CONSOLIDATED
ANNUAL
REPORT
OF GLOBE TRADE CENTRE S.A. CAPITAL GROUP
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER
2020
Place and date of publication: Warsaw, 23 March 2021
LIST OF CONTENTS:
01. Letter of the Management Board
02. Management Board’s report on the activities of Globe Trade Centre S.A.
Capital Group in the financial year ended 31 December 2020
03. Report on the application of the principles of corporate governance for the
financial year ended 31 December 2020
04. Management Board’s representations
05. Management Board’s information on apoitment of the audit company
06. Supervisory Board’s statement
07. Assessment of the Supervisory Board
08. Consolidated financial statements for the year ended 31 December 2020
09. Independent auditor’s report on the audit of the annual consolidated financial
statements
1
Dear Stakeholders,
During the last few years, including 2020, we have grown our property portfolio through
development and smart acquisitions, tightened our financial policy and strengthened our
liquidity. Our asset management teams delivered excellent service to our tenants and
maintained high levels of occupancy. The Group heightened its attention to ESG matters,
issued green bonds and strengthened its contribution to the well-being of the communities it
creates. We are proud that these accomplishments prepared us for the unforeseen challenges
posed by the outbreak of COVID-19 during 2020.
COVID-19 IMPACT AND RESPONSE
Our immediate priority has been to work alongside and support the communities in which we
operate, our suppliers and those customers most affected to protect the long-term value of our
business. To help us achieve this, we implemented multi-pronged measures to support tenants
and encourage consumer spending, such as reducing rent, allowing rent payment in instalments,
waiving late payment interest and service charges. The financial impact of this in terms of lost
operating profit was € 15m. Overall, we have collected 99% of the rent originally due for the year
(99% for offices and 97% for retail). The value of the portfolio declined 5% as ongoing structural
challenges were exacerbated at the year-end valuation date by the effects of Covid-19.
In the office segment, occupiers are working on plans to get back to the workplace and most feel
that it is too early to make fundamental long-term changes regarding their requirements. However,
we are mindful that the trend towards greater flexibility may accelerate following this prolonged
period of working from home. At the same time, there will be a greater focus on high quality,
modern and safe environment, which provides more space per person and we expect the trend
towards higher density offices and hot-desking to reverse. We continue to make progress on
leasing discussions, particularly larger space requirements. We are encouraged by the strong
level of activity we are seeing in the markets we operate.
CORPORATE GOVERNANCE
The year was also marked with a change on the corporate side of the Group. Spring brought a
change of the key shareholder, as Lone Star sold its majority stake to Optimum Ventures Private
Equity Fund. In autumn, the Supervisory Board appointed Yovav Carmi as the new CEO and
strengthen the management team by further promoting Ariel Ferstman and Robert Snow, very
experienced and motivated professionals, to the Management Board positions. We remain
focused on executing the company strategy while taking active steps to further improve the
balance sheet and operational results as proven by our year end strong FFO amounting to 66m
despite the Covid-19 impact.
In August, the Management Board made a difficult decision to temporarily suspend the dividend
payment for FY19. It was deemed to be an appropriate course of action given the circumstances
and uncertainty of the outlook despite our financial resilience and performance during FY20.
Going forward, the Management Board understands the importance of the dividend to
shareholders. We will seek to resume dividends at an appropriate level as soon as there is a
sufficient clarity of outlook. To achieve this, we will need to see a significant improvement in rent
2
collection and have more visibility on the post lockdown productivity of our assets, principally how
quickly retail customers and office workers return.
REVIEW OF THE YEAR
At the end of 2020, our property portfolio reached €2.1 billion. Total revenues were at €160 million.
The Group's EPRA net asset value (NAV) now stands at €1.1 billion, reflecting the high quality of
our portfolio and low leverage: net loan-to-value (LTV) was 45% at year-end. GTC has a low cost
of debt averaging 2.3% and a strong net interest coverage ratio (ICR) of 3.7×. Occupancy across
the whole portfolio was steady at 91%.
Our local asset management teams continued to outperform and showed that long-standing
relationship with tenants combined with very good quality of the portfolio can bring new leases
even in more challenging times: the LPP Group decided to open the biggest Polish Sinsay store
in Galeria Północna, Mobica and Barry Callebaut expanded their offices in University Business
Park, EoN prolonged office space in City Gate, Modis ,World Bank and Commerzbank chose
Advance Business Center II, while Generali leased office space in Matrix B. Additionally, IKEA
and Bershka will open their stores in the Mall of Sofia.
During the year we also decided to refresh our portfolio: we sold one of our Hungarian assets, the
Spiral office building, generating €41m of free cash to finance new acquisitions and implementing
new projects. At the beginning of 2020, we completed the construction of the final building of the
Green Heart office complex in Belgrade, followed by Advance Business Center II in Sofia and
Matrix B in Zagreb towards the end of the year. In 2020, we also commenced Sofia Tower 2, an
A-class office building above the Mall of Sofia, and additionally, our development pipeline includes
such great projects as Pillar in Budapest, which was fully pre-let prior to the commencement of
construction.
We benefit from the work we have done over several years to strengthen our balance sheet. GTC
remained active on the capital markets in 2020, raising about €110 million of senior unsecured
bonds, providing additional flexibility that will be used for a combination of debt repayment, new
developments and acquisitions. We issued HUF-denominated green bonds, further
demonstrating our commitment to sustainability and financial innovation. The Group’s strong
market position was also confirmed by investment grade rating BBB- by Scope Ratings. Total
available liquidity of the Group was €272 million at the end of 2020. As a result, GTC's finances
are prepared for any opportunities or uncertainties which may lie ahead.
Invariably, sustainability has been our priority. We actively strive to deliver the most modern
buildings, equipped with the latest technology solutions that meet the strict BREEAM or LEED
criteria. The major accomplishment was LEED Platinum certification for two of our A-class
buildings, Matrix A and Matrix B in Zagreb. Thus, 84% of all GTC properties now proudly bear
an eco-friendly label. Additionally, we are working on the ESG policy to increase our market
advantages, improve financial results and reduce operational risk. It is another step forward for
the company to develop environmental protection, social care and corporate governance. As a
result, we have embarked on a project to deliver the 2020 ESG report.
3
Near term, it is clear that the management and maintenance of places and buildings are likely to
become more important to businesses, their customers and their people, as they place an even
greater focus on the safety and quality of their environments. As a result, our property
management expertise is likely to become even more of a positive differentiator for our business.
In the longer-term, it is our view that many of the macro trends will accelerate. This includes the
growth of online shopping, reinforcing our focus on delivering a smaller, more focused retail
business. We continue to believe there remains a role for the right kind of retail within our portfolio
especially assets that can play a key role for retailers in terms of fulfilment of online sales, returns
and click-and-collect. This will particularly be the case for shopping malls located conveniently in
and around key transport hubs. We also expect demand to polarise towards workspace which is
high quality, modern and sustainable and supports more flexible working patterns. However, it
remains early days and we do not yet have clarity around what long term trends will emerge so
we will remain alert as things develop, and be flexible in our approach, including evolving or
adapting our strategy as appropriate.
Our success, and our ability to face future challenges, would not be possible without our
employees, tenants, banks and bondholders. Whatever 2021 holds, we look forward to working
together and believe the future is bright as we step in 2021 trusting that we could enhance the
deal flow, mitigate risk and optimize performance effectively through our regional platform.
Sincerely,
Members of the Management Board
Globe Trade Centre S.A.
Yovav Carmi
CEO
Ariel A. Ferstman
CFO
Gyula Nagy
Board Member
Robert Snow
Board Member
MANAGEMENT BOARD’S REPORT
ON THE ACTIVITIES OF GLOBE TRADE CENTRE S.A. CAPITAL GROUP
IN THE FINANCIAL YEAR ENDED 31 DECEMBER 2020
2
TABLE OF CONTENT
1. Introduction ...................................................................................................................... 5
2. Selected financial data ..................................................................................................... 9
3. Key risk factors ...............................................................................................................11
4. Presentation of the Group ...............................................................................................39
4.1 General information about the Group ........................................................................39
4.2 Main events of 2020 .................................................................................................40
4.3 Structure of the Group ..............................................................................................44
4.4 Changes to the principal rules of the management of the Company and the Group .46
4.5 The Group’s Strategy ...............................................................................................47
4.6 Business overview ....................................................................................................50
4.6.1 Overview of the investment portfolio ....................................................................52
4.6.1.1 Overview of income generating portfolio ..........................................................52
4.6.1.1.1Overview of the office portfolio .........................................................................54
4.6.1.1.1.1 Office portfolio in Poland ..............................................................................55
4.6.1.1.1.2 Office portfolio in Belgrade ...........................................................................56
4.6.1.1.1.3 Office portfolio in Budapest ..........................................................................57
4.6.1.1.1.4 Office portfolio in Sofia .................................................................................58
4.6.1.1.1.5 Office portfolio in Bucharest .........................................................................58
4.6.1.1.1.6 Office portfolio in Zagreb..............................................................................59
4.6.1.1.2 Overview of the retail portfolio ........................................................................60
4.6.1.1.2.1 Retail portfolio in Poland ..............................................................................61
4.6.1.1.2.2 Retail portfolio in Sofia .................................................................................62
4.6.1.1.2.3 Retail portfolio in Zagreb ..............................................................................62
4.6.1.1.2.4 Retail portfolio in Belgrade ...........................................................................63
4.6.1.2 Overview of properties under construction.......................................................63
4.6.1.3 Overview of investment property landbank ......................................................64
4.6.2 Residential landbank ...........................................................................................65
4.7 Overview of the markets on which the Group operates .........................................65
4.7.1 Office market .......................................................................................................66
4.7.2 Retail market .......................................................................................................72
4.8 Information on the Company’s policy on sponsorship, charity, and other similar
activities. ...................................................................................................................76
5. Operating and financial review ........................................................................................78
5.1 General factors affecting operating and financial results ..........................................78
5.2 Specific factors affecting financial and operating results ...........................................81
5.3 Presentation of differences between achieved financial results and published
forecasts ...................................................................................................................84
3
5.4 Statement of financial position ..................................................................................85
5.4.1 Key items of the statement of financial position ...................................................85
5.4.2 Financial position as of 31 December 2020 compared to 31 December 2019 .....86
5.5 Consolidated income statement ................................................................................88
5.5.1 Key items of the consolidated income statement .................................................88
5.5.2 Comparison of financial results for the year ended 31 December 2020 with
the result for the corresponding period of 2019 .....................................................90
5.6 Consolidated cash flow statement ............................................................................94
5.6.1 Key items from consolidated cash flow statement ...............................................94
5.6.2 Cash flow analysis ...............................................................................................95
5.7 Future liquidity and capital resources ........................................................................96
6. Information on the use of proceeds from the issuance of shares and bonds ...................98
7. Information on loans granted with a particular emphasis on related entities ....................98
8. Information on granted and received guarantees with a particular emphasis on guarantees
granted to related entities ................................................................................................98
9. Off balance liabilities .......................................................................................................99
10. Major investments, local and foreign (securities, financial instruments, intangible assets,
real estate), including capital investments outside the Group and its financing method 99
11. Information on risk management ..................................................................................99
12. Remuneration policy and human resources management.......................................... 104
12.1 Remuneration policy ............................................................................................ 104
12.2 Incentive system .................................................................................................. 106
12.2.1.1 Phantom Shares program control system ....................................................... 108
12.3 Number of employees ......................................................................................... 108
12.4 Training policy ..................................................................................................... 108
12.5 Agreements concluded between GTC and management board members ........... 108
12.6 Evaluation of the remuneration policy for the realization of its objectives ............. 108
12.7 Remuneration of the Members of the management board and supervisory board109
12.8 Information on any liabilities arising from pension and similar benefits for former
members of the management board and the supervisory board ........................... 111
13. Shares in GTC held by members of the management board and the supervisory
board .......................................................................................................................... 112
14. Transactions with related parties concluded on terms other than market terms ......... 113
15. Information on signed and terminated loan agreements within a given year ............... 113
4
16. Information on contracts of which the Company is aware of (including those concluded
after the balance sheet date) which could result in a change in the shareholding structure
in the future ................................................................................................................ 114
17. Proceedings before a court or public authority involving Globe Trade Centre SA or its
subsidiaries the total value of the liabilities or claims is material ................................. 114
18. Material contracts signed during the year, including insurance contracts and co-operation
contracts ..................................................................................................................... 115
19. Agreements with an entity certified to execute an audit of the financial statements .... 115
5
1. Introduction
The GTC Group is a leading real estate investor and
developer focusing on Poland and capital cities in Eastern
and Southern Europe: Belgrade, Budapest, Bucharest,
Zagreb, and Sofia. The Group was established in 1994.
Group’s portfolio comprises: (i) completed commercial
properties; (ii) commercial properties under construction; (iii)
a commercial landbank intended for future development (iv)
assets held for sale, and (v) residential landbank.
GTC GROUP:
Poland,
Budapest,
Belgrade,
Bucharest, Sofia,
and Zagreb
Since its establishment and as of 31 December 2020, the Group has: (i) developed
approximately 1.2 million sq m of gross commercial space and approximately 300 thousand
sq m of residential space; (ii) sold approximately 600 thousand sq m of gross commercial
space in completed commercial properties and approximately 300 thousand sq m of residential
space; and (iii) acquired approximately 160 thousand sq m of commercial space in completed
commercial properties. Additionally, GTC Group developed and sold over 100 thousand sq m
of commercial space and approximately 76 thousand sq m of residential space through its
associates in the Czech Republic.
As of 31 December 2020, the Group`s property portfolio comprised the following properties:
 48 completed commercial buildings, including 43 office buildings and five retail
properties with a total combined commercial space of approximately 753 thousand sq
m of GLA, of which the Group's proportional interest amounts to approximately 743
thousand sq m of GLA;
 2 office buildings under construction with a total GLA of approximately 37 thousand sq
m;
 commercial landbank designated for future development; and
 residential landbank.
48
753 000
2
landbank for
completed
buildings
sq m of
GLA
buildings
under
construction
future
development
As of 31 December 2020, the book value of the Group’s portfolio amounts to €2,136,802 with:
(i) the Group’s completed investment properties account for 88% thereof; (ii) investment
properties under construction for 3%; (iii) an investment landbank intended for future
6
development for 7%; (iv) right of use of lands under perpetual usufruct for 2% (v) assets held
for sale for less than 1% and (vi) residential landbank account for less than 1%.
The Company’s shares are listed on the Warsaw Stock Exchange and inward listed on the
Johannesburg Stock Exchange. The Company’s shares are included in mWIG 40.
The Group’s headquarters are located in Warsaw, at Komitetu Obrony Robotników 45A.
Terms and abbreviations capitalized in this Management's Board Report shall have the
following meanings unless the context indicates otherwise :
the
Company
or GTC
are to Globe Trade Centre S.A.
the Group
or the GTC
Group
are to Globe Trade Centre S.A. and its consolidated subsidiaries
Shares
are to the shares in Globe Trade Centre S.A., which were introduced to
public trading on the Warsaw Stock Exchange in May 2004 and later and
are marked under the PLGTC0000037 code and inward listed on
Johannesburg Stock Exchange in August 2016 and are marked under the
ISIN PLGTC0000037 code
Bonds
are to the bonds issued by Globe Trade Centre S.A. and introduced to
alternative trading market and marked with the ISIN codes PLGTC0000177,
PLGTC0000219, PLGTC0000227, PLGTC0000235, PLGTC0000243,
PLGTC0000268, PLGTC0000276, PLGTC0000292, PLGTC0000318 and
HU0000360102GTC
the Report
are to the consolidated annual report prepared according to art. 71 of the
Decree of the Finance Minister of 29 March 2018 on current and periodical
information published by issuers of securities and conditions of qualifying as
equivalent the information required by the provisions of the law of a country
not being a member state
CEE
are to the Group of countries that are within the region of Central and
Eastern Europe (Hungary, Poland)
SEE
are to the Group of countries that are within the region of South-Eastern
Europe (Bulgaria, Croatia, Romania, and Serbia)
net rentable
area, NRA”,
are to the metric of the area of a given property as indicated by the property
appraisal experts to prepare the relevant property valuations. With respect
7
or net
leasable
area, NLA
to commercial properties, the net leasable (rentable) area is all the office or
retail leasable area of a property exclusive of non-leasable space, such as
hallways, building foyers, and areas devoted to heating and air conditioning
installations, elevators, and other utility areas. The specific methods of
calculation of NRA may vary among particular properties, which is due to
different methodologies and standards applicable in the various geographic
markets on which the Group operates
gross
rentable
area or
gross
leasable
area, GLA
are to the metric of all the office or retail leasable area of a property
multiplied by add-on-factor;
Commercial
properties
are to properties with respect to which GTC Group derives revenue from
rent and includes both office and retail properties
FFO,
FFO I
are to profit before tax less tax paid, after adjusting for non-cash transactions
(such as fair value or real estate re-measurement, share-based payment
provision and unpaid financial expenses) and one-off items (such as FX
differences and residential activity);
EPRA NAV
are to total equity less non-controlling interest, less deferred tax liability
related to real estate assets and derivatives at fair value
EBITDA
are to earning before fair value adjustments, interest, tax, depreciation, and
amortization;
In-place rent
Are to rental income that was in place as of the reporting date. It includes
headline rent from premises, income from parking, and other rental income
EUR, €
or euro
are to the single currency of the participating Member States in the Third
Stage of European Economic and Monetary Union of the Treaty
Establishing the European Community, as amended from time to time
PLN or zloty
are to the lawful currency of Poland
HUF
are to the lawful currency of Hungary
JSE
are to the Johannesburg Stock Exchange
8
PRESENTATION OF FINANCIAL INFORMATION
Unless indicated otherwise, the financial information presented in this Report was prepared
according to International Financial Reporting Standards (“IFRS”) as approved for use in the
European Union.
All the financial data in this Report is presented in euro or PLN and expressed in thousands
unless indicated otherwise.
Certain financial information in this Report was adjusted by rounding. As a result, certain
numerical figures shown as totals in this Report may not be exact arithmetic aggregations of
the figures that precede them.
PRESENTATION OF PROPERTY INFORMATION
Information on properties is presented pro-rata to the Group’s consolidation method in each of
the properties. The properties' valuation is based on the value that the Group consolidates in
its consolidated financial statements. The occupancy rate given for each of the markets is as
of 31 December 2020.
INDUSTRY AND MARKET DATA
In this Report the Group sets out information relating to its business and the markets in which
it operates and in which its competitors operate. The information regarding the markets, their
potential, macroeconomic situation, occupancy rates, rental rates, and other industry data
relating to the Group's markets are based on data and reports compiled by various third-party
entities. The information included in that section is not expressed in thousand and is prepared
by Jones Lang LaSalle IP, Inc („JLL”). It is based on material that JLL believes to be reliable.
While every effort has been made to ensure its accuracy, GTC cannot offer any warranty that
contains no factual errors.
Moreover, in numerous cases, the Group has made statements in this Report regarding the
industry in which it operates based on its own experience and examining market conditions.
The Group cannot guarantee that any of these assumptions properly reflect the Group’s
understanding of the markets on which it operates. Its internal surveys have not been verified
by any independent sources.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements relating to future expectations regarding the
Group’s business, financial condition, and results of operations. You can find these statements
by looking for words such as "may", "will", "expect", "anticipate", "believe", "estimate", and
similar words used in this Report. By their nature, forward-looking statements are subject to
numerous assumptions, risks, and uncertainties. Accordingly, actual results may differ
materially from those expressed or implied by forward-looking statements. The Group cautions
you not to place undue reliance on such statements, which speak only as of this Report's date.
9
The cautionary statements set out above should be considered in connection with any
subsequent written or oral forward-looking statements that the Group or persons acting on its
behalf may issue. The Group does not undertake any obligation to review or confirm analysts’
expectations or estimates or to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date of this Report.
The Group discloses essential risk factors that could cause its actual results to differ materially
from its expectations under Item 3. “Key risk factors”, Item 5. “Operating and financial review”,
and elsewhere in this Report. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on behalf of the Group. When the Group
indicates that an event, condition, or circumstance could or would have an adverse effect on
the Group, it means to include effects upon its business, financial situation, and results of
operations.
2. Selected financial data
The following tables present the Group’s selected historical financial data for the financial year
ended 31 December 2020 and 2019. The historical financial data should be read in conjunction
with Item 5. “Operating and Financial Review” and the consolidated financial statements for
the year ended 31 December 2020 (including the notes thereto). The Group has derived the
financial data presented in accordance with IFRS from the audited consolidated financial
statements for the year ended 31 December 2020.
Selected financial data presented in PLN is derived from the consolidated financial
statements for the year ended 31 December 2020 presented in accordance with IFRS and
prepared in the Polish language and Polish zloty as a presentation currency.
The reader is advised not to view such conversions as a representation that such zloty
amounts actually represent such euro amounts or could be or could have been converted into
euro at the rates indicated or at any other rate.
10
For the 12-month period ended
31 December
2020
2019
(in thousands)
€
PLN
€
PLN
Consolidated Income Statement
Revenues from operations
160,121
711,706
169,762
729,637
Cost of operations
(41,527)
(184,579)
(41,876)
(179,983)
Gross margin from operations
118,594
527,127
127,886
549,654
Selling expenses
(1,307)
(5,809)
(2,017)
(8,669)
Administrative expenses
(11,712)
(52,057)
(14,410)
(61,934)
Profit/(loss) from revaluation/impairment of
assets, net
(142,721)
(649,116)
16,190
69,779
Financial income/(expense), net
(34,913)
(155,182)
(34,254)
(147,224)
Net profit / (loss)
(70,861)
(328,741)
75,421
324,319
Basic and diluted earnings per share (not in
thousands)
(0.14)
(0.67)
0.15
0.66
Weighted average number of issued ordinary shares (not
in thousands)
485,555,122
485,555,122
484,659,406
484,659,406
Consolidated Cash Flow Statement
Net cash from operating activities
100,325
445,925
101,407
435,849
Net cash used in investing activities
(30,298)
(134,631)
(9,882)
(42,447)
Net cash from/(used in) financing activities
27,713
123,178
7,549
32,910
Cash and cash equivalents at the end of the
period
271,996
1,255,207
179,636
764,980
Consolidated statement of financial
position
Investment property (completed and under
construction)
1,942,082
8,962,320
2,087,268
8,888,631
Investment property landbank
140,367
647,766
115,277
490,907
Right of use
42,679
196,955
44,485
189,439
Residential landbank
10,094
46,582
13,388
57,013
Assets held for sale
1,580
7,291
-
-
Cash and cash equivalents
271,996
1,255,207
179,636
764,980
Others
71,959
322,077
82,688
352,127
Total assets
2,480,757
11,448,198
2,522,742
10,743,097
Non-current liabilities
1,274,363
5,880,931
1,192,168
5,076,847
Current liabilities
232,246
1,071,769
271,912
1,157,938
Total Equity
974,148
4,495,498
1,058,662
4,508,312
Share capital
11,007
48,556
11,007
48,556
11
3. Key risk factors
THE IMPACT OF THE SARS-COV-2 VIRUS AND THE COVID-19 DISEASE ON THE
OPERATIONS AND FINANCIAL STANDING OF THE GROUP
The Group is subject to risk related to the spread of the SARS-CoV-2 virus and the COVID-19
pandemic. The impact of the SARS-CoV-2 virus and the COVID-19 pandemic is largely
dependent on factors over which the Group Companies have no control. The consequences of
the epidemic related to the SARS-CoV-2 virus (including precautionary restrictions such as
temporary closures of public spaces including shopping malls or a temporary ban on public
gatherings introduced in countries in which the Group or its tenants operate) may have an
adverse effect on the operations of the Group, specifically, in the following areas:
• reduced demand for both office and retail space as a result of different work patterns
(a growing share of employees may work from home and not from the office) and
habits (a growing number of customers may switch to shopping online rather than in
brick-and-mortar shopping malls);
• the sales dynamics of real estate projects and the conclusion of lease agreements -
in the form of delays in signing agreements relating to the sale of real estate projects
or leases;
• administrative proceedings in public administration authorities – in the form of
protraction of such proceedings and, consequently, delays in obtaining
administrative decisions of key importance to the development process;
• the dynamics of securing the financing required for funding current and planned real
estate projects - in the form of delays in obtaining or the failure to obtain such
financing;
• the timetables of construction work - in the form of possible delays in such works
related to limited access to building materials (disrupted supply chains) and
insufficient personnel, if any, of subcontractors, thus having a direct impact on the
timeliness of completion of the investments; and
• any case of employees of the Group or individuals cooperating therewith testing
positive for the COVID-19 pandemic, whereby such persons or the Group’s
headquarters or other office buildings are subject to quarantine, thus, having an
adverse impact on the Group’s operations and functioning, in particular, if such
affects a significant number of individuals or individuals who are key to the Group’s
operations.
Any of these factors may have a material adverse effect on the Group’s business, financial
condition, and results of operations. It cannot be excluded that the recently intensified spread
12
of the COVID-19 pandemic will cause the precautionary restrictions introduced in countries in
which the Group operates to be re-imposed or that new, more strict measures will be introduced,
which could have an adverse negative impact on the business operations or financial liquidity
of the Group’s tenants or other business partners and the general behavior of the public, and
thus, intensify the negative impact of the COVID-19 pandemic and its consequences on the
Group’s business, financial condition and results of operations or increase the likelihood of the
materialization of risks connected therewith.
THE GROUP’S BUSINESS COULD BE AFFECTED IF THE GENERAL ECONOMIC
CONDITIONS IN THE COUNTRIES IN WHICH THE GROUP OPERATES CONTINUE OR
WORSEN
A deterioration of the general economic conditions and the real estate market in the countries
where the Group operates may adversely affect customers' willingness and ability to secure
financing and purchase or lease property. If such demand falls, the Group may have to sell or
let its projects at a loss or may not be able to sell or let its projects at all. A potential downturn
in the general economic conditions and the real estate market in Poland or other countries in
which the Group operates, resulting from the outbreak of the COVID-19 pandemic or otherwise,
may also lead to a drop in the market value of the Group’s properties. The financial markets
crisis may also adversely affect the Group’s business in other ways, for example, if tenants of
the Group or the financial institutions that provide the Group with financing go bankrupt.
Any of these factors may have a material adverse effect on the Group’s business, financial
condition, and results of operations.
THE GROUP MAY FAIL TO IMPLEMENT ITS STRATEGY
The Group has its growth strategy approved pursuant to which it plans to: (i) expand its portfolio
by acquiring and improving yielding properties in Poland and in capital cities in countries where
the Group operates, supplemented by selected, most attractive development projects in the
Group’s Property Portfolio; (ii) improve the efficiency of its asset management activities and
maximize operating performance and efficiency, and (iii) sell its non-core assets which may
allow the Group to reduce its financial leverage or obtain funds to be used for new investments.
As a result, certain properties and qualities of the portfolio may change in terms of the
geographic split, the ratio of the value of completed properties and the value of properties under
construction, as well as the portfolio’s split by asset classes (i.e., retail, office, residential and
other properties). As a result, various metrics of the Group’s business and recurring cash flows
derived from rental income may change. Moreover, no assurance can be given that the Group’s
property portfolio or future investment strategies effected pursuant to the Group’s strategy will
enhance the value of its property portfolio and increase the Group’s profitability. In particular,
the success of the Group’s business strategy relies on assumptions and contingencies that may
prove to be partially or wholly incorrect and/or inaccurate. This includes assumptions with
respect to the level of profitability of the acquisition targets to be completed in the future and
investment criteria which have been developed by the Group for the purpose of achieving the
expected level of returns on the acquired properties.
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The Group may fail to achieve its major goals due to internal and external factors of a regulatory,
legal, financial, social or operational nature, some of which may be beyond the Group’s control.
In particular, volatile market conditions, a lack of capital resources needed for expansion and
the changing price of available properties for sale in the relevant markets may hinder or make
it impossible for the Group to implement the core elements of its strategy. Moreover, expanding
its presence in the asset management sector may be hindered or even impossible due to
increasing competition from other real estate managers and investors in the real estate market.
Should the Group experience these or other challenges, the Group may be unable to implement
its strategy fully or at all; it may decide to change, suspend or withdraw from its strategy or
development program, and it may be unable to achieve, or it could encounter delays in
achieving, the planned synergies and desired benefits from its strategy and development
program. This could have a material adverse effect on the Group’s business, financial condition,
results of operations.
THE VALUATION OF THE GROUP’S PROPERTIES IS INHERENTLY UNCERTAIN, MAY
BE INACCURATE AND IS SUBJECT TO FLUCTUATION
The Group presents the vast majority of its real estate properties at a fair value, which has been
estimated by external real estate valuation experts.
The valuation of property is inherently subjective and uncertain since it is done on the basis of
assumptions which may differ from actual future developments. For example, the valuation
reports were prepared on the basis of certain forecasts and assumptions regarding the real
estate market in geographic markets in which the Group operates.
The fair value of investment properties and the undeveloped landbank is established semi-
annually (i.e. as of 30 June and 31 December of each year) by independent certified appraisers
based on discounted projected cash flows from the investment properties using discount rates
applicable for the relevant local real estate market or, in case of some of the real properties,
using the sales comparison approach. In most instances the independent certified appraisers
do not, prepare valuations for 31 March and 30 September of each year. Such valuations are
reviewed internally and, if necessary confirmed by our independent certified appraiser and,
verified by the Group’s management.
There can be no assurance that the valuations of the Group’s properties (undeveloped, in
progress and completed) will reflect the actual sale prices or that the estimated yield and annual
rental revenue of any property will be attained, or that such valuations will not be subject to be
challenged by, among others, the regulatory authorities. Forecasts may prove inaccurate as a
result of the limited amount and quality of publicly available data and research regarding Poland
and other markets in which the Group operates compared to mature markets. Moreover, a lack
of comparable transactions, experienced particularly during difficult times such as the
lockdowns, forces valuation experts to rely on yields derived from theoretical models and
estimates rather than actual market yields.
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Additional factors that impact the valuation and, specifically, the planning of projects are the
construction costs as estimated by the Group and established on the basis of current prices
and future price forecasts, whereas the actual costs may be different. Moreover, some of the
valuations are based on certain assumptions regarding future zoning decisions. Such
assumptions may turn out not to be fulfilled which may result in the Group not being able to
develop certain property in line with the plan. This may adversely impact the valuation of such
properties in the future.
If the forecasts and assumptions on which the valuations of the projects in the Group’s portfolio
are based prove to be inaccurate, the actual value of the projects in the Group’s portfolio may
differ materially from that stated in the valuation reports. Inaccurate valuations of the Group’s
properties and fluctuations in valuations may have a material adverse effect on the Group’s
business, financial condition and results of operations.
In addition, a decrease in the value of the real estate properties of the Group may also
negatively affect the Group’s covenants to maintain certain levels of loan-to-value ratios
established in connection with the Group’s loans incurred to finance projects and the ability of
the Group to raise and service its debt funding. Each such event may have a material adverse
effect on the Group’s business, financial condition, results of operations.
THE GROUP’S CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT MAY BE
SIGNIFICANTLY AFFECTED BY FLUCTUATIONS IN THE FAIR MARKET VALUE OF ITS
PROPERTIES AS A RESULT OF REVALUATIONS
The Group’s income generating properties and properties under development are
independently revalued on at least semi-annual basis in accordance with its accounting policy.
Consequently, in accordance with IAS 40 “Investment Property” as adopted by the EU, any
increase or decrease in the value of its properties accounted for in accordance with fair value
models recorded as a revaluation gain or loss in the Company’s consolidated income statement
for the period during which the revaluation occurs. Moreover, projects under construction which
cannot be reliably valued at fair value are valued at historical cost decreased by impairment, if
any. Such properties are tested for impairment on, at least, a semi-annual basis. If the criteria
for impairment are satisfied, a loss is recognized in the Group’s consolidated income statement.
As a result, the Group can have significant non-cash revenue gains or losses from period to
period depending on the changes in the fair value of its investment properties, whether or not
such properties are sold. For instance, the Group may recognize revaluation losses and
impairment of assets and residential projects as well as profits in other years.
If market conditions and the prices of comparable commercial real properties continue to be
volatile, the Group may continue to experience significant revaluation gains or losses from the
Group’s existing properties in the future. If a substantial decrease in the fair market value of its
properties occurs, over the longer term, this may have a material adverse effect on the Group’s
business, financial condition, results of operations.
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THE GROUP’S BUSINESS IS DEPENDENT ON ITS ABILITY TO ACTIVELY MANAGE ITS
ASSETS
A core part of the Group’s operations is the active management of its assets, which includes
the management of vacancy rates and rent levels and the terms of executed lease agreements
in the case of all commercial properties, as well as achieving the desired tenant mix in the case
of retail properties. This is particularly relevant with respect to the Group’s large scale
commercial properties. In addition to legal constraints, the Group’s ability to reduce vacancies,
renegotiate rents and create a desired tenant mix is partly subject to market-related factors.
Some of these factors, such as the general economic environment, consumer confidence,
inflation and interest rates, and others are beyond the Group’s control. During periods of
recession or downturns in the economy, or as a result of the uncertainty caused by the outbreak
of the COVID-19 pandemic, it is more challenging for developers to attract new tenants and to
retain existing ones, and the competition between developers for each tenant is much stronger.
If the Group is unable to create or capture demand for its properties by, for example, improving
tenant services or motivating its external sales agents, it may not be able to reduce vacancy
rates or renegotiate rents as desired. Moreover, tenants that experience liquidity shortages may
not pay their rent on time during prolonged periods, but, despite that, the Group may not be
able to replace them with different tenants with a better financial standing.
A prolonged period of higher vacancy rates could lower the rents tenants generally pay and
make it more difficult to increase the average rent that the Group expects to charge. Higher
vacancy rates would also increase the Group’s overall operating costs, as it would have to cover
expenses generated by empty properties or units. Any such decrease in rental revenue or
increase in operating costs could have a material adverse effect on the Group’s business,
financial condition, results of operations.
THE GROUP’S GROWTH AND PROFITABILITY WILL DEPEND ON THE GROUP’S
ABILITY TO IDENTIFY AND ACQUIRE ATTRACTIVE INCOME-GENERATING
PROPERTIES, EFFICIENTLY MANAGE ITS PORTFOLIO AND DEVELOP SELECTED
PROJECTS
In accordance with its strategy, the Group intends to expand its business through (i) the
acquisition of yielding properties; (ii) asset management focused on unlocking value from the
Group’s portfolio; and (iii) the development of selected projects. Accordingly, the growth and
profitability of the Group and the success of its proposed business strategy depend, to a
significant extent, on its continued ability to locate and acquire yielding properties at attractive
prices and on favorable terms and conditions
The ability to identify and secure accretive value-added acquisition opportunities involves
uncertainties and risks, including the risk that the acquisition is not an income-generating one
after the Group has carried out business, technical, environmental, accounting, and legal
examinations of the property or project. In addition, the Group also faces the risk that
competitors may anticipate certain investment opportunities and compete for their acquisition.
Additionally, any potential acquisition of properties may give rise to pre-acquisition costs, which
have to be paid by the Group even if the purchase of a property is not concluded. There can be
16
no assurance that the Group will be able to: (i) identify and secure investments that satisfy its
rate of return objective and realize their values; and (ii) acquire properties suitable for
management in the future at attractive prices or on favorable terms and conditions.
As a part of its strategy, the Group intends to focus on maximizing the operating performance
and efficiency of the active management of its income-generating commercial property portfolio.
In pursuing this objective, the Group may expend considerable resources (including funds and
management time) on managing properties that do not generate the expected returns and
maintain certain ratios at the required level due to, for example, a decrease in demand for rental
units or in rental levels which are not possible to anticipate.
The failure of the Group to identify and acquire suitable properties, effectively manage its
properties portfolio and develop its projects could have a material adverse effect on the
Company’s business, financial condition, results of operations or prospects.
THE GROUP MIGHT NOT RECEIVE ADEQUATE INFORMATION ON RISKS RELATING TO,
OR MIGHT MAKE ERRORS IN JUDGMENT REGARDING, FUTURE ACQUISITIONS OF
REAL ESTATE
The acquisition of real estate requires a precise analysis of the factors that create value, in
particular, the levels of future rental values and the potential for the improvement of the NOI.
Such an analysis is subject to a wide variety of factors and subjective assessments and is based
on various assumptions. It is possible that the Group or its service providers will misjudge
individual aspects of a given project when making acquisition decisions or that assessments on
which the Group bases its decision are inaccurate or based on assumptions that turn out to be
incorrect. Such judgment errors may lead to inaccurate analysis and valuation of the properties
by the Group in connection with investment decisions that may only become apparent at a later
stage and force us to revise the Group’s valuation amounts downwards. The Group can also
not guarantee that the service provider it chooses to carry out its due diligence when purchasing
property will identify all the risks related to the property in question. In addition, the Group cannot
guarantee that it will be able to have recourse to the seller of the property for not disclosing
such risks. If the Group does not find out about these risks, this could lead the Group to
economic and financial disadvantages. The Group cannot guarantee that it will be able to
pursue remedies against the respective seller for the non-disclosure of such risks. The
occurrence of one or several of such risks could have a material adverse effect on the Group’s
business, financial condition, results of operations.
THE GROUP CANNOT GUARANTEE THAT IT WILL CONTINUE TO GENERATE RENTAL
INCOME AT ASSUMED LEVELS
Rental levels of the Group’s properties are generally affected by overall conditions in the
economy as well as the conditions of the portfolio itself (including future acquisitions of
properties and the performance of the existing portfolio), the development of the selected
existing projects, their infrastructure condition, the specific properties, and the vacancy rates.
All these elements are subject to various factors, some of which are outside the Group’s control.
In particular, due to increased competition and pressure on rents and the worsening of the
17
financial condition of tenants, the Group may not be able to renew the expiring leases of its
current properties on favorable terms and conditions (if at all) or find and retain tenants willing
to enter into leases on terms that are at least as favorable as those on which the Group has
rented its properties thus far. Moreover, the Group’s portfolio has included and will continue to
include numerous properties with non-fixed rents tied to the turnover of the tenants. Accordingly,
if the turnover of such tenants declines, the rent payable by them will also decrease. In addition,
the Group has no impact on the operations of its tenants and may not be able to monitor on an
ongoing basis the tenants’ turnover in order to ensure that the level of turnover reflects the best
and actual performance efforts of its tenants. Consequently, the amounts of rental income
generated by the Group's office and retail properties in the past cannot be used to predict future
rental income, and there can be no assurance that rental income will develop positively in the
future.
Additionally, the Group’s rental income may also decrease as a result of asset disposals or
acquisitions of properties with no or unsatisfactory income-generating capabilities. As part of its
strategy, the Group is reorienting its portfolio and intends to acquire accretive and value-added
properties and sell its non-core assets. In accordance with such strategy, newly acquired
properties are intended to be integrated with the existing portfolio and rented out in order to
generate rental income for the Group. If these properties are not fully rented and/or the rental
rates are agreed below the estimated rental values, the Group may not be able to realize its
expected rates of return on the new acquisitions.
Less positive or negative development of rental income and profits could have a material
adverse effect on the Group’s business, financial condition, results of operations.
THE TERMINATION OR EXPIRATION OF LEASE AGREEMENTS OR THE INABILITY TO
RENT OUT EXISTING UNOCCUPIED SPACE COULD HAVE LASTING NEGATIVE
EFFECTS ON THE GROUP’S PROFITABILITY AND ON THE VALUE OF THE GROUP’S
PORTFOLIO
For the Group to be profitable over the long term, the income-generating properties it owns and
intends to acquire in the future must be rented out without interruptions to the greatest extent
possible. The same applies to maintaining the valuation of the properties the Group owns and
thus the valuation of the overall portfolio. To the extent that leases are terminated or expire, the
Group can give no assurance that the properties in question can be rented out again
immediately, especially in light of potential softening demand for office or retail space which
may be caused by the outbreak of the COVID-19 pandemic. An increased vacancy rate would
result in lower rental income from the management of the existing portfolio and in a lower
valuation of the Group’s properties and overall portfolio. Expected vacancies are already
reflected in the valuation reports as of 31 December 2020. The fixed costs for maintaining
vacant spaces and the lack of rental income generated by such spaces could have a material
adverse effect on the Group’s business, financial condition, results of operations.
18
THE GROUP MAY BE UNABLE TO FULLY RECOVER THE COSTS OF OPERATING THE
PROPERTIES FROM THE TENANTS
The majority of the Group’s lease contracts are structured in a way that allows passing on
certain of the costs related to the leased property to the tenant, including marketing cost,
electricity cost on common space, real estate taxes, building insurance, and maintenance.
However, the Group is not able to pass on all such costs to the tenants, especially in a very
competitive environment, where the Company has to offer the attractive conditions to be able
to compete with the other office buildings or has to improve the conditions offered to its tenants
to be able to attract a new tenant to its retail project. Deteriorating market conditions, increased
competition and tenants’ requirements may further limit the Group’s ability to transfer such
costs, in full or in part, to the tenants. The service charges of the properties may increase due
to a number of factors, including an increase in the electricity costs or an increase in the
maintenance cost. Moreover, if vacancy rates increase, the Company has to cover the portion
of the service charge related to the vacant space. Some lease agreements provide for the
maximum value combined rental rate and service charge paid by the tenant. In such cases, if
the maintenance charges increase, the Group is unable to pass on such costs to the tenants.
Any significant increases in the property costs that cannot be compensated by increasing the
level of costs incurred by the tenants may have an adverse effect on the Group’s business,
financial condition, and results of operations.
THE GROUP MAY BE MATERIALLY AFFECTED BY THE LOSS OF ATTRACTIVE
TENANTS
The presence of reputable tenants, especially anchor tenants, in the Group’s retail projects is
important for its commercial success. Such tenants play an important part in generating
customer traffic and making a building a desirable location for other tenants. It may be more
difficult for the Group to attract tenants to enter into leases during periods when market rents
are increasing or when general consumer activity is decreasing, or if there is competition for
such tenants from competing developments. In addition, the termination of a lease agreement
by any significant tenant may adversely affect the attractiveness of a project. Moreover,
following the period of the lockdown, anchor tenants were among the first to demand
renegotiation of their lease agreements. In order to maintain such tenants, the Group was
required to implement multi-pronged measures to support tenants and encourage consumer
spendings, such as reducing rent, allowing rent payment in installments, and waiving late
payment interest and service charges. Depending on the extent and length of the COVID-19
pandemic, the Group may have to extend further assistance to its tenants across the portfolio.
The failure of such tenants to abide by their lease agreements, or their bankruptcy or economic
decline, which may have become more likely as a result of the COVID-19 pandemic, may cause
delays or result in a decrease in rental income (temporary or long-term), the effect of which the
Group may not be able to offset due to difficulties in finding a suitable replacement tenant.
If the Group fails to renew the leases of important tenants or to replace such tenants in a timely
manner, the Group may incur material additional costs or loss of revenues, which may, in turn,
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have a material adverse effect on the Group’s business, financial condition, and results of
operations.
THE GROUP FACES COMPETITION FROM OTHER OWNERS, REAL ESTATE
MANAGERS, AND DEVELOPERS OF COMMERCIAL REAL ESTATE
The Group has faced and continues to face increased competition from other owners, local and
international real estate managers, and developers of commercial real estate. Such competition
may affect the Group’s ability to attract and retain tenants and may reduce the rents that the
Group is able to charge. Such competing properties may have vacancy rates that are higher
than the vacancy rates of the Group’s properties, which could result in their owners being willing
to make space available at lower rental rates than the Group would typically be prepared to
offer, but which the Group may have to match. Competition in the real estate market may also
lead to increased marketing and development costs.
Given that the successful growth and profitability of the Group depend on: (i) the level of its
vacancy rates; (ii) the increase and maintenance of occupancy on best achievable market
terms; (iii) the level of lease rent and rent collection; (iv) optimization of property maintenance
costs; and (v) the acquisition of real estate at lowest available prices, the increased competition
from other owners, real estate managers and developers of commercial real estate and
surrounding factors could adversely affect the Group’s business, financial condition, and results
of operations.
THE GROUP MAY BE SUBJECT TO SIGNIFICANT COMPETITION IN SEEKING
INVESTMENTS AND MAY INCREASE THE PURCHASE PRICE OF PROPERTIES TO BE
ACQUIRED
The Company competes with a number of real estate companies and developers for properties,
developments, contractors, and customers. Some of the Group’s competitors may be larger or
have greater financial, technical, and marketing resources than the Group. Therefore, the Group
may not be able to compete successfully for investments or developments.
In addition, new acquisitions of existing properties at yields that the Company considers
attractive may become difficult to complete. Accordingly, the implementation of the Company’s
strategy to make suitable investments in prime locations may be delayed or, even, become
impossible.
Competition in the real estate market may also lead to a significant increase in prices for real
estate available for sale, which could be potential targets for the Group. Each of these risks
could have a material adverse effect on the Group’s business, financial condition, results of
operations.
20
THE GROUP CANNOT ASSURE PROFITABILITY OF ITS PROJECTS
The Group currently has no projects that are not profitable, however, in the past, the Group had
several projects that were not primarily due to insufficient occupancy rates and rent levels. The
Group cannot exclude that other projects may also start generating losses in the future. Any
such development may have a material adverse effect on the Group’s business, financial
condition, results of operations.
THE GROUP MAY NOT BE ABLE TO SELL ITS PROPERTIES ON A TIMELY BASIS
As part of its strategy, the Group sells time to time its real estate properties to recycle its equity
and reinvest in new projects. The sale of a real estate project is usually a complex and lengthy
process. There may be situations, however, when it would be beneficial for the Group to be able
to sell one or more of its projects quickly. For example, the Group may wish to sell on short
notice if it believes that market conditions are optimal or if it is approached by a party interested
in purchasing a particular property on commercially attractive terms. The Group’s ability to sell
its property quickly may, however, be hindered by a number of factors beyond its control.
The Group’s properties may constitute collateral established in favor of entities providing
external financing, which may further restrict and/or delay their transferability if the lender’s
consent must first be obtained. Several of the Group’s projects are also held through joint
ventures with third parties and may, as a result, be subject to legal and/or contractual limitations
on transferability, such as first refusal and co-sale rights, or a requirement to obtain joint
approval for any such sale. Such limitations could adversely affect the Group’s ability to
complete a transaction and to generate cash as needed through the timely sale of its projects
at favorable prices or to vary its portfolio in response to economic or other conditions impacting
the property value. It may be challenging to sell real estate properties in an uncertain market
environment caused by the COVID-19 pandemic. If the Group cannot sell a particular project
within a reasonable time, it may not be able to generate the cash flow it may require to service
ongoing operations or invest in new projects, or it may be unable to take advantage of favorable
economic conditions or mitigate the impact of unfavorable economic conditions should they
arise, which could have a material adverse effect on the Group’s business, financial condition,
results of operations.
THE GROUP'S PROPERTIES COULD SUFFER DAMAGE DUE TO UNDISCOVERED
DEFECTS OR EXTERNAL INFLUENCES
The Group's properties could suffer damage due to undiscovered or underestimated defects or
external influences (e.g., earthquakes, floods, landslides, or mining damage). In addition to the
significant health risks and related costs, the Group could also be required to pay for the removal
and disposal of hazardous substances, as well as the related maintenance and restoration
work, without the ability to pass those costs onto third parties. The occurrence of any such risk
could have a material adverse effect on the Group’s business, financial condition, results of
operations.
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If a given property is currently under renovation or modernization, there can be no assurance
that any space which has not been pre-leased can be let or otherwise marketed during or
following the renovation or modernization phase on the appropriate terms and conditions. Such
developments could have a material adverse effect on the Group’s business, financial situation,
results of operations.
FAILURE TO OBTAIN THE REQUIRED ZONING OR CONSTRUCTION PERMITS OR ANY
OTHER APPROVALS IN A TIMELY MANNER OR AT ALL MAY DELAY OR PREVENT THE
DEVELOPMENT OF CERTAIN OF THE GROUP’S PROJECTS
The Group cannot guarantee that any permits, consents or approvals required from various
government entities in connection with existing or new development projects will be obtained
by the Group in a timely manner, or that they will be obtained at all, or that any current or future
permits, consents or approvals will not be withdrawn. For example, as part of its operations, the
Group may occasionally purchase land that requires rezoning or a new or amended local spatial
development plan or planning permission. The issuance of required permission cannot be
guaranteed, and the Group has encountered difficulties in the past in that respect.
If the Group cannot obtain the required approvals and permits in a timely manner or at all, its
projects may be delayed or cancelled, which could have a material adverse effect on the
Group’s business, financial condition, results of operations.
THE GROUP MAY BE SUBJECT TO INCREASED COSTS OR PROJECT DELAYS OR
CANCELLATIONS IF IT IS UNABLE TO HIRE GENERAL CONTRACTORS TO BUILD ITS
PROJECTS ON COMMERCIALLY REASONABLE TERMS, OR AT ALL, OR IF THE
GENERAL CONTRACTORS IT HIRES FAIL TO BUILD THE GROUP’S PROJECTS TO
ACCEPTED STANDARDS, IN A TIMELY MANNER OR WITHIN BUDGET
The Group outsources the construction of its projects to general reputable contractors. The
successful construction of the Group’s projects depends on its ability to hire general contractors
to build its projects to accepted standards of quality and safety on commercially reasonable
terms, within the limits of an agreed timeframe or an approved budget. The Group’s failure to
hire general contractors on commercially reasonable terms could result in increased costs.
Failure to hire general contractors at all could result in project delays or cancellations. Failure
of the general contractors to meet accepted standards of quality and safety or to complete the
construction within the agreed timeframe or within an approved budget may result in increased
costs, project delays or claims against the Group. General contractors may face additional
difficulties with obtaining qualified personnel if further restrictions or quarantine requirements
are imposed on immigrant workers from outside the European Union. In addition, it may damage
the Group’s reputation and affect the marketability of the completed property. If the Group is
unable to enter into contract arrangements with quality general contractors or subcontractors
on commercially reasonable terms, or their performance is substandard, this could have a
material adverse effect on the Group’s business, financial condition, results of operations.
The financial strength and liquidity of the Group’s general contractors may be insufficient in the
case of a severe downturn in the real estate market, which, in turn, could lead to their
insolvency. Although most of the subsidiaries’ agreements with general contractors provide for
22
the indemnification of the subsidiaries against any claims raised by sub-contractors engaged
by such general contractors, there can be no assurance that such indemnification provisions
will be fully effective, in particular, if such indemnification is challenged in court. The Group
endeavors to require general contractors to secure the performance of their obligations under
their respective agreements, in particular by presenting bank guarantees. However, there can
be no assurance that such guarantees will cover the entire costs and damages incurred by the
Group in connection with the non-performance of agreements entered into with general
contractors.
The Group’s reliance on general contractors and subcontractors exposes it to risks associated
with the poor performance of such contractors and their subcontractors and employees and
construction defects. The Group may incur losses as a result of being required to engage
contractors to repair defective work or pay damages to persons who have suffered losses as a
result of such defective work. Furthermore, these losses and costs may not be covered by the
Group’s professional liability insurance, by the contractor or by any relevant subcontractor – in
particular in the case of the architects engaged by the general contractors as both the scope of
their liability and their financial strength is limited in comparison to the value of the Group’s
projects. If the performance of the Group’s general contractors or subcontractors is
substandard, this could have a material adverse effect on the Group’s business, financial
condition, results of operations.
THE GROUP MAY FACE CLAIMS FOR DEFECTIVE CONSTRUCTION AND RISKS
ASSOCIATED WITH ADVERSE PUBLICITY, WHICH COULD HAVE AN ADVERSE EFFECT
ON ITS COMPETITIVE POSITION
The construction, lease, and sale of properties are subject to a risk of claims for defective
construction, corrective or other works, and associated adverse publicity. There can be no
assurance that such claims will not be asserted against the Group in the future or that such
corrective or other works will not be necessary. Further, any claim brought against the Group,
and the surrounding negative publicity concerning the quality of the Group’s properties or
projects, irrespective of whether the claim is successful, could also have a material adverse
effect on how its business, properties, and projects are perceived by target customers, tenants
or investors. This could negatively affect the Group’s ability to market, lease, and sell its
properties and projects successfully in the future, which could have a material adverse effect
on the Group’s business, financial condition, results of operations.
THE CONSTRUCTION OF THE GROUP’S PROJECTS MAY BE DELAYED OR OTHERWISE
NEGATIVELY AFFECTED BY FACTORS OVER WHICH THE GROUP HAS LIMITED OR NO
CONTROL
The construction of the Group’s projects may be delayed or otherwise negatively affected by,
among others, the following factors over which the Group has limited or no control:
• increased material, labor, or other costs, which may make completion of the project
uneconomical;
23
• acts of nature, such as harsh climate conditions, earthquakes, and floods that may
damage or delay the construction of properties;
• industrial accidents, deterioration of ground conditions (for example, the presence
of underground water) and potential liability under environmental laws and other
laws related to, for example, ground contamination, archaeological findings, or
unexploded ordnance;
• acts of terrorism, riots, strikes, or social unrest;
• building code violations or as yet undetected existing contamination, soil pollution,
or construction materials that are determined to be harmful to health;
• changes in applicable laws, regulations, rules or standards that take effect after the
commencement by the Group of the planning or construction of a project that result
in the incurrence of costs by the Group or delays in the development of a project;
and
• defective building methods or materials.
The inability to complete the construction of a project on schedule, within budget, or at all for
any of the above or other reasons may result in increased costs or cause the project to be
delayed or canceled, which could have a material adverse effect on the Group’s business,
financial condition, results of operations.
THE GROUP IS SUBJECT TO GENERAL DEVELOPMENT RISKS THAT MAY INCREASE
COSTS AND/OR DELAY OR PREVENT THE DEVELOPMENT OF ITS PROJECTS
Development of certain of the Group’s projects has not yet begun, and these projects do not,
as of the date of delivery of this Report, generate any revenues. The successful development
of these projects is an important factor for the Group’s future success and involves a large
number of highly variable factors which are complex and inherently subject to risk. Development
risks to which the Group is sensitive include, among others:
• additional construction costs for a development project being incurred in excess of
the amount originally agreed with the general contractor;
• liability to subcontractors related with the bankruptcy of the general contractor;
• changes in existing legislation or the interpretation or application thereof (e.g., an
increase of the rate of the goods and services tax, which impacts the demand for
housing);
• actions of governmental and local authorities resulting in unforeseen changes in
urban planning, zoning, and architectural requirements;
24
• potential defects or restrictions in the legal title to plots of land or buildings acquired
by the Group, or defects, qualifications or conditions related to approvals or other
authorizations relating to plots of land held by the Group;
• the Group’s potential inability to obtain financing on favorable terms or at all for
individual projects or in the context of multiple projects being developed at the same
time;
• potential liabilities relating to acquired land, properties, or entities owning properties
with respect to which the Group may have limited or no recourse;
• tenants’ unwillingness to vacate a development site;
• obligations regarding the development of adjacent properties;
• inability to receive required zoning permissions for the intended use;
• discrepancies between the planned area and the post-construction area of
developments; and
• obligations relating to the preservation and protection of the environment and the
historical and cultural heritage of Poland and other jurisdictions in which the Group
conducts its operations, as well as other social obligations;
• Covid-19 pandemic associated development costs.
These factors, including factors over which the Group has little or no control, may increase
costs, give rise to liabilities, or otherwise create difficulties or obstacles to the development of
the Group’s projects. The inability to complete the construction of property on schedule or at all
for any of the above reasons may result in increased costs or cause the projects to be delayed
or canceled, which may have a material adverse effect on the Group’s business, financial
condition, results of operations.
WITHOUT SUFFICIENT LOCAL INFRASTRUCTURE AND UTILITIES, THE
CONSTRUCTION OF THE GROUP’S PROJECTS MAY BE DELAYED OR CANCELED, OR
IT MAY BE UNABLE TO REALIZE THE FULL EXPECTED VALUE OF ITS COMPLETED
PROJECTS
The Group’s projects can only be carried out if the sites on which they are located have access
to the relevant technical infrastructure required by law (e.g., internal roads, utility connections,
and fire prevention equipment and procedures). In cases where such sites do not have the
required infrastructure, a use permit for the project may not be issued until such infrastructure
is assured. It is also possible that the relevant authorities may require the Group to develop the
relevant infrastructure as a part of the works related to the project, which may have a significant
impact on the costs of the construction works. The authorities may also demand that the investor
develop technical infrastructure that is not required from the project’s perspective but may be
25
expected by the authorities as a contribution by the investor to the development of the local
municipality.
In addition to the necessity of having adequate infrastructure during the construction process,
the viability of the Group’s projects, once completed, depends on the availability and sufficiency
of the local infrastructure and utilities. In some cases, utilities, communications, and logistics
networks have not been adequately funded or maintained in recent decades and maybe non-
existent, obsolete, or experience failures. To be sufficient, the existing local infrastructure and
utilities may need to be improved, upgraded, or replaced. As a consequence of this lack of
maintenance, for example, the Group may from time to time, experience shortages in the
availability of energy and other utilities. There can be no assurance that improvements to the
infrastructure in and around the Group’s projects, or the infrastructure integrated into its
projects, will be completed prior to the completion of the projects or that any such improvement
will be sufficient to support the Group’s completed projects. This may have a material adverse
effect on the Group’s business, financial condition, results of operations.
THE GROUP IS RELIANT ON PARTNERS AND CO-INVESTMENT AGREEMENTS FOR A
PORTION OF ITS DEVELOPMENTS AND FACES COUNTERPARTY RISKS
A subsidiary of the Group may be a party to a shareholders agreement imposing some
restrictions on it, including, inter alia, in relation to the disposal of its interest and its income and
capital distribution entitlements. In addition, as a shareholder, the Group may be jointly and
severally liable for costs, taxes or liabilities with its co-investors and, in the event of the
subsidiary default, and the Group company may be exposed to more than its proportionate
share of the cost, tax or liability in question. This could have an adverse effect on the Group’s
business, financial condition, and results of operations.
The Group is also exposed to the credit risk of its counterparties in such partnership or co-
investment agreements and their ability to satisfy the terms of contracts Group companies have
with them. This may have an adverse effect on the Group’s business, financial condition, results
of operations.
THE GROUP MAY BE SUBJECT TO LIABILITY FOLLOWING THE DISPOSAL OF
INVESTMENTS
When the Group disposes of its projects, it may be required to give certain representations,
warranties, and undertakings which, if breached, could result in liability to pay damages. As a
consequence, the Group may become involved in disputes or litigation concerning such
provisions and may be required to make payments to third parties, which may have a material
adverse effect on the Group’s business, financial condition, results of operations.
THE GROUP MAY BE EXPOSED TO CERTAIN ENVIRONMENTAL LIABILITIES AND
COMPLIANCE COSTS
The environmental laws in CEE and SEE impose existing and potential requirements to conduct
remedial action on sites contaminated with hazardous or toxic substances. Such laws often
impose liability without regard to whether the owner of such site knew of, or was responsible
26
for, the presence of such contaminating substances. In such circumstances, the owner’s liability
is generally not limited under such laws, and the costs of any required removal, investigation,
or remediation can be substantial. The presence of such substances on any of the Group’s
properties, or the liability for the failure to remedy contamination from such substances, could
adversely affect the Group’s ability to sell or let such property or to borrow funds using such
property as collateral. In addition, the presence of hazardous or toxic substances on a property
may prevent, delay or restrict the development or redevelopment of such property, which could
have a material adverse effect on the Group’s business, financial condition, results of
operations.
THE GROUP MAY BE SUBJECT TO LEGAL DISPUTES AND RISKS
The Group’s business involves the acquisition, rental, sale, and administration of properties,
including under cooperation agreements that, as a matter of ordinary course of business,
expose the Group to a certain amount of small-scale litigation and other legal proceedings.
Legal disputes, which, taken individually, are relatively immaterial, may be joined with disputes
based on similar facts such that the aggregate exposure of the Group might become material
to its business. Furthermore, the Group may face claims and may be held liable in connection
with incidents occurring on its construction sites, such as accidents, injuries, or fatalities of its
employees, employees of its contractors, or other visitors on the sites. It is standard practice in
real estate transactions for the seller to make representations and warranties in the purchase
agreement concerning specific features of the property. Typically, the assurances the seller
gives regarding the property in the purchase agreement do not cover all of the risks or potential
problems that can arise for the Group in connection with the purchase of property by the Group.
In addition, the Group may be unable, for a variety of reasons, including, in particular, the seller’s
insolvency, to enforce its claims under these assurances. If this were to occur, the Group might
suffer a financial loss.
Moreover, if the Group's properties are subjected to legal claims by third parties and no
resolution or agreement is reached, these claims can delay, for significant periods of time,
planned actions of the Group. Such situations may include, for example, claims from third
parties relating to plots of land where the Group has developed and completed a real estate
asset which it then intends to sell, as well as claims from third parties relating to specific land
plots the Group needs to acquire in order to complete a particular project (for example plots
adjoining plots it owned as of the date of the delivery of this Report), which could delay the
acquisition by the Group of such plots.
The occurrence of one or several of the aforementioned risks could have a material adverse
effect on the Group’s business, financial condition, results of operations.
WHEN LEASING OR SELLING REAL ESTATE, THE GROUP COULD BE FACED WITH
CLAIMS FOR GUARANTEES FOR WHICH IT DOES NOT HAVE ADEQUATE RECOURSE
The Group provides different types of guarantees when it leases real estate, especially with
regard to legal title and the absence of defects in quality, as well as existing contamination and
the portfolio of leases. The same applies to the sale of real estate. Claims could be brought
27
against the Group for breach of these guarantees. Defects of which the Group was not aware,
but of which it should have been aware when it concluded the transaction poses a particular
risk. The Group's possible rights of recourse towards the sellers of properties could fail due to
the inability of the persons in question to demonstrate that they knew or should have known
about the defects, due to the expiration of the statute of limitations, due to the insolvency of the
parties opposing the claim, or for other reasons. The occurrence of one or several of the
aforementioned risks could have a material adverse effect on the Group’s business, financial
condition, results of operations.
THE GROUP’S INSURANCE MAY BE INADEQUATE
The Group’s insurance policies may not cover it for all losses that may be incurred by the Group
in the conduct of its business, and certain types of insurance are not available on commercially
reasonable terms or at all. As a result, the Group’s insurance may not fully compensate it for
losses associated with damage to its real estate properties. In addition, there are certain types
of risks, generally of a catastrophic nature, such as floods, hurricanes, terrorism, or acts of war
that may be uninsurable or that are not economically insurable. Other factors may also result in
insurance proceeds being insufficient to repair or replace a property if it is damaged or
destroyed, such as inflation, changes in building codes and ordinances, and environmental
considerations. The Group may incur significant losses or damage to its properties or business
for which it may not be compensated fully or at all. As a result, the Group may not have sufficient
coverage against all losses that it may experience. Should an uninsured loss or a loss in excess
of insured limits occur, the Group could lose the capital invested in the affected developments
as well as anticipated future revenues from such projects. In addition, the Group could be liable
to repair damage caused by uninsured risks. The Group could also remain liable for any debt
or other financial obligation related to such damaged property. No assurance can be given that
material losses in excess of insurance coverage limits will not occur in the future. Any uninsured
losses or losses in excess of insured limits could have a material adverse effect on the Group’s
business, financial condition, results of operations.
THE GROUP IS DEPENDENT ON A LIMITED NUMBER OF KEY MEMBERS OF ITS
MANAGEMENT
The Group's success depends on the activities and expertise of the members of its
management. If the Group is unable to retain the key members of its management, this could
result in a significant loss of expertise and could have a material adverse effect on the Group’s
business, financial condition, results of operations.
Additionally, in view of the increased spread of the COVID-19 pandemic, it cannot be excluded
that key members of the Group’s management will be subjected to quarantine and/or will test
positive for COVID-19 pandemic what might result in such persons being subjected to
isolation/hospitalization or not being able to devote sufficient time and resources to managing
the Group’s operations, and thus, could have an adverse effect on the Group’s business,
financial condition, and results of operations.
28
SHORTAGES OF QUALIFIED EMPLOYEES AND OTHER SKILLED PROFESSIONALS
COULD DELAY THE COMPLETION OF THE PROJECTS OF THE GROUP OR INCREASE
ITS COSTS
The Group relies on a skilled team of professionals, including its key management and project
managers, mid-level managers, accountants, and other financial professionals, in the
development of its projects. If the Group is unable to hire the necessary employees, staffing
shortages may adversely affect its ability to adequately manage the completion of its projects
and efficiently manage its assets or force it to pay increased salaries to attract skilled
professionals or the necessary employees. Furthermore, the future success of the Group
depends on its ability to hire senior personnel such as managers with extensive experience in
the identification, acquisition, financing, construction, marketing, and management of
development projects and investment properties. The failure by the Group to recruit and retain
appropriate personnel may have a material adverse effect on the Group’s business, financial
condition, results of operations.
CLIMATE CHANGES MAY REQUIRE CHANGES IN THE OPERATION OF THE
PROPERTIES, AND NOT ADAPTING TO THESE CHANGES IN A TIMELY MANNER
COULD CREATE A COMPETITIVE DISADVANTAGE AND DECREASE IN RENTAL
REVENUE, WHILE ADAPTING TO CHANGES MAY REQUIRE ADDITIONAL CAPITAL
EXPENDITURE
Over the last several years, the Group has observed changes in climate with significant changes
in the average air temperature in the region in which the Group operates. The Group strives to
prepare its properties for changing climate in the best possible way. However, it cannot be
guaranteed that the Group will not suffer a competitive disadvantage or decrease in rental
revenue as a result of not adapting to those changes in a timely or appropriate manner.
Additionally, the Group cannot assess at that stage what adjustments to its properties will be
required going forward to adapt the properties to the changes in climate and what capital
expenditure will be required to make those adaptations.
NOT ADAPTING TO THE NEW TECHNOLOGICAL SOLUTIONS IN A TIMELY MANNER
COULD CREATE A COMPETITIVE DISADVANTAGE AND DECREASE IN RENTAL
REVENUE
The Group continuously monitors innovative technological solutions (e.g., energy efficiency,
data analysis in investment decisions, etc.) and keeps abreast of their development. The Group
strives to meet the new technological challenges, as well as the changing market (e.g., the
significant decrease of the popularity of “open plan” offices), new trends, and economic
environment. However, it cannot be guaranteed that the Group will not suffer a competitive
disadvantage or decrease in rental revenues in the future as a result of not adapting such new
technological solutions in a timely or appropriate manner.
29
THE GROUP'S SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS ARE
SIGNIFICANT AND COULD INCREASE, ADVERSELY AFFECTING ITS BUSINESS,
FINANCIAL CONDITION, OR RESULTS OF OPERATIONS
As of the date of this Report the Group is substantially leveraged and has significant debt
service obligations. In addition, the Group may incur additional indebtedness in the future. The
incurrence of additional indebtedness would increase the leverage-related risks described in
this Report and may have a material adverse effect on the Group’s business, financial condition,
results of operations. The Group's leverage could have material consequences for investors,
including, but not limited to, could lead to the following:
• increasing vulnerability to and simultaneously reducing flexibility to respond to
downturns in the Group's business or general adverse economic and industry
conditions, including adverse economic conditions in the jurisdictions in which the
Group operates;
• limiting the Group's ability to obtain additional financing to fund future operations,
capital expenditures, business opportunities, acquisitions, and other general
corporate purposes and increasing the cost of any future borrowings;
• forcing the Group to dispose of its properties in order to enable it to meet its financing
obligations, including compliance with certain covenants under loan agreements;
• requiring the dedication of a substantial portion of the Group's cash flows from
operations to the payment of the principal of and interest on its indebtedness,
meaning that these cash flows will not be available to fund its operations, capital
expenditures, acquisitions or other corporate purposes;
• limiting the Group's flexibility in planning for, or reacting to, changes in its business,
the competitive environment, and the real estate market; and
• placing the Group at a competitive disadvantage compared to its competitors that
are not as highly leveraged.
Any of these or other consequences or events could have a material adverse effect on the
Group's ability to satisfy its obligations.
THE GROUP MAY INCUR SUBSTANTIAL LOSSES IF IT FAILS TO MEET THE
OBLIGATIONS AND REQUIREMENTS OF ITS DEBT FINANCING AND, FURTHERMORE,
THE RESTRICTIONS IMPOSED BY ITS DEBT FINANCING MAY PREVENT IT FROM
SELLING ITS PROJECTS
In order to secure its loans, the Group has in the past and/or may in the future mortgage its
assets, pledge participation interests in its subsidiaries, enter into guarantees and covenant to
its creditors that it would not establish any further mortgages or pledges on its present and/or
30
future assets without their consent (negative pledges provisions). In addition, the Group’s loans
contain restrictions on its ability to dispose of certain key assets, which in turn may be required
in order to satisfy certain financial covenants. The Group could fail to make principal and/or
interest payments due under the Group’s loans or breach any of the covenants included in the
loan agreements to which the Group has entered. In some cases, the Group may breach these
covenants due to circumstances that may be beyond the control of the Group. These may
include requirements to meet certain loan-to-value ratio, debt service coverage, and working
capital requirements. A breach of such covenants by the Group could result in the forfeiture of
its mortgaged assets, the acceleration of its payment obligations, the acceleration of payment
guarantees, trigger cross-default clauses, or make future borrowing difficult or impossible. In
these circumstances, the Group could also be forced in the long term to sell some of its assets
to meet its loan obligations, or the completion of its affected projects could be delayed or
curtailed.
Any of the events described above could have a material adverse effect on the Group’s
business, financial condition, results of operations.
THE GROUP MIGHT BE UNABLE TO RENEW OR REFINANCE LOANS AS THEY MATURE
OR MIGHT BE ABLE TO RENEW OR REFINANCE SUCH LOANS ONLY ON LESS
FAVORABLE TERMS
All of the Group's real estate developments have been financed through loans, which have been
provided for a limited term. The Group might not be able to renew or refinance the remaining
obligations in part or at all or might have to accept less favorable terms in respect of such
refinancing. If the Group is unable to renew a loan or secure refinancing, the Group could be
forced to sell one or more of its office properties in order to procure the necessary liquidity.
Additionally, if the Group is not able to renew certain loans, those properties which are financed
through loans will become low leveraged and, as a consequence, will not be able to generate
the expected returns on equity. Any combination of the above would have material adverse
effects on the Group's business, cash flows, financial condition, and results of operations.
THE GROUP IS EXPOSED TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
The Group’s financial statements are expressed in Euro, and the Company’s functional
currency is the Euro. Moreover, the majority of the Group’s revenues, specifically rent revenues,
are expressed in Euro. However, certain of the Group’s costs, such as certain construction
costs, labor costs, and remuneration for certain general contractors, are incurred in the
currencies of the respective geographical markets, including Polish złoty, Bulgarian leva,
Croatian kuna, Hungarian forint, Romanian lei or Serbian dinar.
In making the assumptions regarding the level of equity required to implement its strategic
objectives, the Group used Euro as the reference currency. Additionally, the majority of the
investments that the Group plans to make as part of its business strategy will be expressed in
Euro. Therefore, no assurance can be given that the proceeds derived and expressed in Polish
zloty will suffice to meet the investment requirements of the Group’s contemplated acquisition
pipeline. Whilst the companies of the Group may engage in currency hedging in an attempt to
31
reduce the impact of currency fluctuations and the volatility of returns that may result from their
currency exposure by, inter alia, entering into derivatives transactions, obtaining debt financing
denominated in Euro, as well as concluding agreements with contractors specifying
remuneration expressed in Euro, there can be no assurance that such hedging will be fully
effective or beneficial. Moreover, given the fact that certain contractors of the Group engage in
hedging arrangements with respect to their remuneration on the basis of, inter alia, construction
contracts, their flexibility to postpone certain phases of construction may be limited and may
result in their financial distress. In addition, given that payments under most of the Group’s
commercial leases are expressed as the local currency equivalent of a euro-denominated
amount, some of the Group’s tenants, specifically those leasing retail space, may face
difficulties in meeting their payment obligations under such leases as they derive revenues in
their respective local currencies. Consequently, any future material appreciation of the local
currencies against the Euro could significantly decrease the Group’s income in terms of the
local currencies and could have a material adverse effect on the Group’s business, financial
condition, results of operations.
THE GROUP IS SUBJECT TO INTEREST RATE RISK
The Group currently has and intends to incur certain indebtedness under existing debt facilities
which is subject to variable interest rates. Interest rates are highly sensitive to many factors,
including government monetary policies and domestic and international economic and political
conditions, as well as other factors beyond the Group’s control. The Group’s exposure to
interest risk and the extent to which the Group attempts to hedge such exposure vary
significantly between the geographical markets in which the Group operates, but any changes
in the relevant interest rates may increase the Group’s costs of borrowing in relation to existing
loans, thus impacting its profitability. The need to hedge interest rate risk is reviewed by the
Group on a case by case basis, except for those projects in which the lenders require it to hedge
the relevant interest rate risk. Changes in interest rates may have a material adverse effect on
the Group’s business, financial condition, results of operations.
THE GROUP’S BUSINESS IS CAPITAL INTENSIVE, AND ADDITIONAL FINANCING MAY
NOT BE AVAILABLE ON FAVOURABLE TERMS, ON A TIMELY BASIS OR AT ALL
The Group requires substantial up-front expenditures for land acquisition, development
construction, and design costs. As a result, the Group requires substantial amounts of cash and
construction financing from banks for its operations. The Group’s capital needs depend on many
factors, in particular on market conditions, which are beyond the Group’s control. Should its
capital needs differ significantly from those currently planned, the Group might require additional
financing. In the case of difficulties in obtaining additional financing, the scale of the Group’s
growth and the pace of achievement of certain strategic objectives can be slower than originally
assumed. It is not certain whether the Group will be able to obtain the required financing if
needed or if such funds will be provided on conditions favorable to the Group.
In addition, construction loan agreements generally permit the drawdown of the loan funds
against the achievement of predetermined construction and space leasing milestones or the
sale of a specific number of flats. If the Group fails to achieve these milestones, the availability
32
of the loan funds may be delayed, thereby causing a further delay in the construction schedule.
Restrictions of or delays in the access to sources of external financing and conditions of such
financing that are less favorable than assumed can have a material adverse effect on the
Group’s business, financial condition, results of operations.
POLITICAL, ECONOMIC, AND LEGAL RISKS ASSOCIATED WITH COUNTRIES IN
EMERGING MARKETS, INCLUDING CEE AND SEE COUNTRIES
All of the Group’s revenues are attributable to operations in CEE and SEE countries, particularly
Poland, Romania, Serbia, Croatia, Bulgaria, and Hungary. These markets are subject to greater
risk than more developed markets. CEE and SEE countries still present various risks to
investors, such as instability or changes in national or local government authorities, land
expropriation, changes in taxation legislation or regulation, changes to business practices or
customs, changes to laws and regulations relating to currency repatriation and limitations on
the level of foreign investment or development. In particular, the Group is affected by rules and
regulations regarding foreign ownership of the real estate and personal property. Such rules
may change quickly and significantly and, as a result, impact the Group’s ownership and may
cause it to lose property or assets without legal recourse.
Furthermore, some countries may regulate or require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign investors. In
addition, if there is a deterioration in a country’s balance of payments or for other reasons, a
country may impose temporary restrictions on foreign capital remittances abroad. Any such
restrictions may adversely affect the Group’s ability to repatriate investment loans or to remit
dividends. Some CEE and SEE countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and securities markets
of certain emerging countries.
In addition, adverse political or economic developments in neighboring countries could have a
significant negative impact on, among other things, gross domestic product, foreign trade, or
economies in general of individual countries. The countries and the region in which the Group
operates have experienced and may still be subject to potential political instability caused by
changes in governments, political deadlock in the legislative process, tension and conflict
between federal and regional authorities, corruption among government officials, and social and
ethnic unrest. In particular, the armed conflict in the territory of Ukraine and uncertainties
regarding the relationship with Russia may affect the attitude of investors towards the regional
real estate market and their willingness to invest in the countries neighboring Ukraine and
Russia, where the Group operates.
Furthermore, the governments of the developing countries in the CEE and SEE region may not
have the resources necessary to provide fiscal stimulus in response to the economic downturn
33
caused by the outbreak of the COVID-19 pandemic on par with the levels implemented in
developed countries.
The Group may not be able to realize its expected rates of return if the real estate markets in
CEE and SEE countries in which the Group operates become saturated and competition
increases. Real estate markets may reach saturation if the supply of properties exceeds
demand. Saturation in these markets would result in an increase in vacancy rates and/or a
decrease in market rental rates and sale prices. As the commercial real estate markets in CEE
and SEE are characterized predominantly by short-term leases, the Group expects that rental
rates will decrease promptly in response to a perceived oversupply of lettable commercial space
in those markets. If vacancy rates rise and/or market rental rates decrease, the Group may not
be able to realize its expected rates of return on its projects or may be unable to let or sell its
properties at all, which could have a material adverse effect on the Group’s business, financial
condition, results of operations.
The materialization of any of the foregoing risks would have a material adverse effect on the
Group’s business, financial condition, results of operations.
THE FUTURE OF THE COMMERCIAL REAL ESTATE MARKET IS UNCERTAIN
The outbreak of the COVID-19 pandemic has had a significant impact on the way companies
operate their businesses. In light of forced lockdowns, many companies were required or
allowed their employees to work from home. Prompted by the successful implementation of the
above, the employers may continue to require or allow a growing number of their employees
not to return to their physical offices for a prolonged period of time. This may result in a
significant decrease in the aggregate demand for office real estate.
During the lockdowns introduced in the countries coping with the spread of the COVID-19
pandemic, shopping malls were among the first to be temporarily shut down. Even after they
reopened, the footfall recorded in such shopping malls did not revert to the levels experienced
before the outbreak of the pandemic. During the lockdown, a growing number of customers
switched to shopping online and may not be willing to visit shopping malls as frequently as
before the pandemic. As a result, the aggregate demand for retail space may decline in the
future.
The materialization of the above risk would have a material adverse effect on the Group’s
business, financial condition, and results of operations.
THE REAL ESTATE MARKET IS CYCLICAL
The real estate market is cyclical. Consequently, the number of projects completed by the
Group has varied from year to year, depending on, among other things, general macro-
economic factors, changes in the demographics of specific metropolitan areas, availability of
financing, and market prices of existing and new projects. Typically, growing demand results in
greater expectations regarding the achieved profits and an increase in the number of new
projects, as well as increased activity on the part of the Group’s competitors. Because of the
significant lag time between the moment a decision is taken to construct a project and its actual
34
delivery, due in part to the protracted process of obtaining the required governmental consents
and construction time, there is a risk that once a project is completed, the market will be
saturated and the developer will not be able to lease or sell the project with the anticipated level
of profits. An upturn in the market is typically followed by a downturn as new developers are
deterred from commencing new projects due to reduced profit margins. There can be no
assurance that during a downturn in the market, the Group will be able to select projects which
will fill actual demand during an upturn in the market. Additionally, the corporate bodies of the
respective Group Companies that are expected to make certain investment decisions may not
be able to properly assess the cycle of the real estate market and, consequently, accurately
define the most favorable stage for completing the given investments.
All such events may have a material adverse effect on the Group’s business, financial condition,
results of operations.
THE LOCATIONS OF THE GROUP’S PROPERTIES ARE EXPOSED TO REGIONAL RISKS
AND COULD LOSE SOME OF THEIR APPEALS
The locations of each of the properties are influenced by macro-economic developments in the
regions in which the Group operates, as well as being subject to specific local conditions in a
given regional market. The Group’s real estate portfolio focuses on commercial premises, which
significantly exposes the Group to negative developments in those segments of the real estate
market in the countries where the Group operates, including intensified competition or increased
saturation.
Insolvencies, close-downs, or moves of large companies or companies from an individual or
several sectors as a consequence of adverse developments or for other reasons could have a
negative effect on the economic development of the location in question and, consequently, on
the Group’s portfolio as a whole. The Group has no control over such factors. Negative
economic developments at one or more of the locations could reduce the Group’s rental income
or result in a loss of rent, which stems from a number of tenants being unable to pay their rent
in full or in part, as well as cause a decline in the market value of the Group’s properties, which
may have a material adverse effect on the Group’s business, financial condition, results of
operations.
CHANGES IN TAX LAWS OR THEIR INTERPRETATION COULD AFFECT THE GROUP’S
FINANCIAL CONDITION, AND THE CASH FLOWS AVAILABLE TO THE GROUP
Tax regulations in a number of countries the Group operates in, including Poland, are complex,
and they are subject to frequent changes. The tax law practice of the tax authorities is not
homogenous, and there are rather significant discrepancies between the judicial decisions
issued by administrative courts in tax law matters. No assurance may be given by the Company
that the tax authorities will not employ a different interpretation of the tax laws which apply to
the Group Companies, which may prove unfavourable to the Group. One may not exclude the
risk that the specific individual tax interpretations already obtained and applied by the Group
Companies will not be changed or questioned. There is also a risk that once new tax law
regulations are introduced, the Group Companies will need to take actions to adjust thereto,
35
which may result in greater costs forced by circumstances related to comply with the changed
or new regulations.
In light of the foregoing, there can be no assurance given that the tax authorities will not question
the accuracy of tax reporting and tax payments made by the Group Companies, in the scope of
tax liabilities not barred by the statute of limitations, and that they will not determine the tax
arrears of the Group Companies, which may have a material adverse effect on the Group
Companies’ business, financial standing, growth prospects or results of the Group.
Moreover, in relation to the cross-border nature of the Group’s business, the international
agreements, including the double tax treaties, to which the Republic of Poland is a party, also
have an effect on the Group Companies’ business. Different interpretations of the double tax
treaties by the tax authorities, as well as any changes to these treaties, may have a material
adverse effect on the business, financial standing, or results of the Group Companies.
THE RELATED-PARTY TRANSACTIONS CARRIED OUT BY THE GROUP COMPANIES
COULD BE QUESTIONED BY THE TAX AUTHORITIES
The Group Companies have carried out transactions with related parties. When concluding and
performing related-party transactions, the Group Companies endeavor to take special care to
ensure that such transactions comply with the applicable transfer pricing regulations. However,
due to the specific nature of related-party transactions, the complexity and ambiguity of legal
regulations governing the methods of examining the prices applied, as well as the difficulties in
identifying comparable transactions for reference purposes, no assurance can be given that
specific Group Companies will not be subject to inspections or other investigative activities
undertaken by tax authorities or fiscal control authorities. Should the methods of determining
arm’s-length terms for the purpose of the above transactions be challenged, this may have a
material adverse effect on the business, financial standing, growth prospects, results of the
Group Companies.
CHANGES IN LAWS COULD ADVERSELY AFFECT THE GROUP
The Group’s operations are subject to various regulations in Poland, Romania, Hungary,
Croatia, Serbia, Bulgaria, and other jurisdictions in which the Group conducts business
activities, such as fire and safety requirements, environmental regulations, labor laws, and land
use restrictions. If the Group’s projects and properties do not comply with these requirements,
the Group may incur regulatory fines or damages.
Moreover, there can be no assurance that if perpetual usufruct fees in Poland are increased,
the Group will be able to pass such costs onto its tenants in the form of increased service
charges as such increase might lead to a given property becoming less competitive as
compared to properties not situated on land subject to perpetual usufruct fees.
Furthermore, the imposition of more strict environmental, health and safety laws or enforcement
policies in CEE and SEE could result in substantial costs and liabilities for the Group and could
subject the properties that the Group owns or operates (or those formerly owned or operated
by the Group) to more rigorous scrutiny than is currently applied. Consequently, compliance
36
with these laws could result in substantial costs resulting from any required removal,
investigation or remediation, and the presence of such substances on the Group’s properties
may restrict its ability to sell the property or use the property as collateral.
New or amendments to existing laws, rules, regulations, or ordinances could require significant
unanticipated expenditures or impose restrictions on the use of the properties and could have
a material adverse effect on the Group’s business, financial condition, results of operations.
UNLAWFUL, SELECTIVE, OR ARBITRARY GOVERNMENT ACTIONS MAY IMPACT THE
GROUP’S ABILITY TO SECURE THE AGREEMENTS, CONTRACTS, AND PERMITS
REQUIRED FOR IT TO DEVELOP ITS PROJECTS
Government authorities in the geographical markets in which the Group operates have a high
degree of discretion and may not be subject to supervision by other authorities, requirements
to provide a hearing or prior notice or public scrutiny. Therefore, government authorities may
exercise their discretion arbitrarily or selectively, or in an unlawful manner and may be
influenced by political or commercial considerations. The Group has faced administrative
decisions in the past which forced it to unexpectedly change its investment plans (including
limiting the scale of a project). Such discretion may have a material adverse effect on the
Group’s business, financial condition, results of operations.
THE LAND AND MORTGAGE REGISTRY SYSTEMS IN CERTAIN OF THE CEE AND SEE
JURISDICTIONS ARE NON-TRANSPARENT AND INEFFICIENT, AND THE GROUP’S
PROPERTIES MAY BE SUBJECT TO RESTITUTION CLAIMS
The land and mortgage registry systems in certain of the CEE and SEE jurisdictions are non-
transparent and inefficient, which may, inter alia, result in delays in the land acquisition process
and the registration of many plots into one consolidated plot, which is a requirement before
certain projects can be developed. This inefficiency could have a material adverse effect on the
business, cash flows, financial condition, results of operations of the Group.
Moreover, the Group may be exposed to the inherent risk related to investing in real estate
situated in CEE and SEE countries resulting from the unregulated legal status of some of such
real properties. Following the introduction of nationalization in certain CEE and SEE
jurisdictions, including Poland and Hungary, during the post-war years, many privately-owned
properties and businesses were taken over by such states. In many cases, the requisition of
the property took place in contravention of prevailing laws. After the CEE and SEE countries
moved to a market economy system in 1989-1990, many former property owners or their legal
successors took steps to recover the properties or businesses lost after the war or to obtain
compensation. For many years efforts have been made to regulate the issue of restitution
claims in Poland. Despite several attempts, no act regulating the restitution process has been
passed in Poland. Under the current law, former owners of properties or their legal successors
may file applications with the authorities for the administrative decisions under which the
properties were taken away from them to be revoked. As at the date of this Report, there are
no proceedings underway seeking the invalidation of administrative decisions issued by the
authorities concerning properties held by the Group. There is no guarantee, however, that
37
restitution claims may not be brought against the Group in the future, and this could have a
material adverse effect on the Group’s business, financial condition, results of operations.
THE GROUP’S CLAIMS TO THE TITLES TO INVESTMENT AND DEVELOPMENT
PROPERTIES MAY BE SUBJECT TO CHALLENGE IN CERTAIN CASES, AND PERMITS
IN RELATION TO SUCH PROPERTIES MAY HAVE BEEN OBTAINED IN BREACH OF
APPLICABLE LAWS
It may be difficult or, in certain cases, impossible for the Group to establish with certainty that
the title to a property has been vested in a relevant Group company due to the fact that real
estate laws in Poland and other jurisdictions in which the Group operates are complicated and
often ambiguous and/or contradictory and the relevant registries may not be reliable. For
example, under the laws of Poland, transactions involving real estate may be challenged on
many grounds, including where the seller or assignor to a given property did not have the right
to dispose of such property, for a breach of the corporate approval requirements by a
counterparty or a failure to register the transfer of a title in an official register, when required.
Also, even if a title to real property is registered, it may still be contested. Therefore, there can
be no assurance that the Group’s claim to a title would be upheld if challenged. Further, it is
possible that permits, authorizations, re-zoning approvals or other similar decisions may have
been obtained in breach of applicable laws or regulations. Such matters would be susceptible
to subsequent challenges. Similar issues may arise in the context of compliance with
privatization procedures and auctions related to the acquisition of land leases and development
rights. It may be difficult or impossible to monitor, assess or verify these concerns. If any of
these permits, authorizations, re-zoning approvals or other similar requirements were to be
challenged, this may have a material adverse effect on the Group’s business, financial
condition, results of operations.
THERE MAY BE POTENTIAL CONFLICT OF INTEREST BETWEEN THE GROUP AND THE
GROUP’S CONTROLLING SHAREHOLDER
GTC Dutch Holdings B.V. (“GTC Dutch”), which is fully owned by GTC Holding Zártkörüen
Müködö Részvénytársaság, is GTC’s majority shareholder as of the date of the delivery of this
Report. GTC Holding Zártkörüen Müködö Részvénytársaság, is fully owned by Optimum
Ventures Private Equity Fund, which is managed by Optima Investment Fund Management Zrt
(“Optima”).
Optima representatives may constitute the majority of the supervisory board and may thus
control the appointment of the management board. Consequently, Optima may influence the
decision-making process in the Company. Accordingly, in considering any investment,
business, and operational matters of the Company and the most appropriate uses for the
Company’s available cash, the interests of Optima may not be aligned with the interests of the
Company or of its other stakeholders.
38
Moreover, Optima operate in the same market as the Group and they may compete over
investments that the Group may be interested in. Any such conflicts of interest may have an
adverse effect on the Group’s business, financial condition, results of operations.
Furthermore, as in the case of any significant shareholder, all of the shares of the Company
may be offered for sale without any restrictions, and there can be no assurance as to whether
or not they will be sold on the market and at which price. Such sale, or new issuance of shares,
may adversely affect the price of the Company’s share in the market or an offering of the
Company’s shares, if any.
BECAUSE THE COMPANY IS A HOLDING COMPANY, ITS ABILITY TO PAY DIVIDENDS
DEPENDS UPON THE ABILITY OF ITS SUBSIDIARIES TO PAY DIVIDENDS AND
ADVANCE FUNDS
The dividend policy is strictly connected with the general business strategy of the Group. The
Group introduced a dividend policy in 2017, however, the amount which may be distributed by
the Company in accordance with the Polish law depends on the net profit and certain other
figures reflected in the Company’s stand-alone financial statements. Such figures may differ
from the figures included in the Group’s consolidated financial statements, which are prepared
in accordance with the IFRS.
As a holding company, the Company’s ability to pay dividends depends upon the ability of its
subsidiaries to pay dividends and advance funds to the Company. Therefore, there can be no
assurance that the Company will declare or pay any dividends to its shareholders in the future.
The payment and amount of any future dividends will depend on the management board’s
assessment of factors such as long-term growth and earnings trends, the need for sufficient
liquidity, the need for investment in the Company’s existing project portfolio, the existence of
alternative investment opportunities and the Company’s financial position in general. This may
have a material adverse effect on the Group’s business, financial condition, results of
operations.
FUTURE OFFERINGS OF DEBT OR EQUITY SECURITIES OFFERED BY THE COMPANY
MAY ADVERSELY AFFECT THE MARKET PRICE OF THE SHARES AND DILUTE THE
SHAREHOLDERS’ INTERESTS
To finance future acquisitions, the Company may raise additional capital by offering debt or
additional equity securities, including convertible notes, medium-term notes, senior or
subordinated notes, and ordinary shares. The issuance of equity or debt securities with
conversion rights may dilute the economic and voting rights of existing shareholders if made
without granting pre-emptive or other subscription rights or reduce the price of the Company’s
shares, or both. The exercise of conversion rights or options by the holders of convertible or
warrant-linked bonds that the Company may issue in the future may also dilute the
shareholders’ interests. Holders of the Company’s ordinary shares have statutory pre-emptive
rights entitling them to purchase a percentage of every issuance of the Company’s ordinary
shares. As a result, holders of the Company’s ordinary shares may, in certain circumstances,
have the right to purchase ordinary shares that the Company may issue in the future in order to
preserve their percentage ownership interest in the Company, thereby reducing the percentage
39
ownership interest of other investors. Because any decision by the Company to issue additional
securities depends on market conditions and other factors beyond the Company’s control, the
Company cannot predict or estimate the amount, timing or nature of any such future issuances.
Thus, prospective investors bear the risk of the Company’s future offerings reducing the market
price of the shares and diluting their interest in the Company.
4. Presentation of the Group
4.1 General information about the Group
The GTC Group is a leading real estate investor and developer focusing on Poland and capital
cities in Eastern and Southern Europe: Belgrade, Budapest, Bucharest, Zagreb, and Sofia.
The Group was established in 1994.
Group’s portfolio comprises: (i) completed commercial properties; (ii) commercial properties
under construction; (iii) a commercial landbank intended for future development (iv) assets
held for sale, and (v) residential landbank.
Since its establishment and as of 31 December 2020, the Group has: (i) developed
approximately 1.2 million sq m of gross commercial space and approximately 300 thousand
sq m of residential space; (ii) sold approximately 600 thousand sq m of gross commercial
space in completed commercial properties and approximately 300 thousand sq m of residential
space; and (iii) acquired approximately 160 thousand sq m of commercial space in completed
commercial properties. Additionally, GTC Group developed and sold over 100 thousand sq m
of commercial space and approximately 76 thousand sq m of residential space through its
associates in the Czech Republic.
As of 31 December 2020, the Group`s property portfolio comprised the following properties:
 48 completed commercial buildings, including 43 office
buildings and five retail properties with a total combined commercial space of
approximately 753 thousand sq m of GLA, of which the Group's proportional
interest amounts to approximately 743 thousand sq m of GLA;
 Two office buildings under construction with a total GLA of
approximately 37 thousand sq m,
 commercial landbank designated for future development; and
 residential landbank.
40
As of 31 December 2020, the book value of the Group’s portfolio amounts to €2,136,802 with:
(i) the Group’s completed investment properties account for 88% thereof; (ii) investment
properties under construction for 3%; (iii) an investment landbank intended for future
development for 7%; (iv) right of use of lands under perpetual usufruct for 2% (v) assets held
for sale for less than 1% and (vi) residential landbank account for less than 1%.
The Company’s shares are listed on the WSE and inward listed on the Johannesburg Stock
Exchange. The Company’s shares are included in mWIG40.
The Group’s headquarters are located in Warsaw, at Komitetu Obrony Robotników 45A.
4.2 Main events of 2020
On 27 January 2020, Midroog announced a cessation of debt rating for Globe Trade Centre
S.A. at the Company's request, in light of not raising debt in Israel.
On 13 February 2020, the Group signed with Erste Group Bank AG and Raiffeisenlandesbank
Niederosterreich-Wien AG a loan agreement, which refinanced the existing loan of Galeria
Jurajska with a top-up of €46,000, to a total of €130,000.
In March 2020, GTC Group completed the construction of the Green Heart N3 (5,400 sq m)
office building in Belgrade.
The Covid-19 pandemic has triggered a wave of strong negative effects on the global economy
which include a pronounced recession. The lockdowns brought a large part of the world’s
economic activity to an unparalleled standstill: consumers stayed home, companies lost
revenue and terminated employees – which, consequently, led to a rise in unemployment.
Rescue packages by national governments and the EU as well as supporting monetary policies
by the European Central Bank have been implemented to moderate the economic impact of
the pandemic. However, the scope and duration of the pandemic and possible future
containment measures are still impossible to predict. From mid-March 2020, it became
apparent that the economic disruptions caused by the COVID-19 virus and the increased
market uncertainty combined with increased volatility in the financial markets might lead to a
potential decrease in rental revenues, a potential decrease in the Company assets’ values, as
well as impact on the Company’s compliance with financial covenants. While the exact effect
of the coronavirus is still to be determined, it is clear that it poses substantial risks. (see item
5.2 in this Report and note 36 in the consolidated financial statements for the year ended 31
December 2020).
On 9 April 2020, Mr. Alexander Hesse, Chairman of the supervisory board, resigned from the
supervisory board of the Company, effective 16 April 2020.
On 16 April 2020, the GTC Dutch Holdings B.V appointed Mr. Christian Harlander as a
supervisory board member.
41
On 16 April 2020, the supervisory board of the Company chose Mr. Jan-Christoph Düdden as
a chairman of the supervisory board.
On 16 April 2020, the supervisory board of the Company appointed Mr. Yovav Carmi as a
member of the management board of the Company.
On 22 June 2020, the supervisory board of the Company dismissed Thomas Kurzmann from
the position of member of the management board of the Company and appointed Robert Snow
to the management board of the Company effective as of the moment of receipt by the
Company of the notification issued by LSREF III GTC INVESTMENTS B.V. regarding the
indirect disposal of shares in the share capital of the Company resulting from the disposal by
LSREF III GTC INVESTMENTS B.V. of all of the shares in the share capital of GTC DUTCH
HOLDINGS B.V.
On 23 June 2020, GTC Holding Zártkörüen Müködö Részvénytársaság (“GTC Holding Zrt”)
registered in Budapest, Hungary, bought 100% of shares of GTC Dutch Holdings B.V. (the
“Majority Shareholder“) from LSREF III GTC Investments B.V. registered in Amsterdam, the
Netherlands. GTC Dutch Holdings BV owns 298,575,091 shares of the Company, representing
61.49% of the shares in the share capital of the Company. After the abovementioned
acquisition, GTC Holding Zrt (i.e. through the Majority Shareholder) holds indirectly
298,575,091 shares of the Company, representing 61.49% votes in the Company.
On 23 June 2020, the Company received resignations of the following five members of the
supervisory board of Globe Trade Centre S.A.: Jan-Christoph Düdden, Olivier Brahin, Patrick
Haerle, Christian Harlander, and Katharina Schade, such resignations being effective as of the
moment of receipt by the Company of the notification issued by LSREF III GTC
INVESTMENTS B.V. regarding the indirect disposal of shares in the share capital of the
Company resulting from the disposal by LSREF III GTC INVESTMENTS B.V. of all of the
shares in the share capital of GTC DUTCH HOLDINGS B.V.
On 23 June 2020, the GTC Dutch Holdings B.V appointed Dr. Zoltán Fekete, Mr.Balázs Figura,
Dr. János Péter Bartha, Mr. Bálint Szécsényi and Mr. Péter Bozó as members of the
supervisory board of the Company, effective immediately.
On 1 July 2020, the supervisory board of the Company appointed Mr. Gyula Nagy as a member
of the management board of the Company.
On 1 July 2020, the supervisory board of the Company chose Mr. Zoltán Fekete as a Chairman
of the supervisory board.
On 28 July 2020, the Supervisory Board of the Company appointed Mr. Ariel Alejandro
Ferstman as a member of the management board of the Company.
On 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate his
appointment as a member of the management board of the Company.
42
On 28 July 2020, the supervisory board of the Company, following the recommendation of the
management board hereby issued a positive opinion on the management board’s proposal to
deviate from published dividend policy (dividend policy published on 20 March 2017) and retain
the profit for the year ended 31 December 2019 in the amount of PLN 321,756 by the Company
and allocate to the reserve/supplementary capital. Thus the supervisory board of the Company
recommends not to pay dividends out of profits earned by the Company in the financial year
ended on 31 December 2019. The final decision regarding the distribution of the Company’s
profit for the year ended 31 December 2019 was made by the general meeting of the
Company. On 27 August 2020, the general meeting of the Company decided not to distribute a
dividend for 2019.
In July 2020, Dorado 1 EOOD, a wholly-owned subsidiary of the Company has started the
construction of an office building (Sofia Tower 2) in Sofia, Bulgaria. The project shall consist
of 8,300 sq m of leasable area. The total investment for the development of Sofia Tower 2 is EUR
estimated at EUR 13,340. Superb location in the CBD, close proximity to a metro station, easy
access from the main road, excellent public transportation and large variety of amenities are only
few of the strengths of Sofia Tower II. Moreover, the project will support the shopping center with
additional 1000 people/employees per day who will use the food court units and the other
amenities. Sofia Tower 2 will offer Class A+ energy efficiency and LEED Gold standard and as a
result will be financed with Green Bonds Proceeds. The project is expected to be completed in the
second quarter of 2022.
On 17 September 2020, a Centrum Światowida Sp. z o.o., a wholly-owned subsidiary of the
Company , operating the Galeria Północna shopping mall, entered into an annex to a loan
agreement with Bank Pekao SA in order to relax the debt service coverage ratio (DSCR)
covenant and to cure the loan-to-value (LTV) covenant breach. According to the annex, the
subsidiary repaid in advance a part of the outstanding loan in the amount of €9,500 and agreed
to repay additionally up to €3,000 within 12 months of the date of the Annex. DSCR covenant
was relaxed for 18 months from the date of the signed annex. As of the date of these financial
statements the financial covenants are cured.
On 18 September 2020, the supervisory board of the Company appointed Yovav Carmi as the
president of the management board of the Company.
In September 2020, the Group acquired the remaining 20% in Marlera Golf LD d.o.o. for
consideration of €2,800, €1,800 of which was paid in September 2020 (the remaining part of
€1,000 will be paid upon completion of certain conditions). Following the transaction, GTC
remained the sole owner of the subsidiary. As a result of the transaction, the NCI increased by
€3,600, and the capital reserve decreased by €6,400. Consequently, the total equity decreased
by €2,800.
On 20 October 2020, Spiral I Kft., an indirect wholly-owned subsidiary of the Company, signed
a sale and purchase agreement for the sale of Spiral office building for consideration of
€62,700. On 5 November 2020, all conditions precedent for the sale were concluded, and the
purchase price was paid in full. In parallel with the closing Spiral I kft repaid the full outstanding
amount of the loan with Erste Bank.
43
On 27 October 2020, the Company received a notification from GTC
Holding Zártkörűen Működő Részvénytársaság with its registered
office in Budapest, Hungary (“GTC Holding Zrt”) regarding an
increase to 66% in the total number of votes in the Company. The
acquisition of the above-mentioned shares took place as a result of
the conclusion on 22 October 2020 and settlements on 23 October
2020 (in relation to shares acquired from other than South African
shareholders of the Company) and on 27 October 2020 (in relation to
shares acquired from South African shareholders of the Company) of
GTC Holding
Zártkörűen Működő
Részvénytársaság
and
GTC Holding Zrt
holds together
66%
transactions of resulting from acceptance of subscriptions for the sale of shares under the
tender offer for the sale of shares in the Company announced by GTC Holding Zrt on 7
September 2020. After the abovementioned acquisition, GTC Holding Zrt holds directly and
indirectly 320,466,380 shares of the Company, entitling to 320,466,380 votes in the Company,
representing 66% of the share capital of the Company and carrying the right to 66% of the total
number of votes in the Company
In October 2020, the Group completed the construction of Advance Business Center II (17,800
sq m) office building in Sofia.
In November 2020, the Group completed the construction of Matrix B (10,700 sq m) office
building in Zagreb.
On 12 November 2020, Scope Ratings assigned a first-time issuer rating of BBB-/Stable
investment grade to the Company and its wholly-owned subsidiary GTC Real Estate
Development Hungary Zrt. for the purpose of issuing green bonds within the framework of
the Bond Funding for Growth Program in Hungary. The potential unsecured debt has also
been rated BBB-.
On 13 November 2020, GTC Future Kft, a newly established wholly-owned subsidiary,
acquired a land plot from a subsidiary related to the majority shareholder with an existing old
office and industrial buildings in Vaci Corridor in Budapest for a total amount of €21,350. The
buildings have total leasable area of 12,000 sq m (GLA 8,200 sq m). The Company plans to
demolish the buildings and develop office buildings in phases with a total leasable area of
64,000 sq m.
On 7 December 2020, GTC Real Estate Development Hungary Zrt issued 10 years green
bonds with the total nominal value of €110,000 denominated in HUF to finance real estate
projects and upstream the funds with refinancing purposes. The bonds are fully and irrevocable
guaranteed by the Company and were issued at yield of 2.33%. with an annual fixed coupon
of 2.25%. The bonds are amortized 10% a year starting on the 7th year with the 70% of the
value paid at the maturity on 7 December 2030.The Bonds (ISIN code: HU0000360102GTC)
are traded on the XBond market in Budapest.
On 8 December 2020, GTC Real Estate Development Hungary Zrt. entered into cross-
currency interest swap agreements with three different banks to hedge the total green bonds
44
liability against foreign exchange fluctuations. The green bonds were fixed to the Euro and the
fixed annual coupon was swapped for an interest fixed rate of 0.99%.
EVENTS THAT TOOK PLACE AFTER 31 DECEMBER 2020:
On 8 January 2021, GTC Pixel and GTC Francuska signed a loan agreement with Santander
Bank Polska, which refinanced the existing loans. GTC Pixel repaid the loan in PKO BP in
amount of €19,200 and obtained the new loan in Santander Bank Polska in amount of €19,700.
GTC Francuska repaid the loan in ING in amount of €18,900 and obtained the new loan in
Santander Bank Polska in amount of €19,300.
On 5 March 2021, Globe Office Investments Ltd an indirect wholly-owned subsidiary of the
Company signed a sale and purchase agreement with a company related to the majority
shareholder of the Company for the purpose of acquisition of a Class A office building on Váci
corridor, Budapest for a consideration of €51,000. Subsequently on 19 March 2021 a loan
agreement in the amount of €25,000 with Erste Group Bank AG was signed for the purpose of
financing the acquisition. The transaction is expected to be close during Q2 2021 upon certain
conditions precedents are fulfilled.
On 5 March 2021, GTC SA repaid all bonds issued under ISIN code PLGTC0000276 (full
redemption). The original nominal value was €20,494.
On 11 March 2021 GTC Real Estate Development Hungary Zrt, a wholly-owned subsidiary of
the Company and Groton Global Corp signed a sale and purchase agreement for the purpose
of acquisition of the Napred company from Belgrade holding a land plot of 19,537 sq m for a
consideration of €33,800. The site has potential office development of cca 79,000 sq m. The
transaction is expected to be finalized during Q2 2021 upon certain conditions precedents are
fulfilled.
On 17 March 2021, GTC Real Estate Development Hungary Zrt. , a wholly-owned subsidiary
of the Company issued 10-year green bonds with the total nominal value of €53,800
denominated in HUF to finance real estate acquisitions, redevelopment and constructions of
projects. The bonds are fully and irrevocable guaranteed by the Company and were issued at
a yield of 2.68% with an annual fixed coupon of 2.6%. The bonds are amortized 10% a year
starting on the 7th year with the 70% of the value paid at the maturity on 17 March 2031.
On 17 March 2021, GTC Real Estate Development Hungary Zrt. a wholly-owned subsidiary of
the Company entered into cross-currency interest swap agreements with two different banks
to hedge the total green bonds liability against foreign exchange fluctuations. The green bonds
were fixed to the Euro, and the fixed annual coupon was swapped for an average annual
interest fixed rate of 0.93%.
As of 17 March 2021, the Polish government has announced a lockdown from 20 March 2021
till 9 April 2021 and implemented rigorous measures to contain the spread of COVID-19,
including, among others, the closure of shops in shopping malls, except those selling essential
goods (such as groceries, other food stores and pharmacies). Measures taken by the
government will affect our business. The currently known impact is a decline in revenues of
shopping malls. The magnitude of the impact is not yet fully known and will depend between
the others, on the length of the closure.
45
On 18 March 2021, Erste Group Bank AG, Raiffeisenlandesbank Niederosterreich-Wien AG
and GTC CTWA Sp. z o.o., a wholly-owned subsidiary of the Company, operating Galeria
Jurajska Shopping Mall, signed a waiver letter, according to which the DSCR covenant was
waived until the end of September 2022 and a prepayment of €5,000 will be done by the end
of March 2021.
On 19 March 2021 City Gate SRL and City Gate Bucharest SRL wholly-owned subsidiaries of
the Company signed on loan agreement prolongation with Erste Group Bank AG, for additional
5 years.
On 19 March 2021, Commercial Development d.o.o. Beograd, a wholly owned subsidiary of
the Company, operating Ada Mall, and Intesa Bank signed a restated loan agreement whereby
the existing loan in the amount of €58,300 shall be early prepaid by 31 March 2021 in the
amount of €29,000 and margin reduced from 3.15% to 2.9%. Following the prepayment the
outstanding loan amount shall be payable in full at maturity in 2029.
4.3 Structure of the Group
The structure of Globe Trade Centre S.A. Capital Group as of 31 December 2020 is presented
in the consolidated financial statements for the year ended 31 December 2020 in Note 8
“Investment in subsidiaries, associates and joint ventures.”
The following changes in the structure of the Group occurred in the twelve-month period ended
31 December 2020:
 liquidation of Julesberg Sp. z o.o.,
 liquidation of Jowett Sp. z o.o.,
 the commencement of liquidation of Glorine investments Sp. z o.o,
 the commencement of liquidation of Fajos S.R.L,
 a merger of SASAD Resort Kft. to GTC Hungary Ltd,
 a merger of Amarantan Ltd. to Center Point I. Kft.,
 acquisition of the remaining 20% in Marlera Golf LD d.o.o.,
 establishment of wholly-owned subsidiary - GTC Future Kft,
 establishment of wholly-owned subsidiary - Globe Office Investments Kft
46
4.4 Changes to the principal rules of the management of the Company and the
Group
There were no changes to the principal rules of management of the Company and the Group.
During 2020, the following changes in the composition of the management board took place:
 on 16 April 2020, the supervisory board of the Company appointed Mr. Yovav Carmi
as a member of the management board of the Company (see current report no 7/2020);
 on 22 June 2020, the supervisory board of the Company dismissed Mr. Thomas
Kurzmann from the position of member of the management board of the Company and
appointed Robert Snow to the management board of the Company effective as of the
moment of receipt by the Company of the notification issued by LSREF III GTC
INVESTMENTS B.V. regarding the indirect disposal of shares in the share capital of
the Company resulting from the disposal by LSREF III GTC INVESTMENTS B.V. of all
of the shares in the share capital of GTC DUTCH HOLDINGS B.V (see current reports
no 11/2020 and 13/2020);
 on 1 July 2020, the supervisory board of the Company appointed Mr. Gyula Nagy as a
member of the management board of the Company (see current report no 16/2020);
 on 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate
his appointment as a member to the management board of the Company (see current
report no 18/2020);
 on 28 July 2020, the supervisory board of the Company appointed Mr. Ariel Alejandro
Ferstman as a member of the management board of the Company (see current report
no 18/2020);
 on 18 September 2020, the supervisory board of the Company appointed Mr. Yovav
Carmi as the president of the Company's management board. Mr. Carmi has been a
member of the management board of the Company since 16 April 2020 (see current
report no 25/2020).
47
4.5 The Group’s Strategy
The Group's objective is to create value from:
 active management of a growing commercial real estate portfolio in CEE and SEE,
supplemented by selected development activities; and
 enhancing deal flow, mitigating risks, and optimizing performance through its
regional platform by investing its funds, the proceeds from share capital increase,
and reinvesting potential proceeds from the sale of real estate properties.
The Group implements the following elements, among others, to achieve its strategic
objectives:
01. Acquiring yielding properties in Poland and in capital cities of selected CEE and
SEE countries
The Group's strategic objective is to expand its portfolio by acquiring yielding properties in
Poland and capital cities of selected CEE and SEE countries with value-added potential.
The management board believes that the current market conditions, including the attractive
pricing of yielding properties and the widening range of potential sellers, present compelling
real estate acquisition opportunities for both individual assets and portfolios at attractive prices.
The management board will carefully consider and evaluate attractive investment
opportunities, which meet the investment criteria of the Group while taking into consideration
the prevailing market yields and the Group's investment criteria targets.
In addition, in implementing its strategic objective of expanding its portfolio, the Group is well-
positioned to benefit from:
 the exceptionally high yield spread in the current low-interest rate environment,
allowing for highly accretive growth;
 the future growth potential in Poland, and capital cities in the Group’s countries of
operation if the macro environment improves;
 a selective approach by lenders that operate in the CEE and SEE regions, which limits
competition from other potential purchasers;
 limited offer of high-class office and retail space in some markets, which results in
increased demand for renting space in class A properties.
The Group's acquisition strategy includes the acquisition of income generating assets with
value-added potential and/or high FFO yield that meet the following criteria:
 office and retail assets;
 located in Warsaw or secondary cities in Poland or the capital cities of CEE/SEE
countries;
48
 cash generation ability (upon acquisition or shortly after);
 potential growth of net operating income, through re-leasing optimizing occupancy,
rental rates, and/or redevelopment; and
 potential to increase return on equity through active asset management.
The Group's expansion will be selective and will be evaluated based on market opportunity,
demand, and the potential return on investment. The Group may invest alone or co-invest with
partners, allowing for increased portfolio diversification and boosting the scope of investments.
Since the end of 2015, the Group also acquired:
 Duna Tower (office building located in Budapest, Hungary);
 Pixel (office building located in Poznań, Poland);
 Premium Point (office building located in Bucharest, Romania);
 Premium Plaza (office building located in Bucharest, Romania);
 Neptun Office Center (office building located in Gdańsk, Poland);
 Sterlinga Business Center (office building located in Łódź, Poland);
 Cascade Office Building (office building located in Bucharest, Romania);
 Belgrade Business Center (office building located in Belgrade, Serbia);
 Mall of Sofia combined with Sofia Tower (shopping mall with adjacent office building
located in Sofia, Bulgaria);
Additionally, the Group acquired a number of land plots for office development, predominantly
in Budapest, but also in Zagreb, Bucharest and Sofia.
02. Improving the efficiency of asset management activities and maximizing the
operating performance
The Group will continue to manage actively its current and future income-generating
commercial property portfolio to maximize operating performance and efficiency, diversify
tenant risk and enhance rental income.
The Group intends at least to maintain high value to its portfolio through its asset management
activities. Such activities include:
 increasing and maintaining occupancy on best achievable market terms;
 maintaining high collection efficiency by strict monitoring of receivables;
 striving for a low and efficient cost base by using energy-efficient technologies and
optimizing property repair and maintenance costs;
 optimizing development costs by revising and cost-engineering its developments
without detriment to the competitiveness of any individual asset;
 optimizing administrative costs where possible; and
49
 optimizing the costs of finance through refinancing where possible.
The management board believes that, on a long-term basis, active asset management of
completed assets will constitute a critical success factor of the Group's strategy.
03. Developing selected projects in the pre-construction or construction stage
Another core growth source under the Group's strategy is developing commercial projects in
areas where there is a demand for commercial properties.
The Group is a real estate investor and developer and adjusts its development activities to the
market conditions. The management board believes that this approach allows the Group to
better respond to the changing conditions of the real estate market and focus on more active
and efficient asset management of its existing as well as its expanded portfolio. Subject to
prevailing market conditions, in order to improve the recurring operating income, in the mid-
term, the Group intends to structure its real estate portfolio in such a manner whereby more
than half of its value is attributed to income-generating assets and the remaining portion to
trading and development.
In 2020, the Group completed three office buildings:
 Green Heart N3 (office building located in Belgrade, Serbia);
 Advance Business Center II (office building located in Sofia, Bulgaria);
 Matrix B (office building located in Zagreb, Croatia).
The development of projects, which at the date of the Report were in the construction stage or
the pre-construction stage, is an important value driver.
Currently, the Group has two projects consisting of 37,300 sq m of office space under
construction:
 Pillar - an office building in Budapest, Hungary with an intended GLA of approximately
29,000 sq m;
 Sofia Tower 2 - an office building (part of Mall of Sofia) in Sofia, Bulgaria, with an intended
GLA of approximately 8,300 sq m;
As of 31 December 2020, projects under construction represent approximately 3% of the
Group's portfolio value.
Currently, another two buildings consisting of 52,300 sq m in of office space is ready to be
launched in 24 months:
 GTC X - an office building in Belgrade, Serbia, with an intended GLA of approximately
16,800 sq m;
 Center Point 3 - an office building in Budapest, Hungary, with an intended GLA of
approximately 35,500 sq m.
The Group’s rich commercial landbank designated for future development allows us to extend
the planned projects in areas where there will be demand for commercial properties.
50
04. Disposal of mature assets
The Group may sell certain of its mature assets from its portfolio (i.e., completed commercial
properties that generate a stable flow of rental income and have reached their long-term value
in the Group's view, have reached their long-term value). Moreover, following the acquisition
of existing income-generating properties and increasing their value, the Group may also sell
such properties.
Based on market conditions and Group’s strict criteria during 2020, the Group sold Spiral
(office building located in Budapest, Hungary).
05. Maintaining a balanced mix of investments across CEE and SEE regions and
adapting to changes in the real estate markets
The Group intends to continue to focus its real estate management and development activities
on properties located in Warsaw or secondary cities in Poland and in the capital cities of CEE
and SEE countries, characterized by macroeconomic stability, continued GDP growth, and
investor and tenant demand. The Group believes that some other markets in which it operates
also offer long-term growth potential due to their relatively underdeveloped real estate markets
and relatively illiquid markets. Further investments in these markets will be explored on an
opportunistic basis with strict risk-adjusted return hurdles. Simultaneously, specific
performance requirements will be imposed on all assets in the Group's portfolio.
The Group aims to create and maximize shareholder value by continually adapting to changes
in the markets in which it operates while maintaining the maximum performance of its core
portfolio of assets.
4.6 Business overview
The Group’s core business is geared towards commercial real estate, with a clear focus on
creating value from active management of a growing real estate portfolio in CEE and SEE
supplemented by selected development activities. As of 31 December 2020, the book value of
the Group’s investment property, residential landbank, and assets held for sale amounted to
€2,136,802. The Group's investment properties include income generating assets (completed
properties), projects under construction, commercial landbank, and right of use.
INVESTMENT PORTFOLIO
As of 31 December 2020, the Group manages completed commercial properties with a
combined gross rentable area of approximately 753 thousand sq m, including 43 office
buildings and five shopping malls, which constituted 88% of the overall portfolio.
The Group’s office buildings provide convenient space, flexible interiors, and a comfortable
working environment. They are located in the heart of business districts and in proximity to the
most important transport routes, including international airports. All projects have earned the
trust of a significant number of multinational corporations and other prestigious institutions,
51
including Exxon Mobil, IBM, Allegro, Budapest Bank, T-Mobile, Concentrix, Rompetrol,
UniCredit, CBRE, LOT, Deloitte, KPMG, Roche, State Street, and others
The Group’s shopping centers are located in both capital cities as well as in secondary cities
in Poland, Serbia, Bulgaria, and Croatia. They are always very highly ranked in the city of their
location. The tenants include big multinationals as well as local brands like Carrefour, Cinema
City, H&M, LPP Group, Inditex Group, and others.
PROJECTS UNDER CONSTRUCTION
As of 31 December 2020, the Group had two office buildings classified as an investment under
construction with a book value of €62,909, which constituted 3% of the Group’s overall
portfolio.
INVESTEMENT PROPERTY LANDBANK
As of 31 December 2020, the Group had land classified as an investment property landbank
designated for the future development of €140,367, which constituted 7% of the Group’s overall
portfolio (by value). This landbank includes projects that are on the Group`s focus for the
coming year like GTC X, Center Point 3, The Twins, City Rose Park, Moderna, Platinium 6,
and Matrix future phases which constitute 5% of the Group’s overall portfolio (80% of
investment property landbank).
The Group’s rich investment property landbank designated for future development allows us
to extend the planned projects in areas where there will be demand for commercial
properties.
RESIDENTIAL LANDBANK
As of 31 December 2020, the Group held a residential landbank with a total value of €10,094,
which constituted less than 1% of the Group’s overall portfolio.
RIGHT OF USE
The Group recognized the right of use in the amount €42,679, which constituted 2% of the
Group’s overall portfolio.
52
4.6.1 Overview of the investment portfolio
The Group`s strategy focuses on creating
value from active management of a growing
real estate portfolio in CEE and SEE. The
Group has a presence in Poland, Belgrade,
Budapest, Bucharest, Zagreb, and Sofia. The
Group focused on commercial assets, mainly
office buildings and office parks as well as
retail and entertainment centers. The Groups
investment properties include income
generating assets (completed properties),
projects under construction, investment
property landbank and right of use.
4.6.1.1 Overview of income generating portfolio
As of 31 December 2020, the Group had 48 income generating portfolio totaling 753 thousand
sq m and valued at €1,879,173. The average occupancy rate within the income generating
portfolio was 91% as of 31 December 2020. The portfolio was valued based on an average
yield of 7.8%. The average duration of leases in the Group`s income generating portfolio was
2.9 years, and the average rental rate was €17.2/sq m/month.
Approximately 44% of the income generating portfolio is located in Poland, 19% in Belgrade,
11% in Budapest, 9% in Bucharest, 9% in Sofia, and 8% in Zagreb.
Poland
44%
Belgrade
19%
Budapest
11%
Sofia
9%
Bucharest
9%
Zagreb
8%
Investment property
under construction
3%
Investment
property landbank
7%
Right of
use
2%
Income generating portfolio
88%
53
The following table presents income generating portfolio by country in which the Group
operates as at 31 December 2020:
Location
Total gross
leasable area
(sq m)
% of GLA
(sq m)
Average
occupancy
(%)
Book value
(€)
% of total
book value
Poland
309,200
41%
90%
824,738
44%
Belgrade
156,800
21%
94%
355,481
19%
Budapest
96,600
13%
95%
206,138
11%
Sofia
67,200
9%
88%
176,500
9%
Bucharest
66,600
9%
93%
172,085
9%
Zagreb
56,100
7%
89%
144,231
8%
Total
752,500
100%
91%
1,879,173
100%
The Group is focused on the office sector. As of 31 December 2020, office properties
accounted for around 61%, and retail properties accounted for the remaining 39% of the book
value of income generating portfolio.
Office
61%
Retail
39%
54
The following table presents income generating portfolio by main usage type as of 31
December 2020:
Usage type
Total gross
leasable
area
(sq m)
% of GLA
(sq m)
Average
occupancy
(%)
Book
value
(€)
% of
total
book
value
Office
536,400
71%
90%
1,145,261
61%
Retail
1
216,100
29%
95%
733,912
39%
Total
752,500
100%
91%
1,879,173
100%
1
Including Avenue Center, Zagreb, Croatia and Sofia Tower, Sofia, Bulgaria.
4.6.1.1.1Overview of the office portfolio
As of 31 December 2020, the Group office portfolio comprises 43 office buildings. Total gross
rentable office space was 536 thousand sq m compared to 531 sq m as of 31 December 2019.
The total value of the office portfolio as of 31 December 2020 was €1,145,261 compared to
€1,173,106 as of 31 December 2019. The decrease in value is mainly due revaluation loss
arise mainly from an increase in yields combined with a decrease in occupancy and expected
rental values across the portfolio coming mostly from Covid-19 pandemic impact and sale of
Spiral office building. This was partially offset by the completion of in the Green Heart N3 in
Belgrade, Advance Business Center II in Sofia, and Matrix B in Zagreb.
The Group’s office buildings are located in Poland, and capital cities of CEE and SEE region:
Budapest, Belgrade, Zagreb, Bucharest, and Sofia.
Poland
33%
Belgrade
23%
Budapest
18%
Bucharest
15%
Sofia
7%
Zagreb
4%
55
The following table presents the office portfolio by country as of 31 December 2020:
Location
Total gross
leasable
area
(sq m)
% of
GLA
(sq m)
Average
occupancy
(%)
Book
value
(€)
% of total
book value
Poland
195,700
37%
88%
381,738
33%
Belgrade
122,100
23%
93%
264,781
23%
Budapest
96,600
18%
95%
206,138
18%
Bucharest
66,700
12%
93%
172,085
15%
Sofia
33,800
6%
79%
75,800
7%
Zagreb
21,500
4%
76%
44,719
4%
Total
536,400
100%
90%
1,145,261
100%
4.6.1.1.1.1 Office portfolio in Poland
The total gross rentable area in Poland comprises 196 thousand sq m in 16 office buildings
located in Warsaw, Kraków, Łódź, Katowice, Poznań and Wrocław. The average occupancy
rate was at the level of 88%. The average duration of leases was 2.6 years at the year-end,
and applied yield was at the level of 8.2%. The average rental rate generated by the office
portfolio in Poland was at the level of €14.6/sq m/month. The book value of the office portfolio
in Poland amounted to €381,738 as of 31 December 2020 compared to €398,888 as of 31
December 2019. The decrease comes from a decline in estimated rental values and expansion
of yield.
56
The following table lists the Group’s office properties located in Poland:
Property
Location
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Galileo
Kraków
100%
10,600
2003
Globis Poznań
Poznań
100%
13,800
2003
Newton
Kraków
100%
10,800
2007
Edison
Kraków
100%
10,900
2007
Nothus
Warsaw
100%
9,600
2007
Zephirus
Warsaw
100%
9,600
2008
Globis Wrocław
Wrocław
100%
16,100
2008
University Business Park A
Łódź
100%
20,200
2010
Francuska Office Centre A&B
Katowice
100%
23,000
2010
Sterlinga Business Center
Łódź
100%
13,400
2010
Corius
Warsaw
100%
9,600
2011
Pixel
Poznań
100%
14,400
2013
Pascal
Kraków
100%
5,900
2014
University Business Park B
Łódź
100%
20,200
2016
Artico
Warsaw
100%
7,600
2017
Total
195,700
4.6.1.1.1.2 Office portfolio in Belgrade
The Group’s total gross rentable area in Belgrade comprises 122 thousand sq m in 11 office
buildings. The occupancy rate was at the level of 93%. The average duration of leases was
2.5 years at the year-end, and the applied yield was 8.6%. The average rental rate generated
by the office portfolio in Belgrade was at €16.7/sq m/month. The book value of the Group’s
office portfolio in Belgrade amounted to €264,781 as of 31 December 2020 compared to
€263,081 as of 31 December 2019.
57
The following table lists the Group’s office properties located in Belgrade:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
GTC House
100%
13,300
2005
Avenue 19
100%
16,700
2008
Belgrade Business Center
100%
17,800
2009
FortyOne phase I
100%
10,100
2015
FortyOne phase II
100%
7,200
2016
FortyOne phase III
100%
10,700
2017
Green Heart E1
100%
10,400
2018
Green Heart E2
100%
11,300
2018
Green Heart N1
100%
13,100
2019
Green Heart N2
100%
6,100
2019
Green Heart N3
100%
5,400
2020
Total
122,100
4.6.1.1.1.3 Office portfolio in Budapest
The Group’s total gross rentable area in Budapest comprises 97 thousand sq m in five office
buildings. The occupancy rate was 95%. The average duration of leases was 2.3 years at the
year-end, and the applied yield was 7.5%. The average rental rate generated by the office
portfolio in Budapest was €14.2/sq m/month. The book value of the Group’s office portfolio in
Budapest amounted to €206,138 as of 31 December 2019, as compared to €259,419 as of 31
December 2019. A decrease comes mainly from sale of Spiral office building, partially offset
by the purchase of landbank for future development, with a small office building.
58
The following table lists the Group’s office properties located in Budapest:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Center Point I&II
100%
40,900
2004/2006
Duna Tower
100%
31,300
2006
GTC Metro
100%
16,200
2010
Vaci 173-177
1
100%
8,200
-
Total
96,600
1
Property acquired as landbank for future development, with a small office building located on the plot
4.6.1.1.1.4 Office portfolio in Sofia
The Group’s total gross rentable area in Sofia comprises 44 thousand sq m in three office
buildings (including Sofia Tower). The occupancy rate, the book value, and other data of the
Sofia Tower are presented together with the data for Mall of Sofia.
The occupancy rate of the Group’s office portfolio in Sofia was 79%. The average duration of
leases was 3.7 years at the year-end, and the applied yield was 7.8%. The average rental rate
generated by the office portfolio in Sofia was at the level of €14.6/sq m/month. Book value of
the Group’s office portfolio in Sofia amounted to €75,800 as of 31 December 2020 compared
to €36,800 as of 31 December 2019 and came from the completion of the second building in
the Advance Business Center complex.
The following table lists the Group’s office investment properties located in Sofia:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Advance Business Center I
100%
16,000
2019
Advance Business Center II
100%
17,800
2020
Total
33,800
Sofia Tower
1
100%
10,300
2006
44,100
1
The occupancy rate, the book value, and other data of the Sofia Tower are presented together with the data for
Mall of Sofia (retail portfolio).
59
4.6.1.1.1.5 Office portfolio in Bucharest
The Group’s total gross rentable area in Bucharest comprises 67 thousand sq m in five office
buildings. The occupancy rate was 93%. The average duration of leases was 1.9 years at the
year-end, and the applied yield was 7.7%. The average rental rate generated by the office
portfolio in Bucharest was at the level of €20.5/sq m/month. Book value of the Group’s office
portfolio in Bucharest amounted to €172,085 as of 31 December 2020, compared to €190,418
as of 31 December 2019. The decrease comes mainly from a decrease in value of City Gate
due to decline in estimated rental values and extended void period.
The following table lists the Group’s office properties located in Bucharest:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Cascade Office
100%
4,200
2005
Premium Plaza
100%
8,500
2008
City Gate
100%
47,600
2009
Premium Point
100%
6,400
2009
Total
66,700
4.6.1.1.1.6 Office portfolio in Zagreb
The Group’s total gross rentable area in Zagreb comprises 28 thousand sq m in three office
buildings (including Avenue Centre). The occupancy rate, the book value, and other data of
the Avenue Centre in Zagreb are presented together with the data for Avenue Mall Zagreb.
The occupancy rate of the Group’s office portfolio in Zagreb was 76%. The average duration
of leases was 4.5 years at the year-end and applied yield was 7.6%. The average rental rate
generated by the office portfolio in Zagreb was at the level of €14.3/sq m/month. Book value
of the Group’s office portfolio in Zagreb amounted to €44,719 as of 31 December 2020
compared to €24,500 as of 31 December 2019. The increase in value comes from the
completion of the second building in Matrix complex.
60
The following table lists the Group’s office investment properties located in Zagreb:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Matrix A
100%
10,800
2019
Matrix B
100%
10,700
2020
Total
21,500
Avenue Center
1
70%
7,000
2007
28,500
1
The occupancy rate, the book value, and other data of the Avenue Centre in Zagreb are presented together with
the data for Avenue Mall Zagreb (retail portfolio).
4.6.1.1.2 Overview of the retail portfolio
As of 31 December 2020, the Group’s retail properties comprised five shopping centres with a
total gross rentable area of 216 thousand sq m compared to 216 thousand sq m as of 31
December 2019. The total value of retail investment properties as of 31 December 2020 was
€733,912 compared to €830,082 as of 31 December 2019. The decrease in value comes
mainly from the impact of COVID-19 pandemic. It results from multi-pronged measures
implemented to support tenants and encourage consumer spendings, such as reducing
rent, allowing rent payment in installments, waiving late payment interest and service
charges and a decline of the expected rental values combined with a slight expansion over
the assets’ future yields.
Poland
60%
Sofia
14%
Zagreb
14%
Belgrade
12%
61
The following table presents the retail portfolio by country as of 31 December 2020:
Location
Total gross
leasable area
(sq m)
% of total
retail
portfolio
(%)
Average
occupancy
(%)
Book
value
(€)
% of total
book
value
Poland
113,500
53%
93%
443,000
60%
Sofia
1
33,400
15%
98%
100,700
14%
Zagreb
1
34,600
16%
97%
99,512
14%
Belgrade
34,600
16%
97%
90,700
12%
Total
216,100
100%
95%
733,912
100%
1
Including book value of office building
4.6.1.1.2.1 Retail portfolio in Poland
The total gross rentable retail space in Poland comprises 113 thousand sq m in two retail
schemes located in Warsaw and Częstochowa. The average occupancy rate was 93%. The
average duration of leases was 3.9 years at the year-end, and the applied yield was 6.2%. The
average rental rate generated by the retail portfolio in Poland was €20.9/sq m/month. The book
value of the Group’s retail portfolio in Poland amounted to €443,000 as of 31 December 2020,
as compared to €497,370 as of 31 December 2019. The decrease comes mainly from the
impact of COVID-19 pandemic. It results from multi-pronged measures implemented to
support tenants and encourage consumer spendings, such as reducing rent, allowing rent
payment in installments, waiving late payment interest and service charges and a decline
of the expected rental values combined with a slight expansion over the assets’ future
yields.
The following table lists the Group’s retail properties located in Poland:
Property
Location
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Galeria Jurajska
Częstochowa
100%
48,700
2009
Galeria Północna
Warsaw
100%
64,800
2017
Total
113,500
62
4.6.1.1.2.2 Retail portfolio in Sofia
The Group’s total gross rentable retail space in Sofia comprises 33 thousand sq m (including
10.3 thousand sq m of Sofia Tower office building) in one retail scheme. The occupancy rate
was 98%. The average duration of leases was 2.5 years at the year-end, and the applied yield
was 7.8%. The average rental rate generated by the retail portfolio in Sofia was €18.8 /sq
m/month. The book value of the Group’s retail portfolio in Sofia amounted to €100,700
(including the book value of Sofia Tower) as of 31 December 2020 as compared to €108,600
as of 31 December 2019. The decrease comes mainly from the impact of COVID-19 pandemic.
It results from multi-pronged measures implemented to support tenants and encourage
consumer spendings, such as reducing rent, allowing rent payment in installments, waiving
late payment interest and service charges and a decline of the expected rental values
combined with a slight expansion over the assets’ future yields.The following table lists the
Group’s retail properties located in Sofia:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Mall of Sofia
100%
33,400
2006
Total
33,400
1
Including Sofia Tower
4.6.1.1.2.3 Retail portfolio in Zagreb
The Group’s total gross rentable retail space in Zagreb comprises 35 thousand sq m (including
7 thousand sq m of Avenue Center office building) in one retail scheme. The occupancy rate
was 97%. The average duration of leases was 2.8 years at the year-end, and the applied yield
was 7.9%. The average rental rate generated by the retail portfolio in Zagreb was at the
€20.2/sq m/month. Book value of the Group’s retail portfolio in Zagreb amounted to €99,512
(including book value of Avenue Center) as of 31 December 2020 compared to €104,812 as
of 31 December 2019. The decrease comes mainly from the impact of COVID-19 pandemic.
It results from multi-pronged measures implemented to support tenants and encourage
consumer spendings, such as reducing rent, allowing rent payment in installments, waiving
late payment interest and service charges and a decline of the expected rental values
combined with a slight expansion over the assets’ future yields.
63
The following table lists the Group’s retail properties located in Zagreb:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Avenue Mall Zagreb
70%
34,600
1
2007
Total
34,600
1
Including Avenue Center
4.6.1.1.2.4 Retail portfolio in Belgrade
The total gross rentable retail space in Belgrade comprises 35 thousand sq m in one shopping
mall in Belgrade. The average occupancy rate was 97%. The average duration of leases was
4.5 years at the year-end, and the applied yield was 8.5%. The average rental rate generated
by the retail portfolio in Belgrade was at €22/ sq m/month. Book value of the Group’s retail
portfolio in Belgrade amounted to €90,700 as of 31 December 2020 as compared to €119,300
as of 31 December 2019. The decrease comes mainly from the impact of COVID-19 pandemic.
It results from multi-pronged measures implemented to support tenants and encourage
consumer spendings, such as reducing rent, allowing rent payment in installments, waiving
late payment interest and service charges and a decline of the expected rental values
combined with a slight expansion over the assets’ future yields.
The following table lists the Group’s retail properties located in Belgrade:
Property
GTC’s
share
Total gross
rentable area
Year of
completion
(%)
(sq m)
Ada Mall
100%
34,600
2019
Total
34,600
4.6.1.2 Overview of properties under construction
As of 31 December 2020, the Group had two office projects with a total gross rentable area of
37 thousand sq m and a book value of €62,909.
64
The following table lists the Group’s properties under construction:
Property
Segment
Location
GTC’s
share
Total gross
leasable
area
(sq m)
Expected
completion
Pillar
office
Budapest,
Hungary
100%
29,000
Q4 2021
Sofia Tower 2
office
Sofia,
Bulgaria
100%
8,300
Q2 2022
Total
37,300
4.6.1.3 Overview of investment property landbank
Management has conducted a thorough, asset by asset, review of the whole portfolio, in
parallel to its decision to focus on Group’s new developments efforts, solely on the strongest
markets and, whilst supporting only the projects in its portfolio, which give the strongest mid-
term upside potential, while reducing. Concurrently, the Management decided to reduce the
cash allocation towards projects that has a longer-term investment horizon. The above-implied
re-assessment of some of GTC's landbank projects development timetable and rescheduling
them to a later stage or designating them for sale.
Additionally, in some cases, in view due to the decline in consumption and deteriorating of
purchasing power, the timetable for stabilization of in relevant catchment areas around certain
completed and cash generating assets in SEE, the timeframe for stabilization of had to be re-
assessed, and consequently expectations for stabilized income were deferred.
As of 31 December 2020, the Group had land classified as investment property landbank
designated for future commercial development of €140,367. This landbank, designated for
future commercial development, includes projects on Group`s focus for the coming years.
65
The following table lists the Group’s projects that are in the planning stage:
Property
Segment
Location
GTC’s
share
Total gross
leasable area
(sq m)
GTC X
office
Belgrade, Serbia
100%
16,800
Center Point 3
office
Budapest,
Hungary
100%
35,500
The Twins
office
Budapest,
Hungary
100%
38,000
Moderna
office
Katowice, Poland
100%
18,300
City Rose Park
office
Bucharest,
Romania
100%
50,100
Platinium 6
office
Warsaw, Poland
100%
13,500
Matrix future phases
office
Zagreb, Croatia
100%
55,000
Zielone Tarasy
mixed use
Warsaw, Poland
100%
61,000
Total
288,200
The Group’s rich investment property landbank designated for future development allows us
to extend the planned projects in areas where there will be demand for commercial properties.
4.6.2 Residential landbank
As of 31 December 2020, the Group held a residential landbank with a total value of €10,094,
which constituted less than 1% of the Group’s overall portfolio.
4.7 Overview of the markets on which the Group operates
1
With varying recent and ongoing policy responses to the COVID-19 pandemic across the
region and the mitigating implications differing by market and sector, we provide no assurance
that market conditions will not change unfavorably as a result of future events that are unknown
to us.
1
This market commentary was prepared by Jones Lang LaSalle IP, Inc. It is based on material that we believe to
be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it
contains no factual errors. We would like to be told of any such errors in order to correct them. Please note, the
below-presented market commentaries are based on information available to us as at 4 February 2021.
66
4.7.1 Office market
WARSAW
Following several months of the pandemic, the office market’s dynamics, when compared to
the last few years, have changed. Demand for office space in 2020 was 31% lower than in
2019, with the vacancy rate increasing as the year went on. Before the COVID-19 pandemic,
2020 was forecast to experience a new supply peak, demand growth, but an increase in
vacancy rates. In fact, in comparison to the expectations from 2019, office demand decreased
by 29%, with new supply being 26% lower.
In terms of demand for traditional offices in Warsaw in 2020, the total was 602,000 sq m. The
two leading districts, comprising over ⅔ of total demand, are the City Centre and Mokotów.
Furthermore, right now, companies are more likely to renew their leases, and Mokotów looks
set to benefit from this. In 2020, renewals in occupied office buildings accounted for 37% of
tenant activity. During the pandemic, i.e., between Q2-Q4 2020, this increased to
approximately 39%.
For several years, under-construction volume in the Polish capital ranged from between
700,000 sq m and 800,000 sq m. Now it stands at around 500,000 sq m. Developers are much
more cautious about starting new construction, and only a few have done so in the past few
months. In the next 2-3 years, this may create a supply gap in Warsaw, especially outside of
the city centre. This can further boost the appeal of, and competition for, space in best-in-class
buildings located outside of the central parts of Warsaw.
Current market sentiment is, unsurprisingly, having an influence on the vacancy rate. In Q4
2020, it increased to 9.9% in Warsaw (8.5% in Central zones and 10.8% in the Non-Central
zones of the city), which was a 2.1 pp increase in Q4 2019. However, in the mid-term, the
contracting pipeline coupled with future demand growth should contribute to the gradual
absorption of available space.
COVID-19 affected not only the activity of tenants and developers in the office market but
also the strategy of landlords in terms of offered rent rates for office space. Currently, the
highest transaction rents for prime properties in the city centre are stable at €18-24/sq
m/month, and outside the centre stands at €16/sq m/month. Some landlords continue to
have a relatively rigid financial policy regarding the rates they offer, but a growing package
of incentives for tenants is evidently being offered, resulting in lower effective rents.
REGIONAL CITIES POLAND
As a result of the cautious attitude from both developers and tenants, a slowdown in the office
market was observed. Compared to 2019, demand for office space was only 16% lower in
Polish regional markets. However, between the beginning of April and the end of December,
this number was as much as 35% lower y-o-y.
Office space being offered for sublease is currently one of the most visible trends on Poland’s
office market. Out of the approx. 150,000 sq m available for sublease in major office markets
67
outside Warsaw, 30% is located in Wrocław, followed by Kraków and the Tri-City (with 23%
and 22% respectively). Such offers vary from less than 100 sq m up to approx. 11,000 sq m.
Therefore, both small and large companies can opt for this solution.
The demand for offices in 2020 was 582,200 sq m, of which 38% were renewals of lease
agreements. In fact, from April to December, the share of renewals was as high as 49%.
Currently, an increasing number of companies are deciding to extend their lease agreements
rather than relocate.
In 2020, 36 new buildings offering a total of 393,300 sq m came onto the regional markets.
Under-construction space in the eight major regional markets now totals approx. 700,000 sq
m. It is less than pre- COVID-19 levels when the supply under construction ranged from
800,000 sq m up to 900,000 sq m. This is mainly because developers continue construction
works but have not started new projects.
The overall vacancy rate for the eight regional markets now stands at 12.7%, which is a 3.2 pp
increase y-o-y, and 0.9 pp growth q-o-q. During 2020, the largest increases in the vacancy rate
were recorded in Łódź (5.1 p.p.) and Tri-City (4.6 p.p.). Szczecin boasts the lowest vacancy
rate (6.9%), while the highest rate is currently in Łódź (16.4%).
Currently, the highest rents are quoted in Kraków (€14-15.5/sq m/month), while the lowest are
to be found in Lublin (€10.5-11.5/sq m/month). Due to the increasing vacancy rate and reduced
demand, rental rates are now coming under pressure in the Polish regional cities.
BUDAPEST
The Budapest office market became volatile in the second quarter of 2020, however, the level
of new developments shows an active developer market – completion rate was triple compared
to 2019. The share of renewals is increasing quarter by a quarter due to the current economic
climate, leasing activity is decreasing, and real estate strategies are under reconsideration.
Due to the efficiency of remote working, downsizing and subleasing trends are growing. In line
with the global workplace trends, there is a growing demand for serviced offices which is clearly
reflected in the growing number of new locations and increased sizes of flex operators.
Q4 2020 office market statistics have reflected the ongoing economic restrictions triggered by
the COVID-19 pandemic. Total leasing activity has decreased considerably y-o-y, the number
of transactions has shown a significant reduction. Based on headline rents in the current
availability, only minimal rent correction has been witnessed, mainly in category ‘B’ office
schemes.
In the fourth quarter of 2020, 38,850 sq m of new office space was delivered to the Budapest
office market in 4 schemes. Váci Greens E (22,460 sq m) was handed over in the Váci Corridor
submarket, the Szervita Square building (8,450 sq m) was completed in the CBD, and the
Alphagon office building (4,690 sq m) was handed over in the South Buda submarket. In
addition, the office component of Csalogány 43 (3,250 sq m) was delivered in the Central Buda
submarket.
68
Despite a few postponed hand-over dates, developers are still active on the market, the
volume of buildings under construction is 441,000 sq m. It became common in the past
quarters that developers cannot complete their buildings for the expected handover-date
partly because of the lack of workforce on the construction sites and due to COVID19.
Developers are more cautious with speculative development in competitive locations.
Therefore, some constructions were postponed in case of planned new developments until
anchor tenant pre-leases. The volume of expected completions in 2021 is 157,900 sq m,
and nearly the double volume is forecasted for 2022 with 283,416 sq m. The total modern
office stock currently adds up to 3.9 million sq m, consisting of 3.3 million sq m of ‘A’ and ‘B’
category speculative office space as well as 614,750 sq m of owner-occupied space. Most
developments are located in the Váci Corridor, Pest Central South, and Buda South
submarkets.
In 2020, we experienced a more active developer market than in 2019, completions increased
to more than triple year-on-year (230%). The newly constructed office buildings were built on
a speculative basis (except for one building), and only 28% of the total delivered space was
available at completion, the remaining spaces were pre-let.
In the last quarter of 2020, total demand reached 86,310 sq m, representing a 9% increase
quarter-on-quarter, however, it is a 57% decrease year-on-year. Renewals still made up the
largest share of total leasing activity with 44%, followed by new leases in the existing stock
with 42%, while expansions of existing premises and pre-leases in new developments
amounted to 7% of the total demand, each. The most active tenant sectors in the market are
IT, professional services, SSCs, and the public sector.
In 2020 annual gross take-up reaching 334,703 sq m while net take-up amounted to 182,627
sq m meaning that more than 42% of the total demand was generated by renewals, and 31%
was generated by new transactions. The owner-occupied stock in 2020 made up only 2% of
the total leasing activity.
In Q4 2020, the office vacancy rate has increased to 9.1% due to handover of new completions,
decreasing demand, the emergence of secondary space and sublease options, representing
an increase of 1.0 p.p. quarter-on-quarter and 3.5 p.p. year-on-year. The proportion of
subleases within the whole vacancy is ca. 15%.
In 2018, prime rent increased by 11% to €25/sq m/month and remained at this level at the end
of 2020. The highest rents are registered in the CBD submarket, the average rents in Budapest
for existing Class ‘A’ buildings are between €13.5-16.5/sq m/month, and in the case of Class
‘B’ buildings between €11.5-12.5/sq m/month.
BELGRADE
Since the beginning of the year, construction of ongoing projects has continued relatively
uninterrupted, despite the ongoing pandemic, whilst the start of construction for some pipeline
projects has been postponed. The second quarter recorded the completion of notable projects
such as Ušće Tower 2 by MPC Properties and the final building of the GTC Green Heart
project, spread over 23,200 sq m and 5,300 sq m, respectively, both located in the central
69
business district. In Q3 2020, positive signals on the office market are still present from the
supply side with the opening of two smaller-scale projects located in the central business
district, followed by the opening of Navigator Business Center II and Marera Kondina Office
building in October.
The restrictive measures in place due to Covid have resulted in a drop-in leasing activity
similar to other countries. More than 80% of all transactions were closed in New Belgrade,
recognized as the CBD area. The most active sector was IT, followed by consumer goods
and professional services.
The vacancy rate for class A and B offices remained low, standing at 4.5%.
As in other countries, activity in the market has been dominated by contract renewals. The
total stock currently stands at 928,000 sq m whilst prime rents are generally in the range of
€15-16.5/sq m/month.
ZAGREB
The Zagreb office market is developing and maturing. Most of the office stock is in the Centre
of the city, New Zagreb, and the Business District East and West.
The stock of A and B class offices is approximately 1.15 million sq m. After an uptick in activity
recorded at the beginning of 2020 and the completion of the second building within Matrix
Office Park in Business District East, the office market in Croatia slowed down and there were
no new notable completions since.
In the next three years, the average annual supply is likely to be less than 20,000 sq m.
Office vacancy is currently at a record low of below 4% and is expected to remain stable due
to low levels of upcoming new supply.
The total take-up of office space in the first half of the year exceeded 15,000 sq m. The
earthquake in Zagreb contributed to office market activity, as many companies located in older
buildings in the center began to consider the option of moving to more modern office
accommodation. Rental prices for both A and B class offices remained stable, and the market
does not expect major changes in the next quarter. Market activity considering leasing
transactions picked up during the third quarter. During the past two quarters of 2020, market
activity was mostly dominated by relocations, followed by new lease agreements.
Rental levels are currently generally in the range of €13-15.5/sq m/month and are unlikely to
move significantly in the short term.
70
BUCHAREST
The vaccination campaign against COVID-19 started in Romania on 27 December 2020. A
month later, over 500,000 people already received at least the first of two required vaccine
doses. The COVID-19 pandemic had a profound impact on the economy, for 2020, the GDP
was estimated to have fallen by -4.4%, according to the National Commission for Strategy and
Prognosis.
The latest prognosis issued by the World Bank in January 2021 is slightly more pessimistic,
estimating the country’s economic contraction for 2020 to -5.0% (revised from -5.7% in October
2020). This is to be followed by a 3.5% growth in 2021 (revised from 4.9% in October 2020).
Total gross transaction volume in Bucharest during Q4 2020 reached almost 55,000 sq m.
That represents half the volume recorded during Q4 2019, of over 107,000 sq m. Net take-up
during the period accounted for a little over 21,600 sq m, compared to 83,600 sq m in Q4 2019.
Even though gross take-up decreased by approx. 13% in Q4 2020 compared to the previous
quarter, net take-up increased by almost 50%.
By far, renewals had the largest share in total transactions in Q4 2020, with almost 54%,
followed by relocations, with approximately 17%.
For the entire year 2020, gross take-up totaled approx. 217,500 sq m, corresponding to a 44%
decrease when compared to 2019. However, net take-up in 2020 reached only 71,400 sq m,
marking a 65% drop from the level recorded during the previous year.
The vacancy rate continued to increase in Q4, from approx. 10.9% during the previous quarter,
to 11.3%.
For the last three consecutive quarters of 2020, the office market has been severely affected
by the uncertainty caused by the COVID-19 pandemic and the measures taken to contain
the spread of the virus. While analyzing the impact of the work from home approach and
waiting for an end to the pandemic, many companies postponed their decision with regards
to renting additional office space. We expect market sentiment to gradually improve during
2021, as more and more people will be vaccinated against COVID-19 and companies will
start recalling their employees at the office.
Deliveries during Q4 2020 totaled 31,200 sq m, bringing the Bucharest modern office stock to
almost 2.96 million sq m. Overall, the office stock expanded by 155,200 sq m during 2020,
compared to 286,400 sq m in the previous year, representing an almost 46% decrease. The
largest projects were delivered in North-West Expozitiei and Dimitrie Pompeiu sub-markets,
accounting for almost half of total deliveries in 2020.
By far, the largest delivery during Q4 was One Tower, the 23,900 sq m GLA office building in
the mix-use project One Floreasca City, developed by One United Properties in the Floreasca
– Barbu Vacarescu sub-market.
After the decrease in 2020, office deliveries are expected to bounce back in 2021 to a volume
close to the one registered in 2019. The pipeline for 2021 totals almost 252,000 sq m. Close
71
to 43% of planned deliveries are in the Center-West sub-market, followed by the Center, with
16%, and the CBD, with approximately 12%.
The largest delivery expected for 2021 is the first phase of the One Cotroceni Park project,
developed by One United Properties, adding approximately 45,000 sq m GLA to the Center-
West sub-market.
Whilst prime headline office rents in Bucharest remained stable at €18.50/sq m/month, four
sub-markets out of the eleven sub-markets of Bucharest experienced a fall of €0.5-1/sq
m/month in prime rents over the fourth quarter. The rental decrease in these sub-markets came
off the back of additional supply, which increased the vacancy in these areas and put further
pressure on rents. We also observe that incentive packages have become more
commonplace, which will lead to lower net effective rents.
SOFIA
The second half of the year recorded the opening of five new buildings, predominately within
the suburban area, followed by a broad center and CBD. The largest among them was the
second phase of Advance Business Center with its 17,500 sq m. From there on, a 15,000 sq
m mixed-use project GORA was completed, followed by three smaller-scale projects Business
House, Vitorio Pozitano business center, and a smaller scale owner-occupied scheme,
presenting around 9,000 sq m in total.
Based on the volume of currently active projects in the pipeline, Sofia remains the most
dynamic office market in the region. With over 300,000 sq m under construction, more than
a half is expected to be delivered during the first half of the year 2021, from which the
majority will take place in the suburban areas and the broad center, with Tsarigradsko
Shosse as the hotspot of the activity.
With an increase in supply towards the end of the year, the vacancy level recorded a slight
increase, standing at 11%, while the prime rent remained stable.
In Q2 and Q3 2020, the office market in Sofia faced a significant slowdown due to the economic
uncertainty caused by COVID-19. Most of the inquiries and new leases were terminated or
deferred until the situation will improve. With 107,832 sq m gross leasing volume, 2020 was
the weakest of the last five years for the office market in Sofia.
Currently, companies are putting short-term expansion plans on hold and are considering the
option of letting more employees work from home going forward.
Prime headline office monthly rents have been stable at €15-16/sq m/month, however,
landlords are under pressure and are offering more incentives than previously, therefore
driving the net-effective rates to lower levels.
New office construction is on hold and is not expected to begin in the short term until the
COVID-19 impact on the economy is clear, and the pandemic has passed.
The current modern stock in Sofia was almost 2.3 million sq m as of the end of 2019, of which
71% is considered class A. Following the completion of Building C in Garitage Park, Sofia
Office.
72
4.7.2 Retail market
GENERAL
Retail sales in many countries across the Eurozone had recovered to pre COVID-19 levels by
July. As harsh national lockdown restrictions eased, a strong bounce-back in retail sales and
consumer spending occurred over May and June as consumers made up for the lost time.
However, retail sales continue to be propped up by the closure of other avenues or outlets for
spending. Moreover, where there has been a drop in sales during the lockdown, there are few
signs of pent-up demand being released across all retail sectors.
Over the longer-term, the developing markets of the CEE/SEE region are anticipated to see
retail sales above Eurozone levels. Poland, the Czech Republic, and Hungary are forecast to
see retail sales increase by 3.4%, 2.8%, and 2.5%, respectively, on an annual basis. The more
developed markets of Germany, the UK, the Netherlands, Spain, and Italy are expected to see
average annual retail sales growth until the end of 2024 at levels nearer the wider Eurozone
region (1.4%), accounting for 1.8%, 1.8%, 1.6%, 1.2%, and 0.2% respectively.
Retail Sales Growth Forecast Europe 2020-2024 (% p.a.)
Source: Oxford Economics (October 2020)
The recovery in European retail sales is favoring retail warehouse parks above high street
locations and major shopping centers. Retail parks are outperforming high street, and
shopping centers as consumers find the convenience of easy parking and safe traveling more
appealing than using public transport into inner-city areas.
73
Across all retail sectors, online sales growth remained significantly above pre-COVID-19
levels. Various electronic goods retailers, DIY-stores, and furniture specialists have particularly
benefitted from pent-up demand as a large number of consumers spent money that they would
have otherwise used on holidays or entertainment.
WARSAW
The last twelve months were marked by three lockdowns that helped change the shopping
habits of Poles, lower developer activity, and increase the popularity of smaller retail formats.
The local and convenience trend, which existed before COVID-19, has been boosted by the
pandemic and is reflected in the new retail supply. In 2020, developers in Poland completed
430,000 sq m of modern retail space both in large-scale projects (GLA > 5,000 sq m) and
convenience centers (GLA of between 2,000 sq m and 4,999 sq m).
Of the new space delivered in 2020, 41% was located in retail parks and another 28% in
convenience centers. Shopping centers which are still the most widespread format on the
market delivered a mere 86,000 sq m (20% of the new retail space).
In Warsaw, Elektrownia Powiśle mixed-use project was opened (15,500 sq m of GLA). In Q4
2020, Designer Outlet in Piaseczno was extended by the additional 5,500 sq m of GLA (what
accounts for 1/3 of already existing retail space) and 30 shopping units.
As a result, the total modern retail stock in Poland, covering large scale formats and
convenience centers, stood at a total of 15.9 million sq m of GLA at the end of 2020. Four
hundred and fourteen shopping centers account for 9.97 million sq m of that space, equating
to a shopping center density of 260 sq m per 1,000 people.
In line with growing market maturity, developer activity is slowing down. Approximately 406,000
sq m of GLA was under construction at the year’s end in Poland, confirming this trend. Retail
parks and standalone retail warehouses account for the largest shares in the under-
construction retail space (36% and 30%, accordingly).
Along with the government restrictions placed on shopping centers, the share of e-
commerce has been fluctuating over the last few months, reaching a peak of 11.9% in total
retail sales in April 2020, when the most severe lockdown was in force. Although e-
commerce is now very much developing in Poland, traditional retailing is still the first choice
for most consumers.
2020 was a challenging year in terms of rental conditions, too. Mutual obligations between
landlords and tenants were temporarily suspended, according to legal regulations. Retailers
who had to cease operations were released from rent and service charge payments, being
obliged to prolong lease agreements for a period of lockdown plus six months.
74
Prime rents in Warsaw, defined as rents for a 100 sq m unit for a fashion and accessories
sector tenant noted in the best shopping centers in the market, in 2020 stood at the level of
€115 -125/sq m/month, which is the highest number recorded in Poland.
In 2020, on top of the statutory regulations, as a result of the negotiations between the parties,
many tenants received from landlords the so-called COVID discounts, which were usually
spread over several months and lasted until the end of 2020. Due to the 2nd lockdown in
November, the 3rd lockdown extended by 31 January 2021, further demands for reductions
were received and are under discussion. However, it has to be noted that the statutory
regulations negatively impacted the financial condition of shopping centers’ owners, who in
addition are not included in any of the governmental financial support programs.
BELGRADE
Similar to other countries, the retail market in Serbia and Belgrade, in particular, has been
affected by government measures but began to improve in early May when shopping malls
started to reopen and also during the whole third quarter of 2020. During the 2
nd
wave, the
shopping malls remained open with limited conditions, and footfalls were stronger than
during the 1
st
wave.
At the same time, there were no major disturbances and interruptions in construction activities
and some significant projects were delivered during the second quarter of the year. The most
significant of these was the BEO Shopping Centre by MPC Properties, with over 43,000 sq m
of space. In addition, RC Reinvest completed the 4,400 sq m of the second phase of NEST
Kraljevo. Q3 saw the soft opening of iBW Galerija with over 90,000 sq m within the new city
core known as Belgrade Waterfront, becoming the largest retail scheme in the country. The
construction of West 65 Mall is progressing, which will provide more than 100,000 sq m.
The second quarter of 2020 witnessed new market entries, including German multi-brand
chain Peek & Cloppenburg, which opened its store in BEO Shopping Centre, while the French
children’s clothing brand, Jacadi opened its first store in the city center. The third quarter of the
year recorded the market entrance of notable Polish retailer Pepco, which opened two stores
in Belgrade.
Average prime rental rates currently stand at approximately €26-28/sq m/month. Total stock in
the market amounts to 421,000 sq m representing a density of 254 sq m per 1,000 inhabitants.
ZAGREB
The COVID-19 pandemic has dramatically disrupted the retail sector in Zagreb. Because of
lockdown measures, retailers have turned to flexible omnichannel retail models to offset the
loss of revenue from their physical stores and to protect the future of their businesses. During
the 2
nd
wave, the shopping malls remained open with limited conditions, and footfalls were
stronger than during the 1
st
wave.
75
The relaxation of restrictions at the end of April led to increased turnover in retail, with a 22%
rise in consumption in the first week of eased measures. Croatia was among those EU
countries with the strongest recovery in retail trade in May, considerably above the EU
average according to Eurostat. Despite the recent outbreak, the market recorded several
entries, including Italian supermarket chain Eurospin, which opened its store in Zadar.
Another major brand that marked its first opening on the market was Domino’s fast-food
chain in Zagreb.
Total shopping mall floorspace in Zagreb is 510,000 sq m. Shopping center density in Zagreb
is about 645 sq m per 1,000 inhabitants. In recent years negotiation strength in the shopping
center market in Zagreb has been with occupiers. However, with the improvement of economic
and market conditions, we have noted shopping centers are stabilizing their position in the
market, and there has been a fundamental shift by occupiers to the higher quality and better
performing schemes.
The construction of Supernova Požega and Kaptol center in Zagreb is underway. Z Centar
shopping center in Špansko district of Zagreb is ongoing, with completion scheduled for 2021.
It is being developed by Sensa Nekretnine and will extend over 30,000 sq m, featuring 70
stores, a nine-screen cinema, and other entertainment content.
Since the beginning of the year, retailer activity has been moderate with no new market entries.
At the same time, there has been a trend for tenants to relocate from the CBD High street
market to shopping centers constructed according to modern standards. This trend is a result
of the earthquake that occurred in spring 2020 and caused structural damage to many
historical buildings located in the CBD.
Average prime shopping centre rental rates are currently approximately €19-21/sq m/month.
SOFIA
Total modern retail stock in Bulgaria, including shopping centers, retail parks, and outlet
centers, is approximately 1 million sq m, of which 540,500 sq m is in Sofia. Shopping centre
stock accounts for approximately 400,000 sq m of this total gross lettable area, and thus,
shopping centre density in Sofia is around 320 sq m per 1,000 inhabitants.
Continuing the same trend as 2019, no new shopping centers have been delivered to date in
2020 in Sofia. Currently, developers’ focus is shifting from shopping centers towards retail
parks.
The largest new shopping centre projects planned for Sofia, totaling 104,750 sq m of gross
lettable area, are on hold for the moment. These are Plaza West Mall, Grand Kanyon and Sofia
Square.
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The retail market is the segment that has taken the greatest hit during the COVID-19 crisis.
Most shops, restaurants, and shopping centers were closed for two months. This initiated a
process of renegotiation of certain lease agreements. Discounts were negotiated with
tenants on a case-by-case basis, offering discounts from the base rent or for some tenants
turnover rents were applied until the end of 2020.
With some minor exceptions, tenants have witnessed reduced revenues. Retail sales plunged
in March and April, especially for non-food goods due to the COVID-19 restrictions, and many
shops, malls, restaurants, cafes, and others were closed. Only retailers for first-hand goods
remained open such as gas stations, banks, pharmacies, and grocery stores.
Considering the impact of the coronavirus pandemic, the focus in the operation of shopping
centers will shift towards the fine-tuning of the tenant mix, the substitution of retailers who fail
to sustain the pandemic, and as such, taking measures to cut operational expenses.
Average rental levels in shopping centers are in the approximate current range of €17-21/sq
m/month, with prime rental levels at €40/sq m/month.
4.8 Information on the Company’s policy on sponsorship, charity, and other similar
activities.
The Group is a responsible developer, and asset manager focused on sustainability. All its
corporate social responsibility activities are run in a coordinated manner to support local
communities in which the Group operates. Such support involves:
 Enhancement of local infrastructure, including road and traffic infrastructure. The
infrastructure created in connection with or for the purposes of the developments
constructed is handed over to the local self-government free of charge to be used by
all residents. Moreover, prior to the development of the Group’s projects, public green
areas (such as squares and parks) are placed on undeveloped plots or plots which will
surround future developments following their completion by the Group.
 Local initiatives. The Group participates in and supports local initiatives such as:
- help for medics due to COVID-19 pandemic;
- commissioning the plot for use by the authorities as part of COVID-19 testing
initiative
- support Red Cross with providing a place for blood donations;
- promotion of
 local businesses by continuously providing organic and home-made
products for all visitors,
- supporting charity organizations by continuously providing lease free positions
for humanitarian associations and charities;
- organization of charity Christmas fairs in office buildings;
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- sponsoring of sports activities:
 a humanitarian race “Zagreb Love Run” - all the money collected is used
as a donation for “Oblačič” association, a charity aimed to help children
with growth disorders;
 the 1st Santa Claus Run in Galeria Jurajska - promotion of a healthy
lifestyle
 the North Bridge Run (“Bieg przez Most”) - promotion of a healthy
lifestyle;
 participation of Galeria Północna in Night Bicycle Race;
 Beach Volleyball tournament - Cup of Silesia;
 Cadet Championship in beach volleyball in Galeria Jurajska.
Additionally, Group conducted several local initiatives via its shopping malls:
- Ada Mall created a “Reading corner” – free library in common space in
the mall bringing back the importance of the culture and free education
to everyone;
- Mall of Sofia involved in the initiative “The good in the heart of the city”
which supports people in need. The charity campaign provided more
than 900 boxes of food which were distributed among people from the
community who belong to the most vulnerable groups;
- Avenue Mall Zagreb served as a training place for “The Rehabilitation
Centre Silver” in – which trains assistance dogs for disabled persons
and children with developmental difficulties.
 Embracing environmental certification. Out of concern for the environment, the
investments of the Company and the Group are fully compliant with LEED or BREEAM
guidelines. As at the end of 2020, approximately 84% of our properties holds a green
certificate, which proves the sustainability of the properties that GTC develop and
manage.
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5. Operating and financial review
5.1 General factors affecting operating and financial results
GENERAL FACTORS AFFECTING OPERATING AND FINANCIAL RESULTS
The key factors affecting the Group’s financial and operating results are discussed below. The
Management believes that the following factors and important market trends have significantly
affected the Group’s results of operations since the end of the period covered by the latest
published audited financial statements, and the Group expects that such factors and trends
will continue to have a significant impact on the Group’s results of operations in the future.
ECONOMIC CONDITIONS IN CEE AND SEE
The economic crisis may slow down the general economy in the countries where the Group
operates. The economic downturn in those countries may result in reduced demand for
property, growth of vacancy rates, and increased competition in the real estate market, which
may adversely affect the Group’s ability to sell or let its completed projects at their expected
yields and rates of return.
The reduced demand for property that, on the one hand, may result in a drop in sales dynamics,
and, on the other, an increase in vacancy rates and lower rent revenues from leased space,
may significantly impact the results of operations of the Group. Specifically, the Group may be
a force to change some of its investment plans. Additionally, the Group may not be able to
develop numerous projects in the countries where it operates.
REAL ESTATE MARKET IN CEE AND SEE
The Group derives the majority of its revenue from operations from rental activities, including
rental and service revenue. For the year ended 31 December 2020 and for the year ended 30
December 2019, the Group derived 75% and 75% of its revenues from operations as rental
revenue, which greatly depends on the rental rates per sq m and occupancy rates. The amount
the Group can charge for rent largely depends on the property’s location and condition and is
influenced by local market trends and the state of local economies. The Group’s revenue from
rent is particularly affected by the delivery of new rent spaces, changes in vacancy rates, and
the Group’s ability to implement rent increases. Rental income is also dependent upon the time
of completion of the Group’s development projects as well as on its ability to let such completed
properties at favorable rent levels. Moreover, for the year ended 31 December 2020 and for
the year ended 30 December 2019, the Group derived 25% and 25% of its revenues from
operations as service revenue, which reflects certain costs the Group passes on to its tenants.
The vast majority of the Group’s lease agreements are concluded in Euro and include a clause
that provides for the full indexation of the rent linked to the European Index of Consumer
Prices. When a lease is concluded in another currency, it is typically linked to the consumer
price index of the relevant country of the currency.
79
REAL ESTATE VALUATION
The Group’s results of operations depend heavily on the fluctuation of the value of assets on
the property markets. The Group revalues its investment properties at least twice per year.
Any change in the fair value of investment property is thereafter recognized as a gain or loss
in the income statement.
The following three significant factors influence the valuation of the Group’s properties: (i) the
cash flow arising from operational performance, (ii) the expected rental rates, and (iii) the
capitalization rates that result from the interest rates in the market and the risk premiums
applied to the Group’s business.
The cash flow arising from the operational performance is primarily determined by current
gross rental income per square meter, vacancy rate trends, total portfolio size, maintenance
and administrative expenses, and operating expenses. Expected rental values are determined
predominantly by expected development of the macroeconomic indicators as GDP growth,
disposable income, etc. as well as micro conditions such as new developments in the
immediate neighborhood, competition, etc. Capitalization rates are influenced by prevailing
interest rates and risk premiums. In the absence of other changes when capitalization rates
increase, market value decreases and vice versa. Small changes in one or some of these
factors can have a considerable effect on the fair value of the Group’s investment properties
and on the results of its operations.
Moreover, the valuation of the Group’s landbank additionally depends on, among others, the
building rights and the expected timing of the projects. The value of landbank, which is
assessed using a comparative method, is determined by referring to the market prices applied
in transactions relating to similar properties.
The Group recognized a net loss from revaluation and impairment of assets of €142,721 in the
year ended 31 December 2020 and €16,190 net gain from revaluation and impairment of
assets in the year ended 31 December 2019.
IMPACT OF INTEREST RATE MOVEMENTS
Substantially all of the loans of the Group have a variable interest rate, mainly connected to
EURIBOR. Increases in interest rates generally increase the Group’s financing costs. As at 31
December 2020, 95% of the Group’s borrowings are hedged. In addition, in an economic
environment in which availability of financing is not scarce, demand for investment properties
generally tends to increase when interest rates are low, which can lead to higher valuations of
the Group’s existing investment portfolio. Conversely, increased interest rates generally
adversely affect the valuation of the Group’s properties, which can result in recognition of
impairment that could negatively affect the Group’s income.
Historically, EURIBOR rates have demonstrated significant volatility, changing from 1.343%
as of 2 January 2012, through 0.188% as of 2 January 2013, to 0.284% as of 3 January 2014,
0.076% as of 2 January 2015, and -0.132% as of 4 January 2016, -0.318% as of 2 January
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2017, -0.329% as of 2 January 2018, -0.310% as of 2 January 2019, -0.379 % as 2 January
2020 and -0.546% as 2 January 2021 (EURIBOR for three-month deposits).
IMPACT OF FOREIGN EXCHANGE RATE MOVEMENTS
For the twelve-month period ended 31 December 2020 and for the twelve -month period ended
31 December 2019, a vast majority of the Group’s revenues and costs were incurred or derived
in euro. Nonetheless, the exchange rates against euro of the local currencies of the countries
in which the Group operates are an important factor as the credit facilities that are obtained
may be denominated in either euro or local currencies.
The Group presents its financial statements in euro, its operations, however, are based locally
in Poland, Romania, Hungary, Croatia, Serbia, Bulgaria, and other countries. The Group
receives the vast majority of its revenue from rent denominated in euro, however, it receives a
certain portion of its income (including the proceeds from the sales of residential real estate)
and incurs most of its costs (including the vast majority of its selling expenses and
administrative expenses) in local currencies, including the Polish zloty, Bulgarian leva,
Croatian kunas, Hungarian forints, Romanian lei, and Serbian dinars. In particular, the
significant portion of the financial costs incurred by the Group includes: (i) the interest on the
bonds issued by the Group in Polish zloty, (ii) the interest on the bonds issued by the Group in
Hungarian forints and (iii) the interest on the loan taken by the Group in Hungarian forints. The
exchange rates between local currencies and the euro have historically fluctuated. The Group
hedges its foreign exchange exposure.
The income tax expense (both actual and deferred) in the jurisdictions in which the Group
conducts its operations is incurred in such local currencies. Consequently, such income tax
expense was and may continue to be materially affected by foreign exchange rate movements.
2 January
2012
2 January
2013
3 January
2014
2 January
2015
4 January
2016
2 January
2017
2 January
2018
2 January
2019
2 January
2020
2 January
2021
1,34%
0,19%
0,28%
0,08%
-0,13%
-0,32%
-0,33%
-0,31%
-0,38%
-0,55%
EURIBOR for three-month deposits
81
Accordingly, the foreign exchange rate movements have a material impact on the Group’s
operations and financial results.
AVAILABILITY OF FINANCING
In the CEE and SEE markets, real estate development companies, including the companies
of the Group, usually finance their real estate projects with proceeds from bank loans, loans
extended by their holding companies, or the issuance of debt securities. The availability and
cost of procuring financing are of material importance to the implementation of the Group’s
projects and for the Group’s development prospects, as well as its ability to repay existing debt.
Finally, the availability and cost of financing may impact the Group’s development dynamics
and the Group’s net profit.
In the past, the principal sources of financing for the Group’s core business included, apart
from proceeds from asset disposals, bank loans, and proceeds from bonds issued by the
Company.
5.2 Specific factors affecting financial and operating results
COVID-19
The Covid-19 pandemic has triggered a wave of strong negative effects on the global
economy. The lockdowns brought a large part of the world’s economic activity to an
unparalleled standstill: consumers stayed home, companies lost revenue, and terminated
employees – which, consequently, led to a rise in unemployment. Rescue packages by
national governments and the EU, as well as supporting monetary policies by the European
Central Bank have been implemented to moderate the economic impact of the pandemic.
However, the scope and duration of the pandemic and possible future containment measures
are still impossible to predict. From mid-March 2020, it became apparent that the economic
disruptions caused by the Covid-19 virus and the increased market uncertainty combined with
increased volatility in the financial markets might lead to a potential decrease in rental
revenues, a potential decrease in the Company assets’ values, as well as impact on the
Company’s compliance with financial covenants. While the exact effect of the coronavirus is
still to be determined, it is clear that it poses substantial risks
CLOSING AND REOPENING OF THE GROUP’S SHOPPING CENTRES
The COVID-19 pandemic has significantly impacted the Company’s business. Following the
outbreak of the COVID-19 pandemic, the authorities in many of the markets the Group
operates in imposed restrictions on the opening of its shopping centres. Except for select
“essential” retailers, or those able to offer curb side pickup or fulfill delivery orders from the
store. The tenants in the Group’s centres were unable to trade for a period beginning mid-
March and ending between beginning-May and end-May depending on the country, and later
in the period between beginning-November and ending end-December and end-January. In
addition, even in those regions in which there were no mandatory shutdowns, or when
shopping centres were allowed to reopen, not all retailers continued or restarted operations.
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As at 31 December 2020, shopping centres in Poland and Bulgaria were closed. These centres
contributed 69% of total retail rental revenue for 2020.
RENT DISCOUNTS AND COLLECTION
In several countries of our operations, governments adopted tenant support packages, such
as a rental payments holiday in Poland for the period of lockdown or rent support through
subsidizing part of any rental discounts. Upon the re-opening of its shopping centres, the
Group engaged tenants in discussions about collecting rent and service charges as well as
the terms of any support by the Group. The Group implemented multi-pronged measures to
support tenants and encourage consumer spendings, such as reducing rent, allowing rent
payment in instalments, waiving late payment interest and service charges. The financial
impact of this in terms of loss of rent and service income related to the COVID-19 amounted
to €14,700. Overall, we have collected 99% of the rent originally due for the year ended 31
December 2020 (99% for offices and 97% for retail).
VALUATION OF INVESTMENT PROPERTIES
As for each year end, investment properties have been valued by external independent
appraisers as described in the Note 17 Investment properties in the audited consolidated
financial statements for the year ended 31 December 2020. Those appraisals have been
performed in a context of the current COVID-19 pandemic characterised by lack of transactions
since the outbreak of the pandemic and difficulties to estimate future market prospects.
The increased uncertainty and increased volatility in the financial markets have negatively
affected the investment properties of the Group and might have an effect in the future asset
valuations, as well as impact on the Company’s compliance with financial covenants. While
the exact effect of the coronavirus is unknown and unknowable, it is clear that it poses
substantial risks of reduction of income, increasing yields, increasing collection costs, and FX
volatility.
During the financial year end 31 December 2020, the valuation of the investment properties
decreased by €142,721 (for details please refer to note 17 in the audited consolidated financial
statements for the year ended 31 December 2020.) which led to a breach of certain covenants:
- With respect to a €175,404 loan from Bank Pekao SA on 17 September 2020, a whole
owned subsidiary of the Company, operating the Galeria Północna project, entered into
an annex to a loan agreement with the bank in order to relax the DSCR (debt service
coverage ratio) covenant and to cure the LTV (loan-to-value) covenant breach.
According to the annex, the subsidiary repaid in advance a part of outstanding loan in
the amount of EUR 9,500 and agreed to repay additionally up to €3,000 within 12
months of the date of the Annex. As of the date of this report the financial covenants
are cured.
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- With respect to a €125,125 loan from Erste Group Bank AG and Raiffeisenlandesbank
Niederosterreich-Wien AG granted to a whole owned subsidiary of the Company,
operating the Galeria Jurajska, the DSCR covenant was waived until the end of June
2021.
- With respect to a €58,256 loan from Banka Intesa ad Beograd, Vseobecna Uverova
Banka a.s. and Privredna Banka Zagreb d.d. granted to a whole owned subsidiary of
the Company, operating the Ada Shopping Mall, the DSCR covenant was waived by
the banks until the end of June 2021. In addition the LTV (loan-to-value) covenant was
waived by the banks until the end of December 2021.
LIQUIDITY POSITION
During the COVID-19 pandemic, the Group took immediate steps to preserve its strong liquidity
position in light of the uncertain impact of the pandemic. These steps included cost and CAPEX
measures, as well as the decision to retain profit for the year ended 31 December 2019 in the
Company. As of 31 December 2020, the Group holds cash in the amount of €271,996.
The Group runs stress tests, which indicated that the going concern assumption remains valid
for at least 12 months from the financial statement publication date.
The Group is continuously assessing the situation and undertakes mitigating steps to reduce
the impact that may be caused by the adverse market situation.
OTHER
On 13 February 2020, the Group signed with Erste and Raiffeisen banks a loan agreement,
which refinanced the existing loan of Galeria Jurajska with a top-up of €46,000, to a total of
€130,000.
In March 2020, GTC Group completed the construction of the Green Heart N3 (5,400 sq m)
office building in Belgrade.
In July 2020, Dorado 1 EOOD, a wholly-owned subsidiary of the Company has started the
construction of an office building (Sofia Tower 2) in Sofia, Bulgaria. The project shall consist
of 8,300 sq m of leasable area.
On 27 August 2020, the general’ meeting of the Company decided not to distribute dividend
for 2019.
In September 2020, the Group acquired the remaining 20% in Marlera Golf LD d.o.o. for a
consideration of €2,800, €1,800 of which was paid in September 2020 (the remaining part of
€1,000 will be paid upon completion of certain conditions). Following the transaction GTC
remained the sole owner of the subsidiary. As a result of the transaction, the NCI increased by
€3,600 and the capital reserve decreased by €6,400. Consequently, the total equity decreased
by €2,800.
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On 20 October 2020, Spiral I Kft., an indirect wholly owned subsidiary of the Company, signed
a sale and purchase agreement for the sale of Spiral office building for consideration of
€62,700. On 5 November 2020 all conditions precedent for the sale were concluded and the
purchase price was paid in full. In parallel with the Closing Spiral I kft repaid the full outstanding
amount of the loan with Erste Bank.
In October 2020, the Group completed the construction of office building Advance Business
Center II (17,800 sq ,) in Sofia.
In November 2020, the Group completed the construction of office building Matrix B (10,700
sq m) in Zagreb.
On 13 November 2020, GTC Future Kft, a newly established wholly owned subsidiary acquired
a land plot from a subsidiary related to the majority shareholder with an existing old office and
industrial buildings in Vaci Corridor in Budapest for a total amount of €21,350. The buildings
have total leasable area of 12,000 sq m (GLA 8,200 sq m). m. The Company plans to demolish
the buildings and develop office buildings in phases with a total leasable area of 64,000 sq m.
On 7 December 2020 GTC Real Estate Development Hungary Zrt. issued 10 years green
bonds with the total nominal value of €110,000 denominated in HUF to finance real estate
acquisition, redevelopment and construction projects as well as refinance existing debt by the
issuer and guarantor (or other members of the guarantor’s group). The bonds are fully and
irrevocable guaranteed by the Company and were issued at yield of 2.33%. with an annual
fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7
th
year with the
70% of the value paid at the maturity on 7 December 2030.
On 8 December 2020, GTC Real Estate Development Hungary Zrt. entered into cross-
currency interest swap agreements with three different banks to hedge the total green bonds
liability against foreign exchange fluctuations. The green bonds were fixed to the Euro and the
fixed annual coupon was swapped for an interest fixed rate of 0.99%.
5.3 Presentation of differences between achieved financial results and published
forecasts
The Group did not publish forecasts for 2020.
85
5.4 Statement of financial position
5.4.1 Key items of the statement of financial position
INVESTMENT PROPERTY
Investment properties that are owned by the Group comprise office and commercial space,
including property under construction. Investment property can be split up into (i) completed
investment property; (ii) investment property under construction; (iii) investment property
landplots, and (iv) right of use.
RESIDENTIAL LANDBANK
The Group classifies its residential inventory as current or non-current assets based on their
development stage within the business operating cycle. The normal operating cycle, in most
cases, falls within a period of one to five years. The Group classifies residential inventory, the
development of which is planned to be commenced at least one year after the balance sheet
date as residential landbank, which is part of its non-current assets.
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
Investment in associates and joint ventures is accounted for pursuant to the equity method.
Such investment is carried in the statement of financial position at cost plus post-acquisition
changes in the Group’s share of the net assets of the associate and joint ventures.
ASSETS HELD FOR SALE
Assets held for sale comprise office or retail space and land plots that are designated for sale.
BLOCKED DEPOSITS
Short-term blocked, and long-term blocked deposits are restricted and can be used only for
certain operating activities as determined by underlying contractual undertakings.
DERIVATIVES
Derivatives include hedge instruments held by the Group that mitigates the risk of interest and
currency rate fluctuations. In relation to the instruments qualified as cash flow hedges, the
portion of gain or loss on the hedging instrument that is determined to be an effective hedge is
recognized directly in other comprehensive income, and the ineffective portion (if any) is
recognized in net profit or loss. The classification of hedges in the statement of the financial
position depends on their maturity. For derivatives that do not qualify for hedge accounting,
any gain or losses arising from changes in fair value are recorded directly in net profit and loss
for the year. The fair value of interest rate swap contracts is determined by calculating the
present value of cash flows of each leg of the transaction, taking into account several risk
statistics.
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5.4.2 Financial position as of 31 December 2020 compared to 31 December 2019
ASSETS
Total assets decreased by €41,985 (2%) to €2,480,757 as of 31 December 2020 from
€2,522,742 as of 31 December 2019. The decrease was mainly due to the devaluation of
investment property resulting from the impact of the COVID-19 outbreak combined with
disposal of properties, partially offset by an increase in cash and cash equivalents as a result
of the issuance of the bonds under the Founding for Growth Scheme.
The value of investment property and investment property landbank decreased by €121,902
(5%) to €2,125,128 as of 31 December 2020 from €2,247,030 as of 31 December 2019, mainly
due to the impact of the COVID-19 outbreak on retail activity of the Company which lead to
decrease in value of the properties of €140,913 combined with disposal of Spiral office building
(Budapest, Hungary) and non-core land plots with the total value of €63,149. The decrease
was partially offset by an investment of €67,695 mostly into assets under construction: Green
Heart, Advance Business Center II, Matrix B, Pillar and Sofia Tower 2 and an acquisition of a
landplot with completed building for €22,102
The value of assets held for sale increased to €1,580 as of 31 December 2020 from €0 as of
31 December 2019 mainly as a result of reclassification of non-core land plots to assets held
for sale.
The value of short-term blocked deposits decreased by €5,597 (17%) to €27,434 as of 31
December 2020 from €33,031 as of 31 December 2019 mainly as a result of a release of
retention deposit related to construction works in Ada Mall.
The value of cash and cash equivalents increased by €92,360 (51%) to €271,996 as of 31
December 2020 from 179,636 as of 31 December 2019 mainly as a result of bond issue with
the total value of €110,000, disposal of Spiral office building with net proceeds before tax
payment of €44,000 (after the repayment of related loan) and refinancing of loan related to
Galeria Jurajska with the top-up of €46,000 (€40,989 as at 31 December 2020) partially offset
by repayment of bonds in the amount of €68,600 and investment (net of loans received) in
planned projects and projects under construction of approximately €30,562.
LIABILITIES
The value of loans and bonds increased by €55,070 (5%) to €1,261,292 as of 31 December
2020 from €1,206,222 as of 31 December 2019. This increase comes mainly from bond issue
with the total value of €110,000, refinancing of loan related to Galeria Jurajska with the top-up
of €46,000 (€40,989 as at 31 December 2020) and drawdown of loans for projects under
construction of €42,043, partially offset by repayment of bonds in the amount of €68,600 and
Spiral loan in amount of €18,645 combined with repayment of existing loans in the amount of
€48,037.
87
The value of lease liability (incl. current portion of lease liabilities) decreased by €3,376 (7%)
to €43,054 as of 31 December 2020 from €46,430 as of 31 December 2019, mainly due to
foreign exchange gain, resulted from devaluation of local currencies.
The value of derivatives increased by €12,910 (203%) to €19,260 as of 31 December 2020
from €6,350 as of 31 December 2019, mainly due to foreign exchange differences on hedged
liabilities, resulted from devaluation of local currencies in amount of €5,427 (this loss offset a
foreign exchange differences profit in an amount of €5,427 on bonds nominated in PLN and
HUF), and a loss in the amount of €7,748 relates to hedge of interest rate mainly from a cross
currency swap established for the green bonds.
Provision for deferred tax liability decreased by €14,002 (10%) to €133,230 as of 31 December
2020 from €147,232 as of 31 December 2019 mainly due to the decrease in fair value of
investment property from the Covid-19 outbreak impact.
Investment and trade payables and provisions decreased by €9,991 (27%) to €27,299 as of
31 December 2020 from €37,290 as of 31 December 2019 mainly due a decrease in payables
related to development activities (Ada Mall and Matrix B).
EQUITY
The amount of accumulated profit decreased by €70,189 (13%) to €460,053 as of 31
December 2020 from €530,242 as of 31 December 2019, following recognition of loss for the
period in the amount €70,861.
The value of foreign currency translation decreased by €3,496 to €2,553 loss as of 31
December 2020 from €943 gain as of 31 December 2019, mainly due to devaluation of local
currencies.
The value of hedge reserve increased by €6,936 (139%) to €11,930 as of 31 December 2020
from €4,994 as of 31 December 2019, mainly due to hedging of foreign exchange rate
fluctuations for bonds in PLN and HUF and devaluation of corresponding local currencies.
The value of capital reserve increased by €6,391 (15%) to €49,489 as of 31 December 2020
from €43,098 as of 31 December 2019, mainly due to acquisition of non-controlling interest in
Marlera.
Equity decreased by €84,514 (8%) to €974,148 as of 31 December 2020 from €1,058,662 as
of 31 December 2019 mainly due to a decrease in accumulated profit in the amount of €70,861,
following recognition of loss during the period.
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5.5 Consolidated income statement
5.5.1 Key items of the consolidated income statement
REVENUES FROM OPERATIONS
Revenues from operations consist of:
 rental income, which consists of monthly rental payments paid by tenants of the
Group’s investment properties for the office or retail space rented by such tenants.
Rental income is recognized as income over the lease term;
 service income, which comprises fees paid by the tenants of the Group’s investment
properties to cover the costs of the services provided by the Group in relation to their
leases.
COST OF OPERATIONS
Costs of operations consist of:
 service costs, which consist of all the costs that are related to the management
services provided to the individual tenants within the Group’s properties — service
costs should be covered by service income.
GROSS MARGIN FROM OPERATIONS
Gross margin from operations is equal to the revenues from operations less the cost of
operations.
SELLING EXPENSES
Selling expenses include:
 brokerage and similar fees incurred to originate the lease or sale of space;
 marketing and advertising costs; and
 payroll and related expenses directly related to leasing or sales personnel.
ADMINISTRATIVE EXPENSES
Administration expenses include:
 payroll, management fees, and other expenses that include the salaries of all
employees that are not directly involved in sales or rental activities;
89
 provisions made to account for the share-based incentive program that was granted to
key personnel;
 costs related to the sale of investment properties;
 costs of an audit, legal and other advisors;
 office expenses;
 depreciation and amortization expenses include depreciation and amortization of the
Group’s property, plant, and equipment; and
 others.
PROFIT/(LOSS) FROM THE REVALUATION/IMPAIRMENT OF ASSETS
Net valuation gains (loss) on investment property and investment properties under
development reflect the change in the fair value of investment properties and investment
property under development.
FINANCIAL INCOME/(EXPENSE), NET
Financial income includes interest on loans granted to associate companies and interest on
bank deposits.
Financial expenses include interest on borrowings and deferred debt rising expenses.
Borrowing costs are expensed in the period in which they are incurred, except for those that
are directly attributable to construction. In such a case, borrowing costs are capitalized as part
of the cost of the asset. Borrowing costs include interest and foreign exchange differences.
Additionally, financial income or expenses include settlement of financial assets and gain or
losses arising from changes in the fair value of derivatives that do not qualify for hedge
accounting.
TAXATION
Income tax on profit or loss for the year comprises current and deferred tax. Current tax is the
expected tax payable on the taxable income for the year using tax rates enacted or
substantially enacted as of the balance sheet date and any adjustments to tax payable in
respect of previous years. Generally, the Group disposes of property holding companies rather
than the real estate itself, in part because, in certain jurisdictions, the sale and disposal of real
estate are generally subject to real estate transfer tax and/or VAT.
90
5.5.2 Comparison of financial results for the year ended 31 December 2020 with
the result for the corresponding period of 2019
REVENUES FROM RENTAL ACTIVITY
Rental and service revenues decreased by €9,641 (6%) to €160,121 in the year ended 31
December 2020 from €169,762 in the year ended 31 December 2019. The decrease mainly
resulted from a decrease in rental revenues of approximately €14,720 due to rent relief
imposed by governments during lockdown of shopping malls and rent concessions and
discounts provided by the Group to the retail tenants across the portfolio due to the COVID-19
outbreak combined with a decrease in rental revenues following the sale of GTC White House
in the third quarter of 2019, Neptun Office Center in the fourth quarter of 2019 and Spiral in
the fourth quarter of 2020 of €3,870. The decrease was partially offset by an increase in the
rental revenues due to the completion of Ada Mall, Green Heart, ABC I, and Matrix A of €8,982.
COST OF RENTAL ACTIVITY
Service cost decreased by €349 (1%) to €41,527 in the year ended 31 December 2020 from
€41,876 in the year ended 31 December 2019 mainly as a result of a decrease of service costs
and implemented savings in our shopping malls due to the COVID-19 outbreak of €1,213
combined with a decrease in the service costs due to the sale of GTC White House in the third
quarter of 2019, Neptun Office Center in the fourth quarter of 2019 and Spiral in fourth quarter
of 2020 of €1,562. The decrease was partially offset by an increase on service costs due to
the completion of Ada Mall, Green Heart, ABC I and Matrix A of € 2,385.
GROSS MARGIN FROM OPERATIONS
Gross margin (profit) from operations decreased by €9,292 to €118,594 in the year ended 31
December 2020 from €127,886 in the year ended 31 December 2019 mostly resulting from a
loss in rent and service revenues in our shopping malls across the portfolio due to the COVID-
19 outbreak partially offset by newly completed properties net of sold assets.
Gross margin on rental activities in the year ended 31 December 2020 was 74% compared to
75% in the year ended 31 December 2019.
ADMINISTRATIVE EXPENSES
Administrative expenses (before provision for share based program) decreased by €5,316 to
€12,181 in the year ended 31 December 2020 from €17,497 in the year ended 31 December
2019. The administrative expenses in year ended 31 December 2019 included one-off cost
related to the exercise of phantom shares of €5,900. Mark-to-market of share based program
resulted in a reversal of the provision of €469 in the year ended 31 December 2020 compared
to a reversal of the provision of €3,087 recognized in the year ended 31 December 2019. The
above factors resulted in a decrease of administration expenses by €2,698 to €11,712 in the
year ended 31 December 2020 from €14,410 in the year ended 31 December 2019.
91
PROFIT/(LOSS) FROM THE REVALUATION/IMPAIRMENT OF ASSETS
Net loss from the revaluation/impairment of the assets amounted to €142,721 in the year
ended 31 December 2020, as compared to a net profit of €16,190 in the year ended 31
December 2019. Net loss from the revaluation of the investment properties reflects mainly
devaluation of our shopping malls across the portfolio which resulted from the impact of the
COVID-19 outbreak mainly on the retail activity of the Group.
OTHER EXPENSE, NET
Other expenses (net of other income) amounted to €846 in the year ended 31 December 2020
as compared to expenses of €772 in the year ended 31 December 2019.
FOREIGN EXCHANGE DIFFERENCES GAIN (LOSS)
Foreign exchange differences loss amounted to €2,951 in the year ended 31 December 2020,
as compared to a foreign exchange loss of €437 in the year ended 31 December 2019. An
increase is mainly due to the significant devaluation of local currencies following the COVID-
19 outbreak.
FINANCIAL INCOME
Financial income amounted to €331 in the year ended 31 December 2020 as compared to
€380 in the year ended 31 December 2019.
FINANCIAL COST
Financial cost increased by €610 to €35,244 in the year ended 31 December 2020 as
compared to €34,634 in the year ended 31 December 2019. The average interest cost was
2.3%.
PROFIT/(LOSS) BEFORE TAX
Loss before tax was €75,856 in the year ended 31 December 2020, as compared to profit
before tax of €92,186 in the year ended 31 December 2019. A decrease is mainly due to a
recognition of loss from revaluation/impairment of assets in the amount of €142,721 (as
compared to net profit from revaluation/impairment of assets in the amount of €16,190 in 2019)
combined with a decrease in gross margin from operations resulting from COVID-19 outbreak.
TAXATION
Tax benefit amounted to €4,995 in the year ended 31 December 2020. Taxation consists
mainly of €8,811 of current tax expenses and €13,806 of deferred tax benefit.
NET PROFIT/ (LOSS)
Net loss amounted to €70,861 in the year ended 31 December 2020, as compared to a net
profit of €75,421 in the year ended 31 December 2019. This mostly resulted from recognition
of loss from revaluation/impairment of assets in the amount of €142,721 (as compared to net
92
profit from revaluation/impairment of assets in the amount of €16,190 in 2019) combined with
a decrease in gross margin from operations resulting from COVID-19 outbreak, partially offset
by the recognition of tax benefit of €4,995.
SEGMENTAL ANALYSIS
The operating segments are aggregated into reportable segments, taking into consideration
the nature of the business, operating markets, and other factors. GTC operates in six core
markets: Poland, Budapest, Bucharest, Belgrade, Sofia, and Zagreb.
Operating segments are divided into geographical zones, which have common characteristics
and reflect the nature of management reporting structure:
a. Poland
b. Belgrade
c. Budapest
d. Bucharest
e. Zagreb
f. Sofia
g. Other
Segment analysis of rental income and costs for the year ended 31 December 2020 and
31 December 2019 is presented below:
Year ended
31 December 2020
Year ended
31 December 2019
Portfolio
Revenues
Costs
Gross
margin
Revenues
Costs
Gross
margin
Poland
65,227
(19,218)
46,009
75,793
(20,499)
55,294
Belgrade
33,806
(8,485)
25,321
29,542
(6,658)
22,884
Budapest
21,926
(4,900)
17,026
24,195
(5,792)
18,403
Bucharest
17,229
(2,969)
14,260
17,497
(3,103)
14,394
Zagreb
11,004
(3,684)
7,320
11,624
(3,893)
7,731
Sofia
10,929
(2,271)
8,658
11,111
(1,931)
9,180
Total
160,121
(41,527)
118,594
169,762
(41,876)
127,886
93
Segment analysis of assets and liabilities as of 31 December 2020 is presented below:
Real
estate
Cash
and
deposits
Other
Total
assets
Loans,
bonds
and
leases
Deferred
tax
liability
Other
Total
liabilities
Poland
906,313
44,939
3,872
955,124
532,127
59,536
14,005
605,668
Belgrade
370,123
13,316
3,711
387,150
211,497
10,373
8,628
230,498
Budapest
321,704
149,239
4,680
475,623
223,862
12,240
17,617
253,719
Buchares
t
197,247
13,527
1,119
211,893
104,974
11,816
3,103
119,893
Zagreb
159,319
5,905
12,305
177,529
67,142
16,728
4,383
88,253
Sofia
179,109
11,609
1,087
191,805
93,212
8,337
6,850
108,399
Other
9,521
17
18
9,556
-
-
1,141
1,141
Non
allocated
71,857
220
72,077
78,370
14,200
6,468
99,038
Total
2,143,336
310,409
27,012
2,480,757
1,311,184
133,230
62,195
1,506,609
Segment analysis of assets and liabilities as of 31 December 2019 is presented below:
Real
estate
Cash
and
deposits
Other
Total
assets
Loans,
bonds,
and
leases
Deferred
tax
liability
Other
Total
liabilities
Poland
978,398
38,399
5,062
1,021,859
516,539
70,600
10,506
597,645
Belgrade
404,219
18,427
5,625
428,271
216,805
13,570
19,545
249,920
Budapest
326,832
20,364
4,705
351,901
126,524
14,090
5,756
146,370
Bucharest
219,271
10,578
1,941
231,790
110,272
12,844
4,793
127,909
Zagreb
160,366
4,305
12,326
176,997
58,710
17,538
7,161
83,409
Sofia
166,070
8,825
1,733
176,628
79,321
8,940
5,360
93,621
Other
12,029
20
15
12,064
-
-
1,184
1,184
Non
allocated
122,886
346
123,232
151,249
9,650
3,123
164,022
Total
2,267,185
223,804
31,753
2,522,742
1,259,420
147,232
57,428
1,464,080
94
5.6 Consolidated cash flow statement
5.6.1 Key items from consolidated cash flow statement
NET CASH FROM (USED IN) OPERATING ACTIVITIES
The operating cash flow is the cash that the Group generates through running its business and
comprises cash inflows from rental activities.
NET CASH USED IN INVESTING ACTIVITIES
The investing cash flow is the aggregate change in the Group’s cash position resulting from
any gains (or losses) from investments in the financial markets, investment properties, and
operating subsidiaries, as well as changes resulting from amounts spent on investments in
capital assets, such as property, plant, and equipment.
NET CASH FROM (USED IN) FINANCING ACTIVITIES
The cash flow from (used in) financing activities accounts for, inter alia, the payment of cash
dividends, receiving proceeds from loans or bonds, and issuing stock.
CASH AND CASH EQUIVALENTS
Cash balance consists of cash in banks. Cash in banks may earn interest at floating rates
based on daily bank deposit rates if those are positive. Short-term deposits are made for
varying periods of between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term deposit rates if those
are positive. All cash is deposited in banks. All cash and cash equivalents are available for use
by the Group.
95
5.6.2 Cash flow analysis
The table below presents an extract of the cash flow for the period of twelve months ended on
31 December 2020 and 2019:
Year ended 31
December
Year ended 31
December
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash from operating activities
100,325
101,407
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditure on investment property
(78,528)
(144,688)
Decrease in short term deposits
5,923
5,579
Purchase of subsidiary, completed assets, land, and minority
(23,270)
-
Sale (including advances) of investment property
64,569
80,504
Proceeds related to the expropriation of land
-
4,917
Sale of shares in associates and subsidiaries
-
42,834
VAT/tax on purchase/sale of investment property
953
857
Interest received
55
115
Net cash used in investing activities
(30,298)
(9,882)
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution of dividend
-
(37,992)
Proceeds from long-term borrowings
286,807
292,962
Repayment of long-term borrowings
(224,293)
(200,918)
Interest paid
(32,068)
(30,430)
Repayment of lease liability
(162)
(1,739)
Loans origination cost
(1,983)
(2,390)
Dividend granted to non-controlling interest
(420)
(429)
Loan granted to non-controlling interest
-
(429)
Decrease/(increase) in short term deposits
(168)
(11,086)
Net cash from (used in) financing activities
27,713
7,549
Effect of foreign currency translation
(5,380)
106
Net increase/(decrease) in cash and cash equivalents
92,360
99,180
Cash and cash equivalents, at the beginning
of the year
179,636
80,456
Cash and cash equivalents, at the end of the year
271,996
179,636
96
Net cash flow from operating activities decreased to €100,325 in the year ended 31 December
2020 compared to €101,407 in the year ended 31 December 2019. The decrease is mainly
due to the impact of COVID-19 outbreak (decrease in income due to the rent relief imposed by
governments during lockdowns of shopping malls and rent concessions and discounts
provided by the Group across the portfolio) in the amount of €14,700 combined with a decrease
in operating cash flow following the sale of GTC White House and Neptun Office Center in
amount of €3,870. The decrease was partially offset by the completion of Ada Mall, Green
Heart, ABC I, and Matrix A of €8,980 and execution of phantom shares which impacted 2019
cash flow from operating activity in the amount of €5,900.
Net cash flow used in investing activities amounted to €30,298 in the year ended 31 December
2020 compared to €9,882 used in the year ended 31 December 2019. Cash flow used in
investing activities mainly composed of (i) expenditure on investment properties of €78,528
related to: Green Heart, Advance Business Center, Matrix, Pillar and Sofia Tower 2, (ii)
proceeds from sale (including advances) of investment property of €64,569 (iii) purchase of
completed assets and land of €21,468 (iv)decrease in short term blocked deposits of €5,923
and (v) a purchase of minority of €1,802.
Net cash flow from financing activities amounted to €27,713 in the year ended 31 December
2020, compared to €7,549 of cash flow from financing activities in the year ended 31 December
2019. Cash flow from financing activities mainly composed of (i) proceeds from long-term
borrowings for the year ended 31 December 2020 in the amount of €286,807 that are related
mainly to the bond issue with the total value of €110,000, loans related to assets under
construction in the amount of €42,043, refinancing of loans related to Galeria Jurajska in the
amount of €130,000; (ii) repayment of long-term borrowings in the amount of €224,293 mainly
loan repayment of €84,000 related to Galeria Jurajska, loan repayment of €9,500 related to
Galeria Północna, settlement of maturing bonds in amount of 68,600, repayment of Spiral Loan
in amount of €18,645 as well as amortization of existing loans in the amount of €38,537; and
(iii) interest paid in the amount of €32,068.
Cash and cash equivalents as of 31 December 2020 amounted to €271,996 compared to
€179,636 as of 31 December 2019. The Group keeps its cash in the form of bank deposits.
5.7 Future liquidity and capital resources
As of 31 December 2020, the Group believes that its cash balances, cash generated from
leasing activities of its investment properties, and cash available under its existing and future
loan facilities will fund its needs.
The Group endeavors to efficiently manage all its liabilities and is currently reviewing its funding
plans related to (i) development and acquisition of commercial properties, (ii) debt servicing of
its existing assets portfolio, and (iii) CAPEX. Such funding will be sourced through available
cash, operating income, and refinancing.
97
As of 31 December 2020, the Group’s non-current liabilities amounted to €1,274,363
compared to €1,192,168 as of 31 December 2019.
The Group’s total debt from long and short-term loans and borrowings as of 31 December
2020 amounted to €1,261,292 as compared to €1,206,222 as of 31 December 2019.
The Group’s loans and borrowings are mainly denominated in Euro. Debt in other currencies
includes bonds (series mature in 2022-2023) in PLN and bonds issued by Hungarian
subsidiary in HUF (series mature in 2030).
The Group’s loan-to-value ratio amounted to 45% as of 31 December 2020, as compared to
44% as of 31 December 2019. The Group’s strategy is to keep its loan-to-value ratio at a level
not exceeding 50%.
As of 31 December 2020, 95% of the Group’s loans (by value) were hedged against interest
fluctuations, mostly through interest rate swaps and cap transactions.
Availability of financing
In the CEE and SEE markets, real estate development companies, including the companies
of the Group, usually finance their real estate projects with proceeds from bank loans, loans
extended by their holding companies, or the issuance of debt securities. The availability and
cost of procuring financing are of material importance to the implementation of the Group’s
projects and for the Group’s development prospects, as well as its ability to repay existing debt.
Finally, the availability and cost of financing may impact the Group’s development dynamics
and the Group’s cash flow and net profit.
Traditionally, the principal sources of financing for the Group’s core business included rental
revenues, bank loans, proceeds from bonds issued by the Company, and proceeds from asset
disposals.
With reference to the COVID-19 outbreak, the management has prepared and analyzed cash
flow budget based on certain hypothetical defensive assumptions to assess the
reasonableness of the going concern assumption in view of the current developments on the
market. This analysis assumed certain loan repayment acceleration, negative impact on NOI,
as well as other offsetting measures, which the Management may take to mitigate the risks,
including deferring the development activity and dividend pay-out.
Based on management’s analysis, the current cash liquidity of the Company, and the budget
assumptions, Management concluded that there is no material uncertainty as to the
Company’s ability to continue as a going concern in the foreseeable future i.e., at least in the
next 12 months. Management notes that it is difficult to predict the ultimate short, medium, and
long-term impact of the macroeconomic conditions on the financial markets and the
Company’s activities, but the expected impact may be significant. Accordingly, Management
conclusions will be updated and may change from time to time.
98
More information regarding the impact of the COVID-19 outbreak is presented in the audited
consolidated financial statements for the year ended 31 December 2020 in Note 36 COVID-
19.
6. Information on the use of proceeds from the issuance of shares and bonds
On 7 December 2020 GTC Real Estate Development Hungary Zrt. issued 10 years green
bonds with the total nominal value of €110,000 denominated in HUF to finance real estate
acquisition, redevelopment and construction projects as well as refinance existing debt by the
issuer and guarantor (or other members of the guarantor’s group). The bonds are fully and
irrevocable guaranteed by the Company and were issued at yield of 2.33%. with an annual
fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7
th
year with the
70% of the value paid at the maturity on 7 December 2030. (see current report no 32/2020).
As at 31 December 2020, the proceeds were not allocated. The net proceeds from the
issuance of the bonds amounted to €109,200 and will be used for acquisition, redevelopment,
and construction of real estate projects which meet recognized green building standards, such
as BREEAM (Very good and above) and LEED (Gold and above) in line with Group’s Green
Bonds Framework as well as refinance existing debt.
7. Information on loans granted with a particular emphasis on related entities
As of 31 December 2020, the Group does not have any long-term loans granted to its
associates or joint ventures.
8. Information on granted and received guarantees with a particular emphasis on
guarantees granted to related entities
In December 2020, the Company guaranteed bonds issued by GTC Real Estate Development
Hungary Zrt with the total nominal value of €110,000 nominated in HUF.
GTC gives guarantees to third parties in the normal course of its business activities. As of 31
December 2020, the guarantees granted amounted to €0.
Additionally, the Company gives typical warranties in connection with the sale of its assets,
under the sale agreements, and construction cost-overruns guarantees to secure construction
loans. The risk involved in the above warranties and guarantees is very low.
In the normal course of business activities, the Group receives guarantees from the majority
of its tenants to secure the rental payments on the leased space.
99
9. Off balance liabilities
COMMITMENTS
As of 31 December 2020 (and as at 31 December 2019), the Group had commitments
contracted for in relation to future building construction without specified date, amounting to
€40,000 (€77,000). These commitments are expected to be financed from available cash and
current financing facilities, other external financings, or future installments under already
contracted sale agreements and yet to be contracted sale agreements.
CROATIA
In relation to the Marlera Golf project in Croatia, part of the land is held on a lease basis from
the State. There is furthermore a Consortium agreement with the Ministry of Tourism of Croatia
(Ministry), which includes a deadline for the completion of a golf course that has expired in
2014. If the deadline is not met, then the Ministry has the right to terminate the Consortium
agreement which might automatically trigger the termination of the Land Acquisition
Agreements, as well as collateral activation and damages claims. Prior to 2014, the Company
has taken active steps to achieve an extension of the period for completing the project. In
February 2014, the Company received a draft amendment from the Ministry expressing its
good faith and intentions to prolong the abovementioned timeline however, the amendment
was not formalized since then. Since the formalization of the amendment is not at the sole
discretion of the Group, the Management has decided to revalue the freehold asset in
assuming no development of the golf course project. Furthermore, as a prudential measure,
the Management has also written off the related collateral in the amount of €1,000 provided to
the Ministry as a guarantee for completing the golf course. As of 31 December 2020 the book
value of the investment in Marlera Golf project was assessed by an independent valuer at
€6,800.
10. Major investments, local and foreign (securities, financial instruments,
intangible assets, real estate), including capital investments outside the Group
and its financing method
The Group does not have any major local or foreign investments other than direct investments
in real estate properties designated for development or through companies that hold such real
estate.
11. Information on risk management
The Group’s principal financial instruments comprise bank and shareholders’ loans, bonds,
hedging instruments, trade payables, and other long-term financial liabilities. The main
purpose of these financial instruments is to finance the Group’s operations. The Group has
100
various financial assets such as trade receivables, loans granted, derivatives, and cash and
short-term deposits.
The main risks arising from the Group’s financial instruments are cash flow interest risk,
liquidity risk, foreign currency risk, and credit risk.
INTEREST RATE RISK
The Group exposure to changes in interest rates that are not offset by hedge relates primarily
to the Group's long-term debt obligations and loans granted.
The Group’s policy is to obtain finance bearing variable interest rates. To manage the interest
rate risk in a cost-efficient manner, the Group enters into interest rate swaps, swap currency,
or cap transactions.
The majority of the Group’s loans are nominated or swapped into Euro.
As at 31 December 2020, 95% of the Group’s borrowings are hedged. (As at 31 December
2019 – 95%).
A 50bp increase in EURIBOR rate would lead to a €2,022 change in loss before tax.
FOREIGN CURRENCY RISK
The Group enters into transactions in currencies other than the Group's functional currency.
Therefore, it hedges the currency risk by either matching the currency of the inflow, outflow,
and cash and cash equivalent with that of the expenditures.
Exchange rates as of 31 December 2020 and 2019 were as following:
31 December 2020 31 December 2019
PLN/EURO 4.6148 4.2585
101
The table below presents the sensitivity of profit (loss) before tax due to change in foreign
exchange:
2020
2019
PLN/Euro
PLN/Euro
Rate/Percentage
of change
5.0763
(+10%)
4.8455
(+5%)
4.3841
(-5%)
4.1533
(-10%)
4.6844
(+10%)
4.4714
(+5%)
4.0456
(-5%)
3.8327
(-10%)
Cash and blocked
deposits
(4,303)
(2,151)
2,151
4,303
(8,105)
(4,053)
4,053
8,105
Trade and other
receivables
(353)
(176)
176
353
(519)
(259)
259
519
Trade and other
payables
1,052
526
(526)
(1,052)
818
409
(409)
(818)
Land leases
3,172
1,586
(1,586)
(3,172)
3,486
1,743
(1,743)
(3,486)
The Group does not see any credit risk related to bond denominated in PLN and HUF.
Exposure to other currencies and other positions in the statement of financial position are not
material.
CREDIT RISK
Credit risk is the risk that a party to a financial instrument will fail to discharge an obligation.
To manage this risk, the Group periodically assesses the financial viability of its customers.
The Group does not expect any counterparties to fail in meeting their obligations. The Group
has no significant concentration of credit risk with any single counterparty or Group
counterparties.
With respect to trade receivables and other receivables that are neither impaired nor past due,
there are no indications as of the reporting date that those will not meet their payment
obligations.
With respect to credit risk arising from the other financial assets of the Group, which comprise
cash and cash equivalents and blocked deposits, the Group’s exposure to credit risk equals
the carrying amount of these instruments.
The maximum exposure to credit risk as of the reporting date is the full amount presented.
There are no material financial assets as of the reporting dates, which are overdue and not
impaired. There are no significant financial assets impaired.
LIQUIDITY RISK
As at 31 December 2020, the Group holds Cash and Cash Equivalent (as defined in IFRS) in
the amount of approximately €272,000. As described above, the Group attempts to efficiently
manage all its liabilities and is currently reviewing its funding plans related to (i) debt servicing
of its existing assets portfolio; (ii) CAPEX; and (iii) development of commercial properties. Such
102
funding will be sourced through available cash, operating income, sales of assets, and
refinancing. The management board believes that based on its current assumptions, the Group
will be able to settle all its liabilities for at least the next twelve months.
Repayments of long-term debt and interest are scheduled as follows (Euro million)
(the amounts are not discounted):
31 December
2020
31 December
2019
First year
218
251
Second year
211
189
Third year
204
199
Fourth year
272
198
Fifth year
155
270
Thereafter
292
196
1,352
1,303
The above table does not contain payments relating to the market value of derivative
instruments. The Group hedges significant parts of the interest risk related to floating interests
rate with derivative instruments. Management plans to refinance some of the repayment
amounts.
All derivative instruments mature within 1-5 years from the balance sheet date.
Maturity dates of current financial liabilities as of 31 December 2020 were as following:
Total
Overdue
Up to a
month
From a
month to
three
months
From three
months to
one year
Investment and trade
payables and provisions
27,299
6,289
5,905
15,105
Current portion of long-
term borrowing
193,425
19,284
49,874
124,267
VAT and other taxes
payable
1,551
1,551
-
-
Deposits from tenants
1,790
149
448
1,193
Lease liabilities
163
41
122
Income tax payable
4,220
76
11
4,133
Derivatives
3,365
841
2,524
231,813
-
27,349
57,120
147,344
103
Some loans classified as current liabilities were refinanced post balance sheet data (please
refer to note 37 in consolidated financial statement for the year ended 31 December 2020).
Maturity dates of current financial liabilities as of 31 December 2019 were as following:
Total
Overdue
Up to a
month
From a
month to
three
months
From three
months to
one year
Investment and trade
payables and provisions
37,289
6,674
14,374
16,241
Current portion of long-
term borrowing
225,350
1,965
111,172
112,213
VAT and other taxes
payable
1,817
1,817
-
-
Deposits from tenants
1,605
117
433
1,055
Lease liabilities
208
-
52
156
Income tax payable
1,542
410
-
1,132
Derivatives
3,739
66
868
2,805
271,550
-
11,049
126,899
133,602
FAIR VALUE
As of 31 December 2020, and 2019, all bank loans bear floating interest rates (however, as of
31 December 2020 and 2019, 95% of loans are hedged). The fair value of the loans, which is
related to the floating component of the interest, equals the market rate.
Fair value of all other financial assets/liabilities is close to carrying value.
For the fair value of investment property, please refer to note 17 consolidate financial statement
for the year ended 31 December 2020.
FAIR VALUE HIERARCHY
As at 31 December 2020 and 2019, the Group held several hedge instruments carried at fair
value on the statement of financial position.
The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities,
Level 2: other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly,
Level 3: techniques that use inputs that have a significant effect on the recorded fair value that
are not based on observable market data.
104
Valuations of hedges are considered as level 2 fair value measurements. During the year
ended 31 December 2020 and 31 December 2019, there were no transfers among Level 1 and
Level 3 fair value measurements.
PRICE RISK
The Group is exposed to fluctuations in the real estate markets in which it operates. These can
have an effect on the Group’s results (due to changes in the market rent rates and in occupancy
of the leased properties). Further risks are detailed in the Management Report as of 31
December 2020.
CAPITAL MANAGEMENT
The primary objective of the Group’s capital management is to provide for operational and
value growth while prudently managing the capital and maintaining healthy capital ratios in
order to support its business and maximize shareholder value.
The Group manages its capital structure and adjusts it to dynamic economic conditions. While
observing the capital structure, the Group decides on leverage policy, loans raising and
repayments, investment or divestment of assets, dividend policy, and capital raise, if needed.
No changes were made in the objectives, policies, or processes during the years ended 31
December 2020 and 31 December 2019.
The Group monitors its gearing ratio, which is Gross Project and Corporate Debt less Cash &
Deposits, (as defined in IFRS) divided by its real estate investment value. The Group’s policy
is to maintain the loan-to-value (“LTV”) ratio at a level not higher than 50%.
31 December
2020
31 December
2019
(1) Loans, net of cash and deposits (*)
949,192
980,903
(2) Investment properties (exc. land leases),
residential landbank, assets held for sale and
building for own use
2,099,300
2,220,994
LTV ratio [(1)/(2)]
45.2%
44.2%
(*) Excluding loans from non-controlling interest and deferred issuance debt expenses.
12. Remuneration policy and human resources management
12.1 Remuneration policy
On 27 August 2020, the general meeting approved a Remuneration Policy of the Group. The
Remuneration Policy governs the remuneration of the management and supervisory board
members.
105
REMUNERATION OF THE MANAGEMENT BOARD
In accordance with the Remuneration Policy, the remuneration of the members of the
management board is determined by the supervisory board and is set at a level appropriate to
the roles assigned to individual persons and related responsibilities and takes into account the
performance of any additional functions, qualifications and professional experience, the current
market and economic situation, as well as the Company’s financial and operational situation
and needs.
Members of the management board are entitled to the following components of remuneration:
(i) fixed remuneration; (ii) variable remuneration in the form of an annual bonus; (iii) Phantom
shares or other incentive programs either based on the Company’s shares or the movement
of prices of these shares to be established in the future by the general meeting or the
supervisory board; (iv) compensation for compliance with the non-compete clause; and (v) a
severance payment related to the termination of the legal relationship with the Company.
With respect to the variable components of remuneration in the form of an Annual Performance
Bonus, as defined in the Remuneration Policy, it is designed to be motivational and to reward
the members of the management board for fulfilling their roles, discharging their responsibilities
and delivering superior results. Annual Performance Bonus targets and the related payouts
reflect a range of expected levels of performance. Members of the management board may be
entitled to the Annual Performance Bonus if they achieve the minimum level of the set targets
in the given financial year. The Annual Performance Bonus should amount to a particular
percentage or part of the maximum bonus amount, as specified in the contract with a particular
member of the management board, depending on the level of achievement of the set targets.
The Annual Performance Bonus awarded to members of the management board is determined
by the supervisory board.
The Annual Performance Bonus is paid after the approval of the annual financial statements
by the supervisory board of the Company. As of the date of this Report, the Annual
Performance Bonus for 2020 has not yet been paid.
Moreover, the management board members may receive and have received in 2020 additional
benefits, such as: (i) private medical care, including for family members; and (ii) the use of
company cars, company telephones and other electronic devices for private purposes and the
covering of their costs.
The members of the management board may also receive compensation for compliance with
the non-compete clause following the end of an engagement, however, the Company has
exercised its right to withdraw from such non-compete obligations and such compensation has
not been paid to the former members of the management board.
During the 2020 financial year, and in line with the Company’s approved Policy regarding the
remuneration of the management board members, management board members received a
base fixed remuneration as well as variable elements of the remuneration in accordance with
the relevant contract concluded with the Company or other entity from the Company’s capital
group. The establishment of a link between the management board member's remuneration in
a form of Phantom Shares and the increase in the Company's share prices aligns such
members’ personal interest with the interests of the shareholders. The implementation of the
106
Company’s strategy and commitment to long-term interests should have a positive impact on
the Company’s share prices, which in turn should translate into higher remuneration of the
management board members. In addition, it also increases the motivation of management
board members and facilitates in the Company retaining them and, as such, contributes to the
stability of the Company.
REMUNERATION OF THE SUPERVISORY BOARD
Members of the supervisory board are entitled only to monthly fixed remuneration for
performing their functions, or if performing additional functions in a separate committee(s), they
are entitled to additional monthly fixed remuneration. The amount of the above-mentioned
remuneration is determined by the general meeting. There are no performance-based variable
components of remuneration or financial or non-financial benefits awarded to members of the
supervisory board.
In 2020, there were changes in the composition of the supervisory board. The remuneration
paid to the supervisory board members was granted and paid in compliance with the
Remuneration Policy as the supervisory board members were granted only fixed remuneration
for holding a position on the board and, in some cases, additional remuneration for performing
additional functions in a separate committee(s) of the supervisory board.
12.2 Incentive system
The Company has a remuneration and incentive system that consists of a bonus for meeting
specific goals or objectives set by the management board or supervisory board (as the case
may be) or achieving special achievements. The Company’s management board members
key managers are also incentivized by participation in Phantom Shares program, according to
which a certain number of phantom shares is vested to the employee once a year.
The Phantom Shares grant to the entitled persons a right for a settlement from the Group in
the amount equal to the difference between the average closing price for the Company’s
shares on the Warsaw Stock Exchange during the 30-day period prior to the date of delivery
to the Company of the exercise notice, and settlement price (“strike”) amount per share
(adjustable for dividend). The Phantom Shares are not securities convertible or exchangeable
into shares in the Company, in particular, they are not options on such shares. The Phantom
Shares are merely a means of calculation of deferred variable compensation of the entitled
persons, which depends on the future market price of the shares on the regulated market.
The company uses binomial model to evaluate the fair value of the phantom shares. The input
data includes the date of valuation, strike price, and expiry date.
107
The Phantom shares (as presented in below mentioned table) have been accounted for based
on future cash settlement.
Strike (PLN)
Blocked
Vested
Total
6.11
100,000
751,200
851,200
6.31
4,275,000
20,000
4,295,000
Total
4,375,000
771,200
5,146,200
As at 31 December 2020, phantom shares issued were as follows:
Last year of exercise date
Number of phantom shares
2021
500,000
2022
220,000
2023
4,426,200
Total
5,146,200
As at 31 December 2019, phantom shares issued were as follows:
Last year of exercise date
Number of phantom shares
2020
50,000
2021
1,837,400
2022
330,000
Total
2,217,400
The number of phantom shares were changed as follows:
Number of phantom shares as of
1 January 2020
2,217,400
Granted during the period
4,275,000
Exercised during the year
(1,346,200)
Number of phantom shares as of
31 December 2020
5,146,200
108
12.2.1.1 Phantom Shares program control system
Granting Phantom Shares to members of the management board and setting their condition is
reviewed and approved by the Remuneration Committee and the supervisory board and is in
accordance with the Remuneration Policy.
Remuneration to other key personnel is set by the management board.
12.3 Number of employees
As of 31 December 2020 and 2019, the number of full time equivalent working in the Group
companies was 209 and 197, respectively.
12.4 Training policy
The Company offers its employees various forms to raise professional qualifications. The key
strategic training and workshops are conducted by external companies. Such training
opportunities focus mainly on market and product knowledge, marketing, processes, and IT
applications competencies, asset management, legal, tax, and accounting. The Company
believes that such training is increasing the employee’s commitment to the performance of
business tasks, improving his/her skills, and maintaining high customer service quality.
12.5 Agreements concluded between GTC and management board members
The Company has concludes agreements with its members of the board, providing for their
basic compensation, performance-related bonus, participation in the Phantom Share program,
severance payment in the case of their dismissal. Furthermore, the agreements contain a non-
competition clause and confidentiality clause.
12.6 Evaluation of the remuneration policy for the realization of its objectives
The remuneration policy is consistent with the shareholders' target to have a long-term
increase in shareholder value. Furthermore, it aims to provide stability in managing the
Company and carrying out its policies by attracting and retaining highly skilled employees
across the organization and operation countries of the Company. Such goals guarantee
motivation for quality work and the good attitude of employees, stable financial results, in the
long run, sound and effective risk management, supporting the implementation of the business
strategy, and the reduction of conflict of interest.
109
12.7 Remuneration of the Members of the management board and supervisory
board
MANAGEMENT BOARD
The following table presents the remuneration of the members of the management board
as of 31 December 2020 for the 12 months ended 31 December 2020:
Name
Periods
Fixed
remuneration¹
(€)
(not in
thousand)
Variable
remuneration¹
(€)
(not in
thousand)
Vested
Phantom
Shares
(not in
thousand)
Yovav Carmi
16 April - 31 December
219,284
-
150,000
Erez Boniel
1 January – 28 July
408,177
358,564
300,000
Ariel Ferstman
28 July - 31 December
99,515
-
Thomas Kurzmann
1 January - 23 June
249,444
599,213
500,000
Gyula Nagy
1 July - 31 December
18,000
-
-
Robert Snow
23 June - 31 December
166,480
-
100,000
¹ Remuneration (or fees to entities in which the holder is key personnel) consists of payment for 2020 and
success fee amounts paid for present and the past year in addition to Group’s Phantom Shares program
exercised during 2020, as detailed in Item 12.2. Phantom shares.
During 2020, the following changes in the composition of the management board took place:
 on 16 April 2020, the supervisory board of the Company appointed Mr. Yovav Carmi
as a member of the management board of the Company (see current report no 7/2020);
 on 22 June 2020, the supervisory board of the Company dismissed Mr. Thomas
Kurzmann from the position of member of the management board of the Company and
appointed Robert Snow to the management board of the Company effective as of the
moment of receipt by the Company of the notification issued by LSREF III GTC
INVESTMENTS B.V. regarding the indirect disposal of shares in the share capital of
the Company resulting from the disposal by LSREF III GTC INVESTMENTS B.V. of all
of the shares in the share capital of GTC DUTCH HOLDINGS B.V (see current reports
no 11/2020 and 13/2020);
 on 1 July 2020, the supervisory board of the Company appointed Mr. Gyula Nagy as a
member of the management board of the Company (see current report no 16/2020);
 on 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate
his appointment as a member to the management board of the Company (see current
report no 18/2020);
110
 on 28 July 2020, the supervisory board of the Company appointed Mr. Ariel Alejandro
Ferstman as a member of the management board of the Company(see current report
no 18/2020);
 on 18 September 2020, the supervisory board of the Company appointed Mr. Yovav
Carmi as the President of the management board of the Company. Mr. Carmi has been
a member of the management board of the Company since 16 April 2020 (see current
report no 25/2020).
SUPERVISORY BOARD
The following table presents the remuneration of the members of the supervisory board as
of 31 December 2020 for the 12 months ended 31 December 2020:
Name
Periods
Remuneration
(€)
(not in thousand)
Zoltán Fekete
23 June - 31 December 2020
13,394
János Péter Bartha
23 June - 31 December 2020
12,689
Péter Bozó
23 June - 8 December 2020
9,944
Olivier Brahin
1 January - 23 June 2020
-
Lóránt Dudás
8 December – 31 December 2020
1,393
Jan-Christoph Düdden
1 January - 23 June 2020
-
Balázs Figura
23 June - 31 December 2020
11,279
Mariusz Grendowicz
1 January - 31 December 2020
26,998
Patrick Haerle
1 January - 23 June 2020
-
Christian Harlander
16 April - 23 June 2020
-
Alexander Hesse
1 January – 16 April 2020
-
Marcin Murawski
1 January - 31 December 2020
28,348
Katharina Schade
1 January - 23 June 2020
-
Bálint Szécsényi
23 June - 31 December 2020
11,279
Ryszard Wawryniewicz
1 January - 31 December 2020
22,698
111
During 2020, the following changes in the composition of the supervisory board took place:
 on 9 April 2020, Mr. Alexander Hesse, Chairman of the supervisory board, resigned
from the supervisory board of the Company, effective 16 April 2020 (see current report
no 5/2020);
 on 16 April 2020, the GTC Dutch Holdings B.V appointed Mr. Christian Harlander as a
supervisory board member (see current report no 6/2020);
 on 16 April 2020, the supervisory board of the Company chose Mr. Jan-Christoph
Düdden as a chairman of the supervisory board;
 on 23 June 2020, the Company received resignations of the following members of the
supervisory board of Globe Trade Centre S.A.: Jan-Christoph Düdden, Olivier Brahin,
Patrick Haerle, Christian Harlander, and Katharina Schade, such resignations being
effective as of the moment of receipt by the Company of the notification issued by
LSREF III GTC INVESTMENTS B.V. regarding the indirect disposal of shares in the
share capital of the Company resulting from the disposal by LSREF III GTC
INVESTMENTS B.V. of all of the shares in the share capital of GTC DUTCH
HOLDINGS B.V. (see current reports no 12/2020 and 13/2020);
 on 23 June 2020, the GTC Dutch Holdings B.V appointed Dr. Zoltán Fekete, Mr.Balázs
Figura, Dr. János Péter Bartha, Mr. Bálint Szécsényi and Mr. Péter Bozó as members
of the supervisory board of the Company, effective immediately (see current report no
14/2020);
 on 1 July 2020, the supervisory board of the Company chose Mr. Zoltán Fekete as a
Chairman of the supervisory board;
 on 8 December 2020, Dutch Holdings B.V. dismissed Mr. Péter Bozó and appointed
Mr. Lóránt Dudás as a member of the supervisory board of the Company, effective
immediately (see current report no 33/2020).
12.8 Information on any liabilities arising from pension and similar benefits for
former members of the management board and the supervisory board
There are no liabilities arising from pension and similar benefits for former members of the
management board and the supervisory board.
112
13. Shares in GTC held by members of the management board and the supervisory
board
SHARES HELD BY MEMBERS OF THE MANAGEMENT BOARD
The following table presents shares owned directly or indirectly by members of the Company’s
management board of 23 March 2021, the date of publication of this annual report, and
changes in their holdings since the date of publication of the Group’s last financial report
(interim report for the three and nine-month period ended 30 September 2020) on 24
November 2020.
The information included in the table is based on information received from members of the
management board.
Management board member
Balance as of
23 March 2021
(not in
thousand)
The nominal
value of shares
in PLN
(not in
thousand)
Change since
24 November
2020
(not in
thousand)
Yovav Carmi
0
0
No change
Ariel Ferstman
5,240
524
No change
Gyula Nagy
0
0
No change
Robert Snow
0
0
No change
Total
5,240
524
SHARES OF GTC HELD BY MEMBERS OF THE SUPERVISORY BOARD
The following table presents shares owned directly or indirectly by members of the Company’s
supervisory board of 23 March 2021, the date of publication of this annual report, and changes
in their holdings since the date of publication of the Group’s last financial report (interim report
for the three and nine-month period ended 30 September 2020) on 24 November 2020.
113
The information included in the table is based on information received from members of the
supervisory board.
Members of supervisory board
Balance as of
23 March
2021
(not in
thousand)
The nominal
value of shares
in PLN
(not in thousand)
Change since
24 November
2020
Zoltán Fekete
0
0
No change
János Péter Bartha
0
0
No change
Péter Bozó ¹
0
0
No change
Lóránt Dudás ²
0
0
No change
Balázs Figura
0
0
No change
Mariusz Grendowicz
13,348
1,335
No change
Marcin Murawski
0
0
No change
Bálint Szécsényi
0
0
No change
Ryszard Wawryniewicz
0
0
No change
Total
13,348
1,335
¹ Balance as of 8 December 2020
² Change since 8 December 2020
14. Transactions with related parties concluded on terms other than market terms
The Group presents information on the material transactions that the Company, or its
subsidiaries, concluded with a related party in the consolidated financial statements for the
financial year ended 31 December 2020 in Note 33 Related Party Transactions.
15. Information on signed and terminated loan agreements within a given year
On 31 March 2020, GTC SA repaid all bonds issued under ISIN code PLGTC0000235 (full
redemption). The original nominal value was €18,496.
On 14 June 2020, GTC SA repaid all bonds issued under ISIN code PLGTC0000243 (full
redemption). The nominal value was €40,000.
On 18 December 2020, GTC SA repaid all bonds issued under ISIN code PLGTC0000268 (full
redemption). The nominal value was €10,104.
114
On 13 February 2020, the Group signed with Erste Group Bank AG and Raiffeisenlandesbank
Niederosterreich-Wien AG a loan agreement, which refinanced the existing loan of Galeria
Jurajska with a top-up of €46,000, to a total of €130,000. The loan will expire on 31 March
2025.
On 7 December 2020, GTC Real Estate Development Hungary Zrt. issued 10 years green
bonds with the total nominal value of €110,000 denominated in HUF. The bonds are fully and
irrevocable guaranteed by the Company and were issued at yield of 2.33%. with an annual
fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7
th
year with the
70% of the value paid at the maturity on 7 December 2030.
On 8 December 2020, GTC Real Estate Development Hungary Zrt. entered into cross-
currency interest swap agreements with three different banks to hedge the total green bonds
liability against foreign exchange fluctuations. The green bonds were fixed to the Euro and the
fixed annual coupon was swapped for an interest fixed rate of 0.99%.
In October 2020, the Group repaid the full outstanding amount of the Spiral loan with Erste
Bank. The loan amounted €18,645.
All signed in year 2020 loan agreements are denominated in Euro and interest is based on
margin plus Euribor. The Group pays interest on its long term debt and bonds on average 2.3%
p.a.
16. Information on contracts of which the Company is aware of (including those
concluded after the balance sheet date) which could result in a change in the
shareholding structure in the future
There are no contracts of which the Company is aware of (including those concluded after the
balance sheet date) which could result in a change in the shareholding structure in the future.
17. Proceedings before a court or public authority involving Globe Trade Centre SA
or its subsidiaries the total value of the liabilities or claims is material
There are no individual proceeding or group of proceedings before a court or public authority
involving Globe Trade Centre SA or its subsidiaries, with the total value of liabilities or claims is
material.
115
18. Material contracts signed during the year, including insurance contracts and co-
operation contracts
On 13 February 2020, the Group signed with Erste Group Bank AG and Raiffeisenlandesbank
Niederosterreich-Wien AG a loan agreement, which refinanced the existing loan of Galeria
Jurajska with a top-up of €46,000, to a total of €130,000 (see current report no 3/2020).
On 17 September 2020, a Centrum Światowida Sp. z o.o., a wholly-owned, operating the
Galeria Północna project, entered into an annex to a loan agreement with Bank Pekao SA in
order to relax the debt service coverage ratio (DSCR) covenant and to cure the loan-to-value
(LTV) covenant breach. According to the annex, the subsidiary repaid in advance a part of the
outstanding loan in the amount of €9,500 and agreed to repay additionally up to €3,000 within
12 months of the date of the Annex. DSCR covenant was relaxed for 18 months from the date
of the signed annex. As of the date this Report the financial covenants are cured (see current
report no 24/2020).
On 7 December 2020, GTC Real Estate Development Hungary Zrt issued 10 years green
bonds bonds with the total nominal value of €110,000 denominated in HUF to finance real
estate projects and upstream the funds with refinancing purposes. The bonds are fully and
irrevocable guaranteed by the Company and were issued at yield of 2.33%. with an annual
fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7th year with the
70% of the value paid at the maturity on 7 December 2030 The Bonds (ISIN code:
HU0000360102GTC) are trade on the XBond market in Budapest (see current report no
32/2020).
19. Agreements with an entity certified to execute an audit of the financial
statements
In April 2020, the Company entered into an agreement with BDO spółka z ograniczoną
odpowiedzialnością sp. k., with headquarters located in Warsaw, Postępu 12 Street („BDO”),
for performance of the audit of the standalone financial statements of Globe Trade Centre S.A.
and the consolidated financial statements of Globe Trade Centre Group for the financial year
ended 31 December 2020 and 2021. Additionally to that agreement, the Group entered into
various agreements with BDO in the countries of the relevant Group’s subsidiaries.
The independent external auditor was selected by the resolution of the Company's supervisory
board dated 29 April 2020.
In years 2002-2019, Ernst & Young Audyt Polska Sp. z o.o. sp. k (“Ernst & Young”) has
reviewed and audited financial statements of the Company and Group.
116
The following summary presents a list of services provided by BDO and Ernst & Young as
well as remuneration for the services in the periods of 12 months ended on 31 December
2020 and 31 December 2019.
For year ended
31 December
2020
31 December
2019
€
€
Fee for audit and review of financial statements
440
570
Tax and other advisory services
-
-
Total
440
570
Globe Trade Centre S.A.
REPORT ON APPLICATION OF THE PRINCIPLES OF
CORPORATE GOVERNANCE
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020
2
TABLE OF CONTENTS
1. The principles of corporate governance which the issuer is subject to and the location where
the set of principles is publicly available .......................................................................... 3
2. The principles of corporate governance that the issuer has waived, including the reasons
for such waiver ................................................................................................................. 3
3. The principal characteristics of the internal control and risk management systems used with
respect to the procedure of preparing financial statements and consolidated financial
statements ........................................................................................................................ 4
4. Shareholders who, directly or indirectly, have substantial shareholding, including the
number of shares held by them, the percentage share in the share capital, and the number
of votes attached to their shares in the overall number of votes at the general meeting .. 5
5. Hol ers of any securities that grant special rights of control, including a description of such
rights ............................................................................................................................... 7
6. Restrictions concerning the exercise of voting rights, such as restriction of the exercise of
voting rights by holders of any specific part or number of votes, time restrictions concerning
the exercise of voting rights or regulations whereunder, with the co-operation of the
company, the equity rights related to the securities are separate from holding securities 7
7. Restrictions concerning transfer of the ownership title to securities in Globe Trade
Centre S.A. ...................................................................................................................... 7
8. Rules concerning the appointment and dismissal of management and the rights thereof,
specifically the right to make decisions concerning the issuance and redemption of shares.7
9. Overview of the procedure of amending the Company’s articles of association ................ 8
10. The bylaws of the general meeting and its principal rights and description of rights of
shareholders and their exercise, in particular the rules resulting from the bylaws of the
general meeting, unless information on that scope results directly from the provisions
of law ........................................................................................................................... 8
11. Personnel composition and changes in the previous business year and description of the
functioning of the management, supervisory, or administrative bodies of the Company and
its committees. ...............................................................................................................10
12. Audit partner.................................................................................................................18
13. Diversity policy in terms of the management, supervisory, or administrative bodies of the
Company. .....................................................................................................................20
3
1. The principles of corporate governance to which the issuer is subject and the
location where the set of principles is publicly available
In July 2007, the Council of the Warsaw Stock Exchange adopted a set of principles for the
corporate governance for joint-stock companies issuing shares, convertible bonds, or senior
bonds that are admitted to trading on the stock exchange (the “WSE Best Practices”). The
WSE Best Practices have been amended several times since then and were brought in line with
recent legislative amendments, current international corporate governance trends, and the
expectations of market participants. The last amendment took place on 13 October 2015, when
the Warsaw Stock Exchange supervisory board adopted a resolution approving a new code of
corporate governance, “Best Practice of GPW Listed Companies 2016” which came to force as
at 1 January 2016 and is a base for this report on the application of the principles of corporate
governance for the financial year ended 31 December 2020.
The content of the WSE Best Practices is publicly available on the website of the Warsaw
Stock Exchange dedicated to those issues at https://www.gpw.pl/best-practice.
2. The principles of corporate governance that the issuer has waived, including the
reasons for such waiver
We strive to make every possible effort to employ the corporate governance principles set out
in the WSE Best Practices, and try to follow, in all areas of the Company’s business, all the
recommendations regarding best practices of Warsaw Stock Exchange Listed Companies and
all the recommendations directed to management boards, supervisory boards and
shareholders.
Additionally, to implement a transparent and effective information
policy, the Company provides fast and safe access to information
for shareholders, analysts and investors, employing both traditional
and modern technologies of publishing information about the
Company to the greatest extent possible.
During the vast majority of the year ended 31 December 2020, the Company complied with all
the principles of the WSE Best Practice. The exception was the period from the beginning of
the year to 18 March 2020, when the Company did not meet the “II.Z.3. principle (at least two
members of the supervisory board should meet the criteria of being independent referred to in
principle II.Z.4.).” On 20 December 2019, the Company was notified that on 19 December 2019
PZU Otwarty Fundusz Emerytalny "Złota Jesień" reduced its shares in the total number of votes
and shares of the Company below 10%. Due to the above mentioned, the mandate of Ryszard
Koper as a supervisory board expired pursuant to Article 9 point 2 of the Company’s Articles of
Association. Mr. Ryszard Koper was one of two members of the supervisory board, who met
the independence criteria at the level of the supervisory board. As a result, starting from 20
December 2019 until 18 March 2020, the Company has not met the “II.Z.3. principle. On 18
March 2020, Mr. Ryszard Wawryniewicz confirmed in a statement that he meets the criteria of
We strive to make every
possible effort to
employ all corporate
governance principles
4
an independent member of the supervisory board. As a result the Company again complies with
all the principles of the Best Practices of WSE Listed Companies.
3. The principal characteristics of the internal control and risk management
systems used with respect to the procedure of preparing financial statements
and consolidated financial statements
The management board is responsible for the Company’s internal control system and its
effectiveness in the process of preparing financial statements and interim reports prepared and
published in accordance with the provisions of the Decree of the Finance Minister of 29 March
2018 on current and interim information provided by issuers of securities and the conditions
for accepting, as equivalent, information required by the provisions of a country not being a
member state.
The Company draws on its employees’ extensive experience in the identification,
documentation, recording, and controlling of economic operations, including numerous control
procedures supported by modern information technologies used for the recording, processing,
and presentation of operational and financial data.
In order to ensure the accuracy and reliability of the accounts of the parent and subsidiary
companies, the Company applies a series of internal procedures in the area of transactional
control systems and processes resulting from the activities of the Company and the capital
group.
An important element of risk management, in relation to the financial reporting process, is
ongoing internal controls exercised by main accountants on the holding and subsidiaries level.
The budgetary control system is based on monthly and annual financial and operational
reporting. Financial results are monitored regularly.
One of the basic elements of control in the preparation of financial statements of the
Company and the Group is verification carried out by independent auditors. An auditor is
chosen from a group of reputable firms which guarantee a high standard of service and
independence. The supervisory board approves the choice of the auditor. The tasks of the
independent auditor include, in particular: a review of semi-annual stand-alone and
consolidated financial statements and an audit of annual stand-alone and consolidated
financial statements.
An auditor’s independence is fundamental to ensuring the accuracy of an audit of books. An
audit committee, appointed to the Company’s supervisory board, supervises the financial
reporting process in the Company, in co-operation with the independent auditor, who
participates in the audit committee meetings. The audit committee oversees the financial
reporting process in order to ensure sustainability, transparency, and integrity of financial
information. The audit committee includes one member of the supervisory board who meets
5
the independence criteria set out in the Best Practices of WSE Listed Companies. The audit
committee reports to the supervisory board.
Moreover, under Article 4a of the Act of 29 September 1994 on accounting, the duties of the
supervisory board include ensuring that the financial statements and the report of the
Company’s operations meet the requirements of the law, and the supervisory board carries
out this duty, using the powers under the law and the articles of association of the Company.
This is yet another level of control exercised by an independent body to ensure the accuracy
and reliability of the information presented in the separate and consolidated financial
statements.
4. Shareholders who, directly or indirectly, have substantial shareholding,
including the number of shares held by them, the percentage share in the share
capital, and the number of votes attached to their shares in the overall number
of votes at the general meeting
The following table presents the Company’s shareholders, who had no less than 5% of votes
at the general meeting of GTC S.A. shareholders, as of the date of 31 December 2020.
The table is prepared based on information received directly from the shareholders.
Shareholder
Number of
shares and
rights to the
shares held
(not in
thousand)
% of
share
capital
Number of
votes
(not in
thousand)
% of
votes
Change in
number of
shares since
24 November
2020
(not in
thousand)
GTC Dutch
Holdings B.V.
298,575,091
61.49%
298,575,091
61.49%
No change
GTC Holding
Zártkörüen Müködö
Részvénytársaság¹
21,891,289
4.51%
21,891,289
4.51%
No change
OFE PZU Złota
Jesień²
48,555,169
10.00%
48,555,169
10.00%
No change
AVIVA OFE Aviva
BZ WBK
37,739,793
7.77%
37,739,793
7.77%
No change
Other shareholders
78,793,780
16.23%
78,793,780
16.23%
No change
Total
485,555,122
100.00%
485,555,122
100.00%
¹ directly holds 21,891,289 shares and indirectly through GTC Dutch Holdings B.V. (100% subsidiary of GTC
Holding Zártkörüen Müködö Részvénytársaság) holds 298,575,091 shares.
² holds below the 10% of the total number of votes, exactly 9.9999%
6
In 23 June 2020, the Company received from LSREF III GTC INVESTMENTS B.V. (“LSREF”)
and Lone Star Real Estate Partners III, L.P. (“Lone Star”) a notification of a change in the
shareholding of the Company issued pursuant to Article 69 section 1 item 2 in conjunction with
Article 87 section 5 item 1 of the Act of 29 July 2005 on Public Offering, the Conditions
Governing the Introduction of Financial Instruments to Organised Trading, and on Public
Companies.
As a result of the disposal of the shares held by LSREF III GTC INVESTMENTS B.V. in the
share capital of GTC Dutch Holdings B.V. to GTC Holding Zártkörüen Müködö
Részvénytársaság, the indirect disposal of 298,575,091 shares in the Company constituting
61.49% of the shares in the share capital of the Company, corresponding to 298,575,091 votes
at the general meeting of the shareholders of the Company constituting 61.49% of the votes
at the general meeting of shareholders of the Company occurred (see current report no
13/2020).
On 27 October 2020, the Company received a notification from GTC Holding Zártkörűen
Működő Részvénytársaság with its registered office in Budapest, Hungary (“GTC Holding Zrt”)
regarding an increase to 66% in the total number of votes in the Company. The acquisition of
the above-mentioned shares in the share capital of the Company took place as a result of the
conclusion on 22 October 2020 and settlements on 23 October 2020 (in relation to shares
acquired from other than South African shareholders of the Company) and on 27 October 2020
(in relation to shares acquired from South African shareholders of the Company) of
transactions of the acquisition of the Company’s shares covered by acceptance subscriptions
for the sale of shares under the tender offer for the sale of shares in the Company announced
by GTC Holding Zrt on 7 September 2020. As a result of the above mentioned acquisition,
GTC Holding Zrt holds jointly 320,466,380 shares of the Company, entitling to 320,466,380
votes in the Company, representing 66% of the share capital of the Company and carrying the
right to 66% of the total number of votes in the Company, including:
 directly holds 21,891,289 shares of the Company, entitling to 21,891,289 votes in the
Company, representing 4.51% of the share capital of the Company and carrying the right
to 4.51% of the total number of votes in the Company; and
100
7
 indirectly (i.e. through the GTC Dutch Holdings B.V.holds 298,575,091 shares of the
Company, entitling to 298,575,091 votes in the Company, representing 61.49% of the share
capital of the Company and carrying the right to 61.49% of the total number of votes in the
Company (see current report no 28/2020).
5. Holders of any securities that grant special rights of control, including a
description of such rights
There are no special rights of control that would be attached to any securities in Globe Trade
Centre S.A.
6. Restrictions concerning the exercise of voting rights, such as restriction of the
exercise of voting rights by holders of any specific part or number of votes, time
restrictions concerning the exercise of voting rights or regulations whereunder,
with the co-operation of the Company, the equity rights related to the securities
are separate from holding securities
There are no restrictions applicable to the exercise of voting rights such as restriction of the
exercise of voting rights by holders of any specific part or number of shares, any time
restrictions applicable to the exercise of voting rights or regulations whereunder, with the co-
operation of Globe Trade Centre S.A., the equity rights related to securities would be separate
from holding securities.
7. Restrictions concerning the transfer of the ownership title to securities in Globe
Trade Centre S.A.
There are no limitations of transfer of ownership title to securities, except for those limitations
that are resulting from the general provisions of the law, in particular contractual limitations
regarding the transfer of the ownership rights to the securities issued by the Company.
8. Rules concerning the appointment and dismissal of management and the rights
thereof, specifically the right to make decisions concerning the issuance and
redemption of shares.
Pursuant to Art. 10, the Company’s statute the management board consists of one to seven
members, appointed by the supervisory board for a three-year term.
Additionally, the supervisory board designates the president of the management board and
deputy thereof.
8
The management board of the Company is responsible for the Company’s day-to-day
management and for its representation in dealing with third parties. All issues related to the
Company’s operations are in the scope of activities of the management board unless they are
specified as the competence of the supervisory board or the general meeting by the provisions
of applicable law or the articles of association.
Members of the management board participate, in particular, in general meetings and
provide answers to questions asked during general meetings. Moreover, members of the
management board invited to a supervisory board meeting by the chairman of the
supervisory board participate in such meeting, with a right to voice their opinion on issues
on the agenda.
The general meeting takes decisions regarding the issuance or buying back of shares in the
Company. The competencies of the management board in the scope are limited to execution
of any resolutions adopted by the general meeting.
9. Overview of the procedure of amending the Company’s articles of association
A change to the Company’s articles of association requires a resolution of the general meeting
and an entry into the Court register. The general provisions of law and the articles of
association govern the procedure of adopting resolutions regarding changes to the articles of
association.
10. The bylaws of the general meeting and its principal rights and description of
rights of shareholders and their exercise, in particular the rules resulting from
the bylaws of the general meeting, unless information on that scope results
directly from the provisions of law
The general meeting acts pursuant to the provisions of the Polish Commercial Companies
Code and the articles of association.
The general meeting adopts resolutions regarding, in particular, the following issues:
a) discussion and approval of reports of the management board and the financial
statements for the previous year,
b) decision about allocation of profits or covering of debts,
c) signing off for the performance of duties for the supervisory board and the
management board,
d) determination of the supervisory board remuneration,
e) changes to the articles of association of the Company,
9
g) increase or decrease in the share capital,
h) merger or transformation of the Company,
i) dissolution or liquidation of the Company,
j) issuance of convertible or priority bonds,
k) sale or lease of the Company and the establishment of a right of use or sale of
the Company’s enterprise,
l) all decisions regarding claims for damages upon the establishment of the
Company, or the performance of management or supervision.
A general meeting can be attended by persons who are shareholders of the Company sixteen
days before the date of the general meeting (the day of registration for participation in the
general meeting).
A shareholder who is a natural person is entitled to participate in general meetings and execute
voting rights in person or through a proxy. A shareholder, which is a legal entity, is entitled to
participate in general meetings and execute voting rights through a person authorized to
forward statements of will on their behalf or through a proxy.
A power of attorney to attend a general meeting and exercise voting rights must be in written
or electronic form. For the purposes of identification of the shareholder who granted a power
of attorney, a notice on the granting of such power of attorney electronically should contain
(as a schedule):
- if the shareholder is an individual, a copy of an identity card, passport or any other
official identification document confirming the identity of the shareholder; or
- if the shareholder is not an individual, a copy of an extract from a relevant register
or any other document confirming the authorization of the individual(s) to represent
the shareholder at the general meeting (e.g., an uninterrupted chain of powers of
attorney).
The general meeting may be attended by members of the management board and supervisory
board (in a composition which allows for substantive answers to the questions asked during
the general meeting) and by the auditor of the Company, if the general meeting is held to
discuss financial matters.
At the general meeting each participant is entitled to be elected the chairman of the general
meeting, and also nominate one person as a candidate for the position of chairman of the
general meeting. Until the election of the chairman, the general meeting may not take any
decisions.
The chairman of the general meeting directs proceedings in accordance with the agreed
agenda, provisions of law, the articles of association, and, in particular: gives the floor to
10
speakers, orders votes and announces the results thereof. The chairman ensures efficient
proceedings and respecting of the rights and interests of all shareholders.
After the creation and signing of the attendance list, the chairman confirms that the general
meeting has been called in the correct manner and is authorized to pass resolutions.
The chairman of the general meeting closes the general meeting upon the exhausting of its
agenda.
11. Personnel composition and changes in the previous business year and
description of the functioning of the management, supervisory, or administrative
bodies of the Company and its committees.
THE MANAGEMENT BOARD
Composition of the management board
Currently, the management board is composed of four members. The following table presents
the names, surnames, functions, dates of appointment, and dates of expiry of the current term
of the members of the management board as at 31 December 2020:
Name and
surname
Function
Year of the
first
appointment
Year of
appointment
for the current
term
Year of
expiry
of term
Yovav Carmi ¹
President of the
management board
2020
2020
2023
Ariel Ferstman
Member of the management
board and CFO
2020
2020
2023
Gyula Nagy
Member of the management
board
2020
2020
2023
Robert Snow
Member of the management
board
2020
2020
2023
¹ Mr. Yovav Carmi was a member of the management board of the Company between 2011 and 2015.
During 2020, the following changes in the composition of the management board took place:
 on 16 April 2020, the supervisory board of the Company appointed Mr. Yovav Carmi
as member of the management board of the Company (see current report no 7/2020);
 on 22 June 2020, the supervisory board of the Company dismissed of Thomas
Kurzmann from the position of a member of the management board of the Company
and the appointed Robert Snow to the management board of the Company effective
as of the moment of receipt by the Company of the notification issued by LSREF III
11
GTC INVESTMENTS B.V. regarding the indirect disposal of shares in the share capital
of the Company resulting from the disposal by LSREF III GTC INVESTMENTS B.V. of
all of the shares in the share capital of GTC DUTCH HOLDINGS B.V (see current
reports no 11/2020 and 13/2020);
 on 1 July 2020, the supervisory board of the Company appointed Mr. Gyula Nagy as
member of the management board of the Company (see current report no 16/2020);
 on 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate
his appointment as a member to the management board of the Company (see current
report no 18/2020);
 on 28 July 2020, the supervisory board of the Company appointed Mr. Ariel Alejandro
Ferstman as a member of the management board of the Company (see current report
no 18/2020);
 on 18 September 2020, the Company's supervisory board appointed Yovav Carmi as
the president of the company's management board. Mr. Carmi has been a member of
the management board of the Company since 16 April 2020 (see current report no
25/2020).
Description of operations of the management board
The management board runs the Company’s business in a transparent and efficient way
pursuant to the provisions of applicable law, its internal provisions, and the “Best Practices of
WSE Listed Companies”. When making decisions related to the Company’s business, the
members of the management board act within limits of justified business risk.
The two members of the management board acting jointly are entitled to make
representations on the Company’s behalf.
All issues related to the management of the Company which are not specified by the provisions
of applicable law or the articles of association as competencies of the supervisory board or the
general meeting are within the scope of competence of the management board.
Members of the management board participate in sessions of the general meeting and provide
substantive answers to questions asked during the general meeting. Members of the
management board invited to a meeting of the supervisory board by the chairman of the
supervisory board participate in such meeting with the right to take the floor regarding issues
on the agenda. Members of the management board are required to, within their scope of
competence and the scope necessary to settle issues discussed by the supervisory board,
submit explanations and information regarding the Company’s business to the participants of
a meeting of the supervisory board.
12
The management board makes any decisions considered (by the management board) to be
important for the Company by passing resolutions at meetings thereof. Such resolutions are
passed by a simple majority.
Moreover, the management board may adopt resolutions in writing or via a manner enabling
instantaneous communication between the members of the management board by means of
audio-video communication (e.g. teleconferencing, videoconferencing, etc).
THE SUPERVISORY BOARD
The composition of the supervisory board
As of 31 December 2020, the supervisory board comprises eight members. The following table
presents the names, surnames, functions, dates of appointment, and dates of expiry of the
current term of the members of the supervisory board as at 31 December 2020:
Name and
surname
Function
Year of the
first
appointment
Year of
appointment
for the
current term
Year of
expiry of
term
Zoltán Fekete
Chairman of the
supervisory board
2020
2020
2023
János Péter
Bartha¹
Independent member of
the supervisory board
2020
2020
2023
Lóránt Dudás
Member of the
supervisory board
2020
2020
2023
Balázs Figura
Member of the
supervisory board
2020
2020
2023
Mariusz
Grendowicz
Member of the
supervisory board
2000
2019
2022
Marcin Murawski¹
Independent member of
the supervisory board
2013
2019
2022
Bálint Szécsényi
Member of the
supervisory board
2020
2020
2023
Ryszard
Wawryniewicz¹
Independent member of
the supervisory board
2017
2018
2021
¹ conforms with the independence criteria listed in the Best Practices of WSE Listed Companies.
During 2020, the following changes in the composition of the supervisory board took place:
 on 9 April 2020, Mr. Alexander Hesse, chairman of the supervisory board, resigned
from the supervisory board of the Company, effective 16 April 2020 (see current report
no 5/2020);
 on 16 April 2020, the GTC Dutch Holdings B.V appointed Mr. Christian Harlander as a
supervisory board member (see current report no 6/2020);
13
 on 16 April 2020, the supervisory board of the Company chose Mr. Jan-Christoph
Düdden as a chairman of the supervisory board;
 on 23 June 2020, the Company received resignations of the following five members of
the supervisory board of Globe Trade Centre S.A.: Jan-Christoph Düdden, Olivier
Brahin, Patrick Haerle, Christian Harlander and Katharina Schade, such resignations
being effective as of the moment of receipt by the Company of the notification issued
by LSREF III GTC INVESTMENTS B.V. regarding the indirect disposal of shares in the
share capital of the Company resulting from the disposal by LSREF III GTC
INVESTMENTS B.V. of all of the shares in the share capital of GTC DUTCH
HOLDINGS B.V. (see current reports no 12/2020 and 13/2020);
 on 23 June 2020, the GTC Dutch Holdings B.V appointed Dr. Zoltán Fekete, Mr.Balázs
Figura, Dr. János Péter Bartha, Mr. Bálint Szécsényi and Mr. Péter Bozó as members
of the supervisory board of the Company, effective immediately (see current report no
14/2020);
 on 1 July 2020, the supervisory board of the Company chose Mr. Zoltán Fekete as a
Chairman of the supervisory board;
 on 8 December 2020, GTC Dutch Holdings B.V. dismissed Mr. Péter Bozó and
appointed Mr. Lóránt Dudás as a member of the supervisory board of the Company,
effective immediately (see current report no 33/2020).
Description of the operations of the supervisory board
The supervisory board acts pursuant to the Polish Commercial Companies Code and also
pursuant to the articles of association of the Company and the supervisory board regulations
dated 16 May 2017.
Pursuant to the articles of association of the Company, the supervisory board performs
constant supervision over activities of the enterprise. Within the scope of its supervisory
activities, the supervisory board may demand any information and documents regarding the
Company’s business from the management board.
Members of the supervisory board are required to take necessary steps to receive regular
and full information from the management board regarding material matters concerning the
Company’s business and risks involved in the business and the strategies of risk
management. The supervisory board may (while not infringing the competencies of other
bodies of the Company) express their opinion on all the issues related to the Company’s
business, including forwarding motions and proposals to the management board.
14
In addition to the matters defined in the Polish Commercial Companies Code the following are
the competencies of the supervisory board:
a) The establishment of remuneration and commissions for the members of the
Company`s management board and representing the Company when executing
agreements with management board members and in any disputes with management
board members
b) Giving consent for the Company or one of its Subsidiaries to execute an agreement or
agreements with an Affiliate or with a member of the Company’s management board
or supervisory board or with a member of the management or supervisory authorities
of an Affiliate. Such consent is not be required for transactions with companies in which
the Company holds, directly or indirectly, shares entitling it to at least 50% of votes at
shareholders’ meetings, if such transaction results in obligations of the other
shareholders of such companies proportional to their stake in that company, or if the
difference between the financial obligations of the Company and the other shareholders
does not exceed EUR 5 million. In the articles of association indirect ownership of
shares entitling the holder thereof to at least 50% of the votes at a shareholders’
meeting means possession of such number of shares that entitles the holder thereof to
at least 50% of votes in each of the indirectly held companies in the chain of
subsidiaries.
c) Giving approval to any change of the auditor selected by the Company’s management
board to audit the Company’s financial statements.
d) Expressing consent for the Company or one of its Subsidiaries to: (i) execute
transaction comprising the acquisition or sale of investment assets of any kind the value
of which exceeds EUR 30million; (ii) issue a guarantee for an amount exceeding EUR
20 million; or (iii) execute any transaction (in the form of a single legal act or a number
of legal acts) other than those set forth in preceding points (i) or (ii) where the value of
such transaction exceeds EUR 20 million. For the avoidance of doubt, consent is
required for the Company’s management board to vote on the Company’s behalf at a
meeting of the shareholders of a Company’s Subsidiary authorizing transactions
meeting above criteria.
For the purposes of this competencies and articles of association:
a) an entity is an “Affiliate”, if it is (i) a Dominating Entity with respect to the Company, or
(ii) a Subsidiary of the Company; or (iii) a Subsidiary of a Dominating Entity of the
Company; or (iv) a Subsidiary of the Company’s Dominating Entity other than the
Company’ Subsidiary; or (v) a Subsidiary of any member of managing or supervisory
authorities of the Company or any of the entities designated in (i) through (iii);
b) an entity is a “Subsidiary” of any other entity (the “Dominating Entity”) if the Dominating
Entity: (i) has the right to exercise the majority of votes in the governing bodies of the
Subsidiary, including on the basis of understandings with other authorised entities, or
(ii) is authorised to take decisions regarding financial policies and current commercial
15
operations of the Subsidiary on the basis of any law, statute or agreement, or (iii) is
authorised to appoint or dismiss the majority of members of managing authorities of the
Subsidiary, or (iv) more than half of the members of the Subsidiary’s management
board are also members of the management board or persons performing any
management functions at the Dominating Entity or any other Subsidiary.
The supervisory board consists of five to twenty members, including the Chairman of the
supervisory board. Each shareholder who holds individually more than 5% of shares in the
Company’s share capital (the “Initial Threshold”) is entitled to appoint one supervisory board
member. Shareholders are further entitled to appoint one additional supervisory board member
for each block of held shares constituting 5% of the Company’s share capital above the Initial
Threshold. Supervisory board members are appointed by a written notice of entitled
shareholders given to the chairman of the general meeting at the general meeting or outside
the general meeting delivered to the management board along with a written statement from
the selected person that he/she agrees to be appointed to the supervisory board.
The number of supervisory board members is equal to the number of members appointed
by the entitled shareholders, increased by one independent member, provided that in each
case such number may not be lower than five.
Under the Company’s articles of association, the supervisory board should consist of at least
one member meeting the criteria of an independent member of the supervisory board as set
out in the corporate governance regulations included in the Best Practices of Warsaw Stock
Exchange listed Companies.
The chairman of the supervisory board calls meetings of the supervisory board. The chairman
calls meetings of the supervisory board upon the request of a member of the management
board or a member of the supervisory board therefore. A meeting of the supervisory board
must take place within 14 days of the date of filing a written application therefore with the
Chairman.
The supervisory board may convene meetings both within the territory of the Republic of
Poland and abroad. Supervisory board meetings may be held via telephone, provided that all
the participants thereof are able to communicate simultaneously. All resolutions adopted at
such meetings are valid, provided that the attendance register is signed by the supervisory
board members who participated in such meeting. The place where the Chairman attends such
meeting is considered as the place where the meeting was held.
Unless the articles of association provide otherwise, resolutions of the supervisory board are
adopted by absolute majority of votes cast in the presence of at least five supervisory board
members. In the event of a tie, the Chairman has a casting vote.
Members of the supervisory board execute their rights and perform their duties in person.
Members of the supervisory board may participate in general meetings.
16
Moreover, within the performance of their duties, the supervisory board is required to:
a) once a year prepare and present to the general meeting a concise evaluation of the
situation of the Company, taking into account the evaluation of the internal control
system and the management system of risks that are important for the Company,
b) once a year prepare and present to the annual general meeting an evaluation of its
own performance,
c) discuss and issue opinions on matters which are to be subject of the resolutions of the
general meeting.
COMMITTEES OF THE SUPERVISORY BOARD
The supervisory board may appoint committees to investigate certain issues which are in the
competence of the supervisory board or to act as advisory and opinion bodies to the
supervisory board.
AUDIT COMMITTEE
The supervisory board has appointed the Audit Committee, whose principal task is to make
administrative reviews, to exercise financial control, and to oversee financial reporting as well
as internal and external audit procedures at the Company and at the companies in its group.
In 2020, the Audit Committee meet 7 times in total.
The following table presents the details on the Audit Committee members as at 31 December
2020:
Member
Function
Conforms
with
independence
criteria
Knowledge and skills
in the field of
accounting or auditing
of financial statements
Knowledge
and skills
in the real
estate
Mariusz
Grendowicz
Member of the
audit
committee
No
Yes ¹
Yes ¹
Marcin
Murawski
Chairman of
the audit
committee
Yes
Yes ²
No
János Péter
Bartha
Member of the
audit
committee
Yes
Yes³
No
17
¹ Mariusz Grendowicz studied at the University of Gdańsk and then graduated with a degree
in banking in the United Kingdom. In 2013 - 2014 he was President and Chief Executive Officer
of Polish Investments for Development SA. In 2008-2010, he was president of the
management board and Chief Executive Officer of BRE Bank SA, and earlier, in 2001- 2006
was a Vice President of Bank BPH SA, responsible for Corporate Banking and Real Estate
Division. During his career, he was also President and Deputy President of ABN AMRO in
Poland (1997-2001), Deputy President of ING Bank in Hungary (1995-1997) and headed
division of structured finance and capital markets in ING Bank in Warsaw (1992-1995). In 1983-
1992 Mariusz Grendowicz worked in banks in London, including Australia and New Zealand
Banking Group and Citibank.
² Marcin Murawski graduated from the Faculty of Management of Warsaw University in 1997.
He has also the following certificates: ACCA, ACCA Practicing Certificate, KIBR entitlement,
CIA. Since 2012 he has been a member of the supervisory board of CCC S.A. Between 2005
and 2012 Mr Murawski was a director of the internal audit and inspection department at
WARTA Group and secretary of the audit committee at TUIR WARTA S.A. and TUNŻ WARTA
S.A. Between 1997 and 2005 he worked at PricewaterhouseCoopers Sp. z o.o., as manager
of the audit department (2002-2005), senior assistant in the audit department (1999-2001),
assistant in the audit department (1997-1999).
³ János Péter Bartha is a seasoned investment banker with 18-year experience in private
equity investments, especially extensive experience in privatisation, management of IPOs and
M&A. Mr. Bartha started his banking carrier at the National Bank of Hungary in 1986, became
CEO of Credit Suisse First Boston in 1990, and Head of Credit Suisse First Boston in Central
and Eastern Europe in 1994.
REMUNERATION COMMITTEE
The supervisory board has appointed the Remuneration Committee of the supervisory board,
which has no decision-making authority and which is responsible for making recommendations
to the supervisory board with respect to the remuneration of the members of the management
board and the policies for setting such remuneration.
In 2020, the Remuneration Committee meet 6 times in total.
18
The following table presents the details on the Remuneration Committee members as at 31
December 2020:
Member
Function
Conforms
with
independence
criteria
Knowledge and skills
in the field of
accounting or auditing
of financial statements
Knowledge
and skills
in the real
estate
Zoltán Fekete
Chairman of the
remuneration
committee
No
Yes ¹
Yes ¹
Mariusz
Grendowicz
Member of the
remuneration
committee
No
Yes
Yes
Marcin
Murawski
Chairman of the
remuneration
committee
Yes
Yes
No
¹ Zoltán Fekete graduated from the Faculty of Law of Eötvös Lorand University in 1990, and
in 1993 earned an MBA degree in Banking at the University of Exeter, UK. Mr. Fekete has 30
years of international investment banking and private equity experience. As an investment
banker he worked for HSBC London, Credit Suisse First Boston in Budapest, London, and
Israel. During his career, Mr. Fekete has dealt with a large number of IPOs, M&A transactions
and private equity investments in the field of real estate, technology, and life sciences. Since
November 2015, he has been the Chairman and CEO of Optima Investment Ltd.
12. Audit partner
The recommendation to select the audit firm to audit the financial statements met all the biding
legal conditions required in the procedure for selection of the audit firm to audit the financial
statements.
The audit firm selected to audit financial statements did not provide any other services for the
Company in 2020.
RULES FOR SELECTION OF AN INDEPENDENT AUDITOR WITHIN AN AUDIT FIRM TO
AUDIT GTC S.A.’S FINANCIAL STATEMENTS, AS WELL AS THE RULES FOR
CONDUCTING AUTHORISED NON-AUDIT SERVICES BY THE AUDIT FIRM.
On 20 October 2017, the supervisory board of GTC approved the rules for the selection of an
independent auditor according to the Act on Registered Auditors, Audit Firms and Public
Supervision dated 11th May 2017 which were adopted by the Audit Committee of the Company
on 19 October 2017.
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The selection of an audit firm to audit and review the financial statements of the Company is
the responsibility of the supervisory board. Decisions are taken in the form of an official
resolution of the supervisory board, taking into account the prior recommendations of the Audit
Committee.
The Audit Committee assesses the independence of the statutory auditor and consents to
the provision of authorised non-audit services to the Company. The consent referred to in
the preceding sentence can be expressed after the assessment of the independence of the
statutory auditor and after obtaining from the statutory auditor a confirmation that the
provision of authorised non-audit services will be carried out in accordance with the
independence requirements laid down for such services in the rules of professional ethics
and standards of performing such services.
Main assumptions of the policy for selecting an audit firm for the purpose of conducting an
audit:
a) the Company's supervisory board selects an audit firm to audit the financial
statements. based on the prior recommendation of the Audit Committee of the
supervisory board. The selection decision is taken in the form of a resolution of the
supervisory board.
b) the Audit Committee, in its recommendation, shall:
 recommend a preferred audit firm along with a justification of the preference of
the Audit Committee;
 state that the recommendation is free from third-party influence;
 state that the Company has not entered into any agreements containing clauses
that restrict the ability of the supervisory board to select an audit firm for the
purposes of the audit of the Company's financial statements to certain
categories or lists of audit firms; and
 indicate the proposed remuneration for conducting the audit.
c) in the event that the selection conducted by the Audit Committee does not refer to
the prolongation of the agreement for the purpose of the audit of the Company’s
financial statements, the recommendation of the Audit Committee must contain at
least two options for the selection of an audit firm, along with justifications for each
option as well as an explanation of the reasons of the Audit Committee’s preferred
option.
d) the Audit Committee shall cooperate with the Company’s management board in
obtaining, analysing and evaluating the audit offers, and will be assisted by the
management board in drafting the respective recommendation.
e) in the course of the selection procedure, the supervisory board and the Audit
Committee shall consider:
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 the principles of impartiality and independence of the audit firm. This shall
include an analysis of other work carried out by the audit firm in the Company
that extends beyond the scope of the auditing of the financial statements in
order to avoid any conflict of interest;
 the experience and track record of the audit team in auditing financial
statements of similar companies, its competencies and financial criteria;
 the maximum allowed duration of continuous engagements of statutory audits
carried out by the same audit firm under any applicable law;
 the proposed remuneration for the audit; and
 the assessment of the relation between the criteria specified in points 2 and 3
above.
13. Diversity policy in terms of the management, supervisory, or administrative
bodies of the Company.
The strategic objective of our diversity policy is to recruit and retain such workforce as to
ensure delivery of the GTC Group’s business objectives. The priority of diversity policy is to
build a sense of trust between the management and other employees, and to treat everyone
fairly regardless of their position.
The Company’s diversity policy is centered on respecting the employees as an element of
diversity-oriented culture regardless of gender, age, education and cultural heritage. It includes
integrating employees in their workplace and ensuring that all employees are treated equally
at work. The Company supports various social initiatives, which promote equal opportunities.
Additionally, the Company joins charitable activities initiated by the employees. The principles
of equal treatment at the workplace have been reflected in the company’s bylaws, which are
available to all employees. The Company values its enriched diversity policy in pursuing its
goals.
1
MANAGEMENT BOARD'S REPRESENTATIONS
Pursuant to the requirements of the Regulation of the Council of Ministers of 29 March 2018
on ongoing and periodical information reported by issuers of securities and conditions of
recognizing as equivalent information required by the law of a country not being a member
state the Management Board of Globe Trade Centre S.A. represented by:
Yovav Carmi, President of the Management Board
Ariel Alejandro Ferstman, Member of the Management Board
Gyula Nagy, Member of the Management Board
Robert Snow, Member of the Management Board
hereby represents that:
- to the best of its knowledge the consolidated financial statements for twelve months ended
31 December 2020 and the comparable data were prepared in accordance with the prevailing
accounting principles, and they truly, reliably, and clearly reflect the asset and financial
standing of the Group and its financial result in all material respects, and the annual
Management Board’s activity report contains a true image of the Group’s development and
achievements and its standing, including the description of basic risks and threats;
- the entity authorized to audit the financial statements, which has audited the consolidated
financial statements, was selected in accordance with the regulations of law. That entity as
well as the auditor who has carried out the audit fulfilled the conditions for expressing an
unbiased and independent opinion about the audit pursuant to relevant provisions of the
national law and industry norms.
Warsaw, 22 March 2021
Yovav Carmi Ariel Alejandro Ferstman
President of the Board Member of the Board
Gyula Nagy Robert Snow
President of the Board Member of the Board
1
INFORMATION OF THE GLOBE TRADE CENTRE S.A. PREPARED ON THE BASIS OF
THE SUPERVISORY BOARD’S STATEMENT ON APPOINTMENT OF THE AUDIT
COMPANY FOR THE AUDIT OF THE YEARLY FINANCIAL STATEMENTS
(pursuant with § 70 section 1 item 7 and § 71 section 1 item 7 of the Regulation of the
Ministry of Finance dated 29
th
March 2018 in respect of the current and periodical information
given by the securities issuers and the conditions of recognizing as equal the information
demanded by the national lawful regulation of a country which does not hold the membership
in European Union)
The Management Board of the Globe Trade Centre S.A. („Company”), on the basis of
statement of the Supervisory Board of the Company on appointment of the audit company for
audit of the yearly financial statements dated 29 April 2020 hereby informs that the selection
of an auditor to audit yearly consolidated and standalone financial statements for the year 2020
was performed due to the binding laws and within the relevant internal regulations of Globe
Trade Centre S.A. related to the selection policy of the audit company.
The Management Board informs that:
─ audit company and members of the audit team performing audit of yearly consolidated and
standalone financial statements for the financial year ended 31 December 2020 have met the
criteria to prepare impartial and independent report on the yearly financial statements
assessment due to the binding laws, standards of profession and professional ethics;
─ the Company conforms with the rules of binding law regarding rotation of the audit company
and key chartered auditor and obligatory grace periods;
─ the Company has the policy for selecting an audit company for the purpose of conducting
an audit and the policy for conducting authorised non-audit services for the benefit of the
security issues by the audit company, entity connected with this audit company or member of
its affiliate conducting non-audit services including services conditionally dismissed from the
prohibition of performing services by the audit company.
Warsaw, 22 March 2021
Yovav Carmi Ariel Alejandro Ferstman
President of the Board Member of the Board
Gyula Nagy Robert Snow
President of the Board Member of the Board
1
STATEMENT OF THE SUPERVISORY BOARD OF GLOBE TRADE CENTRE S.A. IN THE
MATTER OF APPOINTMENT, COMPOSITION AND FUNCTIONING
OF AUDIT COMMITTEE
(pursuant with the § 70 section 1 item 8 and § 71 section 1 item 8 of the Regulation of the
Ministry of Finance dated 29
th
March 2018 in respect of the current and periodical information
given by the securities issuers and the conditions of recognizing as equal the information
demanded by the national lawful regulation of a country which does not hold the membership
in European Union)
The Supervisory Board states that within Globe Trade Centre S.A.:
a) the rules on appointment, composition and functioning of audit committee are fulfilled,
including meeting criteria of independence by its members and standards of having
sufficient knowledge and skills in area of industry of operations of the issuer and
accounting standards and the rules for audit of financial statements,
b) audit committee has acted in accordance with the binding provisions of law reserved
for audit committee.
Warsaw 22 March 2021
Zoltán Fekete
President of the Supervisory Board
1
STATEMENT OF THE SUPERVISORY BOARD
OF GLOBE TRADE CENTRE S.A. IN THE MATTER OF ASSESSMENT OF THE REPORT
ON ACTIVITIES OF THE ISSUER AND FINANCIAL STATEMENTS AND ITS
COMPLIANCE WITH THE BOOKS, DOCUMENTS AND STATE OF FACTS
(pursuant with the § 70 section 1 item 14 and § 71 section 1 item 12 of the Regulation of the
Ministry of Finance dated 29
th
March 2018 in respect of the current and periodical information
given by the securities issuers and the conditions of recognizing as equal the information
demanded by the national lawful regulation of a country which does not hold the membership
in European Union)
The Supervisory Board, as the supervising body of Globe Trade Centre S.A. (“Company” or
“GTC”) has made assessment of the report on activities of the issuer and financial statements
of the issuer in the aspect of its compliance with the books, documents and state of facts. In
particular the Supervisory Board has verified:
- report on issuer’s activity for year 2020,
- standalone financial statements of the issues for year 2020,
- consolidated financial statements of the capital group of the issuer for the year 2020.
The Supervisory Board in the effect of the performed assessment has stated that report on the
Company’s activities and report on activities of the Company’s capital group for the year 2020
remains compliant in all material aspects with article 49 and 55 section 2a of Accounting Act
and in the Regulation of the Ministry of Finance dated 29
th
March 2018 in respect of the current
and periodical information given by the securities issuers and the conditions of recognizing as
equal the information demanded by the national lawful regulation of a country which does not
hold the membership in European Union and the information contained therein remains in
compliance with the audited by certified auditor standalone and consolidated financial
statements of the Company and the Company’s capital group for the year 2020.
The Supervisory Board assesses that the presented by the Management Board of the
Company standalone and consolidated financial statements of the Company and the
Company’s capital group for the year 2020 and report on activities of the Company and the
Company’s capital group for the year 2020 illustrates genuinely and clearly all the information
inevitable and significant for the assessment of the financial standing of the Company and the
Company’s capital group prepared as at 31 December 2020, as well as it remains in
compliance with the books, documents and state of facts.
The Supervisory Board has made a positive assessment of the standalone financial
statements for the financial year 2020 and the report on activities of the Company and the
Company’s capital group for the year 2020 based on:
- content of the above statements, submitted by the Company’s Management Board;
- report of the independent certified auditor i.e. BDO sp. z o.o. sp. k. with its registered office
in Warsaw made upon audit of the standalone financial statements of the Company and
consolidated financial statements of the Company’s capital group prepared as at 31st
December 2020 as well as an additional report prepared for Audit Committee on the basis of
article 11 Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16
April 2014 on specific requirements regarding statutory audit of public-interest entities,
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derogating the EU Commission Decision no. 2005/909 and according to the rules of Act of 11
May 2017 on Statutory Auditors, Audit Firms and Public Supervision;
- meetings with the audit firm representatives, including the key certified auditor;
- information from Audit Committee regarding the process, effects and meaning of an audit for
the clarity of financial reporting in the Company and also the role of the Committee in the
process of audit of financial statements;
- results of other verifying activities in selected operational and financial areas.
Warsaw, 22 March 2021
Zoltán Fekete
President of the Supervisory Board