Corestate Capital Holding S.A.

Corestate Capital Holding S.A. 529900GNB86RB7HRX793 2021-12-31 529900GNB86RB7HRX793 2020-12-31 529900GNB86RB7HRX793 2020-01-01 2020-12-31 529900GNB86RB7HRX793 2019-12-31 529900GNB86RB7HRX793 2019-12-31 ifrs-full:RevaluationSurplusMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:NoncontrollingInterestsMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:StatutoryReserveMember 529900GNB86RB7HRX793 2019-12-31 corestate-capital:NonControllingInterestsInPaidInCapitalAndCapitalReserveMember 529900GNB86RB7HRX793 2019-12-31 529900GNB86RB7HRX793 2019-12-31 corestate-capital:NetProfitLossForThePeriodMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:OtherReservesMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:RetainedEarningsMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:IssuedCapitalMember 529900GNB86RB7HRX793 2019-12-31 ifrs-full:AdditionalPaidinCapitalMember 529900GNB86RB7HRX793 2019-12-31 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ifrs-full:NoncontrollingInterestsMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:NoncontrollingInterestsMember 529900GNB86RB7HRX793 2020-12-31 corestate-capital:NonControllingInterestsInPaidInCapitalAndCapitalReserveMember 529900GNB86RB7HRX793 2021-12-31 corestate-capital:NonControllingInterestsInPaidInCapitalAndCapitalReserveMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:IssuedCapitalMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:RetainedEarningsMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:IssuedCapitalMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:RetainedEarningsMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:RevaluationSurplusMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:RevaluationSurplusMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:StatutoryReserveMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:StatutoryReserveMember 529900GNB86RB7HRX793 2020-12-31 corestate-capital:NetProfitLossForThePeriodMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:OtherReservesMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:OtherReservesMember 529900GNB86RB7HRX793 2021-12-31 corestate-capital:NetProfitLossForThePeriodMember 529900GNB86RB7HRX793 2021-12-31 ifrs-full:AdditionalPaidinCapitalMember 529900GNB86RB7HRX793 2021-12-31 corestate-capital:NonControllingInterestsInProfitForThePeriodMember 529900GNB86RB7HRX793 2020-12-31 ifrs-full:AdditionalPaidinCapitalMember 529900GNB86RB7HRX793 2020-12-31 corestate-capital:NonControllingInterestsInProfitForThePeriodMember 529900GNB86RB7HRX793 2021-01-01 2021-12-31 iso4217:EUR iso4217:EUR xbrli:shares xbrli:pure iso4217:EUR xbrli:shares . false 51 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION PRELIMINARY REMARKS The management report and consolidated ﬁnancial statements of Corestate Capital Holding S.A. (hereinafter “Corestate” or “the Company”) cover the reporting period from 01 January 2021 until 31 December 2021, unless otherwise indicated. Information on market and product offering developments pertains to 2021 as well, unless otherwise indicated. The 2021 ﬁnancial statements have been subject to an external audit by Ernst & Young Luxembourg. Certain statements contained herein may be statements of future expectations and/or other forward-looking statements that are based on our current views and assumptions. These involve known and unknown risks and uncertainties that may cause actual results, performance or events to differ materially from those expressed or implied in such statements. Corestate does not intend and does not undertake any obligation to revise these forward-looking statements. CORESTATE – ANNUAL REPORT 2021 52 TO OUR SHAREHOLDERS COMPANY BACKGROUND CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Corestate is a public limited liability company (Société Anonyme) incorporated under Luxembourg law, with registered ofﬁce at 4, rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. The Company was registered with the Luxembourg Register of Commerce and Companies (Registre de Commerce et des Sociétés) under B 199 780 on 07 September 2015 and was originally established on 21 August 2015. Corestate Capital Holding S.A., Luxembourg does not have any branches. all based on an experienced real estate management team‘s in-depth understanding of each deal and its underlying assets. This business provides commercial and technical property management services including service charge accounting to their clients. The asset management services also include ongoing ﬁnancial and real estate reporting for clients and banks. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS It is part of our real estate management services to continuously observe the market and to seek out and execute exit opportunities as far as they are in line with the clients‘ investment requirements. The sales team is responsible for monitoring favorable sale and exit opportunities. Corestate is one of the leading listed investment managers for real estate equity and debt in Germany and selected other European countries, with in total € 27.4bn in assets under management as at 31 December 2021, thereof around € 19bn asset under management in the core business. The market focus is predominantly on Continental Europe and the UK covering the entire lifecycle of investments in real estate. In our fully integrated business model, we are active as co-investor and manager for our clients applying our experience and expertise to a wide range of real estate investment product offerings. We combine proven real estate expertise, good market knowledge and the understanding of mega trends and environment, social affairs and corporate governance principles for optimal product performance and sustainable returns for our customers. Our business reporting is divided into three segments: (i) “Real Estate Equity”, (ii) “Real Estate Debt” and (iii) “Other”. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION As at 31 December 2021, our asset management activities covered 2.67 million m2 of managed space with more than 28,000 micro living units under management. Moreover, we had more than 114 funds under management as at 31 December 2021. (ii) The Real Estate Debt Segment contains structures and implements investment products via Corestate Bank. Furthermore, with our Group subsidiary HFS (Helvetic Financial Services) we offer mezzanine ﬁnancing (i.e. ﬁnancing that ranks below senior loans and above ordinary shareholders‘ equity) for residential and commercial real estate developments in Germany, Austria, Switzerland as well as Spain and seek to gain cross-selling opportunities from being involved in our clients‘ development from a very early stage. (i) The Real Estate Equity Segment encompasses the sourcing and acquisition of relevant real estate opportunities and investments. It covers ongoing and day-to-day asset and property management and other related services as well as project monitoring over the holding period with the aim of actively enhancing value and optimizing the relevant assets. It also encompasses management of the realization of the value of investment products through multiple eligible exit channels (e.g. asset-by-asset sales, portfolio sales, auctions). The products can be held in separate vehicles established by respective clients together with Corestate. Revenues are generated through acquisition fees, asset management fees, property management fees (in equity products) and sales and promote fees. The core business is to act as an initiator focusing on investments via debt securities. The fund capital is used to acquire bonds which are issued by the bond issuer, typically a real estate development company, for the early stages of a real estate development, usually as equity-replacing bridge ﬁnancing until certain milestones (e.g. the building permit or construction progress) have been achieved and the follow-on ﬁnancing for the entire project has been secured. In summer 2021 HFS launched a new senior fund Stratos VI and now the Company is able to provide senior and subordinated loans. The Stratos VI real estate bond fund has been set up as a special AIF (German special fund) and is targeted at professional and semi-professional investors. The asset and property management services that we provide during the holding period support the investment strategy deployed from the early sourcing phase through business planning. Such early involvement allows e.g. for an efﬁcient implementation of value enhancing measures such as capex investment, rent increases, vacancy reductions and operational cost optimization programmes, CORESTATE – ANNUAL REPORT 2021 53 It will ﬁnance high-return development and existing properties from the residential and commercial real estate segment. HFS intends to increase the fund volume to approximately € 1bn in the next two years. This substantially builds trust and related long-term relationships with the respective client group. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In respect of the properties held for warehousing purposes, Corestate signed a contract with a regional investor group for the sale of the local shopping centre “neustädter“ (Tor) in Giessen at the end of December 2021. The purchase agreement is subject to customary conditions precedent with rights of rescission until the formal due diligence has been completed. The closing of the transaction is expected to take place in the ﬁrst half of 2022. As at 31 December 2021, the total committed fund volume amounted to approximately € 1.2bn, covering about 45 ﬁnanced projects with an average size of mezzanine ﬁnancing between € 25m and € 30m. The investor base of HFS included approximately 70 institutional investors, such as pension funds, investment funds, insurers and pension schemes. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS With the decision to spin-off CRM and Capera made in 2021, the Corestate Group will be able to concentrate even more on the proﬁtable asset management-related activities in the real estate equity sector in the future. Capera is a property manager for residential and commercial real estate in Germany and CRM is a leading operator of student accommodation in the UK. At the time the report was prepared, the spin-off initiated in 2021 is still ongoing. Therefore, both business units are recognized as discontinued operations in the annual ﬁnancial statements. Our integrated business model enables us to cover the entire lifecycle of investments in real estate equity and debt. We are a one-stop shop providing the full range of asset, fund and property management services and related investment products (managed accounts, open-ended and closed-ended funds, club deals, alternative investment funds and individual mandates), and ﬁnancial investment structuring and advisory services, covering all major real estate asset classes and all relevant investment vehicles. Our diversiﬁed product offering covers a broad range of asset classes with different risk-return proﬁles (from value-add/ opportunistic to core and core+), including ofﬁce, residential, micro living/purpose built student accommodation, city quarters, retail, hotel, logistics, debt and mezzanine ﬁnancing services, which enables us to target a broad range of clients, cross-sell our products and address the speciﬁc needs of different client types (institutional, semi-professional and private). The focus of our business strategy is on core and core+ investments. The diversiﬁcation offers additional business opportunities while mitigating business risks at the same time. FURTHER INFORMATION (iii) The Other Segments comprise alignment capital management activities as well as real estate operations and assets held for warehousing purposes, i.e. assets which we acquire on our own balance sheet for a certain short-term period in order to convert them into investment products and – to a lesser extent – assets owned by non-client third parties, with the aim of actively value-enhancing and optimizing the assets and, ultimately, structuring the exit from such real estate investments. An integral part of this business is to co-invest alongside our clients through our alignment capital investments. This means that we invest our own funds into the same products as our clients. As at 31 December 2021, we have invested € 145.9m (equity and loans) through our alignment capital investments. Typically, alignment capital investments range between approximately 5% and 10% of the total equity, depending on our clients‘ requirements and product structuring. To further expand and diversify our real estate debt products and services, improve our access to new sources of capital, extend our client base and capitalize on signiﬁcant cross-selling potential, the Company entered into a business combination agreement with the shareholders of Aggregate Financial Services GmbH (“AFS“) to acquire all shares. AFS is a German debt platform and fully licensed securities trading bank and now operates under the brand Corestate. The acquisition was part of the strategy to signiﬁcantly expand our position in the real estate development ﬁnancing market as well as the wider real estate sector by providing additional ﬁnancial investment structuring and advisory services. The takeover took place as a capital increase against contributions in kind by issuance of 8.5m new Corestate shares as well as payment of a cash component in the amount of € 5.0m. This transaction was signed in January 2021 and closed in May 2021. As a result, we also participate in the performance of the investment products through dividend payments and we realize capital gains upon successful exit from alignment capital investments. Through our alignment capital we “buy into“ the risks and rewards of the underlying transaction and assume responsibility far beyond the role of just an investment manager. CORESTATE – ANNUAL REPORT 2021 54 The following chart illustrates Corestate’s integrated business model. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT EQUITY PRODUCT RANGE DEBT PRODUCT RANGE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS German & European Investment Products ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Residential Micro Living City Quarters Ofﬁce Logistics Mezzanine Senior Loan Debt Advisory & Structuring FURTHER INFORMATION SALES Equity Raising | Client Relations Integrated Real Estate Management Platform BUSINESS FUNCTIONS Investment Management | Asset Management | Fund Management CORPORATE FUNCTIONS Risk Management | Compliance | Digitalization | ESG National & International Clients/Investors Semi-Professional Institutional Retail (~200) (~100) (~48,000) CORESTATE – ANNUAL REPORT 2021 55 With a combined approach and a unique real estate platform we are targeting primarily institutional, but also semi-institutional clients as well as private clients and providing real estate equity and debt products to each group. Our private and semi-institutional clients include family ofﬁces and ultra-high net-worth individuals. National and international institutional clients include investment funds, sovereign wealth funds, pension schemes and insurance companies. TO OUR SHAREHOLDERS CONTROL SYSTEM CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Company‘s control system is geared toward the corporate strategy and is therefore consistently aligned with the Group’s short to medium-term objectives. The Management Board is responsible for overall planning and thus for achieving the stated objectives as part of the strategic corporate development. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Our institutional and semi-institutional investor base comprised more than 300 client contacts as at 31 December 2021. Furthermore, through Hannover Leasing together with its subsidiaries (the “HL Group“) approximately 48,000 retail clients have invested with us. In particular, through the STAM acquisition in 2020, we expanded our investor base considerably and improved our access to ﬁnancing and opportunities for new business, especially with international institutional investors. ANNUAL ACCOUNTS With the involvement of the Executive Committee (ExCom), the Management Board uses a strategy process to steer the development of the business segments and monitors the implementation of deﬁned measures. On the basis of global trends, growth paths are deﬁned, opportunities and risks are evaluated, portfolio decisions are made, and the focus of in-house market research is determined at annual strategy meetings. Strategy and planning meetings provide a planning basis for the following year and in medium-term group planning. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION We have, historically, concentrated on the DACH region. Germany is and will remain the main market for Corestate. However, we are also selectively looking at other attractive real estate markets in Europe such as Austria, Switzerland, France, the UK, Spain and the Benelux countries. Corestate operates principal ofﬁces in Germany, Switzerland, Spain, France and the UK, as well as a German network of branch ofﬁces of its property management platform Capera. As at 31 December 2021, the Group employed about 811 FTEs (previous year: 757 FTEs). A planning forecast for the coming year and a ﬁve-year period is made annually based on the corporate strategy and based on the market-driven strategic planning in the segments. The “counter ﬂow method” is used for planning (bottom up – top down). In the course of a year, the planning for that period is updated in several forecast cycles. Some changes to the Management Board occurred in the ﬁnancial year 2021. As part of the AFS transaction, in January 2021, both founders and shareholders Sebastian Ernst and Johannes Märklin were appointed as members of the Management Board of Corestate for a term of three years. On 01 August 2021, Udo Giegerich was appointed Chief Financial Ofﬁcer of the Group by the Supervisory Board for a three-year term. His predecessor, Lars Schnidrig, left the Company on 30 May 2021 at his own request for personal reasons. In July and August 2021 CIO Nils Hübener and Chief Legal & HR Ofﬁcer (CLHRO) Daniel Löhken stepped down from the Management Board. Both gentlemen are departing at their own request, for personal reasons and on the best of terms. Weekly Board meetings are used for operational control. There the division heads report to the Management Board on the development of transactions and customer relationships, the competitive situation and any exceptional business transactions. They employ standardized reporting methods largely involving performance indicators, information variables and qualitative assessments, which are then used to deﬁne further operating and strategic measures to achieve the objectives in the event of planning deviations. The internal reports – which are prepared monthly – provide aggregated ﬁnancial and non-ﬁnancial information for the segments and the holding company, which is used as a basis to allocate resources in a targeted manner, and pass resolutions on the Management Board. On the 08 February 2022 Johannes Märklin and Sebastian Ernst left the Company. The Supervisory Board resolved shortly before to remove both members from the Management Board of Corestate Capital Holding S.A. and released them from all other group functions. CORESTATE – ANNUAL REPORT 2021 56 TO OUR SHAREHOLDERS Explanation of the key indicators TARGETS AND STRATEGIES CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Corestate is mainly managed based on the aggregated revenue & gains and EBITDA (on adjusted and reported basis). Furthermore, assets under management, fund volume, investment return, net proﬁt, earnings per share, cash ﬂow, net ﬁnancial debt as well as speciﬁc ﬁnancial ratios associated to the key performance indicators are usually used by management to measure operating performance and for steering the Company. We use these metrics as a basis for strategic planning and forecasting, and they represent measures that we believe are widely used by certain investors, securities analysts and other parties as supplemental measures of operating and ﬁnancial performance. In the past ﬁnancial year Corestate undertook a change of perspective following a structured strategy process across the entire group. In the future, the Company will see itself as a manager of this value chain – from project to sale. To safeguard the implementation process and to react immediately to the changed market conditions during 2021, one of the ﬁrst strategic measurements was to bundle and strengthen the sales force. Furthermore, the consistent focus of the investment portfolio on sustainable, future-proof asset classes was initiated as another cornerstone of Corestate’s new strategy. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Nevertheless, the real core of the corporate strategy is to focus on investors and clients. Following the deﬁnition of the overarching goals – such as the new corporate vision, performance proﬁles and authentic ESG targets – we will use the strategy framework as the centrepiece to set out exactly how we are going to move forward. FURTHER INFORMATION Corestate’s non-ﬁnancial performance indicators include maturity proﬁle, attrition rate as well as asset allocation and ESG-related performance measures. Furthermore, Corestate utilizes planning tools such as corporate planning as well as rolling liquidity planning, which are used to steer operational business development. To implement the growth strategy, we are − striving to enlarge our business volume, in terms of AuM − continuing to expanding our customer base in our priority regions − expanding our fund product and real estate debt service offerings − reorganizing and simplifying our corporate structure RESEARCH AND DEVELOPMENT As part of its business purpose, Corestate has no technological research and development activities and is not dependent on licenses and patents. − actively managing our business portfolio with selective divestitures − driving an active cultural change and open mind-set within the Company − continuing to steadily strengthen our ﬁnancial resources to reduce our debt We have set a clear timetable for 2022 and beyond. Throughout the implementation period, all stakeholders will be updated continuously and transparently on the status, progress and successful implementation of the timetable. CORESTATE – ANNUAL REPORT 2021 57 TO OUR SHAREHOLDERS MARKET DEVELOPMENT CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The market environment for Corestate‘s business developed positively in 2021. The German investment market closed 2021 with a record total transaction volume of € 110.7bn, up 35.7% on 2020.1 € 76.6bn worth of real estate changed hands in the second half of the year alone. This means that the third and fourth quarters made up almost 70% of the annual transaction volume. The real estate private debt market in Europe in 2021 showed a volume of about € 80.0bn. In particular, demand for ﬁnancing from both the residential and commercial real estate sectors has been buoyant. COVID-19 has had little impact on the demand for ﬁnancing throughout the pandemic, with pricing holding up strongly as well, debt lenders seem to agree. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS This development was driven in particular by the market for residential real estate investments (incl. nursing homes and student accommodation) with a share of 47%, which is also heading for a new record. Both the number of apartments and apartment prices rose signiﬁcantly and are expected to reach over € 52.2bn for the ﬁrst time in the full year. Ofﬁce properties follow with a share of almost 25% (€ 27.5bn) and an increase of no less than 12% compared to 2020. The bottom of the market seems to have been reached and 2021 delivered the third best result of the past ten years. Logistic properties have continued to develop dynamically in the shadow of the two dominant real estate segments. With a total of € 10.2bn (share of 9.3%), more capital than ever before has ﬂowed into distribution, production and warehousing facilities. While this record ﬁgure demonstrates the attractiveness of the German market across all segments, it is still evidence of a lack of higher-yielding alternatives. The alternative lending sector is still growing because banks cannot - and are not willing to - cover the demand for ﬁnancing, due to the sheer volume of development taking place, on the one hand, and on the other because of much tighter regulation and more restrictive policies in their credit approval processes. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION The whole debt lending sector has become highly dynamic in 2021, and shows no sign of slowing down, with so many new ﬁnancing opportunities opening up across all levels of the capital stack. Germany is retaining its position as the dominant real estate market in Europe, therefore new foreign capital from North America and Asia is looking for more opportunities here. With the ongoing retreat of the traditional lending banks from ﬁnancing anything but rock-solid and blue-chip projects, a further wave of new alternative lenders have been eyeing up prospects in the European lending markets, with the announcement recently of several new providers looking to move into the space. 1 JLL, Investment Market Overview, 04 January 2022 CORESTATE – ANNUAL REPORT 2021 58 TO OUR SHAREHOLDERS BUSINESS AND PRODUCT OFFERING DEVELOPMENT In 2021, Corestate and the market it operates in was still impacted by the COVID-19 pandemic. This led – especially in the ﬁrst months of the year – to an ongoing shift in clients‘ focus towards reduced risk/return proﬁles. CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS At the end of December 2021, Corestate had total assets under management of € 27.4bn. Real estate AuMs stood at € 24.3bn, thereof € 12.4bn (2020: € 12.8bn) in real estate equity and € 6.6bn (2020: € 6.5bn) in real estate debt. This reﬂects our core business. The remaining € 5.4bn (2020: € 5.3bn) are based on third-party property management contracts. The slight reduction in real estate equity AuMs in 2021 is mainly driven by the planned maturity of a property management portfolio in the UK, the termination of a micro living fund and a commercial portfolio. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION At the same time the main transactions and investments affecting real estate debt and equity AuMs in the reporting period were as follows: − Corestate sold Warnow Park in Rostock from its Highstreet VIII retail fund – a hybrid shopping center with a net ﬂoor space of approx. 40,000 m² − Corestate Bank managed the complex project ﬁnancing for the purchase and development of the “FÜRST” project in Berlin – one of the largest real estate transactions of the year with a volume of more than € 1bn − The Group sold a top property, the Deutsche Bahn AG operations centre in Berlin, consisting of two building sections with a lettable area of 23,062 m2 − Corestate sold the Limes Park in Sulzbach near Frankfurt – an ensemble of six buildings with total of approximately 22,300 m² of rental space − STAM Europe acquired three residential buildings for its OPERA Fund in Paris totaling 4,800 m2 and three light industrial parks with more than 15,000 m2 in the Paris region on behalf of the Highlands II joint venture − Hannover Leasing markets Alter Domus head ofﬁce in Luxembourg to Generali − Hannover Leasing acquired the project development “Weitblick 1.7” in Augsburg Innovation Park for a special AIF − Corestate acquired the VISION ONE ofﬁce campus with a lettable area of 25,000 m2 in the Stuttgart metropolitan region (Leinfelden- Echterdingen), for a closed-end special AIF − Corestate set up the open-end special AIF “Stadtquartiere 1” – the ﬁrst of its kind in Germany for institutional investors − HFS launched the new senior fund Stratos VI. The AIF will ﬁnance high-return development and existing properties from the residential and commercial real estate segment in the DACH region. CORESTATE – ANNUAL REPORT 2021 59 € million 2021 9.7 20201 15.1 37.3 3.9 TO OUR SHAREHOLDERS RESULTS OF OPERATIONS Unless otherwise stated, only information on continuing operations is provided in the following sections. CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Revenue from Acquisition Fees Revenue from Asset Management Fees Revenue from Property Management Fees Revenue from Sales and Promote Fees Revenue from Development Fees Total Revenue from Real Estate Equity Segment Revenue from Underwriting and Structuring Fees Revenues from Performance Fees Income from Mezzanine Loans 37.0 5.3 CONSOLIDATED FINANCIAL STATEMENTS Generally, the real estate transaction market regained momentum in the second half of the year. Especially in the last couple of weeks, asset valuations have become more stable, including in those classes that were hit the most during the pandemic such as retail, micro living and hotels. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23.0 2.5 4.9 ANNUAL ACCOUNTS 9.1 NOTES TO THE ANNUAL ACCOUNTS The total aggregated revenues and gains of Corestate including revenue from the discontinued operations of CRM and Capera in 2021 amounted to € 245.5m, a signiﬁcant increase of 28.3% (previous year: € 191.4m). 77.6 36.0 49.5 18.1 17.3 1.0 70.4 18.8 44.3 10.3 19.9 - FURTHER INFORMATION The Group’s aggregated revenue and gains from continuing operations (including the revenue from real estate equity, real estate debt and income from the Other Segment) grew considerably by 33.0% to € 215.4m (previous year: € 162.0m). Revenue from Asset Management Fees Income from Trading Activities Total Revenue from Real Estate Debt Segment Total Income from Other Segment Aggregated Revenue and Gains 121.9 15.9 215.4 93.3 (1.8) 162.0 1 The statement is adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020. For further information see Note B.2.3 to the consolidated ﬁnancial statements. CORESTATE – ANNUAL REPORT 2021 60 TO OUR SHAREHOLDERS REAL ESTATE EQUITY EARNINGS POSITION CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Real Estate Equity Segment generated revenue of € 77.6m, clearly above the prior year’s level of € 70.4m. The asset and property management fees in this segment were up slightly from 41.2 million euros to 42.3 million euros. Acquisition fees in this segment went down considerably from € 15.1m in 2020 to € 9.7m, due to the lower transaction volume on the purchase side and a slightly reduced fee rate. Revenue from sales and promote fees showed a signiﬁcant increase from € 4.9m to € 23.0m in the reporting period, which was mainly driven by an upswing of projects sold with an improved fee rate. The revenue from development fees came to € 2.5m, from € 9.1m in the previous year which is due in particular to the increased focus on forward purchases in cooperation with general contractors. G&A and other expenses in the reporting period went up to € 59.5m (previous year: € 45.4m), particularly due to one-off expenses in the context of the strategic acquisition of AFS and due to integration and transformation measures, provisioning for the planned efﬁciency enhancement programme as well as severance payments for management board members. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Despite the comprehensive risk provisioning and the corresponding impairments on ﬁnancial assets and receivables in particular, the Group EBITDA from continued operations of the reporting period showed an improvement and came to € 26.4m compared to € 16.2m in 2020. Adjusted by € 17.4m one-off effects split in € 7.7m direct M&A expenses, € 3.2m for integration and transformation measures and € 6.5m provisioning for the 2022 efﬁciency program. Thus, the adjusted EBITDA stood at € 43.8m. The adjusted EBITDA margin improved to 20.3% (previous year: 10.0%). NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION REAL ESTATE DEBT Depreciation and amortisation went up signiﬁcantly to € 214.3m from € 50.6m, mainly driven by impairment of the goodwill of the HFS in an amount of € 174.8m. Furthermore this position also includes purchase price allocations from acquisitions. The consolidation of Corestate Bank makes it more difﬁcult to compare the ﬁgures of the Real Estate Debt Segment with the previous year. Total revenue from real estate debt went up signiﬁcantly by 30.6% to € 121.9m (previous year: € 93.3m) underlining the leading position in a very prospering market. In 2021 revenue from underwriting and structuring fees almost doubled from € 18.8m to € 36.0m, mainly driven by the consolidation of Corestate Bank. Income from bridge loans grew to € 18.8m from € 10.3m, driven by the peak in lending over the year. Revenue from asset management fees slightly decreased from € 19.9m to € 17.3m. Revenue from performance fees, including coupon participation fees, was up at € 49.5m (previous year: € 44.3m). This increase was chieﬂy attributable to higher risk discounts in 2020 and the revaluation of individual funds in 2021. € million 2021 24.7 26.4 42.1 43.8 2020 16.6 16.2 16.6 16.2 EBITDA EBITDA from continued Operations Adjusted EBITDA Adjusted EBITDA from continued Operations Net Proﬁt (200.1) (192.8) 17.6 (68.9) (65.1) (47.5) (45.4) Net Proﬁt from continued Operations Adjusted Net Proﬁt Adjusted Net Proﬁt from continued Operations 23.7 CORESTATE – ANNUAL REPORT 2021 61 The ﬁnancial result came to minus € 18.3m (previous year: minus € 23.8m) and TO OUR SHAREHOLDERS ASSET POSITION Balance sheet the result from income tax were € 13.4m (previous year: expenses € 6.9m). CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Corestate’s net proﬁt from continued operations decreased from minus € 65.1m in the previous year to minus € 192.8m in the current reporting period, which translates into earnings per share of minus € 6.29 (previous year: minus € 2.87). Adjustments at net proﬁt level comprises € 174.8m impairment of goodwill, € 7.7m in direct M&A expenses, € 3.2m in transformation and integration measures, € 6.5m in provisioning for efﬁciency program, € 33.2m in effects from ‘Purchase Price Allocation’ and minus € 8.8m in deferred tax liabilities. Adjusted net proﬁt from continued operations ended up at € 23.7m (previous year: minus € 45.4m) . € million 2021 2020 CONSOLIDATED FINANCIAL STATEMENTS Non-Current Assets Current Assets 990.9 399.2 1,056.6 408.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Total Assets 1,413.6 626.2 1,465.0 688.5 NOTES TO THE ANNUAL ACCOUNTS Total Equity FURTHER INFORMATION Earnings Development in €m, EPS in € (continued Operations) Non-Current Liabilities Current Liabilities Total Equity and Liabilities 349.1 548.8 429.4 227.6 1,413.6 1,465.0 Adjusted EBITDA Adjusted Net Proﬁt Earnings per Share As at 31 December 2021, total assets amounted to € 1,413.6m, a slight decrease of 3.5% compared to the previous year ﬁgure (2020: € 1,465.0m). 43.8 Total non-current assets amounted to € 990.9m (2020: € 1,056.6m), by far the largest component of which is the goodwill position created mainly in association with the acquisition of HFS, HL, STAM, CRM and Corestate Bank, standing at € 487.2m (2020: € 577.7m); the variation results from the impairment 23.7 16.2 of HFS with € 174.8m, the addition of AFS with € 94.6m and –2.87 -6.29 2020 2021 the reclassiﬁcation of CRM’s goodwill position in the amount of € 10.3m due to the intended disposal in accordance with IFRS 5. Investment in associates and joint ventures increased in the course of 2021 to € 145.9m (2020: € 120.8m). A signiﬁcant enhancement of € 22.5m results from the project Vision One in the Stuttgart metropolitan area. –45.4 CORESTATE – ANNUAL REPORT 2021 62 Total current assets were at € 399.2m versus € 408.5m as at 31 December 2020. Inventories, i.e. assets held for warehousing, went up from € 73.8m to € 100.0m in particular related to CAPEX measures at the Giessen property. Trade receivables were up by 42.8% from € 33.0m at the end 2020 to € 47.2m as at 31 December 2021, primarily related to sales and promote fees recognized at the year-end. TO OUR SHAREHOLDERS CASH FLOW ANALYSIS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Cash ﬂows from operating activities turned positive from minus € 63.4m in the previous year to € 31.0m in the reporting period. The operating cash ﬂow was primarily affected by higher depreciation and changes in working capital. In 2021, cash ﬂows from investing activities amounted to € 9.8m (previous year: minus € 30.1m). Over the reporting period 2020, they were still largely inﬂuenced by higher payments for acquisitions and the purchase of other ﬁnancial instruments. Cash ﬂows from ﬁnancing activities fell to minus € 56.2m in 2021 (previous year: € 79.4m). In 2020 the ﬁnancing cash ﬂow was mainly positive due to the proceeds from the capital increase and from loans and borrowings, while in 2021 Corestate showed higher repayments for loans and borrowings and fewer outﬂows for ﬁnance expenses. CONSOLIDATED FINANCIAL STATEMENTS Cash and cash equivalents as well as restricted cash decreased mainly due to the contractually committed capex expenditure for the warehousing asset (Giessen) from € 91.2m in 2020 to € 75.7m. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Total equity, driven by the capital increase contributed in kind as part of the Corestate Bank acquisition and against the backdrop of the negative earnings after tax, reduced to € 626.2m at the end of the reporting period (2020: € 688.5m). The equity ratio of Corestate therefore dropped to 44.3% at the end 2021, compared with 47.0% on 31 December 2020. FURTHER INFORMATION Due to higher cash ﬂows from operating activities before taxes, the free cash ﬂow came to € 58.0m (previous year: minus € 51.8m). The free cash ﬂow is calculated as the cash ﬂow from operating activities before payments for income tax in the amount of € 57.3m (previous year: minus € 48.3m), less capital expenditure in and income from the sale of PPE and intangible assets. Total liabilities were relatively stable at € 778.5m in comparison with prior year (2020: € 776.6m). While non-current liabilities went down by € 199.7m to € 349.1m, current liabilities increased by € 201.7m to € 429.4m. The main reason for this was solely the reclassiﬁcation of the ﬁnancial liabilities from bonds due to their maturity. Other non-current ﬁnancial liabilities were reduced from € 29.3m to € 19.9m, mainly due to the reassessment of an existing long-term ofﬁce lease agreement. The cash conversion rate (free cash ﬂow to EBITDA), adjusted for continued operations and for one-off effects and M&A-related expenses, came to 132.4%. Total ﬁnancial liabilities stood at € 622.0m at the end of the reporting period (2020: € 635.6m). Net ﬁnancial debt (including cash and cash equivalents as well as restricted cash and adjusted by lease liabilities) was slightly down at € 526.5m (2020: € 531.4m). This amounts to improved ﬁnancial leverage on 31 December 2021 of about 12.0 versus 32.8 at the end of the comparative period (adjusted EBITDA for continued operations). CORESTATE – ANNUAL REPORT 2021 63 TO OUR SHAREHOLDERS MATERIAL EVENTS AFTER THE REPORTING DATE CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In connection with the changes in the shareholder base of Corestate at the end of 2021, Mr. Stavros Efremidis and Dr Bertrand Malmendier were appointed as new members of the Supervisory Board with effect from 01 January 2022. Mr. Friedrich Munsberg and Prof. Dr Hermann Wagner stepped down from the Supervisory Board correspondingly as at 31 December 2021. The former CEO René Parmantier left the Group’s Management Board to fully focus his activities on Corestate’s Real Estate Debt business, incl. HFS and Corestate Bank. In addition, the Group’s Management Board was extended to four members by Izabela Danner as Chief Operating Ofﬁcer (COO) and Ralf Struckmeyer as Chief Investment Ofﬁcer (CIO). The new members of the Management Board are appointed for a term of three years. On Supervisory Board level, the former Deputy Chairman Dr Bertrand Malmendier took over as Chairman of the Supervisory Board. As a new member Dr Roland Folz joined the Supervisory Board on 07 March 2022. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS The Supervisory Board of Corestate resolved on 07 February 2022 to remove Johannes Märklin and Sebastian Ernst from the Management Board of Corestate Capital Holding S.A. and all further group functions. On 08 February 2022, the Group announced that René Parmantier will assume full responsibility for the Real Estate Debt segment in addition to his role as CEO of Corestate, and thus also the management of Corestate Bank. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION On 04 February 2022, Hannover Leasing placed out an additional share amounting to € 12.5m (12.5%) in its project VISION ONE. By doing so, the investment of Hannover Leasing decreased to € 10.1m and is therefore reclassiﬁed from joint ventures and associates to other ﬁnancial instruments accordingly as at the aforementioned date. The invasion of Ukraine by the Russian Federation on 23 February 2022 and the resulting sanctions with regard to Russian state-owned companies and Russian individuals could also result in restrictions on investments in which Corestate is involved as a co-investor. Corestate has set up a task force to analyse and closely monitor both compliance with the sanction restrictions and their impact on Corestate‘s operating business. Risks would not directly concern the operating business of the underlying investment structures but potentially the restrictions on ﬁnancing and distributions of cash. A ﬁnal assessment of the consequences of this situation for the group is not yet possible at the time of ﬁnalisation of the ﬁnancial statements. On 07 March 2022 the Supervisory Board decided to strengthen the governance structure and resolved to appoint the former Chairman of the Supervisory Board Stavros Efremidis as CEO with immediate effect. CORESTATE – ANNUAL REPORT 2021 64 OUTLOOK TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In 2020, Corestate took the decision not to pay a dividend to the shareholders. However, the future aim of the Management Board is not only to ﬁnance the continued growth of the Company but to also maintain the continuity of its dividend policy. Therefore, the Company intends to return to its regular dividend policy and would like to pay its shareholders a dividend of at least € 0.50 from the 2022 consolidated result in the ﬁnancial year 2023. In addition, the Management Board believes that it is crucial for the Company to maintain stable capital resources in order to achieve sustainable organic growth and increase enterprise value for its shareholders, while also exploiting opportunities for acquisitions. All the issues that were sources of uncertainty in the market in 2021, including coronavirus, supply bottlenecks, rising inﬂation, sustainability, and the future of work, remain unresolved in 2022. Overall, investors are continuing to focus on safe core properties in the face of high investment pressure and are taking ESG criteria into account. As a result, declining yields will contribute to a market revival in the non-core segment in the long term. At the same time, the European Central Bank is expected to change its policy of low interest rates, provided inﬂation remains at a permanently higher level. Nevertheless, the environment for real estate transactions is likely to remain positive. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Corestate will continue to pursue its strategic agenda rigorously and sustainably. The Management Board’s focus remains on net debt reduction and proﬁtable growth in all segments. In addition to revenue growth, economies of scale and higher margins from an optimized product mix and improved cost discipline should lead to an increase in results. This will be aided by an improvement in the overall economic conditions, too. The Group expects organic AuM growth in the mid term between 5-10%. For 2022 the Management Board anticipates also aggregate revenue and gains, to come in between € 210m and € 230m in the ﬁnancial year 2022. The Real Estate Equity and Real Estate Debt Segments should contribute towards this growth in revenue during the current year. Although at the time of reporting there are no plans for larger acquisitions, smaller takeovers are not ruled out. Luxembourg, 20 April 2022 Stavros Efremidis Chief Executive Ofﬁcer Udo Giegerich Chief Financial Ofﬁcer Izabela Danner Chief Operating Ofﬁcer Ralf Struckmeyer Chief Investment Ofﬁcer Following a further improvement in the quality of earnings, the Group expects a normalised EBITDA of between € 90m and € 110m for 2022. CORESTATE – ANNUAL REPORT 2021 65 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT NON-FINANCIAL STATEMENT1 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Through our business operations, we create long-term value while seeking to balance environmental, social and business aspects – for our Company, for our stakeholders and for society. Hence, sustainability is an essential component of our Group strategy. The mandatory non-ﬁnancial statement for the ﬁnancial year 2021 will be part of our ESG Report 2022, which will be available on our website www.corestate-capital.com from 30 June 2022. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION OUR UNDERSTANDING OF THE IMPORTANCE OF SUSTAINABILITY FOR OUR BUSINESS Our understanding of sustainability is based on the conviction that the holistic integration of environmental, social and governance aspects, so called ESG indicators, into the whole real estate investment cycle offers substantial beneﬁts for our clients and partners – as well as society as a whole. Long-term proﬁtability in the real estate sector will depend on responsible behaviour towards the environment and society in the future. Therefore, and in order to safeguard and enhance our growth prospects, the ESG department directly reports to the CEO and regularly informs the Management and Supervisory Boards. Every- day and operational tasks are coordinated through a monthly ESG Committee compromising the Management Board and senior management members with ESG-relevant responsibilities. 1 The mandatory non-ﬁnancial statement 2021 will be included in part of the ESG Report 2022. CORESTATE – ANNUAL REPORT 2021 66 TO OUR SHAREHOLDERS OUR ESG GOALS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Corestate is committed to maintaining high standards of ESG management across the portfolio. On this basis we have developed and committed to 12 corporate ESG targets that we report on annually to track our ESG management objectives. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Reduce CO2 Emissions1 by Increase energy efﬁciency1 by Reduce water consumption1 by Reduce non-recyclable waste1 by 2% annually 20% by 2025 5% annually 30% by 2025 2% annually 20% by 2025 2% annually 20% by 2025 Increase ratio of female Management by Develop at least 5 ESG tenant partnerships Publish employee well-being policy Support Corestate charity incl. solidarity days 5% annually 30% by 2025 by 2025 review every 12 months annually from 2020 1 Based on metre data given for assets 2 Will address changes from the coronavirus crisis by including new work topics 3 Postponed until next year due to coronavirus crisis, not communicated as annual target Provide investor transparency Hold Conduct mandatory compliance & governance trainings Ensure that each employee signs an 12 ESG committees continuously to ensure set targets annually from 2019 for all employees, annually from 2019 Ethics Declaration annually from 2020 CORESTATE – ANNUAL REPORT 2021 67 EMPLOYEE NETWORKS TO OUR SHAREHOLDERS CORESTATE AS AN EMPLOYER CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Along with our ESG goals we were happy to introduce the Corestate Women network. Corestate Women, the women‘s network founded in November 2019 by Corestate Capital Holding S.A., promotes the exchange of experience, inspiration, cooperation and the fair participation of women, to foster personal potential and careers through professional development. Our key initiatives include regional and group-wide networking events – often with guest speakers from the real estate industry, a mentoring programme and regular updates via newsletters. Corestate is sponsoring the ”Fondsfrauen“ career network and has organized joint events with the network. Fondsfrauen is an association with over 2,000 women as members, many of them in management positions in the ﬁnancial sector. Our employees are one of the most valuable cornerstones and the key to the successful development of our Company. Consequently, we want our employees to be motivated and to ﬁnd themselves in a working environment that is constantly evolving. Our ambitious goals can only be achieved with employees who also set the highest standards of quality for themselves. At Corestate our aim is to support equal opportunities, motivate and develop our employees. Therefore, it is important that we provide a professional working environment that keeps work and life in balance. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION EQUAL OPPORTUNITIES We attach great importance to increasing the proportion of women in management positions. However, diversity encompasses much more than gender. For this reason, we have created the “Corestate Capital Pride Network” (CCPN), Corestate‘s LGBTQ+ diversity group. Our CCPN was launched on 28 June 2021 in celebration and recognition of international Pride day which marks the date of the Stonewall riots in 1970 (the riots are widely considered to constitute one of the most important events leading to the LGBTQ+ liberation movement). Our goal and commitment to this network is to encourage the recruitment, retention and recognition of talented, high performing LGBTQ+ individuals, raise awareness of social and professional challenges within the ﬁnancial community that impact LGBTQ+ individuals and build an inclusive community to promote networking, growth and cross-company collaboration. Corestate Capital Group is an equal opportunity employer and is proud to employ individuals from varying backgrounds and with different life experiences. We will not tolerate any discrimination whether based on colour, religion, sex, medical condition, age, national origin or ancestry, physical or mental disability, marital status, medical condition, sexual identity, military service status, gender identity, gender expression or any other consideration protected by applicable local laws. We understand that, as Corestate employees, we should behave in a discriminatory manner and that unlawful discrimination by any employee, regardless of their title and level, will not be tolerated. Corestate’s commitment to equal opportunity employment applies to all persons involved in any of the business areas of the organization. CORESTATE – ANNUAL REPORT 2021 68 We place great importance on workplace learning and a feedback culture. We are committed to providing all our employees with the opportunity to grow and to perform their roles to the highest standards, as well as encouraging them to develop to their future potential. PERSONAL CONDUCT TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT It is important that our employees represent the interests of the business at all times. This means that we always act in a professional and respectful matter towards our colleagues, clients and customers. We expected our staff to uphold the Company‘s values of integrity, team spirit, professionalism, respect and sustainability both during and outside working hours. CONSOLIDATED FINANCIAL STATEMENTS We recognize that learning and development activities take several individual forms. Therefore, it is our commitment to: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS HR SOFTWARE NOTES TO THE ANNUAL ACCOUNTS − Communicate the organization’s objectives and values With the launch of our People Software rexx HR we set the milestone for our group-wide digitalization strategy. The HR software allows our HR data to be connected group-wide. In addition, the changeover now enables the maintenance of a digital employee ﬁle, a better overview for time management and the rapid processing of sick leave and holiday requests. Furthermore, the new software helps us to signiﬁcantly harmonise and speed up our work processes at local and group level. FURTHER INFORMATION − Work with the employees to identify their developmental needs and link these to the Corestate Capital Group objectives − Work with employees to identify solutions to their learning needs − Encourage employees to undertake and make use of learning and development activities Workﬂows can now be displayed and performed by one tool. Recruitment, onboarding, management and offboarding can all be performed easily. − Evaluate the impact of learning and development for individuals and the organization SUCCESS MANAGEMENT Employees are encouraged to: Our success management was implemented in 2020 and has been rolled out group- wide. This holistic process is also mapped and executed via our HR software rexx. − Bring up learning and development needs and opportunities We have made a signiﬁcant step towards a more open and constructive conversation between managers and employees with the focus on strengths and areas of individual development. Our success management system provides a clear and comprehensive approach to the discussion and deﬁnition of annual goals. Biannual appraisals involving managers and employees have improved the performance management culture and expectation management. with their line manager − Participate in learning and development activities − Provide feedback on learning undertaken and its contribution to their personal development and that of the organization. Each Corestate Capital employee also has clear development objectives and will be supported in achieving these to improve and increase our retention rate on a group-wide basis. CORESTATE – ANNUAL REPORT 2021 69 COVID-19 ADVANCED LEADERSHIP TEAM TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Like many companies, Corestate was heavily affected by the COVID-19 pandemic in 2021. COVID-19 has presented us with completely new challenges also in terms of working together. The major steps we have taken in digitalising our daily tasks and projects within the entire group have helped us here tremendously. We complied at all times with the restrictions imposed at our operating locations to protect health and promote hygiene. Our employees were fully able to continue working despite various regulations and restrictions. In 2021, we began the second round of our Advanced Leadership Team (ALT) programme, which was launched in the previous year as an employee development project. We once again delivered this international programme virtually with around 20 participants and provided different training sessions (Leadership, Agile Work and Communication, Presentation) and development opportunities. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS This intense interactive programme for high performers and future senior employees has been designed for our highly motivated and committed employees to encourage their high work ethic and develop their professional and personal skills. NOTES TO THE ANNUAL ACCOUNTS The COVID-19 pandemic has underlined how important our employees are to us. The immediate adaptation of their working methods to the exceptional situation reinforces the commitment our employees put into their daily work. FURTHER INFORMATION As an employer, we see ourselves as having a duty of care. To this day, we have taken all necessary measures regarding hygiene and health regulations to protect our employees. We communicated all updates and news on a regular basis, issued face masks on several occasions, delivered tests and put up warning signs at all our business premises and supplied additional hygiene articles. In addition to receiving training, the members of the ALT worked in group-wide teams together and were mentored by a senior leader of the organization. In this programme, too, we pursue the approach of connecting our entities through joint tasks. The various projects carried out by the groups independently and the success of the output at the beginning of November 2021 showed the relevance of the program and the commitment of the participants. We continued with our virtual training courses to inform our employees on the latest hygiene measures and regulations and formed a Pandemic Risk Steering Committee comprising the responsible senior members of the Management Board, the Risk department HR and Communication. CORESTATE – ANNUAL REPORT 2021 70 CORE AWARD DEVELOPMENT OF EMPLOYEE NUMBERS TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Our performance management system (success management) of the Group is based on four areas of success. With the CORE AWARD our aim is to recognize particularly outstanding achievements in one of the four dimensions. It is of great value to ensure our employees’ efforts are seen, appreciated and rewarded. EMPLOYEES BY REGION IN FTEs 2021 2020 583.3 21.0 1.0 CONSOLIDATED FINANCIAL STATEMENTS Germany France 622.6 21.0 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The CORE AWARD acknowledges the work of individual employees, teams as well as entire departments in a group-wide manner. Participants are nominated for their outstanding projects or achievements and ﬁnally reviewed and chosen by the Management Board. ANNUAL ACCOUNTS Italy NOTES TO THE ANNUAL ACCOUNTS Luxembourg Austria 21.0 11.4 3.0 18.1 7.0 FURTHER INFORMATION The nominations and winners were revealed in two virtual ceremonies which took place in spring and autumn of 2021 with a focus on the dimensions “Creation” and “Collaboration”. With the CORE AWARD we were able to underline the importance of transparency in our daily work. We are delighted with the number of nominations and the feedback we received from the entire organization. Poland 3.0 Switzerland Spain 16.0 7.7 6.8 7.7 United Kingdom Total 108.4 811.3 109.2 757.1 As at 30 December 2021, the number of full-time employees (FTEs) increased by 7.2% to 811.3 (31 December 2020: 757.1 FTEs). The increase is attributable to organic growth throughout the Group, the opening of our JOYN serviced apartments in Switzerland and Germany, and the acquisition of AFS (“Corestate Bank”). At the end of the year 2021, 188.5 FTEs were employed at the foreign locations (31 December 2020: 173.8 FTEs) and the Company had a total of 29 trainees (31 Dec 2020: 27 trainees). The total number of employees shown in the table above includes also the Capera Immobilien Service GmbH and CRM students Ltd. together with CRM Micro Living Italy S.r.l, which are held for sale and declared as discontinued operations in accordance with IFRS 5. These companies employed 268.7 and 106.4 FTEs respectively in the past ﬁnancial year. CORESTATE – ANNUAL REPORT 2021 71 GROUP AGE DISTRIBUTION IN % TO OUR SHAREHOLDERS 2021 15.9 33.6 25.8 20.3 4.4 2020 17.4 34.0 25.3 19.3 4.0 CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Under 30 30-39 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 40-49 50-59 ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Over 60 FURTHER INFORMATION SHARE OF FEMALE MANAGEMENT POSITIONS IN % Management Level 2021 - 2020 - Top Management Level (Board of Directors) 1st Management Level (MD, ED & SLT Member) 2nd Management Level (Department Leader & ALT) 3rd Management Level (Team Leader) Total 14.8 39.3 58.6 40.3 13.9 40.9 63.3 44.3 CORESTATE – ANNUAL REPORT 2021 72 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT RISK REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS RISK MANAGEMENT NOTES TO THE ANNUAL ACCOUNTS RISK MANAGEMENT SYSTEM FURTHER INFORMATION Corestate has established a risk management system at Group level which considers the risks of the holding company as well as the risks of the subsidiaries. For this purpose, Corestate has appointed a Group Chief Risk Ofﬁcer, to whom a team is assigned, but who can also draw on dedicated persons in all subsidiaries of Corestate. In accordance of the ”three lines of defense“ theory, the risk management department operates within the second line of defense. DEFINITION OF RISK Risks are related to speciﬁc causes and result from the uncertainty of future events and a mostly incomplete level of information. In terms of impact, a risk is (mostly) reﬂected in a negative deviation from a deﬁned target value. CORESTATE – ANNUAL REPORT 2021 73 CONCEPT, OBJECTIVE AND FUNDAMENTAL ORIENTATION OF RISK MANAGEMENT TO OUR SHAREHOLDERS These are in particular: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Risk management is seen as the totality of all organizational regulations and measures for identifying and handling risks. The term risk management thus encompasses all methods, systems and systematic measures for identifying, analyzing, assessing, controlling and monitoring signiﬁcant risks that affect the objectivesandexpectationsoftheGroup. Italsoincludesthefurtherdevelopment of risk management instruments and cross-process monitoring and control. CONSOLIDATED FINANCIAL STATEMENTS − risks resulting from actions that violate applicable laws (laws, NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ordinances, regulations); ANNUAL ACCOUNTS − risks resulting from actions that violate the internal guidelines of the Group or, at the level of individual companies, also the internal guidelines of the respective individual subsidiary; NOTES TO THE ANNUAL ACCOUNTS The aim of risk management is, on the one hand, to sustainably secure or increase the value of the Company, to secure the strategic and operative corporate objectives, to secure the future success of the Company and to optimize the medium and long-term risk costs by dealing with risks appropriately. FURTHER INFORMATION − risks resulting from actions that cannot be reconciled with market practices in markets where Corestate operates and therefore entail a not inconsiderable reputational risk; Only by recording all the risks to which the Company is exposed can the necessary level of transparency be achieved. Prior to a business transaction or implementing any new process, all potentially inherent risks are assessed and evaluated. However, there are risks that are not acceptable to the Group as a matter of principle. − risks resulting from actions that could endanger the continued existence of Corestate or individual companies of Corestate. The Group ensures that all other risks are within the limits set by the Management Board of Corestate and, if applicable, by downstream management bodies. CORESTATE – ANNUAL REPORT 2021 74 RISK CONCENTRATIONS AND DIVERSIFICATION TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Concentrations of risk (e.g. concentration exclusively on the real estate market of a single city) are avoided at all levels wherever possible. Where this is not possible, special attention is paid to such concentrations, and measures to reduce such concentrations are continuously reviewed and – where appropriate – implemented. The main functions involved in this process are as follows: CONSOLIDATED FINANCIAL STATEMENTS Function Duty NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Identiﬁcation and assessment of risks Mitigation of risks ANNUAL ACCOUNTS Risk diversiﬁcation, e.g. spreading the investments across various asset classes, markets or addressing different groups of investors (family ofﬁces, institutional investors, investors from the DACH region, from Asia, Africa, the Americas), is implemented where possible to keep dependencies as low as possible. Process Owners NOTES TO THE ANNUAL ACCOUNTS Risk control FURTHER INFORMATION Risk monitoring Review and analysis of risks and risk assessments Risk reporting RISK MANAGEMENT AND CONTROLLING PROCESS Risk Management To ensure effective risk management, appropriate risk management and controlling processes have been set up in all individual companies to identify, assess, manage, monitor and communicate material risks and associated risk concentrations. Review of risk control and risk monitoring performed by risk owners Review on group risks and according mitigation measures Group Risk Committee The risk management and controlling processes ensure that the material risks – including those of outsourced activities and processes – are identiﬁed at an early stage, fully recorded and presented in an appropriate manner. Management Board Audit Committee Supervisory Board Final assessment of group risks Evaluation of material group risks The following sub-processes exist for Corestate in the area of risk management and risk controlling activities: Risk Risk Risk reporting/ communication Risk Risk indentiﬁcation assessment control monitoring CORESTATE – ANNUAL REPORT 2021 75 The risk management and controlling processes are adjusted promptly to changing conditions as required. Accordingly, the documentation specifying the risk process is updated at least annually, more frequently if necessary. Market price risks relate to the possibility of negative changes in value due to unexpected changes in the underlying market parameters. The term market price risk therefore covers risks that arise because investments initiated by Corestate do not develop as forecast. This directly affects investments made by a group company itself, i.e. separate investment funds are out of scope (see below). These investments can be used to be sold into an investment fund later (so-called warehousing). Risks of investments of investment funds do not affect individual companies or Corestate per se. These risks only have relevance beyond the investment assets if they radiate to the companies of Corestate, e.g. via damage to reputation or lost legal disputes. In these cases, the radiance to Corestate is usually accompanied by a previous product, system or process deﬁciency or by human error within Corestate. Consequently, such risks are included in the category “operational risk“. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Risks are also regularly reviewed to determine whether they are acceptable in the context of the respective business. In case of doubt, the responsible member of the management body or group risk management is consulted. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Risks that are within unacceptable limits are examined to see whether they can be reduced or whether the risk acceptance needs to be changed. If neither of these is the case, it is examined whether the transaction based on such a risk can be continued or should be terminated. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION RISK IDENTIFICATION Market price risks can comprise all investment classes (i.e. real estate, other real assets, equities, commodities, ﬁxed income and credit). They therefore include interest rate risks. Risk identiﬁcation is an ongoing process and deals with the question of what risks exist. Within market price risks, general market risk must be distinguished from investment-speciﬁc risks (speciﬁc market risk and event risk). General market risk is the risk arising from the development of the market in which Corestate operates. The following risk type scheme, which is based on the regulatory minimum requirements for the regulated subsidiaries and is therefore also applied at Group level, serves as the identiﬁcation grid. Accordingly, a distinction is made between the following types of risk, which are deﬁned for Corestate as shown below. All identiﬁed risks are meaningfully sorted into one of the following four risk categories. Speciﬁc market risk and event risk relates to developments in individual companies or assets or sub-groups of companies or assets. CORESTATE – ANNUAL REPORT 2021 76 Counterparty default risks are deﬁned as risks that involve the danger of partial or complete default of contractually agreed payments. They include counterparty risk. Operational risks (including compliance risks) are deﬁned as the risk of losses caused by the inadequacy or failure of technology and infrastructure, employees, internal processes or external inﬂuences. The deﬁnition includes legal risks, because the business activities of Corestate are subject to the general conditions of tax, environmental, investment, rental and construction law, among others. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT As with market price risks, counterparty default risks in the investment assets (e.g. default of tenants in commercial properties or lessees of moveable assets) do not affect Corestate per se for the time being. Only if there are suspected spillover effects on Corestate are corresponding risks included in this category CONSOLIDATED FINANCIAL STATEMENTS Operational risk generally consists of many possible risk scenarios that are attributable to very different failure aspects of individual risk causes, or several of those at the same time. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Liquidity risks are dangers that arise from the lack of sufﬁcient ﬁnancial resources. On the one hand, this includes liquidity risk in the narrower sense, which consists of the risk that Corestate companies will not be able to meet their current and future payment obligations in full or on time (e.g. due to the loss of existing sources of ﬁnancing). On the other hand, it contains risks resulting from the increase in the cost of ﬁnancing sources (funding risk). NOTES TO THE ANNUAL ACCOUNTS A sub-risk is so-called compliance risk. This involves the risk of violation or infringement of internal or external rules. Risk consequences can be: FURTHER INFORMATION − monetary losses resulting from inadequate procedures or processes (e.g. ﬁnes or loss of licenses and approvals) Here, too, a corresponding distinction is made between risks of the investment assets and risks of Corestate, as already mentioned. − damage to reputation (e.g. because companies of Corestate are subject of ofﬁcial investigation proceedings). RISK ASSESSMENT Risk assessment is of crucial importance for risk management measures. It describes the importance of the individual risks and is determined from the probability of occurrence (measure of the probability of the risk occurring), the impact (potential damage before measures are taken) and the measures already implemented and planned (control options). It thus represents the basis for planning and controlling risks. Procedure for identifying sub-risk types and individual risks – The existence and exact nature of the risk types described above and the sub-risks to be subsumed under them are checked by means of risk identiﬁcation. As part of risk identiﬁcation, the causes and effects of the risk are described in each case. Not only currently known but also potential future risks are considered. In addition, it is ensured that all material risks are fully recorded and appropriately presented. CORESTATE – ANNUAL REPORT 2021 77 Classiﬁcation of ESG risks – In accordance with various supervisory bodies that provide guidance on managing ESG risks, Corestate considers these risks within the framework of the existing risk landscape and risk inventory, as well as in case of new risks as a part of these. Only in those cases where the risks are purely ESG risks and there is no relation to existing risks are these risks newly and separately registered and integrated into the existing risk landscape using the existing risk categories. Corestate also manages a high number of malls and high street assets. During the pandemic, malls, shops, bars and restaurants were ordered to close several times, and sometimes for a longer period. In addition, access to such malls and shops was restricted by government measures (e.g. access only for vaccinated or recovered persons). The revenues of the malls and shops dropped accordingly, as tenants were not always able to pay full rents, or they terminated contracts partially or completely. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS This all led to the situation that the annual valuation of these assets was lower than before, which made it very difﬁcult (if not impossible) to sell them at the originally expected price. Investors refrained also from investing in such asset classes, resulting in less opportunities to initiate new projects. RISKS RELATED TO THE COVID-19 PANDEMIC NOTES TO THE ANNUAL ACCOUNTS Risks that relate to the COVID-19 pandemic are incorporated in the given risk framework either by considering such risks in existing risks or by adding newly identiﬁed risks to the risk inventory. FURTHER INFORMATION In addition, Corestate is usually remunerated based on the value of the assets managed. Therefore, the lower valuations resulted in lower fee income. The main risks due to the COVID-19 pandemic are on the market and on the liquidity side. While occupancies started to increase in summer 2021, and shops and malls were mainly allowed to stay open, having more turnover, it is expected that the next valuation will show higher values for such assets. Corestate is one of the main managers of student apartments and the temporary letting of micro-apartments, which are usually rented by long-distance commuting professionals and their employers. Loss event database – Incidents of damage that have occurred can provide a basis for identifying and assessing risks. Claims are therefore recorded. A loss event is the occurrence of an operational risk (no matter whether or not already registered) which is claimed in the form of a loss. During the COVID-19 pandemic, universities tend to offer mostly distance learning, which led to demand for student apartments falling sharply. Travel was restricted, so international students could not travel to their universities. In addition, the government in Germany, but also in other countries instructed people to work from home wherever possible to reduce contacts during commuting and in ofﬁces. Many countries also ordered the closure of hotels and similar accommodation. This caused demand for micro-apartments and other similar facilities to drop to nearly zero. Known loss events above a certain amount are considered when assessing operational risks. In addition to the costs incurred, opportunities in the form of additional internal expenses and measures to limit or avoid damage are also recorded. CORESTATE – ANNUAL REPORT 2021 78 Entry and update cycle – The initial recording of a risk is carried out ad hoc when it is identiﬁed. An update must be carried out no later than twelve months after the date of its entry or last update. If necessary, the data is entered or updated ad hoc. Quantitative risk assessment – The quantitative risk assessment requires precise ﬁgures for the amount of loss (impact) in the respective currency (e.g. €, USD) and the probability of occurrence in % for the basic data. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Individual risks are assessed based on their probability of occurrence and the impact/loss they cause. Wherever possible, historical values or planned ﬁgures and relevant indicators are used for this purpose. In cases where no corresponding data basis is available, the best educated guesses of the decentralized risk managers are used. If a single risk event can occur more than once or in several cases, this circumstance is appropriately considered in the probability of occurrence and the amount of loss, using the Poisson distribution. CONSOLIDATED FINANCIAL STATEMENTS In the event of a signiﬁcant change in the risk situation, a written ad hoc report is submitted to the risk management of Corestate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS General valuation rules – Risks are assessed net, i.e. considering measures that have been implemented. To determine an expected loss, the formula NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION − Damage equals probability of occurrence Quantiﬁcation via qualitative risk assessment – Qualitative assessment is used if it is not possible to quantify a risk objectively or “subjectively“ in a reliable manner. A grid was developed for the probability of occurrence and extent of damage in these cases which enables those responsible for risk to determine appropriate quantitative values for this purpose. − multiplied by the expected loss frequency in the event of a loss according to the Poisson distribution − multiplied by the average amount of damage is applied. In the case of risks that can only occur individually, the factor for the expected frequency of losses in the event of a claim is always 1, in order to rule out overestimation of risks. Combination of quantitative and qualitative risks – If risks are assessed both qualitatively and quantitatively, the highest category of both assessments must be used for the overall risk categorization. CORESTATE – ANNUAL REPORT 2021 79 Control priorities – All risks are depicted on a 5x5 matrix in a standardized manner regarding the extent of damage and probability of occurrence. The matrix itself is structured as follows: This matrix reﬂects the following with regard to the management priorities of risks: TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Likelihood of occurrence: This is divided into class 1 to class 5 with the following CONSOLIDATED FINANCIAL STATEMENTS ranges: 5 4 3 2 1 Likelihood of occurrence NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Class Meaning very low low from more than up to including NOTES TO THE ANNUAL ACCOUNTS 1 2 3 4 5 0% 1% 1% 5% FURTHER INFORMATION medium high 5% 50% 95% 100% 50% 95% very high Impact: This is also divided into class 1 to class 5 with the following ranges: Class 1 2 3 4 5 amount of damage Likelihood of occurence Class Meaning very low low from € 1 up to including € 50 000 1 2 3 4 5 White ﬁelds represent negligible control priorities, light green ﬁelds low control priorities, medium green ﬁelds medium control priorities and dark green ﬁelds high control priorities. € 50 001 € 450 000 medium high € 450 001 1.5% of EBITDA 5% of EBITDA 1.5% of EBITDA 5% of EBITDA very high CORESTATE – ANNUAL REPORT 2021 80 RISK MANAGEMENT TO OUR SHAREHOLDERS RISK REPORTING CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Risk management comprises the timely, situation-dependent, appropriate and efﬁcient selection and implementation of risk management tools. REGULAR REPORTING CONSOLIDATED FINANCIAL STATEMENTS Corestate applies various management approaches in dealing with risks, namely avoiding, spreading, limiting, minimizing/reducing, passing on and accepting the respective risk. Reports on the risk situation are submitted to the Management Board at least quarterly. This includes the top risks as well as the signiﬁcant risks, for which a detailed risk description is provided, including changes to the last report. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS The Supervisory Board is informed about the risk situation at least every quarter. This report also includes the top risks as well as the signiﬁcant risks, for which a detailed risk description is provided, including changes to the last report. NOTES TO THE ANNUAL ACCOUNTS Major risks – At Group level, risks are considered material if they have a high control priority, although non-substantial risks are of course also included in the risk management process. FURTHER INFORMATION AD-HOC REPORTING MITIGATION OF RISKS Both signiﬁcant risks identiﬁed outside the reporting dates and known risks whose assessment changes after a reporting date in such a way that the risk is classiﬁed as “material“ are reported ad hoc to the Management Board and, if applicable, to the Supervisory Board. Risks are mitigated by way of: − risk avoidance, e.g. planned activities are ultimately not carried out because the risk/reward proﬁle is not positive; − risk reduction, e.g. on process level by automating processes or observing dual control principles; process changes are analyzed and implemented usually by the process owners; − risk transfer, usually by taking out appropriate insurance policies; this process is usually initiated by the relevant process owner in consultation with Group Corporate Insurance to ensure that similar policies are not taken out multiple times to avoid unnecessarily high prices, that insurance policies cover all relevant departments and companies and that such policies are in line with the Group‘s corporate insurance approach; − risk diversiﬁcation, e.g. by avoiding risk accumulations and not being dependent on only a few customers, markets, assets, etc., and by identifying new markets. This is usually done by the Management Board and division heads. CORESTATE – ANNUAL REPORT 2021 81 ORGANIZATIONAL MEASURES TO OUR SHAREHOLDERS DESCRIPTION OF THE MAIN FEATURES OF THE INTERNAL CONTROL SYSTEM CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Organizational security measures are carried out by automated facilities. They comprise error-preventing measures that are integrated into both the structural and procedural organization of the companies and are intended to guarantee a speciﬁed level of security (e.g. separation of functions, access restrictions in the IT area, payment guidelines). ELEMENTS OF THE CONTROL SYSTEM CONSOLIDATED FINANCIAL STATEMENTS The internal control system (ICS) consists of regulations for managing the activities of Corestate (internal management system) and regulations for monitoring compliance with these regulations (internal monitoring system). It is structured as required by management and set up by the responsible departments and process owners. Its functionality and effectiveness are periodically reviewed and adjusted. The internal monitoring system includes process-integrated (organizational security measures, controls) and process-independent monitoring measures, which are primarily carried out by Internal Audit. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS − When processing business transactions with the help of IT, signiﬁcant asset items can be accessed. In addition to access authorizations/restrictions and data protection measures, work instructions for data entry, input control and the handling of incorrect entries are necessary in the IT area. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION − Work instructions contain precise descriptions of the work, their assignment to the relevant staff (structure, function, role and position) and, if applicable, regulations for their execution. They ensure that operational processes that occur in large quantities are handled uniformly. By deﬁning objectives and controls to provide assurance, management can gradually explore the overall need for controls. − The internal document system, including the deﬁned process ﬂows, is used for the identical processing of similar business transactions and the complete recording of data in the operational accounting system. Its organization includes measures for the design of the documents, the organization of the document ﬂow and the securing of the document storage. Internal Control System Internal Management System Internal Monitoring System Process-integrated Monitoring System Process-integrated Control System Organizational Safeguards Controls Internal Audit Ofﬁcers and (pre, current, post) Line Managers CORESTATE – ANNUAL REPORT 2021 82 CONTROLS TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Controls are carried out by means of measures that are embedded as a process in the work and operating procedures of the Corestate companies, i.e. integrated into the workﬂow, because operations involving the risk of loss of assets, information or value or the risk of errors when dealing with external parties (clients and suppliers) should not remain uncontrolled. Controls by managers and employees are intended to ensure that existing risks are identiﬁed and managed. They are also intended to ensure that the unit concerned (e.g. department, group, company in the group) achieves its objectives in the context of fulﬁlling its tasks. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Checks may be carried out before, during or after the operation to be checked. They can be carried out both by process-dependent persons and by automatic facilities, especially by IT (e.g. plausibility checks). The control associated with the work process has the aim of ﬁnding and preventing errors, if possible before the work process (or parts of it) is completed. As far as possible, upstream controls should therefore be preferred to downstream controls. CORESTATE – ANNUAL REPORT 2021 83 BASIC ELEMENTS AND PRINCIPLES TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The basic elements of Corestate‘s ICS include: CONSOLIDATED FINANCIAL STATEMENTS − process descriptions that deﬁne standardized procedures and clear − dual control principle: No essential process is possible without counterchecking. These cross-checks are established through the implementation of the dual control principle, but also automatically, e.g. through IT-supported system checks. responsibilities for the core business processes NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS − the documentation of processes and controls to make the actions ANNUAL ACCOUNTS traceable and veriﬁable NOTES TO THE ANNUAL ACCOUNTS − separation of functions: The separation of functions considers the incompatibility of functions and tasks or the subdivision of work processes. One and the same person or unit (e.g. job group or department) can never carry out and control all phases of a business transaction alone without another person or unit intervening in the business transaction. If the separation of functions is removed (e.g. in dialogue applications), an equivalent takes its place, e.g. an automatic sampling procedure and/or random downstream checks. − functional segregation, which ensures relevant and risk-oriented measures and that decision-making, execution and control are not exclusively in the hands of one person or sub-organizational unit; FURTHER INFORMATION − the dual control principle for sensitive transactions; as well as rules on bias and incompatibility; detailed rules for dealing with potential conﬂicts of interest are laid down in further Group guidelines. − updates and further development of the ICS to enable an analysis − minimum rights: The principle of minimum rights means that employees should only have access to the information they need for their work. This also includes the corresponding security measures for IT systems, i.e. access and access authorizations adequate to the tasks and responsibilities are adequately restricted. Furthermore, only those authorizations for sensitive data are granted that are necessary for the fulﬁlment of the tasks. of and reaction to deﬁciencies and the need for adjustments. − transparency: Target concepts have been deﬁned and set up for the processes, which contain clear, detailed and comprehensible regulations for the workﬂows (documents and activities) and are documented in written form. CORESTATE – ANNUAL REPORT 2021 84 DOCUMENTATION OF THE CONTROLS OVERALL RISK SITUATION OF THE GROUP TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The controls are deﬁned, established and documented in the processes. As part of risk management, the decentralized risk managers identify, record, assess, regularly review and update risks in a regular process and in cooperation with the respective specialist departments. The risks are regularly recorded by the decentralized risk managers. Regular reports on the risks are provided. The overall risk situation of the entire Group as at 31 December 2021 is “low-medium” (31 December 2020: “low-medium”). The following tables show the risk situation for Corestate’s boutiques and the Group. The risk positions for risks that do not belong to a speciﬁc boutique but to more than one are summarized under “Across Boutiques”. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS In 2018 Corestate Capital Holding S.A. initiated a project concerning the implementation of an efﬁcient and comprehensive group-wide Internal Audit function. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION This role is performed by the experienced and well-established Internal Audit function of HANNOVER LEASING GmbH & Co. KG. Throughout 2021, the group-wide Internal Audit function has served as a “third line of defense” and integral part of Corestate’s internal control system. Special focus has been put on the regulated entities of the Corestate Group while at the same time a best- practice risk-based audit plan for all entities has been worked out. CORESTATE – ANNUAL REPORT 2021 85 DETAILED TOP 10 RISK REPORTING TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT As at 31 December 2021, the top 10 risks were allocated as follows: Risk Category Description CONSOLIDATED 1 2 7 FINANCIAL STATEMENTS Liquidity Risk This reﬂects the risk of delayed returns from deinvestments 1 2 4 3 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 4 3 2 This reﬂects the risk of delayed repayments of loans granted by Corestate 6 5 Liquidity Risk ANNUAL ACCOUNTS This reﬂects the risk of less turnover and revenues NOTES TO THE ANNUAL ACCOUNTS 3 Market Price Risk Counterparty Default Risk Operational Risk Operational Risk Operational Risk Operational Risk Operational Risk Operational Risk 8 due to changing market environments 9 FURTHER INFORMATION This reﬂects the risk of non-foreseeable counterparty default events This reﬂects a litigation risk 4 10 5 This reﬂects a placement risk of a fund due to the COVID-19 pandemic 6 This reﬂects a litigation risk 7 This reﬂects a risk of increased litigation due to underperformances of funds managed by Corestate caused by the COVID-19 pandemic 8 1 This reﬂects a litigation risk 9 Class 1 2 3 4 5 This reﬂects a risk related to a tax audit Likelihood of occurence 10 The risk inventory shows that all relevant risks have been properly identiﬁed and assessed. Risks are managed accordingly. Material risks are appropriately examined by both the Management Board and the Supervisory Board, and measures taken are reviewed regularly. The risk matrix shows that, in view of the current assessment and measures taken, there are no risks that endanger the continued existence of the Group. CORESTATE – ANNUAL REPORT 2021 87 TO OUR SHAREHOLDERS CONSOLIDATED STATEMENT OF FINANCIAL POSITION CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million Notes 31 Dec 2021 31 Dec 2020 ANNUAL ACCOUNTS FURTHER INFORMATION IMPRINT Non-Current Assets Goodwill E.1 E.2 487.2 84.8 577.7 87.8 Other Intangible Assets Investment in Associates and Joint Ventures Other Financial Instruments Property, Plant and Equipment Non-Current Receivables Non-Current Loans to Associated Entities Deferred Tax Assets E.3 145.9 151.5 13.4 120.8 153.9 22.3 E.4 E.5/E.6 E.7 51.7 53.7 E.8 14.9 19.6 D.10 41.5 20.7 Total Non-Current Assets Current Assets 990.9 1,056.6 Inventories E.9 E.10 E.11 100.0 47.2 73.8 33.0 51.0 13.6 126.7 16.6 2.7 Trade Receivables Contract Assets 58.5 Receivables from Associated Entities Other Current Financial Assets Other Current Assets 16.8 E.12 E.13 86.5 12.1 Current Income Tax Assets Restricted Cash 2.5 E.14 E.14 12.9 23.0 68.2 408.5 - Cash and Cash Equivalents Total Current Assets 62.8 399.2 23.5 Assets Held for Sale from Discontinued Operations TOTAL ASSETS B.2.3 1,413.6 1,465.0 CORESTATE – ANNUAL REPORT 2021 88 TO OUR SHAREHOLDERS CONSOLIDATED STATEMENT OF FINANCIAL POSITION CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million Notes 31 Dec 2021 31 Dec 2020 € million Notes 31 Dec 2021 31 Dec 2020 ANNUAL ACCOUNTS FURTHER INFORMATION IMPRINT Equity Current Liabilities Share Capital E.15 2.6 821.7 (201.1) 1.9 752.9 (69.1) 685.8 2.7 Current Financial Liabilities from Bonds Other Current Provisions E.20 E.21 E.22 190.9 13.6 68.3 18.1 27.6 29.5 41.4 40.0 429.4 - 10.1 68.7 9.3 Other Reserves E.15.3 Net Proﬁt/(Loss) for the Period Equity attributable to Shareholders of Parent Company Non-controlling Interests Other Current Financial Liabilities to Banks Current Liabilities to Associated Entities Trade Payables 623.2 3.0 E.23 13.1 36.0 42.0 48.5 227.7 Total Equity 626.2 688.5 Current Income Tax Liabilities Other Current Financial Liabilities Other Current Liabilities Non-Current Liabilities E.24 E.25 Non-Current Financial Liabilities from Bonds Non-Current ﬁnancial Liabilities to Banks Other Non-Current Financial Liabilities Other Non-Current Provisions Other Non-Current Liabilities Deferred Tax Liabilities E.16 E.17 E.18 E.19 298.0 3.5 491.0 4.6 Total Current Liabilities 19.9 1.2 29.3 1.8 8.9 - 8.9 9.2 Liabilities Held for Sale from Discontinued Operations TOTAL EQUITY AND LIABILITIES B.2.3 D.10 17.5 349.1 13.0 548.8 1,413.6 1,465.0 Total Non-Current Liabilities CORESTATE – ANNUAL REPORT 2021 89 TO OUR SHAREHOLDERS CONSOLIDATED STATEMENT OF PROFIT AND LOSS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS 01.01.2021- 31.12.2021 01.01.2020- 31.12.20201 01.01.2021- 31.12.2021 01.01.2020- 31.12.20201 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million Notes € million Notes ANNUAL ACCOUNTS FURTHER INFORMATION IMPRINT Revenue from Acquisition Fees D.2.1 9.7 37.0 5.3 15.1 37.3 3.9 Other Income D.5 15.5 10.6 Revenue from Asset Management Fees Revenue from Property Management Fees Revenue from Sales and Promote Fees realised Revenue from Development Fees D.2.2 D.2.2 D.2.3 D.2.3 D.2 G&A and Other Expenses D.6 (59.5) (45.4) Earnings before Interest, Taxes, Depreciations and Amortisation (EBITDA) 26.4 16.2 23.0 2.5 4.9 Depreciation, Amortisation and Impairment Earnings before Interest and Taxes (EBIT) Financial Income D.7 (214.3) (187.9) 7.3 (50.6) (34.4) 5.2 9.1 Total Revenue from Real Estate Equity Segment Total Expenses from Real Estate Equity Segment Total Earnings from Real Estate Equity Segment Revenue from Underwriting and Structuring Fees Revenues from Performance Fees 77.6 (71.4) 6.2 36.0 49.5 18.1 17.3 1.0 70.4 (78.9) (8.5) 18.8 44.3 10.3 19.9 - D.8 D.9 D.2.4 Financial Expenses (25.6) (206.2) 13.4 (29.0) (58.1) (6.9) Earnings before Taxes (EBT) Income Tax Expense D.3.1 D.3.2 D.3.3 D.3.4 D.3.5 D.3 D.10 Net Proﬁt/(Loss) for the Period from continued Operations Net Proﬁt/(Loss) for the Period from discontinued Operations (192.8) (65.1) Income from Mezzanine Loans B.2.3 (7.2) (200.1) (201.1) 1.0 (3.8) (68.9) (69.1) 0.2 Revenue from Asset Management Fees Income from Trading Activities Net Proﬁt/(Loss) for the Period of which attributable to Equity Holders of Parent Company Total Revenue from Real Estate Debt Segment Total Expenses from Real Estate Debt Segment Total Earnings from Real Estate Debt Segment Income from Rental Income and Service Charges Net Results from Property Holding Warehousing Exists Share of Profit or Loss from Associates and Joint Ventures Dividends from other Alignment Capital 121.9 (66.1) 55.8 6.2 93.3 (9.1) 84.2 6.4 1 the statement of proﬁt and loss is adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020 (see note B.2.3) D.3.6 of which attributable to non-controlling Interests D.4.1 D.4.2 D.4.3 D.4.4 Total Revenues2 Total Expenses3 205.8 170.2 2 not including: Share of Proﬁt or Loss from Associates, Net Gain from Selling Warehousing Assets, Dividends from other Alignment Capital and Gains/losses from fair value measurement of ﬁnancial instruments related to real estate (2.7) 2.4 (0.8) (9.3) 8.8 (204.5) (156.3) 12.8 Earnings per Share based on Net Proﬁt/Loss attributable to Equity Holders of Parent Company (in €): Gains/losses from fair Value Measurement of Financial Instruments related to Real Estate D.4.5 (2.9) (6.8) 3 excluding Financial Expenses and Depreciation and Amortisation and Impairment / including impairment losses determined in accordance with Section 5.5 of IFRS 9 (for further information see Notes E.10 and F.4.2) Earnings per Share from Continued Operations D.11 D.11 (6.29) (2.87) (0.17) Total Income from Other Segments Total Expenses from Other Segments Total Earnings from Other Segments D.4 15.9 (7.5) 8.4 (1.8) (22.9) (24.7) Earnings per Share from Discontinued Operations (0.23) D.4.6 CORESTATE – ANNUAL REPORT 2021 90 TO OUR SHAREHOLDERS CONSOLIDATED STATEMENT CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT OF OTHER COMPREHENSIVE INCOME CONSOLIDATED FINANCIAL STATEMENTS 01.01.2021- 31.12.2021 01.01.2020- 31.12.2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million ANNUAL ACCOUNTS FURTHER INFORMATION IMPRINT Net Proﬁt/(Loss) for the Period (200.1) (68.9) Other Comprehensive Income Other Comprehensive Income to be Reclassiﬁed to Proﬁt or Loss in Subsequent Periods (Net of Tax): Exchange Differences on Translation of foreign Operations thereof recycled 4.4 2.5 - (1.7) - Other differences 0.6 Net Other Comprehensive Income to be Reclassiﬁed to Proﬁt or Loss in Subsequent Periods 4.4 (1.1) Other Comprehensive Income not to be Reclassiﬁed 1.1 (0.1) 5.4 0.2 - to Proﬁt or Loss in Subsequent Periods Deferred Tax Effect Other Comprehensive Income/(Loss) for the Period, Net of Tax (0.9) Total Comprehensive Income for the Period, Net of Tax of which attributable to Equity Holders of Parent Company of which attributable to non-controlling Interests (194.7) (195.7) 1.0 (69.8) (70.0) 0.2 CORESTATE – ANNUAL REPORT 2021 91 TO OUR SHAREHOLDERS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS FURTHER INFORMATION IMPRINT € million Closing Balance of Equity Accounts as at 31 December 2019 1.6 0.2 430.1 136.4 (3.3) 563.3 108.5 673.4 2.6 0.3 2.9 676.3 Proﬁt for the Period - - - - - - - (69.1) - (69.1) (0.9) - - 0.2 - 0.2 - (68.9) (0.9) Other comprehensive Income - - - (0.9) (0.9) Total comprehensive Income for the Period - - - - (0.9) (0.9) (69.1) (70.0) - 0.2 0.2 (69.8) Issue of New Capital 0.3 0.0 - - - - - - 78.3 6.4 (0.8) 1.2 - - - 78.3 6.4 - 78.6 6.4 - - - 78.6 6.4 Repurchase of own Shares Share issuance Expense Equity-settled share-based Payment Reclassiﬁcation/Others - - - - - - - - - - (0.8) 1.2 - - (0.8) 1.2 - - - - - - (0.8) 1.2 0.0 - 107.8 (2.4) 105.4 (108.5) (3.1) (0.1) (0.3) (0.4) (3.5) Closing Balance of Equity Accounts as at 31 December 2020 1.9 0.2 515.2 244.2 (6.6) 752.9 (69.1) 685.8 2.5 0.2 2.7 688.5 Proﬁt for the Period - - - - - - - - - - (201.1) - (201.1) 5.4 - - 1.0 - 1.0 - (200.1) 5.4 Other comprehensive Income 5.4 5.4 Total comprehensive Income for the Period - - - - 5.4 5.4 (201.1) (195.7) - 1.0 1.0 (194.7) Issue of New Capital 0.6 - - 129.0 - 0.4 - 129.0 - - 129.6 - (0.0) - - - (0.0) - 129.6 (0.0) 3.5 Acquisition of non-controlling Interests Equity-settled share-based Payment Reclassiﬁcation/Others - - - - 3.5 - (0.4) - - - 3.5 - - - - - - - 3.5 0.1 (69.2) (69.1) 69.1 (0.5) (0.2) (0.7) (0.7) Closing Balance of Equity Accounts as at 31 December 2021 2.6 0.3 647.6 175.4 (1.6) 821.7 (201.1) 623.2 2.0 1.0 3.0 626.2 CORESTATE – ANNUAL REPORT 2021 92 TO OUR SHAREHOLDERS CONSOLIDATED STATEMENT OF CASH FLOWS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS 01.01.2021- 31.12.2021 01.01.2020- 31.12.20201 01.01.2021- 31.12.2021 01.01.2020- 31.12.20201 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million € million ANNUAL ACCOUNTS FURTHER INFORMATION IMPRINT Earnings before Interest and Taxes (EBIT) (187.9) 214.3 3.5 (34.4) 50.6 1.2 Proceeds from Issuance of New Share Capital - 78.6 Depreciation/Write-ups of non-current Assets Equity-settled share-based Payment Repayment of Lease Liabilities (5.1) (3.5) Proceeds from Loans and Borrowings Repayment of Loans and Borrowings Finance Expenses 0.8 28.5 Net Loss/(Gain) on Disposal of non-current Assets Changes in Provisions 2.4 1.0 (39.5) (14.6) 2.1 (3.1) 3.6 (2.8) 9.3 (23.8) 2.6 Share of Results from Associates and Joint Ventures 0.2 Finance Income Changes from Purchase and Sale Net Cash Flows (used in)/from Financing Activities Cash and Cash Equivalents at Beginn of Period Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents at end of Period (56.2) 91.2 (15.5) 75.7 79.4 105.4 (14.2) 91.2 (18.6) 21.4 18.4 (12.2) (74.4) 13.5 of Inventories and advanced Payments Changes in Receivables and other Assets that are not attributable to Investing Activities Changes in Liabilities that are not attributable to Financing Activities Income Taxes received/(paid) (26.3) 31.0 7.5 (15.1) (63.4) (24.0) (16.4) Net Cash Flows from operating Activities Acquisition of Subsidiaries Outﬂow for Alignment Capital Investments (1.7) Inﬂow from repayment of Alignment Capital Investments 0.2 11.7 Payments for Acquisition of PPE Proceeds from Sale of PPE (0.4) 1.6 (0.5) - (1.5) 0.3 Payments for Acquisition of Intangible Assets Purchase of other Financial Instruments Sale of other Financial Instruments (2.3) (6.3) 8.4 1 the statement of Cash Flows is adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020 (see note B.2.3) 3.2 Net Cash Flows generated from/(used in) Investing Activities 9.8 (30.1) CORESTATE – ANNUAL REPORT 2021 94 TO OUR SHAREHOLDERS A. CORPORATE CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT INFORMATION & BASIS OF PREPARATION CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS A.1 CORPORATE INFORMATION FURTHER INFORMATION Corestate Capital Holding S.A. (hereafter “CCH SA”, “the Group” or “the Company”) is a limited liability company ( Société Anonyme ) incorporated under Luxembourg law, with registered ofﬁce at 4, Rue Jean Monnet, L-2180 Luxembourg , Grand Duchy of Luxembourg . The Company was registered with the Luxembourg Register of Commerce and Companies (Registre de Commerce et des Sociétés) under number B 199 780 on 07 September 2015. on Core and Core+ investments, whereas Core investments are located in major cities with highly creditworthy tenants on a long-term basis and Core+ investments have a slightly more risk-oriented alignment. As at 31 December 2021, the Group employed 811 FTEs (2020: 757 FTEs) across 42 ofﬁces in 11 countries, providing direct access to local markets. Of those, 375 FTEs are related to the discontinued operations. These employees are mainly based in Germany and the United Kingdom. Since 2017 the Company’s shares have been traded on the regulated market segment (Regulierter Markt) of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse). The consolidated ﬁnancial statements of Corestate Capital Holding S.A. and its subsidiaries (the Group) for the year ended 31 December 2021 were authorized for issue in accordance with a resolution of the Management Board and the Supervisory Board on 07 March 2022. The consolidated ﬁnancial statements are subject to approval by the annual general meeting. CCH SA is an investment manager for real estate equity and debt specializing in the creation and subsequent realization of real estate related investments in Europe for private and institutional clients. CCH SA and its subsidiaries (the Group) offer a fully integrated business model, are active as a co-investor and asset and property manager and are focused on residential and commercial (primarily ofﬁce, mixed use and retail) real estate as well as micro-living projects. Geographically, the Group primarily concentrates on the German market but is also selectively active in other attractive markets in Europe such as France, the UK, Austria, Switzerland, Poland and Spain. Its investment product offering covers the full range of the risk/return curve, i.e. from value-add/opportunistic to core, and, in each case, is tailor made to the speciﬁc requirements of its clients. As a key element of its business model, the Group is actively warehousing certain real estate in order to seize opportunities both in competitive situations as well as in order to establish seed portfolios for institutional products. The key focus of the business strategy in the future will be The consolidated ﬁnancial statements of Corestate Capital Holding S.A. are published according to the provisions of the Luxembourg Law and the exchange rules of the Frankfurt Stock Exchange. They will be available on the Company’s website and at the Company’s ofﬁces at 4, Rue Jean Monnet, L-2180 Luxembourg , Grand Duchy of Luxembourg. In accordance with Luxembourg Company Law, the annual ﬁnancial statements (in accordance with Luxembourg GAAP) of the Company will also be ﬁled with the Companies Register and an extract will be published in the Recueil Electronique des Sociétés et Association. CORESTATE – ANNUAL REPORT 2021 95 A.2 BASIS OF PREPARATION TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The consolidated ﬁnancial statements of the Group have been prepared in compliance with International Financial Reporting Standards (“IFRS”) adopted by the European Union (“EU”) for the year ended 31 December 2021. All other assets and liabilities are classiﬁed as non-current, incl. deferred tax assets and liabilities. CONSOLIDATED FINANCIAL STATEMENTS The consolidated ﬁnancial statements have been prepared on a going concern basis. In assessing the Group‘s ability to continue as a going concern, the Management Board has considered the expected future proceeds from divestments and freeing up capital initiatives as the basis for reﬁnancing the two major debt instruments. Accordingly, the reﬁnancing strategy is to initially repay the convertible bond amounting to € 190.9m as of 31 December 2021 from net operating cash ﬂows and from the repayment, settlement and placement of various balance sheet assets, while the senior bond amounting to € 298.0m as of 31 December 2021 maturing in April 2023 is to be reﬁnanced through the issuance of one or more new debt instruments. Together with investors and advising banks, it is also being considered to reﬁnance the convertible bond and the senior bond together in the course of 2022 by simultaneously issuing a new senior bond and using the accumulated cash. Management is conﬁdent in its ability to execute its reﬁnancing plan. However, the Group’s ability to complete its reﬁnancing strategy depends on the timing of and amounts from the realization of the balance sheet assets, the capital market situation and the performance of the Group which together indicate that a material uncertainty exists that may cast signiﬁcant doubt on the Group’s ability to continue as a going concern. The consolidated ﬁnancial statements have been prepared on a historical cost basis, except for certain ﬁnancial assets and liabilities that have been measured at fair value. The consolidated ﬁnancial statements are presented in euros, which is the presentation currency of the Group and the functional currency of the parent company. The Group determines the functional currency for each entity, and the items included in the ﬁnancial statements of each entity are measured using the functional currency. The group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassiﬁed to proﬁt or loss reﬂects the amount that arises from using this method. All values are rounded to the nearest million (€m), except when otherwise indicated. Due to rounding, numbers presented may not add up precisely to totals provided. The consolidated ﬁnancial statements provide comparative information in respect of the previous period. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION The Group presents assets and liabilities in its statement of ﬁnancial position based on current/non-current classiﬁcation. Assets and liabilities are classiﬁed as current when − the Group expects them to be realized or settled in the normal operating Financial information presented in parentheses denotes the negative of such number presented. In respect of ﬁnancial data set out in these consolidated ﬁnancial statements, a dash (“–”) signiﬁes that the relevant ﬁgure is not available, while a zero (“0”) signiﬁes that the relevant ﬁgure is available but has been rounded to or equals zero. cycle (e.g. inventories from warehousing or other current ﬁnancial assets), − the Group holds the asset or liability primarily for the purpose of trading, − the Group expects them to be realized or settled within twelve months after the reporting date (e.g. trade receivables/payables), or − the asset is cash or cash equivalent. CORESTATE – ANNUAL REPORT 2021 96 A recovery of the economy is expected for all future outlooks relevant to the valuation, that the parameters included in the valuation (i.e. cash ﬂows, interest rates) give a more positive outlook than expected in the current reporting period. A.3 GENERAL REMARKS ON EFFECTS RESULTING FROM THE COVID-19 PANDEMIC TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The outbreak of the Coronavirus (COVID-19), declared by the World Health Organization as a “Global Pandemic” on the 11 March 2020, continued to impact many aspects of daily life and the global economy in 2021 – with most real estate markets experiencing lower levels of transactional activity and liquidity. Hence, Corestate’s management expects an improved outlook for the coming years. This is reﬂected in the planning periods of nearly all of the Group’s “cash- generating units“ (CGUs; for goodwill and impairment test issues see Note E.1). Here, a positive outlook as well as a fast recovery of the economy is expected during the next reporting period. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Given the unknown future impact that COVID-19 might have on the real estate market and the difﬁculty in differentiating between short-term impacts and long-term structural changes, some valuations of investment properties held by associates under joint ventures and co-investment agreements are subject to the material valuation uncertainty declaration as set out in the RICS Valuation – Global Standards. This uncertainty adversely affects demand, with marketing voids increasing and rental levels under pressure. But for the avoidance of doubt, the inclusion of the ‘material valuation uncertainty’ declaration does not mean that the valuation cannot be relied upon. Rather, the declaration has been included to ensure transparency of the fact that – in the current extraordinary circumstances – less certainty can be attached to the valuation than would otherwise be the case. NOTES TO THE ANNUAL ACCOUNTS In addition, the large-scale business disruptions caused by COVID-19 may give rise to (temporary) liquidity issues for some entities within product structures. Deterioration in credit quality of loan portfolios and trade receivables (amongst other items) as well as the uncertainty caused by COVID-19 may have a non- negatable impact on the fair value measurements explicit for all ﬁnancial instruments and for all impairment testing assets in the Group. The main impact of COVID-19 in the Group’s consolidated statement of ﬁnancial position and statement of proﬁt or loss are shown in Notes, D.4.3 and D.4.5 as well as E.1, E.3, E.4 and E.15.3. FURTHER INFORMATION The different types of lockdown in nearly all countries due to COVID-19 in 2020 and throughout different phases in 2021 severely impacted the markets for hotels, service apartments, retail and shopping centers in particular. In contrast, business involving residential assets and ofﬁces with long-running rental contracts proved to be very resilient. To curb further “waves” of COVID-19, travel, movement and operational restrictions have been implemented by many countries, which currently remain unchanged. Due to these ongoing restrictions on business activities, it might be likely that there could be signiﬁcant rental defaults leading to voids and a resulting shortfall in income for the respective asset classes of the Company. This could lead to further write-downs on various asset classes due to lower proﬁtability. A.4 NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED AND TO BE ADOPTED BY THE GROUP There are no new standards, interpretations or amendments in 2021 that are not yet effective but would be expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. The same applies for all standards, interpretations and amendments that became effective in 2021. This includes the amendment to IAS 1 “Classiﬁcation of Liabilities as Current or Non-Current”. Despite all the uncertainty caused by the pandemic, all future considerations have been made in the expectation that the pandemic will end within a reasonable time after the reporting period. The assessment of a gradual recovery is based on the progress made in the production and distribution of a COVID-19 vaccine, including timely national distribution strategies. CORESTATE – ANNUAL REPORT 2021 97 TO OUR SHAREHOLDERS B. SCOPE OF CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Seat and Country of Incorporation CONSOLIDATION AND BUSINESS COMBINATIONS Name CONSOLIDATED FINANCIAL STATEMENTS AF ATHENA GmbH Frankfurt on Main / Germany Neu-Isenburg / Germany Frankfurt on Main / Germany Baar / Switzerland NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Capera Immobilien Service GmbH CE Bad Honnef Betriebsgesellschaft mbH Corestate CAPITAL AG ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Corestate Capital Foundation gGmbH Corestate Capital Group GmbH Corestate Capital Advisors GmbH Corestate Capital Investors (Europe) GmbH Corestate Capital Partners GmbH Corestate Capital Transactions AG Corestate Capital CIV GmbH Corestate FIF I Portfolio Verwaltung GmbH Corestate Marketing GmbH Frankfurt on Main / Germany Frankfurt on Main / Germany Frankfurt on Main / Germany Frankfurt on Main / Germany Zurich / Switzerland B.1 SCOPE OF CONSOLIDATION The consolidated ﬁnancial statements comprise the ﬁnancial statements of CCH SA and its subsidiaries as at 31 December 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated ﬁnancial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Baar / Switzerland Frankfurt on Main / Germany Frankfurt on Main / Germany Frankfurt on Main / Germany Frankfurt on Main / Germany Frankfurt on Main / Germany Leipzig / Germany Corestate Capital Beteiligungs Verwaltungs GmbH Court HoldCo GmbH Proﬁt or loss and each component of other comprehensive income (OCI) are attributedtotheequityholdersoftheparentoftheGroupandtothenon-controlling interests, even if this results in the non-controlling interests having a deﬁcit balance. When necessary, adjustments are made to the ﬁnancial statements of subsidiaries to bring their accounting policies into line with the Group‘s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash ﬂows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non- controlling interest and other components of equity while any resultant gain or loss is recognized in proﬁt or loss. Any investment retained is recognized at fair value. GENOST Consulting GmbH UPARTMENTS Real Estate GmbH Leipzig / Germany For the entities shown in the table on the right, CCH SA applies the exemption under §264 lit. 3 HGB and corresponding local legislation in the country of incorporation (for CCH SA’s equity interest in each company please refer to Note F.7 to the statutory ﬁnancial statements). CORESTATE – ANNUAL REPORT 2021 98 2020 123 55 First-time consolidation Deconsolidation Merger 2021 118 55 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Consolidated Entities thereof Germany 8 4 4 7 - 6 4 2 CONSOLIDATED FINANCIAL STATEMENTS thereof Other Countries 68 7 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS 2020 103 18 Additions Disposals Merger 2021 98 NOTES TO THE ANNUAL ACCOUNTS Associated Entities thereof Germany 2 1 1 7 2 5 - - - FURTHER INFORMATION 17 thereof Other Countries 85 81 Four additions to the consolidated entities are part of the newly acquired business of Corestate Bank in May 2021 (see also Note B.2.2). As a result of the sale of assets or the termination of joint venture and co-investment agreements (JVCIA), seven companies left the Group during the reporting period. The changes in the scope of consolidation affect the following companies: Equity Seat and Country of Incorporation Name of Acquired Companies Aggregate Debt Advisory GmbH Aggregate Debt GP S.à r.l. Aggregate Debt Fund S.C.A. SICAV-RAIF Corestate Bank GmbH Interest 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Frankfurt on Main / Germany Luxembourg Overall, the Group acquired a total of net assets amounting to € 40.0m (2020: € 9.6m) through ﬁrst-time consolidation of eight entities presented above. These entities account for a total revenues of € 27.1m (2020: € 6.2m) and net results of € -4.4m (2020: € -0.3m). Luxembourg Frankfurt on Main / Germany Frankfurt on Main / Germany Warsaw / Poland The deconsolidation of seven formerly full-consolidated entities presented above led to a total net result of € 0.0m (2020: € -1.0m). Livision GmbH Mariggo Investments sp.z.o.o. SUBSTANTIA Verwaltungsgesellschaft mbH & Co. Vermietungs KG Pullach / Germany 94.90% Urban Micro Estate Spain Spain 100.00% CORESTATE – ANNUAL REPORT 2021 99 Equity Interest TO OUR SHAREHOLDERS B.2 BUSINESS COMBINATIONS Seat and Country of Incorporation Name of Deconsolidated Companies ATOS Property Management GmbH Corestate Capital Dept Advisory GmbH Corestate ZGE Feeder GmbH & Co. KG Design Center AIF S.à r.l. CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT B.2.1 PRINCIPLES OF BUSINESS COMBINATION Hamburg / Germany Frankfurt on Main / Germany Frankfurt on Main / Germany Luxembourg merged merged merged merged merged merged Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition-date fair value and the amount of any non-controlling interests in the acquisition. The Group as acquirer measures the identiﬁable assets acquired and the liabilities assumed (including contingent liabilities) at their acquisition-date fair values. For each business combination, the Group measures the non-controlling interests in the acquisition at the proportionate share of the acquiree‘s identiﬁable net assets. Acquisition-related costs are expensed as incurred and included in general and administrative expenses or management expenses. The Group as acquirer recognises goodwill as at the acquisition date measured as the excess of (a) the aggregate of the consideration transferred and the amount of any non-controlling interest in the acquiree over (b) the net of the acquisition-date amounts of the identiﬁable assets acquired and the liabilities assumed measured in accordance with IFRS 3. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS HANNOVER LEASING Automotive GmbH STAM RE III S.à r.l. Pullach / Germany NOTES TO THE ANNUAL ACCOUNTS Paris / France FURTHER INFORMATION Ardville Invest S.L. Madrid / Spain liquidated liquidated liquidated liquidated liquidated liquidated liquidated Bagley Invest S.L. Madrid / Spain Highstreet IX TopCo Ltd. Iberian HoldCo II S.L. Iberian PropCo II S.L. Marburg TopCo Ltd. MicroLiving Service zwei GmbH Guernsey / United Kingdom Madrid / Spain Madrid / Spain If the acquisition involves an asset or a group of assets that does not constitute a business, the acquirer must identify and recognise the individual identiﬁable assets acquired (including those assets that meet the deﬁnition of, and recognition criteria for, intangible assets in IAS 38 Intangible Assets) and liabilities assumed. The cost of the group is allocated to the individual identiﬁable assets and liabilities based on their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill. Guernsey / United Kingdom Vienna / Austria When the Group acquires a business, it assesses the 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. CORESTATE – ANNUAL REPORT 2021 100 Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classiﬁed as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classiﬁed as a liability that is a ﬁnancial instrument and within the scope of IFRS 9 Financial Instruments is measured at fair value, with the changes in fair value recognized in the statement of proﬁt or loss. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date, with changes in fair value recognized in proﬁt or loss. B.2.2 ACQUISITION OF CORESTATE BANK TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT On 15 January 2021 the Company signed an agreement for the acquisition of Corestate Bank GmbH (formerly registered as: Aggregate Financial Services GmbH, Frankfurt am Main (‘AFS’), a securities trading institute regulated by the German Federal Financial Supervisory Authority (BaFin) that is licensed to provide a range of real estate structuring and ﬁnancing advisory services including regulated services under § 15 WpIG (Wertpapierinstitutsgesetz; Investment Firm Act). CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS The closing of the transaction took place on 25 May 2021 after all closing conditions were met, including the approvals of all relevant authorities. With this acquisition, the Group is expanding its market-leading position in private debt in the real estate sector. Furthermore, the acquisition of Corestate Bank enables the Group to provide services of a securities trading bank in combination with a broad product offering for tailor-made ﬁnancing solutions to the real estate sector. Contingent liabilities recognized in a business combination FURTHER INFORMATION As set out above, contingent liabilities recognised in a business combination are initially measured at fair value. After initial recognition and until the liabilities are settled, cancelled or expired, these liabilities are measured at the higher of (a) the amount that would be recognised in accordance with IAS 37; and (b) the amount initially recognised less, if appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers. The consideration transferred amounts to € 134.6m and comprises the following elements: (1) Fixed amount of cash (€ 5.0m) (2) 8,500,000 shares of Corestate Capital Holding S.A. (€ 110.2m) – measured at the XETRA stock price of € 12.96 at the closing date per share – reﬂecting the acquisition-date fair value of the contributed shares of Aggregate Financial Services GmbH (3) 1,500,000 shares of Corestate Capital Holding S.A. (€ 19.4m) – measured at the XETRA stock price of € 12.96 at the closing date per share – as an earn-out component CORESTATE – ANNUAL REPORT 2021 101 The earn-out component (contingent consideration) is capped at 1,500,000 shares of Corestate Capital Holding S.A. dependent on a certain level of Corestate Bank’s EBITDA for FY 2021 to 2023 that must exceed ascending hurdle rates per each year. Based on the mid-term forecast and information received during the due diligence the Company expects Corestate Bank to achieve its full earn-out potential. Fair Value of Net Assets and Liabilities recognized Corestate Bank GmbH TO OUR SHAREHOLDERS (in €m) CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Acquisition Date 25 May 2021 134.6 5.0 Total Cost of the Combination thereof Cash CONSOLIDATED FINANCIAL STATEMENTS Based on mandate-related information gathered since closing date, some of the provisional PPA amounts presented in the Group’s 2021 half-year ﬁnancials had to be adjusted in line with IFRS 3.45. Initially, on 25 May 2021 provisional customer relationships of € 64.0m were identiﬁed that led to a cumulative depreciation amounting to € 4.1m until year-end 2021. Also, a provisional order backlog of € 12.9m was recognized on 25 May 2021 which led to cumulative depreciation of € 1.9m until year-end 2021. Both were derecognized and the cumulative depreciation was reversed accordingly based on management’s reassessment of the ability to generate future economic beneﬁts from the underlying customer relationships and expected mandates during the measurement period. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS thereof Contribution in kind thereof equity-settled Earn-Out Voting Rights acquired (%) Property, Plant & Equipment Intangible Assets – Order Backlog Intangible Assets – Customer Relationships Receivables 110.2 19.4 ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS 100% 1.1 FURTHER INFORMATION 11.2 25.5 3.5 As part of the purchase price allocation using a multi-period excess earnings (MEEM) approach,customercontractsequivalentto€11.2mwereidentiﬁedasorderbacklog and represent CORESTATE Bank’s product pipeline in exclusivity at closing date. The order backlog included a single large project that was already depreciated in an amount of € 7.8m until 30 June 2021. Hence, € 9.0m in order backlog has already been written off as at 31 December 2021. Additionally, customer relationships amounting to € 25.5m were identiﬁed as CORESTATE Bank’s future business with a selected portfolio of customers. At year-end, the customer relationships were reassessed and in consequence management reduced its assessment of the future business potential with this portfolio of customers. This assumption led to an impairment of the customer relationships in the amount of EUR 12.9m. Hence, € 16.6m of initially recognized € 25.5m in customer relationships have already been written off as at 31 December 2021. Other Assets 0.7 Income Tax Assets 0.0 Cash and Cash Equivalents Total Assets 12.8 54.8 (11.7) (0.2) Deferred Tax Liability Current Tax Liability 1 On a pro-forma basis, CORESTATE Capital Group and AFS including its subsidiaries would have generated revenues of € 208.5m and a proﬁt/loss of € -200.2m if the acquisition date had been 01 January 2021. Trade Payables (0.1) Other (Financial) Liabilities Total Liabilities (2.9) (14.9) 40.0 94.6 The table opposite states the fair value of identiﬁed net assets and liabilities recognized at acquisition. The goodwill of € 94.6m reﬂects the expected synergies arising from the acquisition with particular focus on the cross-selling opportunities of the business models of CORESTATE Bank and HFS and market potential of CORESTATE Bank. Hence, the goodwill is fully allocated to the Real Estate Debt Segment. Direct transaction costs amounting to € 6.1m are included in the statement of proﬁt and loss within general and administrative costs. Fair Value of net Assets acquired Recognized Goodwill Revenues generated since Acquisition Date1 27.3 (7.7) Proﬁt/Loss since Acquisition Date1 CORESTATE – ANNUAL REPORT 2021 102 B.2.3 DIVESTMENT IN CAPERA AND CRM The loss from discontinued operations is fully attributable to the equity holders of Corestate Group. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In November 2021, the decision was made to sell the property management business of CRM and Capera. With the intention to sell, the respective assets and liabilities are reported separately as discontinued operations because of management’s judgement that these businesses represent separate major lines of business and the completion of their sales within 2022 is highly probable. The assets and liabilities of the discontinued operations are reclassiﬁed and measured at fair value less costs to sell. The fair value was determined based on the expected selling prices. This did not result in any impairment requirement for the assets held for sale at the time of classiﬁcation as a disposal group within the meaning of IFRS 5. In the course of the ongoing review of the measurement of the assets and liabilities of the discontinued operations, an impairment requirement of € 2.6m arose as at 31 December 2021. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS The potential divestment of the two business areas is the consequence of the strategic realignment of Corestate towards a pure-play investment and asset manager in the real estate equity segment. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION The net loss for the period from both discontinued operations is derived as follows: The revalued assets and liabilities comprise the following: 01.01.2021- 31.12.2021 01.01.2020- 31.12.2020 31 Dec 2021 € million Capera 18.1 CRM 12.0 € million Capera CRM Total Income from Real Estate Equity Segment Non-Current Assets 30.1 (32.6) (2.5) 29.5 (29.7) (0.2) Goodwill - 1.6 - 8.3 1.1 0.1 1.2 - 8.3 2.8 Total expenses from Real Estate Equity Segment (17.8) (14.8) Other Intangible Assets Investment in Associates and Joint Ventures Property, Plant and Equipment Deferred Tax Assets 0.1 Total Earnings from Real Estate Equity 0.3 (2.8) 2.5 0.0 4.1 3.7 Total Earnings from Other Segments (0.0) - (0.0) 0.1 0.0 Total Non-Current Assets Current Assets 10.8 14.9 Other Income (0.1) 0.8 0.7 0.7 Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) 0.3 (2.0) (1.7) 0.6 Contract Assets 0.3 2.1 0.3 0.0 0.0 0.2 2.9 7.0 - 1.8 - 0.3 3.9 Trade Receivables Depreciation and Amortisation (1.2) (4.5) (5.7) (4.2) Receivables from Associated Entities Other Current Financial Assets Other Current Assets 0.3 * On a pro-forma basis, Corestate Capital Group and AFS Financial gain/losses Earnings before Taxes (EBT) Income Tax Expense (0.1) (1.1) 0.1 (0.1) (6.6) 0.3 (0.2) (7.6) 0.4 (0.1) (3.7) (0.1) - 0.0 including its subsidiaries would have generated revenues of €216.4mandalossof€-200.2m if the acquisition date had been 01 January 2021. 1.7 2.2 5.7 16.5 1.7 Cash and Cash Equivalents Total Current Assets 2.4 Net Proﬁt/(Loss) for the Period from discontinued operations 8.6 23.5 (1.0) (6.3) (7.2) (3.8) TOTAL ASSETS HELD FOR SALE CORESTATE – ANNUAL REPORT 2021 103 31 Dec 2021 The following table shows the net cash ﬂows generated by both discontinued TO OUR SHAREHOLDERS € million Capera CRM operations: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Non-Current Liabilities Other non-current ﬁnancial liabilities Other Non-Current Provisions Deferred Tax Liabilities 01.01.2021- 31.12.2021 01.01.2020- 31.12.2020 1.1 0.0 - 0.6 - 1.7 0.0 0.3 2.0 € million Capera 0.9 CRM 0.3 CONSOLIDATED FINANCIAL STATEMENTS Net cash ﬂows from operating activities 1.1 3.3 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 0.3 0.9 Net cash ﬂows generated from/(used in) investing activities ANNUAL ACCOUNTS Total Non-Current Liabilities Current Liabilities 1.1 (0.8) (1.1) (0.6) (0.2) (1.4) (2.7) NOTES TO THE ANNUAL ACCOUNTS Net cash ﬂows generated from/(used in) ﬁnancing activities Other Current Provisions Trade Payables 0.0 0.6 - - 0.3 0.2 0.2 3.7 4.3 5.2 0.0 0.8 0.2 1.2 4.8 6.9 8.9 FURTHER INFORMATION (1.2) (1.0) Current Income Tax Liabilities Other Current Financial Liabilities Other Current Liabilities Total Current Liabilities TOTAL LIABILITIES HELD FOR SALE Cash and Cash Equivalents at begin of period 1.2 (1.0) 0.2 2.7 (0.5) 2.2 3.9 (1.5) 2.4 4.3 (0.4) 3.9 1.0 1.1 2.6 3.8 Net increase in Cash and Cash Equivalents Cash and Cash Equivalents at end of period CORESTATE – ANNUAL REPORT 2021 104 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT C. SIGNIFICANT ACCOUNTING & CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS VALUATION POLICIES ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Business Combinations C.1 SIGNIFICANT ACCOUNTING JUDGEMENTS, FURTHER INFORMATION ESTIMATES AND ASSUMPTIONS In a business combination, all identiﬁable assets, liabilities and contingent liabilities acquired are recorded at the date of acquisition at their respective fair value. One of the most signiﬁcant estimates relates to the determination of the fair value of these assets and liabilities. Land, buildings and equipment are usually independently appraised while marketable securities are valued at market price. If any intangible assets are identiﬁed, depending on the type of intangible asset and the complexity of determining its fair value, the Group either consults with an independent external valuation expert or determines the fair value internally, using an appropriate valuation technique which is generally based on a forecast of the total expected future net cash ﬂows. These valuations are linked closely to the assumptions made by the Group’s management regarding the future performance of the assets concerned and any changes in the discount rate applied (see Note E.1). The preparation of the Group‘s consolidated ﬁnancial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. 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 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. Such changes are reﬂected in the assumptions when they occur. Recoverability of Goodwill and Brand Names The Group tests annually and, in addition, if any internal or external indicator exists, whether goodwill and brand names with indeﬁnite useful lives need to be impaired. If an indicator prevails, the recoverable amount of the affected cash- generating unit(s) has to be estimated which is determined as the greater of the fair value less costs to sell and the value in use. The determination of the recoverable amount involves making judgements and estimates related to the projection and discounting of future cash ﬂows. In the process of applying the Group‘s accounting policies, management has made the following judgements and estimates, which have signiﬁcant effect on the amounts recognized in the consolidated ﬁnancial statements: CORESTATE – ANNUAL REPORT 2021 105 Although the Group’s management believes the assumptions used to calculate recoverableamountsareappropriate,anyunforeseenchangesintheseassumptions could result in an impairment to goodwill or brand names in the future which could adversely affect the future ﬁnancial position and operating results (see Note E.1). Assessing signiﬁcant inﬂuence on Associates and Joint Ventures TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Generally, entities are classiﬁed as associates if the Group holds more than 20% and less than 50% of the voting rights. However, the Group also classiﬁes entities as associates if it considers that it has a signiﬁcant inﬂuence on such entities based on the underlying investment documentation. Signiﬁcant inﬂuence is usually evidenced in one or more of the following ways: CONSOLIDATED FINANCIAL STATEMENTS Expected Credit Loss NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS For ﬁnancial assets measured at amortised cost a provision for expected credit losses (ECLs) is recognised. The determination of the ECL follows a 3-step approach: − Representation on the Board of directors or equivalent governing body of the investee, NOTES TO THE ANNUAL ACCOUNTS − For credit exposures for which there has not been a signiﬁcant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (ECL Step 1) − Participation in policy-making processes, including participation in decisions FURTHER INFORMATION about dividends or other distributions, − Material transactions between the entity and its investee, − Interchange of material personnel, − For those credit exposures for which there has been a signiﬁcant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (ECL Step 2) – this step also applies to trade receivables, for which a simpliﬁed approach starting with ECL Step 2 is applied − Provision of essential technical information. With regard to providing real estate investment management services, the Group regularly enters into asset management agreements with all parties involved. A signiﬁcant part of these asset management services is to provide the investee with the Group‘s expertise, which also involves technical services, i.e. market information, asset management and business plan expertise. Hence, the provision of technical services through an asset management agreement to associated entities as investees is considered a supplementary indicator (see Note E.3). − If the ﬁnancial asset’s credit risk increases to the point where it is considered credit-impaired, a loss allowance is still required for credit losses expected over the remaining life of the exposure, however, interest revenue is then calculated based on the loan’s amortised cost (ECL Step 3) The provision rates are based on multiple inputs (i.e., depending on geographical region, product type, customer type and rating, and collateral). The calculation of the provision reﬂects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. In particular for ﬁnancial assets that are considered credit impaired (ECL Step 3) the determination of the provision of ECL is subject to signiﬁcant estimation uncertainty relating to assumptions on the expected timing of cash ﬂows and the value of credit enhancements (such as collateral). The maximum exposure to credit risk at the reporting date is the carrying value of each class of ﬁnancial assets disclosed in Note F.4.2. (see Notes D.2.4, D. 3.6, E.4, E.10, E.12, F.4.2). Valuation of Investment properties of Associates and Joint Ventures The fair value of investment property as the main assets of the associates is determinedbyusingrecognisedvaluationtechniques. Suchfairvaluemeasurement has a signiﬁcant impact on the Group‘s investment in associates. The valuation technique comprises mainly the income method (based on discounted cash ﬂow (DCF)). Under the DCF method, a property‘s fair value is estimated using explicit assumptions regarding the property’s cash inﬂows and outﬂows over its life including estimated rental income and an exit or terminal value. CORESTATE – ANNUAL REPORT 2021 106 This involves the projection of future cash ﬂows which are discounted by a market-derived discount rate in order to determine the property‘s fair value. For the purpose of IFRS 13, the fair value measurement of investment property is considered to be a Level 3 method (see Note C.2). Promote and Coupon Participation Fee TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In some projects, the Group is entitled to receive a success fee (“Promote fee”) equalling approx. 15% to 20% of the net project returns. The entitlement to the Promote fee is only recognised when the relevant transaction documentation resulting in a net project return has been validly entered into (signing). At this time, the Group considers it highly probable that the Promote fee will ﬂow to the Group and that for variable consideration no signiﬁcant reversal will occur. CONSOLIDATED FINANCIAL STATEMENTS The key input parameters used in the DCF models include NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS − Discount rate − Cap rate − Vacancy rate (current/long-term) − Maintenance costs ANNUAL ACCOUNTS Promote fees represent compensation for the Group’s investment management servicesrenderedinrelationtothesaleofaparticularinvestment,andpredominantly form part of the fee schedule for investment products for private clients. If certain amounts of the net project return are withheld at closing of a transaction for escrow purposes, the payment of the pro-rated Promote fee is also deferred until the amounts in escrow are released (see also D.2.3). NOTES TO THE ANNUAL ACCOUNTS − Fluctuation rate − Inﬂation rate − Costs to sell FURTHER INFORMATION − Market rents − Annual rent adaptation The net cash ﬂow for the planning period is discounted to the valuation date using an appropriate discount rate for each property. The capitalization rate is used to forecast future cash ﬂows into perpetuity following the ten-year planning period (as it is assumed that properties are held for a ten-year period). Key input parameters may vary depending on the real estate property usage (i.e. commercial or residential building, student accommodation and developments), on the location and condition of the property and the current market trends. Coupon Participation Fees are generated through sustainable and signiﬁcant excess returns of HFS products (mezzanine ﬁnancing) above a certain pre-agreed hurdle rate. The Group’s contracts with customers for these types of services generally include one performance obligation. The Group has concluded that revenue from Coupon Participation Fees should be recognized over time when the services are provided because the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. The Group uses an output method to measure progress towards complete satisfaction of the return on investment of the HFS funds based on monthly fair value measurement of the mezzanine ﬁnancing (see Note D.3.2 to D.3.4). If the property market or general economic situation develops negatively, there is a risk that the measurements might have to be adjusted. If the real estate assets have to be impaired, this would have a negative effect on the Group‘s Investment in Associates and Joint Ventures, Loans to Associates and Joint Ventures and Receivables from Associates or Joint Ventures (for further information see Note A.3 and a sensitivity analysis of the effect of changes in the value of the Associates and Joint Ventures see Note E.3). C.2 FAIR VALUE MEASUREMENT The Group measures some ﬁnancial instruments such as derivatives and some non-ﬁnancial assets such as investment properties in associates at fair value at each balance sheet date. Fair value related disclosures for ﬁnancial instruments and non-ﬁnancial assets that are measured at fair value or where fair values are disclosed are summarized in the following Notes: CORESTATE – ANNUAL REPORT 2021 107 Fair Value Measurement All assets and liabilities for which fair value is measured or disclosed in the ﬁnancial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is signiﬁcant to the fair value measurement as a whole: TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Disclosures regarding Valuation Methods, Signiﬁcant Estimates and Assumptions Disclosures regarding Fair Value Measurement Hierarchy Investment Properties Note F Note F Note C.10 Note F Note F CONSOLIDATED FINANCIAL STATEMENTS − Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities, NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Investments in unquoted Equity Shares ANNUAL ACCOUNTS − Level 2 – valuation techniques for which the lowest level input that is signiﬁcant to the fair value measurement is directly or indirectly observable (comparable transactions), Financial Instruments (including those carried at Amortized Cost) NOTES TO THE ANNUAL ACCOUNTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: FURTHER INFORMATION − Level 3 – valuation techniques for which the lowest level input that is signiﬁcant to the fair value measurement is unobservable (valuation models). For assets and liabilities that are measured at fair value on a recurring basis in the ﬁnancial statements, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is signiﬁcant to the fair value measurement as a whole) at the end of each reporting period. − In the principal market for the asset or liability, or − In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The Group‘s Executive Management (“Group’s management”) determines the policies and procedures for recurring fair value measurement, such as investment properties and certain ﬁnancial assets. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. At each reporting date, the Group’s management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group‘s accounting policies. For this analysis, the Group’s management veriﬁes the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. A fair value measurement of a non-ﬁnancial asset takes into account a market participant‘s ability to generate economic beneﬁts by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Generally external valuers are involved for valuation of signiﬁcant assets, such as investment properties. Involvement of external valuers is determined annually by the Group’s management. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. The Group uses valuation techniques that are appropriate in the circumstances and for which sufﬁcient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. CORESTATE – ANNUAL REPORT 2021 108 TO OUR SHAREHOLDERS C.3 FOREIGN CURRENCIES C.4 GOODWILL CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous interest held over the net identiﬁable assets acquired and liabilities assumed). The Group‘s presentation currency is the Euro (€), which is the presentation currency of the Group and the functional currency of the parent company and for the majority of the subsidiaries which are fully consolidated. The Group‘s performance and its liquidity management is measured in Euros. Therefore, the Euro is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. As the sole exception, for CRM the functional currency is the British Pound (GBP). CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to beneﬁt from the combination, irrespective of whether other assets or liabilities of the acquisition are assigned to those units. ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Transactions in foreign currencies are initially recorded by the Group‘s entities at their respective functional currency spot rates at the date the transaction ﬁrst qualiﬁes for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognized in proﬁt or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. FURTHER INFORMATION C.5 INTANGIBLE ASSETS Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. On consolidation, the assets and liabilities of foreign operations (i.e. CRM) are translated into Euros at the rate of exchange prevailing at the reporting date and their statements of proﬁt or loss are translated at the exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that foreign operation is reclassiﬁed to proﬁt or loss. The useful lives of intangible assets are assessed as either ﬁnite or indeﬁnite. Intangible assets with ﬁnite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a ﬁnite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁts embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. CORESTATE – ANNUAL REPORT 2021 109 Amortization is calculated on a straight-line basis over the estimated useful lives Goodwill relating to the Associate or Joint Venture is included in the carrying amount TO OUR SHAREHOLDERS of the intangible assets with a ﬁnite life, as follows: of the investment and is not tested for impairment individually. CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT − Software 3 to 5 years − Asset Management Agreements 2 to 17 years − Order Backlog up to 2 years − Customer Relationships 4 years − Corporate Brand ‘YOUNIQ’ 14 years The Statement of Proﬁt or Loss reﬂects the Group‘s share of the results of operations of the Associate or Joint Venture. Any change in OCI of those investees is presented as part of the Group‘s OCI. In addition, when there has been a change recognized directly in the equity of the Associate or Joint Venture, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the Associate or Joint Venture are eliminated to the extent of the interest in the Associate or Joint Venture. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Intangible assets with indeﬁnite useful lives relate to goodwill and brand names. Goodwill and brand names are not amortized but are tested for impairment annually at the cash-generating unit level. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION The aggregate of the Group‘s share of proﬁt or loss of an Associate or a Joint Venture is shown in Share of Proﬁt or Loss from Associates or Joint Ventures on the face of the consolidated statement of proﬁt and loss. All balance sheet items and line items in the Consolidated Statement of Comprehensive Income that are related to the associated entities belong to the Alignment Capital segment. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of proﬁt or loss when the asset is derecognized. The ﬁnancial statements of the Associate or Joint Venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. Typically, adjustments are made to account for the investment properties held by the Associates or Joint Ventures at fair value rather than at cost (see below). C.6 INVESTMENTS IN ASSOCIATES & JOINT VENTURES Recognition and subsequent measurement An Associate is an entity over which the Group has signiﬁcant inﬂuence. Signiﬁcant inﬂuence is the power to participate in the ﬁnancial and operating policy decisions of the investee but is not control or joint control over those policies. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its Associate or Joint Venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the Associate or Joint Venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the Associate or Joint Venture and its carrying amount, and then recognizes the loss as Share of proﬁt/(loss) of an Associate or Joint Venture in the statement of proﬁt and loss. A Joint Venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The Group‘s investments in its Associates and Joint Venture are accounted for using the equity method. Under the equity method, the investment in an Associate or a Joint Venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group‘s share of net assets of the Associate or Joint Venture since the acquisition date. Upon loss of signiﬁcant inﬂuence over the Associate or joint control over the Joint Venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the Associate or Joint Venture upon loss of signiﬁcant inﬂuence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in proﬁt or loss. CORESTATE – ANNUAL REPORT 2021 110 Investment properties In order for a ﬁnancial asset to be classiﬁed and measured at amortized cost or fair value through OCI, it needs to give rise to cash ﬂows that are ”solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Associates invest in investment properties. Investment properties are measured initially at cost, including transaction costs. CONSOLIDATED FINANCIAL STATEMENTS Subsequent to initial recognition, investment properties are stated 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 period in which they arise, including the corresponding tax effect. Fair values are determined based on a periodic evaluation performed by an accredited external independent valuer applying a valuation model recommended by the International Valuation Standards Committee (Red Book). The Group’s business model for managing ﬁnancial assets refers to how it manages its ﬁnancial assets in order to generate cash ﬂows. The business model determines whether cash ﬂows will result from collecting contractual cash ﬂows, selling the ﬁnancial assets, or both. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Purchases or sales of ﬁnancial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e. the date that the Group commits to purchase or sell the asset. FURTHER INFORMATION Investment properties are derecognized when they are sold. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in proﬁt or loss. Subsequent measurement C.7 FINANCIAL ASSETS For purposes of subsequent measurement, the Group’s ﬁnancial assets are classiﬁed in the following categories: Initial recognition and measurement Financial assets are classiﬁed, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI) and fair value through proﬁt or loss. − Financial assets at amortized cost (debt instruments) − Financial assets at fair value through proﬁt or loss The classiﬁcation of ﬁnancial assets at initial recognition depends on the ﬁnancial asset’s contractual cash ﬂow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a signiﬁcant ﬁnancing component or for which the Group has applied the practical expedient, the Group initially measures a ﬁnancial asset at its fair value plus, in the case of a ﬁnancial asset not at fair value through proﬁt or loss, transaction costs. Trade receivables that do not contain a signiﬁcant ﬁnancing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. CORESTATE – ANNUAL REPORT 2021 111 Financial assets at amortized cost (debt instruments) Financial assets at fair value through proﬁt or loss are carried in the statement of ﬁnancial position at fair value with net changes in fair value recognized in the statement of proﬁt or loss. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Group measures ﬁnancial assets at amortized cost if both of the following conditions are met: This category includes long-term receivables, other ﬁnancial instruments and loans to associates. CONSOLIDATED FINANCIAL STATEMENTS − The ﬁnancial asset is held within a business model with the objective to hold ﬁnancial assets in order to collect contractual cash ﬂows, and NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS − The contractual terms of the ﬁnancial asset give rise on speciﬁed dates to cash ﬂows that are solely payments of principal and interest on the principal amount outstanding De-recognition NOTES TO THE ANNUAL ACCOUNTS A ﬁnancial asset is derecognised when the rights to receive cash ﬂows from the asset have expired or when a ﬁnancial instrument is written off. Therefore, a ﬁnancial asset is derecognised when there is no reasonable expectation of recovering the contractual cash ﬂows. FURTHER INFORMATION Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in proﬁt or loss when the asset is derecognized, modiﬁed or impaired. The Group’s ﬁnancial assets at amortised cost include trade receivables, other receivables and cash and cash equivalents. Impairment of ﬁnancial assets Further disclosures relating to impairment of ﬁnancial assets are also provided in Note C.1. Financial assets at fair value through proﬁt or loss The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through proﬁt or loss. ECLs are based on the difference between the contractual cash ﬂows due in accordance with the contract and all the cash ﬂows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash ﬂows will include cash ﬂows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. Financial assets at fair value through proﬁt or loss include ﬁnancial assets designated upon initial recognition at fair value through proﬁt or loss, or ﬁnancial assets mandatorily required to be measured at fair value. Financial assets are classiﬁed as fair value through proﬁt or loss if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classiﬁed as fair value through proﬁt or loss unless they are designated as effective hedging instruments. Financial assets with cash ﬂows that are not solely payments of principal and interest are classiﬁed and measured at fair value through proﬁt or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classiﬁed at amortized cost or at fair value through OCI as described above, debt instruments may be designated at fair value through proﬁt or loss on initial recognition if doing so eliminates, or signiﬁcantly reduces, an accounting mismatch. For credit exposures for which there has not been a signiﬁcant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a signiﬁcant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). The Group determines that a debt instrument has signiﬁcantly increased in credit risk when its contractual cash ﬂows and the underlying contractual agreements are amended adversely. CORESTATE – ANNUAL REPORT 2021 112 For trade receivables and contract assets, the Group applies a simpliﬁed approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix for mass business transactions that is based on its historical credit loss experience, adjusted for forward-looking factors speciﬁc to the debtors and the economic environment as well as supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Trade receivables relating to one single debtor that constitute more than ten percent of the total balance as at 31 December are separated and evaluated either on individual credit ratings if available or based on corresponding sector indices. TO OUR SHAREHOLDERS C.8 PROPERTY, PLANT AND EQUIPMENT CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Property, plant and equipment is recognized at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows: CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS − Owner-occupied buildings 33 to 50 years, − Cars 3 to 5 years, ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS − IT equipment 2 to 3 years, FURTHER INFORMATION The provision matrix is initially based on the Group’s historical observed default rates. The Group calibrates the matrix to adjust the historical credit loss experience with forward-looking information. − Ofﬁce equipment 3 to 10 years. An item of property, plant and equipment is derecognized upon disposal or when no future economic beneﬁts are expected from its use or disposal. Any gain or loss arising on sale of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is presented net in the statement of Proﬁt and Loss. For instance, if forecast economic conditions (e.g. gross domestic product) are expected to deteriorate over the next year, which can lead to an increased number of defaults in the sector where the Group operates, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a signiﬁcant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of a customer’s actual default in the future. The Group considers a ﬁnancial asset in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. Credit assessment is performed on a regular basis both by the accounting department as well as fund and asset management in consultation with executive management. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each ﬁnancial year end and adjusted prospectively, if appropriate. C.9 LEASES The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identiﬁed asset for a period of time in exchange for consideration. The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. Corestate does not apply IFRS 16 to leases of intangible assets. CORESTATE – ANNUAL REPORT 2021 113 C.9.1 GROUP AS A LESSEE exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. CONSOLIDATED FINANCIAL STATEMENTS In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reﬂect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modiﬁcation, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Right-of-use assets NOTES TO THE ANNUAL ACCOUNTS The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. FURTHER INFORMATION The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reﬂects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of ofﬁce equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. The Group’s right-of-use assets are included in tangible assets, i.e. in the same line item as that within which the corresponding underlying assets would be presented if they were owned. C.9.2 GROUP AS A LESSOR Lease liabilities Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classiﬁed as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of proﬁt or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include ﬁxed payments (including in-substance ﬁxed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reﬂects the Group CORESTATE – ANNUAL REPORT 2021 114 C.10 INVENTORIES C.12 CASH AND CASH EQUIVALENTS TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Inventories are primarily related to the Group’s warehousing activities and comprise real estate acquired with the intention of selling it within the normal business cycle in the normal course of our warehousing business. In this respect, the “normal business cycle“ may be a period of up to three years. Cash and cash equivalents in the statement of ﬁnancial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insigniﬁcant risk of changes in value and are classiﬁed as ﬁnancial assets at amortised cost. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Inventories are valued at the lower of cost and net realizable value. The costs include freehold and leasehold rights for land, amounts paid to contractors for construction, borrowing costs, planning and design costs, costs of site preparation, professional fees for legal services, property transfer taxes, construction overheads and other related costs. Non-refundable commissions paid to sales or marketing agents on the sale of real estate units are expensed when paid. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. For the purpose of the consolidated statement of cash ﬂows, cash and cash equivalents consist of cash and short-term deposits as deﬁned above, net of outstanding bank overdrafts as they are considered an integral part of the Group‘s cash management. ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION C.13 DISCONTINUED OPERATIONS The Group classiﬁes all subsidiaries as a discontinued operation when the entity either has been disposed of or met the requirements as held for sale and represents a separate major business line or a geographical area of operation. The criteria for classiﬁcation of assets and liabilities as held for sale are met if their carrying amounts will be recovered principally through a sale transaction than through continuing use. Such assets and liabilities are measured at the lower of their carrying amount and fair value less cost to sell, which comprise the incremental costs directly attributable to the disposal, excluding ﬁnance costs and income tax expense. C.11 CONTRACT BALANCES Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional. Contract assets are predominantly related to the Coupon Participation Fee of HFS. For classiﬁcation as discontinued operation the distribution of the underlying entity is highly probable, and it is available for immediate distribution in its present condition. Actions required to complete the sale should indicate that it is unlikely that signiﬁcant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the sale expected within one year from the date of classiﬁcation. Contract liabilities A contract liability is an entity’s obligation to transfer goods or services to a customer for which the Group has received consideration. If a customer of the Group pays consideration or has a right to an amount of consideration that is unconditional, before the Group transfers its goods or services to the customer, a contract liability is recognized. Property, plant and equipment as well as intangible assets are not depreciated or amortised once classiﬁed as held for sale. All assets and liabilities classiﬁed as held for sale are presented separately as current items in the statement of ﬁnancial position. CORESTATE – ANNUAL REPORT 2021 115 C.14 SHARE-BASED PAYMENTS Equity-settled transactions the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through proﬁt or loss. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. The dilutive effect of outstanding options is reﬂected as additional share dilution in the computation of diluted earnings per share (further details are given in Notes D.11 and F.6.3). CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS That cost is recognised in employee beneﬁts expense, together with a corresponding increase in equity (other reserves), over the period in which the service and, where applicable, the performance conditions are fulﬁlled (the vesting period). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reﬂects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the statement of proﬁt or loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period. ANNUAL ACCOUNTS Cash-settled transactions NOTES TO THE ANNUAL ACCOUNTS A liability is recognised for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognized in employee beneﬁts expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. FURTHER INFORMATION Service and non-market performance conditions are not taken into account when determiningthegrantdatefairvalueofawards, butthelikelihoodoftheconditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reﬂected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non- vesting conditions. Non-vesting conditions are reﬂected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. C.15 FINANCIAL LIABILITIES Initial recognition and measurement At initial recognition, ﬁnancial liabilities are classiﬁed as − Financial liabilities at fair value through proﬁt or loss (ﬁnancial liabilities at FVTPL) No expense is recognized for awards that do not ultimately vest because non- market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisﬁed, provided that all other performance and/or service conditions are satisﬁed. − Financial liabilities at amortized cost, or − Derivatives designated as hedging instruments in an effective hedge. All ﬁnancial liabilities are recognized initially at fair value and, in the case of ﬁnancial liabilities at amortized cost, net of directly attributable transaction costs. When the terms of an equity-settled award are modiﬁed, the minimum expense recognised is the grant date fair value of the unmodiﬁed award, provided the original terms of the award are met. An additional expense, measured as at the date of modiﬁcation, is recognised for any modiﬁcation that increases the total fair value of the share-based payment transaction, or is otherwise beneﬁcial to CORESTATE – ANNUAL REPORT 2021 116 The Group‘s ﬁnancial liabilities include mainly: Financial liabilities designated upon initial recognition at fair value through proﬁt or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisﬁed. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT − Long-term and short-term ﬁnancial liabilities to banks, − Other long-term and short-term liabilities (mainly bonds and convertible bonds), − Trade payables, De-recognition CONSOLIDATED FINANCIAL STATEMENTS A ﬁnancial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing ﬁnancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modiﬁed, such an exchange or modiﬁcation is treated as the de- recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS − Other non-current and current liabilities (mainly loans) NOTES TO THE ANNUAL ACCOUNTS Subsequent measurement FURTHER INFORMATION The measurement of ﬁnancial liabilities depends on their classiﬁcation, as described below: C.16 PROVISIONS General Financial Liabilities at amortized cost This is the category most relevant to the Group. After initial recognition, the respective liabilities (e.g. interest-bearing payables, loans and other liabilities, e.g. convertible bonds) are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in proﬁt or loss when the liabilities are derecognized as well as through the EIR amortization process. 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. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of proﬁt and loss net of any reimbursement. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as ﬁnance costs in the statement of 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, when appropriate, the risks speciﬁc to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a ﬁnancial expense. Financial liabilities at FVTPL Financial liabilities at FVTPL are subsequently measured at fair value through proﬁt or loss. Financial liabilities are classiﬁed as fair value through proﬁt or loss if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative ﬁnancial instruments entered by the Group that are not designated as hedging instruments in hedge relationships as deﬁned by IFRS 9. Separated embedded derivatives are also classiﬁed as fair value through proﬁt or loss unless they are designated as effective hedging instruments. CORESTATE – ANNUAL REPORT 2021 117 Restructuring provisions Asset Management Fees are determined in a range of 0.35% and 0.60% of the value of the real estate assets of the projects and third-party assets managed and differ between investment products offered to private clients and those offered to institutional clients. Property Management Fees are derived from the provision of property management services. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Restructuring provisions are recognised only when the Group has a constructive obligation, which is when a detailed formal plan identiﬁes the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, and an appropriate timeline, and the employees affected have been notiﬁed of the plan’s main features. CONSOLIDATED FINANCIAL STATEMENTS The Group’s contracts with customers for these types of services generally include one performance obligation. The Group has concluded that revenue from these services should be recognized over time when the services are provided because the customer simultaneously receives and consumes the beneﬁts provided by the Group’s performance as the Group performs. As the Group’s efforts and inputs are expended evenly throughout the performance period, the Group recognizes revenues on a straight-line basis. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS C.17 REVENUE FROM REAL ESTATE EQUITY SEGMENT NOTES TO THE ANNUAL ACCOUNTS Revenues from Real Estate Equity segment result from fees from the operating equity business of the Group, such as: FURTHER INFORMATION − Acquisition Fees, Development Fees are generated by providing development services for the construction of new or the repositioning of an existing property. This includes services like planning, coordination, technical management and economical administration as well as supervising work. The Group’s contracts with customers for these types of services typically include one performance obligation that is predominantly fulﬁlled over time. Development fees are usually a percentage based on construction costs of the property paid conducting the above-mentioned services. − Asset and Property Management Fees, − Development Fees, − Sales Fees, − Promote Fees In certain transactions, the Group is entitled to receive a Promote fee (regularly up to 20% depending on the boutique) of the net project returns at the end of the life of a fund or deal structure if the overall return of the transaction surpasses a certain hurdle rate. and are recognized with reference to the relevant individual contractual terms and on accrual basis. Acquisition Fees and Sales Fees relate to fees earned in relation to the acquisition or divestment of real estate assets by the Associates or third parties. Acquisition related fees amount to 0.8% and 1.5% of the purchase price of the underlying assets of the portfolio, and in certain situations also a lump-sum on-boarding fee amounting to up to € 0.5m is agreed with the clients. These fees are paid for sourcing and structuring of the transaction, conducting the due diligence, administrating and supervising the step-by-step acquisition of the real estate asset or the establishment of real estate products and are typically received and paid at the conclusion of the transaction documentation. The Group’s contracts with customers for these types of services generally include one performance obligation. Revenue from Acquisition related Fees and Sales Fees is recognized at a point in time when the services are provided because none of the criteria in IFRS 15.35 is met. Net project returns are deﬁned as operating income, aggregate proceeds from sales and reﬁnancing proceeds, in each case net of all principal repayments, working capital requirements and after any debt service, and irrespective of whether these will be paid by way of capital repayment, dividends or by any other means to the investors (the Promote fee is basically being paid out as a disproportional proﬁt allocation). The Group’s contracts with customers for these types of services generally include a single performance obligation. CORESTATE – ANNUAL REPORT 2021 118 C.18 REVENUE FROM REAL ESTATE DEBT SEGMENT a promissory note loan is generated for a customer and is recognized as ﬁnancial asset at Corestate Bank. After successful issuance, the sale of the ﬁnancial asset to the customer takes place. The delta between the amount of the ﬁnancial instrument on inception date and the amount of the ﬁnancial instrument on date of sale is recognized as trading income. The measurement of the ﬁnancial assets as well as the recognition of the trading income follows according to IFRS 9. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Revenues from Real Estate Debt segment result from fees from the operating equity business of the Group, such as: CONSOLIDATED FINANCIAL STATEMENTS − Performance (Coupon Participation) Fees, − Underwriting & Structuring Fees, − Asset Management Fees (see Note C.18), − Income from Mezzanine Loans, NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS C.19 EARNINGS FROM ALIGNMENT CAPITAL MANAGEMENT NOTES TO THE ANNUAL ACCOUNTS Share of Proﬁt or Loss from Associates and Joint Ventures FURTHER INFORMATION Share of Proﬁt or Loss from Associates and Joint Ventures relates to the Group’s alignment capital investments and comprises the Group‘s share of the results of operations of the Associates using the equity method as well as gains and losses from the disposal of shares in Associates (see D.4.3). The periodic results of operations of the Associates typically includes the recurring result from rental operations as well as results from sales of real estate assets and potential fair value adjustments of the underlying properties, net of costs, ﬁnancial expenses and taxes. − Income from Trading Activities Coupon Participation Fees are generated through sustainable and signiﬁcant excess returns of mainly HFS products (mezzanine ﬁnancing) above a certain pre-agreed hurdle rate. The Group’s contracts with customers for these types of services generally include one performance obligation. Underwriting & structuring fees are determined in a range of 0.5% and 2.5% of the value of the real estate debt ﬁnancing product. The fees are recognized at a point in time when the debt ﬁnancing product is issued to the customer. The service of structuring real estate debt ﬁnancing products is offered to institutional as well as private clients. Dividends from other Alignment Capital reﬂect the Group‘s share of the cash distribution of the investment and are recognized in the statement of proﬁt or loss when the right of payment has been established. This is generally when shareholders approve the dividend. Income from mezzanine loans comprises the interest income from short-term bridging activities of mezzanine loans to Real Estate Development Companies in the German-speaking region. Such loans are intended to be transferred to the Mezzanine Funds managed by the Group as soon as a corresponding cash return or equity contribution in the funds takes place. The income from mezzanine loans is recognized according to IFRS 9. The disclosure as revenue is made because granting of mezzanine loans and the resulting interest income is a core business of Corestate. C.20 REVENUE AND OTHER EARNINGS FROM REAL ESTATE OPERATIONS AND WAREHOUSING Rental income Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms. Contingent rental income is recognized when it arises. Tenant lease incentives are recognized as a reduction of rental revenue on a straight-line basis over the term of the lease. Income from trading activities is recognized from Corestate Bank’s underwriting business and proprietary trading. In the underwriting business, a bearer bond or CORESTATE – ANNUAL REPORT 2021 119 Income arising from expenses recharged to tenants (Revenue from Service Charges) is recognized in the period in which the respective services are rendered. Service and management charges and other such receipts are recorded separately gross of the related costs, as the directors concluded that the Group acts as a principal in this respect. C.22 INCOME TAXES Current income taxes TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net Results from Property Holding and Warehousing Exits ANNUAL ACCOUNTS Net Results from Property Holding and Warehousing Exits comprise the proceeds from selling real estate holding companies/inventories, less selling costs, less carrying amount of the assets and liabilities. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Deferred tax Such real estate holding companies were established to purchase investment property for the sale in the ordinary course of business in the course of the Group’s warehousing activities. Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for ﬁnancial reporting purposes at the reporting date. The net gain/loss is recognized when control over the relevant real estate holding company is transferred to the buyer. Deferred tax liabilities are recognized for all taxable temporary differences, except: C.21 FINANCIAL INCOME AND FINANCIAL EXPENSES − When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁt nor taxable proﬁt or loss. Financial Income comprises interest income from bank balances and loans granted and gains on the disposal of ﬁnancial assets as well as foreign currency gains and losses. Interest income is recognized as it accrues in proﬁt or loss, using the effective interest rate method (EIR-method). − In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Financial Expenses mainly comprise interest expenses on ﬁnancial liabilities, fees incurred in connection with the arrangement of debt facilities, foreign currency gains and losses, impairment losses recognized on ﬁnancial assets (other than trade receivables) and ﬁnancial expenses attributable to partnership NCIs. Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable proﬁt will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except: CORESTATE – ANNUAL REPORT 2021 120 − When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁt nor taxable proﬁt or loss. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS − In respect of deductible temporary differences associated with investments in subsidiaries, Associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable proﬁt will be available against which the temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁt will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable proﬁts will allow the deferred tax asset to be recovered. Deferred tax relating to items recognized outside proﬁt or loss is recognized outside proﬁt or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which signiﬁcant amounts of deferred tax liabilities or assets are expected to be settled or recovered. CORESTATE – ANNUAL REPORT 2021 121 TO OUR SHAREHOLDERS D. NOTES TO THE STATEMENT OF CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PROFIT AND LOSS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION At the beginning of 2021, the Group has changed its segmentation. As at 2021 the presented segments Real Estate Equity and Real Estate Debt (that were previously combined as Real Estate Investment Management) are shown as individual segments. By contrast, the remaining segments Alignment Capital and Warehousing/Real Estate Operations (which were previously presented separately) have been combined as Other Segments. All disclosure to the statement of proﬁt and loss are adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020. CORESTATE – ANNUAL REPORT 2021 122 TO OUR SHAREHOLDERS D.1 TOTAL EARNINGS BY INCOME LINE CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The total earnings by income line comprise both revenues and other income items including corresponding expenses to provide comprehensive insight in the respective earnings for Real Estate Equity, Real Estate Debt and Other Segments. The following revenues and income types determine the segments’ top line (for further information regarding the Group’s segment reporting please refer to Note F.1). CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Recognition of Revenues, Other Income, and Gains and Losses Revenue stream Description ANNUAL ACCOUNTS Real Estate Equity Acquisition Fees NOTES TO THE ANNUAL ACCOUNTS fees are earned upon successful acquisition of assets point in time (IFRS 15) FURTHER INFORMATION fees are earned over the holding period of the respective asset for providing both asset and property management services (series of distinct services), including success fees earned from managed equity funds above a certain hurdle rate Asset & Property Management Fees Sales / Promote Fees over time (IFRS 15) point in time (IFRS 15) over time (IFRS 15) sales fee is a percentage of the asset value upon sale (net project returns); promote fees are gained once the overall return surpasses a certain hurdle rate Fees are earned by providing technical expertise with regard to (re-)positioning real estate estates, including refurbishment, change in asset class, or other measures Development Fees Real Estate Debt Underwriting & Structuring Fees Asset Management Fees fees are earned upon successful structuring [placement] of real estate debt ﬁnancing products point in time (IFRS 15) over time (IFRS 15) fees are earned over the holding period of the respective asset for providing asset management services success fee that allows the company to participate in the performance of its managed debt funds above a certain hurdle rate (coupon participation fee) Performance Fee over time (IFRS 15) Income from Mezzanine Loans Income from Trading Activities Other Segments interest income yielding from short-term bridge ﬁnancing via mezzanine loans for development companies margin income resulting from short-term trading activities of ﬁnancing tranches measurement of ﬁnancial assets (IFRS 9) measurement of ﬁnancial assets (IFRS 9) Income from Rental Income and Service Charges income resulting from acting as lessor for assets that are in a warehousing structure lease income (IFRS 16) measurement of gain or loss on deconsolidation (IFRS 10); measurement of ﬁnancial assets (IFRS 9) Net results from Property Holding and Warehousing Exits occasional income/expense that results from sale of warehousing structures in share deals, liquidation of property holding structures after asset deals, and similar transactions Share of Proﬁt or Loss from Associates income results from the subsequent measurement of Corestate’s share in the net proﬁt of its associated entities income results from dividends paid by Corestate’s associated entities share of net proﬁt (IAS 28) Dividends from other Alignment Capital dividends (IAS 28) Gains & Losses from fv Measurement of Financial Instruments changes in fair value of Corestate’s other ﬁnancial instruments that are measured at fair value in line with the eligible IFRS 9 categories measurement of ﬁnancial assets (IFRS 9) CORESTATE – ANNUAL REPORT 2021 123 D.2.3 REVENUE FROM SALES/PROMOTE AND DEVELOPMENT FEES TO OUR SHAREHOLDERS D.2 TOTAL REVENUES FROM REAL ESTATE EQUITY SEGMENT CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Revenue from sales and promote fees increased to € 23.0m (2020: € 4.9m) primarily due to the signing for the sale of a Core+ ofﬁce building located in Berlin amounting to € 9.8m. Also, the signing occurred for the sale of a Leipzig- based fund yielding a performance fee of € 9.3m. Closing for both transactions is expected for the ﬁrst half of 2022. € million 2021 9.7 2020 15.1 37.3 3.9 CONSOLIDATED FINANCIAL STATEMENTS Revenue from Acquisition Fees Revenue from Asset Management Fees Revenue from Property Management Fees Revenue from Sales and Promote Fees realised Revenues from Development Fees Total NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 37.0 5.3 ANNUAL ACCOUNTS In contrast, the revenue from development fees decreased to € 2.5m (2020: € 9.1m) due to a lower volume of services performed in project management and development coordination. NOTES TO THE ANNUAL ACCOUNTS 23.0 2.5 4.9 FURTHER INFORMATION 9.1 D.2.4 TOTAL EXPENSES FROM REAL ESTATE EQUITY SEGMENT 77.6 70.4 Expenses from Real Estate Equity Segment of € 71.4m (2020: € 78.9m) include both personnel and overhead expenses (e.g. rent and leasing expenses, IT and telecommunication expenses, travel expenses, provisions for expected credit losses, legal and other advisory fees) relating to the Group‘s Real Estate Equity activities. D.2.1 REVENUE FROM ACQUISITION FEES The revenues from acquisition fees in 2021 amount to € 9.7m (2020: € 15.1m). The decline in revenue from acquisition fee is caused by a lower level of transaction volume. The decrease in 2021 is mainly due to the ﬁrst results of the re-organisation of Corestate’s real estate equity business with particular focus on the sales team. D.2.2 REVENUE FROM ASSET AND PROPERTY MANAGEMENT FEES The revenues from asset management fees amounting to € 37.0m (2020: € 37.3m) are comparable to prior year’s level. The increase in property management fees of the remaining property management business from € 3.9m to € 5.3m in 2021 is mainly due to higher occupancy rates in student housing. CORESTATE – ANNUAL REPORT 2021 124 D.3.3 INCOME FROM MEZZANINE LOANS TO OUR SHAREHOLDERS D.3 TOTAL REVENUES FROM REAL ESTATE DEBT SEGMENT CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Increased income from mezzanine loans of € 18.1m (2020: € 10.3m) parallels the interest income from short-term bridging activities through mezzanine loans to Real Estate developers. The increase is driven by a constant higher level of short- term bridge loans partially securing the project pipeline for the Stratos funds which is expected to be signiﬁcantly reduced in the ﬁrst half of 2022. In 2020, the revenues and expenses in the Real Estate Debt segment were exclusively generated by HFS as Corestate Bank was only acquired in May 2021. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million 2021 36.0 49.5 18.1 17.3 1.0 2020 18.8 44.3 10.3 19.9 - ANNUAL ACCOUNTS Revenue from Underwriting and Structuring Fees Revenue from Performance Fees Income from Mezzanine Loans Revenue from Asset Management Fees Income from Trading Activities Total D.3.4 REVENUES FROM ASSET MANAGEMENT FEES NOTES TO THE ANNUAL ACCOUNTS Revenues from asset management fees in the real estate debt segment stood at € 17.3m (2020: € 19.9m) and are slightly below prior year corresponding to reduced fund volumes throughout 2021. FURTHER INFORMATION D.3.5 INCOME FROM TRADING ACTIVITIES 121.9 93.3 Income from trading activities is exclusively generated by Corestate Bank and its proprietary trading of real estate debt ﬁnancing products. Since the integration of Corestate Bank in May 2021 the income from trading activities amounted to € 1.0m. D.3.1 REVENUE FROM UNDERWRITING AND STRUCTURING FEES The underwriting and structuring fees increased signiﬁcantly by € 17.2m to € 36.0m (2020: € 18.8m) due to the additional project volumes at Corestate Bank with corresponding fee income, as well as higher underwriting fees at HFS mirroring the increased turnover in mezzanine bonds on Stratos funds’ level. D.3.6 TOTAL EXPENSES FROM REAL ESTATE DEBT SEGMENT Expenses from real estate debt segment of € 66.1m (2020: € 9.1m) include both personnel and overhead expenses (e.g. rent and leasing expenses, IT and telecommunication expenses, travel expenses, provisions for expected credit losses, legal and other advisory fees) relating to the Group‘s Real Estate Debt activities. D.3.2 REVENUE FROM PERFORMANCE FEES In 2021, the coupon participation fee amounts to € 49.5m (2020: € 44.3m) which was essentially contributed by HFS due to comparatively higher turnover in bonds on the funds’ level. The signiﬁcant increase in costs by € 57.0m is due to the addition of Corestate Bank as at May 2021, which led to higher personnel and non-personnel costs in this segment, and provisions for expected credit losses. CORESTATE – ANNUAL REPORT 2021 125 In 2021, the loss from warehousing activities amounted to € -2.7m (2020: € -0.8m), which mainly results from an adjustment to the net realizable value on a warehousing asset that will be sold in the ﬁrst half of 2022. TO OUR SHAREHOLDERS D.4 NET INCOME FROM OTHER SEGMENTS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Overall, net income from other segments came in at € 15.9m (2020: € -1.8m). The main difference results from a signiﬁcantly improved share of proﬁt/loss from associates which was particularly affected by negative valuation impacts from COVID-19 in 2020, higher dividends from alignment capital, and positive effects of the disposal from alignment capital. CONSOLIDATED FINANCIAL STATEMENTS D.4.3 SHARE OF PROFIT/LOSS FROM ASSOCIATES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Share of proﬁt/loss for the year of € 2.4m (2020: € -9.3m) comprises the Group‘s share of the results of operations of the Associates or the Joint Ventures using the equity method as well as gains and losses from the disposal of shares in Associates or Joint Venture. ANNUAL ACCOUNTS € million 2021 6.2 2020 6.4 NOTES TO THE ANNUAL ACCOUNTS Income from Rental Income and Service Charges Net Result from Property Holding and Warehousing Exits Share of Proﬁt/Loss from Associates and Joint Ventures Dividends from other Alignment Capital FURTHER INFORMATION In 2020, the COVID-19 pandemic situation had a visible negative impact on the Group’s share of proﬁt/loss from Associates. Major investments of the Associates are related to shopping malls and retail outlets that were signiﬁcantly affected by the imposed lockdowns. Hence, these assets were mainly causing the negative valuation effect. (2.7) 2.4 (0.8) (9.3) 8.8 12.8 Gains/Losses from Fair Value Measurement of Financial Instruments related to Real Estate (2.9) (6.8) Due to the breakthrough in COVID-19 vaccines, the situation for these asset classes has normalized to some extent in 2021, which is reﬂected in the signiﬁcantly improved share of proﬁt/loss from associates which also includes some valuation gains. Total 15.9 (1.8) D.4.1 INCOME FROM RENTAL INCOME AND SERVICE CHARGES D.4.4 DIVIDENDS FROM OTHER ALIGNMENT CAPITAL Net rental income of € 6.2m (2020: € 6.4m) primarily relates to income from one operational asset held as inventory. In 2021, a higher volume of service charge income was generated, which correspondingly led to higher expenses from other segments resulting in a slightly overall decrease. Dividends from other alignment capital amounting to € 12.8m (2020: € 8.8m) showed a rather stable development and are mainly driven by dividend payments from several funds of Hannover Leasing. D.4.2 NET RESULT FROM WAREHOUSING EXITS The net result from warehousing exits reﬂects primarily the realized margin from the Group’s warehousing activities, eventual adjustments to the net realizable value to warehousing assets under development, and costs incurred in connection with the liquidation of previously used structures. CORESTATE – ANNUAL REPORT 2021 126 D.4.5 GAINS & LOSSES FROM FV MEASUREMENT OF FINANCIAL INSTRUMENTS RELATED TO REAL ESTATE Costs rose in particular as a result of the increase in the number of employees and the severance payments for the changes in Management Board positions as well as the costs for the acquisition of Corestate bank. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Gains/losses from fair value measurements of ﬁnancial instruments related to real estate cumulated to € -2.9m (2020: € -6.8m) and comprise the Group’s results of operations that are allocated to ﬁnancial instruments measured at fair value through proﬁt and loss. In addition, € 6.5m were recognized as provision for the transformation of the Group’s organizational structures and formal plan to reduce double-structures. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS The overall loss results primarily from negative valuation effects on Corestate’s Opportunity Fund amounting to € 9.8m, which was partially offset by positive valuation effects related to the Stratos funds shares. D.7 DEPRECIATION, AMORTIZATION AND IMPAIRMENT NOTES TO THE ANNUAL ACCOUNTS € million 2021 (174.8) (16.6) (9.0) 2020 (21.7) - FURTHER INFORMATION Goodwill D.4.6 EXPENSES FROM OTHER SEGMENTS Intangible Assets from Customer Relationships Intangible Assets from Oder Backlog Other Intangible Assets Property, Plant and Equipment Rights of Use Expenses from other segments totalled to € 7.5m (2020: € 22.9m) and include direct expenses in relation to the operation of the assets as a concurrent effect with the development of rental income as well as personnel and overhead expenses allocated to the Management of Associates. - (9.1) (23.9) (1.0) (3.1) (1.0) (50.6) (0.8) (3.3) D.5 OTHER INCOME Others (0.8) Other income increased to € 15.5m (2020: € 10.6m). The increase mainly results from two items on Hannover Leasing and HFS level. First, on Hannover Leasing level, a reversal of risk provisions amounting to € 2.8m in relation to receivables from two aircraft funds that had previously been fully written off. Second, on HFS level, fund-related expenses amounting to € 2.6m regarding a guaranteed interest have been refunded due to the sale of the underlying assets in 2021. Total (214.3) The main portion of depreciation is due to asset management contracts and order backlog as well as customer relationships that have been recognized as part of business combinations amounting to € 33.2m (2020: € 22.6m). The increase in depreciation of recognized Intangible Assets as part of business combinations compared to prior year results from the recognition of customer relationships and order backlog in course of the acquisition of CORESTATE Bank (see Note B.2.2 for more information of the recognized order backlog and customer relationships). D.6 GENERAL AND ADMINISTRATIVE EXPENSES General and Administrative Expenses of € 59.5m (2020: € 45.4m) include both personnel and overhead expenses not allocated to the segments Real Estate Equity, Real Estate Debt Segment or Other Segments. The impairment of HFS goodwill is related to the segment Real Estate Debt segment (see Note E.1). CORESTATE – ANNUAL REPORT 2021 127 TO OUR SHAREHOLDERS D.8 FINANCIAL INCOME D.10 INCOME TAX CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In 2021, ﬁnancial income increased by € 2.1m to € 7.3m (2020: € 5.2m). Income from currency translation effects increased by € 2.8m and relates to a beneﬁcial development of exchange rates. In contrast, interest income stood nearly unchanged at € 3.7m compared to prior year. € million 2021 2020 CONSOLIDATED FINANCIAL STATEMENTS Current Income Tax Expense Deferred Taxes Total (14.3) 27.7 (14.9) 7.9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS € million 2021 3.7 2020 3.1 13.4 (6.9) NOTES TO THE ANNUAL ACCOUNTS Interest Income Foreign Currency Income Other Financial Income Total Income from deferred taxes mainly results from capitalized tax loss carry-forwards related to the Corestate Capital Group GmbH, which is in process of integrating Corestate Bank GmbH into its ﬁscal unity. This integration will allow setting off future proﬁts generated within Corestate Bank GmbH with existing tax loss carry- forwards. Further, the deferred tax income is partly being offset by expenses from deferred taxes, which are mainly due to changes in both temporary valuation differences and higher valuation allowances for deferred tax assets on tax loss carry-forwards related to the sub-group Hannover Leasing. FURTHER INFORMATION 3.6 0.8 0.0 1.3 7.3 5.2 D.9 FINANCIAL EXPENSES Financial expenses decreased in 2021 by € 3.4m to € 25.6m (2020: € 29.0m). Interest expenses are mainly related to the two corporate bonds issued in 2017 and 2018 that amount to interest expenses of € 17.6m (2020: € 17.6m). Expenses from currency translation were € 1.3m lower than in the previous year. Other ﬁnancial expenses mainly comprise bank charges. € million 2021 (23.2) (0.2) 2020 (24.3) (0.1) Interest Expenses Proﬁt or Loss Attributable to NCIs Foreign Currency Expenses Other Financial Expense Total (1.7) (3.0) (0.5) (1.6) (25.6) (29.0) CORESTATE – ANNUAL REPORT 2021 128 Tax rate reconciliation € million 2021 26.1 2.4 2020 7.4 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT from Tax Loss Carry-Forwards The tax reconciliation statement below describes the relationship between the effective tax expense/beneﬁt as recorded in the Group’s Income Statement and the originally expected tax expenses based on the consolidated Earnings before Taxes (EBT) according to IFRS by applying the statutory income tax rate of 24.94% (2020: 24.94%) for CCH SA in Luxembourg. from temporary Differences on Accruals from temporary Differences on Liabilities from temporary Differences on Shares in Subsidiaries from temporary Differences on Properties from temporary Differences on Intangible Assets from temporary Differences on Financial Assets from temporary Differences on Receivables from Valuation of Other Assets 1.6 CONSOLIDATED FINANCIAL STATEMENTS 0.9 0.4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8.5 8.3 ANNUAL ACCOUNTS 0.0 1.8 € million 2021 (206.2) 24.94% (51.4) 1.7 2020 (61.9) 24.94% (15.4) 2.8 NOTES TO THE ANNUAL ACCOUNTS 1.0 0.1 Consolidated Earnings before Taxes (EBT) Luxembourg Statutory Income Tax Rate for CCH SA Projected Income Tax (Gain)/Burden Adjustments in Respect of income Tax of previous Years Effect from Changes in Tax Rates FURTHER INFORMATION 4.2 4.3 1.0 0.7 0.3 0.0 from temporary Differences on Financial Liabilities Set-off of Deferred Tax Liabilities Total 3.8 7.1 0.0 (0.2) (7.4) 41.5 (11.0) 20.7 Current Tax Losses for which no deferred Tax Asset has been recognised 1.4 16.3 Effect from Permanent Differences 24.8 11.9 6.8 Effect from different Tax Rates (2.0) Effect from Dividends and Other Income Exempt from Taxation (1.6) (1.1) Other Differences 0.2 (13.4) 6.5% (0.2) 6.9 Income Tax Reported in the Group’s Income Statement Effective Tax Rate 11.30% CORESTATE – ANNUAL REPORT 2021 129 € million Prior year’s deferred tax assets from temporary differences on other assets in the amount of € 0.1m have been separated into an own disclosure line item for deferred tax assets from temporary differences on intangible assets. 2021 6.2 2020 5.6 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT from temporary Differences on Financial Assets from at-equity Valuation of Associates from temporary Differences on Liabilities from temporary Differences on Receivables from temporary Differences on Accruals from temporary Differences on Properties from temporary Differences on Intangible Assets from temporary Differences on Other Assets Set-off of deferred Tax Assets 0.2 0.1 No deferred tax assets have been recognized on tax loss carry-forwards related to German corporate taxes of € 23.3m (2020: € 57.9m), German trade tax on income of € 83.6m (2020: € 113.9m) and other income taxes of € 129.3m (2020: € 76.8m). These tax loss carry-forwards are indeﬁnitely available with the exception of those related to other income taxes in an amount of € 4.4m expiring after seven years and in an amount of € 84.2m which expire after 17 years. CONSOLIDATED FINANCIAL STATEMENTS 1.2 1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 0.1 0.1 ANNUAL ACCOUNTS 1.8 0.4 NOTES TO THE ANNUAL ACCOUNTS 1.8 6.6 Deferred taxes on tax loss carry-forwards and temporary differences are recognized only to the extent that sufﬁcient future taxable income is expected to be generated against which the losses and temporary differences can be utilized. The total amount of accordingly unrecognized deferred tax assets is € 39.9m (2020: € 38.0m). FURTHER INFORMATION 12.1 1.5 9.0 0.7 (7.4) 17.5 (11.0) 13.0 The beneﬁt arising from previously unrecognized tax loss that is used to reduce deferred tax expense amounts to € 13.0m (2020: € 0.0m). Deferred tax expense arising from the write-down of a deferred tax asset amounts to € 2.7m (2020: € 3.5m). Total CORESTATE – ANNUAL REPORT 2021 130 D.11 EARNINGS PER SHARE TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT 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 ordinary shares outstanding is calculated as follows: The effect from potential ordinary shares from the conversion of convertible bonds was ignored for determining dilutive EPS as the conversion price set out in the terms and conditions for the convertible bond is ﬁxed at € 61.958 per share (only subject to anti-dilution adjustments), which is signiﬁcantly higher than the average market price of Corestate’s shares during 2021. The Group’s management therefore considered the convertible bonds to be anti-dilutive as it is very unlikely that the bond could be converted into ordinary shares. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 Dec 2021 Number of Shares 31 Dec 2020 ANNUAL ACCOUNTS Number of Shares Days Days 365 NOTES TO THE ANNUAL ACCOUNTS Earnings per share, both diluted as well as undiluted are calculated as follows: Calculation of undiluted Shares FURTHER INFORMATION Shares at the Beginning of the Period 2021 2020 25,666,025 365 21,179,449 Issue of new Shares on 25 May 2021 8,500,000 27,783 221 178 Loss attributable to Ordinary Equity Holders of the Parent: Issue of new Shares on 07 July 2021 Continued Operations (€m) Discontinued Operations (€m) (193.8) (7.2) (65.3) (3.8) Reactivated Shares from Repurchasing Program 174,968 125,226 352 Loss attributable to Ordinary Equity Holders of the Parent for basic Earnings (201.1) (69.1) Issue of new Shares on 15 Jan 2020 352 112 Weighted Average Number of Ordinary Shares (undiluted): Share Capital Issue of new Shares on 11 Sep 2020 4,186,382 30,840,325 22,753,540 Shares at the End of the Period 34,193,808 30,840,325 25,666,025 Weighted Average Number of Ordinary Shares (Total) 30,840,325 22,753,540 Weighted Average Number of Shares for the Period 22,753,540 Earnings per Share from discontinued Operations Earnings per Share from continued Operations Earnings per Share (0.23 €) (6.29) € (6.52) € (0.17 €) (2.87 €) (3.04 €) Calculation of Diluted Shares Issue of new Shares on 15 Jan 2020 54,037 352 Weighted Average Number of Shares for the Period (diluted) 30,840,325 22,805,562 CORESTATE – ANNUAL REPORT 2021 131 TO OUR SHAREHOLDERS E. NOTES TO THE CONSOLIDATED CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF ANNUAL ACCOUNTS FINANCIAL POSITION NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION E.1 GOODWILL As at 31 December 2021 the Goodwill of € 487.2m (2020: € 577.7m), which was allocated to multiple CGUs within both the Real Estate Equity and Real Estate Debt segment, comprises the following individual positions: On 25 May 2021, Corestate acquired Corestate Bank (see Note B.2.2), which led to an increase in Goodwill from business combination amounting to € 94.6m (see Note B.2.2). € million 2021 2020 With the intention to sell the CGU CRM in November 2021, goodwill on CRM Students Ltd of € 10.3m was reclassiﬁed and reported as assets held for sale in accordance with IFRS 5 (see Note B.2.3). Therefore, any disclosures on CRM are no longer provided. Real Estate Debt HFS Helvetic Financial Services AG Corestate Bank GmbH Real Estate Equity 345.4 94.6 520.1 - The recoverable amount (value in use) of HFS was below the carrying value. Therefor the goodwill had to be impaired by € 174.8m. STAM Europe 32.2 15.0 - 32.2 15.0 HANNOVER LEASING GmbH & Co. KG CRM Students Ltd. 10.3 Total 487.2 577.7 CORESTATE – ANNUAL REPORT 2021 132 Goodwill The following major assumptions have been applied for determining value in use: TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million 2021 2020 2021 2020 Acquisition Cost CGU HFS Helvetic Financial Services AG Discount Rate (before Tax) Growth Rate after Year 5 CGU Hannover Leasing GmbH & Co. KG Discount Rate (before Tax) Growth Rate after Year 5 CGU STAM CONSOLIDATED FINANCIAL STATEMENTS As at 01 January 599.4 84.3 94.6 - 567.1 32.3 32.2 (0.1) - 8.9% 1.0% 8.1% 1.0% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Changes in Scope of Consolidation Additions ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Currency translation effects Disposals/Reclassiﬁcation As at 31 December Amortisation and Impairment Losses As at 01 January 7.0% 1.0% 6.4% 1.0% FURTHER INFORMATION (10.3) 683.7 599.4 Discount Rate (before Tax) Growth Rate after Year 5 CGU Corestate Bank 7.5% 1.0% 5.6% 1.0% 21.7 174.8 196.5 487.2 - 21.7 Impairment for the year As at 31 December Total (Carrying Amount) 21.7 Equity Costs 9.1% 1.0% - - 577.7 Growth Rate after Year 5 The Group performed its annual impairment test at year-end. The Group determines whether goodwill and other intangible assets with indeﬁnite useful lives are impaired at least on an annual basis. Since brand names do not generate independent cash ﬂows they form part of the assets within the respective CGUs which are tested for impairment. The Group’s most recent budget and forecast as well as extrapolations for periods beyond budgeted projections include a detailed budget for 2022 as well as a medium-term projection of 4 years for each CGU until 2026. The last year depicts the perpetual annuity that includes the last year of the medium- term projection with an additional growth rate of 1.0% for all CGUs. Due to the ongoingCOVID-19implications, thebudgetassumptionsfor2022andforecasted projections were still subjected to a lower transaction volume compared to pre- COVID-19 periods. CORESTATE – ANNUAL REPORT 2021 133 The Group expects the number of transactions to normalize to a pre-pandemic level across all asset classes in the following years. Therefor the planning assumptions for the medium-term projections show a higher transaction volume compared to both 2020 and 2021 as well as an improved long-term proﬁtability. EBITDA 2021 WAAC Post Tax Growth Rate TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CGU 2020 2021 2020 2021 2020 HFS - -40.8% -56.4% -36.6% -20.6% - 10.3% - - -3.3% - CONSOLIDATED FINANCIAL STATEMENTS The impairment of HFS is mainly caused by an expected signiﬁcant lower fund volume in Stratos funds in 2022. Management expects a strong recovery of the funds’ volume close to prior years’ level in the mid-term perspective. In case the recovery of the funds‘ volume does not occur at all the goodwill on HFS would be reduced by another 44.8%. Corestate Bank - -38.3% -59.4% 13.1% 11.3% 9.4% -4.9% -7.0% -3.6% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS HL 9.1% 9.4% -3.5% -6.6% ANNUAL ACCOUNTS STAM NOTES TO THE ANNUAL ACCOUNTS For HL, the Group expects a continued focus on business with semi-institutional investors and expects the budgeted sales to be on a level of the year 2021. FURTHER INFORMATION E.2 OTHER INTANGIBLE ASSETS For STAM, the Group expects – after two years which were negatively affected by COVID-19 – a solid transaction volume given the focus on Core/Core+ and logistic assets which is expected to further accelerate over the planning period resulting in a sales development averaging double-digit growth. At CORESTATE Bank, the Group assumes a solid growth of the underlying business as well as a strong demand of the trading activities over the planning period. These assumptions result in a moderate sales growth. As a result of the purchase price allocation of CORESTATE Bank an amount of € 11.2m and € 25.5m was identiﬁed as order backlog respectively as customer relationships. The order backlog and the customer relationships are subject to scheduled amortization based on useful lives of 19 months (order backlog) and of 4 years (customer relationship). At year-end 2021, the majority of the backlog has already been amortized, as this portion was related to one major real estate ﬁnancing transaction that has already been completed. In addition, an impairment was recognized on the customer relationships in the amount of € 12.9m at the end of the year, due to management reassessment of the future businesses with the customers included in the recognized customer relationships (for more details of the business combination of CORESTATE Bank see Note B.2.2). Mid-term and long-term assumptions that are reﬂected in the respective budgets for these CGU did not materially change compared to prior year. A sensitivity analysis was performed on the major assumptions for the impairment test. The following table shows an analysis at what percentage these assumptions must change to reach a headroom of zero; for newly acquired Corestate Bank only 2021 igures are listed. The remaining other intangible assets include mainly brand names and acquired asset management contracts. These contracts have remaining useful lives between 1 and 16 years. The brand names have indeﬁnite useful lives. As at 31 December 2021, brand names amounting to € 46.7m (2020: € 47.1m) were tested for impairment as part of the annual impairment testing of CGUs of real estate equity segment resulting in no need for impairment (see Note E.1). The reclassiﬁcations of acquired asset management contracts and other intangible assets include the relevant assets of CRM and Capera, which were reclassiﬁed and reported as assets held for sale in accordance with IFRS 5 (see Note B.2.3). CORESTATE – ANNUAL REPORT 2021 134 € million Brand Names Acquired Management Contracts Customer Relationships Order Backlog Other intagible Assets 31 Dec 2021 31 Dec 2020 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Acquisition cost As at 01 January 47.3 125.3 - - 9.0 - 181.6 36.7 - 179.8 9.2 CONSOLIDATED FINANCIAL STATEMENTS Additions from Business Combinations Currency Changes - - 25.5 11.2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - - - - - - 0.1 ANNUAL ACCOUNTS Additions - - - - - - 0.2 (1.6) 7.6 0.2 2.7 NOTES TO THE ANNUAL ACCOUNTS Disposals / Reclassiﬁcations As at 31 December (11.7) 113.6 (13.3) 205.2 (10.1) 181.6 FURTHER INFORMATION 47.3 25.5 11.2 Amortisation and Impairment Losses As at 01 January 0.2 0.5 - 90.0 5.6 - 3.7 - 9.0 - 3.6 1.4 - 93.8 20.2 70.2 26.2 - Additions to cumulative Amortization Impairment 1.6 12.9 - 14.5 Disposals / Reclassiﬁcations As at 31 December - (7.9) 89.3 - (0.2) 4.8 (8.0) (2.6) 93.8 0.7 16.6 9.0 120.4 Total (Carrying Amount) 46.7 24.3 8.9 2.2 2.8 84.8 87.8 CORESTATE – ANNUAL REPORT 2021 135 TO OUR SHAREHOLDERS E.3 INVESTMENT IN ASSOCIATES AND JOINT VENTURES CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The table below shows the key ﬁnancial information of the Group’s ﬁve major investments in main associates and joint ventures: CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS € million Vision One 158.2 0.3 Liver 97.8 2.5 Quartier West Highstreet VIII 228.9 16.6 Echo 69.6 1.1 Other1 1,074.7 72.8 ANNUAL ACCOUNTS Other non-current Assets Cash (restricted and free Cash) Other current Assets 31.8 0.1 - NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION 10.2 (81.4) - 4.0 12.3 0.8 45.3 Non-current ﬁnancial Liabilities Other non-current Liabilities Current ﬁnancial Liabilities Other current Liabilities Equity (36.1) (1.1) - - (142.0) (43.4) (4.2) - (295.5) (94.3) (228.2) (33.6) 541.2 43.0 - (1.0) (38.8) (6.3) 26.4 2.3 (47.0) (1.7) 38.7 0.0 - (1.1) 66.0 6.7 (0.0) 31.9 0.3 - (12.2) 56.1 18.2 Revenues Interest Income 0.0 - - - 0.0 Interest Expenses (0.2) - (1.2) 2.6 (0.0) - (4.0) (0.6) 0.1 (10.3) (3.8) Income Tax Expense or Income Proﬁt / (Loss) from continuing Operations Total comprehensive Income 0.5 (1.5) (1.5) 6.3 6.3 (0.2) (0.2) 1.6 0.0 0.0 73.1 1 Others include investments < € 15m carrying value 1.6 (73.4) CORESTATE – ANNUAL REPORT 2021 136 The table below shows the key ﬁnancial information of the Group‘s major TO OUR SHAREHOLDERS investments in associates and joint ventures as at 31 December 2020: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million Highstreet VIII Liver Quartier West Echo Other1 CONSOLIDATED FINANCIAL STATEMENTS Other non-current Assets Cash (restricted and free Cash) Other current Assets 227.7 17.7 79.7 1.9 31.3 60.2 2.3 911.9 60.7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 0.1 ANNUAL ACCOUNTS 11.9 0.8 - 1.4 9.0 NOTES TO THE Non-current ﬁnancial Liabilities Other non-current Liabilities Current ﬁnancial Liabilities Other current Liabilities Equity (146.0) (47.1) (3.0) (34.0) 1.4 - (29.0) (1.7) 0.0 (355.4) (38.7) (137.0) (39.2) 411.3 34.4 ANNUAL ACCOUNTS FURTHER INFORMATION - 0.0 - (11.6) 49.7 19.5 (1.3) 48.5 5.3 (0.0) (6.0) 27.3 2.0 31.4 Revenues - Interest Income 0.0 0.0 - (0.2) - - 0.0 Interest Expenses (4.2) (1.0) 1.5 (0.5) 0.0 (6.6) Income Tax Expense or Income Proﬁt / (Loss) from continuing Operations Total comprehensive Income 1.6 2.1 (10.6) (10.6) (6.4) (6.4) (1.0) - (5.6) (5.6) (35.7) (35.7) 1 Others include investments < € 15m carrying value CORESTATE – ANNUAL REPORT 2021 137 Investment properties held by the associates are measured at fair value in line with IAS 40, which includes assumptions on macro and micro economic developments in the future. Developments held as inventory by the investments are valued at cost or net realizable value. In addition, the proﬁt share for the period rose to € 3.7m, which can be primarily linked to positive valuation results for the projects LIVER, TEMPELHOF TWINS, and TURICUM. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The following table shows the participation quote and the movements in Group’s investments in associates and joint ventures: CONSOLIDATED FINANCIAL STATEMENTS A signiﬁcant addition of € 22.5m results from the project VISION ONE while the other additions essentially represent capital increases. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS In contrast to the year 2020, which was strongly characterized by COVID-19 restrictions, in 2021 a recovery and stabilization of the hotel/serviced living assets managed by the Group was observed. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Dividends and Participation Quote 01 Jan 2021 Participation Quote 31 Dec 2021 01 Jan 2021 Additions/ Transfers Share of Proﬁt/ (Loss) for the Period Capital Repayments received in Cash Disposals/ Transfers Currency Translation Adjustments 31 Dec 2021 Project VISION ONE LIVER - 35.1% 31.7% 21.6% 38.1% 10.1% 48.5% 6.0% 21.5% 35.1% 31.7% 21.6% 38.1% 10.1% 48.5% 6.0% - 17.8 13.7 10.1 11.3 6.5 22.5 - 1.8 - - - 22.5 20.7 13.3 10.4 10.4 8.1 - - - 1.1 QUARTIER WEST HIGHSTREET VIII ECHO - (0.3) 0.3 - (0.1) - - - - - 0.3 (1.2) 1.6 - (0.0) (0.0) - - - TEMPELHOF TWINS TABLAS 0.1 - - 6.6 - (0.1) 3.0 - - 6.5 TURICUM 2.6 - - - 5.6 HIGHSTREET VI PALLARS 10.0% 48.6% 10.0% 35.5% 10.5% 10.0% 48.6% 10.0% 26.6% 10.5% 4.9 - - 0.2 - - - 5.0 5.1 (0.3) (0.1) 0.3 (0.0) - - - - 4.8 HIGHSTREET PII NEUSS 3.9 0.1 - - - 3.9 5.0 - (1.8) - 3.5 OLYMPIC 3.3 0.2 23.2 (0.0) 5.2 (0.0) (0.1) - 3.4 Associates, Subtotal 90.8 (1.9) 1.1 118.2 CORESTATE – ANNUAL REPORT 2021 138 Dividends and Capital Repayments received in Cash TO OUR SHAREHOLDERS Participation Quote 01 Jan 2021 Participation Quote 31 Dec 2021 01 Jan 2021 Additions/ Transfers Share of Proﬁt/ (Loss) for the Period Disposals/ Transfers Currency Translation Adjustments 31 Dec 2021 CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Project Associates, Subtotal PLUTOS 90.8 2.8 23.2 5.2 0.0 (0.1) (1.9) 1.1 118.2 2.7 2.6 1.8 1.7 1.5 1.3 1.3 1.0 1.0 0.8 0.3 0.2 0.1 0.0 - CONSOLIDATED FINANCIAL STATEMENTS 11.5% 10.0% 10.1% 10.5% 11.1% 11.0% 10.3% 10.4% 5.1% 11.5% 10.0% 10.1% 10.5% 11.1% 11.0% 10.3% 10.4% 5.1% - (0.1) - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS BAIN 2.2 0.5 (0.1) (0.2) 0.0 - - - BOCHUM CONDOR ISABELA 1.8 0.2 - - - ANNUAL ACCOUNTS 1.4 0.2 - - - NOTES TO THE ANNUAL ACCOUNTS 1.5 0.0 (0.0) (0.1) (0.0) (0.3) 0.2 - - - FURTHER INFORMATION CASSANDRA ANNAPURNA POSEIDON DONALD 1.3 0.2 (0.0) - - 1.3 - - - - 1.4 - (0.0) - - 0.8 - (0.0) - - VENLOER4711 ACROSS 10.1% 12.3% 5.4% 10.1% 5.5% 0.7 - 0.1 - - - 1.0 - (0.8) 0.0 - - - ROSE 5.4% 0.1 - - - - - - HABANA 49.0% 10.6% 26.0% 49.0% 10.6% - 0.1 0.0 - - - KING 0.5 - (0.5) - - - - FLIGHT 47 Associates, Total 0.4 0.0 24.2 (0.4) (2.3) - 108.0 3.7 (0.2) 1.1 134.5 MOVIESTAR RAW 18.0% 50.0% 50.0% 50.0% 50.0% 18.0% 45.0% 50.0% 50.0% 50.0% 10.4 2.3 - (0.1) - (0.2) (1.1) 0.1 - - - - - - - - 10.2 1.1 0.1 - - - - - SCORE 0.0 SANTES FAIR ACCONTIS EXPORO Joint Venture, Total 0.0 0.0 - 0.1 - (0.1) - 0.0 (0.0) (1.2) (0.0) (0.0) 0.0 11.4 12.8 (0.1) (0.1) Total 120.8 24.1 2.5 (0.2) (2.5) 1.1 145.9 CORESTATE – ANNUAL REPORT 2021 139 The following table shows the participation quote and the movements in Group’s TO OUR SHAREHOLDERS investments in associates and joint ventures in 2020: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Dividends and Capital Repayments received in Ccash Participation Quote 01 Jan 2020 Participation Quote 31 Dec 2020 01 Jan 2020 Additions/ Transfers Share of Proﬁt/ (Loss) for the Period Disposals/ Transfers Currency Translation Adjustments 31 Dec 2020 Project CONSOLIDATED FINANCIAL STATEMENTS LIVER 34.6% 37.3% 37.7% 21.1% 42.7% 11.0% 42.4% - 35.1% 31.7% 38.2% 21.6% 42.7% 11.0% 42.4% 35.5% 10.0% 10.0% 10.5% 13.0% 6.0% 20.8 12.6 13.0 11.3 5.8 - (1.8) (0.3) (1.8) (0.9) (0.8) 0.4 - - (1.2) 17.8 13.7 11.3 10.1 6.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QUARTIER WEST ECHO 3.4 - (2.0) - ANNUAL ACCOUNTS - - - - NOTES TO THE ANNUAL ACCOUNTS HIGHSTREET VIII TABLAS - 1.6 0.2 4.1 5.0 - (0.3) - - - - - FURTHER INFORMATION Tempelhof Twins PALLARS 5.9 - - - 6.5 1.3 (0.3) - - - - 5.1 Neuss - - - - 5.0 HIGHSTREET VI HIGHSTREET PII OLYMPIC 10.0% 10.0% 10.0% 10.2% 5.5% 5.0 (0.2) (0.3) (2.2) 0.3 - - - 4.9 4.2 - - - - 3.9 5.3 0.2 - - - - 3.3 PLUTOS 2.5 - - - 2.8 TURICUM 2.7 - (0.1) (0.2) (0.0) 0.8 - - - 2.6 BAIN 10.0% 10.1% 10.5% 10.0% 10.1% 10.3% 10.5% 10.0% 10.1% 11.7% 10.5% 10.7% 10.3% 11.0% 0.8 1.7 - - - - - 2.2 BOCHUM 1.8 - - 1.8 ISABELA 0.5 0.1 0.1 - - - - 1.5 CONDOR 1.8 (0.5) (0.0) (0.2) (0.0) (8.1) (0.1) (0.8) (1.5) - - - 1.4 POSEIDON ANNAPURNA CASSANDRA Associates, Subtotal 2.2 - - 1.4 3.1 - - - - - 1.3 1.3 - 1.3 102.0 16.4 (2.7) (2.0) (1.2) 104.3 CORESTATE – ANNUAL REPORT 2021 140 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Dividends and Capital Repayments received in Ccash Participation Quote 01 Jan 2020 Participation Quote 31 Dec 2020 01 Jan 2020 Additions/ Transfers Share of Proﬁt/ (Loss) for the Period Disposals/ Transfers Currency Translation Adjustments 31 Dec 2020 Project CONSOLIDATED FINANCIAL STATEMENTS Associates, Subtotal ACROSS 102.0 1.1 16.4 (8.1) (0.1) (0.0) (0.0) - (2.7) (2.0) (1.2) 104.3 1.0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10.0% 5.1% 12.3% 5.1% - - - - ANNUAL ACCOUNTS DONALD 0.9 - (0.0) - - 0.8 NOTES TO THE ANNUAL ACCOUNTS KING 10.0% 24.7% 10.1% 46.5% 5.4% 10.6% 26.0% 10.1% 49.0% 5.4% 0.6 - - - - 0.5 FLIGHT 47 Venloer4711 HABANA 0.4 - - - - - 0.4 FURTHER INFORMATION 1.1 - (0.5) 0.0 - - 0.7 0.1 0.0 - - - 0.1 ROSE 0.2 - 35.8 - (0.0) (0.1) (0.0) - - - - 0.1 HIGHSTREET VII VOLARE 40.8% 94.9% 0.0% 41.1% 100.0% Merged 6.7 (42.2) (0.2) (0.1) (0.0) (2.3) - 0.0 0.1 - - - - 0.0 ENERGY 0.0 - 0.0 Associates, Total 113.2 52.1 (8.9) (44.9) (1.2) 108.0 Moviestar 18.0% 50.0% 50.0% 50.0% 47.5% 18.0% 50.0% 50.0% 50.0% 50.0% 10.4 2.9 - - - - - - - (0.5) (0.0) (0.0) (0.0) (0.5) - - - - - - - - - - - - - - - - - - 10.4 2.3 RAW SCORE 0.0 0.0 Santes Fair Accontis Exporo Joint Venture, Total 0.0 0.0 0.0 0.0 13.4 12.8 Total 126.5 52.1 (9.4) (44.9) (2.3) (1.2) 120.8 CORESTATE – ANNUAL REPORT 2021 141 The following sensitivity analysis shows how the Group‘s Investment in Associates and Joint Ventures and Loans to Associates and Joint Ventures (carrying amount) would have been affected if the relevant property value of the Associates and Joint Ventures increased / decreased by 5% and 10% (as a result of changes in the main key input parameters stated above): The following overview shows the amount of the major positions of Group’s other ﬁnancial instruments: TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million 2021 48.6 37.5 7.5 2020 58.4 35.6 9.8 CONSOLIDATED FINANCIAL STATEMENTS Opportunity Fund Stratos Funds Private Invest Bel Air NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Property Value (10%) Property Value (5%) Carrying Value Property Value (-5%) Property Value (-10%) ANNUAL ACCOUNTS € million 2021 NOTES TO THE ANNUAL ACCOUNTS 7.4 7.6 163.3 138.4 154.8 129.7 145.9 120.8 137.0 111.8 127.5 102.0 FURTHER INFORMATION Weitblick Augsburg Covent Garden Johannis Quartier Chemnitz Herschel 5.0 - 2020 4.9 4.8 3.9 - E.4 OTHER FINANCIAL INSTRUMENTS 3.2 1.4 The major positions for 2021 relate to Corestate’s Opportunity Fund and the Stratos funds managed by HFS. Both funds are treated as equity instruments designated at fair value through proﬁt and loss (a sensitivity analysis of the Level 3 fair value measurement is presented in Note F.5). HeWiPPP 2.3 2.6 Nigresco 2.3 2.4 Other Instruments Total 28.8 151.5 31.3 153.9 The remaining ﬁnancial instruments predominantly contain minority shares in partnership structures managed by HL, which are invested in real estate. Since shares in partnerships are treated as debt instruments, valuation changes are recognized in proﬁt and loss. The other ﬁnancial instruments amount to € 151.5m (2020: € 153.9m) whereas movement is mainly caused by two equity placements within the fund portfolio of Hannover Leasing, in an amount of € 8.8m, and a negative valuation effect in Opportunity Fund amounting to € -9.8m. In contrast to the negative valuation effect, the Stratos Funds and the HL portfolio ‘Herschel’ had a positive valuation effect totalling to € 3.7m. CORESTATE – ANNUAL REPORT 2021 142 TO OUR SHAREHOLDERS E.5 PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSETS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million Land and Buildings Ofﬁce and other Equipment 2021 2020 CONSOLIDATED FINANCIAL STATEMENTS Acquisition Cost NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at 01 January 24.4 0.6 - 13.7 0.6 - 38.1 1.2 32.2 0.4 ANNUAL ACCOUNTS Changes in Scope of consolidated Companies Currency Changes NOTES TO THE ANNUAL ACCOUNTS - (0.1) 9.3 FURTHER INFORMATION Additions 1.8 (7.4) 19.4 0.5 (6.9) 7.9 2.3 Disposals / Reclassiﬁcations As at 31 December (14.3) 27.2 (3.7) 38.1 Depreciation and Impairment Losses As at 01 January 6.1 - 9.7 0.1 - 15.8 0.1 8.0 0.3 Changes in Scope of consolidated Companies Currency translation effects Additions to cumulative Depreciation Disposals / Reclassiﬁcations As at 31 December - - (0.0) 8.9 3.1 (1.3) 7.9 11.4 1.0 (4.9) 5.9 2.0 4.1 (6.2) 13.8 13.4 (1.2) 15.8 22.3 Total (Carrying Amount) Changes in scope of consolidated companies contain the assets acquired from the purchase of Corestate Bank. The respective reclassiﬁcations of land and buildings and ofﬁce and other equipment include the assets of CRM and Capera, which were reclassiﬁed and reported as assets held for sale in accordance with IFRS 5. In addition, a disposal in land and buildings is due to the shortening of the lease term for the ofﬁce building in Frankfurt on Main (see Note E.6). The addition of € 2.3m mainly relates to new and extended lease contracts as well as new ofﬁce and other equipment in Corestate Capital Advisors GmbH and Corestate Bank. CORESTATE – ANNUAL REPORT 2021 143 TO OUR SHAREHOLDERS E.6 LEASED ASSETS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Group acts as a lessee of ofﬁce premises, ofﬁce and other equipment, and cars. Ofﬁce premises have lease terms between one and 17 years, whilst cars and ofﬁce equipment have lease terms mostly between 2 and 5 years. Generally, the Group is restricted from assigning and subleasing the leased assets. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Group also has certain leases with lease terms of 12 months or less and leases of ofﬁce equipment with low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: FURTHER INFORMATION € million Ofﬁce Premises Cars Ofﬁce Equipment Other Assets Total As at 01 January 2021 Additions 18.2 1.3 0.3 0.3 0.1 0.0 0.3 0.0 19.0 1.4 Disposals / Reclassiﬁcation Depreciation (4.9) (3.2) 11.4 (0.2) (0.1) 0.3 (0.0) (0.0) 0.0 (0.1) (0.1) 0.1 (5.2) (3.4) 11.8 As at 31 December 2021 CORESTATE – ANNUAL REPORT 2021 144 Set out below are the carrying amounts of lease liabilities (included in other ﬁnancial liabilities) and the movements during the period: The following table shows the amounts recognised in proﬁt or loss (the disclosure to the statement of proﬁt and loss is adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020): TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million 2021 27.4 1.5 2020 21.0 11.0 - € million 2021 (3.3) - 2020 (3.1) 2.7 CONSOLIDATED FINANCIAL STATEMENTS As at 01 January Additions Depreciation Expense of right-of-use Assets Income of Subleasing recognized at Inception Date Interest Expense on Lease Liabilities Interest Income on Lease Receivables Expense relating to Leases of low-value Assets Expense relating to short-term Leases Total Amount recognised in Proﬁt or Loss NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Disposals / Reclassiﬁcation Accretion of Interest Payments (5.3) 0.8 (0.9) 0.3 (1.0) 0.3 NOTES TO THE ANNUAL ACCOUNTS 1.1 FURTHER INFORMATION (4.9) 19.5 (5.7) 27.4 (0.2) (0.0) (4.1) (0.2) (0.0) (1.3) As at 31 December In 2021, a remeasurement of the lease contract for Corestate’s headquarter in Frankfurt was made after the decision for moving into new facilities at the end of 2022; this resulted in a reduction of the right of use assets amounting to € 4.1m and of the lease liability of € 4.6m (see also Note E.18). The maturity analysis of lease liabilities is disclosed in Note F.4.1 Liquidity risk. Corestate had total cash outﬂows for leases of € 5.1m (2020: € 5.9m). CORESTATE – ANNUAL REPORT 2021 145 The carrying amount of non-current loans to associates has been reduced by a provision for expected credit losses in an amount of € 9.5m (2020: € 7.5m; for further details of the credit risk see Note F.4.2). TO OUR SHAREHOLDERS E.7 NON-CURRENT RECEIVABLES CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million 2021 34.2 8.0 2020 33.6 8.5 Non-current Loans to Third Parties Non-current Loans to former Majority Shareholder of HL Non-current Loans Other CONSOLIDATED FINANCIAL STATEMENTS E.9 INVENTORIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Inventories comprise real estate properties in “Real Estate Operations and Warehousing” as part of the other segments which are deemed to be converted into investment products by way of selling them into independent investment structures. 9.5 11.6 53.7 ANNUAL ACCOUNTS Total 51.7 NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Non-current receivables remain nearly unchanged to previous year. The other non- current loans mainly included leasing receivables in an amount of € 9.0m (2020: € 11.1m). At the end of 2021, inventories totalling € 100.0m (2020: € 73.8m) are primarily related to the Projects Highstreet Giessen and Wallhalla, a micro-living asset development located in Bremen. Two development assets located in Spain complete the inventories. The carrying amount of non-current receivables has been reduced by a provision for expected credit losses in an amount of € 0.1m (2020: € 0.2m; for further details of the credit risk see Note F.4.2). The increase in inventories is predominantly the result of ongoing CAPEX-measures at the Highstreet Giessen project at around € 10.2m and the transitory acquisition of Wallhalla, which will be sold to an institutional investor in the ﬁrst half of 2022. E.8 NON-CURRENT LOANS TO ASSOCIATES According to the underlying business plan, all real estate assets classiﬁed as inventories are expected to be sold in the normal business cycle (up to three years). € million 2021 3.0 2020 7.0 € million 2021 2020 HL Invest Neuss GmbH Kanada Haus KG Pallars AIF HoldCo Sarl Others Highstreet Giessen PropCo S.à r.l. (Property located in Giessen) 75.7 65.4 5.6 5.6 1.9 1.9 Wallhalla PropCo S.à r.l. (Property located in Bremen) Bego PropCo I S.L. (Property located in Spain) 14.9 5.4 - 4.4 5.1 4.6 Total 14.9 19.6 Thorﬁn Invest S.L. in future Gabriela PropCo S.L. (Property located in Spain) 4.0 3.7 Total 100.0 73.8 CORESTATE – ANNUAL REPORT 2021 146 TO OUR SHAREHOLDERS E.10 TRADE RECEIVABLES E.12 OTHER CURRENT FINANCIAL ASSETS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Trade receivables of € 47.2m (2020: € 33.0m) result from various fee income streams generated by the Group’s Real Estate Equity and Debt Business with third-party clients and receivables from renting activities. Other current ﬁnancial assets amounted to € 86.5m (2020: € 126.7m) and are mainly deﬁned by loans granted for warehousing activities as well as one ﬁnance lease receivable at the level of CE Bad Honnef Betriebsgesellschaft mbH. CONSOLIDATED FINANCIAL STATEMENTS The increase at year-end results primarily from the sale of a Leipzig-based object by HFS resulting in a promote fee of € 9.3m. In addition, receivables of € 11.7m from the sale of Berlin-based project Herschel are recognised at Hannover Leasing. The net amount of loans granted by Corestate Capital Services GmbH (CCS) for NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS bridge ﬁnancing activities is € 60.5m (2020: € 107.1m). ANNUAL ACCOUNTS The carrying amount of other current ﬁnancial assets has been reduced by a provision for expected credit losses in an amount of € 41.9m (2020: € 3.0m). The increase in risk provisions mirrors mainly the fact that for certain loans granted by CCS management has carried out an assessment of the recoverability and concluded that the collectability is at risk (for further details of the credit risk see note F.4.2). NOTES TO THE ANNUAL ACCOUNTS The table below shows the risk provision for ﬁnancial assets at amortised cost (within the simpliﬁed approach) showing cumulative expected credit losses of € 10.5m (2020: € 1.3m) that are recognised for doubtful accounts: FURTHER INFORMATION Step 2 Simpliﬁed Step 3 Simpliﬁed € million Approach Approach Total 1.3 01 January 2021 0.5 1.3 1.7 0.8 8.0 8.8 E.13 OTHER CURRENT ASSETS Provision for expected Credit Losses 31 December 2021 9.2 Other current assets, predominantly consisting of other tax receivables, amount to € 12.1m (2020: € 16.6m) and remain relatively stable. 10.5 A detailed overview of the expected credit losses recognized is shown in Note F.4.2. E.14 RESTRICTED CASH, CASH AND CASH EQUIVALENTS Restricted cash (€ 12.9m; 2020: € 23.0m) mainly relates to the CAPEX loan drawn in 2020 for improvement measures performed at the project Highstreet Gießen (see Note E.9) which therefore also explains the consumption-driven decline. E.11 CONTRACT ASSETS Contract assets of € 58.5m (2020: € 51.0m) are mainly driven by the recognition of the coupon participation fees for the Stratos Funds at the level of HFS. Cash and Cash Equivalents (€ 62.8m; 2020: € 68.2m) in the consolidated Statement of Financial Position comprise cash at banks and on hand as well as short-term deposits with a maturity of three months or less. The coupon participation fees are calculated by an external investment fund manager on a monthly basis but are chargeable by HFS generally every six months. For contract assets an expected credit loss amounting to € 3.2m (2020: € 0.0m) is recognized (detailed information are shown in Note F.4.2) The Group has included restricted cash as well as cash and cash equivalents as they are considered an integral part of the Group’s cash management. CORESTATE – ANNUAL REPORT 2021 147 E.15.2 AUTHORIZED CAPITAL TO OUR SHAREHOLDERS E.15 SHARE CAPITAL CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT E.15.1 SHARE CAPITAL The Management Board may withdraw or limit the preferential subscription rights of the shareholders under the authorized capital in accordance with the Articles of Association. € million 2021 2020 CONSOLIDATED FINANCIAL STATEMENTS As at 01 January 1.9 0.6 0.0 2.6 1.6 0.3 0.0 1.9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In 2020, 4,311,608 shares representing a share capital increase of € 336,493 have been issued by the Management Board out of the authorized capital. Issue of Share Capital (contribution in Cash) Equity-settled share-based Payments As at 31 December ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Additionally, 8,527,783 shares representing a share capital of € 639,584 have been issued by the Management Board out of the authorized capital in 2021. FURTHER INFORMATION In the ﬁrst six months of 2021, the Group issued 8,500,000 new shares out of its authorized capital that have been transferred as part of the consideration transferred for the acquisition of Corestate Bank GmbH (see Note B.2.2). Hence, the share capital increased by € 637,500 to € 2,562,452. Since the annual general meeting in 2021, the authorized capital represented by a maximum of 30,000,000 shares without nominal value of in the Company in an amount of € 2,250,000 was given. In July 2021, 27,783 shares were granted as part of the long-term incentive payments for several Board Members (see Note F.6.3) as well as for earn-out compensation payments due to an additional purchase price portion of the 2019 acquired UK located subsidiary CRM. E.15.3 OTHER RESERVES The other reserves increased by € 68.8m to € 821.7m (2020: € 752.9m) mainly relating to the contributed shares of € 109.6m and the earn-out component of € 19.4m within the acquisition of Corestate Bank GmbH (see Note B.2.2), and an increase of € 3.5m (2020: € 1.2m) resulting from this year’s LTI tranches as well as the transfer of the prior year’s group net loss amounted to € -69.1m. Overall, the Company’s share capital as at 31 December 2021 is set at € 2,562,452 (2020: € 1,924,953) represented by 34,193,808 (2020: 25,666,025) shares. All shares are dematerialized shares without a par value. The shares are freely transferable in accordance with the legal requirements for shares in dematerialized form, that is, through book-entry transfers. There are no prohibitions on disposals or restrictions with respect to the transferability of the shares. All shares are subject to and governed by Luxembourg law. The composition and development of the other reserves is shown in the consolidated Statement of Changes in Equity. The shareholders’ share of proﬁts is determined based on their respective interests in the Company’s share capital. In a Luxembourg public limited liability company (société anonyme), resolutions concerning the distribution of dividends for a given ﬁnancial year, and the amount thereof, are adopted by the annual general meeting of shareholders related to such ﬁnancial year. The annual general meeting of shareholders decides on the allocation of the annual proﬁt, if any. Each share carries one vote at the Company’s shareholders’ meeting. There are no restrictions on voting rights. All shares carry the same dividend rights. In the event of the Company’s liquidation, any proceeds will be distributed to the holders of the shares in proportion to their interest in the Company’s share capital. CORESTATE – ANNUAL REPORT 2021 148 In accordance with the Company’s Articles of Association, every year at least 5% of the annual net income (based on the local statutory ﬁnancial statements) of the Company has to be set aside in order to build up the “legal reserve until the amount of the legal reserve has reached an amount of one tenth of the Share Capital.” The table below shows the amounts of the Group’s non-current ﬁnancial liabilities TO OUR SHAREHOLDERS from bonds: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT € million 2021 2020 CONSOLIDATED FINANCIAL STATEMENTS Senior unsecured Bonds Convertible Bonds Total 298.0 - 296.5 194.5 491.0 The remaining balance of the net proﬁt is at the disposal of the annual general meeting of shareholders. The general meeting of shareholders may also allocate net proﬁts to reserves other than the legal reserve, and, subject to compliance with all legal requirements, such reserves are available for distribution by a decision of the general meeting of shareholders. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS 298.0 NOTES TO THE ANNUAL ACCOUNTS The convertible bond has been classiﬁed as current ﬁnancial liabilities from bonds due to the maturity date in November 2022 (see Note E.20). FURTHER INFORMATION No dividend distribution may be decided by the annual general meeting of shareholders when, on the closing date of the last ﬁnancial year, the net assets as set out in the annual accounts are, or following such distribution would become, lower than the amount of the subscribed share capital plus the legal reserve or any other reserves that may not be distributed by virtue of the Articles of Association. E.17 NON-CURRENT FINANCIAL LIABILITIES TO BANKS Financial liabilities to banks of € 3.5m (2020: € 4.6m) presented a remaining term of more than one year. These liabilities are predominantly presented in project structures of Hannover Leasing. E.16 NON-CURRENT FINANCIAL LIABILITIES FROM BONDS Senior unsecured Bonds E.18 OTHER NON-CURRENT FINANCIAL LIABILITIES The Company has issued senior unsecured bonds in the aggregate principal amount of € 300m. The bonds are issued in denomination with a principal amount of € 100,000 each, which rank pari passu among themselves. The Group used the net proceeds for the reﬁnancing of existing debt as well as for general corporate purposes. Other non-current ﬁnancial liabilities of € 19.9m (2020: € 29.3m) mainly consist of lease liabilities (2021: € 15.0m; 2020: € 22.9m) resulting from procurement leases, particularly ofﬁces and cars. Due to the upcoming relocation to a new ofﬁce building in Frankfurt on Main at the end of 2022, the existing ofﬁce lease agreement was not extended and the previously included extension option was reduced by 5 years. The bonds with a maturity of 5 years were issued at 98,857% and will be redeemed at 100%. The bonds were placed with a coupon of 3.5% per annum, payable semi-annually in arrears. The issuance of the bonds took place on 23 March 2018. CORESTATE – ANNUAL REPORT 2021 149 The convertible bonds have both an equity and debt component. The equity component has an amount of € 9.7m and reﬂects the value of the conversion right (written call option). TO OUR SHAREHOLDERS E.19 OTHER NON-CURRENT PROVISIONS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Other Non-Current Provisions include different forms of guarantees and other commitments that typically arise from Corestate’s warehousing or product placement activities. As at 31 December 2021, sundry other non-current provisions mainly include pension-related and similar obligations. The Company being the issuer may, on giving not less than 30 nor more than 60 days‘ prior notice to the bondholders, redeem all, but not some only, of the outstanding bonds with effect from the redemption date (which shall be no earlier than 19 December 2020). However, such notice may only be given if the share price on each of not less than 20 trading days during an observation period of 30 consecutive trading days is equal to or exceeds 130% of the conversion price in effect on each such trading day. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 01 Jan 2021 31 Dec 2021 ANNUAL ACCOUNTS € million Reversals Additions Utilization NOTES TO THE ANNUAL ACCOUNTS Guarantees and other Commitments 0.5 (0.1) - - 0.4 FURTHER INFORMATION Sundry other non- current Provisions The issuer grants to each bondholder the right (the “conversion right”) to convert each bond in whole, but not in part, at the conversion price into settlement shares on any business day during the conversion period (period from 8 January 2018 to the earlier of the following days: the 35th Business Day prior to the maturity date or if the bonds are redeemed by the issuer the 10th business day prior to the redemption date). 1.3 (0.7) 0.7 (0.5) 0.8 Total 1.8 (0.8) 0.7 (0.5) 1.2 At year-end 2021, pro-rata redemptions of the convertible bond were made under par via market research, resulting in a reduction of the outstanding amount of € 6.5m and interest income of € 0.2m. This reduction results in an amount of current liabilities to bonds of € 190.9m. E.20 CURRENT FINANCIAL LIABILITIES TO BONDS Convertible bonds The Company has issued unsubordinated and unsecured convertible bonds in the aggregate principal amount of € 200m. The convertible bonds are issued in bearer form with a principal amount of € 100,000 each, which rank pari passu among themselves. The Group used the net proceeds for the reﬁnancing of existing debt as well as for general corporate purposes. The convertible bonds with a maturity of 5 years were issued at 100% and will be redeemed at 100% of their principal amount, unless previously converted or repurchased and cancelled. The bonds were placed with a coupon of 1.375% per annum, payable semi-annually in arrear and the conversion price was set to € 61.9580, representing a premium of 27.5% above the reference share price at the bond issue date. The settlement of the bonds took place around 28 November 2017. CORESTATE – ANNUAL REPORT 2021 150 TO OUR SHAREHOLDERS E.21 OTHER CURRENT PROVISIONS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The table below shows the detailed composition of the current provisions: CONSOLIDATED FINANCIAL STATEMENTS € million 01 Jan 2021 Additions from Business Combinations Utlilization (0.5) Reversals (0.5) Transfer Additions 31 Dec 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Litigation Costs Restructuring Rental Guarantees Sundry 3.1 1.2 - - - - 0.4 7.0 - 2.5 7.5 ANNUAL ACCOUNTS (0.6) (0.1) NOTES TO THE ANNUAL ACCOUNTS 0.9 - (0.6) - - 0.3 FURTHER INFORMATION 4.9 0.1 0.1 (1.2) (0.6) (0.6) (0.6) 0.8 8.1 3.3 Total 10.1 (2.9) (1.1) 13.6 The increase of other current provisions by € 3.5m is mainly due to a restructuring provision for the transformation of the real estate equity segment. Vice versa, offsetting effects come from utilization of provisions for restructuring and rental guarantees of each € 0.6m. Provisions for litigation costs decreased in total by € 0.6m and the sundry provision even by a total of € 1.6m. E.22 OTHER CURRENT FINANCIAL LIABILITIES TO BANKS The other current ﬁnancial liabilities to banks of € 68.3m (2020: € 68.7m) mainly comprise warehousing-related debt, including a senior loan as well as a CAPEX loan for improvement measures performed at the project Highstreet Gießen (see also Note E.14). E.23 TRADE PAYABLES Trade payables (€ 27.6m; 2020: € 13.1m) mostly consist of amounts due to utilized services and are not interest-bearing. The payment of trade payables is settled in accordance with normal business practice. The increase is mainly driven by a purchase price obligation in Wallhalla, which is one of the Group’s warehousing projects (see Note E.9). CORESTATE – ANNUAL REPORT 2021 151 TO OUR SHAREHOLDERS E.24 OTHER CURRENT FINANCIAL LIABILITIES CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Other current ﬁnancial liabilities amount to € 41.4m (2020: € 42.0m). In 2020, the position still included the HFS Bond amounting to € 30.5m which was due in Q4 2021 and repaid accordingly. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS E.25 OTHER CURRENT LIABILITIES NOTES TO THE ANNUAL ACCOUNTS € million 2021 14.8 9.3 2020 16.9 5.8 FURTHER INFORMATION Liabilities from Employee Beneﬁts Liabilities from other Taxes (VAT, Stamp Duty) Deferred Income Sundry 0.2 3.5 15.7 40.0 22.3 48.5 Total The decrease of other current liabilities are mainly due to lower liabilities from employee beneﬁts as well as lower ‘sundry’ liabilities. In 2020, severance payments amounting to € 3.6m were recognized as liabilities from employee beneﬁts. The position ‘sundry’ includes liabilities for social security as well as deposits received. CORESTATE – ANNUAL REPORT 2021 152 Aiming to mirror the increased signiﬁcance of the Real Estate Debt business, starting from 01 January 2021 management has changed the structure of its internal organisation by disaggregating the former Real Estate Investment Management (REIM) segment into the two segments Real Estate Equity and Real Estate Debt. TO OUR SHAREHOLDERS F. OTHER CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT INFORMATION CONSOLIDATED FINANCIAL STATEMENTS “Real Estate Equity” now encompasses the revenues from acquisition fees, from asset management fees, from property management fees and from sales and promote fees realized. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS F.1 SEGMENT INFORMATION The “Real Estate Debt” segment summarizes the revenue streams underwriting and structuring fees, asset management fees, performance fees, income from bridge loans and trading income. Hence, this segment comprises the HFS and genost business as well as the Corestate Bank business. NOTES TO THE ANNUAL ACCOUNTS F.1.1 OPERATING SEGMENTS & CHIEF OPERATING DECISION MAKER (CODM) FURTHER INFORMATION For management purposes, the Group is organized into business units based on its assets and services and therefor reports the three following segments: The “Other Segments” incorporate all line items from the until 2020 separately presented segments “Alignment Capital Management” and “Real Estate Operations and Warehousing”. − Real Estate Equity, − Real Estate Debt, and The Group’s revenues comprise the revenues from its segments Real Estate Equity and Real Estate Debt as well as the net rental income and the revenues from service charges from Real Estate Operations/ Warehousing. − Other segments, comprising the Group’s business in Alignment Capital Management and Real Estate Warehousing and Operations. The corresponding items of segment information and their segment allocation for the comparative period have been restated due to the changed segment allocation at the beginning of 2021; in addition, the 2020 P&L has been restated due to the designation of Capera and CRM as discontinued operations in line with IFRS 5. ThesegmentdeﬁnitionandreportingintheGroupcorrespondstointernalreporting to the chief operating decision-maker and is based on operating business divisions („management approach“). The chief operating decision-maker (“CODM”) is the Group’s Management Board. The Group’s management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on EBITDA and is measured consistently with proﬁt or loss in the consolidated ﬁnancial statements. The Group‘s General and Administrative Expenses, other income and Income Taxes (including Deferred and Current Taxes) are managed on a Group basis and are not allocated to operating segments. The following tables present information on the Group’s operating segments for 2021 and 2020, respectively. Operating results are monitored for the purpose of making decisions about resource allocation and performance assessment by the CODM. The Group‘s General and Administrative Expenses, Financial Result (including Financial Income and Expenses) and Income Taxes (including Deferred and Current Taxes) are primarily managed on a Group basis and are not allocated to operating segments. CORESTATE – ANNUAL REPORT 2021 153 F.1.2 SEGMENT INFORMATION TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Segment Information for the period from 01 January to 31 December 2021 Real Estate Equity Segment Real Estate Debt Other Segments Total Segments Overhead (not allocated) Consolidated Financial Statements1 CONSOLIDATED FINANCIAL STATEMENTS € million Segment NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Revenues Total Revenues 77.6 121.9 6.2 205.8 - 205.8 ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Income/Expenses Expenses from Real Estate Equity Segment Expenses from Real Estate Debt Segment Net Gain from Selling Warehousing Assets Share of Proﬁt or Loss from Associates and Joint Ventures Dividends from other Alignment Capital (71.4) - - - (71.4) (66.1) (2.7) 2.4 - - - - - (71.4) (66.1) (2.7) 2.4 FURTHER INFORMATION - - - - (66.1) - - - (2.7) 2.4 12.8 12.8 12.8 Gains/Losses from Fair Value Measurement of Financial Instruments related to Real Estate - - (2.9) (2.9) - (2.9) Expenses from Other Segments Total Earnings - - (7.5) (7.5) - - (7.5) 70.4 6.2 55.8 8.4 70.4 General and Administrative Expenses Other Income - - - - (59.5) 15.5 (44.0) (6.7) 7.3 (59.5) 15.5 - - - 8.4 - 70.4 (207.7) - EBITDA 6.2 55.8 26.4 Depreciation & Amortisation Financial Income (5.1) (202.5) (0.1) - (214.3) 7.3 - - Financial Expenses - - - - - - (25.6) 13.4 (55.5) 27.9 31.2 - (25.6) 13.4 Income Tax Expense - - 1 Segment Net Proﬁt/(Loss) Total Assets (31 December 2021) Total Liabilities (31 December 2021) Investment in Associates and Joint Ventures 1.1 (146.7) 712.7 434.0 - 8.3 (137.3) 1,362.2 747.3 145.9 (192.8) 1,390.1 778.5 145.9 the statement of comprehensive income is adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020 (see Note B.2.3) 214.3 107.0 - 435.2 206.3 145.9 CORESTATE – ANNUAL REPORT 2021 154 TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Segment Information for the period from 01 January to 31 December 2020 Real Estate Equity Segment Real Estate Debt Other Segments Total Segments Overhead (not allocated) Consolidated Financial Statements1 CONSOLIDATED FINANCIAL STATEMENTS € million Segment NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Revenues Total Revenues 70.4 93.3 6.4 170.2 - 170.2 ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Income/Expenses Expenses from Real Estate Equity Segment Expenses from Real Estate Debt Segment Net Gain from Selling Warehousing Assets Share of Proﬁt or Loss from Associates and Joint Ventures Dividends from other Alignment Capital (78.9) - - - (78.9) (9.1) (0.8) (9.3) 8.8 - - - - - (78.9) (9.1) (0.8) (9.3) 8.8 FURTHER INFORMATION - - - - (9.1) - - - (0.8) (9.3) 8.8 Gains/Losses from Fair Value Measurement of Financial Instruments related to Real Estate - - (6.8) (6.8) - (6.8) Expenses from Other Segments Total Earnings - - (22.9) (22.9) - - (22.9) 51.0 (8.5) 84.2 (24.7) 51.0 General and Administrative Expenses Other Income - - - - (45.4) 10.6 (34.8) (6.1) 5.2 (45.4) 10.6 - - - - 51.0 (44.5) - EBITDA (8.5) 84.2 (24.7) 16.2 Depreciation & Amortisation Financial Income (25.7) (18.8) - - (50.6) 5.2 - - Financial Expenses - - - - - - (29.0) (6.9) (71.6) 154.9 23.6 - (29.0) (6.9) Income Tax Expense - - 1 Segment Net Proﬁt/(Loss) Total Assets (31 December 2020) Total Liabilities (31 December 2020) Investment in Associates and Joint Ventures (34.2) 93.0 51.0 - 65.5 762.9 488.9 - (24.7) 427.1 203.6 120.8 6.5 (65.1) 1,437.8 767.2 120.8 the statement of comprehensive income is adjusted in line with IFRS 5 Discontinued Operations for the ﬁnancial years 2021 and 2020 (see Note B.2.3) 1,283.0 743.5 120.8 CORESTATE – ANNUAL REPORT 2021 155 F.1.3 GROUP-WIDE DISCLOSURES Geographical Segment Information (Secondary Segments) TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Group operates currently with a focus on Germany, Austria, United Kingdom, Switzerland, France, Spain and Poland. The Group has segmented its capital allocation by geographical area based on the location of the properties in its Real Estate Equity, Real Estate Debt as well as Real Estate Operations/Warehousing business. The Group generates a major part of its revenues and income in Germany, because the Group and/or its associates are focused on the German real estate market. € million Capital Allocation Germany UK 2021 2020 227.7 174.9 18.4 19.3 10.9 1.5 284.2 229.2 21.0 25.1 2.7 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Spain NOTES TO THE ANNUAL ACCOUNTS The following table sets forth the Group’s capital allocation (comprising Investment in Associates or Joint Ventures, Long-term Loans to Associates, Receivables from Associates or Joint Ventures and Inventories) and revenues by geography for the periods indicated. Poland FURTHER INFORMATION Switzerland Austria 6.1 - 2.6 One of the Group‘s customers accounts for more than 10% of consolidated revenue as same like in the previous year. These revenues of € 61.9m (2020: € 58.4m) are predominantly related to the coupon participation fee and exclusively recognized in the Real Estate Debt segment. Portugal Revenues Germany UK 0.1 - 205.8 179.0 0.8 170.2 144.3 0.8 Spain 1.6 1.8 Austria 6.0 5.9 USA 5.4 5.1 Benelux Switzerland Asia 5.3 4.7 0.7 0.8 0.9 0.8 France 6.0 5.7 CORESTATE – ANNUAL REPORT 2021 156 can be met is 01 October 2022 and no later than 31 December 2023. The ﬁnal purchase price depends on the rental terms and conditions at closing date which is currently expected to be around € 320.0m. The sales process to (semi-)institu- tional clients has been started in the beginning of 2022. F.2 COMMITMENTS AND CONTINGENCIES TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Corestate Group’s contingent liabilities and other obligations are primarily potential future payment obligations of the Group attributable to guarantees that have been provided. The ﬁgures shown reﬂect potential liabilities that the guarantees are called upon. CONSOLIDATED FINANCIAL STATEMENTS F.3 CAPITAL MANAGEMENT The Group‘s policy is to maintain a strong capital base in order to maintain investor, creditor, and general capital markets conﬁdence, and to support the ongoing development and growth of the Group for further maximizing shareholder value. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Contingent Liabilities ANNUAL ACCOUNTS € million 2021 29.8 2020 13.4 44.1 8.5 NOTES TO THE ANNUAL ACCOUNTS Loan Commitment For the Group‘s capital management, capital includes share capital and all other equity reserves attributable to the shareholders of the parent. The Group proactively manages its capital structure and makes necessary adjustments by either changing dividend pay-outs, returning capital to shareholders, or issuing new shares. No changes were made in the objectives, policies, or processes for managing capital during the year ended 31 December 2021. FURTHER INFORMATION Placing and Takeover Obligations Obligations under Guarantees and Warranty Agreements Total Loss Contingencies 36.1 45.3 111.2 66.0 The increase in contingent liabilities are mainly the result of the Hannover Leasing projects “Vision One (HL Vision One KG)”, “Augburg Ofﬁce (HL Augsburg Ofﬁce KG)” and “Hessen Agentur (CLEMITA KG)”. For the projects “Augsburg Ofﬁce” and “Vision One”, Hannover Leasing acts as the placement warrantor with an obligation of up to 24.6m and 11.0m, respectively. Compared to 2020, the pro- ject “Weitblick Augsburg” has now been fully placed, the placing and takeover obligations are reduced by € 43.9m accordingly. The increase in the obligations under guarantees and warranty agreements is almost entirely due to the project “Hessen Agentur” (€ 40,3m). The loan commitments mainly relate to HL Invest Neuss KG in the amount of € 11.1m (2020: € 7.1m) and HL Vision One KG in the amount of € 11.6m (2020: € 0.0m). F.4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group‘s principal ﬁnancial liabilities comprise loans, trade and other payables with the main purpose of ﬁnancing the Group‘s operations. Vice versa, the Group has loan, trade and other receivables, as well as cash and cash equivalents directly resulting from its operations. The Group also holds other ﬁnancial instruments and enters into derivative transactions if necessary. The Group is exposed to credit risk, liquidity risk, and interest rate risk. The overarching risk management system, which is designed in line with the size and operations of the Group, is geared towards the unpredictable nature of developments on the ﬁnancial markets and aims to minimize potential negative effects on the Group‘s ﬁnancial position. The Group identiﬁes measures at regular intervals. In addition, the Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risk. The Group‘s management oversees the administration of these risks to ensure that an appropriate balance between risk and control is achieved. The Group‘s management reviews and agrees policies for managing each of these risks which are summarized below. The Group is exposed to legal disputes or conﬂicts with its clients, customers, and other counterparties. The company estimated the ﬁnancial risks resulting from such possible disputes to be remote and concluded that no provisions are required for these risks in 2021. In addition, on 17 December 2021 the Group signed a forward contract for the Cologne-based Laurenz Carré which is contingent on the creation of the building components’ permits. The earliest point in time where the conditions precedent CORESTATE – ANNUAL REPORT 2021 157 F.4.1 LIQUIDITY RISK TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The Group monitors its risk of a shortage of funds using a continuous liquidity planning on a monthly basis. For short-term liquidity risks an efﬁcient net working capital management is in place. The table below summarizes the maturity proﬁle of the Group‘s ﬁnancial liabilities based on contractual undiscounted payments. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Maturities of ﬁnancial liabilities (2021) Maturities of ﬁnancial liabilities (2020) NOTES TO THE ANNUAL ACCOUNTS Closing Balance Closing Balance FURTHER INFORMATION € million 31 Dec 2021 < 1 year 68.3 1 to 5 years 3.5 > 5 years € million 31 Dec 2020 < 1 year 72.2 1 to 5 years 4.7 > 5 years Financial Liabilities to Banks Other Financial Liabilities thereof lease liabilities 71.8 - 8.0 5.8 Financial Liabilities to Banks Other Financial Liabilities thereof lease liabilities 73.3 - 9.9 9.9 550.2 232.1 4.5 324.6 9.2 562.3 60.1 530.7 19.5 27.4 4.5 13.0 Current liabilities to Associates Current liabilities to Associates 18.1 18.1 - - 9.3 9.3 - - Trade Payables 27.6 27.6 - - Trade Payables 13.1 13.1 - - Total Financial Liabilities 667.8 346.2 328.1 8.0 Total Financial Liabilities 658.0 154.7 535.4 9.9 F.4.2 CREDIT RISK Credit risk is the risk that a counterparty will not meet its obligations under a ﬁnancial instrument or a customer contract, eventually leading to a ﬁnancial loss. The Group is exposed to credit risk from its operating activities which, in turn, are dependent on the operating performance of the underlying investments. Such operating performance is very closely monitored by the Group‘s asset, property and ﬁnance management teams. The carrying amount of the Group‘s ﬁnancial assets represents the maximum credit exposure. The expected credit loss for trade receivables is assessed using a matrix to determine the maturity of these receivables (simpliﬁed approach). The credit risk of other receivables (general approach) is qualiﬁed by allocating debtors to a corresponding industry. The main focus is on the real estate industry. CORESTATE – ANNUAL REPORT 2021 158 The table below shows all recognized expected credit losses per asset class for all TO OUR SHAREHOLDERS ﬁnancial assets designated at amortized costs: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Net carrying amount as amortized cost Total ECL CONSOLIDATED FINANCIAL STATEMENTS € million 31 December 2021 ECL Step I ECL Step II ECL Step III 31 December 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other Financial Instruments Non-Current Receivables Non-Current Loans to Associates Other Current Financial Assets Contract Assets 4.9 16.1 4.1 - 0.1 0.1 0.1 0.1 - - - - - - 0.1 9.5 38.5 3.2 6.3 10.5 - ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS - 9.4 38.2 3.1 5.8 8.8 - FURTHER INFORMATION 84.4 58.5 16.8 47.2 12.9 62.8 307.6 0.1 - Receivables from Associates Trade Receivables 0.5 1.7 - - Restricted Cash - Cash and Cash Equivalents Total Financial Assets / ECL - - - - 0.5 2.3 65.3 68.1 CORESTATE – ANNUAL REPORT 2021 159 In the following a detailed overview of the recognized expected credit losses TO OUR SHAREHOLDERS divided into the simpliﬁed and general approach is shown: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Carrying amount as amortized cost Total ECL CONSOLIDATED FINANCIAL STATEMENTS € million 31 December 2020 ECL Step I ECL Step II ECL Step III 31 December 2020 NOTES TO THE CONSOLIDATED Other Financial Instruments Non-Current Receivables Non-Current Loans to Associates Other Current Financial Assets Contract Assets 5.0 15.6 - - - - - - 0.2 7.5 3.0 - FINANCIAL STATEMENTS ANNUAL ACCOUNTS 0.2 NOTES TO THE ANNUAL ACCOUNTS 13.2 - - 7.5 2.8 - FURTHER INFORMATION 124.7 51.0 0.1 0.1 - - Receivables from Associates Trade Receivables 13.6 - 0.1 0.5 - 1.5 7.4 - 1.7 7.9 - 33.0 - - Restricted Cash 23.0 Cash and Cash Equivalents Total Financial Assets / ECL 68.2 - - - - 347.3 0.3 0.7 19.3 20.3 CORESTATE – ANNUAL REPORT 2021 160 Trade Receivables (simpliﬁed approach) TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The table below shows the default ratios per aging item for trade receivables as at 31 December 2021: CONSOLIDATED FINANCIAL STATEMENTS € million Not yet due Past-due - 1 to 90 days Past-due - 91 to 180 days Past-due - 181 to 360 days Past-due - from 361 days Total NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Default Ratio 0.4% 0.5% 7.7% 10.0% 14.7% 3.6% ANNUAL ACCOUNTS Gross Carrying Amount of Trade 24.1 0.1 10.5 0.1 2.5 0.2 7.2 0.8 2.8 0.5 47.2 1.7 Receivables as at 31 December 2021 NOTES TO THE ANNUAL ACCOUNTS Expected Credit Loss Step 2 FURTHER INFORMATION The table below shows the default ratios per aging item for trade receivables as at 31 December 2020: € million Not yet due Past-due - 1 to 90 days Past-due - 91 to 180 days Past-due - 181 to 360 days Past-due - from 361 days Total Default Ratio 0.4% 0.5% 1.5% 4.2% 10.3% 1.7% Gross Carrying Amount of Trade 1.1 0.0 21.5 0.1 4.3 0.1 2.0 0.1 2.5 0.3 31.4 0.5 Receivables as at 31 December 2020 Expected Credit Loss Step 2 The table below shows the movements of impairment losses for all ﬁnancial assets amortised at cost, except trade receivables, within the period 2021: The table below shows the movements of impairment losses within the period 2020: € million € million 01 January 2021 19.1 (8.5) 51.4 (0.7) 61.4 01 January 2020 Additions 18.3 2.1 Change of Scope of Consolidation Additions Impairment Reversal 31 December 2020 (1.3) 19.1 Impairment Reversal 31 December 2021 CORESTATE – ANNUAL REPORT 2021 161 Other Receivables (general approach) F.4.3 FOREIGN CURRENCY RISK TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The table below shows the effect of expected credit losses (ECLs) on ﬁnancial Foreign currency risk is the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because of changes in foreign exchange rates. Except for a minor portion of its cost base, which is denominated in CHF and USD as well as GBP, the Group does not have any foreign currency risk relating to ﬁnancial instruments. The following tables demonstrate the sensitivity to a reasonably possible change in USD, GBP and CHF exchange rates, with all other variables held constant. assets as at 31 December 2021: CONSOLIDATED FINANCIAL STATEMENTS Gross Carrying Amount Expected Credit Loss € million NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial Assets - Real Estate Industry Financial Assets - Others Total Other Receivables 179.8 26.1 53.6 7.8 ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Change in FX rate Effect on EBIT 2021 Effect on EBIT 2020 205.9 61.4 € million FURTHER INFORMATION +10% - 10% +10% - 10% +10% - 10% € 1.7m € -2.1m € 1.7m € -2.1m USD The table below shows the effect of ECLs on ﬁnancial assets as at 31 December 2020: < € 0.1m <€ -0.1m <€ 0.1m < € -0.1m < € 0.1m <€ -0.1m <€ 0.1m < € -0.1m GBP Gross Carrying Amount Expected Credit Loss € million Financial Assets - Real Estate Industry Financial Assets - Others Total Other Receivables 169.0 33.1 16.0 3.1 CHF 202.0 19.1 CORESTATE – ANNUAL REPORT 2021 162 F.4.4 INTEREST RATE RISK F.5 FAIR VALUE OF ASSETS AND LIABILITIES TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Interest rate risk is the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because of changes in market interest rates. The Group‘s exposure to the risk of changes in market interest rates relates primarily to the Group‘s short and long-term debt obligations with ﬂoating interest rates. IFRS 13 requires disclosures related to fair value measurements using a three- level fair value hierarchy. The availability of input factors determines the level of fair value hierarchy. CONSOLIDATED FINANCIAL STATEMENTS Hence, the Group uses the following Fair Value Hierarchies: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In the case of variable-rate (loan) liabilities, there is an interest rate risk insofar as the interest rate for the loans raised is usually linked to the EURIBOR (European Interbank Offered Rate) reference rate. ANNUAL ACCOUNTS − Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities NOTES TO THE ANNUAL ACCOUNTS All of the Group’s ﬁnancial assets – with the exception of loans to associates – are even non-interest bearing or partly with fees of 40–50 basis points. − Level 2: Valuation techniques for which the lowest level input that is signiﬁcant to the fair value measurement is directly or indirectly observable (comparable transactions) FURTHER INFORMATION The following table provides the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Group‘s earnings before tax (EBT) would be affected through the impact on ﬂoating rate ﬁnancial instruments, as follows: − Level 3: Valuation techniques for which the lowest level input that is signiﬁcant to the fair value measurement is unobservable (valuation models) As in the previous year the Group‘s fair value measurements of assets are mainly within Level 3, whereas the fair value measurement of ﬁnancial liabilities is used within Level 1 due to both corporate bonds being traded on the regulated market. Increase/ Decrease Effect on Financial Result 2021 Effect on Financial Result 2020 in Basis Points The Group’s management considers the appropriateness of the valuation methods and inputs and may request that alternative valuation methods are applied to support the valuation arising from the method chosen. Any changes in valuation methods are discussed and agreed with the Group‘s Management Board. +50% -50% <€ -0.1m <€ 0.1m <€ -0.1m <€ 0.1m CORESTATE – ANNUAL REPORT 2021 163 The table below summarizes the ﬁnancial instruments that the Group holds and compares the carrying amount with the fair value of each class of ﬁnancial instrument as at 31 December 2021: TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS Measurement in Accordance with IFRS 9 € million Carrying Amount 31 December 2021 Amortized Cost Fair Value recognised through Proﬁt and Loss not applicable Fair value 31 December 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other Financial Instruments Non-Current Receivables 151.5 51.7 14.9 86.5 58.5 16.8 47.2 12.9 62.8 502.7 3.5 4.9 16.1 4.1 146.6 - 151.5 34.7 14.9 84.4 58.5 16.8 47.2 12.9 62.8 483.6 3.5 ANNUAL ACCOUNTS 18.6 17.1 NOTES TO THE ANNUAL ACCOUNTS Non-Current Loans to Associates Other Current Financial Assets Contract Assets 10.8 - FURTHER INFORMATION 84.4 58.5 16.8 47.2 12.9 62.8 307.6 3.5 - 2.0 - - Receivables from Associates Trade Receivables - - - - Restricted Cash - - Cash and Cash Equivalents Total Financial Assets - - 176.0 19.1 Non-Current Financial Liabilities to banks Non-Current Financial Liabilities from bonds Other non-current liabilities Current Financial Liabilities from bonds Current Financial Liabilities to banks Other Current Financial Liabilities Current Liabilities to Associates Trade Payables - - - - - - - - - - 298.0 19.9 190.9 68.3 41.4 18.1 27.6 667.8 298.0 4.9 - 259.5 4.9 15.0 190.9 68.3 36.8 18.1 27.6 648.2 - 155.9 68.3 36.8 18.1 27.6 574.7 - 4.5 - - Total Financial Liabilities 19.5 CORESTATE – ANNUAL REPORT 2021 164 The table below summarizes the ﬁnancial instruments’ fair values and provides comparison with the carrying amount as at 31 December 2020: TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS Measurement in Accordance with IFRS 9 € million Carrying Amount 31 December 2020 Amortized Cost Fair Value recognised through Proﬁt and Loss not applicable Fair value 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other Financial Instruments Non-Current Receivables 153.9 53.7 19.6 126.7 13.6 33.0 23.0 68.2 491.7 4.6 5.0 15.6 13.2 124.7 13.6 33.0 23.0 68.2 148.9 18.5 6.4 153.9 34.1 19.6 124.7 13.6 33.0 23.0 68.2 470.1 5.9 ANNUAL ACCOUNTS 19.6 2.0 NOTES TO THE ANNUAL ACCOUNTS Non-Current Loans to Associates Other Current Financial Assets Receivables from Associates Trade Receivables FURTHER INFORMATION Restricted Cash Cash and Cash Equivalents Total Financial Assets Non-Current Financial Liabilities to banks Non-Current Financial Liabilities from bonds Other non-current liabilities Current Financial Liabilities to banks Other Current Financial Liabilities Current Liabilities to Associates Trade Payables 4.6 491.0 6.4 491.0 29.3 68.7 42.0 9.3 404.3 6.4 22.9 4.5 68.7 37.6 9.3 68.7 37.6 9.3 13.1 658.0 13.1 13.1 545.3 Total Financial Liabilities CORESTATE – ANNUAL REPORT 2021 165 Assets and liabilities designated as non-applicable mainly relate to lease receivables (€ 11.1m; 2020: € 13.0m) and corresponding lease payables (€ 19.5m; 2020: € 27.4m). Furthermore, non-current receivables include a receivable under a contingent contract (€ 8.0m; 2020: € 8.5m) that is not considered a ﬁnancial instrument within the meaning of IFRS 9. TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS The table below shows which level of the fair value hierarchy, for Assets and Liabilities, as at 31 December 2021 is used to measure fair value: The table below shows the fair value hierarchy allocation for Financial Assets and Liabilities as at 31 December 2020: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Fair value measurement using Fair value measurement using NOTES TO THE ANNUAL ACCOUNTS € million Total Level 1 Level 2 Level 3 € million Total Level 1 Level 2 Level 3 FURTHER INFORMATION Assets measured at Fair Value and for which Fair Values are disclosed Assets measured at Fair Value and for which Fair Values are disclosed Other Financial Instruments 151.5 34.7 14.9 - - - 4.9 34.7 14.9 146.6 Other Financial Instruments 153.9 34.1 19.6 - - - 5.0 34.1 19.6 148.9 Non-Current Receivables - - Non-Current Receivables - - Non-Current Loans to Associates Liabilities for which Fair Values are disclosed Non-Current Financial Liabilities from Bonds Current Financial Liabilities from Bonds Non-Current Loans to Associates Liabilities for which Fair Values are disclosed Non-Current Financial Liabilities from Bonds Current Financial Liabilities from Bonds 259.5 155.9 259.5 155.9 - - - - 5.9 - 5.9 6.3 - - 410.7 404.4 CORESTATE – ANNUAL REPORT 2021 166 The table below reconciles Level 3 ﬁnancial instruments from the opening balance The table below reconciles Level 3 ﬁnancial instruments from the opening balance TO OUR SHAREHOLDERS to the closing balance for 2021: to the closing balance for 2020: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Other Financial Instruments Non-Current Loans to Associates € million Other Financial Instruments € million CONSOLIDATED FINANCIAL STATEMENTS Fair Value as at 01 January 2020 166.9 5.8 Fair Value as at 01 January 2021 Additions / Disposals 148.9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Additions / Disposals (9.9) (0.5) 5.8 ANNUAL ACCOUNTS Changes in the Fair Value Valuation through Proﬁt and Loss NOTES TO THE ANNUAL ACCOUNTS Changes in the Fair Value Valuation through Proﬁt and Loss (7.2) 1.1 (8.9) FURTHER INFORMATION Gains/Losses from Exchange Rate Differences Transfer to Level 2 (0.9) - - (6.4) - Gains/Losses from Exchange Rate Differences 0.7 Fair Value as at 31 December 2021 146.6 Fair Value as at 31 December 2020 148.9 Changes in the fair value valuation through proﬁt and loss are recognized in “Gains/losses from fair value measurement of ﬁnancial instruments related to real estate”. Gains/losses from exchange rate difference are recognized in “Other income” and are primarily related to a USD ﬁnancial asset. For the major positions of “Other Financial Instruments” the Group uses third- party pricing information. The remaining positions (€ 19.2m) are calculated by applying DCF computations. Forecasts of future cash ﬂows are prepared by the asset management department whereas for the discount factor, equity costs are derived from a capital asset pricing model. In addition, the Group performed a sensitivity analysis by changing relevant input parameters in a reasonable way (i.e. forecasts -/+ 10%; discount rate +/- 100 bp). In these scenarios, the fair value would differ within a range of € -1.6m to € +1.8m. CORESTATE – ANNUAL REPORT 2021 167 The table below provides a summary per IFRS 9 category for the net gains and The table below summarizes per IFRS 9 category the net gains and losses resulting TO OUR SHAREHOLDERS losses resulting from ﬁnancial instruments as at 31 December 2021: from ﬁnancial instruments as at 2020: CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT At Amortized Cost FVtPL At Amortized Cost FVtPL CONSOLIDATED FINANCIAL STATEMENTS € million Financial Assets Financial Liabilities Financial Assets € million Financial Assets Financial Liabilities Financial Assets NOTES TO THE CONSOLIDATED Net Results from Disposal - 3.6 - (1.7) - (0.1) Net Results from Disposal - 0.8 - (3.0) - (1.2) FINANCIAL STATEMENTS ANNUAL ACCOUNTS Net Measurement Effects Impairment Gain/Loss Effective Interest Rate Income Effective Interest Rate Expenses Total - (12.7) 1.4 Net Measurement Effects Impairment Gain/Loss Effective Interest Rate Income Effective Interest Rate Expenses Total 0.2 (6.8) 0.7 NOTES TO THE ANNUAL ACCOUNTS (60.0) 1.9 (5.6) 2.0 FURTHER INFORMATION - - - (22.3) (24.0) - - (23.3) (26.3) - (54.5) (11.4) (2.8) (7.0) The Group’s liabilities arising from ﬁnancing activities mainly relate to the senior unsecured and convertible bond as well as lease liabilities. The bonds do not change signiﬁcantly during their term and the lease liabilities are initially not cash effective. In 2021, the main cash effective change in liabilities from ﬁnancing activities is driven by the repayment of the HFS bond amounting to € 30.5m and the partial repayment of the convertible bonds in an amount of € 6.5m (see Note E.20). CORESTATE – ANNUAL REPORT 2021 168 F.6 RELATED PARTY INFORMATION TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CCH SA has identiﬁed all Group companies as well as the following entities and persons as related parties: CONSOLIDATED FINANCIAL STATEMENTS Related Parties as at 31 December 2021 related to/as Former Related Parties as at 31 December 2021 related to/as NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Friedrich Munsberg Supervisory Board Lars Schnidrig Management Board until 2021 ANNUAL ACCOUNTS NOTES TO THE Prof. Dr Hermann Wagner Dr Friedrich Oelrich Supervisory Board Nils Hübener Daniel Löhken Management Board until 2021 Management Board until 2021 ANNUAL ACCOUNTS FURTHER INFORMATION Supervisory Board René Parmantier Management Board Johannes Märklin Management Board Sebastian Ernst Management Board Udo Giegerich Management Board RP Verwaltungsgesellschaft mbH RP Vermögensverwaltungsgesellschaft mbH Meiyo Capital Partners AG Leonis Capital Management GmbH Leonis Real Estate GmbH DACH Finance GmbH Management Board (R. Parmantier) Management Board (R. Parmantier) Management Board (R. Parmantier) Management Board (J. Märklin) Management Board (J. Märklin) Management Board (J. Märklin & S. Ernst) Management Board (J. Märklin & S. Ernst) Management Board (S. Ernst) DACH Real Estate GmbH Feldmannhof Capital GmbH CORESTATE – ANNUAL REPORT 2021 169 CCH SA Key Management Personnel TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT On 31 May 2021, Lars Schnidrig stepped down as Chief Financial Ofﬁcer and left the company on 31 July 2021. Nils Hübener as Chief Investment Ofﬁcer and Daniel Löhken as Chief Legal & HR Ofﬁcer stepped down on 31 July 2021 and left the Company on 31 August 2021, too. The Supervisory Board led by Friedrich Munsberg was appointed on 29 November 2020 and was conﬁrmed on the annual general meeting on 28 June 2021: CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Hence, the Management Board in 2021 is formed by the following personnel: Members of the Supervisory Board ANNUAL ACCOUNTS NOTES TO THE Udo Giegerich Chief Financial Ofﬁcer – since 01 Aug 2021 Friedrich Munsberg Chairman – 29 Nov 2020 until 31 December 2021 ANNUAL ACCOUNTS FURTHER INFORMATION René Parmantier Chief Executive Ofﬁcer - 01 Dec 2020 until 07 Mar 2022 Prof. Dr Hermann Wagner Deputy Chairman – 29 Nov 2020 until 31 December 2021 Sebastian Ernst Chief Debt Investment Ofﬁcer – 14 Jan 2021 until 7 Feb 2022 Dr Friedrich Oelrich Member – since 29 November 2020 Johannes Märklin Chief Debt Financing Ofﬁcer – 14 Jan 2021 until 7 Feb 2022 Prof. Dr Wagner heads the Audit Committee and is considered the independent ﬁnancial expert. Nils Hübener Friedrich Munsberg and Prof. Dr Hermann Wagner stepped down from the Board on 31 December 2021 in the light of the change in the Group’s shareholder base at the end of November 2021. Stavros Efremidis and Dr Bernard Malmendier were appointed as new members of the Supervisory Board, effective as at 01 January 2022. Mr Efremidis was elected Chairman at the ﬁrst constitutional Supervisory Board meeting on 05 January 2022, and Dr Malmendier was elected as his deputy. With effect of 07 March 2022 Stavros Efremidis succeed René Parmantier as CEO of the Group and Dr Bernard Malmendier took over as Chairman of the Supervisory Board. As a new member Dr Roland Folz joined the Supervisory Board on 07 March 2022. Dr Friedrich Oelrich will remain member of the Supervisory Board (for further information see Note F.9). Chief Investment Ofﬁcer – 01 April 2020 until 31 July 2021 Daniel Löhken Chief Legal & HR Ofﬁcer – 01 Nov 2020 until 31 July 2021 Lars Schnidrig Chief Financial Ofﬁcer – 01 Dec 2020 until 31 May 2021 In addition to the individually agreed base salary, annual bonus payments, and long-term share-based incentives, under their service agreements, the Management Board members are entitled to ancillary beneﬁts that include, among other things, continued payment of remuneration in case of sickness or death for a certain period, contributions to private health insurance as well as D&O and E&O insurance coverage at usual market terms. The Company also reimburses all travelling costs and incidental expenses. CORESTATE – ANNUAL REPORT 2021 170 F.6.1 TRANSACTIONS WITH SHAREHOLDERS AND SHAREHOLDER- RELATED ENTITIES € million 2021 (3.9) 2020 (1.4) TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Basic Remuneration Fixed Remuneration STI The following table sets out all payments made to shareholders and shareholder- related entities made by the Group in the period 01 January through 31 December 2021. Hence, such amounts do not necessarily reconcile with the statement of Proﬁt and Loss for the ﬁnancial year 2021. (3.9) (1.7) (1.4) (0.8) CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS LTI (3.7) (2.7) ANNUAL ACCOUNTS € million 2021 2020 Variable Remuneration Compensation/Termination Payments Total Remuneration (5.4) (2.6) (3.5) (8.0) NOTES TO THE Fees paid to Realty Corporation Ltd. (John Lurie) under consultancy agreements ANNUAL ACCOUNTS - (1.2) FURTHER INFORMATION Transaction fee Gateway AG - - - 2.7 (0.3) (0.1) (11.9) (12.8) Remuneration N. Ketterer as Chairman of the Board of Directors of HFS In May 2021, Lars Schnidrig‘s mandate as CFO was terminated by mutual agreement. Lars Schnidrig received a severance payment in the amount of € 0.9m (including cash-settled LTI payments amounting to 0.5m EUR). All contractual payment claims were settled with the compensation. Rental Costs to Vicenda F.6.2 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL In July 2021, Daniel Löhken’s mandate as Chief Legal & HR Ofﬁcer as well as Nils Hübner’s mandate as CIO were terminated by mutual agreement. Both received a severance payment in the amount of € 1.9m (Nils Hübner: € 0.4m; Daniel Löhken € 1.5m). All contractual payment claims were settled with the compensation. The total remuneration of the Management Board consists of the basic remuneration as well as a short-term incentive and a long-term incentive component. The basic remuneration relates to the annual base salary agreed under the service agreements with each member of the Group‘s Management Board. The total remuneration of the Supervisory Board Members amounted to € 0.5m in 2021 (2020: € 0.8m). No advances or loans were granted. The short-term incentive (STI) is a cash bonus component that depends on certain Group-related and individually agreed targets as described in the entities remuneration policy. The long-term incentive (LTI) is a share-based programme that either grants or give the option of equity-settled shares or phantom shares, which are settled in cash. CORESTATE – ANNUAL REPORT 2021 171 F.6.3 SHARE-BASED PAYMENTS TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In 2021, the Management Board was reduced to four members. All Management Board Members have been granted long-term equity-settled share-based payment awards which will be transferred after a vesting period of four years: If the service agreement starts or ends during the course of a ﬁscal year, the amount shall be calculated on a pro-rata basis. From this point on, the shares are subject to a contractual holding period of four years. CONSOLIDATED FINANCIAL STATEMENTS Equity-settled LTI-Plans − René Parmantier is entitled to an amount of € 2,400,000 in LTI options that NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS are granted in three tranches of shares in an amount of € 800,000 each. ANNUAL ACCOUNTS René Parmantier, Johannes Märklin, Sebastian Ernst and Udo Giegerich are granted equity-settled long-term incentive (LTI) options. Each of the four Board Members are granted LTI options in three tranches, one third each year of being appointed to the Group’s Management Board. The number of share-based payments for each tranche depends on the individual achievement of the Board Members’ agreed targets. Therefor the targets are not only based on ﬁnancial KPIs but also on non-ﬁnancial aspects (e.g. ESG). If a Board Member achieves 50% or lessoftheannualtargets, noLTIsharesaretransferred. IfaBoardMemberachieves between 51% and 100% of targets, this leads to a proportional allocation of the yearly LTI options and the calculated number of LTI shares (gross) will immediately be transferred, if necessary, after issuing new shares, at the end of the respective performanceperiodtothedepositoftheBoardMember.Fromthedateoftransfer, each annual tranche of LTI shares is subject to a contractual holding period of four years. − Johannes Märklin and Sebastian Ernst, both are entitled to an amount of € 2,430,000 each in LTI options that are distributed in three tranches of € 810,000 shares. NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION − Udo Giegerich is entitled to an amount of € 1,470,000 in LTI options that are distributed in three tranches of € 490,000 shares each. The former Board Member Daniel Löhken, who left the Management Board of Corestate Capital Holding S.A. As at July 2021, contractually received a share package for the years 2021-2023. This contractual payment claim was settled in cash with the compensation at the end of his contractual agreement with the Group. In 2021, the expenses recognized for the share packages of the Board Members amounted to € 3.9m (2020: € 0.2m). CORESTATE – ANNUAL REPORT 2021 172 Cash-settled LTI-plans The increase in the stock market price as the key performance target is calculated by dividing the “transfer price” by the closing price. The transfer price is deﬁned as the arithmetic mean of the closing prices of the last 12 trading months prior to 31 December of the respective year of the performance period. As said, the performance target is deemed to have been achieved if the cumulative transfer price increased by at least 10% each year compared with the closing rate (annual performance target). TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The former Board Members Lars Schnidrig as well as Nils Hübener, who both left the Management Board of Corestate Capital Holding S.A., contractually received a share package for the years 2021-2023 as cash-settled LTI-plans. CONSOLIDATED FINANCIAL STATEMENTS With their severance payments all contractual payment claims were settled. In 2021, the total of € 0.5m (2020: € 0.6m) expenses were recognized up to the date of termination of the contracts. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS The fair value of the synthetic stock options is measured using a Monte Carlo option pricing model considering the terms and conditions upon which the options were granted. The beneﬁciary may exercise the options between the end of the waiting period and the end of the term of the option on the condition that the employment contract has not been terminated and neither the beneﬁciary nor the company has notiﬁed in writing the termination of the employment contract by that date. NOTES TO THE ANNUAL ACCOUNTS Currently, the group no longer has any active cash-settled LTI-plans. FURTHER INFORMATION Corestate Capital Holding S.A. Share Programme In 2019, Corestate started a Performance Share Program for important senior managers and high performer as well as for new hires who joined the Group after 01 January 2019. At the beginning of the performance period in 2019 or if the participant is entering one or more years later, all participants receive an individualized grant letter in which the individual target value of the performance shares in Euros (“target value”) is set out. The grant letter contains the number of virtual performance shares granted. Performance shares are not linked to any administrative, voting or dividend rights or rights to other distributions. They merely represent a calculation item for determining the future conditional entitlement to Corestate shares to be issued and transferred (real shares). Performance shares are transferred to the participants in annual tranches in the form of real shares from the third year onwards or if the participants join the program later from their third year on based on their start date in the program (it requires a waiting period of two years in which no real shares are transferred). The transfer takes place in four or less equivalent tranches (25% or 33,33% or 50% of the total number of performance shares each, depending on the start of the participant in the program) – subject to the achievement of the relevant performance target, which is an annually increase of the share price of 10% each year. For the stock option valuation, the contractual life of the options and the possibility of early exercise were considered in the Monte Carlo simulation. The risk-free interest rate is the implied yield currently available on Luxembourg government issues with a remaining term equal to the term of the options. The future volatility for the lives of the options was estimated based on historical volatilities also considering the management’s expectation of future market trends. The Performance Share Program was classiﬁed as equity-settled plan and the resulting expenses are recognized during the vesting period on a pro-rata basis with a corresponding increase in equity (other reserves). Furthermore, the amount recognized is based on the best available estimate of the number of options expected to vest and is revised if subsequent information indicates that the number of options expected to vest differs from previous estimates. The total fair value of the awards granted in 2019 amounted to € 3.7m. In 2020, expenses in the amount of € 1.1m were recognized. In contrast, in 2021, due to changes in the number of beneﬁciaries, expenses in the amount of € 0.4m were reversed. CORESTATE – ANNUAL REPORT 2021 173 F.6.4 TRANSACTIONS WITH ASSOCIATED ENTITIES (CO-INVESTMENTS & JOINT VENTURES) TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT The terms and conditions agreed with associates for the services of the Group are negotiated and set out in the underlying documentation for each investment with the respective investor (JVCIA, AMA, etc.). Such terms and conditions are at arm‘s length. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS Transactions with Associates (Co-Investments) Balance with Associates (Co-Investments) NOTES TO THE ANNUAL ACCOUNTS € million 2021 2020 € million 2021 2020 FURTHER INFORMATION Revenue from Acquisition Related Fees - (0.0) Receivables from Associates 37.9 33.2 Revenue from Asset Management Fees Revenue from Property Management Fees Revenue from Development Fees 6.5 - 5.6 0.1 5.9 (1.5) (9.3) (0.8) (1.1) - Receivables from Afﬁliated Companies Non-current Trade Receivables Other Current Receivables 4.1 0.5 4.1 15.2 0.4 1.9 - 0.4 Management Expenses Non-current Loans to Associates Loans granted from Associates Liabilities to Associates 17.6 (0.1) (18.1) (3.3) 19.6 - Share of Proﬁt or Loss from Associates and Joint Ventures Gains/losses from Selling Property Holding Companies General and Administrative Expenses Other Income 2.4 (2.7) (0.0) 0.0 1.3 (0.3) (9.3) (3.7) Liabilities from Afﬁliated Companies Interest Income from Associates 0.6 - Interests Expenses from Associates CORESTATE – ANNUAL REPORT 2021 174 F.7 GROUP ENTITIES TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CCH SA is the parent company of the Group. The consolidated ﬁnancial statements include all companies which the Group controls, i.e. for which particularly CCH SA owns, directly or indirectly through subsidiaries, more than half of the voting rights. There are no restrictions regarding cash or dividend payments from such subsidiaries. The following overview shows the Group‘s shareholdings. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS During 2021, changes in equity interests in some subsidiaries occurred that did not change the consolidation status: NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Name Seat and Country of Incorporation Luxembourg Equity Interest 2021 Parent Company Equity Interest 2020 Parent Company Corestate Capital Holding S.A. AF ATHENA GmbH Frankfurt on Main / Germany Frankfurt on Main / Germany Luxembourg 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% n/a Aggregate Debt Advisory GmbH Aggregate Debt GP S.á r.l. Aggregate Debt Fund S.C.A. SICAV-RAIF Bayreuth Student Home AcquiCo II S.à r.l. Bego HoldCo I S.L. n/a Luxembourg n/a Luxembourg 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% n/a Madrid / Spain Bego HoldCo S.à r.l. Luxembourg Bego PropCo I S.L. Madrid / Spain BER REV HoldCo S.à r.l. Luxembourg Capera Immobilien Service GmbH CE Bad Honnef Betriebsgesellschaft mbH Cisnes e Silhuetas Unipessoal Lda Corestate Bank GmbH Neu-Isenburg / Germany Frankfurt on Main / Germany Lisbon / Portugal Frankfurt on Main / Germany CORESTATE – ANNUAL REPORT 2021 175 Name Seat and Country of Incorporation Frankfurt on Main / Germany Frankfurt on Main / Germany Baar / Switzerland Equity Interest 2021 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Equity Interest 2020 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Corestate Ben HoldCo GmbH & Co. KG Corestate Capital Advisors GmbH Corestate CAPITAL AG CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Corestate Capital Beteiligung Verwaltung GmbH Corestate Capital Group GmbH Corestate Capital France HoldCo SAS Corestate CAPITAL Fund Management S.à r.l. Corestate Capital International S.à r.l. Corestate Capital Investors (Europe) GmbH Corestate Capital Italy S.R.L. Frankfurt on Main / Germany Frankfurt on Main / Germany Paris / France ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Luxembourg Luxembourg Frankfurt on Main / Germany Milan / Italy Corestate Capital Partners GmbH Corestate Capital Partners UK Ltd. Corestate Capital Sales Holding S.à r.l. Corestate Capital Services GmbH Corestate Capital Transactions AG Corestate CIV GmbH Zurich / Switzerland London / United Kingdom Luxembourg Wollerau / Switzerland Baar / Switzerland Frankfurt on Main / Germany Hamburg / Germany Frankfurt on Main / Germany Corestate FIF I Portfolio Verwaltung GmbH Corestate Marketing GmbH CORESTATE – ANNUAL REPORT 2021 176 Name Seat and Country of Incorporation Frankfurt on Main / Germany Frankfurt on Main / Germany Luxembourg Equity Interest 2021 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Equity Interest 2020 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Corestate MCIF GmbH & Co. KG Corestate MCIF Germany GmbH & Co. KG Corestate Shelf 11 S.à r.l. Corestate Shelf 15 S.à r.l. Corestate Student Home Holding S.à r.l. Court HoldCo GmbH CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Luxembourg ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Luxembourg Frankfurt on Main / Germany Luxembourg FURTHER INFORMATION Court PropCo S.à r.l. CRM Micro Living Services Italy S.R.L. CRM Students Ltd. Milan / Italy Oxford / United Kingdom Luxembourg Dedan AIF S.à r.l. DONALD HoldCo S.à r.l. Echo HoldCo S.à r.l. Luxembourg Luxembourg Frankfurt Student Home AcquiCo II S.à r.l. Gabriela HoldCo S.à r.l. Gabriela HoldCo S.L. Luxembourg Luxembourg Madrid / Spain Gabriela PropCo S.L. Madrid / Spain GENOST Consulting GmbH Ginova AIF S.à r.l. Leipzig / Germany Luxembourg CORESTATE – ANNUAL REPORT 2021 177 Name Seat and Country of Incorporation Luxembourg Equity Interest 2021 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 89.58% Equity Interest 2020 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% n/a TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Ginova PropCo S.à r.l. Grindel AcquiCo II S.à r.l. Luxembourg CONSOLIDATED FINANCIAL STATEMENTS Hannover Leasing Verwaltungsgesellschaft mbH HARBOUR AcquiCo 1 AIF S.à r.l. Hartly Invest S.L.U. Pullach / Germany Luxembourg NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Madrid / Spain HFS Helvetic Financial Services AG Iberian HoldCo II S.à r.l. Wollerau / Switzerland Luxembourg FURTHER INFORMATION Iberian Investment II HoldCo S.à r.l. JOYN Vermietungsgesellschaft mbH Livision GmbH Luxembourg Frankfurt on Main / Germany Frankfurt on Main / Germany Pullach / Germany Luxembourg LOMBARDO Verwaltungsgesellschaft mbH Madison HoldCo S.à r.l. 89.58% 100.00% 100.00% 100.00% 77.67% 100.00% 100.00% n/a Mainz Student Home AcquiCo II S.à r.l. Mariggo Investments sp.z.o.o. Monet S.à r.l. Luxembourg Warsaw / Poland Luxembourg 77.67% Palmyra Verwaltungsgesellschaft mbH & Co. Vermietungs KG i.L. Palmyra Verwaltungsgesellschaft mbH & Co. Vermietungs KG S.e.n.c. Paolia sp.z.o.o. Pullach / Germany Luxembourg 89.58% 89.58% 84.92% 84.92% Warsaw / Poland 100.00% 100.00% CORESTATE – ANNUAL REPORT 2021 178 Name Seat and Country of Incorporation Luxembourg Equity Interest 2021 100.00% 100.00% 100.00% 100.00% 100.00% 77.67% Equity Interest 2020 100.00% 100.00% 100.00% 100.00% 100.00% 77.67% TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Plutos HoldCo S.á r.l. Potsdam Student Home AcquiCo II S.à r.l. Projekt AcquiCo III S.à r.l. Luxembourg CONSOLIDATED FINANCIAL STATEMENTS Luxembourg NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Rose HoldCo S.à r.l. Luxembourg ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Stadttor Düsseldorf AcquiCo S.à r.l. STAM Co-Invest Luxembourg Luxembourg FURTHER INFORMATION STAM Europe SAS Paris / France Paris / France Paris / France Luxembourg 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% n/a STAM France Investment Managers SAS STAM Property Management SAS Tempelhof Twins HoldCo S.à r.l. Tempelhof Twins TopCo S.à r.l. UPARTMENTS Real Estate GmbH Urban Micro Estate Immobilienverwaltungs GmbH Urban Micro Estate Poland (prev. CRM Poland sp.z.o.o.) Urban Micro Estate Spain Luxembourg Leipzig / Germany Vienna / Austria Warsaw / Poland Spain Urban Micro Estate Swiss Immobilienverwaltungs GmbH Wallhalla HoldCo S.á r.l. Zurich / Switzerland Luxembourg 100.00% 100.00% 100.00% Wallhalla PropCo S.á r.l. Luxembourg CORESTATE – ANNUAL REPORT 2021 179 Name Seat and Country of Incorporation Pullach / Germany Frankfurt on Main / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Equity Interest 2021 94.90% 94.90% 94.90% 85.30% 94.90% 85.30% 94.90% 94.90% 94.90% 94.90% 86.43% 94.90% 94.90% 94.90% 94.90% 85.30% 92.57% Equity Interest 2020 94.90% 94.90% 89.21% 94.90% 94.90% 94.90% 94.90% 94.90% 62.63% 94.59% 86.43% 94.90% 94.90% 94.90% 94.90% 94.90% 86.60% TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT HANNOVER LEASING GmbH & Co. KG Accontis GmbH Finanzanlagen und Beteiligungen AKANTHUS Verwaltungsgesellschaft mbH BERYTOS Verwaltungsgesellschaft mbH CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS Delta Vermietungsgesellschaft mbH DIRAN Verwaltungsgesellschaft mbH FURTHER INFORMATION DIV Deutsche Immobilienfonds GmbH Freizeitgeräte Leasing GmbH i. L. FRICTION Verwaltungsgesellschaft mbH GALENA Verwaltungsgesellschaft mbH & Co. Vermietungs KG GELIMER Verwaltungsgesellschaft mbH & Co. Vermietungs KG GORDION Verwaltungsgesellschaft mbH HANNOVER LEASING Belgien Beteiligungs GmbH & Co. KG HANNOVER LEASING Beteiligungs GmbH & Co. KG HANNOVER LEASING Investment Beteiligungs GmbH HANNOVER LEASING Investment GmbH HANNOVER LEASING Private Invest Beteiligungs GmbH CORESTATE – ANNUAL REPORT 2021 180 Name Seat and Country of Incorporation Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Pullach / Germany Equity Interest 2021 92.57% Equity Interest 2020 86.60% 94.90% 94.90% 94.90% 94.90% 62.63% 94.90% 62.63% 94.90% 94.90% 94.90% 94.90% 62.63% n/a TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT HANNOVER LEASING Private Invest II GmbH & Co. KG HANNOVER LEASING Treuhand GmbH 94.90% CONSOLIDATED FINANCIAL STATEMENTS HANNOVER-LEASING Treuhand-Vermögensverwaltung GmbH HANNOVER LEASING Wachstumswerte Europa Beteiligungsgesellschaft mbH HANNOVER LEASING Wachstumswerte Europa VI GmbH & Co. KG i.L. HERSCHEL Verwaltungsgesellschaft mbh 94.90% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 94.90% ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS 94.90% 94.90% FURTHER INFORMATION IKARIA Verwaltungsgesellschaft mbH & Co. Vermietungs KG KERA Verwaltungsgesellschaft mbH 94.90% 94.90% MANCALA Verwaltungsgesellschaft mbH & Co. Vermietungs KG NIGRESCO Verwaltungsgesellschaft mbH 94.90% 94.90% NOVELLINO Geschäftsbesorgungs GmbH & Co. Verwaltungs KG ORION Verwaltungsgesellschaft mbH & Co. Beteiligungs KG SINGULI Verwaltungsgesellschaft mbH 94.90% 94.90% 94.90% SUBSTANTIA Verwaltungsgesellschaft mbH & Co. Vermietungs KG VANESSA Verwaltungsgesellschaft mbH & Co. Vermietungs KG 94.90% 94.90% 94.90% CORESTATE – ANNUAL REPORT 2021 181 F.8 REPORT ON BUSINESS RELATIONSHIPS WITH STRUCTURED ENTITIES TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT Disclosures on unconsolidated structured entities CONSOLIDATED FINANCIAL STATEMENTS The fund business and other operating activities of the Group‘s companies give rise to various business relationships with structured entities within the meaning of IFRS 12. A structured entity is an entity that has been designed so that the exercise of voting or similar rights under company law is not the dominant factor in deciding who controls the entity as deﬁned by IFRS 10. The non-consolidated structured entities with which Corestate has business relationships are funds divided into the asset classes media, real estate and large- scale facilities. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS The extent of the structured entities is based on the amount of historical fund assets under management. As at 31 December 2021, Corestate‘s non- consolidated structured entities are as follows: NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION Name Media Property Large Installations Total Fund Volume 2021 836.0 404.0 188.0 1,428.0 Potential Financial Risk Fund Volume 2020 0.8 903.0 0.8 - - 0.8 1,495.0 0.8 404.0 188.0 potential Financial Risk CORESTATE – ANNUAL REPORT 2021 182 F.9 SIGNIFICANT EVENTS AFTER THE REPORTING DATE TO OUR SHAREHOLDERS CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT In connection with the changes in the shareholder base of Corestate Capital Holding S.A. (“Corestate”) at the end of 2021, Mr. Stavros Efremidis and Dr Bertrand Malmendier were appointed as new members of the Supervisory Board with effect from 01 January 2022. Mr. Friedrich Munsberg and Prof. Dr Hermann Wagner stepped down from the Supervisory Board correspondingly as at 31 December 2021. On 07 March 2022 the Supervisory Board decided to strengthen the governance structure and resolved to appoint the former Chairman of the Supervisory Board Stavros Efremidis as CEO with immediate effect. The former CEO René Parmantier left the Group’s Management Board to fully focus his activities on Corestate’s Real Estate Debt business, incl. HFS and Corestate Bank. In addition, the Group’s Management Board was extended to four members by Izabela Danner as Chief Operating Ofﬁcer (COO) and Ralf Struckmeyer as Chief Investment Ofﬁcer (CIO). The new members of the Management Board are appointed for a term of three years. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS The Supervisory Board of Corestate Capital Holding S.A. resolved on 07 February 2022 to remove Johannes Märklin and Sebastian Ernst from the Management Board of Corestate Capital Holding S.A. and all further group functions. On 08 February 2022, the Group announced that René Parmantier will assume full responsibility for the Real Estate Debt segment in addition to his role as CEO of Corestate, and thus also the management of Corestate Bank. FURTHER INFORMATION On Supervisory Board level, the former Deputy Chairman Dr Bertrand Malmendier took over as Chairman of the Supervisory Board. As a new member Dr Roland Folz joined the Supervisory Board on 07 March 2022. On 04 February 2022, Hannover Leasing placed out an additional share amounting to € 12.5m (12.5%) in its project VISION ONE. By doing so, the investment of Hannover Leasing decreased to € 10.1m and is therefore reclassiﬁed from joint ventures and associates to other ﬁnancial instruments accordingly as at the aforementioned date. Luxembourg, 20 April 2022 Stavros Efremidis Chief Executive Ofﬁcer Udo Giegerich Chief Financial Ofﬁcer The invasion of Ukraine by the Russian Federation on 23 February 2022 and the resulting sanctions with regard to Russian state-owned companies and Russian individuals could also result in restrictions on investments in which Corestate is involved as a co-investor. Corestate has set up a task force to analyse and closely monitor both compliance with the sanction restrictions and their impact on Corestate‘s operating business. Risks would not directly concern the operating business of the underlying investment structures but potentially the restrictions on ﬁnancing and distributions of cash. A ﬁnal assessment of the consequences of this situation for the company is not yet possible at the time of ﬁnalisation of the ﬁnancial statements. Izabela Danner Chief Operating Ofﬁcer Ralf Struckmeyer Chief Investment Ofﬁcer CORESTATE – ANNUAL REPORT 2021 183 TO OUR SHAREHOLDERS RESPONSIBILITY STATEMENT OF CONSOLIDATED AND CORPORATE GOVERNANCE GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS STATUTORY ACCOUNTS CORESTATE CAPITAL HOLDING S.A. ANNUAL ACCOUNTS NOTES TO THE ANNUAL ACCOUNTS FURTHER INFORMATION We conﬁrm in accordance to Article 3 (2) c of the Luxembourg Law on Transparency requirements for the Issuers, to the best of our knowledge, that the consolidated ﬁnancial statements of Corestate Capital Holding S.A. and its subsidiaries (“Group”) which have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, and the annual accounts of Corestate Capital Holding S.A. (“Company”) which have been prepared in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss of the Group and the Company, and that the Group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities, uncertainties and risks associated with the expected development of the Group. Luxembourg, 20 April 2022 Stavros Efremidis Chief Executive Ofﬁcer Udo Giegerich Chief Financial Ofﬁcer Izabela Danner Chief Operating Ofﬁcer Ralf Struckmeyer Chief Investment Ofﬁcer CORESTATE – ANNUAL REPORT 2021

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