INVL Baltic Real Estate

Annual Report • Mar 2, 2018

Special Closed-End Type Real Estate Investment Company's "INVL Baltic Real Estate" Consolidated Annual Report, Consolidated and Company's Financial Statements for the year ended 31 December 2017

prepared in accordance with International Financial Reporting Standards as adopted by the European Union presented together with independent auditor's report

SUTNTIB "INVL Baltic Real Estate", kodas 152105644, Gynėjų g. 14, Vilnius

	INDEPENDENT AUDITOR'S REPORT 3
	CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS:
	DETAILS OF THE COMPANY 10
	CONSOLIDATED AND COMPANY'S STATEMENTS OF COMPREHENSIVE INCOME 11
	CONSOLIDATED AND COMPANY'S STATEMENTS OF FINANCIAL POSITION 12
	CONSOLIDATED AND COMPANY'S STATEMENTS OF CHANGES IN EQUITY 14
	CONSOLIDATED AND COMPANY'S STATEMENTS OF CASH FLOWS 16
	NOTES TO THE FINANCIAL STATEMENTS 18
1	GENERAL INFORMATION 18
2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 20
3	FINANCIAL RISK MANAGEMENT 34
	3.1. Financial risk factors 34
	3.2. Capital management 38
4	FAIR VALUE ESTIMATION 38
5	INVESTMENTS INTO SUBSIDIARIES 39
6	SEGMENT INFORMATION 43
7	REVENUE, LEASE EXPENSES, LEASE COMMITMENTS, PROVISIONS 45
8	FINANCE COSTS 50
9	INCOME TAX 51
10	EARNINGS PER SHARE 54
11	INVESTMENT PROPERTIES 55
12	INVENTORIES, PRE-PAYMENTS AND DEFERRED CHARGES 61
13	FINANCIAL INSTRUMENTS BY CATEGORY 62
14	LOANS GRANTED 63
15	TRADE AND OTHER RECEIVABLES 63
16	SHARE CAPITAL AND RESERVES 65
17	DIVIDENDS 65
18	BORROWINGS 66
19	OTHER LIABILITIES 68
20	RELATED PARTY TRANSACTIONS 68
21	EVENTS AFTER THE REPORTING PERIOD 72

Overall Company and Group materiality	Overall materiality applied to the Company and the Group amounted to € 295 thousand and € 359 thousand (2016: €256 thousand and $\epsilon$ 304 thousand), respectively.
How we determined it	1% of total equity of the Company and the Group, respectively.
Rationale for the materiality benchmark applied	We chose the Company's and Group's equity as the benchmark because, in our view, it is an appropriate measure of underlying performance, and it is the benchmark against which the performance of the Company, the Group and other companies in this industry is most commonly measured by users, and it is a generally accepted benchmark. The key driver of the business and determinant of the Company's and the Group's value is investments into various properties. For this reason, the key area of focus in the audit of the financial statements of the Company and the Group is the valuation of investment properties. Accordingly, an overall Company and Group materiality was based on total equity. We chose 1%, which is within the range of acceptable quantitative materiality thresholds.

Key audit matter	How our audit addressed the matter
Valuation of investment properties
Refer to Notes 2.22 and 11 to the financial Our procedures in relation to statements on pages 33 and 55, respectively.	valuation of investment propertie $f_0$ llarımı

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of comprehensive income

		Group		Company
	Notes	2017	2016	2017	2016
Revenue	7	6,203	6,290	5,720	5,899
Interest income		-	-	-	-
Other income Net changes in fair value of investments into subsidiaries designated at fair value through profit or		25	15	25	14
loss	5	-	-	592	236
Net gains from fair value adjustments on investment property	11	2,326	147	2,267	299
Premises rent costs	6, 7	(1,146)	(1,642)	(1,147)	(1,641)
Utilities	6	(883)	(980)	(875)	(966)
Repair and maintenance of premises	6	(935)	(878)	(930)	(846)
Management and Performance Fee	7, 20	(645)	(819)	(645)	(819)
Property management and brokerage costs	6	(302)	(365)	(299)	(365)
Taxes on property	6	(331)	(335)	(310)	(313)
Employee benefits expenses		(33)	(178)	-	(140)
Impairment of assets (reversal of impairment)	15	(2)	(33)	(2)	(33)
Depreciation and amortisation		(14)	(7)	(13)	(5)
Other expenses		(213)	(164)	(185)	(127)
Operating profit		4,050	1,051	4,198	1,193
Finance costs	8	(473)	(561)	(419)	(502)
Profit before income tax		3,577	490	3,779	691
Income tax credit (expense)	9	-	4,017	1	4,019
NET PROFIT FOR THE YEAR		3,577	4,507	3,780	4,710
Other comprehensive income for the year, net of tax		-	-	-	-
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		3,577	4,507	3,780	4,710
Attributable to: Equity holders of the parent		3,577	4,507	3,780	4,710
Basic and diluted earnings per share (in EUR)	10	0.05	0.07

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of financial position

			Group		Company
	Notes	As at 31 December 2017	As at 31 December 2016	As at 31 December 2017	As at 31 December 2016
ASSETS
Non-current assets
Property, plant and equipment		111	25	107	21
Investment properties	11	56,341	52,410	47,833	43,964
Intangible assets Investments into subsidiaries designated at fair		40	48	40	48
value through profit or loss	5	-	-	5,881	5,289
Operating lease pre-payments	7	100	100	100	100
Deferred tax assets	9	-	1	-	-
Total non-current assets		56,592	52,584	53,961	49,422
Current assets
Inventories, prepayments and deferred charges	12	239	1,311	234	1,308
Trade and other receivables	15	597	413	589	401
Deposits	3.1, 18	150	150	-	-
Cash and cash equivalents	3.1	411	751	223	666
Total current assets		1,397	2,625	1,046	2,375
TOTAL ASSETS		57,989	55,209	55,007	51,797

(cont'd on the next page)

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of financial position (cont'd)

		Group		Company
	Notes	As at 31 December 2017	As at 31 December 2016	As at 31 December 2017	As at 31 December 2016
EQUITY AND LIABILITIES
Equity Equity attributable to equity holders of the parent
Share capital	16	19,068	19,068	19,068	19,068
Share premium	16	2,478	2,478	2,478	2,478
Reserves	16	3,254	3,018	3,494	3,258
Retained earnings	16	9,061	6,509	8,314	5,559
Total equity		33,861	31,073	33,354	30,363
Liabilities
Non-current liabilities
Non-current borrowings	18	20,162	20,792	17,937	18,334
Provisions	7	949	981	949	981
Advances received		258	9	258	9
Total non-current liabilities		21,369	21,782	19,144	19,324
Current liabilities
Current portion of non-current borrowings	18	718	815	482	583
Current borrowings	18	801	-	801	-
Trade payables		361	133	360	135
Income tax payable		4	12	4	12
Provisions	7	9	105	9	105
Advances received		3	99	3	99
Other current liabilities	19	863	1,190	850	1,176
Total current liabilities		2,759	2,354	2,509	2,110
Total liabilities		24,128	24,136	21,653	21,434
TOTAL EQUITY AND LIABILITIES		57,989	55,209	55,007	51,797
					(the end)

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of changes in equity

				Re	se rve s
Gr ou p	No tes	Sh ita l are ca p	Sh ium are p rem	Le al g res erv e	Re fo ha se rve r p urc se of ha ow n s res	Re tai d e ing ne arn s	To tal
Ba lan 31 De mb 20 15 at ce as ce er		12 53 6 ,	-	25	-	6, 02 6	18 58 7 ,
Ne rof it fo r th t p e y ea r		-	-	-	-	4, 50 7	4, 50 7
To tal reh siv e i e f the co mp en nc om or y ea r		-	-	-	-	50 4, 7	50 4, 7
Inc of sha ital rea se re ca p	16	6, 53 2	2, 47 8	-	-	( 24 2)	8, 76 8
Div ide nds d ap pro ve	17	-	-	-	-	( 9) 78	( 9) 78
nsf Tra to er res erv es	16	-	-	165	2, 82 8	( 2, 99 3)	-
To tal ion ith of the tra act ns s w ow ne rs Co nis ed di tly in uit mp an y, rec og rec eq y		6, 53 2	2, 47 8	165	2, 82 8	( 4, 02 4)	7, 97 9
Ba lan 31 De mb 20 16 at ce as ce er		19 06 8 ,	2, 8 47	190	2, 82 8	6, 50 9	31 07 3 ,
Ne rof it fo r th t p e y ea r		-	-	-	-	3, 57 7	3, 57 7
To tal reh siv e i e f the co mp en nc om or ea r y		-	-	-	-	3, 57 7	3, 57 7
Div ide nds d ap pro ve	17	-	-	-	-	( 78 9)	( 78 9)
Tra nsf to er res erv es	16	-	-	23 6	-	( 6) 23	-
To tal ion ith of the Co tra act ns s w ow ne rs mp nis ed di tly in uit rec og rec eq y	an y,	-	-	23 6	-	( 1, 02 5)	( 78 9)
Ba lan 31 De mb 20 at 17 ce as ce er		19 06 8 ,	2, 8 47	42 6	2, 82 8	9, 06 1	33 86 1 ,

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of changes in equity (cont'd)

				Re	se rve s
					Re fo ha se rve r p urc se
Co mp an y	No tes	Sh ita l are ca p	Sh ium are p rem	Le al g res erv e	of ha ow n s res	Re tai d e ing ne arn s	To tal
Ba lan 31 De mb 20 15 at ce as ce er		12 53 6 ,	-	26 5	-	4, 87 3	17 67 4 ,
Ne rof it fo r th t p e y ea r		-	-	-	-	4, 71 0	4, 71 0
To tal reh siv e i e f the co mp en nc om or y ea r		-	-	-	-	0 4, 71	0 4, 71
Inc of sha ital rea se re ca p	16	6, 53 2	2, 47 8	-	-	( 24 2)	8, 76 8
Div ide nds d ap pro ve	17	-	-	-	-	( 78 9)	( 78 9)
Tra nsf to er res erv es	16	-	-	165	2, 82 8	( 3) 2, 99	-
To tal ion ith of the Co tra act ns s w ow ne rs mp an y, nis ed di tly in uit rec og rec eq y		6, 53 2	2, 47 8	165	2, 82 8	( 4, 02 4)	7, 97 9
Ba lan 31 De mb 20 16 at ce as ce er		19 06 8 ,	2, 47 8	43 0	2, 82 8	5, 55 9	30 36 3 ,
Ne rof it fo r th t p e y ea r		-	-	-	-	3, 78 0	3, 78 0
To tal reh siv e i e f the co mp en nc om or ea r y		-	-	-	-	3, 78 0	3, 78 0
Div ide nds d ap pro ve	17	-	-	-	-	( 9) 78	( 9) 78
Tra nsf to er res erv es	16	-	-	23 6	-	( 23 6)	-
To tal ion ith of the Co tra act ns s w ow ne rs mp an y, nis ed di tly in uit rec og rec eq y		-	-	23 6	-	( 1, 02 5)	( 78 9)
Ba lan 31 De mb 20 17 at ce as ce er		19 06 8 ,	2, 47 8	66 6	2, 82 8	8, 31 4	33 35 4 ,

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of cash flows

		Group		Company
	Notes	2017	2016	2017	2016
Cash flows from (to) operating activities
Net profit for the year		3,577	4,507	3,780	4,710
Adjustments for non-cash items and non-operating activities:
Net gains from fair value adjustments on investment property	11	(2,326)	(147)	(2,267)	(299)
Depreciation and amortization		14	7	13	5
Net loss from sale of non-current assets Net changes in fair value of investments into subsidiaries		1	-	1	-
designated at fair value through profit or loss	5	-	-	(592)	(236)
Interest expenses	8	473	561	419	502
Deferred taxes	9	1	(4,030)	-	(4,031)
Current income tax expenses	9	(1)	13	(1)	12
Provisions	7	(129)	737	(129)	737
Gain from derecognition of non-bank borrowing		-	(2)	-	-
Impairment of assets (reversal of impairment)	15	2	33	2	33
Changes in working capital:
Decrease (increase) in inventories		6	-	6	-
Decrease (increase) in trade and other receivables		(135)	(82)	(139)	(74)
Decrease (increase) in other current assets		616	180	618	179
(Decrease) increase in trade payables		10	(79)	7	(76)
(Decrease) increase in other current liabilities		80	98	81	92
Cash flows from (to) operating activities		2,189	1,796	1,799	1,554
Income tax paid		(12)	(1)	(12)	-
Net cash flows from (to) operating activities		2,177	1,795	1,787	1,554

(cont'd on the next page)

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

Consolidated and Company's statements of cash flows (cont'd)

	Group		Company
	Notes	2017	2016	2017	2016
Cash flows from (to) investing activities
Acquisition of non-current assets (except investment properties)		(153)	(52)	(152)	(51)
Acquisition of investment properties	11	(2,193)	(6,390)	(2,190)	(6,390)
Proceeds from sale of non-current assets (except investment properties)	14	-	100	-	100
Proceeds from sale of investment properties	11	1,000	306	1,000	353
Acquisition of subsidiaries, net of cash acquired	5	-	-	-	(3)
Proceeds from sales of subsidiaries, net of cash disposed		-	-	-	2
Loans granted		-	-	-	(67)
Repayment of loans granted	14	-	176	-	176
Interest received		-	-	-	-
Transfer from (to) deposits		-	-	-	-
Net cash flows from (to) investing activities		(1,346)	(5,860)	(1,342)	(5,880)
Cash flows from (to) financing activities
Cash flows related to Group owners
Issue of new shares	16	-	2,791	-	2,791
Costs of distribution of new shares	16	-	(248)	-	(248)
Dividends paid to equity holders of the parents		(773)	(773)	(773)	(773)
		(773)	1,770	(773)	1,770
Cash flows related to other sources of financing
Proceeds from loans	18	800	5,300	800	5,300
Repayment of loans	18	(726)	(2,110)	(497)	(1,886)
Interest paid	18	(472)	(537)	(418)	(479)
		(398)	2,653	(115)	2,935
Net cash flows from (to) financing activities		(1,171)	4,423	(888)	4,705
Net increase (decrease) in cash and cash equivalents		(340)	358	(443)	379
Cash and cash equivalents at the beginning of the period		751	393	666	287
Cash and cash equivalents at the end of the period		411	751	223	666
					(the end)

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

Notes to the financial statements

1 General information

Special Closed-Ended Type Real Estate Investment Company INVL Baltic Real Estate (hereinafter 'the Company', previous name AB Invaldos Nekilnojamojo Turto Fondas, code 152105644) is a joint stock company registered in the Republic of Lithuania. It was established on 28 January 1997.

On 22 December 2016 the Company was issued a closed-end investment company (UTIB) licence by the Bank of Lithuania. Under the Company's Articles of Association, the Company will operate until 22 December 2046, with an extension possibility for additional term of twenty years.

As the Company obtained the status of a closed-end investment company, its management was thereafter undertaken by UAB INVL Asset Management ('the Management Company'), which is entitled to the Management Fee (Note 2.12) and the Performance Fee (Note 2.12).

Based on the Articles of Association, for the sake of efficiency of the Company's activities and control over its investments, an Investment Committee shall be formed by a decision of the Board of the Management Company. The Investment Committee shall consist of 3 (three) members, to the positions of which the representatives of the Management Company (employees, members of management bodies of the Management Company, other persons appointed by a decision of the Board of the Management Company) shall be appointed. Members of the Investment Committee shall be appointed and removed from office by the Board of the Management Company. An approval of the Investment Committee must be obtained for all investments of the Company and for their sale.

The Company also signed an agreement on depository services with AB SEB Bankas, which acts as a depository of the Company's assets.

In 2017 and 2016 the group consisted of the Company and its directly and indirectly owned subsidiaries (hereinafter 'the Group', Note 5).

The address of the office is Gynėjų str. 14, Vilnius, Lithuania.

The Group was established on 29 April 2014 by spinning-off from AB Invalda INVL (code 121304349) the investments into entities, which business is investment into investment properties held for future development, into commercial real estate and renting thereof. On 17 August 2015 the parent entity AB INVL Baltic Real Estate (hereinafter 'the Former Parent Company', code 30329973) was merged to the Company, which continues its operations under the name INVL Baltic Real Estate and became the parent of the Group.

The Group has invested in commercial real estate: business centres and manufacturing and warehouse properties in Lithuania and Latvia. All the properties generate leasing income and most of them offer prospects for further development.

The Group seeks to earn profit from investments in commercial real estate by ensuring the growth of leasing income. When it makes business sense, the Company also considers investments in the reorganisation of its existing portfolio of properties, taking advantage of their good location.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

1 General information (cont'd)

The Management Company shall manage the Company's portfolio of investment instruments following the principles of diversification (the conformity of the Company's portfolio of investment instruments to the diversification principles shall be achieved within four years after the Bank of Lithuania has issued a permission to certify the Company's incorporation documents and to choose the Depository) as set forth in the Articles of Association. The Company cannot invest directly or indirectly more than 30% of its net asset value into a single real estate object. The total amount of investments into real estate objects under construction cannot exceed 20% of net asset value of the Company. The total amount of investments into a real estate object and movable property and/or equipment necessary for its use cannot exceed 40% of net asset value of the Company. The Company cannot invest more than 30% of its net asset value into any single issuer of the instruments. More detailed requirements are set out in the Articles of Association of the Company.

As at 31 December 2017 and 2016 the Company's share capital was divided into 65,750,000 ordinary registered shares with the nominal value of EUR 0.29 each. All the shares of the Company were fully paid. Subsidiaries did not hold any shares of the Company. As at 31 December 2017 and 2016 the shareholders were (by votes):

	2017		2016
	Number of		Number of
	votes held	Percentage	votes held	Percentage
AB Invalda INVL	21,127,994	32.13	21,089,449	32.08
UAB LJB Investments (controlling shareholder Mr.
Alvydas Banys)	13,158,474	20.01	13,158,474	20.01
Mrs. Irena Ona Mišeikienė	12,492,979	19.00	12,492,979	19.00
Mr. Alvydas Banys	3,318,198	5.05	3,318,198	5.05
Other minor shareholders	15,652,355	23.81	15,690,900	23.86
Total	65,750,000	100.00	65,750,000	100.00

The Company's shares are traded on the Baltic Secondary List of NASDAQ Vilnius from 16 September 2015. Before the merger the shares of the Former Parent Company were traded on the Baltic Secondary List of NASDAQ Vilnius from 4 June 2014 until 17 August 2015.

As at 31 December 2017 the number of employees of the Group and the Company was 6 and nil, respectively. As at 31 December 2016 the number of employees of the Group and the Company was 4 and nil, respectively.

According to the Law on Companies of Republic of Lithuania, the annual financial statements prepared by the Management are authorised by the General Shareholders' meeting. The shareholders hold the power not to approve the annual financial statements and the right to request new financial statements to be prepared.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies

The principal accounting policies applied in preparing the Group's and the Company's financial statements for the year ended 31 December 2017 are as follows:

2.1. Basis of preparation

Statement of compliance

The financial statements of the Company and the consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (hereinafter the EU).

These financial statements have been prepared on a historical cost basis, except for investment properties and investments in subsidiaries that have been measured at fair value. The financial statements are presented in thousands of euro (EUR) and all values are rounded to the nearest thousand except when otherwise indicated. From 1 January 2015 the euro became local currency of the Republic of Lithuania.

Adoption of new and/or changed IFRSs and IFRIC interpretations

The Group has adopted the new and amended IFRS and IFRIC interpretations as of 1 January 2017:

• − Amendments to IAS 7: Disclosure Initiative effective 1 January 2017;
• − Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses effective 1 January 2017;
• − Annual Improvements to IFRSs 2014-2016 Cycle (changes to IFRS 12) effective 1 January 2017.

The principal effects of these changes are as follows:

Amendments to IAS 7: Disclosure Initiative

The amended IAS 7 will require disclosure of a reconciliation of movements in liabilities arising from financing activities. The amendments did not have any impact on the Group's financial position or performance, but the additional disclosures were added in Note 18.

All other amendments adopted as of 1 January 2017 had no impact on the Group's/Company's financial statements for the year ended 31 December 2017.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.1 Basis of preparation (cont'd)

Standards adopted by the EU but not yet effective and have not been early adopted

IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)

Key features of the new standard are:

• − Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).
• − Classification for debt instruments is driven by the entity's business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets' cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.
• − Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.
• − Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated as at fair value through profit or loss in other comprehensive income.
• − IFRS 9 introduces a new model for the recognition of impairment losses the expected credit losses (ECL) model. There is a 'three stage' approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables.
• − Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

The business model of the Company is to manage investment into subsidiaries together with loans granted to subsidiaries as one portfolio and evaluate their performance on a combined fair value basis. On this basis information on portfolio is provided to the Management Company and the Investment Committee. Therefore, the portfolio is neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. Consequently, such portfolio of financial assets must be measured at fair value through profit or loss. Before adopting of IFRS 9 the Company has attributed investment into subsidiaries together with loans granted to subsidiaries to 'Assets at fair value through profit or loss' and measured them also at fair value through profit or loss. The Group and the Company have other financial assets attributed to the categories of financial assets 'Loans and receivables', which according to new standard would be measured at amortised cost as before as the business model for these assets is held to collect contractual cash flows and they are SPPI. The Group and the Company have only financial liabilities attributed to the category 'Other financial liabilities'. Therefore, there will be no impact on the Group's and the Company's accounting for financial liabilities. The changes in hedge accounting will not have impact on the Group's and the Company's financial statements as the Group and the Company have no hedge accounting. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets classified at amortised cost, contract assets under IFRS 15 Revenue from Contracts with Customers, lease receivables. Based on the assessments undertaken to date, it may result in an earlier recognition of credit losses in future, but at the date of initial application the Group/ Company assessed that there will be no significant impact on allowance of trade receivables, cash and cash equivalents and deposits. Therefore, there will be no material impact on the Group's/Company's financial position or performance due to application of IFRS 9. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group's and the Company's disclosures of their financial instruments, particularly in the year of the adoption of the new standard – in 2018. The Group/the Company will apply the new rules retrospectively from 1 January 2018, with the practical expedients permitted under the standard. Comparatives for 2017 will not be restated.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.1 Basis of preparation (cont'd)

Standards adopted by the EU but not yet effective and have not been early adopted (cont'd)

IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018) Amendments to IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018)

The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.

The amendments do not change the underlying principles of the standard but clarify how those principles should be applied. The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; how to determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and how to determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new standard.

The Group and the Company is expected that the impact of the standard on its financial statements would be non-material, because the main revenue of the Group is rental income.

IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019)

The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group and the Company are currently assessing the impact of the standard on their financial statements, but are not expecting that impact would be material, except that the Group and the Company would have to recognise asset and liability for the lease agreement of 10 August 2007 (Note 7). In the statement of comprehensive income depreciation of lease asset and interest on lease liability would replace currently recognised lease expenses. The Group and the Company do not intend to adopt IFRS 16 before its mandatory date.

Other amendments to existing standards and new standards, which are adopted by the EU, but not yet effective, are not relevant to the Group and the Company.

Standards not yet adopted by the EU

Amendments to IAS 40 Transfers of Investment Property (effective for annual periods beginning on or after 1 January 2018 once adopted by the EU)

The amendment clarified that to transfer to, or from, investment properties there must be a change in use. This change must be supported by evidence; a change in intention, in isolation, is not enough to support a transfer. The Group and the Company are currently assessing the impact of the amendments on their financial statements, but are not expecting that impact would be material.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.1 Basis of preparation (cont'd)

Standards not yet adopted by the EU (cont'd)

IFRIC 23 Uncertainty over Income Tax Treatments (effective for annual periods beginning on or after 1 January 2019 once adopted by the EU)

IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate. Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation authority's right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by the Interpretation. The Group and the Company is currently assessing the impact of the interpretation on their financial statements.

Other amendments to existing standards and new standards, which are not yet adopted by the EU, are not relevant to the Group and the Company.

2.2. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

Subsidiaries are all entities (including structured entities) over which the group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances, transactions, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions that are recognised in assets, are eliminated in full.

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or retained earnings, as appropriate.

2.3. Functional and presentation currency

From 1 January 2015 the euro became local currency of the Republic of Lithuania. The financial statements are prepared in euro (EUR), which is local currency of the Republic of Lithuania, and presented in EUR thousand. Euro is also the local currency of the Republic of Latvia. Euro is the Company's and the Group's functional and presentation currency. The exchange rates in relation to other currencies are set daily by the European Central Bank and the Bank of Lithuania.

As these financial statements are presented in EUR thousand, individual amounts were rounded. Due to the rounding, totals in the tables may not add up.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.4. Business combinations and goodwill

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group's share of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

The Group and the acquiree may have a preexisting relationship or other arrangement before negotiations for the business combination began, or they may enter into an arrangement during the negotiations that is separate from the business combination. In either situation, the Group identifies any amounts that are not part of what the Group and the acquiree (or its former owners) exchanged in the business combination. The Group recognises as part of applying the acquisition method only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree.

The Group identifies any preexisting relationships to determine which ones have been effectively settled. Typically, a pre-existing relationship will be effectively settled, since such a relationship becomes an "intercompany" relationship upon the acquisition and is eliminated in the postcombination financial statements. If the preexisting relationship effectively settled is a debt financing issued by the acquiree to the Group, the Group effectively is settling a receivable. The Group recognises a gain or loss if there is an effective settlement of a preexisting relationship. When there is more than one contract or agreement between the parties with a preexisting relationship or more than one preexisting relationship, the settlement of each contract and each preexisting relationship is assessed separately. Settlement gains and losses from noncontractual relationships are measured at fair value on the acquisition date.

2.5. Property, plant and equipment

Property, plant and equipment is stated at cost, excluding the costs of day to day servicing, less accumulated depreciation and accumulated impairment losses. The carrying values of property, plant and equipment are reviewed for impairment when events or change in circumstances indicate that the carrying value may not be recoverable. Depreciation is calculated using the straight-line method over the estimated useful lives of 3 to 6 years.

The asset residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end to ensure that they are consistent with the expected pattern of economic benefits from items in property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income within "other income" in the year the asset is derecognised.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.6. Investment properties

Properties that are held for long-term rental yields and for capital appreciation are classified as investment properties. Where the Group/Company owns the buildings, but not the land on which they are built, land is leased from the municipality under operating lease. Land held under operating leases is classified and accounted for by the Group/Company as investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease at the present value of the minimum lease payments with the exception of future land rent tax payments to municipality that are effectively a replacement of land tax, paid by the owner of land.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are carried at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise. The fair value of investment property is determined annually by qualified independent valuers (Note 11).

Subsequent expenditure is capitalised to the asset's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group/Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.

Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of comprehensive income within "Net gains (losses) from fair value adjustments on investment property" in the year of retirement or disposal.

2.7. Intangible assets other than goodwill

Intangible assets are measured initially at cost. Intangible assets are recognised if it is probable that future economic benefits that are attributable to the asset will flow to the enterprise and the cost of asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets other than goodwill are assessed to be finite. Intangible assets are amortised using the straight-line method over their expected useful lives 3 years.

Intangible assets not yet available for use, such as technical development projects where the related property is not built, are tested annually for impairment and whenever there is an indication that the intangible asset may be impaired.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.8. Investments into subsidiaries (the Company)

Since the merger with the Former Parent Company, investments into subsidiaries together with loans granted to subsidiaries are classified as financial assets designated at fair value through profit or loss at inception, because:

• they are managed together and their performance is evaluated on a combined fair value basis in accordance with the Company's documented investment strategy; and
• information about the Group is provided internally on combined basis to the Management Company and the Investment Committee.

Subsequent to initial recognition, investments into subsidiaries together with loans granted to subsidiaries are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets designated at fair value through profit or loss' category are presented in the statement of comprehensive income within 'Net changes in fair value of investments into subsidiaries designated at fair value through profit or loss"' in the period in which they arise.

Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income within dividend income when the Company's right to receive payments is established. Interest on loans granted at fair value through profit or loss is not recognised separately in the statement of comprehensive income, only fair value changes are recognised within gains or losses on fair value of loans granted.

When the fair value of investments into subsidiaries together with loans granted to subsidiaries is determined (and unrecognised part of 'day 1 profit' is deducted), the value is split into legal components, i.e. between debt and equity instruments. If the amortised cost of loans granted to a subsidiary exceeds the total fair value of investment in that subsidiary, the fair value is fully attributed to loans. The remaining value is attributed to equity instruments of the subsidiary.

Investments in subsidiaries existing before merger are carried as investments available-for-sale. These investments are carried at fair value. Changes in the fair value and exchange differences arising on translation are recognised in other comprehensive income and accumulated in a separate reserve within equity. Amounts are reclassified to profit or loss when the associated assets are sold or impaired.

2.9. Financial assets

Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The classification depends on the purpose for which the financial assets were acquired. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial asset or financial liability not at fair value through profit or loss, directly attributable transaction costs. If the fair value of the financial asset at initial recognition differs from the transaction price, it is recognised at fair value and '1 day gain' is recognised only if that fair value is evidenced by a quoted price in an active market for an identical asset or based on a valuation technique that uses only data from observable markets. In all other cases the difference between the fair value at initial recognition and the transaction price is deferred. For loans granted measured at fair value through profit or loss this difference is recognised using the straight-line method over the estimated maturity of financial asset.

The Group and the Company determine the classification of its financial assets at initial recognition.

Financial assets are derecognised only when the contractual rights to the cash flows from the financial asset expire or the Group/Company transfers substantially all risks and rewards of ownership. Judgment is required in assessing whether a change in the contractual terms (such as a change in the remaining term of the loan) is substantial enough to represent an expiry of the original instrument (or a part thereof).

The Group's financial assets consist of loans and receivables. The Company's financial assets consist of loans and receivables, and of financial assets at fair value through profit or loss (Note 2.8).

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.9 Financial assets (cont'd)

Loans and receivables

Financial assets recognised in the statement of financial position as trade and other receivables, deposits and cash and cash equivalents are classified as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement loans and receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through amortisation process. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.

2.10. Impairment of financial assets

Assets carried at amortised cost

The Group/Company assesses at each reporting date whether is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The Group/Company assesses whether objective evidence of impairment exists individually for financial assets. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. When financial asset is assessed as uncollectible the impaired asset is derecognised.

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. The Group/Company recalculates the carrying amount by computing the present value of estimated future cash flows at the financial instrument's original effective interest rate, any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

2.11. Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less. Deposits with original maturity of more than three months are classified as deposits on the statement of financial position.

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand and in current bank account as well as deposit in bank with an original maturity of three months or less.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.12. Performance Fee and Management Fee

The Management Fee is remuneration paid to the Management Company for management of the assets of the Company, which is payable for each quarter of a calendar year and is 0.375% of the quarterly weighted average capitalisation of the Company, calculated according to the Articles of Association. From 1 January 2018 the rate of the Management Fee was changed to 0.25% of the quarterly weighted average capitalisation of the Company.

The quarterly payable Management Fee is recorded as financial liability and is accounted for at amortised cost.

The Performance Fee depends on the return earned by the Company, which is calculated for the whole Company rather than for an individual shareholder, and is based on internal rate of return. The Performance Fee amounts to 20% of return in excess of the annual internal rate return of 8% (a high water-mark principle is applied). The Performance Fee is paid to the Management Company on a quarterly basis if both condition is met - the internal rate of return and the stock price growth (including dividends) exceed 8% annually.

The Performance Fee is accounted as a provision on a quarterly basis until the conditions, as described above, for the payment of the Performance Fee are satisfied, when payable part of the Performance Fee is recorded as financial liability and is further accounted for at amortised cost.

The first period for the calculation of the Performance Fee started from 30 November 2016 according to the Articles of Association of the Company, where initial amount for calculation of internal rate of return is net assets value of the Company as at 30 November 2016 (it is amounted to the equity of the Group as at 30 November 2016). If, after that date, the capitalisation of the Company (market value of the issued shares of the Company) is more than net assets value of the Company and internal rate of return calculated on the basis of net assets value is more than 8%, then payable Performance Fee is calculated based on net assets value of the Company. If the capitalisation of the Company is less than net assets value of the Company and internal rate of return calculated on the basis of capitalisation is more than 8%, then payable Performance Fee is calculated based on the capitalisation of the Company. After the Performance Fee becomes payable, the new period for calculating of the Performance Fee starts, where initial amount for calculation of internal rate of return is the capitalisation of the Company or net asset value of the Company as at the end of previous period - depends on which based on these amounts payable part of the Performance Fee is calculated.

More detailed requirements are set out in the Articles of Association of the Company.

2.13. Financial liabilities

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, other financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group/Company determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and in the case of other financial liabilities, net of directly attributable transaction costs. All financial liabilities of the Company and the Group are classified as other financial liabilities. The measurement of financial liabilities depends on their classification as follows:

Trade and other payables

These amounts represent liabilities for goods and services provided to the Company and the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group/Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.14. Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the profit or loss. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Provisions for onerous contracts

An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. A provision for onerous lease contracts is recognised when the expected benefits to be derived by the Group/Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

Provisions for the Performance Fee

The Company is obliged to pay the Performance Fee to the Management Company (Note 2.12). There is an obligation to pay the Performance Fee, which becomes payable only in the event of outperformance of the benchmark when both condition are met as described in Note 2.12 and the Company's Articles of Association.

As services are provided over time, the obligating past event arises and a provision for the Company's management services needs to be recognised. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

2.15. Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are recognised in equity as a deduction, net of tax, from the retained earnings. Where any group company purchases the company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company's equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company's equity holders.

2.16. Leases

Group and Company are the lessor in an operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the Group and the Company as the lessor are classified as operating leases. Payments, including pre-payments, received under operating leases (net of any incentives granted to the lessee) are credited to the statement of comprehensive income on a straight-line basis over the period of the lease.

Property leased out under operating leases is included in investment property in the statement of financial position (Note 11). See Note 2.17 for the recognition of rental income.

Group and Company are the lessee in an operating lease

Leases where the lessor retains all the risk and benefits of ownership of the asset are classified as operating leases. Operating lease payments, including prepayments, (net of any incentives received from the lessor) are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Contingent rents are charged as expenses in the periods in which they are incurred.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.17. Revenue recognition

The Group/Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's/Company's activities as described below. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. The following specific recognition criteria must also be met before revenue is recognised:

Rental income

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms. When the Group/Company provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straightline basis, as a reduction of rental income.

Utilities and other services income

Utilities and other services income are recognised in the accounting period in which the services are rendered.

Interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group/Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate.

2.18. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Management Company and the Investment Committee that makes strategic decisions.

2.19. Borrowing costs

Borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.20. Current and deferred income tax

Following the provisions of the Lithuanian Law on Corporate Income Tax, investment income of closed-end investment companies operating in accordance with the Lithuanian Law on Collective Investment Undertakings shall not be subject to taxation.

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted by the end of the reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The standard income tax rate in Lithuania and in Latvia was 15 % in 2016 and 2017. Starting from 2010, tax losses can be transferred within Lithuania at no consideration or in exchange for certain consideration between the group companies if certain conditions are met.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

In Lithuania tax losses can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. In Lithuania such carrying forward is disrupted if entity changes its activities due to which these losses incurred except when entity does not continue its activities due to reasons which do not depend on entity itself. In Lithuania the losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature. From 1 January 2014 current year taxable profit could be decreased by previous year tax losses only up to 70% in Lithuania.

From 1 January 2018 according to the new Corporate Income Tax Act of Latvia the annual profit would be not taxed. Corporate income tax would be paid on distributed profit, including conditional distributed profit as for example: expenditure not related to economic activities, some loans granted to related parties, some provisions for doubtful debts. The tax rate on (net) distributed profit would be 20/80. From 1 January 2018 tax losses incurred before 31 December 2017 can be carried forward for 5 consecutive years to reduce up to 50% of tax base of distributed profit in Latvia. Until 31 December 2017 gains from the sale of shares are not taxed, and losses are not deductible in Latvia. From 1 January 2018 the tax base would be reduced by the gain on sale of shares, if the shares was held for an uninterrupted period of at least 36 months. The excess gain can be transferred and utilized in the future periods.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.21. Employee benefits

Social security contributions

The Company and the Group pay social security contributions to the state Social Security Fund (the Fund) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Group/Company pays fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. Social security contributions are recognised as expenses on an accrual basis and included in payroll expenses.

Bonus plans

The Company and the Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.

2.22. Significant accounting judgements and estimates

The preparation of financial statements requires management of the Group and the Company to make judgements and estimates that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent liabilities, at the end of reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgements

In the process of applying the accounting policies, management has made the following judgements, which had the most significant effect on the amounts recognised in these financial statements:

Financial assets designated at fair value through profit and loss on initial recognition

Investments in subsidiaries are designated at fair value through profit or loss on initial recognition in the stand-alone financial statements of the Company, because the management believes that this presentation represents best the way these investments are managed and their performance is evaluated and provides more relevant information to the users of financial statements.

The Group acts as principal in relation to utility services

The management has concluded that the Company acts as a principal in relation to utility services. The Company has latitude in establishing prices, earns a margin as well bears the customer's credit risk for the amounts receivable from the customer.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.22 Significant accounting judgements and estimates (cont'd)

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group/Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments however, may change due to market changes or circumstances arising beyond the control of the Group/Company. Such changes are reflected in the assumptions when they occur.

The significant areas of estimation used in the preparation of these financial statements are discussed below.

Fair value of investment properties

Fair value of investment properties was based either on the market approach by reference to sales in the market of comparable properties or the income approach by reference to rentals obtained from the subject property or similar properties. Market approach refers to the prices of the analogues transactions in the market. These values are adjusted for differences in key attributes such as property size, location. Discounted cash flow projections in the income approach are based on estimates of future cash flows, supported by the terms of any existing lease and other contracts and by external evidence such as current (at the date of the statement of financial position) market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. The future rental rates were estimated depending on the actual location, type and quality of the properties, and taking into account market data and projections at the valuation date.

The Company's investment properties located in Lithuania have to be valued twice a year by two qualified independent valuers in accordance with the Lithuanian Law on Collective Investment Undertakings. In the process of valuation the Management has discussions with the qualified independent valuers about significant unobservable inputs. If both valuers select the same approach and determine the same use of the property, but use slightly different unobservable inputs, the valuation creates a range of fair values on the basis of which the management estimate the most appropriate fair value. If the valuers determine different use of the property, the management selects to use the valuation of the valuer whose use of the property satisfies the highest and the best use principle.

The fair value of the investment properties of the Group and the Company as at 31 December 2017 was EUR 56,341 thousand and EUR 47,833 thousand, respectively (as at 31 December 2016 – EUR 52,410 thousand and EUR 43,964 thousand, respectively) (described in more details in Note 11).

Fair value of investments into subsidiaries in stand-alone financial statements

The fair values of investments into subsidiaries together with loans granted to subsidiaries are determined by using valuation techniques, primarily discounted cash flows. The fair value of these investments was measured at the fair value of their net assets, including loans granted by the Company. The main assets of subsidiaries are investment properties, which are measured at fair value using the income approach. The main liabilities of subsidiaries are borrowings from external financial institutions, which are measured using an income approach, such as a present value technique. The models used to determine fair values are periodically reviewed and compared against historical results to ensure their reliability.

The fair value of the investments in subsidiaries as at 31 December 2017 was EUR 5,881 thousand (as at 31 December 2016 – EUR 5,289 thousand) (described in more details in Note 5).

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

2 Summary of significant accounting policies (cont'd)

2.22 Significant accounting judgements and estimates (cont'd)

Estimates and assumptions (cont'd)

The provision for onerous lease

The amount of provision for onerous lease represents the present value of future cash flows related to the lease contract. Future cash flows projections are based on the estimates of future rent income from subleased premises, contractual lease payments and estimates of maintenance and management expenses of leased premises. The estimates are reviewed at the end of each reporting period.

The provision for onerous lease was EUR 181 thousand as at 31 December 2017 (as at 31 December 2016 – EUR 272 thousand, (described in more details in Note 7). If the inflation estimation would be change by 50 basis points the carrying amount of onerous contract provision would be an estimated EUR 26 thousand higher/lower as at 31 December 2017 (as at 31 December 2016 – EUR 34 thousand).

The provision for the Performance Fee

The amount of provision for the Performance Fee represents the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. As at 31 December 2017, it was calculated according to the Articles of Association of the Company as an amount equal to 20% of return in excess of the annual internal rate of return of 8% for period from 30 November 2016 till 31 December 2017. For this period internal rate of return based on net assets value of the Company is amounted to 27.46%. As at 31 December 2016, it was calculated according to the Articles of Association of the Company as an amount equal to 20% of return in excess of the annual internal rate of return of 8% for December 2016 (i.e. the first period with a status of a closedend investment company, internal rate of return based on net assets value of the Company is amounted to 439.57%). The provision was estimated as a most likely outcome. The provision is calculated on the basis of the net assets value of the Company, which are amounted to the equity of the Group. The Performance Fee would become payable only if the stock price growth (including dividends) exceeded 8% annually. As described in Note 2.12, the payable Performance Fee could be based on net assets value or on the capitalisation of the Company. The Company cannot control stock price of the Company shares, therefore the timing and the amount of the Performance Fee payable in future are uncertain. As at 31 December 2017 the part of the Performance Fee became payable as internal rate of return for period from 30 November 2016 till 31 December 2017 based on the capitalisation of the Company amounted to 14.50% and exceeded 8%. Because the capitalisation of the Company was less than net assets value of the Company as at 31 December 2017, the initial amount for calculation of internal rate of return for next period would be capitalisation of the Company as at 31 December 2017.

The provision for the Performance Fee was EUR 777 thousand as at 31 December 2017 after deducting the payable part of the Performance Fee of EUR 386 thousand recognised within other current liabilities. The provision for the Performance Fee was EUR 814 thousand as at 31 December 2016 (Note 7).

3 Financial risk management

3.1. Financial risk factors

The risk management function within the Group is carried out in respect of financial risks, operational risks and legal risks. On an overall Group level strategical risk management was executed by the Management Company. Operational risk management is carried out at each entity level by directors. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

The Group's and the Company's principal financial liabilities comprise borrowings, trade and other payables. The main purpose of the borrowings is to raise finance for the Group's and the Company's operations. The Group and the Company have various financial assets such as trade and other receivables, loans granted and cash which arise directly from its operations. The Company and the Group have not used any derivative instruments so far, as management considered that there is no necessity for them.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

3 Financial risk management (cont'd)

3.1 Financial risk factors (cont'd)

The main risks arising from the financial instruments are market risk (including currency risk, cash flow and fair value interest rate risk and price risk), liquidity risk and credit risk. The risks are identified and disclosed below.

Credit risk

Credit risk arises from cash and cash equivalents, deposits, credit exposures to outstanding trade receivables and loans granted. The Group/Company seeks to ensure that rental contracts are entered into only with lessees with an appropriate credit history, from some of lessees advance lease payments are required.

At the date of financial statements there are no indications of worsening credit quality of trade and other receivables and loans granted, which are neither past due, nor impaired, due to constant control by the Group/Company of loans and receivable balances. The maximum exposure to credit risk of trade and other receivables is disclosed in Note 15. The maximum exposure to credit risk for loans granted to subsidiaries measured at fair value through profit or loss are their carrying amounts (Note 5). There are no transactions of the Group or the Company that occur outside Lithuania and Latvia.

The Company had an agreement with external entity, which provided property management services to the Company in Lithuania. The rent income and related revenues from the Company's owned properties in Lithuania, except newly acquired investment property located at Gynėjų str. 14 and three tenants in other properties, were collected through this entity, which issues the invoices for rent and related services to tenants at the end of each month. Therefore, the Group/Company had significant concentration of credit risk with respect to this entity. This third party accounts for approximately 59% and 55% of the total Group's trade and other receivables as at 31 December 2017 and 2016, respectively. This third party accounts for approximately 60% and 56% of the total Company's trade and other receivables as at 31 December 2017 and 2016, respectively.

With respect to credit risk arising from cash and cash equivalents and deposits the Group's and the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

According to the provisions of the borrowing agreement deposit is placed on the ABLV Bank, AS in Latvia (Note 18), which is not rated.

According to the European deposit insurance scheme, cash, cash equivalents and deposits of up to EUR 100 thousand in each bank are covered with insurance, except for the Company's cash and cash equivalents, because the Company is a collective investment undertaking. The insured amounts of cash, cash equivalents and deposits placed on ABLV Bank AS accounts were exceeded by EUR 138 thousand and EUR 100 thousand as at 31 December 2017 and 2016, respectively.

The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings of the banks:

		Group		Company
	2017	2016	2017	2016
Moody's short-term ratings
Prime-1	159	96	59	77
Prime-3	164	-	164	-
Not Prime	-	605	-	589
Not rated	88	50	-	-
	411	751	223	666

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

3 Financial risk management (cont'd)

3.1 Financial risk factors (cont'd)

Market risk

Cash flow and fair value interest rate risk

The Group's/Company's exposure to the risk of changes in market interest rates relates primarily to the debt obligations with floating interest rates. The borrowings from related party AB Invalda INVL are with fixed interest rates for one year.

The following table demonstrates the sensitivity to a reasonably possible change in floating interest rates (EURIBOR), with all other variables held constant, of the Group's and the Company's profit before tax (through the impact on floating rate borrowings). There is no impact on the Group's and the Company's equity other than current year profit impact.

	Increase in basis points	Group	Company
2017 EUR	+50 bps	(104)	(92)
2016 EUR	+50 bps	(108)	(94)

As at 31 December 2017 and 2016 EURIBOR were negative and according to borrowings agreements was equalled to zero.

Foreign exchange risk

The Group and the Company holds assets and liabilities denominated only in the Euro, which is functional and presentation currency of the Group. Therefore, the Group and the Company are not exposed to foreign exchange risk.

Liquidity risk

The Group's and the Company's policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet their commitments at a given date in accordance with strategic plans. The liquidity risk of the Group's operation in Lithuania and the Company is controlled on an overall Group level. The liquidity risk of the Group's operation in Latvia is controlled on an entity level. The Group's and the Company's objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans. The liquidity risk management is divided into long-term and short-term risk management.

The aim of the short-term liquidity management is to meet daily needs for funds. Short-term liquidity for the Group and the Company is controlled through monthly monitoring of the liquidity status and needs of funds.

Long-term liquidity risk is managed by analysing the predicted future cash flows taking into account the possible financing sources. Before approving the new investment projects the Group and the Company evaluate the possibilities to attract needed funds.

The Group's liquidity ratio (total current assets including assets held for sale / total current liabilities) as at 31 December 2017 and 2016 was approximately 0.51 and 1.12, respectively. The Company's liquidity ratio as at 31 December 2017 and 2016 was approximately 0.42 and 1.13.

As at 31 December 2017 the current assets were lower than current liabilities by EUR 1,362 thousand in the Group and EUR 1,463 thousand in the Company. Management of the Group and the Company forecasted the cash flows of the Group and the Company for 2018 and the forecast indicates that the Group and the Company will have sufficient funds to cover liabilities, which fall due in 2018. Additionally, the Group and the Company has initiated negotiation with the bank regarding additional borrowing to refinance additional investments, which were made in 2017 and would be made in 2018 into owned investment properties. It was expected that additional borrowing would be received during March 2018.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

3 Financial risk management (cont'd)

3.1 Financial risk factors (cont'd)

Liquidity risk (cont'd)

The table below summarises the maturity profile of the Group's financial liabilities as at 31 December 2017 and 2016 based on contractual undiscounted payments.

	On demand	Less than 3 months	4 to 12 months	2 to 5 years	More than 5 years	Total
Interest bearing borrowings	-	284	1,677	5,578	16,185	23,724
Trade and other payables	-	360	1	-	-	361
Provision for onerous contract	-	2	7	78	97	184
Other liabilities	32	704	-	-	-	736
Balance as at 31 December 2017	32	1,350	1,685	5,656	16,282	25,005
Interest bearing borrowings	-	286	961	8,232	14,462	23,941
Trade and other payables	-	133	-	-	-	133
Provision for onerous contract	-	29	76	56	114	275
Other liabilities	16	302	470	-	-	788
Balance as at 31 December 2016	16	750	1,507	8,288	14,576	25,137

The table below summarises the maturity profile of the Company's financial liabilities as at 31 December 2017 and 2016 based on contractual undiscounted payments.

	On demand	Less than 3 months	4 to 12 months	2 to 5 years	More than 5 years	Total
Interest bearing borrowings	-	213	1,465	3,312	16,185	21,175
Trade and other payables	-	360	-	-	-	360
Provision for onerous contract	-	2	7	78	97	184
Other liabilities	32	700	-	-	-	732
Balance as at 31 December 2017	32	1,275	1,472	3,390	16,282	22,451
Interest bearing borrowings	-	215	749	5,659	14,462	21,085
Trade and other payables	-	135	-	-	-	135
Provision for onerous contract	-	29	76	56	114	275
Other liabilities	16	301	470	-	-	787
Balance as at 31 December 2016	16	680	1,295	5,715	14,576	22,282

Provision for onerous contract is disclosed in the tables above, because it is a financial liability arising from the unavoidable cost of meeting the obligation of contract. The amounts disclosed are undiscounted future loss amounts used to calculate provision.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

3 Financial risk management (cont'd)

3.2. Capital management

The primary objective of the capital management is to ensure that the Group and the Company maintain a strong credit health and healthy capital ratios in order to support their business and maximise shareholder value. The Company's management supervises the investments so that they are in compliance with requirements applied to the capital, specified in the appropriate legal acts, as well as provide the Group's management with necessary information.

The Group's and the Company's capital comprises share capital, share premium, reserves and retained earnings.

The Group and the Company manage their capital structure and make adjustments to it, in light of changes in economic conditions and specific risks of their activity. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

The Company is obliged to keep its equity ratio at not less than 50 % of its share capital, as imposed by the Law on Companies of Republic of Lithuania. The Company and the Group complied with this requirement as at 31 December 2017 and 2016, except for two subsidiaries in 2017 and in 2016. There are no plans yet to rectify the situation in Lithuania. Pursuant to the Latvian Commercial Law the authorised share capital of a private limited liability company must be not less than EUR 2,800. As of 31 December 2017 and 2016, all Latvian subsidiaries complied with this requirement.

Starting from 2016 the Company has the right to pay dividends without bank consent if the ratio of EBITDA (earnings before interest, tax, depreciation and amortization) divided by the sum of debt service costs (interest and principal repayments) and dividends would be higher than 1.1. In addition, on 15 January 2016 the Company has approved dividend payment policy which stipulates the payment of dividends per share of no less than EUR 0.012 each year, if the legal and contractual requirements do not restrict this. On 29 December 2017 the Extraordinary General Shareholders Meeting of the Company changed dividend payment policy by increasing the minimum dividend from EUR 0.012 till EUR 0.026, if the legal and contractual requirements do not restrict the payment of dividends. After change of nominal value of shares (Note 21) the minimum dividend per share will amount EUR 0.13.

4 Fair value estimation

Assets carried at fair value

The fair value hierarchy has the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);

Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The following table provides the fair value measurement hierarchy of the Group's and the Company's assets measured at fair value in the statement of financial position as at 31 December 2017.

	Level 1	Level 2	Level 3	Total balance
Assets of the Group
Investment properties (Note 11)	-	4,073	52,268	56,341
Assets of the Company
Investment properties (Note 11)	-	788	47,045	47,833
Investment into subsidiaries (Note 5)	-	-	5,881	5,881

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

4 Fair value estimation (cont'd)

Assets carried at fair value (cont'd)

The following table provides the fair value measurement hierarchy of the Group's and the Company's assets measured at fair value in the statement of financial position as at 31 December 2016.

	Level 1	Level 2	Level 3	Total balance
Assets of the Group
Investment properties (Note 11)	-	4,017	48,393	52,410
Assets of the Company
Investment properties (Note 11)	-	862	43,102	43,964
Investment into subsidiaries (Note 5)	-	-	5,289	5,289

There were no transfers of assets between the Level 1 and Level 2 and between Level 2 and Level 3 of the fair value hierarchy during 2016 and 2017.

There were no liabilities measured at fair value in the Group's and the Company's statements of financial position.

Financial instruments that are not carried at fair value

The Group's and the Company's principal financial instruments that are not carried at fair value in the statement of financial position are cash and cash equivalents, deposits, trade and other receivables, trade and other payables, non-current and current borrowings, provision for onerous contract.

The carrying amount of the cash and cash equivalents, deposits, trade and other receivables, trade and other payables of the Group and the Company as at 31 December 2017 and 2016 approximated their fair value because they are short-term and the impact of discounting is immaterial.

The carrying amount of borrowings of the Group and the Company and provision for onerous contract as at 31 December 2017 and 2016 approximated their fair value. Bank borrowings have floating interest rate and were renegotiated recently, therefore their interest rate represents the current market rate. The interest rates of borrowings from related party are reviewed at the end of each financial year and adjusted in line with market rates changes, therefore it was concluded that their fair value approximates carrying amount. The fair values of non-current borrowings are based on discounted cash flows using a current interest rate. They are classified as level 3 fair values in the fair value hierarchy due to use of unobservable inputs, including own credit risk.

5 Investments into subsidiaries

The Group had the following subsidiaries directly or indirectly owned by the Company as at 31 December 2017 and 2016:

Name	Country of incorporation and place of business	Proportion of shares (voting rights) directly/indirectly held by the Company/Group (%)	Nature of business
UAB Rovelija*	Lithuania	100.00	Real estate owner and lessor
UAB Perspektyvi veikla	Lithuania	100.00	Dormant
UAB Proprietas*	Lithuania	100.00	Real estate owner and lessor
SIA Dommo Grupa*	Latvia	100.00	Real estate owner and lessor
SIA Dommo Biznesa Parks	Latvia	100.00	Real estate owner and lessor
SIA Dommo	Latvia	100.00	Real estate management
SIA DBP Invest	Latvia	100.00	Dormant
*These subsidiaries are directly owned by the Company.

All subsidiary undertakings listed in the tables above are included in the consolidation.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

5 Investments into subsidiaries (cont'd)

In 2017 the Company has not invested into or sold any subsidiaries. In 2016 the Company invested additional amount of EUR 17 thousand to increase the share capital of subsidiaries, from which EUR 3 thousand was paid by cash instalments. The Company sold subsidiary UAB Perspektyvi Veikla to UAB Rovelija for EUR 2 thousand.

The subsidiary SIA Dommo Bizness Parks has no right to pay dividends without a bank's written consent according to the loan agreements. The bank shall give its consent to pay dividends if a subsidiary's ability to repay borrowings is not degraded subsequently, and the subsidiary performs its obligation under the loan agreement as at the moment of giving the aforementioned consent. The loans granted (including accumulated interest thereon) to SIA Dommo Grupa and SIA Dommo Bizness Parks are subordinate to the bank borrowings and can be repaid only upon maturity of the bank borrowings in 2020.

Fair value of investments into subsidiaries

Investments into subsidiaries together with loans granted to subsidiaries are measured at fair value through profit or loss in the Company's stand-alone financial statements in 2017 and 2016. It is Level 3 fair value measurement. The fair value of investments is measured at the fair value of their net assets including loans granted by the Company. The main assets of dormant entities are cash. The main assets of active subsidiaries are investment properties, which are measured at fair value using the income approach. The main liabilities of subsidiaries are borrowings from external financial institutions, which are measured using an income approach, such as a present value technique.

The split of carrying amounts of the investment into subsidiaries by legal components is as follows:

2017	2016
112	127
5,769	5,162
5,881	5,289

Key inputs to valuation on subsidiaries as at 31 December 2017:

Significant unobservable inputs	Value of input or range
Sales price EUR per sq. m. (with VAT)	1,810
Cost to completion EUR per sq. m (without VAT)	887
Profit on cost ratio of the entire project (%) Discount rate (%)	30 11
Capitalisation rate for terminal value (%)	9
Vacancy rate (%)	5 - 15
Increase of rents per year (%)	1.4 – 1.6
Inflation (%)	1.4 – 1.6

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

5 Investments into subsidiaries (cont'd)

Fair value of investments into subsidiaries (cont'd)

Key inputs to valuation on subsidiaries as at 31 December 2016:

Significant unobservable inputs	Value of input or range
Sales price EUR per sq. m. (with VAT)	1,810
Cost to completion EUR per sq. m (without VAT)	887
Profit on cost ratio of the entire project (%)	30
Discount rate (%)	9.5 - 11
Capitalisation rate for terminal value (%)	9 - 10
Vacancy rate (%)	5 - 10
Increase of rents per year (%)	0.7 – 2.0
Inflation (%)	0.7 – 2.5

The sensitivity analysis of fair value of subsidiaries as at 31 December 2017 is as follows:

Reasonable possible shift +/- (%)	Increase of estimates	Decrease of estimates
Change in future sale prices of developed properties by 10%	160	(170)
Change in construction costs by 10%	(130)	130
Change in profit on cost ratio of the entire project by 200 bps	(30)	20
Change in Increase of rents per year by 100 bps or change in future rental rates by 1%	168	(164)
Change in expected vacancy rates by 20%	(73)	72
Change in discount and capitalization rate by 50 bps	(272)	303

The sensitivity analysis of fair value of subsidiaries as at 31 December 2016 is as follows:

Reasonable possible shift +/- (%)	Increase of estimates	Decrease of estimates
Change in future sale prices of developed properties by 10%	160	(170)
Change in construction costs by 10%	(130)	130
Change in profit on cost ratio of the entire project by 200 bps	(30)	20
Change in Increase of rents per year by 100 bps or change in future rental rates by 1%	92	(109)
Change in expected vacancy rates by 20%	(73)	53
Change in discount and capitalization rate by 50 bps	(261)	270

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

5 Investments into subsidiaries (cont'd)

The following table presents the movement in Level 3 instruments for the year ended 31 December 2017 and 2016:

Fair value as at 31 December 2015	4,971
Increase in share capital	17
Disposal of subsidiaries	(2)
Loans granted during a year (Note 20)	67
Gains and losses recognised in profit or loss (within 'Net changes in fair value of investment into subsidiaries designated at fair value through profit or loss')	236
Fair value as at 31 December 2016	5,289
Gains and losses recognised in profit or loss (within 'Net changes in fair value of investment into subsidiaries designated at fair value through profit or loss')	592
Fair value as at 31 December 2017	5,881
Change in unrealised gains or losses for the period included in profit or loss for assets held at the end of 2017	592
Change in unrealised gains or losses for the period included in profit or loss for assets held at the end
of 2016	236

The main part of investments into subsidiaries together with loans granted are loans granted to Latvian entities. In 2015 50% of these loans were acquired by the Former Parent Company at a price below their estimated fair value, which was measured as 50% of fair value of net assets of subsidiaries, over which control was obtained by the Former Parent Company. On the acquisition day, the difference amounted to EUR 1,014 thousand. As the fair value was not determined based on observable inputs, this '1 day profit' was not recognised immediately but is deferred and is recognised during the estimated maturity of the loans. During 2017 and 2016 the Company has recognised EUR 203 thousand and EUR 202 thousand of this '1 day profit' within 'Net changes in fair value of investment into subsidiaries designated at fair value through profit or loss' in the statement of comprehensive income, respectively. As at 31 December 2017 and as at 31 December 2016 unrecognised part of '1 day profit' was EUR 507 thousand and EUR 710 thousand, respectively. Therefore, the total fair value of loans granted by the Company was EUR 6,276 thousand and EUR 5,872 thousand as at 31 December 2017 and 2016, respectively (their carrying amount – EUR 5,769 thousand and EUR 5,162 thousand, respectively). It is Level 3 measurement.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

6 Segment information

Management of the Company has determined the operating segments based on the reports reviewed by the Investment Committee of the Management Company that are used to make strategic decisions. The Investment Committee analyses performance of the Group on property-by-property basis of owned premises, while leased premises are reported on a combined basis. Performance is evaluated based on net operating income. Net operating income is calculated by deducting from revenue premises rent costs (excluding provision for onerous contract), utilities expenses, repair and maintenance expenses, property management and brokerage costs, taxes on property and insurance costs. Segment assets and liabilities are not reported to the Investment Committee. Management of the Company has determined the following reportable segments:

• Owned property in Lithuania. The reportable segment comprises four (until September 2017 five) operating segments on a property-by-property basis, which are aggregated. The operating segments have similar economic characteristics, because all owned premises are located in Vilnius, Lithuania. These are office buildings with some warehouse premises. Most of them have further development opportunities. All properties are multi-tenant. Corporate tenants dominate, but some premises are also leased to governmental and retail tenants.
• Leasehold property. They are located in Vilnius and Kaunas, Lithuania. These are office buildings and warehouses. From 1 September 2017 the segment comprise of one investment property (office building) in Vilnius.
• Owned property in Latvia. Revenue is earned from warehouse located in Riga, Latvia.

The following table presents performance of reportable segments of the Group for the year ended 31 December 2017:

	Owned property in Lithuania	Leasehold property	Owned property in Latvia	Total
Year ended 31 December 2017
Revenue	4,444	1,281	477	6,202
Expenses
Premises rent costs	(32)	(1,202)	(4)	(1,238)
Utilities	(779)	(97)	(7)	(883)
Repair and maintenance of premises Property management and brokerage	(852)	(59)	(24)	(935)
costs	(200)	(79)	(3)	(282)
Taxes on property	(314)	-	(17)	(331)
Insurance costs	(8)	-	(3)	(11)
Net operating income for the year	2,259	(156)	419	2,522

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

6 Segment information (cont'd)

The following table presents performance of reportable segments of the Group for the year ended 31 December 2016:

	Owned property in Lithuania	Leasehold property	Owned property in Latvia	Total
Year ended 31 December 2016
Revenue	4,138	1,764	387	6,289
Expenses
Premises rent costs	(19)	(1,699)	(1)	(1,719)
Utilities	(809)	(158)	(13)	(980)
Repair and maintenance of premises Property management and brokerage	(764)	(80)	(34)	(878)
costs	(191)	(174)	-	(365)
Taxes on property	(318)	-	(17)	(335)
Insurance costs	(7)	-	(3)	(10)
Net operating income for the year	2,030	(347)	319	2,002

The following table presents reconciliation of the Group's operating profits to net operating income, rent costs and revenue.

	2017			2016
	Net operating				Net operating
	income to	Premises	Property management		income to	Premises
	operating profit	rent costs	and brokerage costs	Revenue	operating profit	rent costs Revenue
From reportable segment	2,522	(1,238)	(282)	6,202	2,002	(1,719)	6,289
Provision for onerous
contracts	92	92	-	-	77	77	-
Other revenue not included
in reportable segments	1	-	-	1	1	-	1
Add back insurance costs
(included within 'other
expenses')	11	-	-	-	10	-	-
Brokerage cost on sale of
investment property	(20)	-	(20)	-	-	-	-
Management and
Performance Fee	(645)	-	-	-	(819)	-	-
Impairment of assets
(reversal of impairment)	(2)	-	-	-	(33)	-	-
Employee benefits
expenses	(33)	-	-	-	(178)	-	-
Depreciation and amortisation	(14)	-	-	-	(7)	-	-
Other expenses	(213)	-	-	-	(164)	-	-
Other income	25	-	-	-	15	-	-
Net gains from fair value
adjustments on investment
property	2,326	-	-	-	147	-	-
Total	4,050	(1,146)	(302)	6,203	1,051	(1,642)	6,290

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

6 Segment information (cont'd)

The table below presents distribution of the Group non-current assets (other than financial instruments and deferred tax assets) by geographical area as at 31 December 2017 and 2016:

	Lithuania	Latvia	Total
As at 31 December 2017	48,488	8,104	56,592
As at 31 December 2016	44,533	8,050	52,583

7 Revenue, lease expenses, lease commitments, provisions

Revenue

The Group being the lessor has entered into commercial property leases of the Group's investment properties under operating lease agreements. The majority of the agreements have remaining terms of between 1 and 6 years.

Analysis of revenue by category:

		Group		Company
	2017	2016	2017	2016
Rent income	5,148	5,184	4,668	4,794
Utilities revenue	874	1,009	872	1,008
Other services revenue	181	97	180	97
Total revenue	6,203	6,290	5,720	5,899

The Group has earned rent income from both owned and subleased premises. Breakdown of revenue by ownership of premises is presented below:

	Group		Company
	2017	2016	2017	2016
Rent income from owned premises	3,978	3,595	3,498	3,205
Other revenue from owned premises	944	931	941	930
Total revenue from owned premises	4,922	4,526	4,439	4,135
Rent income from subleased premises	1,170	1,589	1,170	1,589
Other revenue from subleased premises	111	175	111	175
Total revenue from subleased premises	1,281	1,764	1,281	1,764
Total revenue	6,203	6,290	5,720	5,899

Analysis of revenue of the Group by geographical areas:

	Group
	2017	2016
Lithuania	5,725	5,903
Latvia	478	387
Total	6,203	6,290

Revenues of EUR 3,474 thousand in the Group are derived from a single external customer in Lithuania for the year ended 31 December 2017 (for the year ended 31 December 2016: EUR 3,573 thousand).

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

7 Revenue, lease expenses, lease commitments, provisions (cont'd)

Revenue (cont'd)

The Group's future rentals receivable under non-cancellable and cancellable operating leases as at 31 December 2017 and 2016 are as follows:

		2017	2016
Within one year
	- non-cancellable lease	2,090	1,672
	- non-cancellable amount of cancellable lease	1,096	1,040
	- minimum lease payments, total	3,186	2,712
	- cancellable amount of cancellable lease	797	843
		3,983	3,555
From one to five years
	- non-cancellable lease	4,242	4,757
	- non-cancellable amount of cancellable lease	730	195
	- minimum lease payments, total	4,972	4,952
	- cancellable amount of cancellable lease	1,722	2,081
		6,694	7,033
After five years
	- non-cancellable lease	404	1,698
	- non-cancellable amount of cancellable lease	-	-
	- minimum lease payments, total	404	1,698
	- cancellable amount of cancellable lease	169	309
		573	2,007
Total		11,250	12,595
	- non-cancellable lease	6,736	8,127
	- non-cancellable of cancellable lease	1,826	1,235
	- minimum lease payments, total	8,562	9,362
	- cancellable amount of cancellable lease	2,688	3,233

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

7 Revenue, lease expenses, lease commitments, provisions (cont'd)

Revenue (cont'd)

The Company's future rentals receivable under non-cancellable and cancellable operating leases as at 31 December 2017 and 2016 are as follows:

	2017	2016
Within one year
- non-cancellable lease	2,048	1,631
- non-cancellable amount of cancellable lease	983	935
- minimum lease payments, total	3,031	2,566
- cancellable amount of cancellable lease	463	531
	3,494	3,097
From one to five years
- non-cancellable lease	4,238	4,743
- non-cancellable amount of cancellable lease	730	195
- minimum lease payments, total	4,968	4,938
- cancellable amount of cancellable lease	1,573	1,529
	6,541	6,467
After five years
- non-cancellable lease	404	1,698
- non-cancellable amount of cancellable lease	-	-
- minimum lease payments, total	404	1,698
- cancellable amount of cancellable lease	169	309
	573	2,007
Total	10,608	11,571
- non-cancellable lease	6,690	8,072
- non-cancellable of cancellable lease	1,713	1,130
- minimum lease payments, total	8,403	9,202
- cancellable amount of cancellable lease	2,205	2,369

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

7 Revenue, lease expenses, lease commitments, provisions (cont'd)

Revenue (cont'd)

The Company's and the Group's future rentals receivable under non-cancellable and cancellable operating subleases as at 31 December 2017 and 2016 are as follows:

		2017	2016
Within one year
	- non-cancellable lease	202	431
	- non-cancellable amount of cancellable lease	-	661
	- minimum lease payments, total	202	1,092
	- cancellable amount of cancellable lease	-	77
		202	1,169
From one to five years
	- non-cancellable lease	809	809
	- minimum lease payments, total	809	809
After five years
	- non-cancellable lease	607	809
	- minimum lease payments total	607	809
Total		1,618	2,787
	- non-cancellable lease	1,618	2,049
	- non-cancellable of cancellable lease	-	661
	- minimum lease payments, total	1,618	2,710
	- cancellable amount of cancellable lease	-	77

For the cancellable lease and sublease agreements, tenants must notify the administrator 1–38 months in advance if they wish to cancel the rent agreement and have to pay for the cancellation 1–3 months' rent fee penalty or penalty based on initial repair cost incurred to prepare premises to rent proportionally to remaining term of rent. According to non-cancellable lease and sublease agreements tenants must pay the penalty equal to rentals receivable during the whole remaining lease period.

Some of lease and sublease agreements have a clause enabling upward revision of the rental charges on an annual basis according to prevailing market conditions.

Expenses and provisions

The Company was leasing premises from an external party until August 2017 under the lease agreement of 10 August 2007, except for one property, which is leased until the expiry of the current sublease agreement (31 December 2025). The Company had paid a one off deposit in the amount of EUR 825 thousand corresponding to the 6 months rental fee amount, which will be set-off against the last part of lease payment at the termination of the lease. The rent payments are subject to an indexation at the end of August each year on the basis of harmonised consumer price index, if the latter is more than 1%, but there is a cap for annual indexation of 3.8%. In November of 2016 the amendment to the lease agreement was signed. According to the amendment, EUR 275 thousand of prepayments was set off against lease payables in 2016, EUR 450 thousand of prepayments was set off in 2017, and EUR 100 thousand of prepayments has to be set off in 2025.

During the year ended 31 December 2017 and 2016 the Group and the Company has incurred EUR 1,111 thousand and EUR 1,622 thousand lease expenses under this agreement, respectively. Contingent rent constitutes EUR 190 thousand and EUR 268 thousand within this amount during the year ended 31 December 2017 and 2016, respectively in the Group and in the Company.

The lease expenses of the Group from other agreements amounted to EUR 35 thousand and EUR 21 thousand during the year ended 31 December 2017 and 2016, respectively. The lease expenses of the Company from other agreements amounted to EUR 36 thousand and EUR 20 thousand during the year ended 31 December 2017 and 2016, respectively.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

7 Revenue, lease expenses, lease commitments, provisions (cont'd)

Expenses and provisions (cont'd)

Future minimum non-cancellable lease payments according to the signed operating lease contracts are as follows:

		Group		Company
		2017	2016	2017	2016
Within one year
	- lease of premises from agreement of 10 August 2007**	209	683	209	683
	- other lease	24	23	20	24
		233	706	229	707
From one to five years
	- lease of premises from agreement of 10 August 2007	837	819	837	819
	- other lease	2	6	5	10
		839	825	842	829
After five years
	- lease of premises from agreement of 10 August 2007, *	528	719	528	719
	- other lease	-	-	-	-
		528	719	528	719
		1,600	2,250	1,599	2,255

* In 2017 the prepayment of EUR 100 thousand was deducted from the future lease payments in the caption 'after five years'. ** In 2016 the prepayment of EUR 450 thousand was deducted from the future lease payments in the caption 'within one year' and the prepayment of EUR 100 thousand was deducted from the future lease payments in the caption 'after five years'.

The lease agreement of 10 August 2007 is an onerous contract, therefore there is a provision of EUR 181 thousand and EUR 272 thousand to cover the loss anticipated in connection with this contract recognised in the statement of financial position as at 31 December 2017 and 2016, respectively. This amount represents the present value of future cash flows related to the lease contract. Future cash flows projections are based on the estimates of future rent income from subleased premises, contractual lease payments and estimates of maintenance and management expenses of leased premises.

The changes in the provision for onerous contract is presented below:

	2017	2016
As at 1 January	272	347
Re-estimation of provision at the end of the year	1	183
Amount used (recognised as a reduction of 'Premises rent costs')	(105)	(261)
Unwinding of the discount and changes in the discount rate	13	3
As at 31 December	181	272
Non-current	172	167
Current	9	105

In addition to the above, deferred charges of EUR 820 thousand arising from expense recognition on a straight-line basis were recognised in the statement of financial position of the Group and the Company within "Inventories, prepayments and deferred charges" (Note12) as at 31 December 2016 (nil as at 31 December 2017).

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

7 Revenue, lease expenses, lease commitments, provisions (cont'd)

Expenses and provisions (cont'd)

As at 31 December 2017 the Company recognised non-current provision for the Performance Fee of EUR 777 thousand (as at 31 December 2016: EUR 814 thousand) (Notes 2.12 and 2.22).

The changes in the provision for the Performance Fee is presented below:

	2017	2016
As at 1 January	814	-
Re-estimation of provision at the end of the year	349	814
Reclassification of payable part to 'other current liabilities'	(386)	-
As at 31 December	777	814

8 Finance costs

	Group		Company
	2017	2016	2017	2016
Interest expenses of bank borrowings	(471)	(490)	(417)	(431)
Interest expenses of borrowings from related parties	(1)	(58)	(1)	(58)
Interest expenses from third parties	-	(11)	-	(11)
Unwinding of the discount of provision for onerous contract	(1)	(2)	(1)	(2)
	(473)	(561)	(419)	(502)

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

9 Income tax

		Group		Company
	2017	2016	2017	2016
Components of the income tax (expenses)/credit
Current income tax (expense)/credit	-	(13)	-	(12)
Prior year current income tax correction	1	-	1	-
Deferred income tax (expense)/credit	(1)	4,030	-	4,031
Income tax (expense)/credit charged to profit or loss – total	-	4,017	1	4,019

There is no income tax expense (credit) recognised in other comprehensive income. Deferred tax asset of EUR 6 thousand arising from the costs of issue of new shares was recognised directly in equity in 2016.

Deferred income tax asset and liability were estimated at 15% rates as at 31 December 2017 and 2016.

The movement in deferred income tax assets and liabilities of the Group during 2017 is as follows:

	Balance as at 31 December 2016	Recognised in profit or loss during the year	Changes in Latvian Income Tax Law	Balance as at 31 December 2017
Deferred tax asset
Tax loss carry forward	1,112	(25)	-	1,087
Intangible assets	-	-	-	-
Accruals and provisions	-	-	-	-
Investment properties	117	(19)	(80)	18
Receivables	1	-	(1)	-
Deferred tax asset available for recognition	1,230	(44)	(81)	1,105
Less: unrecognised deferred tax asset from tax losses carried forward Less: unrecognised deferred tax asset due to future	(962)	75	(198)	(1,085)
uncertainties	(118)	19	81	(18)
Recognised deferred income tax asset	150	50	(198)	2
Asset netted with liability of the same legal entities	(149)	(51)	198	(2)
Deferred income tax asset, net 1	1	(1)	-	-
Deferred tax liability
Investment properties	(149)	(51)	198	(2)
Deferred charges	-	-	-	-
Deferred income tax liability	(149)	(51)	198	(2)
Liability netted with asset of the same legal entities	149	51	(198)	2
Deferred income tax liability, net	-	-	-	-
Deferred income tax, net	1	(1)	-	-

After changes in Latvian Income Tax Law the tax losses from Latvian entities could be carried forward not for indefinite period of time, but for 5 consecutive years. Deferred tax asset arising from the tax losses from Latvian entities amounted to EUR 1,052 thousand (all amount is unrecognised) as at 31 December 2017.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

9 Income tax (cont'd)

The movement in deferred income tax assets and liabilities of the Group during 2016 is as follows:

	Balance as at 31 December 2015	Recognised in profit or loss during the year	Recognised in equity	Becoming closed-end investment company	Balance as at 31 December 2016
Deferred tax asset
Tax loss carry forward for indefinite period of time	1,216	6	6	(116)	1,112
Intangible assets	20	(20)	-	-	-
Accruals and provisions	96	24	-	(120)	-
Investment properties	18	99	-	-	117
Receivables	1	70	-	(70)	1
Deferred tax asset available for recognition	1,351	179	6	(306)	1,230
Less: unrecognised deferred tax asset from tax losses carried forward for indefinite period of time Less: unrecognised deferred tax asset due to	(1,062)	100	-	-	(962)
future uncertainties	(19)	(99)	-	-	(118)
Recognised deferred income tax asset	270	180	6	(306)	150
Asset netted with liability of the same legal entities	(268)	(187)	-	306	(149)
Deferred income tax asset, net 1	2	(7)	6	-	1
Deferred tax liability
Investment properties	(4,305)	(379)	-	4,535	(149)
Deferred charges	-	(54)	-	54	-
Deferred income tax liability	(4,305)	(433)	-	4,589	(149)
Liability netted with asset of the same legal entities	268	187	-	(306)	149
Deferred income tax liability, net	(4,037)	(246)	-	4,283	-
Deferred income tax, net	(4,035)	(253)	6	4,283	1

Following the provisions of the Lithuanian Law on Corporate Income Tax, investment income of closed-end investment companies operating in accordance with the Lithuanian Law on Collective Investment Undertakings shall not be subject to taxation. Therefore, after obtaining the status of a closed-end investment company, the Group/Company reversed the deferred tax liabilities of EUR 4,283 thousand.

The Company has not any taxable temporary differences in 2017 and has not recognised any deferred tax assets or liabilities.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

9 Income tax (cont'd)

The movement in deferred income tax assets and liabilities of the Company during 2016 is as follows:

	Balance as at 31 December 2015	Recognised in profit or loss during the year	Recognised in equity	Becoming closed-end investment company	Balance as at 31 December 2016
Deferred tax asset
Tax loss carry forward for indefinite period of time Intangible assets	146 20	(36) (20)	6 -	(116) -	- -
Accruals and provisions	96	24	-	(120)	-
Receivables	-	70	-	(70)	-
Deferred tax asset available for recognition	262	38	6	(306)	-
Recognised deferred income tax asset	262	38	6	(306)	-
Asset netted with liability of the same legal entities	(262)	(44)	-	306	-
Deferred income tax asset, net	-	(6)	6	-	-
Deferred tax liability
Investment properties	(4,299)	(236)	-	4,535	-
Deferred charges	-	(54)	-	54	-
Deferred income tax liability	(4,299)	(290)	-	4,589	-
Liability netted with asset of the same legal entities	262	44	-	(306)	-
Deferred income tax liability, net	(4,037)	(246)	-	4,283	-
Deferred income tax, net	(4,037)	(252)	6	4,283	-

The Group's deferred tax assets are to be recovered within 12 months as of 31 December 2016.

The reconciliation of the total income tax to the theoretical amount that would arise using the tax rate of the Group and the Company is as follows:

	Group		Company
	2017	2016	2017	2016
Profit before income tax	3,577	490	3,779	691
Tax calculated at the tax rate of 15 %	(537)	(74)	(567)	(104)
Tax effect of non-deductible expenses and non-taxable income Deferred tax expenses arising from write-down, or reversal of a previous write-down, of deferred tax asset due to changes in probability to utilise	480	(193)	567	(160)
it	56	1	-	-
Prior year current income tax correction Deferred income tax credit arising from becoming a closed-end	1	-	1	-
investment company	-	4,283	-	4,283
Income tax (expense)/credit recorded in the statement of comprehensive income	-	4,017	1	4,019

Following the provisions of the Lithuanian Law on Corporate Income Tax, investment income of closed-end investment companies operating in accordance with the Lithuanian Law on Collective Investment Undertakings shall not be subject to taxation. Therefore, after obtaining the status of a closed-end investment company, the Group/Company reversed the deferred tax liabilities of EUR 4,283 thousand, and accordingly, recognised deferred income tax credit in the statement of comprehensive income for the year ended 31 December 2016. The main non-taxable income/ non-deductible expenses of the Group/Company for 2017 were investment income and related expenses of the Company. The main non-deductible expenses of the Group/Company for 2016 were provisions.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

10 Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

The weighted average number of shares for the year ended 31 December 2017 was 65,750 thousand.

The weighted average number of shares in 2016 was as follows:

Calculation of weighted average for the year 2016	Number of shares (thousand)	Nominal value (EUR)	Issued/366 (days)	Weighted average (thousand)
Shares issued as at 31 December 2015	43,226	0.29	366/366	43,226
New shares issued as at 8 March 2016 (Note 16)	22,524	0.29	298/366	18,339
Shares issued as at 31 December 2016	65,750	0.29		61,565

The following table reflects the income and share data used in the basic earnings per share computations:

	Group
	2017	2016
Net profit (loss), attributable to the equity holders of the parent	3,577	4,507
Weighted average number of ordinary shares (thousand)	65,750	61,565
Basic earnings (deficit) per share (EUR)	0.05	0.07

For 2017 and 2016 diluted earnings per share of the Group are the same as basic earnings per share.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties

The movements of investment properties of the Group were: Group Other investment

Group	Other investment		Investment properties
	properties valued using	Properties leased	held for future
	sales comparison method	out by the entity	redevelopment	Total
Fair value hierarchy	Level 2	Level 3	Level 3
Balance as at 31 December 2015	3,735	46,292	1,720	51,747
Additions	228	-	-	228
Subsequent expenditure	-	288	-	288
Reclassification	-	1,200	(1,200)	-
Gain from fair value adjustment	259	435	-	694
Loss from fair value adjustment	(205)	(172)	(170)	(547)
Balance as at 31 December 2016	4,017	48,043	350	52,410
Subsequent expenditure	-	2,545	-	2,545
Transfer from intangible assets	-	60	-	60
Disposals	-	(1,000)	-	(1,000)
Gain from fair value adjustment	136	2,347	-	2,483
Loss from fair value adjustment	(80)	(77)	-	(157)
Balance as at 31 December 2017	4,073	51,918	350	56,341
Unrealised gains and losses for the period included within "Net gains (losses) from fair value adjustments on investment property"
in profit or loss	56	2,270	-	2,326

The movements of investment properties of the Company were:

Company	Other investment properties valued using sales comparison method	Properties leased out by the entity	Investment properties held for future redevelopment	Total
Fair value hierarchy	Level 2	Level 3	Level 3
Balance as at 31 December 2015	561	41,439	1,200	43,200
Additions	228	-	-	228
Subsequent expenditure	-	288	-	288
Reclassification	-	1,200	(1,200)	-
Disposals	(51)	-	-	(51)
Gain from fair value adjustment	259	347	-	606
Loss from fair value adjustment	(135)	(172)	-	(307)
Balance as at 31 December 2016	862	43,102	-	43,964
Subsequent expenditure	-	2,542	-	2,542
Transfer from intangible assets	-	60	-	60
Disposals	-	(1,000)	-	(1,000)
Gain from fair value adjustment	6	2,347	-	2,353
Loss from fair value adjustment	(80)	(6)	-	(86)
Balance as at 31 December 2017	788	47,045	-	47,833
Unrealised gains and losses for the period included within "Net gains (losses) from fair value adjustments on investment property" in profit or loss	(74)	2,341	-	2,267

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties (cont'd)

Investment properties of the Group are office buildings, warehouses and the entire building of old apartments. The majority of buildings and warehouses are leased out under the operating lease agreements and generate rental income.

The direct operating expenses arising from investment properties can be allocated as follows:

		Group		Company
	2017	2016	2017	2016
To properties that generated rental income	1,434	1,304	1,415	1,255
To properties that did not generate rental income	73	94	65	86
	1.507	1,398	1.480	1,341

On 29 January 2016 the Company completed the acquisition of investment properties located at Gynėjų str. 14, Vilnius, by settling outstanding payables (EUR 5,618 thousand excluding VAT). The final settlement was financed by additional borrowings from the related party AB Invalda INVL (EUR 800 thousand) and from AB Šiaulių bankas (EUR 4,500 thousand). During 1st Half Year of 2016 a reconstruction of this investment property was started to arrange premises for rent. In 2017 and 2016 the reconstruction expenses of EUR 2,339 thousand and EUR 288 thousand have incurred, respectively, and were capitalised and added to the acquisition cost of this investment property. In 2017 the reconstruction expenses of EUR 3 thousand and of EUR 203 thousand have incurred additionally for the investment properties in Latvia and in Vilnius, located at Palangos 4, respectively. As at 31 December 2017 outstanding payables for subsequent expenditure for investment properties amounted to EUR 352 thousand. In 2016 the Company obtained ownership of additional 11 parking spaces by paying for them EUR 228 thousand (excluding VAT).

In 2015 the Company signed preliminary agreement, according to which the constructed building foundation with leased land attributed to it would be sold for EUR 500 thousand plus the cost of building foundation. The Company has received in advance EUR 450 thousand from the buyer until 31 December 2015. In 2016 the Group and the Company additionally invested EUR 51 thousand into investment property located at Žygio str. 97, Vilnius, where the new building foundation was laid. The Company has paid EUR 256 thousand (including outstanding amount from 2015) for this construction in 2016. Therefore, the final sale price was EUR 756 thousand, which included land rent right to 0.15 hectare. Legal title was passed for land rent right to 0.28 hectares. If under the law requirements the Buyer will be required to retain the land rent right to additional up to 0.13 hectare, then the Buyer will have to pay an additional consideration of up to of EUR 433 thousand. The additional consideration was not recognised as income in the financial statements of the Group and the Company, because the management believed it was more likely that land rent right to 0.15 hectare would be sufficient for the Buyer. In 2016 the Group and the Company received from this sale EUR 306 thousand in cash.

On 26 July 2017 the Company had signed an agreement on the sale of 3,000 square metres of office and warehouse premises on Kirtimų Street in Vilnius. The value of the transaction was EUR 1,000 thousand plus VAT. On 5 September 2017 the ownership of property was transferred to the buyer after sale price was received. During 2016 the Company sold 6 parking spaces (that were acquired in 2016) to the subsidiary UAB Proprietas for EUR 51 thousand. EUR 47 thousand was received in cash, and the remaining amount was set off by increasing the share capital of the subsidiary.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties (cont'd)

Investment properties are measured at fair value. In 2017 and 2016, properties leased out by the entity and investment properties held for future redevelopment in Lithuania were valued on 31 October 2017 and 31 October 2016, respectively, by an accredited valuer UAB OBER-HAUS Nekilnojamasis Turtas (hereinafter together with SIA OBER-HAUS Vertešanas Serviss referred to as 'Oberhaus') using the income approach and by an accredited valuer UAB Newsec Valuations (hereinafter 'Newsec') using the income approach and market approach. In 2017 investment properties located in Latvia were valued in October 2017 by an accredited valuer SIA OBER-HAUS Vertešanas Serviss using a market approach for land and using an income approach for warehouse. As at 31 December 2016 investment properties located in Latvia were valued in August 2016 by an accredited valuer SIA OBER-HAUS Vertešanas Serviss and in September 2016 by SIA City Real Estate Company (hereinafter CRE) using a market approach for land and using an income approach for warehouse. There were no significant changes in the market during period from valuation date till year-end that could have an effect on the value of investment properties, therefore the updated valuation was not performed as at 31 December 2017 and 2016.

The Group's policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

The fair value represents the price that would be received selling an asset in an orderly transaction between market participants at the measurement date, in compliance with the International Valuation Standards set out by the International Valuation Standards Committee. An investment property's fair value was based either on the market approach by reference to sales in the market of comparable properties or the income approach by reference to rentals obtained from the subject property or similar properties. Market approach refers to the prices of the analogues transactions in the market. These values are adjusted for differences in key attributes such as property size, location and quality of interior fittings. The most significant input into this valuation approach is price per square metre.

Income approach is based on the assumption that defined correlation between net activity future income and fair value of the objects exists. For properties leased out by the entity main inputs include:

• Future rental cash inflows based on the actual location, type and quality of the properties and supported by the terms of any existing lease, other contracts or external evidence such as current market rents for similar properties;

• Discount rates reflecting current market assessments of the uncertainty in the amount and timing of cash flows;

• Estimated vacancy rates based on current and expected future market conditions after expiry of any current lease;

• Maintenance costs including necessary investments to maintain functionality of the property for its expected useful life;

• Capitalisation rates based on actual location, size and quality of the properties and taking into account market data at the valuation date;

• Terminal value taking into account assumptions regarding maintenance costs, vacancy rates and market rents.

Investment properties held for future redevelopment were estimated taking into account the following estimates (in addition to the inputs noted above):

• Sales prices based on the valuers' experience and knowledge of market conditions of residential and commercial properties;

• Costs to complete that are based on the valuers' experience and knowledge of market conditions and term sheets outlined in approved detailed plans. Costs to complete also include a reasonable profit margin;

• Completion dates, as properties under construction require approval or permits from oversight bodies at various points in the development process, including approval or permits in respect of initial design, zoning, commissioning, and compliance with environmental regulations. Based on management's experience with similar developments, all relevant permits and approvals are expected to be obtained. However, the completion date of the development may vary depending on, among other factors, the were no changes to the valuation techniques during the period;

• Profit on cost ratio reflecting current market assessment of profitability margin of developments projects. It is based on the internal rate of returns for similar projects.

The split of carrying amounts of the properties leased out by the entity by type:

	Group		Company
	2017	2016	2017	2016
Offices premises in city centre – Lithuania	47,045	42,296	47,045	42,296
Warehouse and office premises in industrial area - Lithuania	-	806	-	806
Warehouse – Latvia	4,873	4,941	-	-
	51,918	48,043	47,045	43,102

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties (cont'd)

Description of valuation techniques used and key inputs to valuation on investment properties located in Lithuania as at 31 December 2017:

	Valuation	Significant unobservable inputs	Range (weighted average)
	technique		Oberhaus	Newsec
Properties leased	Discounted cash	Discount rate (%)	8.5 – 9 (9.24)	9.0 – 9.8 (9.18)
out by the entity	flows	Capitalisation rate for terminal value (%)	7.0 – 8.5 (7.74)	7.5 – 8.5 (7.64)
		Vacancy rate (%)	3 – 15	5 (5 – 50 in first year)
		Office premises in city centre -
		Rent price EUR per sq. m. (without	7.50 – 19.60 (10.32)	4.93 - 19.5 (10.77)
		VAT)
		Warehouse premises - Rent price	4.5 – 6.0 (4.64)	3.73 – 5.83 (4.45)
		EUR per sq. m. (without VAT)
Investment properties held for	Discounted cash flows with	Profit on cost ratio of the entire project (%)	30	-
future redevelopment	estimated costs to complete	Cost to completion EUR per sq. m (without VAT)	887	-
		Sales price EUR per sq. m. (with VAT)*	1,810	-
		Completion date, years	2	-

Inputs for investment properties held for future developments are not relevant to the Company. All other inputs in the Company are the same as in the Group.

Description of valuation techniques used and key inputs to valuation on investment properties located in Lithuania as at 31 December 2016:

	Valuation technique	Significant unobservable inputs	Range (weighted average) Oberhaus	Newsec
Properties leased	Discounted cash	Discount rate (%)	8.5 – 10 (9.12)	9.06 – 10.90 (9.14)
out by the entity	flows	Capitalisation rate for terminal value (%)	7.0 – 9.5 (7.64)	7.5 – 9.0 (7.68)
		Vacancy rate (%) Office premises in city centre -	3 – 15	3 – 12
		Rent price EUR per sq. m. (without VAT)	7.25 – 19.60 (10.0)	7.16 – 19.0 (10.0)
		Warehouse and office premises in industrial area - Rent price EUR per sq. m. (without VAT)	2.0 – 6.0 (3.28)	2.37 – 5.80 (3.57)
Investment properties held for	Discounted cash flows with	Profit on cost ratio of the entire project (%)	30	-
future redevelopment	estimated costs to complete	Cost to completion EUR per sq. m (without VAT)	887	-
		Sales price EUR per sq. m. (with VAT)*	1,810	-
		Completion date, years	2	-

Inputs for investment properties held for future developments are not relevant to the Company. All other inputs in the Company are the same as in the Group.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties (cont'd)

Description of valuation techniques used and key inputs to valuation on investment properties located in Latvia as at 31 December 2017:

	Valuation technique	Significant unobservable inputs	Value of input or range Oberhaus
Properties leased	Discounted	Discount rate (%)	11
out by the entity	cash flows (five	Capitalisation rate for terminal value (%)	9
	year estimated)	Vacancy rate (%)	5 (15 in first year and 10 in third year)
		Increase of rents per year (%)	1.4-1.6
		Inflation (%)	1.4-1.6

Description of valuation techniques used and key inputs to valuation on investment properties located in Latvia as at 31 December 2016:

	Valuation		Value of input or range
	technique	Significant unobservable inputs	Oberhaus	CRE
Properties leased	Discounted	Discount rate (%)	11	9.5
out by the entity	cash flows (five	Capitalisation rate for terminal value (%)	9	10
	year estimated)		5 (20 in first year
			and 10 in fourth
		Vacancy rate (%)	year)	5 – 10
		Rent price EUR per sq. m. (excl. VAT)*	-	3.5 – 5.0
		Increase of rents per year (%)*	0.7-2.0	-
		Inflation (%)	0.7-2.0	2.5

*Oberhaus is used for valuation of current contractual rent prices and has indexed these prices by input of increase of rents per year. CRE is used for valuation of contractual rent prices for the periods of the current rent contracts. CRE is used inputs of rent price, disclosed in the table above, for the periods after expiry of the current rent contracts.

The sensitivity analysis of investment properties located in Lithuania valued using income approach as at 31 December 2017 is as follows:

Group	Increase of estimates		Decrease of estimates
Reasonable possible shift +/- (%)	Properties leased out by the entity	Investment properties held for future redevelopment	Properties leased out by the entity	Investment properties held for future redevelopment
Change in future rental rates by 10 %	4,917	-	(4,913)	-
Change in future sale prices of developed properties by 10%	-	160	-	(170)
Change in construction costs by 10%	-	(130)	-	130
Change in expected vacancy rates by 20%	(610)	-	713	-
Change in discount and capitalization rate by 50 bps	(2,955)	-	3,474	-
Change in profit on cost ratio of the entire project by 200 bps	-	(30)	-	20

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties (cont'd)

Company Reasonable possible shift +/- (%)	Increase of estimates Properties leased out by the entity	Decrease of estimates Properties leased out by the entity
Change in future rental rates by 10 %	4,917	(4,913)
Change in expected vacancy rates by 20%	(610)	713
Change in discount and capitalization rate by 50 bps	(2,955)	3,474

The sensitivity analysis of investment properties located in Latvia valued using income approach as at 31 December 2017 is as follows:

Reasonable possible shift +/- (%)	Increase of estimates	Decrease of estimates
Change in Increase of rents per year by 100 bps or change in future rental rates by 1%	168	(164)
Change in expected vacancy rates by 20%	(73)	72
Change in discount and capitalization rate by 50 bps	(272)	303

The sensitivity analysis of investment properties located in Lithuania valued using income approach as at 31 December 2016 is as follows:

Investment properties held for future
redevelopment
-
(170)
130
-
-
20

Company Reasonable possible shift +/- (%)	Increase of estimates Properties leased out by the entity	Decrease of estimates Properties leased out by the entity
Change in future rental rates by 10 %	4,904	(4,949)
Change in expected vacancy rates by 20%	(601)	611
Change in discount and capitalization rate by 50 bps	(2,832)	3,160

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

11 Investment properties (cont'd)

The sensitivity analysis of investment properties located in Latvia valued using income approach as at 31 December 2016 is as follows:

Reasonable possible shift +/- (%)	Increase of estimates
Change in Increase of rents per year by 100 bps or
change in future rental rates by 1%	92	(109)
Change in expected vacancy rates by 20%	(73)	53
Change in discount and capitalization rate by 50 bps	(261)	270

As at 31 December 2017 the Group's investment properties with carrying amount of EUR 55,853 thousand (EUR 51,942 thousand as at 31 December 2016) were pledged to the banks as collateral for the loans (Note 18).

As at 31 December 2017 the Company's investment properties with carrying amount of EUR 47,752 thousand (EUR 43,897 thousand as at 31 December 2016) were pledged to the banks as collateral for the loans (Note 18).

As at 31 December 2016 a written consent was required for sale of investment property from AB SEB bankas as a depository service provider. According to the Lithuanian Law on Collective Investment Undertakings, the sale price of investment properties may not be lower by more than 15% of the value determined by the independent qualified valuer. Having concluded a contract on sale of investment properties, when the above-described condition is not satisfied, the Management Company must, in exceptional cases and provided that interests of participants of the Company are not harmed, notify the supervisory authority thereof immediately. The 5 parking spaces acquired by the Company with the carrying amount of EUR 48 thousand (as at 31 December 2016: EUR 42 thousand) are subject to interim measures not to sell them to third parties if the legal dispute is in process. The legal dispute between the seller of the parking spaces and third entity is regarding the right to land and legitimacy of construction of parking spaces.

There were no other restrictions on the realisation of investment properties or the remittance of income and proceeds of disposals in 2017 and 2016.

At the end of the period two material contracts for the reconstruction and repair of investment properties, located at Gynėjų str. 14 and Palangos 4, Vilnius, were valid and not finished. Until 31 December 2017 the work on these contracts was made and invoice was issued for EUR 1,191 thousand. Remaining amount of the work of these contracts amounted to EUR 407 thousand. No other material contractual obligations to purchase, construct, repair or enhance investment properties existed at the end of the period.

12 Inventories, pre-payments and deferred charges

Inventories, pre-payments and deferred charges are presented in the table below:

		Group		Company
	2017	2016	2017	2016
Inventories	1	7	1	7
Operating lease deferred charges (Note 7)	-	820	-	820
Current portion of operating lease pre-payments (Note 7)	-	450	-	450
Pre-payments and other deferred charges	238	34	233	31
Total inventories, pre-payments and deferred charges	239	1,311	234	1,308

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

13 Financial instruments by category

Group	Loans and receivables
	2017		2016
Assets as per statement of financial position
Trade and other receivables excluding tax prepayments Deposits		587 150	402 150
Cash and cash equivalents		411	751
Total		1,148	1,303
Company	Loans and receivables	Assets at fair value through the profit and loss	Total
31 December 2017 Assets as per statement of financial position Investments into subsidiaries designated at fair value through profit or
loss Trade and other receivables excluding tax prepayments	- 585	5,881 -	5,881 585
Cash and cash equivalents	223	-	223
Total	808	5,881	6,689
Company	Loans and receivables	Assets at fair value through the profit and loss	Total
31 December 2016 Assets as per statement of financial position Investments into subsidiaries designated at fair value through profit or
loss Trade and other receivables excluding tax prepayments	- 401	5,289 -	5,289 401
Cash and cash equivalents	666	-	666
Total	1,067	5,289	6,356
Group	2017	Financial liabilities at amortised cost	2016
Liabilities as per statement of financial position
Borrowings Provision for onerous lease contract		21,681 181	21,607 272
Trade payables		361	133
Other current liabilities excluding taxes and employee benefits		736	788
Total		22,959	22,800
Company		Financial liabilities at amortised cost
	2017		2016
Liabilities as per statement of financial position
Borrowings		19,220	18,917
Provision for onerous lease contract		181	272
Trade payables Other current liabilities excluding taxes and employee benefits		360 732	135 787
Total		20,493	20,111

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

14 Loans granted

The Company and the Group have no loans granted measured at amortised cost as at 31 December 2017 and 2016.

Loans to entity in bankruptcy

The Group has received during spin-off in 2014 the loan granted to previous subsidiary of AB Invalda INVL (the loan was granted by the Company in 2009-2012), for which bankruptcy was initiated by the court in May 2014. The loan was impaired and fully provided for by AB Invalda INVL before the spin-off. In December 2015 agreement regarding sale of this impaired loan and sale of the technical development project was signed. The sale was completed in January 2016 after settlement was made. The Group/Company has received EUR 176 thousand in cash for the sale of loan and EUR 100 thousand in cash for the sale of the technical development project.

15 Trade and other receivables

		Group		Company
	2017	2016	2017	2016
Trade and other receivables, gross	622	435	620	434
Taxes receivable, gross	10	11	4	-
Less: allowance for doubtful trade and other receivables	(35)	(33)	(35)	(33)
	597	413	589	401

Trade and other receivables are non-interest bearing and are generally with a credit term of 30 days. As at 31 December 2017 and as at 31 December 2016 the Group's/Company's trade and other receivables with nominal value of EUR 45 thousand and of EUR 42 thousand, respectively, were past due and impaired. The net amount of EUR 10 thousand and EUR 9 thousand is presented in the statement of financial position of the Group/Company as at 31 December 2017 and 2016, respectively.

Movements in the allowance for accounts receivable of the Group and the Company (assessed individually) were as follows:

	Group	Company
Balance as at 31 December 2015	-	-
Charge for the year	33	33
Write-offs charged against the allowance	-	-
Recoveries of amounts previously written-off	-	-
Balance as at 31 December 2016	33	33
Charge for the year	2	2
Write-offs charged against the allowance	-	-
Recoveries of amounts previously written-off	-	-
Balance as at 31 December 2017	35	35

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

15 Trade and other receivables (cont'd)

The ageing analysis of trade and other receivables of the Group as at 31 December 2017 and 2016 is as follows:

			Trade receivables past due but not impaired
	Trade receivables neither past due nor impaired	Less than 30 days	30–90 days	90–180 days	More than 180 days	Total
2017	364	141	27	15	30	577
2016	259	48	34	21	31	393

The ageing analysis of trade and other receivables of the Company as at 31 December 2017 and 2016 is as follows:

		Trade receivables past due but not impaired
	Trade receivables neither past due nor impaired	Less than 30 days	30–90 days	90–180 days	More than 180 days	Total
2017	363	140	27	15	30	575
2016	259	48	34	21	30	392

Credit quality of financial assets neither past due nor impaired

Trade receivables neither past due nor impaired from the counterparties whose other trade receivables are past due but not impaired amounted to EUR 242 thousand as at 31 December 2017 (EUR 5 thousand as at 31 December 2016). EUR 235 thousand of the above-mentioned trade receivables is due from an external entity, which provided property management services. The payment for the services was deferred until the finalisation of the contract termination procedures. The payment of EUR 116 thousand of trade receivables, which was past due less than 30 days, was received from the external entity as at the date of issuance of these financial statements. All these trade receivables from 2016 had been settled until issue of the financial statements for the year ended 31 December 2016. All other trade receivables neither past due nor impaired as at 31 December 2017 and 2016 have no history of counterparty defaults. With respect to trade and other receivables that are neither past due nor impaired, there are no indications as at the reporting date that the debtors will not meet their payment obligations. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group/Company does not hold any collateral.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

16 Share capital and reserves

As at 31 December 2017 the Company's and the Group's share capital was divided into 65,750,000 (as of 31 December 2016: 65,750,000) ordinary registered shares with the nominal value of EUR 0.29 each. All the shares of the Company were fully paid.

Changes during 2017

On 11 April 2017 EUR the annual general meeting has decided to transfer from retained earnings EUR 236 thousand to the legal reserve.

Changes during 2016

The new shares were offered through public offering from 4 January until 4 March 2016. During the public offering the investors subscribed for 22,523,748 shares, the issue price of one share was EUR 0.40, the total issue proceeds – EUR 9,010 thousand. Share capital was increased by EUR 6,532 thousand and rest amount of EUR 2,478 thousand was attributed to share premium. The Company received cash inflows of EUR 2,791 thousand from investors during the public offering. AB Invalda INVL subscribed for 15,546,663 new shares. They were paid by offsetting the Company's liabilities of EUR 6,219 thousand arising from the borrowings provided by AB Invalda INVL. The costs of issue of new shares amounted to EUR 248 thousand. Deferred income tax credit related to the issue costs amounted to EUR 6 thousand and was recognised directly within retained earnings. Cash inflows were used to repay to AB Invalda INVL the remaining borrowings of EUR 1,501 thousand, including interest accrued thereon during 2016. The remaining amount was used in the operating activity of the Company.

On 8 March 2016 a new share capital was registered in the Register of Legal Entities, and from that date the total number of ordinary registered shares is 65,750,000 with the nominal value of EUR 0.29 each, and the Company's authorised share capital is equal to EUR 19,067,500.

On 27 April 2016 the Annual General Meeting of Shareholders decided to transfer from retained earnings EUR 165 thousand to the legal reserve and EUR 2,828 thousand to the reserve for acquisition of own shares.

Legal reserve

Legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5 % of net profit, calculated in accordance with the statutory financial statements, are compulsory until the reserve reaches 10 % of the share capital. The reserve can be used only to cover the accumulated losses.

Reserve for the acquisition of own shares

Reserve for the acquisition of own shares is formed for the purpose of buying own shares in order to keep their liquidity and manage price fluctuations. It can be formed by shareholders' decision at the Annual Shareholders Meeting from the profit available for distribution. The reserve cannot be used to increase the share capital. The reserve does not change when Company acquires own shares, but is utilised when own shares are cancelled. The shareholders can decide to transfer unused amounts of the reserve back to retained earnings at the Annual Shareholders Meeting.

17 Dividends

On 15 January 2016 the Company's General Meeting of Shareholders approved the dividend payment policy, which stipulates annual payment of dividends per share of no less than EUR 0.012 if such payment is not restricted under the legal and contractual requirements.

On 29 December 2017 the Extraordinary General Shareholders Meeting of the Company changed dividend payment policy by increasing the minimum dividend from EUR 0.012 till EUR 0.026, if the legal and contractual requirements do not restrict the payment of dividends. After change of nominal value of shares (Note 21) the minimum dividend per share will amount 0.13.

Payment of dividends of EUR 0.012 per share and total amount of dividends of EUR 789 thousand in respect of the year ended 31 December 2016 was approved at the Annual General Meeting of Shareholders on 11 April 2017.

Payment of dividends of EUR 0.012 per share and total amount of dividends of EUR 789 thousand in respect of the year ended 31 December 2015 was approved at the Annual General Meeting of Shareholders on 27 April 2016.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (all amounts are in EUR thousand unless otherwise stated)

18 Borrowings

		Group		Company
	2017	2016	2017	2016
Non-current:
Non-current bank borrowings	20,158	20,788	17,937	18,334
Non-current borrowings from other related parties	-	-	-	-
Non-current other borrowings	4	4	-	-
	20,162	20,792	17,937	18,334
Current:
Current portion of non-current borrowings	718	815	482	583
Borrowings from related parties	801	-	801	-
	1,519	815	1,283	583
Total borrowings	21,681	21,607	19,220	18,917

All borrowings are expressed in EUR.

Borrowings with fixed or floating interest rate (with changes in 3 and 6 months period) were as follows:

Interest rate type:		Group
	2017	2016	2017	2016
Fixed	805	4	801	-
Floating	20,876	21,603	18,419	18,917
	21,681	21,607	19,220	18,917

The carrying amounts of assets pledged to the banks to secure the repayment of borrowings are as follows:

		Group		Company
	2017	2016	2017	2016
Investment properties (Note 11)	55,853	51,942	47,752	43,897
Property, plant and equipment	3	4	-	-
Trade receivables	-	1	-	-
Prepayments	2	2	-	-
Deposits	150	150	-	-
Cash	252	638	164	588

The shares of SIA Dommo Grupa and SIA Dommo Bizness parks are pledged to the bank in Latvia.

Weighted average effective interest rates of borrowings for the period:

		Group		Company
	2017	2016	2017	2016
Borrowings	2.22%	2.36%	2.23%	2.39%

As at 31 December 2017 and 2016 all Group entities have complied with bank loan covenants.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

18 Borrowings (cont'd)

On 26 January 2016 the Group/Company signed an amendment to the loan agreement with AB Šiaulių Bankas. Therefore, the amount of borrowings was increased from EUR 14,754 thousand to EUR 19,254 thousand, the validity of the agreement was extended from 25 September 2019 until 5 January 2023, and the settlement schedule was changed. In 2016 the Group/Company had to repay the amount of EUR 466 thousand instead of the amount of EUR 862 thousand. The investment properties located at Gynėjų str. 14, Vilnius, were pledged to AB Šiaulių Bankas. According to the amendments to the loan agreement, the Group/Company has a right to pay dividends in future without the bank's consent if the ratio of EBITDA divided by the sum of debt service payments (interest and principal repayments) and dividends becomes higher than 1.1. On 30 November 2017 the Group/Company signed an amendment to the loan agreement with AB Šiaulių Bankas, according to which the settlement schedule was changed. The Group/the Company has to repay amount of EUR 447 thousand instead of the amount of EUR 1,051 thousand per year until maturity of borrowing.

In December 2017 the Group/Company received EUR 800 thousand of borrowings from subsidiary of AB Invalda INVL.

In 2016 the Group/Company received EUR 800 thousand of borrowings from AB Invalda INVL before the issue of new shares. After the issue of new shares the borrowings from related parties were offset and repaid (Notes 16 and 20).

After acquisition of Latvian entities on 15 July 2015 the Group has signed borrowings agreement with ABLV Bank, AS for financing Latvian entities in amount of EUR 3,000 thousand. The term of the agreement is 5 years, repayment of the loan is by monthly annuity instalments with balloon payment of EUR 1,861 thousand at the end of borrowing agreement. All investment properties acquired in Latvia were pledged to the ABLV Bank, AS. According to the agreement amount of EUR 150 thousand was deposited to secure borrowing. The Group has recognised the deposit as "Deposits" in the statement of financial position.

During the year ended 31 December 2017 the Group and the Company repaid respectively EUR 726 thousand and EUR 497 thousand of borrowings During the year ended 31 December 2016 the Group and the Company repaid respectively EUR 2,110 thousand and EUR 1,886 thousand of borrowings.

Changes in liabilities arising from financing activities are presented in the table below:

	Group		Company
	Borrowings	Dividends payable (Note 17, 19)	Borrowings	Dividends payable (Note 17, 19)
As at 31 December 2016	21,607	16	18,917	16
Cash flows from (to) financing activities	(398)	(773)	(115)	(773)
Interest expenses (Note 8)	472	-	418
Approved dividends	-	789	-	789
As at 31 December 2017	21,681	32	19,220	32

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

19 Other current liabilities

Other current liabilities are presented in the table below:

	Group		Company
	2017	2016	2017	2016
Financial liabilities
Dividends payable	32	16	32	16
Operating lease payment (Note 7)	-	752	-	752
Performance Fee (Note 7, 2.22)	386	-	386	-
Other amounts payable	318	20	314	19
	736	788	732	787
Non – financial liabilities
Salaries and social security contributions payable	-	2	-	-
Tax payable	127	400	118	389
	127	402	118	389
Total other current liabilities	863	1,190	850	1,176

20 Related party transactions

The related parties of the Group were the shareholders of the Company, who have significance influence (note 1), key management personnel, including companies under control or joint control of key management and shareholders having significant influence. AB Invalda INVL and the entities controlled by AB Invalda INVL (hereinafter the Other related parties) are also considered to be related parties, because the shareholders of the Company, having significance influence, also have a joint control over AB Invalda INVL group through shareholders' agreement.

The Group's transactions with related parties during 2017 and related balances as at 31 December 2017 were as follows:

2017 Group	Revenue and other income from related parties	Purchases (including provision) and interest from related parties	Receivables from related parties	Payables to related parties (excluding provision)
AB Invalda INVL (accounting services) Other related parties (borrowings)	- -	12 1	- -	- 801
Other related parties (maintenance and repair services)	-	356	-	31
Other related parties (rent, utilities and other)	219	6	6	-
Other related parties (management services provided by the Management Company)	-	645	-	481
	219	1,020	6	1,313

The maturity of borrowings was till 31 December 2018, effective interest rate 3%.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

20 Related party transactions (cont'd)

The Group's transactions with related parties during 2016 and related balances as at 31 December 2016 were as follows:

2016 Group	Revenue and other income from related parties	Purchases (including provision) and interest from related parties	Receivables from related parties	Payables to related parties (excluding provision)
AB Invalda INVL (accounting services)	-	12	-	-
AB Invalda INVL (borrowings)	-	58	-	-
Other related parties (maintenance and repair services)	-	331	-	4
Other related parties (rent, utilities and other)	219	5	5	-
Other related parties (distribution of new shares)	-	187	-	-
Other related parties (management services provided by the Management Company)	-	819	-	5
	219	1,412	5	9

The Company's related parties are the subsidiaries, shareholders (Note 1), which have significance influence, key management personnel and companies under control or joint control of key management and shareholders with significant influence. AB Invalda INVL and the entities controlled by AB Invalda INVL (hereinafter the Other related parties) are also considered to be related parties, because the shareholders of the Company, having significance influence, also have a joint control over AB Invalda INVL group through shareholders' agreement.

Transactions of the Company with subsidiaries in 2017 and balances as at 31 December 2017 were as follows:

2017 Company	Revenue and other income from related parties	Purchases and interest from related parties	Receivables from related parties	Payables to related parties
Loans to subsidiaries	-	-	5,769	-
Other	-	25	-	2
	-	25	5,769	2

Loans granted to Latvian entities are subordinate to the bank borrowings and can be repaid only upon maturity of the bank borrowings in 2020. The repayment date of the loans granted to subsidiaries in Lithuania is 31 December 2018. As described in Note 2.8, the Company measured the loans granted to subsidiaries at fair value and did not recognise interest income separately.

Transactions of the Company with subsidiaries in 2016 and balances as at 31 December 2016 were as follows:

2016	Purchases and
Company	Revenue and other income from related parties	interest from related parties	Receivables from related parties	Payables to related parties
Loans to subsidiaries	-	-	5,162	-
Sales of investment properties to subsidiaries	51	-	-	-
Other	-	2	-	2
	51	2	5,162	2

Loans granted to Latvian entities are subordinate to the bank borrowings and can be repaid only upon maturity of the bank borrowings in 2020. The repayment date of the loans granted to subsidiaries in Lithuania is 31 December 2017. As described in Note 2.8, the Company measured the loans granted to subsidiaries at fair value and did not recognise interest income separately.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

20 Related party transactions (cont'd)

The Company's transactions with other related parties during 2017 and related balances as at 31 December 2017 were as follows:

2017 Company	Revenue and other income from related parties	Purchases (including provision) and interest from related parties	Receivables from related parties	Payables to related parties (excluding provision)
AB Invalda INVL (accounting services)	-	10	-	-
Other related parties (borrowings) Other related parties (maintenance and repair	-	1	-	801
services)	-	348	-	31
Other related parties (rent, utilities and other) Other related parties (management services	214	-	5	-
provided by the Management Company )	-	645	-	481
	214	1,004	5	927

The maturity of borrowings was till 31 December 2018, effective interest rate 3%.

The Company's transactions with other related parties during 2016 and related balances as at 31 December 2016 were as follows:

2016 Company	Revenue and other income from related parties	Purchases (including provision) and interest from related parties	Receivables from related parties	Payables to related parties (excluding provision)
AB Invalda INVL (accounting services)	-	10	-	-
AB Invalda INVL (borrowings) Other related parties (maintenance and repair	-	58	-	-
services)	-	331	-	4
Other related parties (rent, utilities and other) Other related parties (distribution of new	215	4	5	-
shares) Other related parties (management services	-	187	-	-
provided by the Management Company)	-	819	-	5
	215	1,409	5	9

The movements of borrowings from AB Invalda INVL and its subsidiaries were:

	Group		Company
	2017	2016	2017	2016
At 1 January	-	6,862	-	6,862
Borrowings received during the year	800	800	800	800
Borrowings repaid during the year	-	(1,458)	-	(1,458)
Borrowings offset against receivables	-	(6,219)	-	(6,219)
Interest charged	1	58	1	58
Interest paid	-	(43)	-	(43)
At 31 December	801	-	801	-

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

20 Related party transactions (cont'd)

The movements of loans granted to subsidiaries of the Group were:

	Company
	2017	2016
At 1 January	5,162	4,809
Loans granted during year	-	67
Loans repayment received	-	-
Loans and interest converted to increased share capital	-	(145)
Changes in fair value of loans granted	607	431
Interest received	-	-
At 31 December	5,769	5,162

The management remuneration contains short-term employee benefits. Key management of the Company and the Group includes Board members (until 10 November 2016), the Director of the Company (until 21 December 2016), the Board member of Latvian subsidiaries (until 21 December 2016) and the Management Company (from 22 December 2016).

		Group		Company
	2017	2016	2017	2016
Wages, salaries and bonuses	1	99	-	69
Social security contributions	-	29	-	21
Management Fee (Note 2.12)	296	5	296	5
Performance Fee (Note 2.12) (change in provision)	349	814	349	814
Total key management compensation	646	947	645	909

There were no loans granted to key management during the reporting period or outstanding at the end of the reporting period.

During 2017 EUR 253 thousand of dividends, net of tax, were paid by the Company to AB Invalda INVL. EUR 319 thousand of dividends, net of tax, were paid by the Company to other shareholders, who have significant influence.

During 2016 EUR 43 thousand of dividends, net of tax, were paid to the Board members who are shareholders of the Company. EUR 203 thousand of dividends, net of tax, were paid to the entities controlled by the Board members. EUR 127 thousand of dividends, net of tax, were paid to the natural persons related to the Board members the Company. EUR 253 thousand of dividends, net of tax, were paid by the Company to AB Invalda INVL.

CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

(all amounts are in EUR thousand unless otherwise stated)

21 Events after the reporting period

Change of nominal value of shares

On 29 December 2017 the Extraordinary General Shareholders Meeting of the Company has to decide to change nominal value of shares from EUR 0.29 to EUR 1.45. The changes was come into force on 15 January 2018 when the new Article of Association was registered by the Register of Legal Entities. As of 15 January 2018 the Company's/Group's share capital is divided into 13,150,000 ordinary registered shares with the nominal value of EUR 1.45 each. As consequence of reverse share split the basic and diluted earnings per share will amount EUR 0.27 for 2017.

After reverse share split the shareholders were (by votes):

	2017
	Number of
	votes held	Percentage
AB Invalda INVL	4,224,527	32.13
UAB LJB Investments (controlling shareholder Mr. Alvydas Banys)	2,631,695	20.01
Mrs. Irena Ona Mišeikienė	2,498,596	19.00
Mr. Alvydas Banys	663,640	5.05
Other minor shareholders	3,131,542	23.81
Total	13,150,000	100.00

Situation with ABLV Bank, AS

On 23 February 2018 the Board of the Financial and Capital Market Commission in Latvia adopted a decision on the unavailability of deposits at ABLV Bank AS. At this date, the Group had EUR 274 thousand of cash, cash equivalents and deposits at ABLV Bank AS. Since only EUR 100 thousand of the total amount is covered by insurance, the Group can suffer up to EUR 174 thousand of loss in the worst scenario. It was announced that ABLV Bank AS would seek voluntary liquidation. If the Financial and Capital Market Commission approved the latter, the Group might not suffer any loss.

Dividends

Payment of dividends of EUR 0.13 per share and total dividends of EUR 1,710 thousand in respect of the year ended 31 December 2017 is to be proposed at the Annual General Meeting of Shareholders on 26 March 2018. These financial statements do not reflect these dividends payable.

The special closed-ended type real estate investment company INVL Baltic Real Estate, Consolidated annual report for the year of 2017

Prepared in accordance with The Information Disclosure Rules approved by the decision No. 03-127 of the Board of the Bank of Lithuania passed on 22 August 2017.

Translation note:

This version of the Consolidated Annual Report for the year of 2017 is a translation from the original, which was prepared in Lithuanian language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version takes precedence over this translation.

CONTENTS:

	I. GENERAL INFORMATION76
1	Reporting period for which the report is prepared 76
2	General information about the Issuer and other companies comprising the Issuer's group76
	2.1. Information about the Issuer 76
	2.2. Information on company's goals and strategy76
	2.3. Information about the Issuer's group of companies 77
	2.3.1. Real estate objects owned by group companies in Vilnius (Lithuania)78
	2.3.2. Real estate objects owned by group companies in Riga (Latvia) 84
	II. FINANCIAL INFORMATION AND SIGNIFICANT EVENTS 86
3	Overview of the Issuer and its group activity 86
	3.1. Comment made by INVL Asset Management real estate fund manager Vytautas Bakšinskas 86
	3.2. Operational environment 86
	3.3. Results of INVL Baltic Real Estate87
	3.4. Financial ratios87
	3.5. Key figures of INVL Baltic Real Estate 88
	3.6. Significant Issuer's and its group events during the reporting period, effect on the financial statement 88
	3.6.1. Significant Issuer's events 89
	3.6.2. Sigificant group's events 90
4	Significant events of the Issuer and its group since the end of the financial year 90
5	Estimation of Issuer's and Group's activity last year and activity plans and forecasts 90
	5.1. Evaluation of implementation of goals for 2017 90
	5.2. Activity plans and forecasts 91
	III. INFORMATION ABOUT SECURITIES92
6	The order of amendment of Issuer's Articles of Association92
7	Structure of the authorized capital 92
	7.1. Share capital changes 92
	7.2. Information about the Issuer's treasury shares 92
8	Trading in Issuer's securities as well as securities, which are deemed to be a significant financial investment to the Issuer on a regulated market 93
9	Shareholders 96
	9.1. Information about company's shareholders 96
	9.2. Rights and obligations carried by the shares 99
	9.2.1. Rights of the shareholders 99
10	9.2.2. Obligations of the shareholders 99 Dividends100

2017 ANNUAL REPORT | 75

IV. ISSUER'S MANAGING BODIES101
11 Structure, authorities, the procedure for appointment and replacement 101
11.1. General Shareholders' Meeting101
11.1.1. Powers of the General Shareholders' Meeting 101
11.1.2. Convocation of the General Shareholders' Meeting of INVL Baltic Real Estate 102
11.2. Management company and the Investment Committee 103
12 Information about members of the Board of the Management Company, general manager and members of the
Investment Committee 105
12.1. The issuer's management bodies 105
13 Information about the Audit Committee of the company109
13.1. Procedure of work of the audit committee110
13.2. Members of the Audit Company 110
14 Information on the Issuer's payable management fee, the amounts calculated by the Issuer, other assets transferred and guarantees granted to the Managing bodies and company providing accounting services112
V. OTHER INFORMATION 113
15 Agreements with intermediaries on public trading in securities 113
16 Information on Issuer's branches and representative offices113
17 A description of the principal risks and uncertainties 113
17.1. General Risk Factors in the Business Field Where the Group Operates113
17.2. Risk Factors Characteristic of the Group 114
17.3. Risk Factors Related to the Company's Shares (investments thereto)116
17.4. Information about the extent of risk and its management in the Company117
17.5. The main indications about internal control and risk management systems related to the preparation of consolidated financial statements 117
18 Issuer's and its group companies' non – financial results. Information related to social responsibility. environment and employees117
18.1. Responsible business actions in the company 117
18.2. Employees117
19 Information about agreements of the Company and its managing bodies, members of the formed committees, or the employees' agreements providing for compensation in case of the resignation or in case they are dismissed without a due reason or their employment is terminated in view of the change of the control of the Company118
20 Significant investments made during the reporting period 118
21 Information about significant agreements to which the issuer is a party, which would come into force, be amended or cease to be valid if there was a change in issuer's controlling shareholder118
22 Information on the related parties' transactions 118
23 Information on harmful transactions in which the issuer is a party118
24 References to and additional explanations of the data presented in the annual financial statements and consolidated financial statements118
25 Information on Audit Company118
26 Data on the publicly disclosed information 119
APPENDIX 1. INFORMATION ABOUT GROUP COMPANIES, THEIR CONTACT DETAILS122
APPENDIX 2. DISCLOSURE CONCERNING THE COMPLIANCE WITH THE GOVERNANCE CODE 123
APPENDIX 3. COMPANY'S MANAGEMENT REPORT146

I. GENERAL INFORMATION

1 Reporting period for which the report is prepared

The report covers the financial period of INVL Baltic Real Estate, starting from 1 January 2017 and ending on 31 December 2017. The report also discloses information from the end of the reporting period to the release of the report.

2 General information about the Issuer and other companies comprising the Issuer's group

2.1. INFORMATION ABOUT THE ISSUER

Name	Special closed-ended type real estate investment company "INVL Baltic Real Estate"
Code	152105644
Registration address	Gynėjų str. 14, 01109, Vilnius, Lithuania
Telephone	+370 5 279 0601
Fax	+370 5 279 0530
E-mail	breinfo@invl.com
Website	www.invlbalticrealestate.lt
Legal form	joint-stock company
Company type	special closed-ended type real estate investment company
Date and place of registration	28 January 1997; Register of Legal Entities
Date of the Supervisory authority approval of collective investment entity formation documents	22 December 2016
Register in which data about the Company are accumulated and stored	Register of Legal Entities
Management company	INVL Asset Management, UAB, code 126263073, licence No. VĮK-005
Depository	SEB bankas, AB, code 112021238, bank licence No. 2

2.2. INFORMATION ON COMPANY'S GOALS AND STRATEGY

INVL Baltic Real Estate (hereinafter – the Company or INVL Baltic Real Estate) – real estate investment company that was founded on 28 January 1997, former name – Invaldos Nekilnojamo Turto Fondas, AB. On 17 August 2015 the Company was merged with its parent company; therefore the Company took over all its rights and obligations.

On 22 December 2016 the Bank of Lithuania issued the closed-ended type investment company operating license enabling INVL Baltic Real Estate to engage in the closed-ended type investment company's activities under the Law of the Republic of Lithuania Collective Investment Undertakings. The special closed-ended type real estate investment company will operate 30 years from receiving the special closed-ended real estate investment company license, the term of company's activity may be further extended for a period of no longer than 20 years. Upon receipt of the license, the company's management was transferred to the Management company INVL Asset Management (hereinafter – the Management company). The rights and duties of the Board and the head of the Company were also transferred to the Management company.

According to the Articles of Association of the Company, the Management company formed an Investment Committee, which based on powers vested by the Management company, also participates in the management of the Company.

INVL Baltic Real Estate seeks to ensure the growth of rental income and earn from investments in commercial real estate. The companies owned by INVL Baltic Real Estate have invested in commercial real estate: business centers, manufacturing

and warehouse properties at strategically attractive locations in Lithuania and Latvia. All the properties are characterized by high occupancy rates and generate stable financial flows. In addition, most of them has further development potential.

2017 ANNUAL REPORT | 77

INVL Baltic Real Estate shares have been listed on Nasdaq Vilnius Baltic Secondary trading list since 4 June 2014. Since the start of trading until the end of the reporting period the share price of INVL Baltic Real Estate on the Nasdaq Vilnius exchange has risen 45.7%. The company has approved a Dividend Payment policy which stipulates the annual payment of dividend per share of no less than EUR 0.13.

2.3. INFORMATION ABOUT THE ISSUER'S GROUP OF COMPANIES

Companies of INVL Baltic Real Estate - the structure of the group companies is disclosed below - group owns 7 real estate properties in Vilnius and Riga (at the beginning of autumn 2017, the number of objects owned by the portfolio companies of INVL Baltic Real Estate decreased from 12 to 7, after the completion of the Kirtimai transaction and after the expiry of the longterm lease agreements for the owned objects).

Fig. 2.3.1. Simplified group structure of INVL Baltic Real Estate as of 31 December 2017.

2.3.1. REAL ESTATE OBJECTS OWNED BY GROUP COMPANIES IN VILNIUS (LITHUANIA)

Fig. 2.3.2. Real estate objects owned by group companies of INVL Baltic Real Estate in Vilnius (Lithuania)

INVESTMENTS IN REAL ESTATE

Vilnius Gates is an excellent choice for those who value the chance to work in the very centre of the capital city, right beside Vilnius's main street – Gedimino Avenue – and one of the city's key transport arteries – Geležinio Vilko Street.

Renovated and reorganised, this business centre in an exclusive urban area is now even more luminous and convenient. Flexible planning of space and the option of a separate entrance just for your company ensure a sense of comfort and distinctiveness.

INVL Baltic Real Estate owns two floors of premises in this complex – they start from the playful inverted glass frustum edifice with a restaurant on the ground floor and continue along Gynėjų Street, also 56 parking spaces in the underground area. The Company acquired the premises at the end of 2015.

VILNIUS GATES BUSINESS CENTRE

AREA 8,100 SQ.M.

The full Vilnius Gates complex comprises more than 53 sq. m. of varied-use premises, making it a highly attractive location for restaurants and providers of healthcare, fitness and other services. It's an ideal setting for service centres, creative agencies, providers of financial and legal services, IT firms and startups.

Currently, the building design is completed and the building conversion works are carried out.

For more information please visit www.vvartai.lt.

Basic information
Total area	8,100 sq. m
Leased area	7,000 sq. m
Land area	0.26 ha
Property market value at the end of 2017	EUR 14.1 million
Occupancy at the end of 2017	92 percent

Main tenants: INVL Asset Management, BAIP, Etronika, Rise Vilnius, restaurant Stebuklai, Go Vilnius, Swedbank.

Address Gyneju str. 14, Vilnius

IBC class A and B business centres at Seimyniskiu str. 1a, Seimyniskiu str. 3, A.Juozapaviciaus str. 6, Slucko str. 2 in Vilnius

IBC Business Centre – a versatile, functional business premises complex. IBC is located in a very convenient location – on the right bank of the Neris River in the central part of Vilnius, situated near important public institutions and businesses, at the main business artery in the Constitution Avenue, therefore is easily and quickly accessible from any place in Vilnius.

Block F basic information
Total area	4,500 sq. m
Leased area	3,800 sq. m
Land area	1.47 ha (total area of the IBC complex)
Property market value at the end of 2017	EUR 6.0 million
Occupancy at the end of 2017	100 percent (total occupancy of the IBC

Block G basic information
Total area	6,900 sq. m
Leased area	3,300 sq. m
Land area	1,47 ha (total area of the IBC complex)
Property market value at the end of 2017	EUR 6.1 million
Occupancy at the end of 2017	100 percent (total occupancy of the IBC complex A)

Main tenants: IBM Lietuva, Šiaulių bankas, Amber Food, Drogas, Sportland.

complex A)

Address: Seimyniskiu str. 1a, Seimyniskiu str. 3, Juozapaviciaus str. 6, Vilnius.

2017 ANNUAL REPORT | 80

IBC CLASS B BUSINESS CENTRE

AREA 11,300 SQ.M

IBC Class B business centre consists of 4 buildings, in which about 10,300 sq. m of different purpose premises are being leased (the total area of buildings – 11,300 sq. m).

The centre owns 200 spots parking lot in the protected courtyard.

The IBC business centre has a development opportunity, detailed plan of the area is prepared.

Occupancy at the end of 2017 – 90 percent (total occupancy of the IBC complex B).

Block A basic information
Total area	2,100 sq. m
Leased area	1,900 sq. m
Land area	1.47 ha (total area of the IBC complex)
Property market value at the end of 2017	EUR 2.1 million
Block B basic information
Total area	7,400 sq. m
Leased area	6,800 sq. m
Land area	1.47 ha (total area of the IBC complex)
Property market value at the end of 2017	EUR 6.8 million

Block C basic information
Total area	200 sq. m
Leased area	200 sq. m
Land area	1.47 ha (total area of the IBC complex)
Property market value at the end of 2017	EUR 0.2 million
Block D basic information
Total area	1,600 sq. m
Leased area	1,400 sq. m
Land area	1.47 ha (total area of the IBC complex)

Main tenants: Sanofi-aventis Lietuva, ACNielsen Baltics, State Data Protection Inspectorate, Sandoz Pharmaceuticals. Address: Seimyniskiu str. 3, Seimyniskiu str. 3a, Juozapaviciaus str. 6, Slucko str. 2, Vilnius.

OFFICE BUILDING IN THE CENTRE OF VILNIUS

AREA 9,800 SQ.M.

2017 ANNUAL REPORT | 82

Business centre is located in one of the busiest places in the Old Town of Vilnius, between Vilnius, Pamenkalnio, Islandijos and Palangos streets.

Vilnius Old Town - one of the most important components of the city and its centre, the oldest part of the city of Vilnius, situated on the left bank of the Neris River. Old Town area - protected and managed in accordance with the special heritage protection well, small business and residential function are being supported. There is a closed, guarded parking and underground garage in the area, convenient public transport access.

Radvilų Palace, Teacher's House, Lithuanian Technical Library, St. Catherine's Church and other cultural attractions, cafes, restaurants are located near the building.

Block A basic information

Total area	5,100 sq. m
Leased area	3,800 sq. m
Land area	0.49 ha (total area of the complex)
Property market value at the end of 2017	EUR 4.8 million
Occupancy at the end of 2017	78 percent (total complex occupancy)

Block B basic information

Total area	4,700 sq. m
Leased area	2,400 sq. m
Land area	0,49 ha (total area of the complex)
Property market value at the end of 2017	EUR 3.7 million
Occupancy at the end of 2017	78 percent (total complex occupancy)

Main tenants: TransferGo, Telia LT, restaurant Grill London, Uncle Sam's. Address: Palangos str. 4/ Vilniaus str. 33, Vilnius.

ŽYGIS BUSSINESS CENTRE

2017 ANNUAL REPORT | 83

AREA 3,200 SQ.M.

Zygio business centre – the yellow brick, authentic nineteenth century architecture, renovated office building, perfectly adapted to modern office activities.

The building stands in the Northern Town – in a strategically attractive, busy part of Vilnius, easily accessible by car and public transport.

Other commercial and business centres, banks, the State Tax Inspectorate, Social Insurance, Employment Exchange, medical clinics and various business services companies, attracting large flows of people, are located nearby.

Also, even four large shopping centres – Domus Gallery, Ogmios miestas, Hyper Rimi, Banginis-Senukai, are located near the business centre. Distance to the centre of Vilnius is about 3.5 km. 70 spots covered parking lot is installed next to the building.

Basic information

Total area	3,200 sq. m
Leased area	2,600 sq. m
Land area	0.6 ha
Property market value at the end of 2017	EUR 2.6 million
Occupancy at the end of 2017	100 percent

Main tenants: the National Paying Agency, Innoforce, Stuburo studija, Famille. Address: J. Galvydzio str. 7 / Zygio str. 97, Vilnius.

Residential house at Kalvariju str. 11, Vilnius (Rovelija, UAB)

The residential house is near the IBC complex area owned by INVL Baltic Real Estate. Rovelija, which is owned by INVL Baltic Real Estate, mamages all apartments located in this building.

Basic information
Total area	276 sq.m
Property market value at the end of 2017	EUR 0.35 million

2.3.2. REAL ESTATE OBJECTS OWNED BY GROUP COMPANIES IN RIGA (LATVIA)

Fig. 2.3.3. Real estate objects owned by group companies of INVL Baltic Real Estate in Riga (Latvia)

DOMMO BUSINESS PARK MANUFACTURING, WAREHOUSE AND OFFICE COMPLEX

AREA 12,800 SQ.M.

2017 ANNUAL REPORT | 85

Dommo Business Park manufacturing/warehouse and office premises complex in Latvia.

The area is strategically well-located, to the right of Jelgava road, in front of the intersection with Jurmala - Tallinn bypass. Distance to the centre of Riga and the airport is 13 km, the port - 16 km.

The area is suitable for the development of logistics centres.

Basic information

Total area	12,800 sq. m
Leased area	12,800 sq. m
Land area	58.21 ha
Property market value at the end of 2017	EUR 8.1 million
Occupancy at the end of 2017	88 percent

Main tenant: Bohnenkamp, Tente, Rewico Baltikum, Flakt.

Address: Stūnyši, Olaines region.

II. FINANCIAL INFORMATION AND SIGNIFICANT EVENTS

3 Overview of the Issuer and its group activity

3.1. COMMENT MADE BY INVL ASSET MANAGEMENT REAL ESTATE FUND MANAGER VYTAUTAS BAKŠINSKAS

The consolidated net operating income of INVL Baltic Real Estate received from own property amounted to EUR 2.68 million in 2017, i.e. 14 percent more than in 2016 (EUR 2.35 million). The consolidated income of INVL Baltic Real Estate amounted to EUR 6.20 million in 2017, i.e. 1.4 percent less than in 2016 (EUR 6.29 million), of which the consolidated rental income received from own property increased by 10.6 percent up to EUR 3.98 million.

The last year was a year of development for the company; after the successful attraction of tenants to the Vilnius Gates, its actual occupancy reached 92 percent at the end of the year, which would result in a significant increase in rental income in 2018. Moreover, we are successfully developing other objects managed by the company, among which the contract, regarding the rent of premises of nearly 1000 square meters of floor area in the center of Vilnius, on Palanga Street, concluded last year with TransferGo, i.e. one of the greatest Lithuanian startups, stands out. We believe in the future prospect of our managed real estate

portfolio which is based on good location – according to the value of the property, 80 percent of the managed objects are located in the central part of Vilnius.

Last year, the IBC Business Centre, which is the largest property managed by INVL Baltic Real Estate, continued not only to maintain a high level of occupancy but also to produce rental income, which increased by 1.3 percent compared to 2016 and amounted to EUR 1.88 million.

At the end of September 2017, the transaction on the sale of 3,000 square metres of office and warehouse premises on Kirtimų Street in Vilnius. The value of the transaction amounted to EUR 1 million. The property on Kirtimų Street was valued at EUR 0.8 million at the end of 2016, therefore, the impact of the transaction for the results of 2017 amounts to EUR 0.2 million.

Other property managed by INVL Baltic Real Estate was also characterized by a high level of occupancy of the premises and improved performance in 2017. We are pleased that our customers continue to be loyal and trust INVL Baltic Real Estate as a reliable and long-term partner, and we will make every effort to maintain our customers' confidence.

At the Extraordinary General Shareholders' Meeting, held at the end of 2017, it was decided to increase the dividends, indicated in the Dividend Payment policy of INVL Baltic Real Estate, more than twice, i.e. from EUR 0.012 to EUR 0.026 per share. This was done seeking to boost the attractiveness of INVL Baltic Real Estate's shares. It was also decided to increase the nominal value of the company's shares by five times, i.e. up to EUR 1.45. Following the resolutions of the General Shareholders Meeting, due to the change of the nominal value per share, EUR 0.13 per share was allocated to dividend payment.

The shareholders' meeting approved the decision to reduce the management fee paid by INVL Baltic Real Estate to the management company INVL Asset Management from 1.5 to 1 percent. The possibility of reducing the management fee resulted from the fact that from the beginning of 2018, the company UAB Proprietas, managed by INVL Baltic Real Estate, took over the management of real estate owned by INVL Baltic Real Estate. Thus, the volume of services, for which INVL Baltic Real Estate was paying the management fee to the management company, has decreased.

It is also planned that in 2018 the share liquidity of INVL Baltic Real Estate will increase; at the end of 2017, Invalda INVL announced an intention to transfer up to 22 percent of the company's shares in 2018, thereby increasing the percentage of free float shares from 16 to 38 percent.

3.2. OPERATIONAL ENVIRONMENT

In 2017, Vilnius and Kaunas demonstrated the highest activity in the segment of business centers, where active construction of new business centers took place. Active development of business centers in these cities is also expected in the next 2 years. Meanwhile, the market for new business centers in Klaipeda remains weak. The conditions for the emergence of new business centers in Klaipeda are currently unfavorable, inasmuch as the vacancy rate of business centers in the port-city has already reached its highest level in comparison with the three largest cities of Lithuania.

During the year 2017, 10 new business centers were opened in the capital city, replenishing the market with the space of approximately 79,000 sq. m. Despite the fact that the rates of development are very high, the demand for modern business centers in the capital city has remained strong, as demonstrated by the fact that the market absorbed almost the entire new area. During the year 2017, the total vacancy rate of business centers in Vilnius increased from 4.8 to 5.4 percent. The increase in the vacancy rate of business centers was strongly influenced by the increase in vacant spaces in B1 and B2 class segments, where, at the end of the year, the non-rented space was 6.7 and 9.7 percent respectively. Meanwhile, at the end of the year, there were only 1.3 percent of vacant A class offices. In the next two years, the market of business centers in Vilnius will be replenished by the additional 130,000 sq. m. of leased space. Most likely, at least some of the new business centers will not be fully leased on the day of the opening; therefore, it is expected that the vacancy rate at the end of 2018 or at the beginning of 2019 may increase up to 7-9 percent or even more.

During the year 2017, 7 new business centers were opened in Kaunas, offering approximately 37,500 sq. m. of leased area to the market. At the end of the year, compared with the corresponding period in 2016, the vacant space indicator in Kaunas increased by almost 2 percent and amounted to 5.9 percent. The amount of vacant space declined in the B1 segment, which, at the end of the year, amounted to 2.4 percent. Meanwhile, the vacancy rate of B2 class segment increased up to 9.2 percent. In the next two years, the market of Kaunas business centers will be replenished by 60,000 sq. m. of leased space; therefore, the vacancy rate may increase to 8-12 percent at the end of 2018.

At the end of 2017, the total vacancy rate in the port-city reached 9.9 percent and decreased by 2 percent from the beginning of the year. In 2017, one business center replenished the market of Klaipeda, offering approximately 2,500 sq. m. of leased space to the market.

In 2017, the rental prices in Vilnius remained stable. The rapidly growing supply of leased space has increased competition between lessors and influenced a possible rise in prices. Currently, the average rental prices of A class offices in Vilnius are from 14 to 17 EUR/sq. m, B1 - from 10 to 14 EUR/sq. m, B2 – from 6.5 to 10 EUR/sq. m. The new business centers that replenished the market in Kaunas have slightly influenced a rise in prices; therefore, currently, the average prices of B1 class offices are from 9 to 14 EUR/sq. m, B2 - from 6 to 9 EUR/sq. m. In 2017, the level of vacancy in Klaipeda has decreased in all segments; however, there are still too many vacant spaces in the port-city, which could affect the rise in rental prices. At the end of 2017, the average rental prices of A class offices in Klaipeda were from 9 to 13 EUR/sq. m, B1 - from 7 to 9 EUR/sq. m, B2 - from 5 to 8 EUR/sq. m. It is likely that the continuous increase of competition in the market of business centers in Vilnius and Kaunas will prevent growth in rental prices in 2018, and in some segments, especially in older B2 class offices, the rental price may slightly decrease. In Klaipeda, having the same situation, rental prices of modern offices remain steady.

The successful development of the logistics sector resulted in quite intensive construction of storage facilities and logistics centers in Vilnius and Kaunas in 2017. However, it should be noted that most of the newly built logistics centers were intended for own use. In 2018, further development of this sector is expected not only in Vilnius and Kaunas but also in Klaipeda where the construction of several large storage facilities is planned.

In Latvian warehousing and logistics market, vacancy rate dropped 4 percent during 2017. Rental prices remain stable; largest part of new storage facilities is built for own needs or for the needs of tenants, concluding long-term contracts with them.

Sources:

http://www.colliers.com/-/media/files/emea/lithuania/reports/2016/colliers\_baltic\_quarterly\_report\_3q17\_sec.pdf http://www.inreal.lt/file/1/0/2/5/2017-2018\_NT\_rinkos\_Apzvalga\_Inreal\_SB\_Cobalt.pdf

	Group			Company
EUR million	01.01.2015 – 31.12.2015	01.01.2016 – 31.12.2016	01.01.2017 – 31.12.2017	01.01.2015 – 31.12.2015	01.01.2016 – 31.12.2016	01.01.2017 – 31.12.2017
Revenue	5.69	6.29	6.20	5.40	5.90	5.72
rental income from owned premises	2.96	3.60	3.98	2.67	3.21	3.50
rental income from subleased premises	1.65	1.59	1.17	1.65	1.59	1.17
other revenue	1.08	1.10	1.05	1.08	1.10	1.05
Investment property revaluation	2.17	0.15	2.33	2.17	0.30	2.27
Net operating income from owned properties*	2.02	2.35	2.68	-	-	-
Profit before tax	4.58	0.49	3.58	3.75	0.69	3.78
Net profit	4.10	4.51	3.58	3.28	4.71	3.78
Earnings per share**	EUR 0.09	EUR 0.07	EUR 0.05	EUR 0.08	EUR 0.08	EUR 0.06

3.3. RESULTS OF INVL BALTIC REAL ESTATE

*https://bre.invl.com/lit/en/for-investors/reports/formulas-of-performance-indicators

**Nominal value per share – EUR 0.29.

3.4. FINANCIAL RATIOS*

EUR million	Group			Company
	2015	2016	2017	2015	2016	2017
Return on Equity (ROE), %	24.77	18.15	11.02	22.77	19.61	11.86
Return on Assets (ROA), %	8.70	8.22	6.32	7.55	9.19	7.08
Debt ratio	0.66	0.44	0.42	0.65	0.41	0.39
Debt – Equity ratio	1.93	0.78	0.71	1.87	0.71	0.65
Gearing ratio	0.57	0.40	0.39	0.55	0.38	0.36
Liquidity ratio	0.22	1.12	0.51	0.20	1.13	0.42
Pre-tax profit margin, %	80.44	7.79	57.67	69.46	11.71	66.07
Normalized operating profit, thousand EUR	1,678	1,703	2,048	1,481	1,458	1,663
Normalized operating profit margin, %	29.47	27.07	33.02	27.42	24.72	29.07
Borrowings to value of investment properties, %	47.6	41.2	38.5	-	-	-
Interest coverage ratio	2.64	3.11	4.34	-	-	-
Bank's debt service coverage ratio	1.83	1.50	1.71	-	-	-
Net profit margin, %	71.94	71.65	57.67	60.76	79.84	66.08
Earnings per share (EPS)**, EUR	0.09	0.07	0.05	0.08	0.08	0.06
Price to earnings ratio (P/E)	4.0	5.54	9.50	4.50	4.85	7.92

*https://bre.invl.com/lit/en/for-investors/reports/formulas-of-performance-indicators

**Nominal value per share – EUR 0.29.

3.5. KEY FIGURES OF INVL BALTIC REAL ESTATE

EUR million	Group			Company
	31.12.2015	31.12.2016	31.12.2017	31.12.2015	31.12.2016	31.12.2017
Managed common area	59,876 sq. m	59,876 sq. m	56,876 sq. m	46,800 sq. m.	46,800 sq. m	43,800 sq. m
Managed rental area	48,476 sq. m	48,476 sq. m	46,276 sq. m	35,400 sq. m.	35,400 sq. m	33,200 sq. m.
The real estate value	51.75	52.41	56.34	43.20	43.96	47.83
Investments into subsidiaries (including loans granted to subsidiaries)	-	-	-	4.97	5.29	5.88
Long-term prepayment under the sublease agreement	0.82	0.10	0.10	0.82	0.10	0.10
Cash	0.39	0.75	0.41	0.29	0.67	0.22
Other assets	1.55	1.95	1.14	1.39	1.78	0.97
Assets	54.51	55.21	57.99	50.67	51.80	55.00
Equity	18.59	31.07	33.86	17.67	30.36	33.35
Borrowings from credit institutions	17.75	21.60	20.88	14.84	18.92	18.42
Borrowings from Invalda INVL group	6.86	-	0.80	6.86	-	0.80
Other payables	11.31	2.54	2.45	11.30	2.52	2.43
Total equity and liabilities	54.51	55.21	57.99	50.67	51.80	55.00
Total equity for one share*	EUR 0.43	EUR 0.47	EUR 0.51	-	-	-

*Nominal value per share – EUR 0.29.

3.6. SIGNIFICANT ISSUER'S AND ITS GROUP EVENTS DURING THE REPORTING PERIOD, EFFECT ON THE FINANCIAL STATEMENT

3.6.1. SIGNIFICANT ISSUER'S EVENTS

• On 10 January INVL Baltic Real Estate announced that Egidijus Damulis withdraws from INVL Baltic Real Estate Investment committee, as of 13 February 2017. Vytautas Bakšinskas and Andrius Daukšas will continue working as the members of the Committee.
• On 20 March 2017 the Company announced audited results of INVL Baltic Real Estate group of 2016. The audited consolidated net profit of INVL Baltic Real Estate group amounted to EUR 4,507 thousand, the revenue was EUR 6,290 thousand for the period of 2016. The audited net profit of INVL Baltic Real Estate itself amounted to EUR 4,710 thousand in 2016.
• On 20 March 2017 the Company announced that the net asset value of the Company was EUR 31,072,202 or EUR 0.4726 per share (nominal value per share EUR 0.29) on 31 December 2016.
• On 20 March 2017 INVL Baltic Real Estate announced about convocation of the General Shareholders Meeting held on 11 April 2017 in the premises of the Company (Gynėjų str. 14, Vinius). The draft resolutions were the following: acquaintance with the consolidated annual report of INVL Baltic Real Estate for the year 2016 together with the independent auditor's report, approval of the consolidated and companies financial statements for 2016, also approval of the profit distribution (allocated profit for the shareholders (dividend) per share – EUR 0.012). Cancelation and election of the Audit Members of the Company and renumeration policy of the Audit Committee. Also, approval of the new wording of the Regulations of the Audit Committee. On 11 April 2017 the Company announced about resolutions of the General Shareholders Meeting.
• On 24 March 2017 INVL Baltic Real Estate announced that by the decision of the Management Company the agenda of the General Shareholders Meeting that was held on 11 April 2017 was been supplemented, including question regarding amendments of the services agreement with the bank AB SEB and the Company.
• On 11 April 2017 the Company published 2016 annual information (consolidated and Company's financial statements, consolidated annual report) and the confirmation of responsible persons.
• On 28 April 2017 INVL Baltic Real Estate published unaudited results and factsheet for 3 months of 2017. The unaudited consolidated net profit of the INVL Baltic Real Estate group was EUR 360 thousand, revenue was EUR 1,669 thousand.
• On 28 April 2017 the Company announced that the net asset value was EUR 31,431,866 or EUR 0.4781 per share (nominal value per share EUR 0.29) on 31 March 2017.
• On 3 May 2017 the Company published that INVL Baltic Real Estate has signed the Amendment of the Services Agreement with AB SEB bank, the Amendment of the Services Agreement took effect from 3 May 2017.
• On 11 May 2017 INVL Baltic Real Estate announced procedure for the payout of dividends for the year 2016. The accouncement stated dividend allocation as well as dividends taxation procedure. Also, it was mentioned who had the right to receive the part of the profit (dividend) (0.012 EUR per share).
• On 14 June 2017 the Company published presentation of INVL Baltic Real Estate, which was presented during the meeting with investors "CEO Meets Investors", organised by Nasdaq Vilnius held on 14 June 2017.
• On 27 June 2017 the Company has signed an agreement on sale of Kirtimų Street property on 26 June 2017. INVL Baltic Real Estate has signed an agreement on the sale of 3,000 square metres of office and warehouse premises on Kirtimų Street in Vilnius. The value of the transaction amounted to EUR 1 million. The property on Kirtimų Street was valued at EUR 0.8 million at the end of 2016.
• On 16 August 2017 INVL Baltic Real Estate announced Interim information for 6 months of 2017 (interim financial statements, interim report and factsheet of the main data of the Company). For 6 months of 2017, the unaudited consolidated net profit of the INVL Baltic Real Estate group was EUR 1,528 thousand, revenue was EUR 3,281 thousand.
• On 16 August 2017 INVL Baltic Real Estate announced that the net asset value was EUR 31,811,344 or EUR 0.4838 per share (nominal value per share EUR 0.29) on 30 June 2017.
• On 30 October 2017 the Company published unaudited results and factsheet for 9 months of 2017. The unaudited consolidated net profit of INVL Baltic Real Estate group was EUR 2,091 thousand and the revenue - EUR 4,799 thousand.
• On 30 October 2017 the Company published that the net asset value was EUR 32,374,388 EUR or 0.4924 per share on 30 September 2017.
• On 7 December 2017 INVL Baltic Real Estate announced about convocation of the Extraordinary General Shareholders Meeting held on 29 December 2017 at the premises of the Company (Gynėjų str. 14, Vilnius). The draft resolutions were the following: approval of the new wording of the Management agreement and Depository Services

agreement, change of the nominal value per share and the amount of shares by the Company, approval of the change of the Company's Article of Association and also, approval of the new wording of the Articles of Association. Also, approval of the new wording of the Dividend payment policy.

• On December 2017 the Company announced that Invalda INVL intends to transfer up to 22 percent shares in INVL Baltic Real Estate. Shares would be transferred to institutional investors and retail customers in 2018. Public offering of shares to retail investors would be possible only if the Bank of Lithuania approves the prospectus of INVL Baltic Real Estate, which would determine the share price and the order of the distribution.
• On 21 December 2017 INVL Baltic Real Estate announced forecast results, which compilation was evaluated by PricewaterhouseCoopers UAB. According to the forecast results, INVL Baltic Real Estate plans that in 2017, the company's net operating income will reach 2.57 million EUR, and net profit will reach 3.6 million EUR.
• On 21 December 2017 INVL Baltic Real Estate announced the presentation that will be used for the meetings with investors.
• On 28 December 2017 the Company announced that INVL Baltic Real Estate plans to publish information to investors in 2018 in accordance with the following calendar: 2 March 2018 – audited financial report and annual report; 30 April 2018 – Net Asset Value and interim information for 3 months of 2018; 17 August 2018 - Net Asset Value and semiannual report of 2018; 31 October 2018 - Net Asset Value and interim information for 9 months of 2018.
• On 29 December 2017 the Company announced about resolutions of the Extraordinary General Shareholders Meeting. Resolutions were: to approve the new wording of the Management agreement and Depository Services agreement, to change the nominal value per share and the amount of shares by the Company, to approve the change of the Company's Article of Association and also, to approve the new wording of the Articles of Association. Also, to approve the new wording of the Dividend payment policy

3.6.2. SIGIFICANT GROUP'S EVENTS

There were no important events in the activities of the real estate companies in 2017. The companies performed usual activity during the reporting period. After the reporting period, on 1 January 2018, the Company's subsidiary Proprietas, UAB and INVL Baltic Real Estate has signed a property management and administration agreement.

4 Significant events of the Issuer and its group since the end of the financial year

• On 5 January 2018 the Company announced that INVL Baltic Real Estate signed a new wording of the Management Agreement and the Depository Services Agreement seeking to implement the resolutions of the Extraordinary General Shareholders Meeting of the Company held on 29 December 2017.
• On 10 January 2018 INVL Baltic Real Estate announced that trading of shares in INVL Baltic Real Estate has been suspended from 12th January 2018 (inclusive), this was done with regards to received authorization from the Supervisory Authority of the Bank of Lithuania to change the Company's Articles of Association, changing nominal value per share and the amount of shares of the Company, the project of which was approved during the Extraordinary General Shareholders Meeting of the Company held on 29 December 2017, also, in order to ensure the effective protection of interests of Company's shareholders. Trading of shares in INVL Baltic Real Estate has been renewed from 25th January (inclusive) after Nasdaq CSD SE Lithuanian Branch have made records in the shareholders securities account.
• On 16 January 2018 the Company announced that seeking to implement resolutions of the Extraordinary General Shareholders Meeting held on 29 December 2017, the Register of Legal Entities has registered a new wording of the Articles of Association of the special closed-ended type real estate investment company INVL Baltic Real Estate on 15 January 2018.
• 24 January 2018 the Company published updated share information of ordinary registered shares of INVL Baltic Real Estate Company (nominal value per share is 1.45 EUR, amount of shares and amount shares granted with the voting rights – 13,150,000 units. The Authorised capital of the Company remains - 19,067,500 EUR.

5 Estimation of Issuer's and Group's activity last year and activity plans and forecasts

5.1. EVALUATION OF IMPLEMENTATION OF GOALS FOR 2017

INVL Baltic Real Estate managed to implement its main goals during 2017 - successful management of assets under reconstruction and successful negotiations with the new and existing tenants enabled to improve the company's performance and increase the value of its assets.

5.2. ACTIVITY PLANS AND FORECASTS

INVL Baltic Real Estate will continue seeking to earn from investments in commercial real estate, ensuring the growth of rental income and cost optimisation. Features of the managed assets of INVL Baltic Real Estate make it reasonable to expect continuous growth in the value of assets. The indicator of the net operating income of the company will grow by 43 percent in 2018 and will amount to 3.69 million EUR. The net profit will amount to 2.57 million EUR. While concluding the 2018 forecast, the fair value of investment properties and success fee provisions were not predicted.

III. INFORMATION ABOUT SECURITIES

6 The order of amendment of Issuer's Articles of Association

According to the Articles of Association of the Company, the Articles of Association of INVL Baltic Real Estate may be amended by the desicion of the General Shareholders' Meeting, passed by more than 3/4 of votes (except in cases stated in the Law on Companies of the Republic of Lithuania and in cases stated in Company's Articles of Association).

During the reporting period, Company's Article of Association dated 10 November 2016 was valid. After the reporting period, Company's Articles of Association was amended once:

• On 15 January 2018 wording of Articles of Association of the Company has been registered with the Register of Legal Entities, which entered into force after an approval to change the Company's Article of Association was given by the Bank of Lithuania. The wording of this Articles of Association was approved by the General Shareholders Meeting held on 29 December 2017.

Currently actual wording of the Articles of Association of INVL Baltic Real Estate is dated as of 15 January 2018. The Articles of Association is available on the Company's website.

7 Structure of the authorized capital

7.1. SHARE CAPITAL CHANGES

Table 7.1. Structure of INVL Baltic Real Estate authorized capital as of 31 December 2017.

Type of shares	Number of	Total voting rights granted	Nominal value,	Total nominal	Portion of the authorised
	shares, units	by the issued shares, units	EUR	value, EUR	capital, %
Ordinary registered shares	65,750,000	65,750,000	0.29	19,067,500	100

All shares are fully paid-up and no restrictions apply on their transfer.

Table 7.2. Structure of INVL Baltic Real Estate authorized capital as of 15 January 2018*.

Type of shares	Number of	Total voting rights granted	Nominal value,	Total nominal	Portion of the authorised
	shares, units	by the issued shares, units	EUR	value, EUR	capital, %
Ordinary registered shares	13,150,000	13,150,000	1.45	19,067,500	100

All shares are fully paid-up and no restrictions apply on their transfer.

* The new wording of the Articles of Association of INVL Baltic Real Estate were registered in the Register of Legal Entities on 15 January 2018. Trading of the shares of the Company was suspended until 25 January 2018, in order to secure the interests of the Company's shareholders and seeking to implement the decisions of the Company's Shareholders' Meeting held on 29 December 2017, regarding the amendment of the Articles of Association, the nominal value per share and the amount of shares of the Company.

7.2. INFORMATION ABOUT THE ISSUER'S TREASURY SHARES

INVL Baltic Real Estate or its portfolio companies have not implemented acquisition or transferred of shares in INVL Baltic Real Estate directly or indirectly under the order of subsidiary by persons acting by their name.

8 Trading in Issuer's securities as well as securities, which are deemed to be a significant financial investment to the Issuer on a regulated market

2017 ANNUAL REPORT | 93

Table 8.1. Main characteristics of INVL Baltic Real Estate shares admitted to trading as of 31 December 2017

Shares issued, units	65,750,000
Shares with voting rights, units	65,750,000
Nominal value, EUR	0.29
Total nominal value, EUR	19,067,500
ISIN code	LT0000127151
Name	INR1L
Exchange	Nasdaq Vilnius
List	Baltic Secondary list
Listing date	04.06.2014
Included into indexes	B8000GI, OMX BALTIC FINANCIALS GI, (SE0004384154) B8000PI, OMX BALTIC FINANCIALS PI, (SE0004384444) B8600GI, OMX BALTIC REAL ESTATE GI, (SE0004384188) B8600PI, OMX BALTIC REAL ESTATE PI, (SE0004384477) OMXBGI, OMX BALTIC ALL SHARE GROSS INDEX, (SE0001849977) OMXBPI, OMX BALTIC ALL SHARE PRICE INDEX, (SE0001849985) VILSE, OMX VILNIUS INDEX, (LT0000999963)

Company has signed a market-making agreement with Šiaulių bankas, AB on 1 March 2016.

	Table 8.2. Main characteristics of INVL Baltic Real Estate shares admitted to trading as of 15 January 2018*
--	--------------------------------------------------------------------------------------------------------------	--	--

Shares issued, units	13,150,000
Shares with voting rights, units	13,150,00
Nominal value, EUR	1.45
Total nominal value, EUR	19,067,500
ISIN code	LT0000127151
Name	INR1L
Exchange	Nasdaq Vilnius
List	Baltic Secondary list
Listing date	04.06.2014
Included into indexes	B8000GI, OMX BALTIC FINANCIALS GI, (SE0004384154) B8000PI, OMX BALTIC FINANCIALS PI, (SE0004384444) B8600GI, OMX BALTIC REAL ESTATE GI, (SE0004384188) B8600PI, OMX BALTIC REAL ESTATE PI, (SE0004384477) OMXBGI, OMX BALTIC ALL SHARE GROSS INDEX, (SE0001849977) OMXBPI, OMX BALTIC ALL SHARE PRICE INDEX, (SE0001849985) VILSE, OMX VILNIUS INDEX, (LT0000999963)

* The new wording of the Articles of Association of INVL Baltic Real Estate were registered in the Register of Legal Entities on 15 January 2018. Trading of the shares of the Company was suspended until 25 January 2018, in order to secure the interests of the Company's shareholders and seeking to implement the decisions of the Company's Shareholders' Meeting held on 29 December 2017, regarding the amendment of the Articles of Association, the nominal value per share and the amount of shares of the Company.

		Price, EUR		Turnover, EUR		Last trading	Total turnover
Reporting period	high	low	last	high	low	last	date	units	EUR
2014 2nd Q*	2.120	1.900	1.900	1,330	8	160	30.06.2014	2,357	4,651
2014 3rd Q	1.880	1.820	1.830	1,721	1.84	0	30.09.2014	6,758	12,420.43
2014 4th Q	1.840	1.830	1.840	1,993	1.83	0	20.12.2014	6,804	12,493.15
2015 1st Q	1.900	1.840	1.860	1,890.56	3.7	0	31.03.2015	4,552	8,398.7
2015 2nd Q	1.910	1.600	1.890	1,017.5	5.67	32.13	30.06.2015	5,894	10,965.52
2015 3rd Q	1.900	0.200	0.200	1,211.49	3.78	0	30.09.2015	3,127	4,863.44
2015 4th Q	0.390	0.315	0.360	2,526.51	25.16	511.92	30.12.2015	41,254	14,135.72
2016 1st Q	0.447	0.390	0.405	6,062.45	71.38	799.49	31.30.2016	143,323	58,066.95
2016 2nd Q	0.417	0.380	0.390	5,534.83	4.03	1,167.14	30.06.2016	89,786	35,761.02
2016 3rd Q	0.413	0.381	0.402	5,959.64	6.11	0	30.09.2016	158,675	64,033.03
2016 4th Q	0.400	0.388	0.388	6,786.26	35.97	1,159.57	30.12.2016	99,641	39,314.25
2017 1st Q	0.399	0.375	0.397	9,985.26	2.35	0	31.03.2017	175,498	67,609,54
2017 2nd Q	0.449	0.386	0.424	16,547.66	7.02	338.95	30.06.2017	366,537	151,781.03
2017 3rd Q	0.480	0.415	0.471	63,552,70	27.53	0	29.09.2017	457,150	196,305.46
2017 4th Q	0.485	0.465	0.475	10,304,66	11.75	687.80	29.12.2017	201,801	95,575.01

Table 8.3. Trading in the company's shares on Nasdaq Vilnius**

* The data is provided since 4 June 2014, from the beginning of the listing of the Former Parent Company in the Stock Exchange. **The amount of shares and share price changed on 17 August 2015, when the Company was merged with it's parent company (hereinafter referred to as the Reorganization Day), the stock statistics submitted prior to the Reorganization Day have not been recalculated and are not comparable with the data of the subsequent period.

Table 8.4. Trading in INVL Baltic Real Estate shares 2014* – 2017

	2014*	2015	2016	2017
Share price, EUR:
open	0.326	0.300	0.399	0.388
high	0.407	0.380	0.447	0.485
low	0.297	0.200	0.380	0.375
medium	0.304	0.333	0.401	0.293
last	0.300	0.360	0.388	0.475
Turnover, units	15,919	54,827	491,425	1,200,986
Turnover, EUR	22,947.85	38,363.38	197,175.25	511,271.04
Traded volume, units	125	170	382	565

* The data is provided since 4 June 2014, from the beginning of the listing of the Former Parent Company in the Stock Exchange. For 2014- 2015 the share price was adjusted due to the Reorganization day.

2017 ANNUAL REPORT | 94

Last trading date	Number of shares having voting rights, units	Last price, EUR	Capitalisation, EUR
30.06.2014	7,044,365	1.900	13,384,294
30.09.2014	7,044,365	1.830	12,891,188
30.12.2014	7,044,365	1.840	12,961,632
31.03.2015	7,044,365	1.860	13,102,519
30.06.2015	7,044,365	1.890	13,313,850
30.09.2015*	43,226,252	0.200	8,645,250
30.12.2015	43,226,252	0.360	15,561,451
31.03.2016**	65,750,000	0.405	26,628,750
30.06.2016	65,750,000	0.390	25,642,500
30.09.2016	65,750,000	0.402	26,431,500
30.12.2016	65,750,000	0.388	25,511,000
31.03.2017	65,750,000	0.397	26,102,750
30.06.2017	65,750,000	0.424	27,878,000
29.09.2017	65,750,000	0.471	30,968,250
29.12.2017	65,750,000	0.475	31,231,250

Table 8.5. Capitalisation 2014* - 2017

* The capital share significantly changed due to the Reorganization Day impact

** Share capital increased after the new share issue placement on 8 March 2016

2017 ANNUAL REPORT | 95

¹ OMX index is an all-share index which includes all the shares listed on the Main and Secondary lists on the NASDAQ Vilnius with exception of the shares of the companies where a single shareholder controls at least 90% of the outstanding shares. The OMX Baltic Real Estate GI index is based on the Industry Classification Benchmark (ICB) developed by FTSE Group (FTSE).

Fig. 8.2. Change of share price of INVL Baltic Real Estate and turnover

9 Shareholders

9.1. INFORMATION ABOUT COMPANY'S SHAREHOLDERS

The total number of shareholders in INVL Baltic Real Estate was 3,603 on 20 December 2017*. There are no shareholders entitled to special rights of control.

Table 9.1.1. Shareholders who held title to more than 5% of INVL Baltic Real Estate authorised capital and/or votes as of 20 December 2017*.

	Number of		Share of the votes, %
Name of the shareholder or company	shares held by the right of ownership, units	Share of the authorised capital held, %	Share of votes given by the shares held by the right of ownership, %	Indirectly held votes, %	Total, %
LJB Investments, UAB code 300822575, Juozapavičiaus str. 9A, Vilnius	13,158,474	20.01	20.01	0	20.01
Irena Ona Mišeikienė	12,492,979	19.00	19.00	0	19.00
Invalda INVL, AB code 121304349, Gynėjų str. 14, Vilnius	21,127,994	32.13	32.13	0	32.13
Alvydas Banys	3,318,198	5.05	5.05	20.012	25.06

² According to section 1 item 6 of article 24 of the Law on Securities of the Republic of Lithuania, Alvydas Banys is considered to hold the voting rights of the controlled company UAB LJB Investments.

* The end of the rights accounting day of the Company's Extraordinary General Shareholder's Meeting held on 29 December 2017

Table 9.1.2. Shareholders who held title to more than 5% of INVL Baltic Real Estate authorised capital and/or votes as of 15
January 2018*.

	Number of		Share of the votes, %
Name of the shareholder or company	shares held by the right of ownership, units	Share of the authorised capital held, %	Share of votes given by the shares held by the right of ownership, %	Indirectly held votes, %	Total, %
LJB Investments, UAB code 300822575, Juozapavičiaus str. 9A, Vilnius	2,631,695	20.01	20.01	0	20.01
Irena Ona Mišeikienė	2,498,596	19.00	19.00	0	19.00
Invalda INVL, AB code 121304349, Gynėjų str. 14, Vilnius	4,224,527	32.13	32.13	0	32.13
Alvydas Banys	663,640	5.05	5.05	20.013	25.06

³ According to section 1 item 6 of article 24 of the Law on Securities of the Republic of Lithuania, Alvydas Banys is considered to hold the voting rights of the controlled company UAB LJB Investments.

9.1.2. Fig. Votes as of 15 January 2018*.

*The new wording of the Articles of Association of INVL Baltic Real Estate were registered in the Register of Legal Entities on 15 January 2018.

		Shareholders	Share of votes given by the owned shares
Investors	Amount	Part, %	Amount	Part, %
Private persons	3,577	99.28	26,740,234	40.67
Legal persons (private corporations, Financial institutions and insurance corporations and their clients)	26	0.72	39,009,766	59.33
Total	3,603		65,750,000

9.1.2. Fig. Distribution of securities by investors' groups as of 20 December 2017

* The end of the rights accounting day of the Company's Extraordinary General Shareholder's Meeting held on 29 December 2017

Table 9.1.4. Distribution of securities by countries as of 20 December 2017*

		Shareholders	Share of votes given by the owned shares
Regions	Amount	Part, %	Amount	Part, %
Lithuania	3,539	98.23	64,018.915	97.37
Other EU members	42	1.16	1,709.972	2.60
Non- EU countries	22	0.61	21,113	0.03
Total	3,603		65,750,000

* The end of the rights accounting day of the Company's Extraordinary General Shareholder's Meeting held on 29 December 2017

9.2. RIGHTS AND OBLIGATIONS CARRIED BY THE SHARES

9.2.1. RIGHTS OF THE SHAREHOLDERS

The Company's shareholders have the following property and non-property rights:

1. to receive a part of the Company's profit (dividend);

2. to receive the company's funds when the authorised capital of the company is reduced with a view to paying out the company's funds to the shareholders;

3. to receive a part of assets of the company in liquidation;

4. to receive shares without payment if the authorised capital is increased out of the Company funds, except in cases provided by the laws of the Republic of Lithuania;

5. to have the pre-emption right in acquiring shares or convertible debentures issued by the Company, except in cases when the General Shareholders' Meeting in the manner prescribed in the Law on Companies of the Republic of Lithuania decides to withdraw the pre-emption right in acquiring the Company's newly issued shares or convertible debentures for all the shareholders;

6. to lend to the company in the manner prescribed by law; however, when borrowing from its shareholders, the company may not pledge its assets to the shareholders. When the company borrows from a shareholder, the interest may not be higher than the average interest rate offered by commercial banks of the locality where the lender has his place of residence or business, which was in effect on the day of conclusion of the loan agreement. In such a case the company and shareholders shall be prohibited from negotiating a higher interest rate;

7. other property rights provided by laws;

8. to attend the General Shareholders' Meetings;

9. to submit to the Company in advance the questions connected with the issues on the agenda of the General Shareholders' Meeting;

10. to vote at the General Shareholders' Meetings according to voting rights carried by their shares;

11. to receive information on the Company specified in the Law on Companies of the Republic of Lithuania;

12. to appeal to the court for reparation of damage resulting from nonfeasance or malfeasance by the Company's manager and the Board members of their obligations prescribed by the Law on Companies of Republic of Lithuania and other laws of the Republic of Lithuania and the Company's Articles of Association as well as in other cases laid down by laws;

13. other non-property rights established by laws and the Company's Articles of Association.

9.2.2. OBLIGATIONS OF THE SHAREHOLDERS

The shareholders have no property obligations to the Company, except for the obligation to pay up, in the established manner, all the shares subscribed for at their issue price.

If the General Shareholders' Meeting takes a decision to cover the losses of the Company from additional contributions made by the shareholders, the shareholders who voted "for" shall be obligated to pay the contributions. The shareholders who did not attend the General Shareholders' Meeting or voted against such a resolution shall have the right to refrain from paying additional contributions.

The person who acquired all shares in the company or the holder of all shares in the company who transferred a part of his shares to another person must notify the company of the acquisition or transfer of shares within 5 days from the conclusion of the transaction. The notice shall indicate the number of acquired or transferred shares, the nominal share price and the particulars of the person who acquired or transferred the shares (the natural person's full name, personal number and address; the name, legal form it has taken, registration number, address of the registered office of the legal person.)

2017 ANNUAL REPORT | 100

Contracts between the company and holder of all its share shall be executed in a simple written form, unless the Civil Code prescribes the mandatory notarised form.

A shareholder shall repay the Company any dividend paid out in violation of the mandatory norms of the Lithuanian Law on Companies, if the Company proves that the shareholder knew or should have known thereof.

Each shareholder shall be entitled to authorise a natural or legal person to represent him when maintaining contacts with the Company and other persons.

10 Dividends

The General Shareholders' Meeting decides upon dividend payment and sets the amount of dividends. The company pays out the dividends within 1 month after the day of adoption of the resolution on profit distribution.

Persons have the right to receive dividends if they were shareholders of the company at the end of the tenth working day after the day of the General Shareholders' Meeting which issued the resolution to pay dividends.

According to the Lithuanian Law on Personal Income Tax and the Lithuanian Law on Corporate Income Tax, 15 % tax is applied to the dividends since 2014. The company is responsible for calculation, withdrawn and transfer (to the benefit of the State) of applicable taxes⁴ .

INVL Baltic Real Estate on 15 January 2016 approved a Dividend payment policy which stipulates the yearly payment of dividends per share of no less than EUR 0.012 (when the nominal value per share was EUR 0.29), which is equal to 3% of the offering price. On 11 April 2017, the General Shareholders Meeting of INVL Baltic Real Estate decided to allocate EUR 0.012 dividend per share (when the nominal value per share was EUR 0.29).

Dividends were allocated to the shareholders, who at the end of the tenth business day following the day of the General Shareholders Meeting that adopted a decision on dividend payment, i.e. on 26 April 2017 were shareholders of INVL Baltic Real Estate.

On 11 May 2017 INVL Baltic Real Estate announced that the company will start to allocate dividends from 11 May 2017. Dividends were allocated to those shareholders of the company, who has provided existing bank accounts.

The General Shareholders Meeting of the Company held on 29 December 2017 approved the new wording of the Dividend payment policy which stipulates the yearly payment of dividends per share of no less than EUR 0.13 (when the nominal value per share is EUR 1.45).

Information relevant to the dividends paid by the Company, as well as matter of dividend payments and valid Dividend payment policy is published on Company's web page.

Company's	2014	2015	2016	2017
Net Asset Value per share**, EUR	0.34	0.43	0.47	0.51
Price to book value (P/Bv)	0.88	0.84	0.83	0.93
Dividend yield	-	-	3.1	2.5
Dividends/ Net profit	-	-	0.18	0.22

10.1. Table. Indexes related with shares*

*https://bre.invl.com/lit/en/for-investors/reports/formulas-of-performance-indicators

**Nominal value per share – EUR 0.29.

⁴ This information should not be treated as a tax consultation.

IV. ISSUER'S MANAGING BODIES

11 Structure, authorities, the procedure for appointment and replacement

The management of INVL Baltic Real Estate was transferred to the Management company INVL Asset Management on 22 December 2016 as the Bank of the Republic of Lithuania granted INVL Baltic Real Estate with the license of the closed-ended type investment company. The rights and duties of the Board and the Manager of the Company were also transferred to the Management Company. Managing bodies of the Company is not formed.

In order to ensure management efficiency and control of investments, the Management company formed an Investment Committee of INVL Baltic Real Estate.

The Management company is responsible for convening and organizing the highest management body of the Company - the General Shareholders Meeting.

11 fig. Structure of the Management of the Company

Detailed information on the structure of the management of the Company before the CEF license was granted is published in the consolidated annual report for the year 2016 of INVL Baltic Real Estate. The report is published on the Company's website section For Investors.

11.1. GENERAL SHAREHOLDERS' MEETING

11.1.1. POWERS OF THE GENERAL SHAREHOLDERS' MEETING

Persons who were shareholders of the Company at the close of the accounting day of the meeting (the 5th working day before the General Shareholders' Meeting) shall have the right to attend and vote at the General Shareholders' Meeting in person, unless otherwise provided for by laws, or may authorise other persons to vote for them as proxies or may conclude an agreement on the disposal of the voting right with third parties. The shareholder's right to attend the General Shareholders' Meeting shall also cover the right to speak and enquire.

The General Shareholders' Meeting may take decisions and shall be held valid if attended by the shareholders who hold the shares carrying not less than ½ of all votes. After the presence of a quorum has been established, the quorum shall be deemed to be present throughout the General Shareholders' Meeting. If a quorum is not present, the General Shareholders' Meeting shall be considered invalid and a repeat General Shareholders' Meeting must be convened, which shall be authorised to take decisions only on the issues on the agenda of the General Shareholders' Meeting that has not been held and to which the quorum requirement shall not apply.

An Annual General Shareholders' Meeting must be held every year at least within 4 months from the close of the financial year.

All decisions of the general meeting of Shareholders of the Company shall be taken by a 3/4 majority of votes carried by Shares of the Shareholders present in the meeting, except for the decisions indicated below, which shall be taken by a 2/3 majority of votes carried by Shares of the Shareholders present in the meeting, i.e. decisions:

• to elect and remove a certified auditor or audit firm and establish terms of payment for audit services;
• to approve sets of annual and interim financial statements;
• on extension of the Term of Activities of the Company and making related amendments to the Articles of Association.

The below-indicated decisions of the general meeting of Shareholders of the Company can be taken only after taking into account the recommendations given by the Management Company and with regard to consequences of a relevant decision indicated by the Management Company, i.e. decisions regarding:

• amending the Articles of Association of the Company;
• redemption of Shares;
• distribution of the profit (loss) of the Company;
• formation, use, reduction and cancellation of reserves;
• increase or reduction of the authorised capital;
• reorganisation, spin-off or transformation of the Company;
• merger of the Company with other collective investment undertakings;
• approval of the agreement with the Depository, appointment of the person authorised to sign the approved agreement with the Depository on behalf of the Company, change of the Depository;
• liquidation of the Company or extension of the Term of Activities of the Company;
• restructuring of the Company.

The Management Company must present its recommendations on draft decisions on issues indicated in Articles of Association hereof together with the announced draft decisions proposed by the Management Company. In case draft decisions are proposed not by the Management Company but by Shareholders, the Management Company must, no later than within 5 (five) Business Days after presentation of such a draft decision to the Company, prepare a relevant recommendation and announce it in the manner in which draft decisions are announced. In any case recommendations of the Management Company regarding all draft decisions on relevant issues of the agenda must be announced no later than 3 (three) Business Days until the date of the general meeting of Shareholders.

In case the general meeting of Shareholders takes a decision not following the recommendations given by the Management Company, the Management Company shall not be responsible if such decisions violate requirements for management of the Company or there are other negative consequences.

11.1.2. CONVOCATION OF THE GENERAL SHAREHOLDERS' MEETING OF INVL BALTIC REAL ESTATE

The right to initiate convocation of the meeting is vested in the Management Company and Shareholders, owning at least 1/10 of all the votes in the General Shareholder Meeting.

The convocation of a General Shareholders's Meeting is organised by the Management Company.

The shareholders are entitled: (i) to propose to supplement the agenda of the General Shareholders Meeting submitting draft resolution on every additional item of agenda or, than there is no need to make a decision - explanation of the shareholder (this right is granted to shareholders who hold shares carrying at least 1/20 of all the votes). Proposal to supplement the agenda is submitted in writing sending the proposal by registered mail to the Company at Gyneju str. 14, Vilnius, Lithuania, or delivered in person to the representative of the Company or by sending proposal to the Company by email breinfo@invl.com. The agenda is supplemented if the proposal is received no later than 14 before the General Shareholders Meeting; (ii) to propose draft resolutions on the issues already included or to be included in the agenda of the General Shareholders Meeting at any time prior to the date of the General Shareholders meeting (in writing sending the proposal by registered mail to the Company at Gyneju str. 14, Vilnius, Lithuania, or delivered in person to the representative of the Company or by sending proposal to the Company by email breinfo@invl.com) or in writing during the General Shareholders Meeting (this right is granted to shareholders who hold shares carrying at least 1/20 of all the votes); (iii) to submit questions to the Company related to the issues of agenda of the General Shareholders Meeting in advance but no later than 3 business days prior to the General Shareholders Meeting in writing sending the proposal by registered mail to the Company at Gyneju str. 14, Vilnius, Lithuania, or delivered in person to the representative of the Company or by sending proposal to the Company by email breinfo@invl.com. The company reserves the right to answer to those shareholders of the Company who can be identified and whose questions are not related to the company's confidential information or commercial secrets.

Shareholder participating at the General Shareholders Meeting and having the right to vote must submit documents confirming personal identity. Each shareholder may authorize either a natural or a legal person to participate and to vote on the shareholder's behalf at the General Shareholders Meeting. A power of attorney issued by a natural person must be certified by a notary. The representative has the same rights as his represented shareholder at the General Shareholders Meeting. The authorized persons must have documents confirming their personal identity and power of attorney approved in the manner specified by law which must be submitted to the Company no later than before the commencement of registration for the General Shareholders Meeting. A power of attorney issued in a foreign state must be translated into Lithuanian and legalised in the manner established by law. The Company does not establish special form of power of attorney.

Shareholder is entitled to issue power of attorney by means of electronic communications for legal or natural persons to participate and to vote on its behalf at the General Shareholders Meeting. No notarisation of such authorization is required.

The power of attorney issued through electronic communication means must be confirmed by the shareholder with a safe electronic signature developed by safe signature equipment and approved by a qualified certificate effective in the Republic of Lithuania. The shareholder shall inform the Company on the power of attorney issued through the means of electronic communication by e-mail breinfo@invl.com not later than on the last business day before the General Shareholders Meeting. The power of attorney and notification must issued in writing and could be sent to the Company by communication means, if the transmitted information is secured and the shareholder's identity can be identified.

The Company is not providing the possibility to attend and vote at the General Shareholders Meeting through electronic means of communication.

Shareholder or its representative may vote in writing by filling general voting bulletin, in such a case the requirement to deliver a personal identity document does not apply. The form of general voting bulletin is presented at the Company's webpage www.bre.invl.com section For Investors. If shareholder requests, the Company shall send the general voting bulletin to the requesting shareholder by registered mail or shall deliver it in person against signature no later than 10 days prior to the General Shareholders Meeting free of charge. The filled general voting bulletin must be signed by the shareholder or its authorized representative. Document confirming the right to vote must be added to the general voting bulletin if authorized person is voting. The filled general voting bulletin must be sent by the registered mail to the Company at Gyneju str. 14, Vilnius, Lithuania, or delivered in person to the representative of the Company no later than the day before of the General Shareholders Meeting.

For the convenience of the shareholders of INVL Baltic Real Estate the company provides notifications about convocation of General Shareholders Meeting, draft resolutions as well as general voting bulletins and resolutions adopted in the Meetings on the company's website section For Investors (Shareholders' Meetings).

There were 2 (two) General Shareholders Meetings of INVL Baltic Real Estate during the 2017.

The General Shareholders Meeting was held on 11 April 2017. During this meeting the Shareholders were presented with the consolidated annual report of the Company and independent auditor's report on the financial statements, approved the consolidated and companies financial statements for 2016, distribution of the profit of the Company, made decisions regarding the change of INVL Baltic Real Estate Audit Committee members, renumeration questions regarding Audit Committee members. Also, the change of the depository services agreement between bank SEB and the Company.

Extraordinary Shareholders Meeting of INVL Baltic Real Estate was held on 29 December 2017. During this meeting the Shareholders approved the change of the nominal value per share and the amount of shares, also, approved the new wording of the Articles of Association of the Company and the new wording of the Management Agreement between the management company INVL Asset Management and the Company, also the new wording of the depository services agreement between bank SEB and the Company. Shareholders of the Company approved the new wording of the Dividend Payment Policy.

11.2. MANAGEMENT COMPANY AND THE INVESTMENT COMMITTEE

Since the Central Bank of the Republic of Lithuania granted the license of closed-ended type investment company to INVL Real Estate, the management of the Company has been transferred to the Management Company, therefore, following the Law of the Republic of Lithuania on Collective Investment Undertakings, and the rights and duties of the Board and the head of the Company, as set in the Law of the Republic of Lithuania on Companies, have been transferred to the Management Company.

The Management Company is responsible for convocation and organisation of the General Shareholders Meeting of the Company, giving notices about publically not disclosed information under the procedure set by legal acts, organisation of activities of the Company, proper management of information about activities of the Company and performance of other functions assigned to the Management Company.

The Management Company has the right:

• to perform all actions of management bodies of the Company and other actions assigned to the competence of the Management Company according to effective legal acts and/or defined in the Articles of Association;

• to get the Management Fee and the Performance Fee, as they are defined in the Articles of Association;
• to conduct and perform transactions in connection with management of the assets of the Company at the expense and in the interests of the Company;
• to make deductions from assets of the Company provided for in the Articles of Association;
• subject to approval of the general meeting of Shareholders, to instruct a company, having the right to provide relevant services, to perform some of its management functions;
• other rights established in the Articles of Association and legal acts of the Republic of Lithuania.

The Management Company must:

• act in a fair, correct and professional manner on the terms best for the Company and its Shareholders and in their interests and ensure integrity of the market;
• act carefully, professionally and prudently;
• have and use means and procedures necessary for its activities;
• have reliable administration and accounting procedures, electronic data processing control and security measures and a proper mechanism of internal control, including the rules on personal transactions in financial instruments conducted by employees of the Management Company and transactions in financial instruments conducted at the expense of the Management Company;
• ensure that documents of and information about taken investment decisions, conducted transactions would be kept for at least 10 years after the date of taking an investment decision, conduction of a transaction or performance of an operation, unless legal acts set a longer term of keeping documents;
• have such an organisational structure that would help to avoid conflicts of interest. When it is impossible to avoid conflicts of interest, the Management Company must ensure that Shareholders are treated fairly;
• ensure that persons taking decisions on management of the Company would have qualification and experience established by the Supervisory Authority, be of sufficiently good repute;
• ensure that assets of the Company would be invested according to the investment strategy set in the Articles of Association and requirements set in legal acts of the Republic of Lithuania;
• prepare the Prospectus, the key investor information document, annual and semi-annual reports under the procedure set by legal acts;
• perform other duties set in the Articles of Association and legal acts of the Republic of Lithuania.

The Company's management agreement with the Management Company must be approved by the General Shareholders Meeting. The currently valid Management agreement between the Managament company and INVL Baltic Real Estate was signed on 5 January 2018, the wording of the Management agreement was approved during the General Shareholders Meeting held on 29 December 2017.

The Management Company can be replaced by a decision of the General Shareholders Meeting of the Company.

The Management Company can be replaced by a decision of the General Shareholders Meeting in cases mentioned below:

• the Management Company is liquidated;
• the Management Company undergoes restructuring;
• bankruptcy proceedings are initiated against the Management Company;
• the Supervisory Authority takes a decision to restrict or cancel the rights provided for in the license of the Management Company related to management of investment companies;
• the Management Company commits a material breach of the agreement, Articles of Association or legal acts;
• in other circumstances in compliance with applicable legislation.

The Management Company could be replaced after receipt of a prior permission of the Bank of Lithuania.

The Management company ensuring the management of INVL Baltic Real Estate has the General manager, the Board of the Company and the Investment Committee, formed by the decision of the Board.

The General Manager of the Management company is Laura Križinauskienė (from 2nd October 2017). Darius Šulnis was been the General Manager of the Company from the beginning of the operating period until 2nd October 2017.

The Board of the Management Company operates following the Civil Code of the Republic of Lithuania, the Law of the Republic of Lithuania on Companies, other legal acts, Articles of Association of the Company, the resolutions of the General Shareholders Meetings, decisions of the Board and Regulations of the Board.

The Board acts in furtherance of the declared strategic objectives in view of the need to optimize shareholder value and to ensure that the rights and interests of persons other than the company's shareholders (e.g. employees, creditors, suppliers, clients, local community), participating in or connected with the company's operation, are duly respected.

2017 ANNUAL REPORT | 105

The procedure of work, rights and responsibilities of the members of the Board of the Management Company are set in the Regulations of the Board.

Darius Šulnis (the Chairman), Nerijus Drobavičius and Vytautas Plunksnis are the members of the Board of the Management Company since 19 January 2015. During the reporting period the Board of the Management company remained unchanged.

For the sake of efficiency of the Company's activities and control over its investments, an Investment Committee is being formed by a decision of the Board of the Management company. At the end of the reporting period there were 2 (two) members of the Investment Committee: Vytautas Bakšinskas and Andrius Daukšas.

The Investment Committee of the Management company is the collegial investment and management decision-making body responsible for adopting decisions regarding the management of the Managed company's assets and representing and protecting the Managed Company's interests. According to Company's Articles of Association Investment Committee shall consist of 3 (three) members, representatives of the Management Company (employees, members of management bodies of the Management Company, other persons appointed by a decision of the Board of the Management Company) shall be appointed to their positions. Members of the Investment Committee shall be appointed by a decision of the Management Company. Members of the Investment Committee shall be appointed and removed from office by the Board of the Management Company. An approval of the Investment Committee must be obtained for all investments of the Company and for their sale.

The procedure of formation, responsibilities, functions of the Investment Committee, decision-making procedure and other procedures of the Investment Committee is set in the Regulations of the Investment Committee of INVL Baltic Real Estate, which is published in the Company's website section For Investors.

Currently there are 2 (two) members in the Investment Committee, appointed from the representatives of the Management Company: Vytautas Bakšinskas and Andrius Daukšas. Egidijus Damulis was withdrawn from the position of the member of the Investment Committee from 13 February 2017, by the decision of the Board of the Management company.

During the reporting period 24 Investment Committee meeting were held. All the appointed members of the Investment Committee participated in these meetings personally.

For the sake of efficiency of activities of the Company, an Advisory Committee may be formed by a decision of the Board of the Management company. It is a collegial advisory body composed of representatives of the shareholders of the Management company which is intended to advise the Investment Committee for the Company regarding the adoption of investment decisions.

The purpose of the Advisory Committee is to ensure having knowledge about investments objects, into which the Company's assets may be invested, and knowing their specifics. The Advisory Committee shall present its opinion and conclusions to the Investment Committee regarding investments of the Company.

The procedure of formation, responsibilities, functions of the Advisory Committee, decision-making procedure and other procedures of the Advisory Committee is set in the Regulations of the Advisory Committee, of INVL Baltic Real Estate, which is published in the Company's website section For Investors.

The Advisory Committee is not formed at the moment.

12 Information about members of the Board of the Management Company, general manager and members of the Investment Committee

12.1. THE ISSUER'S MANAGEMENT BODIES

The management of INVL Baltic Real Estate was transferred to the management company INVL Asset Management on 22 December 2016 as soon as the Central Bank of the Republic of Lithuania INVL Baltic Real Estate the license of closed-ended type investment company. The rights and duties of the Board and the head of the Company were also transferred to the Management Company.

The General Manager of the Management company is Laura Križinauskienė (from 2nd October 2017). Darius Šulnis was been the General Manager of the Management company from the beginning of the operating period until 2nd October 2017.

Darius Šulnis (the chairman), Nerijus Drobavičius and Vytautas Plunksnis are members of the Board of the Management company since 19 January 2015. During the reporting period the Board of the Management company remained unchanged.

On 6 May 2016 Egidijus Damulis and Andrius Daukšas were appointed as the Members of the Investment Committee of the Company by a decision of the Board of the Management Company. Vytautas Bakšinskas joined the Investment Committee on 2 January 2017. He was appointed by the decision of the Board of the Management company on 22 December 2016.

Currently there are 2 (two) members in the Investment Committee: Vytautas Bakšinskas and Andrius Daukšas. Egidijus Damulis was removed from the members of the Investment Committee on 13 February 2017 by the decision of the Board of the Management company.

The Advisory Committee is not formed.

Darius Šulnis – Chairman of the Board of the Management company. Until 2nd October 2017 held position as a General Manager of the Management company

Educational background and qualifications	Duke University (USA). Business Administration. Global Executive MBA. Vilnius University. Faculty of Economics. Master in Accounting and Audit. Financial broker's license (General) No. A109.
Work experience	2015 – October 2017 General manager of INVL Asset Management, UAB 2006 – 2011 Invalda, AB – President. 2011 – 2013 Invalda, AB – Advisor. Since May 2013 Invalda INVL, AB – President 2002 – 2006 Invalda Real Estate, UAB (current name Inreal Valdymas) – Director 1994 – 2002 FBC Finasta, AB – Director
Owned amount of shares in INVL Baltic Real Estate	Personally: 0 units of shares. Together with controlled company Lucrum Investicija: 244,875* units of shares, 1.86 % of authorised capital, 3.17 % of votes (including votes granted by the shares transferred by the repurchase agreement).
	* The amount of shares is presented after the change in the nominal value of company's shares, changing the nominal value per share from EUR 0.29 to EUR 1.45. The change was completed on 24 January 2018.
Participation in other companies	Invalda INVL, AB – Member of the Board, the President IPAS INVL Asset Management (Latvia) – Member of the Supervisory Board (till 05.03.2018) AS INVL atklātajs pensiju fonds (Latvia) – Member of the Supervisory Board (till 05.03.2018) Šiaulių bankas, AB – Member of the Supervisory Board INVL Baltic Farmland, AB – Member of the Board Litagra, UAB – Member of the Board

Nerijus Drobavičius – Member of the Board of Management company

Educational background and qualifications In 1998 graduated Vytautas Magnus University and gained his Bachelor's degree in Business management. Graduated Vytautas Magnus University in 2000 and gained his Master's degree in banking and finance.

Continued of the next page

2017 ANNUAL REPORT | 107

	The beginning of the information is on the previuos page
	Since 2015 – INVL Asset Management, UAB, Head of Finance unit
	Since 2014 works at Invalda INVL, AB group
Work experience	2012 – 2014 Independent financial expert
	2007 – 2011 CFO in Sanitas Group
	2001 – 2007 Sampo Bank. Head of Accounting and Reporting unit, later – CFO of the bank
Owned amount of shares	-
in INVL Baltic Real
Estate
	INVL Technology, CEF – Member of the Investment Committee
	IPAS INVL Asset Management (Latvia) – Member of the Supervisory Board (till 05.03.2018)
	AS INVL atklātais pensiju fonds (Latvija) – Member of the Supervisory Board (till 05.03.2018)
Participation in other	Andmevara AS - The Chairman of the Supervisory Board
companies	Inservis, UAB – The Chairman of the Board
	Imoniu grupe Inservis, UAB – The Chairman of the Board
	Jurita, UAB - The Chairman of the Board
	Etronika, UAB - Member of the Board

Vytautas Plunksnis – Member of the Board of Management company
Educational background and qualifications	Graduated the studies in economics at Kaunas University of Technology in 2001, gained
	Bachelor's degree in Management.
	Financial broker's licence (General) No. G091.
	Since 2016 - INVL Asset Management, UAB, Head of Private Equity Funds
	2009 – 2015 Fund Manager at Invalda INVL, AB
Work experience	2006 – 2009 Finasta Asset Management, UAB – analyst, fund manager, strategic analyst
	2004 ELTA redactor (business news)
	2002 – 2004 Baltic News Service business journalist
	Personally: 1,000 units* of shares; 0.01% of authorised capital and votes.
Owned amount of shares in	* The amount of shares is presented after the change in the nominal value of company's
INVL Baltic Real Estate	shares, changing the nominal value per share from EUR 0.29 to EUR 1.45. The change
	was completed on 24 January 2018.
	INVL Technology, CEF – Member of the Investment Committee
	IPAS INVL Asset Management (Latvia) – Deputy Chairman of the Supervisory Board
	(till 05.03.2018)
	AS INVL atklātais pensiju fonds (Latvia) – Deputy Chairman of the Supervisory Board
Participation in other	(till 05.03.2018)
companies	Norway Registers Development AS – Member of the Board
	NRD, UAB – Member of the Board
	NRD CS, UAB - Member of the Board
	Algoritmu sistemos, UAB - Chairman of the Board
	Vernitas, AB – Member of the Supervisory Board
	Investuotoju Asociacija – Chairman of the Board

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The beginning of the information is on the previuos page

2017 ANNUAL REPORT | 108

	October 2017)
Educational background and qualifications	Vilnius Gediminas Technical University, Master's degree in Management and Business Administration
	2016-2017 Danske Bank A/S Lithuanian branch – Operational manager, Head of Global Function
Work experience	2012-2016 Baltpool UAB – general manager, member of the Board
	2010-2012 Finasta bank AB – Director of the Capital market department
	2005-2012 held various positions in Finasta FMĮ AB, Finasta bank AB, Finasta investiciju valdymas (currently INVL Asset Management)
Owned amount of shares in INVL Baltic Real Estate	-
Participation in other companies	FMI Finasta, UAB – Member of the Board

Vytautas Bakšinskas – Member of the Investment Committee, Real estate fund manager

Laura Križinauskienė – General Manager of the Management company (since 2nd

	Since 2 January 2017 – Real Estate Fund Manager at INVL Asset Management 2016 – 31.12.2016 – director at Dizaino institutas, UAB 2016 – 31.12.2016 – director at Variagis, UAB
	2014 – 31.12.2016 – director at Riešės investicija, UAB
	2013 – 31.12.2016 – director at Tripolio valda, UAB
	2013 – 31.12.2016 – director at Paralelių valda, UAB
	2013 – 31.12.2016 – director at Dipolio valda, UAB
	2013 – 31.12.2016 – director at Etanija, UAB
Work experience	2012 – 31.12.2016 – director at Justiniškių valda, UAB
	2011 – 31.12.2016- – head of Lease department at Inreal valdymas, UAB
	2015-06 – 2016-01 – director at Elniakampio namai, UAB
	2014-03 – 2016-06 – director at Akvilas, UAB
	2014-03 – 2015-07 – director at Aikstentis, UAB
	2014-03 – 2015-07 – director at Trakų kelias, UAB
	2013-01 – 2013-02 – project manager at Naujoji švara, UAB
	2010-04 – 2013-02 – project manager at Sago, UAB
	2008-11 – 2011-08 – project manager at Inreal valdymas, UAB
	2007-01 – 2008-10 – assistant of project manager at Inreal valdymas, UAB

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2017 ANNUAL REPORT | 109

Owned amount of shares in INVL Baltic Real Estate	-
Participation in other companies	Proprietas, UAB - Director (since 2nd January 2018)
	Andrius Daukšas – Member of the Investment Committee, Investment manager
Educational background and qualifications	Master's degree in banking at the Faculty of Economics of Vilnius University. Financial broker's license (general) No. G311.
Work experience	Since 22 December 2016 – Investment Manager at INVL Asset Management 3 January 2016 – 21 December 2016 – deputy director at INVL Baltic Real Estate December 2014 - January 2016 – director at INVL Baltic Real Estate March 2010 – 21 December 2016 - investment manager at Invalda INVL 2008-2010 - director of the Treasury Department of the bank Finasta 2004-2008 - an accountant, later - the department manager of securities accounting at FBC Finasta
Owned amount of shares in INVL Baltic Real Estate	Personally: 5,000 units of shares, 0.04% of authorised capital and votes. The amount of shares is presented after the change in the nominal value of company's shares, changing the nominal value per share from EUR 0.29 to EUR 1.45. The change was completed on 24 January 2018.
Participation in other companies	Proprietas, UAB - Director (untill 31th December 2017) Imoniu Grupe Inservis, UAB - Member of the Board, director Jurita, UAB - Member of the Board Kelio Zenklai, UAB - Chairman of the Board Informacinio verslo paslaugu imone, AB - Member of the Board

13 Information about the Audit Committee of the company

The Audit Committee consists of 2 (two) independent members. The members of the Audit Committee are elected by the decision of the General Shareholders' Meeting. The members of the Audit Committee are proposed by the Management company and the shareholders of the company. The Audit Committee is elected for a four-year term of office.

The main functions of the Adit Committee are the following:

• provide recommendations to the Management company with selection, appointment, reappointment and removal of an external audit company of the Company as well as the terms and conditions of engagement with the audit company;
• monitor the process of external audit of the Company;
• monitor how the external auditor and audit company follow the principles of independence and objectivity;
• observe the process of preparation of financial reports of the Company;
• monitor the efficiency of the internal control and risk management systems of the Management company directly related to the management of the Company. Once a year review the need of the dedicated internal audit function for the Company within the Management company;

• monitor if the Management company gives due consideration to the recommendations or comments provided by the audit company regarding management of the Company;

2017 ANNUAL REPORT | 110

• The Audit Committee reports its activities to the Company's ordinary General Shareholders Meeting by submitting a written report on Audit Committee activities during the last financial year.

Any member of the Audit Committee should have the right to resign upon submitting a 14 (fourteen) days written notice to the Management company. When the Management company receives the notice of resignation of a member of the Audit Committee and considers all circumstances related to the resignation, it may decide - either to convene an Extraordinary General Shareholders Meeting to elect new member of the Audit Committee, or to postpone the question on the election of the new member of the Audit Committee till the next General Shareholders Meeting of the Company. The new member is elected till the end of term of office of the operating Audit Committee.

13.1. PROCEDURE OF WORK OF THE AUDIT COMMITTEE

The Audit Committee informs about its activities to the Company's ordinary General Shareholders Meeting by submitting a written report.

The Audit Committee is a collegial body, taking decisions during meetings. The Audit Committee may take decisions and its meeting should be considered valid, when both members of the Committee participate in it. The decision should be passed when both members of the Audit Committee vote for it. The member of the Audit Committee may express his will – for or against the decision in question, with the draft of which he is familiar with – by voting in advance in writing. Voting in writing should be considered equal to voting by telecommunication end devices, provided text protection is ensured and it is possible to identify the signature.

The right of initiative of convoking the meetings of the Audit Committee is held by both members of the Audit Committee. The other member of the Audit Committee should be informed about the convoked meeting, questions that will be discussed there and the suggested drafts of decisions not later than 3 (three) business days in advance in writing (by e-mail or fax). The meetings of the Audit Committee should not be formed as a written protocol, if the taken decisions are signed by both members of the Committee. When both Audit Committee members vote in writing, the decision should be written down and signed by the secretary of the Audit Committee who should be appointed by the Management company. The decision should be written down and signed within 7 (seven) days from the day of the meeting of the Audit Committee.

The Audit Committee should have the right to invite the head of the Management company, member(s) of the Board, the chief financier, employees responsible for finance, accounting and treasury issues of the managed Company as well as external auditors of the Company to its meetings. Members of the Audit Committee may receive remuneration for their work in the committee. The remuneration for the Audit Committee members is approved by the General Shareholders Meeting fixing the maximum hourly rate.

The Company's Audit Committee is guided by the Regulations of the Audit Committee (hereinafter referred to as the Regulations) approved by the General Shareholders Meeting of the Company held on 11 April 2017. The Regulations are published on the Company's website in the section For investors.

13.2. MEMBERS OF THE AUDIT COMPANY

The General Shareholders Meeting held on 10 November 2016 elected Danutė Kadanaitė, the lawyer at Legisperitus, UAB and Tomas Bubinas (independent member), Chief Operating Officer at Biotechpharma, UAB to the Audit Committee of INVL Baltic Real Estate.

Audit Committee members D. Kadanaitė and T.Bubinas was withdrawed from the Companys Audit Committee by the decision of the General Shareholders Meeting held on 11 April 2017. During the same General Shareholders Meeting, the decision to elect Dangutė Pranckėnienė, partner and auditor of Moore Stephens Vilnius, UAB and T. Bubinas were elected for the Audit Committee for the 4 (four) years of office term. Both members of the Audit Committee are independent, having submitted an notice certifying their independence.

	Tomas Bubinas – Independent Member of the Audit Committee
The term of office	Since 2017 till 2021 (withdrawn and reelected by the decision of the General Shareholders Meeting held on 11 April 2017)
Educational background and qualifications	2004 - 2005 Baltic Management Institute (BMI), Executive MBA 1997 - 2000 Association of Chartered Certified Accountants. ACCA. Fellow Member 1997 Lithuanian Sworn Registered Auditor 1988 - 1993 Vilnius University, Msc. in Economics
Work experience	Since 2013 Chief Operating Officer at Biotechpharma, UAB 2010 - 2012 Senior Director, Operations. TEVA Biopharmaceuticals (USA) 2004 - 2010 CFO for Baltic countries, Teva Pharmaceuticals 2001 - 2004 m. CFO, Sicor Biotech 1999 - 2001 Senior Manager, PricewaterhouseCoopers 1994 - 1999 Senior Auditor, Manager, Coopers & Lybrand.
Owned amount of shares in	-
INVL Baltic Real Estate

Dangutė Pranckėnienė – Independent Member of the Audit Committee The term of office Since 2017 till 2021 (elected by the decision of the General Shareholders Meeting held on 11 April 2017) Educational background and qualifications 1995 - 1996 Vilnius Gediminas Technical University, Master of Business Administration. 1976 - 1981 Vilnius University, Master of Economics. The International Coach Union (ICU), professional coucher name, license No. E-51. Lithuanian Ministry of Finance, the auditor's name, license No. 000345. Work experience since 1997 the Partner at Moore Stephens Vilnius, UAB 1996 - 1997 Audit Manager, Deloitte & Touche 1995 - 1996 Lecturer, Vilnius Gediminas Technical University 1982 - 1983 Lecturer, Vilnius University Owned amount of shares in INVL Baltic Real Estate -

14 Information on the Issuer's payable management fee, the amounts calculated by the Issuer, other assets transferred and guarantees granted to the Managing bodies and company providing accounting services

After the Bank of Lithuania issued the closed-ended type investment company operating license for INVL Baltic Real Estate on 22 December 2016, the rights and duties of the Board and the head of the Company are implemented by the Management company INVL Asset Management.

The management fee payable to the Management Company (hereinafter – Management Fee) is the remuneration for management of the assets of the Company, which shall be payable for each quarter of a calendar year. By the decision of the Gereral Shareholders' Meeting of the Company, the Management Fee was reduced from 1.5% to 1.0%, the Management Fee for a full quarter of a calendar year shall be no more than 0.375% of the weighted average capitalisation of the Company. The Performance Fee shall be additionally paid to the Management Company under the procedure set in the Articles of Association. During the reporting period the Management fee payable to the Management Company was EUR 296 thousand and EUR 386 thousand success fee payable.

The members of the Board and the members of the Investment Committee of the Management Company do not receive remuneration for these duties. They are paid the salary according to the employment contract with the Management Company.

During the reporting period company's managing bodies, which are mentioned in the section 11 of the report, were paid EUR 306 of dividends, net of tax. There were no assets transferred, no guarantees granted, no bonuses paid and no special payouts made by the company to its managing bodies. The managing bodies were not granted with bonuses by other companies of INVL Baltic Real Estate group.

During the reporting period INVL Baltic Real Estate Group and the Company for the company providing accounting services respectively paid EUR 12 thousand and EUR 10 thousand during the reporting period (in 2016 – respectively paid EUR 12 thousand and EUR 10 thousand, in 2015 – respectively paid EUR 13 thousand and EUR 9 thousand; in 2014 – respectively paid EUR 9 thousand and EUR 7 thousand).

Invalda INVL, AB provides accounting services and preparation of the documents related with bookkeeping for INVL Baltic Real Estate according to an agreement signed on 1 July 2013 No. 20130701/20 (wording as of January 2017).

V. OTHER INFORMATION

15 Agreements with intermediaries on public trading in securities

INVL Baltic Real Estate has signed these agreements with the following intermediary:

• AB Siauliu bankas (Seimyniskiu str. 1A, Vilnius, Lithuania. tel. +370 5 203 2233) the agreement on management of securities accounting, the market maker services agreement and service agreement on the payment of dividends.
• AB SEB bankas (Gedimino pr. 12, Vilnius, Lithuania tel. +370 5 268 2800) agreement on depository services.

16 Information on Issuer's branches and representative offices

INVL Baltic Real Estate has no branches or representative offices.

17 A description of the principal risks and uncertainties

Information, provided in this document, should not be considered complete and covering all aspects of the risk factors associated with public company's INVL Baltic Real Estate activity and securities. There are only basic risks and their descriptions provided in this report. Detailed descriptions of the risks are published on the Company's website.

17.1. GENERAL RISK FACTORS IN THE BUSINESS FIELD WHERE THE GROUP OPERATES

Risk factor, related to the change of the legal status of the Company

After the issuance of the Licence by the LB on 22 December 2016, the Company started to operate not only according to the Law on Companies and Law on Securities and other related legal acts, as it was until obtaining a Licence, but also under the Law on Collective Investment Undertakings and other related legal acts, which establish certain specific obligations in respect of the protection of Company's shareholders and certain operating restrictions, e.g. the Company is entitled to invest the managed funds following the requirements of the investment strategy of the Company, certain limitations of the applicable laws are applied to the Company with regards its investments, their diversification, management thereof, etc. Furthermore, the Company's operating expenses might be increased because of the requirements to conduct periodic property's assessment, protect the Company's property in the Depository and other.

It should also be noted that investments into Shares of the Company (holding a Licence) are related to higher than average, long-term risk. The Company cannot guarantee that the shareholders will get invested funds back. Therefore, Shares of the Company are suitable only for investors, who seek higher long term returns but could afford to take higher than average risk, including loss of principal.

General risk

The value of an investment into real estate can fluctuate in the short term depending on the general economic situation, real estate lease and sale prices, demand and supply fluctuations. Investments into real estate should be made for a medium or long period in order that the investor could avoid the risk of short-term price fluctuations. Investments into real estate are related to higher than average risk. If investments are not profitable or in case of other unfavourable circumstances (inability to pay creditors in time), bankruptcy proceedings can be instituted against the Company. Redemption of the Shares is limited, i.e. a shareholder cannot demand that the Company or the Management Company, which took over its management, would redeem the Shares. But a shareholder will have a possibility to sell Shares in the secondary market.

Real estate development risk

Real estate projects developed by the Company can take longer than planned or cost more than planned and return on investments of the Company may decrease for this reason. Managing this risk, the Company will assign sufficient resources for control over the budgets and performance terms of real estate development projects.

Risk of inflation and deflation

There is a risk that in case of inflation the value of a Share will grow slower than the inflation, which would result in the return lower than inflation. In such a case, the real return earned by persons who sold the Shares of the Company in the market from increase in the value of the Shares can be smaller than expected. In case of deflation, there would be a risk that the value of the Company's investments will decrease by reason of the drop of the general price level.

Macroeconomic environment

Real estate development tends to follow the general developments in the macroeconomic environment. Interest rates, unemployment, inflation, private consumption, capital expenditure and other macroeconomic indicators have significant influence on real estate developments and hence the operations and the potential profitability of the Group.

Favourable developments in the macroeconomic environment increase demand for real properties, allow the real estate companies to increase rent rates of properties and other prices related to activities of the Group. Adverse developments increase pressure on real estate prices, rent rates and yields. Hence the Group's results are dependent on general macroeconomic environment and adverse developments in the environment might lead to reconsideration of some of the Group's development plans, negative pressure on prices and rents of the Group's properties or other changes in relation to the Group's properties that might have a material adverse effect on the Group's business, results of operations, financial condition and profitability.

Cyclicality of the real estate sector

Real estate development is a cyclical sector. The number of real estate related transactions fluctuates significantly depending on the stage of the real estate cycle. In the Baltic countries has been relatively high lately as a fast growth in prices fuelled by availability of cheap financing was followed by a steep decline as a result of financial crisis. In the future the Baltic real estate market might regain the lost momentum, again inflating the price levels, which might be followed by overheating of the market and downward pressure on the prices, thus, starting the next real estate cycle.

17.2. RISK FACTORS CHARACTERISTIC OF THE GROUP

Risk of the management and human resources

The success of the Company's investments will largely depend on decisions taken by persons in the Management Company who are responsible for management of the Company and on experience and capabilities of the said persons. There is no guarantee that the same persons will always remain responsible for management of the Company, however efforts will be used that activities of the Company would always be taken care of by properly qualified persons.

Dependence on external financing

The Group's cash inflows currently are sufficient to finance operating cash outflows and to pay monthly instalments of repayments and interests payments of bank borrowings. However, further development of the Group's activities will require substantial amounts of capital to fund capital expenditures. For this reason, failure to secure adequate levels of external financing might limit the Group's growth plans and place it at competitive disadvantage as compared to well-capitalized peers. Failure to obtain external financing may lead to forced sale of assets at unfavourable prices or even cause insolvency which may have a material adverse effect on the Group's business, results of operation or financial condition and may destroy the shareholders' value.

Risk related to lease agreements

The Group's lease agreements may be divided into two categories: non-cancellable fixed-term lease agreements and cancellable lease agreements entered into for an unspecified term. For the cancellable lease and sublease agreements, tenants must notify the administrator 1-12 months in advance, if they wish to cancel the rent agreement and have to pay 1-6 months' rent fee penalty for the cancellation. According to non-cancellable lease and sublease agreements tenants must pay the penalty equal to rentals receivable during the whole remaining lease period.

The Group seeks to use both types of agreements, depending on the market situation and the properties in question. Lease agreements entered into for an unspecified term involve nevertheless a risk that a large number of such agreements may be terminated within a short period of time. The Group aims at renewing the fixed term lease agreements flexibly in cooperation with its tenants. There are, however, no guarantees that the Group will be successful in this. In order to prevent tenants from terminating the lease agreements, the Group may also be forced to agree on the reduction of rent fees. The reduction of rent fees payable to the Group under a large number of lease agreements and/or concurrent termination of a large number of lease agreements could have a material adverse effect on the Group's business, results of operations and financial condition.

Reliance on the administrator of the Company's property

On 2 January 2013 the Company has entered into an agreement with a third party for property management and administration services on part of Company's asset portfolio. An agreement was terminated on 1 January 2018, after the Company's subsidiary Proprietas, UAB and the Company signed a property management and administration agreement. The detailed list of buildings, administered, based on this agreement is provided in Section 2.3. of the Company's consolidated annual report "Investment restrictions". Under this agreement the third party, as an administrator of the property, is committed to increase Company's value and maintain high quality of service for buildings' tenants and employees. In case of change in administrative prices in the market, new contracts under less favourable conditions can be entered into with administrator, which may directly influence the increase in Company's costs.

Interest rate risk

There is a risk that in case of fast recovery of the global economy or increase in inflation, central banks will increase interest rates and it will be more expensive to service loans in connection with the Company's investments, therefore, the value of the Company's investments can decrease. In order to avoid this risk, the Management Company shall seek that the Company would get most of its loans at fixed interest rates. If it seems necessary, the Company shall hedge against interest rate risk when entering into relevant transactions.

Furthermore, interest rate risk mainly includes loans with a variable interest rate. On 26 August 2014 the Company and Šiaulių Bankas AB entered into a credit agreement for EUR 15.35 million credit (on 29 January 2016 a credit was increased by EUR 4.5 million) with variable interest rate – 6 month EURIBOR and fixed margin. In addition to that, on 15 July 2015 the Subsidiary Dommo Biznesa Parks SIA and ABLV Bank AS entered into a credit agreement in an amount of 3 million with variable interest rate – 3 month EURIBOR and fixed margin. Rising interest rates will increase the Group's debt service costs, which will reduce the return on investment. If considered necessary, the Group will manage interest rate risk by entering into financial derivatives' contracts.

Leverage risk

Leverage risk is related to possible depreciation of real estate objects acquired with borrowed money. The bigger the leverage, the higher probability of this risk is. The level of borrowings of the Group was 38.5% of its investment property market value as of 31 December 2017 (41% as of 31 December 2016).

Credit risk

The Company has given and may have given loans to other companies, therefore, in case of deterioration of the financial condition of those companies, there is a risk that the Company will not get back all the loans granted by it.

Liquidity risk

This is a risk to incur losses due to low liquidity of the market, when it becomes difficult to sell assets at the desired time at the desired price. In management of this risk, the Company will regularly monitor the real estate market, will get ready for the property sale process in advance, in this way reducing the liquidity risk. Acquiring Shares, the shareholders also assume the risk of securities liquidity – in case of a drop in demand for Shares or delisting them from the stock exchange, investors would find it difficult to sell them. In case of deterioration of the Company's financial situation, the demand for Shares, as well as their price may decrease. Liquidity risk also covers the cash flow disruption risk incurred by the Company due to late payments and/or full default on monetary obligations by insolvent tenants.

Total investment risk

The value of the investment in real estate can vary in the short term, depending on the general economic conditions, rent and purchase prices of real estate, demand and supply fluctuations, etc. Investment in real estate should be carried out in the medium and long term, so that the investor could avoid short-term price fluctuations. Investing in real estate is related to higher than medium risks. Failure of investments of the Group or under other ill-affected circumstances (having been unable to pay for the creditors) can have a significant adverse effect on the Group's performance and financial situation or in the worst case scenario bankruptcy proceedings may be initiated.

Investment diversification risk

This is a risk that one bad investment can have a significant effect on the results of the Company. In order to reduce this risk, the Company will have a sufficient number of different real estate objects in its portfolio, in this way maintaining the proper diversification level.

Tenants' risk

The Company will seek to let real estate objects at as high prices as possible. Though currently the rent is paid in time (overdue obligations of tenants are very small and are not significant for activities of the Company), there is a risk that upon change (deterioration) of the economic situation the tenants will default on their obligations – this would have a negative impact on the profit and cash flows of the Company. In case of late performance of a large part of obligations, the ordinary business of the Company may be disrupted, it may be necessary to search for additional sources of financing, which may be not always available. The Company, in case of failure to earn planned income from lease or to maintain a high percentage of occupation of the buildings, can face the problem of costs that are not compensated by permanent tenants. This risk may manifest itself in case of big increase in the supply of rented premises and reduction in demand, drop in rental fees. In case of a failure to let the premises at planned prices or in planned scopes, also in case current tenants terminate their lease agreements, the income of the Company could decrease, whereas fixed costs would remain the same. Accordingly, the profit of the Company would decrease.

Risk of valuation of the Company's assets

The assets of the Company will be evaluated according to the main rules set in the Articles of Association and the Accounting Policy of the Management Company. Valuation of individual assets held by the Company shall be performed by two property appraisers, however such valuation of assets shall be only determining the value of the assets, which does not automatically mean the exact sale price of an investment held by the Company, which depends on many circumstances, for example, economic and other conditions, which cannot be controlled. Thus, the sale price of investments held by the Company can be higher or lower than the value of assets determined by a property appraiser.

Competition risk

The Company, investing into investment objects, will compete with other investors, including, without limitation, with other investment companies or real estate investment funds. Thus, there is a risk that competition with other investors will demand that the Company would conduct transactions at less favourable conditions than it would be possible in other cases.

17.3. RISK FACTORS RELATED TO THE COMPANY'S SHARES (INVESTMENTS THERETO)

Market risk

Acquisition of Shares entails the risk to incur losses due to unfavourable changes in the Share price in the market. A drop in the price of the Shares can be caused by negative changes in the value of assets and profitability of the Company, general share market trends in the region and in the world. Trade in Shares can depend on comments of financial brokers and analysts and announced independent analyses about the Company and its activities. If the analysts give an adverse opinion about prospects of the Shares, this can also have a negative effect on the price of Shares in the market. In assessing Shares, nonprofessional investors are advised to address intermediaries of public trading or other specialists in this field for help.

Dividend payment risk

Though the Company has approved its dividend payment policy, payment of dividend to Shareholders is not guaranteed and will depend on profitability of activities, investments plans and the general financial situation. For more information regarding payment of dividend by the Company please see Section 4.14.3 Dividend Policy as well as Part X of the Articles of Association, which is incorporated by reference to this Prospectus.

Liquidity of the Issuer's Shares is not guaranteed

It may be possible that in case an investor wants to urgently sell the Issuer's securities (especially a large number of them), demand for them on the exchange will not be sufficient. Therefore, sale of shares can take some more time or the investor may be forced to sell shares at a lower price. Analogous consequences could appear after the exclusion of the Company's Shares from the Secondary List of Nasdaq. Besides, in case of deterioration of the Company's financial situation, demand for the Shares of the Company and, at the same time, their price may decrease.

17.4. INFORMATION ABOUT THE EXTENT OF RISK AND ITS MANAGEMENT IN THE COMPANY

Information on the extent of risks and management of them is disclosed in the section 3 of explanatory notes of consolidated and company's financial statements in 2017.

17.5. THE MAIN INDICATIONS ABOUT INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS RELATED TO THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

The Audit Committee supervises preparation of the consolidated financial statements. systems of internal control and financial risk management and how the company follows legal acts that regulate preparation of consolidated financial statements.

The Management company of INVL Baltic Real Estate is responsible for the supervision and final review of the consolidated financial statements. To order to manage these functions properly, the Management company is using an external provider of relevant services. Management company, together with the accounting service provider constantly reviews International Financial Reporting Standards (IFRS) in order to implement in time IFRS changes, analyses company's and group's significant deals, ensures collecting information from the group's companies and timely and fair preparation of this information for the financial statements, periodically informs the Board of the Management company about the preparation process of financial statements.

18 Issuer's and its group companies' non – financial results. Information related to social responsibility. environment and employees

18.1. RESPONSIBLE BUSINESS ACTIONS IN THE COMPANY

The management of the Company is transferred to the asset management company INVL Asset Management, which applies the Policy of Equal Opportunities in its activities. The Policy specifies that the Company organizes its activities in a way that employees, despite of their duties and the need to upgrade their qualifications, are secure about equal working conditions, opportunities to develop competence, etc. Equally, the same benefits are granted regardless of the gender, race, nationality, language, origin, social status, believes or convictions, age, sexual orientation, disability, ethnicity, religion, marital status, intention of having children's or membership of the political party or association.

INVL Asset Management has joined the UN-supported Principles for Responsible Investment (PRI) in the middle of 2017.

The PRI, founded in 2006, is a global network of over 1700 investors, aims to assess the investment implications of environmental, social and governance (ESG) factors. An economically efficient, sustainable global financial system is considered a necessity for long-term value creation. Investors who support the PRI voluntarily work to apply the principles in their investment activities.

Six specific responsible investment Principles are outlined by the PRI. They provide a menu of possible actions for incorporating ESG issues into investment practice – from investment analysis and decision-making to their incorporation into ownership policies and practices. Additionally, signatories to the Principles are encouraged to promote the Principles' acceptance in the investment industry and to work together for their effective implementation.

18.2. EMPLOYEES

At the end of 2017, as well as in 2016 INVL Baltic Real Estate did not have any empoyees. Two (2) employees had been working at INVL Baltic Real Estate at the end of 2015.

The number of employees has changed because of the changes of the legal status of the Company. The management and all the functions earlier performed by the Company's employees were transferred to the Management Company.

There were 6 employees working at INVL Baltic Real Estate and portfolio companies on 31 December 2017, 4 employees – in 2016 and 2015.

19 Information about agreements of the Company and its managing bodies, members of the formed committees, or the employees' agreements providing for compensation in case of the resignation or in case they are dismissed without a due reason or their employment is terminated in view of the change of the control of the Company.

There are no agreements of the company and the Members of the Board, Members of the Investment Committee or the employees' agreements providing for compensation in case of the resignation or in case they are dismissed without a due reason or their employment is terminated in view of the change of the control of the company.

20 Significant investments made during the reporting period

2017 the main investments of the Company were targeted at the reconstruction of Business Center Vilnius Gates and the adaptation of the need of the tenants of the Company. In 2017 EUR 2,339 thousand was invested.

21 Information about significant agreements to which the issuer is a party, which would come into force, be amended or cease to be valid if there was a change in issuer's controlling shareholder

There are no significant agreements of the company which would come into force, be amended or cease to be valid if there was a change in issuer's controlling shareholder.

22 Information on the related parties' transactions

Information on the related parties' transactions is disclosed in consolidated annual financial statements' 20 note of explanatory notes for the year of 2017.

23 Information on harmful transactions in which the issuer is a party

There were no harmful transactions (those that are not in line with issuer's goals, not under usual market terms, harmful to the shareholders' or stakeholders' interests, etc.) made in the name of the issuer that had or potentially could have negative effects in the future on the issuer's activities or business results. There were also no transactions where a conflict of interest was present between the managing bodies of the Management company, members of the Investment Committee, controlling shareholders' or other related parties' obligations to the issuer and their private interests.

24 References to and additional explanations of the data presented in the annual financial statements and consolidated financial statements

All data is presented in consolidated and company's financial statements' of explanatory notes for the year of 2017.

25 Information on Audit Company

The company have not approved criteria for selection of the audit company. The audit of the annual financial statements of the company for the financial year of 2016 was provided by the audit company PricewaterhouseCoopers. During the General Shareholders' Meeting of the company, held on 10 August 2015, the audit company PricewaterhouseCoopers, UAB was elected to provide audit services on annual financial statements of the company for the financial year of 2015, 2016, 2017. It was decided to set remuneration of EUR 10,500 plus VAT for the audit of the annual financial statements.

Audit Company	PricewaterhouseCoopers, UAB
Address of the registered office	J. Jasinskio str. 16B, LT-03163, Vilnius
Code	111473315
Telephone	(+370 5) 239 2300
Fax	(+370 5) 239 2301
E-mail	vilnius@lt.pwc.com
Website	www.pwc.com/lt

No internal audit is performed in the company.

Table 25.1. All the services granted to INVL Baltic Real Estate and the its group by the auditor PricewaterhouseCoopers, UAB

EUR thousand	Group 2017	Company 2017
Financial statement audit services under contracts	10,500	10,500
Costs of collateral and other related services	9,000	9,000
Tax advice	-	-
Other services	-	-
In total	19,500	19,500

26 Data on the publicly disclosed information

The information publicly disclosed by INVL Baltic Real Estate during 2017 is presented on the company's website www.invlbalticrealestate.com.

Table 26.1. Summary of publicly disclosed information

Date of disclosure	Brief description of disclosed information
03.02.2017	Notification on transactions on the issuer's securities
10.02.2017	Egidijus Damulis withdraws from INVL Baltic Real Estate investment committee
20.03.2017	Audited results of INVL Baltic Real Estate group of 2016
20.03.2017	Convocation of the Shareholders Meeting of INVL Baltic Real Estate and draft resolutions
20.03.2017	Announcement of net asset value of INVL Baltic Real Estate
24.03.2017	Notification on transactions on the issuer's securities
24.03.2017	Supplemented agenda of the Shareholders Meeting of INVL Baltic Real Estate that is to be held on 11 April 2017
29.03.2017	Notification on transactions on the issuer's securities
11.04.2017	Resolutions of the General Shareholders meeting of INVL Baltic Real Estate
11.04.2017	Annual information of INVL Baltic Real Estate for 2016
28.04.2017	INVL Baltic Real Estate unaudited results and factsheet for 3 months of 2017
28.04.2017	Announcement of the net asset value of INVL Baltic Real Estate
03.05.2017	INVL Baltic Real Estate has signed the Amendment of the Services Agreement
08.05.2017	Notification on transactions on the issuer's securities
11.05.2017	Notification on transactions on the issuer's securities
11.05.2017	Procedure for the payout of dividends for the year 2016
19.05.2017	Notification on transactions on the issuer's securities
23.05.2017	Notification on transactions on the issuer's securities
14.06.2017	Presentation of INVL Baltic Real Estate at the meeting with investors CEO Meets Investors
19.06.2017	Notification on transactions on the issuer's securities
27.07.2017	INVL Baltic Real Estate has signed an agreement on sale of Kirtimų Street property
16.08.2017	INVL Baltic Real Estate Interim information for 6 months of 2017
16.08.2017	Announcement of initial net asset value of INVL Baltic Real Estate
30.10.2017	Unaudited results and factsheet of INVL Baltic Real Estate for 9 months of 2017

Date of disclosure	Brief description of disclosed information
30.10.2017	Announcement of initial net asset value of INVL Baltic Real Estate
07.12.2017	Convocation of an Extraordinary General Shareholders Meeting of INVL Baltic Real Estate and publication of draft resolutions
21.12.2017	Invalda INVL intends to transfer part of shares in INVL Baltic Real Estate
21.12.2017	Regarding forecast of INVL Baltic Real Estate for 2017 and 2018
21.12.2017	Presentation of INVL Baltic Real Estate
28.12.2017	INVL Baltic Real Estate investor's calendar for 2018
29.12.2017	Resolutions of the Extraordinary General Shareholders meeting of INVL Baltic Real Estate

2017 ANNUAL REPORT | 120

Table 26.2. Summary of the notifications on transactions in INVL Baltic Real Estate shares concluded by managers of the Company during 2017.

Date	Person	Number of securities	Security price* (EUR)	Total Value of transaction (EUR)	Form of transaction	Type of transaction	Place of transaction	Form of settlement
02-02-2017	Invalda INVL, AB	1,393	0.378	526.55	acquisition	Share sale purchase	AUTO	money
22-03-2017	Invalda INVL, AB	2,532	0.395	1,000.14	acquisition	Share sale purchase	AUTO	money
23-03-2017	Invalda INVL, AB	1,345	0.392	527.24	acquisition	Share sale purchase	AUTO	money
23-03-2017	Invalda INVL, AB	1,187	0.386	458.18	acquisition	Share sale purchase	AUTO	money
24-03-2017	Invalda INVL, AB	1,196	0.392	468.83	acquisition	Share sale purchase	AUTO	money
24-03-2017	Invalda INVL, AB	1,355	0.391	529.81	acquisition	Share sale purchase	AUTO	money
27-03-2017	Invalda INVL, AB	2,863	0.392	1,122.3	acquisition	Share sale purchase	AUTO	money
04-05-2017	Invalda INVL, AB	802	0.420	336.84	acquisition	Share sale purchase	AUTO	money
04-05-2017	Invalda INVL, AB	2,381	0.420	1,000.02	acquisition	Share sale purchase	AUTO	money
04-05-2017	Invalda INVL, AB	160	0.420	67.2	acquisition	Share sale purchase	AUTO	money
04-05-2017	Invalda INVL, AB	119	0.420	49.98	acquisition	Share sale purchase	AUTO	money
08-05-2017	Invalda INVL, AB	4,021	0.414	1,664.69	acquisition	Share sale purchase	AUTO	money
09-05-2017	Invalda INVL, AB	4,072	0.409	1,665.45	acquisition	Share sale purchase	AUTO	money
10-05-2017	Invalda INVL, AB	1,763	0.413	728.12	acquisition	Share sale purchase	AUTO	money
10-05-2017	Invalda INVL, AB	771	0.413	318.42	acquisition	Share sale purchase	AUTO	money
16-05-2017	Invalda INVL, AB	2502	0.419	1,048.34	acquisition	Share sale purchase	AUTO	money
17-05-2017	Invalda INVL, AB	977	0.419	409.36	acquisition	Share sale purchase	AUTO	money
17-05-2017	Invalda INVL, AB	1,264	0.419	529.62	acquisition	Share sale purchase	AUTO	money
17-05-2017	Invalda INVL, AB	411	0.419	172.21	acquisition	Share sale purchase	AUTO	money

Date	Person	Number of securities	Security price* (EUR)	Total Value 0f transaction (EUR)	Form of transaction	Type of transaction	Place of transaction	Form of settlement
18-05-2017	Invalda INVL, AB	505	0.418	211.09	acquisition	Share sale- purchase	AUTO	money
18-05-2017	Invalda INVL, AB	497	0.418	207.75	acquisition	Share sale- purchase	AUTO	money
18-05-2017	Invalda INVL, AB	1.656	0.417	690.55	acquisition	Share sale- purchase	AUTO	money
19-05-2017	Invalda INVL, AB	1,000	0.418	418.00	acquisition	Share sale- purchase	AUTO	money
23-05-2017	Invalda INVL, AB	761	0.419	318.86	acquisition	Share sale- purchase	AUTO	money
23-05-2017	Invalda INVL, AB	1,626	0.419	681.29	acquisition	Share sale- purchase	AUTO	money
14-06-2017	Invalda INVL, AB	104	0.419	43.58	acquisition	Share sale- purchase	AUTO	money
15-06-2017	Invalda INVL, AB	1,282	0.419	537.16	acquisition	Share sale- purchase	AUTO	money

APPENDIX 1. INFORMATION ABOUT GROUP COMPANIES, THEIR CONTACT DETAILS

2017 ANNUAL REPORT | 122

Company	Registration information	Type of activity	Contact details
Rovelija, UAB	Code 302575846 Address – Gynėjų str. 14, Vilnius Legal form – private limited liability company Registration date 20.12.2010	investments into commercial rental real estate	Tel. +370 5 2790601 breinfo@invl.com
Perspektyvi Veikla, UAB	Code 302607087 Address – Gynėjų str. 14, Vilnius Legal form – private limited liability company Registration date 25.03.2011	carries no activity	Tel. +370 5 2790601 breinfo@invl.com
Proprietas, UAB	Code 303252098 Address – Gynėjų str. 14, Vilnius Legal form – private limited liability company Registration date 27.02.2014	investments into commercial rental real estate	Tel. +370 5 2790601 proprietas@invl.com
DOMMO grupa SIA	Code 40003733866 Address – Lapegles, Stūnīši, Olaines pag., Olaines nov., LV 2127 Latvia Legal form – private limited liability company Registration date 17.03.2005	investments into commercial rental real estate	Tel. +370 5 2790601 breinfo@invl.com
DOMMO biznesa parks SIA	Code 40003865398 Address – Lapegles, Stūnīši, Olaines pag., Olaines nov., LV 2127 Latvia Legal form – private limited liability company Registration date 13.10.2006	investments into commercial rental real estate	Tel. +370 5 2790601 breinfo@invl.com
DOMMO SIA	Code 40003787271 Address – Lapegles, Stūnīši, Olaines pag., Olaines nov., LV 2127 Latvia Legal form – private limited liability company Registration date 05.12.2005	Real estate	Tel. +370 5 2790601 breinfo@invl.com
DBP Invest SIA	Code 40103463830 Address – Brīvības iela 74-3, Rīga, LV-1011 Latvia Legal form – private limited liability company Registration date 28.09.2011	carries no activity

APPENDIX 2. DISCLOSURE CONCERNING THE COMPLIANCE WITH THE GOVERNANCE CODE

INVL Baltic Real Estate following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 24.5 of the Listing Rules Nasdaq Vilnius, discloses its compliance with the Governance Code, approved by Nasdaq Vilnius for the companies listed on the regulated market, and its specific provisions.

The management of INVL Baltic Real Estate was transferred to the management company INVL Asset Management on 22 December 2016 as soon as the Central Bank of the Republic of Lithuania granted special closed-ended type real estate investment company INVL Baltic Real Estate the license of closed-ended type investment company. The rights and duties of the Board and the head of the Company were also transferred to the Management company.

The Management Company is responsible for convocation and organisation of the general meeting of Shareholders of the Company, giving notices about publically not disclosed information under the procedure set by legal acts, organisation of activities of the Company, proper management of information about activities of the Company and performance of other functions assigned to the Management company.

The CEO, the Board and the Investment committee formed by a decision of the Board are acting to ensure the management of INVL Baltic Real Estate in the Management company (more about the competencies of the management bodies, formation and procedure of work is set in the IV section "Issuer's Managing Bodies" of the report).

The information concerning the compliance with the Governance code after INVL Baltic Real Estate received the license of closed-ended type investment company is provided below.

The information concerning the compliance with the Governance code before the issue of the license of closed-ended type investment company corresponds the information submitted in the Appendix 2 of the annual report for the year 2015 and is available on Company's website.

Principles/ Recommendations	Yes / No / N/A	Commentary

Principle I: Basic Provisions

The overriding objective of a Company should be to operate in common interests of all the shareholders by optimizing over time shareholder value.

1.1. A company should adopt and make public the	Yes	The Company constantly discloses information about
company's development strategy and objectives by		group's activities and objectives in notifications on
clearly declaring how the company intends to meet the		material events, annual information, also publishes
interests of its shareholders and optimize shareholder		and updates the mentioned information in Company's
value.		website.
1.2. All management bodies of a company should act	Yes	Activity of the Management Company is concentrated
in furtherance of the declared strategic objectives in		on the fulfilment of the Company's strategic objectives
view of the need to optimize shareholder value.		taking count of the shareholders' equity increase.
1.3. A company's supervisory and management	Yes	The Supervisory Board is not formed. The
bodies should act in close co-operation in order to		management of the Company is transferred to the
attain maximum benefit for the company and its		Management Company, which carries the functions of
shareholders.		the Board and the Head of the Company.
		By the decision of the Board of the Management
		Company and following the Articles of Association of
		the INVL Baltic Real Estate Investment Committee of
		the Company is formed.
		The Management company operates in order to attain
		maximum benefit for the company and its
		shareholders.
1.4. A company's supervisory and management	Yes	The Management Company respects all rights and
bodies should ensure that the rights and interests of		interests of the persons other than the Company's
persons other than the company's shareholders (e.g.		shareholders participating in or connected with the
employees, creditors, suppliers, clients, local		Company's operation.
community), participating in or connected with the
company's operation, are duly respected.
Principle II: The corporate governance framework

INVL Baltic Real Estate code 152105644, Gynėjų str. 14, Vilnius

The corporate governance framework should ensure the strategic guidance of the Company, the effective oversight of the Company's management bodies, an appropriate balance and distribution of functions between the Company's

bodies, protection of the shareholders' interests.
2.1. Besides obligatory bodies provided for in the Law on Companies of the Republic of Lithuania – a General Shareholders' Meeting and the Chief Financial Officer, it is recommended that a company should set up both a collegial supervisory body and a collegial management body. The setting up of collegial bodies for supervision and management facilitates clear separation of management and supervisory functions in the company, accountability and control on the part of the Chief Executive Officer, who, in its turn, facilitate a more efficient and transparent management process.	No	The management of the Company is transferred to the Management company, which carries the functions of the Board and the Head of the Company. By the decision of the Board of the Management Company and following the Articles of Association of the INVL Baltic Real Estate Investment Committee of the Company is formed. Supervisory Board is not formed in the Management company.
2.2. A collegial management body is responsible for the strategic management of the company and performs other key functions of corporate governance. A collegial supervisory body is responsible for the effective supervision of the company's management bodies.	Yes	The functions set forth in this recommendation are performed by the Management company.
2.3. When a company chooses to form only one collegial body, it is recommended that it should be a supervisory body, i.e. the Supervisory Board. In such a case, the Supervisory Board is responsible for the effective monitoring of the functions performed by the company's Chief Financial Officer.	No	The Supervisory Board is not formed in the Managemnt company.
2.4. The collegial supervisory body to be elected by the General Shareholders' Meeting should be set up and should act in the manner defined in Principles III and IV. Where a company should decide not to set up a collegial supervisory body but rather a collegial management body, i.e. the Board, Principles III and IV should apply to the Board as long as that does not contradict the essence and purpose of this body.	Yes	The principles III ir IV are applied to the Management company which performs the management of the Company. The Management company carries out the principles to the extent that this does not contradict the essence and purpose of the management bodies formed by the Management company
2.5. Company's management and supervisory bodies should comprise such number of Board (executive directors) and Supervisory (non-executive directors) Board members that no individual or small group of individuals can dominate decision-making on the part of these bodies.	N/A	The management of the Company is transferred to the Management company, which carries the functions of the Board and the Head of the Company. There are three (3) members of the Board of the Management Company. By the decision of the Board of the Management Company and following the Articles of Association of the INVL Baltic Real Estate Investment Committee of the Company is formed, consisting of two (2) members. All persons related to the management of the Company (members of collegiate management bodies) are independent and have no other interests in relation to the activities of the Company, but to increase the profit for the Company and its shareholders. The Supervisory Board is not formed in the Management company.

2.6. Non-executive directors or members of the Supervisory Board should be appointed for specified terms subject to individual re-election, at maximum intervals provided for in the Lithuanian legislation with a view to ensuring necessary development of professional experience and sufficiently frequent reconfirmation of their status. A possibility to remove them should also be stipulated however this procedure should not be easier than the removal procedure for an executive director or a member of the Management Board.	No	The Supervisory Board is not formed in the Management company, and there are no non– executive directors either.
2.7. Chairman of the collegial body elected by the General Shareholders' Meeting may be a person whose current or past office constitutes no obstacle to conduct independent and impartial supervision. Where a company should decide not to set up a Supervisory Board but rather the Board, it is recommended that the chairman of the Board and Chief Financial Officer of the company should be a different person. Company's Chief Financial Officer should not be immediately nominated as the chairman of the collegial body elected by the General Shareholders' Meeting. When a company chooses to departure from these recommendations, it should furnish information on the measures it has taken to ensure impartiality of the supervision.	N/A	The management of the Company is transferred to the Management company, which carries the functions of the Board and the Head of the Company. By the decision of the Board of the Management Company and following the Articles of Association of the INVL Baltic Real Estate Investment Committee of the Company is formed. Due to the specifics of the management of the Company, the General Shareholders Meeting of the company does not appoint the chairman of the Company's board, and the Board does not appoint the Head of the company. The General Shareholders Meeting of the Company approves the management agreement between the Company and the Management company.

Principle III: The order of the formation of a collegial body to be elected by a General Shareholders' Meeting. The order of the formation a collegial body to be elected by a General Shareholders' Meeting should ensure representation of minority shareholders, accountability of this body to the shareholders and objective monitoring of the Company's operation and its management bodies.

3.1. The mechanism of the formation of a collegial	Yes	The Management company operates objectively,
body to be elected by a General Shareholders'		impartially and represents the interests of all
Meeting (hereinafter in this Principle referred to as the		shareholders equally.
'collegial body') should ensure objective and fair
monitoring of the company's management bodies as
well as representation of minority shareholders.
3.2. Names and surnames of the candidates to	Yes	The agreement with the Management Company has to
become members of a collegial body, information		be approved by the Company's General Shareholders
about their education, qualification, professional		Meeting. But shareholders do not ellect the managing
background, positions taken and potential conflicts of		bodies of the Management company.
interest should be disclosed early enough before the		The Management company may be replaced by the
General Shareholders' Meeting so that the		decision of the General Shareholders Meeting.
shareholders would have sufficient time to make an
informed voting decision. All factors affecting the
candidate's independence, the sample list of which is
set out in Recommendation 3.7, should be also
disclosed. The collegial body should also be informed
on any subsequent changes in the provided
information. The collegial body should, on yearly
basis, collect data provided in this item on its members
and disclose this in the company's annual report.
3.3. Should a person be nominated for members of a	Yes	Information about the Management company and the
collegial body, such nomination should be followed by		education, work experience and participation in other
the disclosure of information on candidate's particular		companies of the Head of the Management Company
competences relevant to his/her service on the		(the General director) is disclosed in Company's
collegial body. In order shareholders and investors are

able to ascertain whether member's competence is further relevant, the collegial body should, in its annual report, disclose the information on its composition and particular competences of individual members which are relevant to their service on the collegial body. 3.4. In order to maintain a proper balance in terms of the current qualifications possessed by its members, the desired composition of the collegial body shall be determined with regard to the company's structure and activities, and have this periodically evaluated. The collegial body should ensure that it is composed of members who, as a whole, have the required diversity of knowledge, judgment and experience to	Yes	periodical reports and available in the websites of the Management company and the Company. The Head of the Company (the general director), Members of the Board and members of the the Investment committee of the Management Company have sufficient experience to perform its functions and the required diversity of knowledge to complete their tasks properly. The Audit Committee members have the required experience. The Remuneration Committee is not formed in the Management
complete their tasks properly. The members of the Audit Committee, collectively, should have a recent knowledge and relevant experience in the fields of finance, accounting and/or audit for the stock exchange listed companies. At least one of the members of the Remuneration Committee should have knowledge of and experience in the field of remuneration policy.		company.
3.5. All new members of the collegial body should be offered a tailored program focused on introducing a member with his/her duties, corporate organization and activities. The collegial body should conduct an annual review to identify fields where its members need to update their skills and knowledge.	No	Presently, the members of the Board of the Management company nor the Head of the Company (the general manager) do not perform the assessment of their skills and knowledge.
3.6. In order to ensure that all material conflicts of interest related with a member of the collegial body are resolved properly, the collegial body should comprise a sufficient number of independent members.	No	Independency of the elected Board members of the Management Company is not assessed and the content of independent members' sufficiency isn't set either.
3.7. A member of the collegial body should be considered to be independent only if he is free of any business, family or other relationship with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. Since all cases when member of the collegial body is likely to become dependent are impossible to list, moreover, relationships and circumstances associated with the determination of independence may vary amongst companies and the best practices of solving this problem are yet to evolve in the course of time, assessment of independence of a member of the collegial body should be based on the contents of the relationship and circumstances rather than their form. The key criteria for identifying whether a member of the collegial body can be considered to be independent are the following: 1. he/ she is not an executive director or member of the Board (if a collegial body elected by the General Shareholders' Meeting is the Supervisory Board) of the company or any associated company and has not been such during the last five years; 2. he/ she is not an employee of the company or some any company and has not been such during the last	No	The Head of the Company (the general manager) and the Board of the Management Company are independent and in their actions seek the benefit to the Company and its shareholders, however do not meet the recommendation on independency.

three years, except for cases when a member of the collegial body does not belong to the senior management and was elected to the collegial body as a representative of the employees;

1. he/ she is not receiving or has been not receiving significant additional remuneration from the company or associated company other than remuneration for the office in the collegial body. Such additional remuneration includes participation in share options or some other performance based pay systems; it does not include compensation payments for the previous office in the company (provided that such payment is no way related with later position) as per pension plans (inclusive of deferred compensations);

2. he/she is not a controlling shareholder or representative of such shareholder (control as defined in the Council Directive 83/349/EEC Article 1 Part 1); 5. he/ she does not have and did not have any material business relations with the company or associated companies within the past year directly or as a partner, shareholder, director or superior employee of the subject having such relationship. A subject is considered to have business relations when it is a major supplier or service provider (inclusive of financial, legal, counselling and consulting services), major client or organization receiving significant payments from the company or its group;

3. he/she is not and has not been, during the last three years, partner or employee of the current or former external audit company of the company or associated companies;

4. he/she is not an executive director or member of the Board in some other company where executive director of the company or member of the Board (if a collegial body elected by the General Shareholders' Meeting is the Supervisory Board) is non-executive director or member of the Supervisory Board, he/she may not also have any other material relationships with executive directors of the company that arise from their participation in activities of other companies or bodies;

5. he/she has not been in the position of a member of the collegial body for over than 12 years;

6. he/ she is not a close relative to an executive director or member of the Board (if a collegial body elected by the General Shareholders' Meeting is the Supervisory Board) or to any person listed in above items 1 to 8. Close relative is considered to be a spouse (common-law spouse), children and parents. 3.8. The determination of what constitutes independence is fundamentally an issue for the collegial body itself to determine. The collegial body may decide that, despite a particular member meets

all the criteria of independence laid down in this Code, he can not be considered independent due to special No No independency assessment and announcement practice of the Head of the Company (the general manager) and the members of the Board of the Management Company is applicable in the Company.

personal or company-related circumstances.

3.9. Necessary information on conclusions the
collegial body has come to in its determination of
whether a particular member of the body should be
considered to be independent should be disclosed.
When a person is nominated to become a member of
the collegial body, the company should disclose
whether it considers the person to be independent.
When a particular member of the collegial body does
not meet one or more criteria of independence set out
in this Code, the company should disclose its reasons
for nevertheless considering the member to be
independent. In addition, the company should
annually disclose which members of the collegial body
it considers to be independent.
3.10. When one or more criteria of independence set
out in this Code has not been met throughout the year,
the company should disclose its reasons for
considering a particular member of the collegial body
to be independent. To ensure accuracy of the
information disclosed in relation with the
independence of the members of the collegial body,
the company should require independent members to
have their independence periodically re-confirmed.
3.11. In order to remunerate members of a collegial	N/A	The Management Company do not have independent
body for their work and participation in the meetings of		members of the managing bodies.
the collegial body, they may be remunerated from the
company's funds. The General Shareholders' Meeting
should approve the amount of such remuneration.
Principle IV: The duties and liabilities of a collegial body elected by the General Shareholders' Meeting
		The corporate governance framework should ensure proper and effective functioning of the collegial body elected
		by the General Shareholders' Meeting, and the powers granted to the collegial body should ensure effective
monitoring of the Company's management bodies and protection of interests of all the Company's shareholders.
4.1. The collegial body elected by the General	Yes	The Management Company submits Company's
Shareholders' Meeting (hereinafter in this Principle		annual financial statement and consolidated annual
referred to as the 'collegial body') should ensure		financial statement, profit distribution drafts to the
integrity and transparency of the company's financial		General Shareholders' Meeting, delivers consolidated
statements and the control system. The collegial body		annual report, also performs all other functions set
should issue recommendations to the company's		forth in the legal acts of the Republic of Lithuania.
management bodies and monitor and control the
company's management performance.
4.2. Members of the collegial body should act in good	Yes	The Management Company acts in good faith, with
faith, with care and responsibility for the benefit and in		care and responsibility for the benefit and in the
the interests of the company and its shareholders with		interests of the company and its shareholders with due
due regard to the interests of employees and public		regard to the interests of employees and public welfare
welfare. Independent members of the collegial body		and try to keep their independency while making the
should (a) under all circumstances maintain		decisions.
independence of their analysis, decision-making and
actions (b) do not seek and accept any unjustified
privileges that might compromise their independence,
and (c) clearly express their objections should a
member consider that decision of the collegial body is
against the interests of the company. Should a
collegial body have passed decisions independent
member has serious doubts about, the member should
make adequate conclusions. Should an independent

reasons in a letter addressed to the collegial body or Audit Committee and, if necessary, respective company-not-pertaining body (institution).
4.3. Each member should devote sufficient time and attention to perform his duties as a member of the collegial body. Each member of the collegial body should limit other professional obligations of his (in particular any directorships held in other companies) in such a manner they do not interfere with proper performance of duties of a member of the collegial body. In the event a member of the collegial body should be present in less than a half of the meetings of the collegial body throughout the financial year of the company, shareholders of the company should be notified.	Yes	The Management Company performs its functions properly, devotes sufficient time and attention to perform its duties as a Management Company.
4.4. Where decisions of a collegial body may have a different effect on the company's shareholders, the collegial body should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed on the company's affairs, strategies, risk management and resolution of conflicts of interest. The company should have a clearly established role of members of the collegial body when communicating with and committing to shareholders.	Yes	Management Company treats all shareholders impartially and fairly.
4.5. It is recommended that transactions (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions), concluded between the company and its shareholders, members of the supervisory or managing bodies or other natural or legal persons that exert or may exert influence on the company's management should be subject to approval of the collegial body. The decision concerning approval of such transactions should be deemed adopted only provided the majority of the independent members of the collegial body voted for such a decision.	N/A	There were no significant transactions between the Company and its shareholders.
4.6. The collegial body should be independent in passing decisions that are significant for the company's operations and strategy. Taken separately, the collegial body should be independent of the company's management bodies. Members of the collegial body should act and pass decisions without an outside influence from the persons who have elected it. Companies should ensure that the collegial body and its committees are provided with sufficient administrative and financial resources to discharge their duties, including the right to obtain, in particular from employees of the company, all the necessary information or to seek independent legal, accounting or any other advice on issues pertaining to the competence of the collegial body and its committees. When using the services of a consultant with a view to obtaining information on market standards for remuneration systems, the remuneration committee should ensure that the consultant concerned does not	No	The Management company acts in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders with due regard to the interests of employees and public welfare and try to keep their independency while making the decisions. The Remuneration Committee is not formed in the Management company.

at the same time advice the human resources
department, executive directors or collegial
management organs of the company concerned.
4.7. Activities of the collegial body should be	No	Due to the Company's management type, transfer of
organized in a manner that independent members of		the management of the Company and an absence of
the collegial body could have major influence in		employees, the Nomination and Remuneration
relevant areas where chances of occurrence of		Committees are not formed.
conflicts of interest are very high. Such areas to be
considered as highly relevant are issues of nomination
of company's directors, determination of directors'
remuneration and control and assessment of the
company's audit. Therefore when the mentioned
issues are attributable to the competence of the
collegial body, it is recommended that the collegial
body should establish Nomination, Remuneration, and
Audit Committees. Companies should ensure that the
functions attributable to the Nomination,
Remuneration, and Audit Committees are carried out.
However they may decide to merge these functions
and set up less than three committees. In such case a
company should explain in detail reasons behind the
selection of alternative approach and how the selected
approach complies with the objectives set forth for the
three different committees. Should the collegial body
of the company comprise small number of members,
the functions assigned to the three committees may be
performed by the collegial body itself, provided that it
meets composition requirements advocated for the
committees and that adequate information is provided
in this respect. In such case provisions of this Code
relating to the committees of the collegial body (in
particular with respect to their role, operation, and
transparency) should apply, where relevant, to the
collegial body as a whole.
4.8. The key objective of the committees is to increase
efficiency of the activities of the collegial body by
ensuring that decisions are based on due
consideration, and to help organize its work with a
view to ensuring that the decisions it takes are free of
material conflicts of interest. Committees should
exercise independent judgment and integrity when
exercising its functions as well as present the collegial
body with recommendations concerning the decisions
of the collegial body. Nevertheless the final decision
shall be adopted by the collegial body. The
recommendation on creation of committees is not
intended, in principle, to constrict the competence of
the collegial body or to remove the matters considered
from the purview of the collegial body itself, which
remains fully responsible for the decisions taken in its
field of competence.
4.9. Committees established by the collegial body
should normally be composed of at least three
members. In companies with small number of
members of the collegial body, they could
exceptionally be composed of two members. Majority

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of the members of each committee should be constituted from independent members of the collegial body. In cases when the Company chooses not to set up a Supervisory Board, Remuneration and Audit Committees should be entirely comprised of nonexecutive directors. Chairmanship and membership of the committees should be decided with due regard to the need to ensure that committee membership is refreshed and that undue reliance is not placed on particular individuals.

4.10. Authority of each of the committees should be determined by the collegial body. Committees should perform their duties in line with authority delegated to them and inform the collegial body on their activities and performance on regular basis. Authority of every committee stipulating the role and rights and duties of the committee should be made public at least once a year (as part of the information disclosed by the company annually on its corporate governance structures and practices). Companies should also make public annually a statement by existing committees on their composition, number of meetings and attendance over the year, and their main activities. Audit Committee should confirm that it is satisfied with the independence of the audit process and describe briefly the actions it has taken to reach this conclusion.

4.11. In order to ensure independence and impartiality of the committees, members of the collegial body that are not members of the committee should commonly have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or demand participation in the meeting of particular officers or experts. Chairman of each of the committees should have a possibility to maintain direct communication with the shareholders. Events when such are to be performed should be specified in the regulations for committee activities.

4.12. Nomination Committee.

4.12.1. Key functions of the Nomination Committee should be the following:

1) identify and recommend, for the approval of the collegial body, candidates to fill Board vacancies. The Nomination Committee should evaluate the balance of skills, knowledge and experience on the management body, prepare a description of the roles and capabilities required to assume a particular office, and assess the time commitment expected. Nomination Committee can also consider candidates to members of the collegial body delegated by the shareholders of the company;

2) assess on regular basis the structure, size, composition and performance of the supervisory and management bodies, and make recommendations to the collegial body regarding the means of achieving necessary changes;

3) assess on regular basis the skills, knowledge and experience of individual directors and report on this to the collegial body;

4) properly consider issues related to succession planning;

5) review the policy of the management bodies for selection and appointment of senior management.

4.12.2. Nomination Committee should consider proposals by other parties, including management and shareholders. When dealing with issues related to executive directors or members of the Board (if a collegial body elected by the General Shareholders' Meeting is the Supervisory Board) and senior management, Chief Financial Officer of the company should be consulted by, and entitled to submit proposals to the Nomination Committee.

4.13. Remuneration Committee.

4.13.1. Key functions of the Remuneration Committee should be the following:

1) make proposals, for the approval of the collegial body, on the remuneration policy for members of management bodies and executive directors. Such policy should address all forms of compensation, including the fixed remuneration, performance-based remuneration schemes, pension arrangements, and termination payments. Proposals considering performance-based remuneration schemes should be accompanied with recommendations on the related objectives and evaluation criteria, with a view to properly aligning the pay of executive director and members of the management bodies with the longterm interests of the shareholders and the objectives set by the collegial body;

2) make proposals to the collegial body on the individual remuneration for executive directors and member of management bodies in order their remunerations are consistent with company's remuneration policy and the evaluation of the performance of these persons concerned. In doing so, the Committee should be properly informed on the total compensation obtained by executive directors and members of the management bodies from the affiliated companies;

3) ensure that remuneration of individual executive directors or members of management body is proportionate to the remuneration of other executive directors or members of management body and other staff members of the company;

4) periodically review the remuneration policy for executive directors or members of management body, including the policy regarding share-based remuneration, and its implementation;

5) make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies;

6) assist the collegial body in overseeing how the company complies with applicable provisions

2017 ANNUAL REPORT | 133

regarding the remuneration-related information
disclosure (in particular the remuneration policy
applied and individual remuneration of directors);
7) make general recommendations to the executive
directors and members of the management bodies on
the level and structure of remuneration for senior
management (as defined by the collegial body) with
regard to the respective information provided by the
executive directors and members of the management
bodies.
4.13.2. With respect to stock options and other share
based incentives which may be granted to directors or
other employees, the Committee should:
1) consider general policy regarding the granting of
the above mentioned schemes, in particular stock
options, and make any related proposals to the
collegial body;
2) examine the related information that is given in the
company's annual report and documents intended for
the use during the General Shareholders' Meeting;
3) make proposals to the collegial body regarding the
choice between granting options to subscribe shares
or granting options to purchase shares, specifying the
reasons for its choice as well as the consequences
that this choice has.
4.13.3. Upon resolution of the issues attributable to the
competence of the Remuneration Committee, the
Committee should at least address the chairman of the
collegial body and/or Chief Financial Officer of the
company for their opinion on the remuneration of other
executive directors or members of the management
bodies.
4.13.4. The Remuneration Committee should report
on the exercise of its functions to the shareholders and
be present at the Annual General Shareholders'
Meeting for this purpose.
4.14. Audit Committee.	Yes	The members of the Audit Committee are elected by
4.14.1. Key functions of the Audit Committee should		the General Shareholders' Meeting at the proposal of
be the following:		the Company's shareholders or the Management
1) observe the integrity of the financial information		company).
provided by the company, in particular by reviewing		The main functions of the Committee are the following:
the relevance and consistency of the accounting		provide recommendations to the Management
methods used by the company and its group (including		company with selection, appointment, reappointment
the criteria for the consolidation of the accounts of		and removal of an external audit company of the
companies in the group);		Company as well as the terms and conditions of
2) at least once a year review the systems of internal		engagement with the audit company;
control and risk management to ensure that the key		monitor the process of external audit of the Company;
risks (inclusive of the risks in relation with compliance		monitor how the external auditor and audit company
with existing laws and regulations) are properly		follow the principles of independence and objectivity;
identified, managed and reflected in the information		observe the process of preparation of financial reports
provided;		of the Company;
3) ensure the efficiency of the internal audit function,		monitor the efficiency of the internal control and risk
among other things, by making recommendations on		management systems of the Management company
the selection, appointment, reappointment and		directly related to the management of the Company.
removal of the head of the internal audit department		Once a year review the need of the dedicated internal
and on the budget of the department, and by		audit function for the Company within the Management
monitoring the responsiveness of the management to		company;

its findings and recommendations. Should there be no internal audit authority in the company, the need for one should be reviewed at least annually;

4) make recommendations to the collegial body related with selection, appointment, reappointment and removal of the external auditor (to be done by the General Shareholders' Meeting) and with the terms and conditions of his engagement. The Committee should investigate situations that lead to a resignation of the audit company or auditor and make recommendations on required actions in such situations;

5) monitor independence and impartiality of the external auditor, in particular by reviewing the audit company's compliance with applicable guidance relating to the rotation of audit partners, the level of fees paid by the company, and similar issues. In order to prevent occurrence of material conflicts of interest, the Committee, based on the auditor's disclosed inter alia data on all remunerations paid by the company to the auditor and network, should at all times monitor nature and extent of the non-audit services. Having regard to the principals and guidelines established in the May 16, 2002 Commission Recommendation 2002/590/EC, the Committee should determine and apply a formal policy establishing types of non-audit services that are (a) excluded, (b) permissible only after review by the Committee, and (c) permissible without referral to the Committee;

6) review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter.

4.14.2. All members of the Committee should be furnished with complete information on particulars of accounting, financial and other operations of the company. Company's management should inform the Audit Committee of the methods used to account for significant and unusual transactions where the accounting treatment may be open to different approaches. In such case a special consideration should be given to company's operations in offshore centers and/or activities carried out through special purpose vehicles (organizations) and justification of such operations.

4.14.3. The Audit Committee should decide whether participation of the chairman of the collegial body, Chief Financial Officer (or superior employees in charge of finances, treasury and accounting), or internal and external auditors in the meetings of the Committee is required (if required, when). The Committee should be entitled, when needed, to meet with any relevant person without executive directors and members of the management bodies present.

4.14.4. Internal and external auditors should be secured with not only effective working relationship with management, but also with free access to the collegial body. For this purpose the Audit Committee monitor if the Management company gives due consideration to the recommendations or comments provided by the audit company regarding management of the Company.

The Audit Committee should account for its activities to the Annual General Shareholders Meeting providing a report about its work during the last financial year.

In conducting of the mentioned above functions, the Audit committee supervises the process of preparation of annual accounts and gives recommendations to the Management Company on provision of the annual accounts for the approval of the shareholders.

Furthermore, the Audit committee analyzes the independence and other criteria of the potential auditors and gives the necessary conclusions to the management.

The Audit committee prepares activity report on the main conclusions regarding Company's activity.

should act as the principal contact person for the
internal and external auditors.
4.14.5. The Audit Committee should be informed of
the internal auditor's work program, and should be
furnished with internal audit's reports or periodic
summaries. The Audit Committee should also be
informed of the work program of the external auditor
and should be furnished with report disclosing all
relationships between the independent auditor and the
company and its group. The Committee should be
timely furnished information on all issues arising from
the audit.
4.14.6. The Audit Committee should examine whether
the company is following applicable provisions
regarding the possibility for employees to report
alleged significant irregularities in the company, by
way of complaints or through anonymous submissions
(normally to an independent member of the collegial
body), and should ensure that there is a procedure
established for proportionate and independent
investigation of these issues and for appropriate
follow-up action.
4.14.7. The Audit Committee should report on its
activities to the collegial body at least once in every six
months, at the time the yearly and half-yearly
statements are approved.
4.15. Every year the collegial body should conduct the	N/A	The Management Company has signed a a
assessment of its activities. The assessment should		Management Agreement with the Company, which
include evaluation of collegial body's structure, work		stated the rights and obligations of the Management
organization and ability to act as a group, evaluation		Company. The Company does not perform additional
of each of the collegial body member's and		self-assessment, due to the specific management
Committee's competence and work efficiency and		structure.
assessment whether the collegial body has achieved
its objectives. The collegial body should, at least once
a year, make public (as part of the information the
company annually discloses on its management
structures and practices) respective information on its
internal organization and working procedures, and
specify what material changes were made as a result
of the assessment of the collegial body of its own
activities.
Principle V: The working procedure of the Company's collegial bodies.

The working procedure of supervisory and management bodies established in the Company should ensure efficient operation of these bodies and decision-making and encourage active co-operation between the Company's bodies.

5.1. The company's supervisory and management	Yes	The managing bodies of the Management company,
bodies (hereinafter in this Principle the concept		which are taking part in Company's activity, are
'collegial bodies' covers both the collegial bodies of		responsible for convocation of the meetings as well as
supervision and the collegial bodies of management)		preparation of the agenda. Frequency of the meetings
should be chaired by chairpersons of these bodies.		and questions of the agenda depend on the particular
The chairperson of a collegial body is responsible for		events or projects or they are related with ordinary
proper convocation of the collegial body meetings.		functions prescribed by legal acts.
The chairperson should ensure that information about
the meeting being convened and its agenda are
communicated to all members of the body. The
chairperson of a collegial body should ensure
appropriate conducting of the meetings of the collegial

working atmosphere during the meeting. 5.2. It is recommended that meetings of the Yes The meetings of managing bodies of the Management company's collegial bodies should be carried out company are being convened at such intervals, which according to the schedule approved in advance at guarantee an interrupted resolution of the essential certain intervals of time. Each company is free to corporate governance issues. decide how often to convene meetings of the collegial bodies, but it is recommended that these meetings should be convened at such intervals, which would guarantee an interrupted resolution of the essential corporate governance issues. Meetings of the company's Supervisory Board should be convened at least once in a quarter, and the company's Board should meet at least once a month5. 5.3. Members of a collegial body should be notified Yes The managing bodies of the Management company about the meeting being convened in advance in order inform each other or are being informed about the to allow sufficient time for proper preparation for the convened meetings by email and/or by using the issues on the agenda of the meeting and to ensure Document Management System. The managing fruitful discussion and adoption of appropriate bodies vote in the meetings using the Document decisions. Alongside with the notice about the meeting Management System and/or by email. being convened, all the documents relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members
of the collegial body are present or certain issues of
great importance to the company require immediate
resolution.
5.4. In order to co-ordinate operation of the company's N/A Company may not implement this recommendation
collegial bodies and ensure effective decision-making since only the Board is formed in the Management
process, chairpersons of the company's collegial Company.
bodies of supervision and management should closely
co-operate by co-coordinating dates of the meetings,
their agendas and resolving other issues of corporate
governance. Members of the company's Board should
be free to attend meetings of the company's
Supervisory Board, especially where issues
concerning removal of the Board members, their
liability or remuneration are discussed.
Principle VI: The equitable treatment of shareholders and shareholder rights.
The corporate governance framework should ensure the equitable treatment of all shareholders, including minority
and foreign shareholders. The corporate governance framework should protect the rights of the shareholders.

6.1. It is recommended that the company's capital	Yes	Shares which compose the authorised capital of the
should consist only of the shares that grant the same		Company grant equal rights to all shareholders.
rights to voting, ownership, dividend and other rights
to all their holders.
6.2. It is recommended that investors should have	Yes	The Company informs shareholders about the rights of
access to the information concerning the rights		newly issued shares.
attached to the shares of the new issue or those		Information about the rights of already issued shares
issued earlier in advance, i.e. before they purchase		is provided in the Articles of the Association,
shares.		Company's annual reports

⁵ The frequency of meetings of the collegial body provided for in the recommendation must be applied in those cases when both additional collegial bodies are formed at the company, the board and the supervisory board. In the event only one additional collegial body is formed in the company, the frequency of its meetings may be as established for the supervisory board, i.e. at least once in a quarter.

6.3. Transactions that are important to the company and its shareholders, such as transfer, investment, and pledge of the company's assets or any other type of encumbrance should be subject to approval of the General Shareholders' Meeting. All shareholders should be furnished with equal opportunity to familiarize with and participate in the decision-making process when significant corporate issues, including approval of transactions referred to above, are discussed.	Yes	Shareholders of the Company have equal opportunities to get familiarised and participate in adopting decisions important to the Company. Approval of the General Shareholders' Meeting is also necessary in cases stipulated in Chapter V of the Law on Companies of the Republic of Lithuania. No other cases when the approval of the General Shareholders' Meeting should be obtained are foreseen, since it would impair Company's business considering the nature of the Company's activity.
6.4. Procedures of convening and conducting a General Shareholders' Meeting should ensure equal opportunities for the shareholders to effectively participate at the meetings and should not prejudice the rights and interests of the shareholders. The venue, date, and time of the shareholders' meeting should not hinder wide attendance of the shareholders. Prior to the shareholders' meeting, the Company's supervisory and management bodies should enable the shareholders to lodge questions on issues on the agenda of the General Share-holders' Meeting and receive answers to them.	Yes	The procedures of convening and conducting of the General Shareholders' Meeting comply with the provisions of legal acts and provide the shareholders with equal opportunities to participate in the meetings get familiarised with the draft resolutions and materials necessary for adopting the decision in advance, also give questions to the Board members.
6.5. If is possible, in order to ensure shareholders living abroad the right to access to the information, it is recommended that documents on the course of the General Shareholders' Meeting, should be placed on the publicly accessible website of the company not only in Lithuanian language, but in English and /or other foreign languages in advance. It is recommended that the minutes of the General Shareholders' Meeting after signing them and/or adopted resolutions should be also placed on the publicly accessible website of the company. Seeking to ensure the right of foreigners to familiarize with the information, whenever feasible, documents referred to in this recommendation should be published in Lithuanian, English and/or other foreign languages. Documents referred to in this recommendation may be published on the publicly accessible website of the company to the extent that publishing of these documents is not detrimental to the company or the company's commercial secrets are not revealed.	Yes	The information about General Shareholders' Meetings are published in Lithuanian and English on the Company's website (sections Shareholders Meetings and Material events), also in the Material events platform used by Nasdaq Vilnius.
6.6. Shareholders should be furnished with the opportunity to vote in the General Shareholders' Meeting in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot.	Yes	The Company's shareholders are furnished with the opportunity to participate in the General Shareholders' Meeting both personally and via an attorney, if such a person has a proper authorisation or if an agreement on the transfer of voting rights was concluded in the manner set forth in the legal acts. The Company provides the shareholders with conditions to vote by completing the general voting ballot.
6.7. With a view to increasing the shareholders' opportunities to participate effectively at General Shareholders' Meetings, the companies are recommended to expand use of modern technologies by allowing the shareholders to participate and vote in General Shareholders' Meetings via electronic means	No	Shareholders can vote via an attorney or by completing the general voting ballot but for the meantime shareholders cannot participate and vote in General Shareholders' Meetings via electronic means of communication.

of communication. In such cases security of
transmitted information and a possibility to identify the
identity of the participating and voting person should
be guaranteed. Moreover, companies could furnish its
shareholders, especially shareholders living abroad,
with the opportunity to watch shareholder meetings by
means of modern technologies.

Principle VII: The avoidance of conflicts of interest and their disclosure

The corporate governance framework should encourage members of the corporate bodies to avoid conflicts of interest and assure transparent and effective mechanism of disclosure of conflicts of interest regarding members of the corporate bodies.

7.1. Any member of the company's supervisory and	Yes	The	Management	Company	is	following	these
management body should avoid a situation, in which			recommendations.
his/her personal interests are in conflict or may be in
conflict with the company's interests. In case such a
situation did occur, a member of the company's
supervisory and management body should, within
reasonable time, inform other members of the same
collegial body or the company's body that has elected
him/her, or to the company's shareholders about a
situation of a conflict of interest, indicate the nature of
the conflict and value, where possible.
7.2. Any member of the company's supervisory and
management body may not mix the company's assets,
the use of which has not been mutually agreed upon,
with his/her personal assets or use them or the
information which he/she learns by virtue of his/her
position as a member of a corporate body for his/her
personal benefit or for the benefit of any third person
without a prior agreement of the General
Shareholders' Meeting or any other corporate body
authorised by the meeting.
7.3. Any member of the company's supervisory and
management body may conclude a transaction with
the company, a member of a corporate body of which
he/she is. Such a transaction (except insignificant
ones due to their low value or concluded when
carrying out routine operations in the company under
usual conditions) must be immediately reported in
writing or orally, by recording this in the minutes of the
meeting, to other members of the same corporate
body or to the corporate body that has elected him/her
or to the company's shareholders. Transactions
specified in this recommendation are also subject to
recommendation 4.5.
7.4. Any member of the company's supervisory and
management body should abstain from voting when
decisions concerning transactions or other issues of
personal or business interest are voted on.

Principle VIII: Company's remuneration policy

Remuneration policy and procedure for approval, revision and disclosure of directors' remuneration established in the Company should prevent potential conflicts of interest and abuse in determining remuneration of directors, in addition it should ensure publicity and transparency both of Company's remuneration policy and remuneration of directors.

directors.
8.1. A Company should make a public statement of the	No	The Company does not prepare a remuneration policy
company's remuneration policy (hereinafter the		since the majority of VIII principle items are not
remuneration statement) which should be clear and		relevant for the present structure of the Company.
easily understandable. This remuneration statement		Information about the benefits and loans for the
should be published as a part of the company's annual		Management Company is provided in the periodical
statement as well as posted on the company's		reports, financial statements. Also in the Management
website.		agreement between the Management company and
8.2. Remuneration statement should mainly focus on		INVL Blatic Real Estate approved by the General
directors' remuneration policy for the following year		Shareholder Meeting.
and, if appropriate, the subsequent years. The
statement should contain a summary of the
implementation of the remuneration policy in the
previous financial year. Special attention should be
given to any significant changes in company's
remuneration policy as compared to the previous
financial year.
8.3. Remuneration statement should leastwise include
the following information:
1) explanation of the relative importance of the
variable and non-variable components of directors'
remuneration;
2) sufficient information on performance criteria that
entitles directors to share options, shares or variable
components of remuneration;
3) an explanation how the choice of performance
criteria contributes to the long-term interests of the
company;
4) an explanation of the methods, applied in order to
determine whether performance criteria have been
fulfilled;
5) sufficient information on deferment periods with
regard to variable components of remuneration;
6) sufficient information on the linkage between the
remuneration and performance;
7) the main parameters and rationale for any annual
bonus scheme and any other non-cash benefits;
8) sufficient information on the policy regarding
termination payments;
9) sufficient information with regard to vesting periods
for share-based remuneration, as referred to in point
8.13 of this Code;
10) sufficient information on the policy regarding
retention of shares after vesting, as referred to in point
8.15 of this Code;
11) sufficient information on the composition of peer
groups of companies the remuneration policy of which
has been examined in relation to the establishment of
the remuneration policy of the company concerned;
12) a description of the main characteristics of
supplementary pension or early retirement schemes
for directors;

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13) remuneration statement should not include commercially sensitive information.

8.4. Remuneration statement should also summarize and explain company's policy regarding the terms of the contracts executed with executive directors and members of the management bodies. It should include, inter alia, information on the duration of contracts with executive directors and members of the management bodies, the applicable notice periods and details of provisions for termination payments linked to early termination under contracts for executive directors and members of the management bodies.

8.5. Remuneration statement should also contain detailed information on the entire amount of remuneration, inclusive of other benefits, that was paid to individual directors over the relevant financial year. This document should list at least the information set out in items 8.5.1 to 8.5.4 for each person who has served as a director of the company at any time during the relevant financial year.

8.5.1. The following remuneration and/or emolumentsrelated information should be disclosed:

• the total amount of remuneration paid or due to the director for services performed during the relevant financial year, inclusive of, where relevant, attendance fees fixed by the Annual General Shareholders' Meeting;

• the remuneration and advantages received from any undertaking belonging to the same group;

• the remuneration paid in the form of profit sharing and/or bonus payments and the reasons why such bonus payments and/or profit sharing were granted;

• if permissible by the law, any significant additional remuneration paid to directors for special services outside the scope of the usual functions of a director; - compensation receivable or paid to each former executive director or member of the management body as a result of his resignation from the office

during the previous financial year; - total estimated value of non-cash benefits considered as remuneration, other than the items covered in the above points.

8.5.2. As regards shares and/or rights to acquire share options and/or all other share-incentive schemes, the following information should be disclosed:

• the number of share options offered or shares granted by the company during the relevant financial year and their conditions of application;

• the number of shares options exercised during the relevant financial year and, for each of them, the number of shares involved and the exercise price or the value of the interest in the share incentive scheme at the end of the financial year;

• the number of share options unexercised at the end of the financial year; their exercise price, the exercise date and the main conditions for the exercise of the rights;

• all changes in the terms and conditions of existing share options occurring during the financial year. 8.5.3. The following supplementary pension schemes-

related information should be disclosed: - when the pension scheme is a defined-benefit scheme, changes in the directors' accrued benefits under that scheme during the relevant financial year;

• when the pension scheme is defined-contribution scheme, detailed information on contributions paid or payable by the company in respect of that director during the relevant financial year.

8.5.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial report of the company has paid to each person who has served as a director in the company at any time during the relevant financial year in the form of loans, advance payments or guarantees, including the amount outstanding and the interest rate.

8.6. Where the remuneration policy includes variable components of remuneration, companies should set limits on the variable component(s). The non-variable component of remuneration should be sufficient to allow the company to withhold variable components of remuneration when performance criteria are not met.

8.7. Award of variable components of remuneration should be subject to predetermined and measurable performance criteria.

8.8. Where a variable component of remuneration is awarded, a major part of the variable component should be deferred for a minimum period of time. The part of the variable component subject to deferment should be determined in relation to the relative weight of the variable component compared to the nonvariable component of remuneration.

8.9. Contractual arrangements with executive or managing directors should include provisions that permit the company to reclaim variable components of remuneration that were awarded on the basis of data which subsequently proved to be manifestly misstated.

8.10. Termination payments should not exceed a fixed amount or fixed number of years of annual remuneration, which should, in general, not be higher than two years of the non-variable component of remuneration or the equivalent thereof.

8.11. Termination payments should not be paid if the termination is due to inadequate performance.

8.12. The information on preparatory and decisionmaking processes, during which a policy of remuneration of directors is being established, should also be disclosed. Information should include data, if applicable, on authorities and composition of the remuneration committee, names and surnames of

external consultants whose services have been used
in determination of the remuneration policy as well as
the role of Annual General Shareholders' Meeting.
8.13. Shares should not vest for at least three years
after their award.
8.14. Share options or any other right to acquire
shares or to be remunerated on the basis of share
price movements should not be exercisable for at least
three years after their award. Vesting of shares and
the right to exercise share options or any other right to
acquire shares or to be remunerated on the basis of
share price movements, should be subject to
predetermined and measurable performance criteria.
8.15. After vesting, directors should retain a number of
shares, until the end of their mandate, subject to the
need to finance any costs related to acquisition of the
shares. The number of shares to be retained should
be fixed, for example, twice the value of total annual
remuneration (the non-variable plus the variable
components).
8.16. Remuneration of non-executive or supervisory
directors should not include share options.
8.17. Shareholders, in particular institutional
shareholders, should be encouraged to attend
General Shareholders' Meetings where appropriate
and make considered use of their votes regarding
directors' remuneration.
8.18. Without prejudice to the role and organization of
the relevant bodies responsible for setting directors'
remunerations, the remuneration policy or any other
significant change in remuneration policy should be
included into the agenda of the Annual General
Shareholders' Meeting. Remuneration statement
should be put for voting in Annual General
Shareholders' Meeting. The vote may be either
mandatory or advisory.
8.19. Schemes anticipating remuneration of directors	N/A	In 2017 the schemes, on which basis the Management
in shares, share options or any other right to purchase		company was remunerated in shares, share selection
shares or be remunerated on the basis of share price		transactions or other rights to acquire the shares or be
movements should be subject to the prior approval of		remunerated based on the share price movements
Annual General Shareholders' Meeting by way of a		were not applied in the Company.
resolution prior to their adoption. The approval of
scheme should be related with the scheme itself and
not to the grant of such share-based benefits under
that scheme to individual directors. All significant
changes in scheme provisions should also be subject
to shareholders' approval prior to their adoption; the
approval decision should be made in Annual General
Shareholders' Meeting. In such case shareholders
should be notified on all terms of suggested changes
and get an explanation on the impact of the suggested
changes.
8.20. The following issues should be subject to
approval by the Annual General Shareholders'
Meeting:

1) grant of share-based schemes, including share options, to directors;

2) determination of maximum number of shares and main conditions of share granting;

3) the term within which options can be exercised;

4) the conditions for any subsequent change in the exercise of the options, if permissible by law;

5) all other long-term incentive schemes for which directors are eligible and which are not available to other employees of the company under similar terms. Annual General Shareholders' Meeting should also set the deadline within which the body responsible for remuneration of directors may award compensations listed in this article to individual directors.

8.21. Should national law or company's Articles of Association allow, any discounted option arrangement under which any rights are granted to subscribe the shares at a price lower than the market value of the share prevailing on the day of the price determination, or the average of the market values over a number of days preceding the date when the exercise price is determined, should also be subject to the shareholders' approval.

8.22. Provisions of Articles 8.19 and 8.20 should not be applicable to schemes allowing for participation under similar conditions to company's employees or employees of any subsidiary company whose employees are eligible to participate in the scheme and which has been approved in the Annual General Shareholders' Meeting.

8.23. Prior to the Annual General Shareholders' Meeting that is intended to consider decision stipulated in Article 8.8, the shareholders must be provided an opportunity to familiarize with draft resolution and project-related notice (the documents should be posted on the company's website). The notice should contain the full text of the share-based remuneration schemes or a description of their key terms, as well as full names of the participants in the schemes. Notice should also specify the relationship of the schemes and the overall remuneration policy of the directors. Draft resolution must have a clear reference to the scheme itself or to the summary of its key terms. Shareholders must also be presented with information on how the company intends to provide for the shares required to meet its obligations under incentive schemes. It should be clearly stated whether the company intends to buy shares in the market, hold the shares in reserve or issue new ones. There should also be a summary on scheme-related expenses the company will suffer due to the anticipated application of the scheme. All information given in this article must be posted on the company's website.

Principle IX: The role of stakeholders in corporate governance

The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between companies and stakeholders in creating the Company value, jobs and

2017 ANNUAL REPORT | 143

financial sustainability. For the purposes of this Principle, the concept "stakeholders" includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interest in the Company concerned.

assure that the rights of stakeholders that are and allows the interest holders to participate in the protected by law are respected. management of the Company in the manner set forth by the laws. The detailed information about planned 9.2. The corporate governance framework should events has been constantly disclosed in line with create conditions for the stakeholders to participate in requirements of legal acts; therefore, the investors corporate governance in the manner prescribed by (shareholders) have enough opportunities law. Examples of mechanisms of stakeholder familiarize with necessary information as well as vote participation in corporate governance include: on decisions. More detailed explanation employee participation in adoption of certain key disclosure procedure is provided below in the part X. decisions for the company; consulting the employees on corporate governance and other important issues; employee participation in the company's share capital; creditor involvement in governance in the context of the company's insolvency, etc. 9.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information.	to about
Principle X: Information disclosure and transparency
The corporate governance framework should ensure that timely and accurate disclosure is made on all material
information regarding the Company, including the financial situation, performance and governance of the Company.
10.1. The company should disclose information on: Yes Information set forth in this recommendation is
1. the financial and operating results of the company; disclosed in the notifications on material event,
company objectives; periodical reports. This information is also published
2. persons holding by the right of ownership or in on Company's website.
control of a block of shares in the company;
3. members of the company's supervisory and
management bodies, Chief Financial Officer of the
company and their remuneration;
4. material foreseeable risk factors;
5. transactions between the company and connected
persons, as well as transactions concluded outside
the course of the company's regular operations; 6. material issues regarding employees and other
stakeholders;
7. governance structures and strategy.
This list should be deemed as a minimum
recommendation, while the companies are
encouraged not to limit themselves to disclosure of
the information specified in this list.
10.2. It is recommended to the company, which is
the parent of other companies, that consolidated
results of the whole group to which the Company
belongs should be disclosed when information
specified in item 1 of Recommendation 10.1 is under
disclosure.
10.3. It is recommended that information on the
professional background, qualifications of the
members of supervisory and management bodies,
Chief Financial Officer of the company should be
disclosed as well as potential conflicts of interest that
may have an effect on their decisions when
information specified in item 4 of Recommendation 10.1 about the members of the company's

supervisory and management bodies is under
disclosure. It is also recommended that information
about the amount of remuneration received from the
company and other income should be disclosed with
regard to members of the company's supervisory
and management bodies and Chief Financial Officer
as per Principle VIII.
10.4. It is recommended that information about the
links between the company and its stakeholders,
including employees, creditors, suppliers, local
community, as well as the company's policy with
regard to human resources, employee participation
schemes in the company's share capital, etc. should
be disclosed when information specified in item 7 of
Recommendation 10.1 is under disclosure.
10.5. Information should be disclosed in such a way	Yes	The company discloses information via Nasdaq
that neither shareholders nor investors are		news distribution service so that the public in
discriminated with regard to the manner or scope of		Lithuania and other EU countries should have equal
access to information. Information should be		access to the information. The information is
disclosed to all simultaneously. It is recommended		disclosed in Lithuanian and English.
that notices about material events should be		The company publishes its information prior to or
announced before or after a trading session on the		after the trade sessions on the Nasdaq Vilnius. The
Nasdaq Vilnius, so that all the company's		company does not disclose information that may
shareholders and investors should have equal		have an effect on the price of shares in the
access to the information and make informed		commentaries, interview or other ways as long as
investing decisions.		such information is publicly announced via Nasdaq
		news distribution service.
10.6. Channels for disseminating information should	Yes	The information is disclosed in Lithuanian and
provide for fair, timely and cost-efficient access to		English simultaneously via Nasdaq news distribution
relevant information by users. It is recommended		service. It is also published on company's website.
that information technologies should be employed
for wider dissemination of information, for instance,
by placing the information on the company's website.
It is recommended that information should be
published and placed on the company's website not
only in Lithuanian, but also in English, and, whenever
possible and necessary, in other languages as well.
10.7. It is recommended that the company's annual	Yes	The company publishes all information indicated in
reports and other periodical accounts prepared by		this recommendation on its website.
the company should be placed on the company's
website. It is recommended that the company should
announce information about material events and
changes in the price of the company's shares on the
Stock Exchange on the company's website too.
Principle XI: The selection of the Company's auditor
		The mechanism of the selection of the Company's auditor should ensure independence of the firm of auditor's
conclusion and opinion.

11.1. An annual audit of the company's financial	Yes	The annual Company's and consolidated financial
reports and interim reports should be conducted by		statements and consolidated annual report are
an independent firm of auditors in order to provide an		conducted by the independent audit company. The
external and objective opinion on the company's		interim financial statements are not conducted by the
financial statements.		audit company.
11.2. It is recommended that the company's	Yes	The candidate audit company is suggested to the
Supervisory Board and, where it is not set up, the		General Shareholders' Meeting by the Management
company's Board should propose a candidate firm of		of the Company.
auditors to the General Shareholders' Meeting.

The remuneration of the services granted to an audit
company other than the audit services is disclosed in
the consolidated report of 2017 Clause 25. The audit
company provides non-audit services only with the

APPENDIX 3. COMPANY'S MANAGEMENT REPORT

(Prepared in accordance with the Law of the Republic of Lithuania on Financial Reporting by Undertakings (IX-575) in force from 29 November 2017 and applicable to the annual reports of entities covering periods beginning on or after 1 January 2017)

1. REFERENCE TO THE APPLICABLE CORPORATE GOVERNANCE CODE AND THE PLACE OF ITS PUBLICATION, AND (OR) REFERENCE TO THE ALL NECESSARY PUBLISHED INFORMATION REGARDING MANAGEMENT PRACTICES OF THE ENTITY

The Company discloses the information regarding the compliance with the applicable Corporate Governance Code in Appendix 2 of the consolidated report of 2017. The Company publishes its annual reports in the section For Investors on the website.

2. IN CASE OF DEROGATION FROM THE PROVISIONS OF THE APPLICABLE CORPORATE GOVERNANCE CODE AND (OR) WHEN THE PROVISIONS ARE NOT COMPLIED WITH, SUCH PROVISIONS AND THE REASONS THEREOF SHALL BE INDICATED

The Company discloses such information in sections "Yes/No/Irrelevant" and "Commentary" of Appendix 2 of the consolidated report of 2017 "Information regarding the compliance with Corporate Governance Code.

3. INFORMATION REGARDING THE LEVEL OF RISK AND RISK MANAGEMENT – MANAGEMENT OF RISKS RELATED TO THE FINANCIAL REPORTING, RISK MITIGATION MEASURES, AND INTERNAL CONTROL SYSTEMS IMPLEMENTED AT THE ENTITY SHALL BE DESCRIBED

The Company provides information regarding the level of risk, risk management, and implemented internal control systems, as well as the measures, in Clause 17.5 of the consolidated report of 2017.

4. INFORMATION REGARDING SIGNIFICANT DIRECTLY OR INDIRECTLY MANAGED HOLDINGS

The Company provides information regarding the significant directly or indirectly managed holdings in Clause 9 of the financial statement of 2017.

5. INFORMATION REGARDING THE SHAREHOLDERS WHO HAVE SPECIAL RIGHTS OF CONTROL AND THE DESCRIPTION OF SUCH RIGHTS

There are no shareholders having special rights of control in the Company.

6. INFORMATION REGARDING ALL CURRENT RESTRICTIONS ON VOTING RIGHTS (such as the restrictions on voting rights of persons having a certain percentage or number of the votes, the deadlines by which voting rights may be exercised or systems, according to which the property rights granted by the securities are to be separated from the holder of those securities)

No restrictions on voting rights are applied in the Company.

7. INFORMATION REGARDING THE RULES GOVERNING THE APPOINTMENT AND DISMISSAL OF BOARD MEMBERS, AS WELL AS THE AMENDMENT OF THE COMPANY'S ARTICLES OF ASSOCIATION

The management of the Company is transferred to the Management company UAB INVL Asset Management which exercises the functions of the Head and the board of the Company. The Rules of Procedure of the Board are applicable to the board members of the Management company. The provisions governing the appointment and dismissal of board members are not provided for by the aforementioned Rules, except for the possible resignation and procedures related thereof. A person who seeks to become the Board member of the Management company shall obtain a prior permit from the Supervision Service of the Bank of Lithuania (hereinafter – the Bank of Lithuania) to occupy a corresponding post. Moreover, such person shall fill in the Form of the Questionnaire of the Manager approved by the Bank of Lithuania and comply with the indicated requirements.

According to the Articles of Association of the Company, the Articles of Association of INVL Baltic Real Estate may be amended by the desicion of the General Shareholders' Meeting, passed by more than 3/4 of votes (except in cases stated in the Law on Companies of the Republic of Lithuania and in cases stated in Company's Articles of Association).

8. INFORMATION REGARDING THE POWERS OF THE BOARD MEMBERS

The management of the Company is transferred to the Management company UAB INVL Asset Management which exercises the functions of the Head and the board of the Company. The Board members of the Management company act in accordance with the Law on Companies of the Republic of Lithuania, Articles of Association of the Management company, Rules of Procedure of the Board, as well as other applicable legislation, and have no special powers. The Board members of the Management company always act for the benefit of the Company and its shareholders.

9. INFORMATION REGARDING THE COMPETENCE OF THE GENERAL MEETING OF SHAREHOLDERS, THE RIGHTS OF SHAREHOLDERS AND IMPLEMENTATION THEREOF, IF SUCH INFORMATION IS NOT ESTABLISHED IN THE APPLICABLE LEGISLATION

The company provides information regarding the competence of the general meeting of shareholders, the rights of shareholders, and implementation thereof, as well as the procedure for convening the meetings of shareholders, in Clause 11.1 of the consolidated annual report of 2017.

10. INFORMATION REGARDING THE COMPOSITION OF THE MANAGEMENT, SUPERVISORY BODIES, AND THE COMMITTEES THEREOF, AS WELL AS THE FIELDS OF ACTIVITY OF THE AFORESAID BODIES AND THE MANAGER OF THE COMPANY

The management of the Company is transferred to the Management company UAB INVL Asset Management which exercises the functions of the Head and the Board of the company. The Company provides information regarding the board members of the Management company, General Manager of the Management company, and the members of the Investment Committee of the Company in Clause 12 of the consolidated annual report of 2017.

The board members of the management company, General Manager of the management company, and the members of the Investment Committee of the company act in accordance with the Rules of Procedure of the Board, Provisions of the General Manager, and Provisions of the Investment Committee. In addition to this, the board members of the Management company, General Manager of the Management company, and the members of the Investment Committee always act for the benefit of the Company and its shareholders.

11. DESCRIPTION OF DIVERSITY POLICY APPLICABLE IN APPOINTING THE MANAGER OF THE COMPANY, MANAGEMENT, AND SUPERVISORY BODIES, RELATED TO THE ASPECTS SUCH AS AGE, GENDER, EDUCATION, PROFESSIONAL EXPERIENCE; OBJECTIVES OF SUCH POLICY, METHODS OF IMPLEMENTATION THEREOF, AND RESULTS OF THE REFERENCE PERIOD. IF THE DIVERSITY POLICY IS NOT APPLIED, THE REASONS THEREOF SHALL BE INDICATED

The management of the Company is transferred to the asset management company INVL Asset Management, which applies the Policy of Equal Opportunities in its activities. The Policy specifies that the Company organizes its activities in a way that employees, despite of their duties and the need to upgrade their qualifications, are secure about equal working conditions, opportunities to develop competence, etc. Equally, the same benefits are granted regardless of the gender, race, nationality, language, origin, social status, believes or convictions, age, sexual orientation, disability, ethnicity, religion, marital status, intention of having children's or membership of the political party or association.

INVL Asset Management has joined the UN-supported Principles for Responsible Investment (PRI) in the middle of 2017.

The PRI, founded in 2006, is a global network of over 1700 investors, aims to assess the investment implications of environmental, social and governance (ESG) factors. An economically efficient, sustainable global financial system is considered a necessity for long-term value creation. Investors who support the PRI voluntarily work to apply the principles in their investment activities.

Six specific responsible investment Principles are outlined by the PRI. They provide a menu of possible actions for incorporating ESG issues into investment practice – from investment analysis and decision-making to their incorporation into ownership policies and practices. Additionally, signatories to the Principles are encouraged to promote the Principles' acceptance in the investment industry and to work together for their effective implementation.