm Proje Ortaklığı ( Torunlar Aşçıoğlu Kapıcıoğlu ) projects Ticaret A.Ş. Kapıcıoğlu İnşaat Sanayii ve Ticaret A.Ş. Torunlar Özyazıcı Torunlar Özyazıcı has been incorporated as an ordinary partnership with a joint venture agreement on 26 January The subject of the joint venture is to conduct construction and sales of the housing development project Nishistanbul in Yenibosna İstanbul. This project includes 63 offices, 585 residences and 52 shops in 4 blocks each with 17 floors. In accordance with the revenue sharing agreement signed between Torunlar Özyazıcı and land owner of the project, 31% of total project revenues will be distributed to the land owner and the remaining 69% portion will be shared between the joint venturers as 60% Torunlar REIC and 40% Özyazıcı İnşaat Elektrik, Makine, Müşavirlik ve Taah. Ltd. Şti.. After the completion of the project, it is planned to be liquidated within the year

11 NOTE 1 - COMPANY S ORGANISATION AND NATURE OF OPERATIONS (Continued) TTA TTA Gayrimenkul Yatırım ve Yönetim A.Ş. has been incorporated on 7 January 2010 following the win of the tender related to the old cigarette factory and its auxiliary buildings which are located in Samsun, İlkadım district, 205 lot, 2,8,9,10,11,12,13,14 parcels and 376 lot, 1 parcel and 377 lot, 5 parcel whose ownership is registered to Samsun Metropolitan Municipality. The project includes, by the approval of Samsun Cultural and Natural Heritage Protection Regional Committee; the renovation as shopping mall and/or hotel; constructing two storey underground car park and facilitating the right of operation to Samsun Metropolitan Municipality; operating for 30 years with a limited incorporeal right (permanent and individual usufruct right) on land registry by the same term and providing a certain share of the revenue of shopping mall and/or hotel to Samsun Metropolitan Municipality; delivering the project to Samsun Metropolitan Municipality at the end of the 30 year term. In August 2011, 450,000 shares which were previously owned by Turkmall Gayrimenkul Geliştirme Yönetim ve Yatırım A.Ş. and valued nominally as TL450,000 and 50,000 shares which were previously owned by Ahmet Demir and valued nominally as TL50,000 were transferred to Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret A.Ş. After the transfer, the shareholding structure of TTA is 40% Torunlar GYO, 8% Torunlar Gıda Sanayi Ticaret A.Ş., 1% Aziz Torun, 1% Mehmet Torun and 50% Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret A.Ş.. Torunlar Aşçıoğlu Kapıcıoğlu Project Partnership The joint venture group including the Company has won the tender regarding the income sharing project in exchange for the sale of the land on which Ali Sami Yen Stadium is located. The land is located on the land in Dikilitaş Neighborhood, Şişli District, İstanbul Province located in the Plate 58, Block 1199, Lot 384. The Project that will be applied on the land comprised touristic and commercial real estate developments as well as recreational area and the costs of construction are to be borne by Torunlar Aşçıoğlu Kapıcıoğlu Project Partnership. For this purpose, Torunlar Aşçıoğlu Kapıcıoğlu Project Partnership has been formed on 18 October The partnership shares are as follows: 65% Torunlar REIC, 35% Aşçıoğlu A.Ş. and 5% Kapıcıoğlu A.Ş.. An Income Sharing in Exchange for the Sale of Land contract has been signed with The Republic of Turkey Prime Ministry Housing Development Administration on 10 November 2010 in the scope of the mentioned Project. As of the preparation date of the financial statements, the project is at the licencing phase and construction has not commenced yet. Associates The Associates of Torunlar REIC are incorporated in Turkey and their primary operations and nature of businesses are stated below: Associate Yeni Gimat İşyerleri İşletmesi A.Ş. ( Yeni Gimat ) Netsel Turizm Yatırımları A.Ş. ( Netsel ) Nature of business Owner of Ankamall Shopping Mall and Crowne Plaza Hotel Management of Marmaris Marina 7

12 NOTE 1 - COMPANY S ORGANISATION AND NATURE OF OPERATIONS (Continued) Yeni Gimat Yeni Gimat has been incorporated by participation of 1,049 individual shareholders as founding members on 30 July The entity owns Ankamall Shopping Mall since 2006 and Ankara Crowne Plaza Hotel since The number of shareholders that is A group (registered) of Yeni Gimat is 907 as of 31 December 2010 (31 December 2010:927). While the Company owns 14.83% of Yeni Gimat shares and Torunlar family members also own another 5% of Yeni Gimat, as a result the Company has significant influence on Yeni Gimat and is also represented in the Board of Directors. The investment in Yeni Gimat is accounted for by equity method in the consolidated financial statements. Netsel Netsel has been incorporated by Net Turizm Ticaret and Sanayi A.Ş. and Yüksel İnşaat A.Ş. on 6 October The coastal property operated by Netsel, has been leased from Ministry of Culture and Tourism for 49 years on 22 December Net Turizm sold its shares to Marmara Bank on 1992 and Yüksel İnşaat sold its shares to Çukurova Group in Following the liquidation process of Marmara Bank, 44.60% of Netsel was sold to Torunlar REIC in accordance with share transfer agreements on 31 May 2005 and 7 June 2005 respectively and 55% of Netsel was transferred to Tek-Art Kalamış and Fenerbahçe Marmara Turizm Tesisleri A.Ş. (a subsidiary of Koç Holding A.Ş.) in accordance with share transfer agreement on 22 August 2005 as a privatisation transaction. The remaining 0.40% belongs to Torun family. NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 2.1 Basis of preparation Financial reporting standards The Company and its Turkish subsidiaries maintain their books of account and prepare their statutory financial statements in accordance with accounting principles in the Turkish Commercial Code ( TCC ) and tax legislation. The Capital Markets Board ( CMB ) Communiqué Serial: XI, No: 29 Financial Reporting Standards in Capital Markets ( Communiqué Serial: XI, No: 29 ) provides principles and standards on the preparation and presentation of financial statements. The Communiqué is applicable commencing from the first interim financial statements prepared subsequent to 1 January 2008, and Communiqué Serial: XI, No: 25 The Capital Market Accounting Standards ( Communiqué Serial: XI, No: 25 ) is annulled by the application of this communiqué. As per this communiqué, the financial statements should be prepared in accordance with the International Financial Reporting Standards ( IAS/IFRS ) as endorsed by the European Union ( EU ). However, companies will apply IASs/IFRSs until the differences between the standards accepted by the European Union and the standards issued by International Accounting Standards Board ( IASB ) are announced by Turkish Accounting Standards Board ( TASB ). In this respect, Turkish Accounting / Financial Reporting Standards that are issued by TASB and are not controversial to the adopted standards shall be taken as a basis in the application. 8

13 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) As the differences between the International Financial Reporting Standards ( IAS/IFRS ) as endorsed by the European Union and the Turkish Accounting/Financial Reporting Standards ( TAS/TFRS ) have not been declared as of the date of this report, the accompanying financial statements and notes are prepared in accordance with IAS/IFRS as declared in the Communiqué Serial: XI, No: 29 with the required formats announced by the CMB. The Group maintains their books of account and prepares their statutory financial statements ( Statutory Financial Statements ) in TL in accordance with the Turkish Commercial Code ( TCC ), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance, accounting principles issued by the CMB for listed companies. These consolidated financial statements are based on the statutory records, which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the CMB Financial Reporting Standards The application of inflation accounting to adjust financial statements at the period of high inflation With the decision taken on 17 March 2005 numbered 11/367, the CMB has announced that, effective from 1 January 2005, the application of inflation accounting is no longer required for companies operating in Turkey. However for IFRS reporting purposes Turkey has been considered a hyperinflationary economy until 31 December 2005 and IAS 29 Financial Reporting in Hyperinflationary Economies issued by IASB has not been applied starting from 1 January Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The Group s functional and presentation currency is TL. Consolidation principles The consolidated financial statements include the accounts of the parent company, Torunlar REIC and its subsidiaries, joint ventures and associates on the basis set out in sections at the below. The financial statements of the companies included in the scope of consolidation are based on the statutory records which are maintained under historical cost conversion, with adjustments and reclassifications, for the purpose of fair presentations in accordance with CMB and application of uniform accounting policies and presentation. Subsidiaries Consolidated financial statements consist of financial statements of the Company, the Company s subsidiaries and joint ventures. Control is provided with influence on financial and operational policy in order to obtain economic benefit from enterprise benefit. 9

14 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. The Company has the power to govern the financial and operating policies of its Subsidiary for the benefit of the Company through the power to exercise more than 50 % of the voting rights relating its shares in the Subsidiary. The Company consolidates its Subsidiary from the date of establishment of the Subsidiary by the Group and subsidiaries are excluded from the consolidation at the date on which control is lost. Where necessary, accounting policies for the Subsidiary can been changed to ensure consistency with the policies adopted by the Company. The balance sheet, statement of comprehensive income and the statement of cash flows of the Subsidiary are consolidated on a line-by-line basis. Intercompany transactions and balances between the Company and the Subsidiary are eliminated on consolidation. The cost of, and the dividends arising from, shares held by the Company in its Subsidiary are eliminated from equity and statement of comprehensive income for the year, respectively. The non-controlling shareholders share in the net assets and results of Subsidiaries for the year are separately classified as non-controlling interest in the consolidated balance sheets and statements of income. When the losses applicable to the non-controlling shareholders exceed the non-controlling interest in the equity of the subsidiary, the excess loss and the further losses applicable to the noncontrolling shareholders are charged against the non-controlling interest. % % Toray Danış - 99,99 TRN 99,99 99,99 Joint Ventures Joint Ventures are companies in respect of which there are contractual arrangements through which an economic activity is undertaken subject to joint control by the Company and one or more other parties. The Group exercises such joint control through the power to exercise voting rights relating to shares in the companies as a result of ownership interest directly and indirectly by itself. The Group s interest in Joint Ventures is accounted for by way of proportionate consolidation. According to this method, the Group includes its share of the assets, liabilities, income and expenses of each Joint Venture in the relevant components of the financial statements. Liabilities and expenses resulting from the assets controlled jointly are accounted according to their accrual basis. If the economic benefits related to the share of the Group from the revenue obtained from the usage or the sales of the assets of the enterprises subject to joint control are possible to flow to the Group and their amounts are reliably measurable, then the related share is recorded. 10

15 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unrealized profits and losses resulting from the transactions between the Group and the Group s jointly controlled enterprises are eliminated in the share rate of the Group in the enterprises subject to joint management. As of 31 December 2011 and 2010 Torunlar REIC s share in the Joint Ventures is a follows: % % Torunlar Özyazıcı 60,00 60,00 TTA 40,00 40,00 Torunlar Aşçıoğlu Kapıcıoğlu 65,00 65,00 Torunlar Özyazıcı, TTA and Torunlar Aşçıoğlu Kapıcıoğlu joint ventures have been incorporated on 26 January 2009, 7 January 2010 and 18 October 2010, respectively. Transactions after this date have been consolidated by the Group. Current assets, non-current assets, current liabilities and net income of the Joint Ventures have been proportionally consolidated in the consolidated financial statements on a line by line basis. The summary of these amounts are shown below: Interest in Joint Ventures (*) Current assets 84,955 65,339 Non-current assets 276,195 53,553 Total assets 361, ,892 Current liabilities 72,299 22,546 Non-current liabilities 154,525 - Equity 134,326 96,346 Total liabilities and equity 361, ,892 Net income for the period 62,754 56,428 (*) Interest in joint venture represents the balances of the joint venture s stand-alone financial statements which is proportionately consolidated before the intercompany eliminations, reclassifications and adjustments. 11

16 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Associates Investments in Associates, over which the Group has significant influence, but which it does not control, are accounted for by the equity method of accounting. The Group s share of its associates post-acquisition profits or losses is recognised in the income statement, and its share of postacquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Carrying amount in the date of termination of significant influence, presented with fair value if fair value after this date can be measured securely, otherwise, presented with cost value. Torunlar REIC s effective ownership interests in its associates as at 31 December 2011 and 2010 are as follows (%): % % Yeni Gimat 14,83 14,83 Netsel 44,60 44,60 Interest in associates on combined basis (*) Total assets 1,298, ,310 Total liabilities 236, ,416 Net income for the period 291,611 91,073 (*) These combined balances represent amounts presented in the separate financial statements of associates after adjustments for Group accounting policies but before the intercompany eliminations, Interest in Yeni Gimat Total assets 1,265, ,455 Total liabilities 227, ,026 Net income for the period 284,956 87,003 Interest in Netsel Total assets 32,498 27,855 Total liabilities 9,556 6,390 Net income for the period 6,655 4,070 12

17 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Offsetting Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet when there is a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Going concern The Group s consolidated financial statements are prepared under the going concern assumption Changes in accounting policies Material changes in accounting policies are corrected, retrospectively; by restating the prior periods consolidated financial statements. The Company has started to implement the bulletin of CMB serial XI, No.29 as of 1 January 2008 and has resubmitted the comparative financial information within this scope. The implementation of CMB Serial XI, No.29 bulletin has not caused important changes on the legal policies of the Company. Comparative information and reclassifications in the previous period s financial statements In order to enable consistent presentation of the financial status and performance trends, the consolidated financial statements of the Group are being prepared in comparison to the previous period. With the aim of providing coherence with the consolidated financial statements of the current period, the classifications to the comparative financial information have been made where appropriate. In this context, advances given amounting to TL1,716 which were previously classified as inventories in the consolidated balance sheet as of 31 December 2010 is classified other current assets and workin-progress amounting to TL2,337 related with Ali Sami Yen Project and uncompleted residences amounting to TL4,665 related with Korupark 3. Phase are classified under long term inventories. Changes in standards and interpretations Group applied the revised standards and interpretations that are relevant to its operations, published by International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC) and effective from 1 January Application of new or amended standards and interpretations effective for annual periods beginning on or after 1 January 2011: - IAS 32, (Amendment), Presentation of Financial Statements (effective for the annual reporting periods on or after 1 February 2010). - IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for the annual reporting periods on or after 1 July 2010). 13

18 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) - IFRIC 1, (Amendment) First-time Adoption of IFRS, (effective for the annual reporting periods on or after 1 July 2010). - IAS 24, (Revised), Related Party Disclosures (effective for the annual reporting periods on or after 1 January IFRIC 14, (Amendment), Prepayments of a Minimum Funding Requirement (effective for the annual reporting periods on or after 1 January 2011). - In the content of development project of IFRS, 6 standards and 1 interpretation were amended in 2010 which are IFRS 1, IFRS 3, IFRS 7, IFRIC 27, IFRS 34, IFRIC 13. Amendments on standards and interpretations above are effective on 1 January 2011 and have no significant influence over consolidate financial statements. Standards, amendments and interpretations to existing standards that is not yet effective as of 31 December 2011: - IFRS 7 (Amendment), Financial Instruments: Disclosures (effective for the annual reporting periods on or after 1 July 2011). - IFRS 1 (Amendment), First-time Adoption of IFRS (effective for the annual reporting periods on or after 1 July IAS 12 (Amendment), Income Tax (effective for the annual reporting periods on or after 1 January IAS 1 (Amendment), Presentation of Financial Statements (effective for the annual reporting periods on or after 1 July 2012). 14

19 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) - IAS 19 (Amendment), Employee Benefits (effective for the annual reporting periods on or after 1 January 2013). - IFRS 9, Financial Instruments (effective for the annual reporting periods on or after 1 January 2015). - IFRS 10, Consolidated Financial Statements (effective for the annual reporting periods on or after 1 January 2013). The Group will evaluate the influence of the above changes over the operations and implement after 1 January 2012 where applicable Restatement and errors in the Accounting Policies and Estimates Material changes in accounting policies and accounting estimates are corrected, retrospectively; by restating the prior periods consolidated financial statements. The effect of changes in accounting estimates affecting the current period is recognized in the current period; the effect of changes in accounting estimates affecting current and future periods is recognized in the current and future periods. There has not been any significant change in accounting estimates of the Group for the current period Summary of significant accounting policies The significant accounting policies followed in the preparation of the consolidated financial statements are summarised below: Cash and cash equivalents Cash and cash equivalents are carried at cost in the balance sheet. Cash and cash equivalents comprise cash in hand, bank deposits and highly liquid investments, whose maturity at the time of purchase is less than three months and conversion risk on value date is immaterial (Note 4). Related parties For the purpose of the consolidated financial statements, shareholders, key management personnel and Board members, in each case together with their families and companies controlled by or affiliated with them, Associates and Joint Ventures and companies controlled by the Torun Family are considered and referred to as related parties. 15

20 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Foreign currency transactions The foreign exchange transactions that take place during the period are translated into TL using the exchange rates on transaction dates of the operation dates. Foreign currency denominated monetary assets and liabilities are translated into TL with the exchange rates prevailing on the balance sheet dates. The foreign currency exchange gain and losses that were arisen by the exchange rate change based on monetary assets and liabilities were presented in the consolidated statement of income. Financial assets Classification The financial assets of the Group consist of receivables and cash and cash equivalents. Management determines the classification of its financial assets at initial recognition. a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables comprise trade and other receivables. Trade receivables generally consist of receivables from sales on credit terms based on preliminary sale agreements and rent receivables from shopping malls. b) Derivative financial instruments The Group has an interest rate swap transaction as of 31 December This derivative instrument provides an economic hedge of the Group s cash flow risks arising from its borrowings, however; instruments have been accounted under the Other financial liabilities account balance in the consolidated financial statements due to not including necessary documentation requirements in terms of risk accounting according to ISA 39 Recognition of financial instruments as of Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date - the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets except for these that are carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognised at fair value, and transaction costs are expensed in the consolidated statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Derivative financial instruments are initially recognized at cost and subsequently re-measured at fair value. Unrealized gains and losses arising from the changes in the fair values of these instruments are accounted in the consolidated statement of comprehensive income. 16

21 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Derivatives which have positive fair value are recognised in assets, derivatives which have negative fair value are recognised in liabilities in the consolidated financial statements. Impairments related to trade receivables are explained in the accounting policies related to trade receivables. Trade receivables and payables Trade receivables which arise from providing with a product or service to a purchaser by the company, are recognized net of unaccrued financing income. Trade receivables of the Group are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method. Short term receivables with no stated interest rate are measured at original invoice amount unless the effect of imputing interest is significant (Note 7). An impairment provision for trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due in accordance with the original agreement terms. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted based on the original effective interest rate of the originated receivables at inception. If the amount of the impairment subsequently decreases due to an event occurring after the writedown, the release of the provision is reversed through other operating income. Trade payables consist of payables to suppliers for purchases of goods and services. Trade payables and other financial liabilites are accounted for at amortized cost. Payable amounts in the subsequent period of recorded payables from original invoice values of trade payables and other liabilities after unaccrued financial liabilities are calculated with discounted based on the original effective interest rate. Advances received Advances received comprise amounts received from customers who entered into preliminary sales contracts with the Group for its housing projects. Therefore, these amounts have been classified as short and long term based on the estimated delivery date of the underlying housing units.the advances received for other operational activities are classified as short-term and long-term according to nature and duration of advances. Financial liabilities and borrowing costs Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method in consolidated financial statements. Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method in consolidated financial statements. IAS 23, (Revised) Borrowing Costs IAS 23 (revised) requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset, removing the option of immediately expensing borrowing costs. The Group has applied allowed alternative treatment in accordance with the previous IAS 23 and IFRS 1 for periods before 1 January 2009 and started to apply IAS 23 revised for periods starting 1 January

22 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Financial leases The Group as the lessee Finance leases Finance leases are capitalised at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the consolidated statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Equipment acquired via finance leases are installed in investment properties (elavators, escalators etc) and therefore considered an integral part of these investment properties. These investment properties are carried at fair value in the financial statements and therefore the cost of this equipment is not accounted for separately. Obligations under finance leases are accounted for under the Financial liabilities account balance on the balance sheet (Note 5). Operational leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease. The Group as the lessor Revenue includes rental income, and service charges and management charges from properties. Rental income from operating leases is recognised on a straight-line basis over the lease term. When the Group provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straight-line basis, as a reduction of rental income only when such incentives are for the acquisition of new tenants. Rent discounts in various forms granted to existing tenants are deducted from revenue in the period in which such discounts are given. Service and management charges are recognised in the accounting period in which the services are rendered (Note 16). Current and deferred income taxes The Company is exempt from corporate income taxes in accordance with paragraph d-4 of Article 5 of the Corporate Income Tax Law. In accordance with paragraph 6-a of Article 94 of the Income Tax Law, the earnings of the real estate investment trusts are subject to withholding taxes, with Council of Ministers decision No, 93/5148, the withholding rate is determined as "0", Therefore, the Company has no tax obligation over its earnings for the related period (Note 22). Both the subsidiary Toray Danış and the joint ventures; Torunlar Özyazıcı and Torunlar Aşçıoğlu Kapıcıoğlu are ordinary joint stock companies in legal form. Ordinary partnerships do not have a corporate income tax liability as separate legal entities. Tax is included to comprehensive income statement on the condition of not to be related with any transaction such as recognition of tax under equities. Otherwise, recognition of tax is made under equities together with related transaction. TRN which is subsidiary of the Group was founded consequent to a carve-out due to the inconvenience of Antalya Deepo to be in portfolio and; therefore the related real estates had been transferred to TRN. TRN, a joint stock company is subject to corporate income tax over its profit. 18

23 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Deferred income taxes are provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. Currently enacted tax rates are used to determine deferred income tax at the balance sheet date (Note 22). As the Company is exempt from corporate income taxes based on the current tax legislation, no deferred income tax asset or liability has been calculated on temporary taxable and deductible differences in these consolidated financial statements. In order to clear inconvenience related to Antalya Deepo Shopping Mall which is owned by subsidiary TRN, TRN s merger is planned with Torunlar REIC, therefore deferred tax is not calculated over the temporary timing difference between carried value and fair values of related investment properties. Employment termination benefits Provision for the employee termination benefits shows the present value of total liabilities resulting from retirement of personnels in the future for the company in accordance with Turkish Labor Law. Under the Turkish Labor Law, the Company is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). Since the legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of service prior to retirement. The amount payable consists of one month s salary limited to a maximum of 2, in full TL amount as of 31 December 2011 (31 December 2010: TL2,517). Provision is related to fair value of defined benefit plan calculated with the method of estimated liability. All actuarial profit and losses are accounted under consolidate comprehensive income statement. IFRS, requires actuarial valuation methods to be developed to estimate the enterprise s obligation for such benefits. The liability for this unfunded plan recognized in the balance sheet is the full present value of the defined benefit obligation at the end of the reporting period, calculated using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows from the retirement of its employees using the long term TL interest rates. The principal actuarial assumption is that the maximum liability will increase in line with inflation. Thus the effective discount rate applied represents the expected real interest rate after adjusting for the effects of future inflation. As the maximum liability amount is revised semi-annually by the authorities, the maximum amount of 2, in full TL which is effective from 1 January 2012 has been taken into consideration when calculating the liability (1 January 2011: TL 2,623.23). Provisions, contingent assets and liabilities 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 embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognized for future operating losses. 19