GTC - Globe Trade Centre S.A. — Audit Report / Information 2020

Mar 23, 2021

GLOBE TRADE CENTRE S.A. IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 WITH THE INDEPENDENT AUDITOR’S REPORT Globe Trade Centre S.A. Consolidated Statement of Financial Position as of 31 December 2020 (in thousands of Euro) 2 Note 31 December 2020 31 December 2019 ASSETS Non-current assets Investment property 17 2,125,128 2,247,030 Residential landbank 18 10,094 13,388 Property, plant and equipment 16 7,785 8,159 Blocked deposits 21 10,979 11,137 Deferred tax asset 15 616 - Derivatives - 265 Other non-current assets 159 109 2,154,761 2,280,088 Loan granted to non-controlling interest partner 27 11,252 10,976 Total non-current assets 2,166,013 2,291,064 Assets held for sale 17,18 1,580 - Current assets Accounts receivables 5,873 10,269 Accrued income 878 2,180 VAT receivable 26 2,343 3,296 Income tax receivable 1,036 1,079 Prepayments and deferred expenses 3,604 2,187 Short-term blocked deposits 21 27,434 33,031 Cash and cash equivalents 22 271,996 179,636 313,164 231,678 TOTAL ASSETS 2,480,757 2,522,742 Globe Trade Centre S.A. Consolidated Statement of Financial Position as of 31 December 2020 (in thousands of Euro) 3 Note 31 December 2020 31 December 2019 EQUITY AND LIABILITIES Equity attributable to equity holders of the Company Share capital 30 11,007 11,007 Share premium 550,522 550,522 Capital reserve 30,27 (49,489) (43,098) Hedge reserve (11,930) (4,994) Foreign currency translation (2,553) 943 Accumulated profit 460,053 530,242 957,610 1,044,622 Non-controlling interest 27 16,538 14,040 Total Equity 974,148 1,058,662 Non-current liabilities Long-term portion of long-term borrowing 28 1,067,867 980,872 Deposits from tenants 24 10,979 11,137 Long term payable 25 2,524 2,648 Provision for share based payment 31 977 1,446 Lease liability 29 42,891 46,222 Derivatives 19 15,895 2,611 Provision for deferred tax liability 15 133,230 147,232 1,274,363 1,192,168 Current liabilities Investment and trade payables and provisions 20 27,299 37,290 Deposits from tenants 24 1,790 1,605 Current portion of long-term borrowing 28 193,425 225,350 VAT and other taxes payable 1,551 1,817 Income tax payable 4,220 1,542 Derivatives 19 3,365 3,739 Current portion of lease liabilities 29 163 208 Advances received 433 361 232,246 271,912 TOTAL EQUITY AND LIABILITIES 2,480,757 2,522,742 Globe Trade Centre S.A. Consolidated Income Statement for the year ended 31 December 2020 (in thousands of Euro) 4 Note Year ended 31 December 2020 Year ended 31 December 2019 Rental revenue 10,14 120,652 127,811 Service charge revenue 10,14 39,469 41,951 Service charge costs 14 (41,527) (41,876) Gross margin from operations 118,594 127,886 Selling expenses 11 (1,307) (2,017) Administration expenses 12 (11,712) (14,410) Profit from revaluation / impairment of assets 17 (142,721) 16,190 Other income 776 1,160 Other expenses 23 (1,622) (1,932) Profit/(loss) from continuing operations before tax and finance income / expense (37,992) 126,877 Foreign exchange differences gain / (loss), net (2,951) (437) Finance income 13 331 380 Finance cost 13 (35,244) (34,634) Profit/(loss) before tax (75,856) 92,186 Taxation 15 4,995 (16,765) Profit/(loss) for the year (70,861) 75,421 Attributable to: Equity holders of the Company (70,189) 74,825 Non-controlling interest 27 (672) 596 Basic earnings per share (in Euro) 32 (0.14) 0.15 Globe Trade Centre S.A. Consolidated Statement of Comprehensive Income for the year ended 31 December 2020 (In thousands of Euro) 5 Year ended 31 December 2020 Year ended 31 December 2019 Profit/(loss) for the period (70,861) 74,825 Net other comprehensive income for the period, net of tax not to be reclassified to profit or loss in subsequent periods Gain (loss) on hedge transactions (7,748) (462) Income tax 812 10 Net gain on hedge transactions (6,936) (452) Foreign currency translation (3,496) (737) Net other comprehensive income for the period, net of tax to be reclassified to profit or loss in subsequent periods (10,432) (1,189) Total comprehensive income/(loss) for the period, net of tax (81,293) 73,636 Attributable to: Equity holders of the Company (80,621) 73,040 Non-controlling interest (672) 596 Globe Trade Centre S.A. Consolidated Statement of Changes in Equity for the year ended 31 December 2020 (In thousands of Euro) 6 Share Capital Share premium Capital reserve Hedge reserve Foreign currency translation reserve Accumulated profit Total Non-controlling interest Total Balance as of 1 January 2020 11,007 550,522 (43,098) (4,994) 943 530,242 1,044,622 14,040 1,058,662 Other comprehensive income - - - (6,936) (3,496) - (10,432) - (10,432) Profit / (loss) for the year ended 31 December 2020 - - - - - (70,189) (70,189) (672) (70,861) Total comprehensive income / (loss) for the period - - - (6,936) (3,496) (70,189) (80,621) (672) (81,293) Acquisition of non-controlling interest - - (6,391) - - - (6,391) 3,590 (2,801) Dividend distribution of non- controlling interest - - - - - - - (420) (420) Balance as of 31 December 2020 11,007 550,522 (49,489) (11,930) (2,553) 460,053 957,610 16,538 974,148 11,007 550,522 (49,489) (11,930) (2,553) 460,053 957,610 16,538 974,148 Share Capital Share premium Capital reserve Hedge reserve Foreign currency translation reserve Accumulated profit Total Non-controlling interest Total Balance as of 1 January 2019 10,960 546,711 (36,054) (4,542) 1,680 496,996 1,015,751 5,044 1,020,795 Other comprehensive income - - - (452) (737) (1,189) (1,189) Profit / (loss) for the year ended 31 December 2019 - - - - - 74,825 74,825 596 75,421 Total comprehensive income / (loss) for the period - - - (452) (737) 74,825 73,636 596 74,232 Acquisition of non-controlling interest - - (7,044) - - - (7,044) 8,829 1,785 Dividend distribution of non- controlling interest - - - - - - - (429) (429) Distribution of dividend 47 3,811 (41,579) (37,721) (37,721) Balance as of 31 December 2019 11,007 550,522 (43,098) (4,994) 943 530,242 1,044,622 14,040 1,058,662 Globe Trade Centre S.A. Consolidated Statement of Cash Flow for the year ended 31 December 2020 (In thousands of Euro) 7 Year ended 31 December 2020 Year ended 31 December 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Profit/(loss) before tax (75,856) 92,186 Adjustments for: Loss/(profit) from revaluation/impairment of assets and residential projects 142,721 (16,190) Foreign exchange differences loss/(gain), net 2,951 437 Finance income 13 (331) (380) Finance cost 13 35,244 34,634 Provision for share based payment loss/(profit) 12 (469) (3,087) Depreciation 16 654 660 Operating cash before working capital changes 104,914 108,260 Decrease (increase) in accounts receivables and prepayments and other current assets 2,469 (3,364) Decrease (increase) in advances received 72 (910) Increase (decrease) in deposits from tenants 27 2,812 Increase (decrease) in trade payables (800) 842 Cash generated from operations 106,682 107,640 Tax paid in the period (6,357) (6,233) Net cash from operating activities 100,325 101,407 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditure on investment property and property, plant and equipment 17 (78,528) (144,688) Purchase of completed assets and land (21,468) - Decrease in short term deposits designated for investment 5,923 5,579 Sale of investment property 64,569 80,504 Proceeds related to expropriation of land - 4,917 VAT/tax on purchase/sale of investment property 953 857 Sale of subsidiary - 42,834 Purchase of minority (1,802) - Interest received 55 115 Net cash used in investing activities (30,298) (9,882) CASH FLOWS FROM FINANCING ACTIVITIES Distribution of dividend - (37,992) Proceeds from long-term borrowings 28 286,807 292,962 Repayment of long-term borrowings 28 (224,293) (200,918) Interest paid (32,068) (30,430) Repayment of lease liability (162) (1,739) Loans origination payment (1,983) (2,390) Dividend granted to non-controlling interest (420) (429) Loans granted to non-controlling interest - (429) Decrease/(Increase) in short term deposits (168) (11,086) Net cash from /(used) in financing activities 27,713 7,549 Net foreign exchange difference (5,380) 106 Net increase/ (Decrease) in cash and cash equivalents 92,360 99,180 Cash and cash equivalents at the beginning of the period 179,636 80,456 Cash and cash equivalents at the end of the period 271,996 179,636 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (In thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 8 1. Principal activities Globe Trade Centre S.A. (the “Company” or “GTC”) with its subsidiaries (“GTC Group” or “the Group”) is an international real estate developer and investor. The Company was registered in Warsaw on 19 December 1996. The Company’s registered office is in Warsaw, Poland at Komitetu Obrony Robotników 45a Street. The Company owns, through its subsidiaries, commercial and residential real estate companies with a focus on Poland, Budapest, Bucharest, Belgrade, Zagreb and Sofia. The Group’s main business activities are development and rental of office and retail space. As of 31 December 2020 and 2019, the number of full time equivalent working employees in the Group companies was 209 and 197, respectively. There is no seasonality in the business of the Group companies. GTC is primarily listed on the Warsaw Stock Exchange and inward listed on Johannesburg Stock Exchange. As of 31 December 2020, the majority shareholder of the Company is GTC Holding Zrt., which holds directly and indirectly 320,466,380 shares of GTC S.A., entitling to 320,466,380 votes in the Company, representing 66% of the share capital of GTC S.A. and carrying the right to 66% of the total number of votes in GTC S.A.. GTC Holding Zrt. holds directly 21,891,289 shares of the Company, entitling to 21,891,289 votes in GTC S.A., representing 4.51% of the share capital of the Issuer and carrying the right to 4.51% of the total number of votes in GTC S.A. and indirectly (i.e. through GTC Dutch Holdings B.V.) holds 298,575,091 shares in the Company, entitling to 298,575,091 votes GTC S.A., representing 61.49% of the share capital of the Company and carrying the right to 61.49% of the total number of votes in the Company. 2. Functional and presentation currencies The functional currency of GTC S.A. and most of its subsidiaries is Euro. The functional currency of some of GTC’s subsidiaries is other than Euro (Europort/Ukraine/USD). The financial statements of those companies prepared in their functional currencies are included in the consolidated financial statements by a translation into Euro using appropriate exchange rates outlined in IAS 21 The Effects of Changes in Foreign Exchange Rates. Assets and liabilities are translated at the period end exchange rate, while income and expenses are translated at average exchange rates for the period. All resulting exchange differences are classified in equity as “Foreign currency translation” without affecting earnings for the period. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 9 3. Basis of preparation and statement of compliance The Company maintains its books of account in accordance with accounting principles and practices employed by enterprises in Poland as required by the Polish accounting regulations. The companies outside Poland maintain their books of account in accordance with local GAAP. The consolidated financial statements include a number of adjustments not included in the books of account of the Group entities, which were made in order to bring the financial statements of those entities to conformity with IFRS. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS”) as adopted by the EU („EU IFRS"). At the date of authorisation of these consolidated financial statements, taking into account the EU IFRS's ongoing process of IFRS endorsement and the nature of the Group's activities, there is no relevant difference between IFRS applying to these consolidated financial statements and IFRS endorsed by the European Union. 4. Going concern The Group’s policies and processes are aimed at managing the Group’s capital, financial and liquidity risks on a sound basis. The Group meets its day to day working capital requirements through the generation of operating cash-flows from rental income. Further details of liquidity risks and capital management processes are described in note 35. As of 31 December 2020, the Group’s net working capital (defined as current assets less current liabilities) was positive and amounted to Euro 80,918. The management has analysed the timing, nature and scale of potential financing needs of particular subsidiaries and believes that there are not risks for paying current financial liabilities and cash on hand, as well as, expected operating cash-flows will be sufficient to fund the Group’s anticipated cash requirements for working capital purposes, for at least the next twelve months from the balance sheet date. Consequently, the consolidated financial statements have been prepared on the assumption that the Group companies will continue as a going concern in the foreseeable future, for at least 12 months from the balance sheet date. With reference to the Covid-19 outbreak, the management has prepared and analysed the cash flow budget based on certain hypothetical defensive assumptions to assess the reasonableness of the going concern assumption in view of the current developments on the market. This analysis assumed certain loans repayment acceleration, negative impact on net operating income (“NOI”) as well as other offsetting measures, which the management may take to mitigate the risks, including deferring the development activity and retention of profit by the Company and allocate it to the reserve/supplementary capital. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 10 Based on management’s analysis, the current cash liquidity of the Company and prepared cash flow budget assumptions, the management concluded that there is no material uncertainty as to the Company’s ability to continue as a going concern in the foreseeable future i.e. at least in the next 12 months. Please refer to note 36 for further information on Covid-19 effects and the management’s considerations and judgements. 5. Accounting policies The accounting policies adopted in the preparation of the attached consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2019 except for the new standards, which are effective as at 1 January 2020 (see note 6). 6. New standards and interpretations that have been issued STANDARDS ISSUED AND EFFECTIVE FOR FINANCIAL YEARS BEGINNING ON OR AFTER 1 JANUARY 2020: • Amendments to IAS 1 and IAS8: Disclosure Initiative – Definition of Material (issued on 31 October 2018) – effective for the financial years beginning on or after 1 January 2020; • Amendments to IFRS 3: Definition of Business (issued on 22 October 2018) - effective for financial years beginning on or after 1 January 2020; • Amendments to References to the Conceptual Framework for Financial Reporting (issued on 29 March 2018) – effective for financial years beginning on or after 1 January 2020; • Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform – IBOR ‘phase 1’ (issued on 26 September 2019) - effective for financial years beginning on or after 1 January 2020; • Amendments to IFRS 16, COVID-19-Related Rent Concessions (issued on 28 May 2020). Effective 1 June 2020, IFRS 16 was amended to provide a practical expedient for lessees accounting for rent concessions that arise as a direct consequence of the COVID-19 pandemic and satisfy the following criteria: (a) The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (b) The reduction is lease payments affects only payments originally due on or before 30 June 2021; and Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 11 6. New standards and interpretations that have been issued (continued) (c) There are is no substantive change to other terms and conditions of the lease. Rent concessions that satisfy these criteria may be accounted for in accordance with the practical expedient, which means the lessee does not assess whether the rent concession meets the definition of a lease modification. Lessees apply other requirements in IFRS 16 in accounting for the concession. The Company’s assessment is that the above changes (new standards/amendments) have no material impact. STANDARDS ISSUED BUT NOT YET EFFECTIVE: • Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – IBOR ‘phase 2’ (issued on 27 August 2020) - effective for financial years beginning on or after 1 January 2021; • Amendments to IAS 37: Onerous contracts – Cost of fulfilling a Contract (issued on 14 May 2020) –– effective for financial years beginning on or after 1 January 2022; • Amendments to IAS 16: Property, Plant and Equipment – Proceeds before intended Use (issued on 14 May 2020) – effective for financial years beginning on or after 1 January 2022; • Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41: Annual improvements to IFRS Standards 2018-2020 ((issued on 14 May 2020) –– effective for financial years beginning on or after 1 January 2022; • Amendments to IFRS 3: Business Combinations (issued on 14 May 2020) –– effective for financial years beginning on or after 1 January 2022; • IFRS 17 Insurance Contracts (issued on 18 May 2017) – the IASB issued amendments to IFRS 17 - effective (after deferral) for financial years beginning on or after 1 January 2023; • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (issued on 23 January 2020 and amended 15 July 2020) – effective for financial years beginning on or after 1 January 2023; • The amendments specify that the conditions which exist at the end of the reporting period are those which will be used to determine if a right to defer settlement of liability exists; Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 12 6. New standards and interpretations that have been issued (continued) • Management expectations about events after the balance sheet date, for example on whether a covenant will be breached, or whether early settlement will take place, are not relevant; • The amendments clarify the situations that are considered the settlement of liability. • Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements: Disclosure of Accounting Policies and amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021) – effective for financial years beginning on or after 1 January 2023; The new guidance is not yet endorsed by EU at the date of approval of these financial statements. The effective dates are dates provided by the International Accounting Standards Board. Effective dates in the European Union may differ from the effective dates provided in standards and are published when the standards are endorsed by the European Union. The Group plans to adopt all new standards on the required effective date and will not restate comparative information. The Group does not expect a significant impact on its statement of financial position and equity. 7. Summary of significant accounting policies (a) BASIS OF ACCOUNTING The consolidated financial statements have been prepared on a historical cost basis, except for completed investment properties, investment property under construction (“IPUC”) if the certain condition described in note 7(c) ii are met, share based payments, and derivative financial instruments that have been measured at fair value. (b) PROPERTY, PLANT AND EQUIPMENT Plant and equipment consist of vehicles and equipment. Plant and equipment are recorded at cost less accumulated depreciation and impairment. Depreciation is provided using the straight-line method over the estimated useful life of the asset. Reassessment of the useful life and indications for impairment is done each quarter. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 13 7. Summary of significant accounting policies (continued) The following depreciation rates have been applied: Depreciation rates Equipment 7-20 % Buildings 2 % Vehicles 20 % Assets under construction other than investment property are shown at cost. The direct costs paid to subcontractors for the improvement of the property are capitalised into construction in progress. Capitalised costs also include borrowing costs, planning, and design costs, construction overheads, and other related costs. Assets under construction are not depreciated. (c) INVESTMENT PROPERTIES Investment property comprises a land plot or a building or a part of a building held to earn rental income and/or for capital appreciation and property that is being constructed or developed for future use as an investment property (investment property under construction). Investment properties are initially measured at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time the cost is incurred if the recognition criteria are met and excludes the costs of day-to- day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value. Any gain or loss arising from a change in the fair value of investment property is recognized in the profit or loss for the year in which it arose, after accounting for the related impact on deferred tax. (i) Completed Investment properties Investment properties are stated at fair value according to the fair value model, which reflects market conditions at the reporting date Completed investment properties were externally valued by independent appraisers as of 31 December 2020 and 2019 based on open market values (RICS Standards). Completed properties are either valued on the basis of discounted cash flow (DCF) or - as deemed appropriate – on the basis of the Income capitalisation or yield method. The applied method is defined by the valuer. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 14 7. Summary of significant accounting policies (continued) Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use, and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation or commencement of an operating lease. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. (ii) Investment property under construction (“IPUC”) The Group revalues IPUC based on its fair value, once a substantial part of the development risks have been eliminated. IPUC, for which this is not the case, is presented at the lower of cost or recoverable amount. Recoverable amount is a fair value, externally valued by independent appraisers. The land is reclassified to IPUC at the moment, at which active development of this land begins (i.e. when construction works start) The Group has adopted the following criteria to assess whether the substantial risks are eliminated with regard to particular IPUC: • agreement with a general contractor is signed; • a building permit is obtained; • at least 20% of the rentable area is leased to tenants (based on the signed lease agreements and letters of intent); • external financing is secured. The fair values of IPUC were determined as at their development stage at the end of the reporting period. Valuations were performed in accordance with RICS and IVSC Valuation Standards using the residual method approach. The future assets’ value is estimated based on the expected future income from the project, using yields that are higher than the current yields of the similar completed property. The remaining expected costs to completion are deducted from the estimated future assets value. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 15 7. Summary of significant accounting policies (continued) For projects where the completion is expected in the future, also a developer profit margin of unexecuted works was deducted from the value. The profit margin deducted is reduced when the construction is closer to completion. (d) HIERARCHY OF INVESTMENT PROPERTY Fair value hierarchy is based on the sourced of input used to estimate the fair value: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities, Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly, Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. All investment properties are categorized in Level 2 or Level 3 of the fair value hierarchy. The Group considered all investment value under construction carried at fair value as properties categorized in Level 3. The Group considered completed investment properties as properties categorize in Level 2 or Level 3, based on the liquidity in the market it operates. The Group applied the simplified classification rules of the IP fair value hierarchy based on the two main criteria: the type of investment property (retail/office) and, mainly, its location. The fair value measurement of completed investment property is based on the market assumptions made by the independent appraisers. Those assumptions depend on the observable market transactions. For more mature and active markets – like e.g. Poland, Hungary, and Romania, with a relevant number of comparative transactions, we classify the properties to level 2. The other markets provide few observable data, and the relevant properties are classified to level 3. (e) INVESTMENT IN ASSOCIATES Investment in associates is accounted for under the equity method. The investment is carried in the statement of financial position at cost plus post acquisition changes in the Group share of net assets of the associate. (f) INVESTMENT IN JOINT VENTURES Investment in joint ventures is accounted for under the equity method. The investment is carried in the statement of financial position at cost plus post acquisition changes in the Group share of net assets of the joint ventures. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 16 7. Summary of significant accounting policies (continued) (g) LEASE ORIGINATION COSTS The costs incurred to originate a lease (mainly brokers’ fees) for available rental space are added to the carrying value of investment property until the date of revaluation of the related investment property to its fair value. If as of the date of revaluation, the carrying value is higher than the fair value, the costs are recognized in the profit or loss. (h) NON-CURRENT ASSETS HELD FOR SALE Non-current assets and their disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This requirement can be fulfilled only if the occurrence of a sale transaction is highly probable and the item of assets is available for immediate sale in its present condition. The classification of an asset as held for sale assumes the intent of the entity’s management to realise the transaction of sale within one year from the moment of asset classification to the held for sale category. Non-current assets held for sale are measured at the lower of their carrying amount and fair value, less costs to sell. (i) ADVANCES RECEIVED Advances received (related to pre-sales of residential units) are deferred to the extent that they are not reflected as revenue as described below in note 7(j). (j) RENTAL REVENUE Rental revenues result from operating leases and are recognised as income over the lease term on a straight-line basis. (k) INTEREST AND DIVIDEND INCOME Interest income is recognised on an accrual basis using the effective interest method that is the rate that exactly discounts estimated future cash flows through the expected life of financial instruments to the net carrying amount of the underlying financial asset or liability. Dividend income is recognised when the shareholders’ right to receive payments is established. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 17 7. Summary of significant accounting policies (continued) (l) CONTRACT REVENUE AND COSTS RECOGNITION Group has the following revenue streams: • Rental income. The main source of income of the Group, which is charged to tenants on a monthly basis, based on rent fee rate agreed in the contract. • Service charge represents fees paid by the tenants of the Group’s investment properties to cover the costs of the services provided by the Group in relation to their leases. Service charge is billed on a monthly basis, based on service fee rate agreed in the contract, which represents the best estimate for a particular project. Allocation of service charge to tenants is done based on the leased area. Heating, water, and sewage are billed separately on a monthly basis, based on leased area and rates agreed in the contract. Rental income revenue under IFRS 15. Rental income revenue is recognised under IFRS 15 when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. • Acting as a principal. The Group bills the tenants on a monthly basis, based on rent fee rate agreed in the contract. Service charge revenue under IFRS 15. Service charge revenue is recognised under IFRS 15 when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. Group recognizes two kinds of performance obligations in the Group: • Acting as an agent. Some tenants install counters for electricity. In this case, the invoices for electricity are billed through GTC entities and addressed to the tenants directly. The Group recognizes cost and corresponding income at the same amount. For financial statement purposes such income and expenses are disclosed on a net basis, as GTC acts as an agent. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 18 7. Summary of significant accounting policies (continued) • Acting as a principal. In the other cases, all service charges are billed to GTC entities on a monthly basis. The Group bills the tenants based on the rates in the contract on a monthly basis. By the end of the year, the Group does reconciliation of actual service charges costs vs. billed one, and then bill for deficit or return the overpayment to the tenant if it is required. For financial statement purposes such expenses are disclosed on a gross basis, as GTC acts as a principal. (m) BORROWING COSTS Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. The interest capitalised is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amount capitalised is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Interest is capitalised from the commencement of the development work until the date of practical completion, i.e., when substantially all of the development work is completed. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. Interest is also capitalised on the purchase cost of a site of property acquired specifically for redevelopment, but only where activities necessary to prepare the asset for redevelopment are in progress. (n) SHARE ISSUANCE EXPENSES Share issuance costs are deducted from equity (share premium), net of any related income tax benefits. (o) INCOME TAXES & OTHER TAXES The current provision for corporate income tax for the Group companies is calculated in accordance with tax regulations ruling in particular country of operations and is based on the profit or loss reported under relevant tax regulations. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 19 7. Summary of significant accounting policies (continued) Deferred tax liabilities are recognised for all taxable temporary differences, except: • where the deferred tax liability arises from the initial recognition of goodwill or 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, • in respect of taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, where 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. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, 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 utilised, except: • where 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. • in respect of deductible temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, deferred tax assets are recognised 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 utilised. Deferred tax assets and liabilities are measured using the tax rates enacted to taxable income in the years in which these temporary differences are expected to be recovered or settled. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which each company of the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. At each reporting date, the Group companies re-assess unrecognised deferred tax assets and the carrying amount of deferred tax assets. The companies recognise a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 20 7. Summary of significant accounting policies (continued) The companies conversely reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset that might be utilised. Deferred tax relating to items recognised outside profit and loss is also recognized outside profit and loss: under other comprehensive income if relates to items recognised under other comprehensive income, or under equity – if relates to items recognized in equity. Deferred tax assets and deferred tax liabilities are offset if, and only if, a legally enforceable right exists to set off current tax assets against current tax liabilities, and the deferred tax assets and deferred tax liabilities relate to income taxes that are levied by the same taxation authority. Revenues, expenses, and assets are recognized net of the amount of value added tax except: • where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case value added tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and • receivables and payables, which are stated with the amount of value added tax included. The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. If, according to the Group’s assessment, it is probable that the tax authorities will accept an uncertain tax treatment or a group of uncertain tax treatments, the Group determines taxable income (tax loss), tax base, unused tax losses and unused tax credits and tax rates, after considering in its tax return the applied or planned approach to taxation. If the Group ascertains that it is not probable that the tax authorities will accept an uncertain tax treatment or a group of uncertain tax treatments, the Group reflects the impact of this uncertainty in determining taxable income (tax loss), unused tax losses, unused tax credits or tax rates. The Group accounts for this effect using the following methods: • determining the most probable amount – it is a single amount from among possible results; or • providing the expected amount – it is the sum of the amounts weighted by probability from among possible results. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 21 7. Summary of significant accounting policies (continued) (p) FOREIGN EXCHANGE DIFFERENCES For companies with Euro as a functional currency, transactions denominated in a foreign currency (including Polish Zloty) are recorded in Euro at the actual exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are revalued at period-end using period-end exchange rates. Foreign currency translation differences are charged to the income statement. The following exchange rates were used for valuation purposes in cases where a certain lease is denominated in local currency. 31 December 2020 31 December 2019 PLN/EUR 4.6148 4.2585 USD/EUR 1.2279 1.1112 HUF/EUR 365.13 330.50 (q) INTEREST BEARING LOANS AND BORROWINGS AND DEBT SECURITIES All loans and borrowings and debt securities are initially recognized at fair value, net of transaction costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings and debt securities are measured at amortised cost using the effective interest rate method, except for liabilities designated as hedged items, which are measured in accordance with hedge accounting policies, as described in Note 7 (w). Debt issuance expenses are deducted from the amount of debt originally recognised. These costs are amortised through the income statement over the estimated duration of the loan, except to the extent that they are directly attributable to construction. Debt issuance expenses represent an adjustment to effective interest rates. Amortised cost is calculated by taking into account any transaction costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss when the liabilities are derecognised. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 22 7. Summary of significant accounting policies (continued) (r) FINANCIAL INSTRUMENTS – INITIAL RECOGNITION AND SUBSEQUENT MEASUREMENT A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and 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. Refer to the accounting policies in note 7(l) Contract revenue and costs recognition. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments); • Financial assets at fair value through OCI with the recycling of cumulative gains and losses (debt instruments); • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments); • Financial assets at fair value through profit or loss. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 23 7. Summary of significant accounting policies (continued) Financial assets at amortised cost (debt instruments) This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and • 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. Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include trade receivables, loans to associate and short-term deposits under current financial assets. Financial assets at fair value through OCI (debt instruments) The Group measures debt instruments at fair value through OCI if both of the following conditions are met: • The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling; and • 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. For debt instruments at fair value through OCI, interest income, foreign exchange revaluation, and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss. The Group does not have such debt instruments. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 24 7. Summary of significant accounting policies (continued) Financial assets designated at fair value through OCI (equity instruments) Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. The Group does not have such equity instruments. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, 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 held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading 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 amortised 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. 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 recognised in the statement of profit or loss. The Group does not have such instruments. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 25 7. Summary of significant accounting policies (continued) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans, and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings, including bank overdrafts and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into 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 held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the statement of profit or loss. 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. Loans and borrowings This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings 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. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 26 7. Summary of significant accounting policies (continued) 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. This category applies to interest-bearing loans and borrowings. Offsetting of financial instruments Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. The table below presents the categorisation of financial assets and liabilities: Item, Category, and Measurement. Item Category Measurement Financial assets/liabilities Cash and short-term deposits Financial assets at amortised cost Amortised cost Debtors Financial assets at amortised cost Amortised cost Trade and other payables Financial liabilities at amortised cost Amortised cost Long and short term borrowings Financial liabilities at amortised cost Amortised cost Deposits from tenants Financial liabilities at amortised cost Amortised cost Long term payables Financial liabilities at amortised cost Amortised cost Interest Rate Swaps Hedging (cash flow hedges) Fair value – adjusted to other comprehensive income (effective portion) / adjusted to profit or loss (ineffective portion) Cap Financial liabilities at fair value through profit or loss Fair value – adjusted to profit or loss Cross-currency interest swap Financial liabilities at fair value through other comprehensive income / profit or loss Fair value related to interest – adjusted to other comprehensive income; Fair value related to currency – adjusted to profit or loss; Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 27 7. Summary of significant accounting policies (continued) (s) CASH AND CASH EQUIVALENTS Cash comprises cash on hand and on-call deposits. Cash equivalents are short-term, highly liquid investments that readily convert to a known amount of cash and which are subject to an insignificant risk of changes in value. (t) ACCOUNTS RECEIVABLES A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in section r) Financial instruments – initial recognition and subsequent measurement. The carrying amount of accounts receivables is equal to their fair value. (u) IMPAIRMENT OF NON-CURRENT ASSETS The carrying value of assets not measured at fair value is periodically reviewed by the Management Board to determine whether impairment may exist. In particular, the Management Board assessed whether the impairment indicators exist. Based upon its most recent analysis, management believes that there are no impairment indicators. (v) PURCHASE OF SHARES OF NON-CONTROLLING INTEREST If the Group increases its share in the net assets of its controlled subsidiaries, the difference between the consideration paid/payable and the carrying amount of non-controlling interest is recognised in equity attributable to equity holders of the parent. (w) DERIVATIVES FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Initial recognition and subsequent measurement The Group uses derivative financial instruments, such as interest rate swaps and cap, to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently premeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 28 7. Summary of significant accounting policies (continued) At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Before 1 January 2018, the documentation included identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Since 1 January 2018, the documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: There is ‘an economic relationship’ between the hedged item and the hedging instrument. • The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. • The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item. Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described below. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised in Other Comprehensive Income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 29 7. Summary of significant accounting policies (continued) Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point of time, any cumulative gain or loss recognised in equity is transferred to net profit or loss for the year. For derivatives that do not qualify for hedge accounting, any gain or losses arising from changes in fair value are recorded directly to net profit and loss of the year. The fair value of cross-currency interest swap, interest rate swaps and caps contracts is determined by reference to market values for similar instruments (fair value level hierarchy 2). (x) ACCOUNTING ESTIMATES The preparation of financial statements in accordance with International Financial Reporting Standards requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the balance date. The actual results may differ from these estimates. Investment property represents property held for long-term rental yields. Investment property is carried at fair value, which is established at least annually by an independent registered valuer based on discounted projected cash flows from the investment property using the discounts rates applicable for the local real estate market and updated by the Management judgment or - as deemed appropriate – on basis of the Income capitalisation or yield method. The applied method and main assumptions as defined in note 17 are defined by the valuer. The changes in the fair value of investment property are included in the profit or loss for the period in which it arises (note 17). The Group uses estimates in determining the amortization rates used (note 29). The fair value of financial instruments for which no active market exists is assessed by means of appropriate valuation methods. In selecting the appropriate methods and assumptions, the Group applies professional judgment (note 19). The Group recognises deferred tax asset based on the assumption that taxable profits will be available in the future against which the deferred tax asset can be utilised. Deterioration of future taxable profits might render this assumption unreasonable (note 15). Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 30 7. Summary of significant accounting policies (continued) (y) SIGNIFICANT ACCOUNTING JUDGEMENTS In the process of applying the Group's accounting policies, management has made the following judgments: The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases. Significant accounting judgements related to investment property are presented in note 7 (c). Significant accounting judgements related to market liquidity of investment property are presented in note 7 (d). The Group classifies its residential inventory to current or non-current assets, based on their development stage within the business operating cycle. The normal operating cycle most cases falls within a period of 1-5 years. Residential projects, which are active, are classified as current inventory. Residential projects which are planned to be completed in a period longer than the operating cycle are classified as residential landbank under non-current assets. On the basis of the assessment made, the Group has reclassified part of inventory from current assets to residential landbank in non–current assets. The Group determines whether a transaction or other event is a business combination by applying the definition of a business in IFRS 3. Deferred tax with respect to outside temporary differences relating to subsidiaries was calculated based on an estimated probability that these temporary differences will be realized in the foreseeable future. The Group also makes an assessment of the probability of realization of deferred tax asset. If necessary, the Group decreases deferred tax asset to the realizable value. The Group uses judgements in determining the settlement of share based payment in cash. (z) BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of GTC and the financial statements of its subsidiaries for the year ended 31 December 2020. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 31 7. Summary of significant accounting policies (continued) The financial statements of the subsidiaries are prepared for the same reporting period as those of the parent company, using consistent accounting policies, and based on the same accounting policies applied to similar business transactions and events. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The Group, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee. The Group controls an investee when it 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. Thus, the Group controls an investee if and only if it has all the following: • power over the investee; • exposure, or rights, to variable returns from its involvement with the investee; and • the ability to use its power over the investee to affect the amount of the investor's returns. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. All significant intercompany balances and transactions, including unrealised gains arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless they indicate impairment. (aa) PROVISIONS Provisions are recognised when the Group has 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. (ab) SHARE-BASED PAYMENT TRANSACTIONS Amongst others, GTC remunerates key personnel by granting them rights for payments based on GTC’s share price performance in PLN, in exchanges for their services (“Phantom shares”). Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 32 7. Summary of significant accounting policies (continued) The cost of the phantom shares is measured initially at fair value at the grant date. The liability is re-measured to fair value at each reporting date up and including the settlement date, with changes in fair value recognised in administration expenses. Phantom shares are vested in annual tranches during the work/service period. Expenses are recognised in a straight line basis over the vesting period. (ac) EARNINGS PER SHARE Earnings per share for each reporting period is calculated as quotient of the profit for the given reporting period and the weighted average number of shares outstanding in that period. (ad) SHORT TERM DEPOSITS Short-term deposits include deposits related to loan agreements and other contractual commitments and can be used only for certain operating activities as determined by underlying agreements. Deposits related to loan agreements can be used anytime (for the defined purposes upon approval of the lender), as so, they are presented within current assets. (ae) DEPOSITS FROM TENANTS Deposits from tenants include deposits received from tenants to secure the obligation of the tenants towards the landlord. The deposits are refundable at the end of the lease. (af) RESIDENTIAL INVENTORY AND RESIDENTIAL LANDBANK Inventory relates to residential projects under construction is stated at the lower of cost and net realisable value. The realisable value is determined using the Discounted Cash Flow method or Comparison method by independent appraisers. Costs relating to the construction of a residential project are included in the inventory. Commissions paid to sales or marketing agents on the sale of real estate units, which are not refundable, are expensed in full when the contract to sell is secured. The Group classifies its residential inventory to current or non-current assets based on their development stage within the business operating cycle. The normal operating cycle, in most cases, falls within a period of 1-5 years. Residential projects, which are active, are classified as current inventory. Residential projects which are planned to be completed in a period longer than the operating cycle are classified as residential landbank under non-current assets. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 33 7. Summary of significant accounting policies (continued) (ag) LEASES Leases, where the Group does not transfer substantially all the risk and benefits of ownership of the asset, are classified as operating leases. There are two types of leases in GTC Group that are subject to IFRS 16 and affect the financial statements: • Leasing property rented to tenants - the primary activity of GTC Group. For this leasing activity, GTC Group acts as a Lessor. A lessor accounting under IFRS 16 is substantially unchanged, therefore it has no influence on the Group. • Leases of lands under perpetual usufruct where the Group acts as Lessee. Perpetual usage payments are payments, which are done in advance or in arrears on an annual or monthly basis within a define period (from 33 to 87 years). Perpetual usage payments are made in Poland, Croatia, Romania, and Serbia. Due to the fact that perpetual usage payments, by substance, are treated as lease payments, payments are to be considered under IFRS 16. In the consolidated financial position statements, the Group recognized a Right-of-Use and Lease Liabilities: a) Right of use of lands under perpetual usufruct is presented • as part of the Investment Property, with separate disclosure in a separate note; • as part of the residential landbank. b) Lease Liabilities are presented separately, as part of the Short-term and Long-term Liabilities, with a separate disclosure. Under IFRS 16, the Group presents the amortization of Right-of-Use or the change in fair value of Right-of-Use within the profit (loss) on revaluations. Interest embedded within land leases is presented as Finance expenses. The Right of Use of lands under perpetual usufruct is amortized over the lease period (for cost method) or valued using the fair value approach (for investment properties valued at fair value). Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 34 7. Summary of significant accounting policies (continued) The Group entered into several other leases (low value, short term), which are not treated in accordance with IFRS 16. Additionally, the Group has decided not to apply the new guidelines to leases whose term will end within twelve months of the date of initial application. In such cases, the lease is accounted as short-term lease. • Amendments to IFRS 16, COVID-19-Related Rent Concessions (issued on 28 May 2020). Effective 1 June 2020, IFRS 16 was amended to provide a practical expedient for lessees accounting for rent concessions that arise as a direct consequence of the COVID- 19 pandemic and satisfy the following criteria: (a) The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (b) The reduction is lease payments affects only payments originally due on or before 30 June 2021; and (c) There are is no substantive change to other terms and conditions of the lease. Rent concessions that satisfy these criteria may be accounted for in accordance with the practical expedient, which means the lessee does not assess whether the rent concession meets the definition of a lease modification. Lessees apply other requirements in IFRS 16 in accounting for the concession. The Group’s assessment is that the new amendment has no material impact. . Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 35 8. Investment in Subsidiaries, Associates, and Joint Ventures The consolidated financial statements include the financial statements of the Company and its subsidiaries listed below together with direct and indirect ownership of these entities, and voting rights proportion as at the end of each period (the table presents the effective stake): Subsidiaries Name Holding Company Country of incorporation 31 December 2020 31 December 2019 GTC Konstancja Sp. z o.o. GTC S.A. Poland 100% 100% GTC Korona S.A. GTC S.A. Poland 100% 100% Globis Poznań Sp. z o.o. GTC S.A. Poland 100% 100% GTC Aeropark Sp. z o.o. GTC S.A. Poland 100% 100% Globis Wrocław Sp. z o.o. GTC S.A. Poland 100% 100% GTC Satellite Sp. z o.o. GTC S.A. Poland 100% 100% GTC Sterlinga Sp. z o.o. GTC S.A. Poland 100% 100% GTC Karkonoska Sp. z o.o.(1) GTC S.A. Poland 100% 100% GTC Ortal Sp. z o.o. GTC S.A. Poland 100% 100% Diego Sp. z o.o. GTC S.A. Poland 100% 100% GTC Francuska Sp. z o.o. GTC S.A. Poland 100% 100% GTC UBP Sp. z o.o. GTC S.A. Poland 100% 100% GTC Pixel Sp. z o.o. GTC S.A. Poland 100% 100% GTC Moderna Sp. z o.o. GTC S.A. Poland 100% 100% Centrum Handlowe Wilanow Sp. z o.o. GTC S.A. Poland 100% 100% GTC Management Sp. z o.o. GTC S.A. Poland 100% 100% GTC Corius Sp. z o.o. GTC S.A. Poland 100% 100% Centrum Światowida Sp. z o.o. GTC S.A. Poland 100% 100% Glorine investments Sp. z o.o. (1) GTC S.A. Poland 100% 100% Glorine investments Sp. z o.o. s.k.a. (1) GTC S.A. Poland 100% 100% GTC Galeria CTWA Sp. z o.o. GTC S.A. Poland 100% 100% Artico Sp. z o.o GTC S.A. Poland 100% 100% Julesberg Sp. z o.o. (2) GTC S.A. Poland - 100% Jowett Sp. z o.o. (2) GTC S.A. Poland - 100% GTC Hungary Real Estate Development Company Ltd. (“GTC Hungary”) GTC S.A. Hungary 100% 100% GTC Duna Kft. GTC Hungary Hungary 100% 100% Vaci Ut 81-85 Kft. GTC Hungary Hungary 100% 100% Riverside Apartmanok Kft. (“Riverside”) (1) GTC Hungary Hungary 100% 100% Centre Point I. Kft. (“Centre Point I”) GTC Hungary Hungary 100% 100% Centre Point II. Kft. GTC Hungary Hungary 100% 100% Spiral I.Kft. GTC Hungary Hungary 100% 100% SASAD Resort Kft. (“Sasad”) (3) GTC Hungary Hungary - 100% (1) Under liquidation (2) Liquidated (3) Merged to GTC Hungary Ltd. as of 30 September 2020 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 36 8. Investment in Subsidiaries, Associates and Joint Ventures (continued) Name Holding Company Country of incorporation 31 December 2020 31 December 2019 Albertfalva Üzletközpont Kft. GTC Hungary Hungary 100% 100% GTC Metro Kft. GTC Hungary Hungary 100% 100% Kompakt Land Kft GTC Hungary Hungary 100% 100% GTC White House Kft. GTC Hungary Hungary 100% 100% VRK Tower Kft GTC Hungary Hungary 100% 100% Amarantan Ltd. (4) GTC Hungary Hungary - 100% GTC Future Kft (5) GTC Hungary Hungary 100% - Globe Office Investments Kft (5) GTC Hungary Hungary 100% GTC Nekretnine Zagreb d.o.o.(“GTC Zagreb”) GTC S.A. Croatia 100% 100% Euro Structor d.o.o. GTC S.A. Croatia 70% 70% Marlera Golf LD d.o.o. (6) GTC S.A. Croatia 100% 80% Nova Istra Idaeus d.o.o. (6) Marlera Golf LD d.o.o Croatia 100% 80% GTC Matrix d.o.o. GTC S.A. Croatia 100% 100% GTC Seven Gardens d.o.o. GTC S.A. Croatia 100% 100% Towers International Property S.R.L. GTC S.A. Romania 100% 100% Green Dream S.R.L. GTC S.A. Romania 100% 100% Aurora Business Complex S.R.L GTC S.A. Romania 100% 100% Cascade Building S.R.L GTC S.A. Romania 100% 100% City Gate Bucharest S.R.L. GTC S.A. Romania 100% 100% Venus Commercial Center S.R.L. GTC S.A. Romania 100% 100% Beaufort Invest S.R.L. GTC S.A. Romania 100% 100% Fajos S.R.L. (1) GTC S.A. Romania 100% 100% City Gate S.R.L. GTC S.A. Romania 100% 100% City Rose Park SRL GTC S.A. Romania 100% 100% Deco Intermed S.R.L. GTC S.A. Romania 66.7% 66.7% GML American Regency Pipera S.R.L. GTC S.A. Romania 66.7% 66.7% (1) Under liquidation (2) Liquidated (3) Merged to GTC Hungary Ltd. as of 30 September 2020 (4) Merged to Center Point I. Kft. as of 30 September 2020 (5) Newly established wholly owned subsidiary (6) NCI share was aquired Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 37 8. Investment in Subsidiaries, Associates and Joint Ventures (continued) Name Holding Company Country of incorporation 31 December 2020 31 December 2019 NRL EAD GTC S.A. Bulgaria 100% 100% Advance Business Center EAD GTC S.A. Bulgaria 100% 100% GTC Yuzhen Park EAD (“GTC Yuzhen”) GTC S.A. Bulgaria 100% 100% Dorado 1 EOOD GTC S.A. Bulgaria 100% 100% GTC Medj Razvoj Nekretnina d.o.o. Beograd GTC S.A. Serbia 100% 100% GTC Business Park d.o.o. Beograd GTC S.A. Serbia 100% 100% Commercial and Residential Ventures d.o.o. Beograd GTC S.A. Serbia 100% 100% Demo Invest d.o.o. Novi Beograd GTC S.A. Serbia 100% 100% Atlas Centar d.o.o. Beograd GTC S.A. Serbia 100% 100% Commercial Development d.o.o. Beograd GTC S.A. Serbia 100% 100% Glamp d.o.o. Beograd GTC S.A. Serbia 100% 100% GTC BBC d.o.o GTC S.A. Serbia 100% 100% Europort Investment (Cyprus) 1 Limited GTC S.A. Cyprus 100% 100% Europort Ukraine Holdings 1 LLC Europort Investment (Cyprus) 1 Limited Ukraine 100% 100% Europort Ukraine LLC Europort Investment (Cyprus) 1 Limited Ukraine 100% 100% Europort Project Ukraine 1 LLC Europort Investment (Cyprus) 1 Limited Ukraine 100% 100% Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 38 9. Events in the period OWNERSHIP CHANGES / MANAGEMENT BOARD CHANGES On 16 April 2020, Mr. Yovav Carmi was appointed as member of the Management Board of the Company. On 23 June 2020, GTC HOLDING ZÁRTKÖRŰEN MŰKÖDŐ RÉSZVÉNYTÁRSASÁG (“GTC Holding Zrt”) registered in Budapest, Hungary, bought 100% of shares of GTC Dutch Holdings B.V. (the “Majority Shareholder“) from LSREF III GTC INVESTMENTS B.V. registered in Amsterdam, the Netherlands. GTC Dutch Holdings BV owns 298,575,091 shares of the Company, representing 61.49% of the shares in the share capital of the Company. After the abovementioned acquisition, GTC Holding Zrt (i.e. through the Majority Shareholder) holds indirectly 298,575,091 shares of the Company, representing 61.49% votes in the Company. On 23 June 2020, Mr. Robert Snow was appointed as member of the Management Board of the Company. On 23 June 2020, Mr. Thomas Kurzmann was dismissed from the Management Board of the Company. On 1 July 2020, Mr. Gyula Nagy was appointed as member of the Management Board of the Company. On 28 July 2020, Mr. Ariel Alejandro Ferstman was appointed as member of the Management Board of the Company. On 28 July 2020, the Company and Mr. Erez Boniel have mutually agreed to terminate his appointment as a member to the Management Board of the Company. On 18 September 2020, Mr. Yovav Carmi was appointed as the President of the Management Board of the Company. On 27 October 2020, GTC Holding Zrt increased the total number of votes in the Company, as a result of acquisitions conducted on 22 October 2020, by 21,891,289 shares of the Company, entitling to 21,891,289 votes in the Company, representing 4.51% of the share capital of the Company and carrying the right to 4.51% of the total number of votes in the Company. After the abovementioned acquisitions, GTC Holding Zrt holds directly and indirectly 320,466,380 shares of the Company, representing 66.00% votes in the Company. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 39 9. Events in the period (continued) COMPLETION OF INVESTMENTS / ACQUISITION During 2020, GTC Group has completed the construction of the following properties: o Green Heart N3 in Belgrade - 5 thousand sqm office building (March 2020); o Matrix B in Zagreb -11 thousand sqm office building (November 2020); o ABC 2 in Sofia 18 thousand sqm office building (October 2020). In September 2020, the Group acquired the remaining 20% in Marlera Golf LD d.o.o. for a consideration of Euro 2.8 million, Euro 1.8 million of which was paid in September 2020 (the remaining part of Euro 1 million will be paid upon completion of certain conditions). Following the transaction, GTC remained the sole owner of the subsidiary. As a result of the transaction, the NCI increased by Euro 3.6 million, and the capital reserve decreased by Euro 6.4 million. Consequently, the total equity decreased by Euro 2.8 million. On 13 November 2020 GTC Future Kft, a newly established wholly owned subsidiary acquired a land plot from a subsidiary related to the majority shareholder with an existing old office and industrial buildings in Vaci Corridor in Budapest for a total amount of Euro 21.35 million. The buildings have total leasable area of 12,000 sqm (GLA 8,200 sqm). The Company plans to demolish the buildings and develop office buildings in phases with a total leasable area of 64,000 sqm. COMMENCEMENT OF CONSTRUCTION OF NEW PROJECTS In July 2020, Dorado 1 EOOD, a whole owned subsidiary of the Company, commenced the construction of a new office Building (Sofia Tower 2) in Sofia. The Project shall consist of 8.3 thousand sqm of leasable area. DISPOSAL OF ASSETS On 20 October 2020, Spiral I Kft., an indirect wholly owned subsidiary of the Company, signed a sale and purchase agreement for the sale of Spiral office building for a consideration of Euro 62.7 million. On 5 November 2020, all conditions precedents for the sale were concluded and the purchase price was paid in full. In parallel with the Closing Spiral I kft repaid the full outstanding amount of the loan with Erste Bank. ISSUANCE OF BONDS AND REFINANCE On 13 February 2020, GTC CTWA signed with Erste Group Bank AG and Raiffeisenlandesbank Niederosterreich-Wien AG a loan agreement, which refinanced the existing loan of Galeria Jurajska with a top-up of Euro 46 million, to a total of Euro 130 million. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 40 9. Events in the period (continued) On 12 November 2020, Scope Ratings assigned a first-time issuer rating of BBB-/Stable investment grade to the Company and its whole owned subsidiary GTC Real Estate Development Hungary Zrt. for the purpose of issuing green bonds within the framework of the Bond Funding for Growth Program in Hungary. The potential unsecured debt has also been rated BBB-. On 7 December 2020, GTC Real Estate Development Hungary Zrt. issued 10-year green bonds with the total nominal value of 110 million euro denominated in HUF to finance real estate projects and upstream the funds with refinancing purpose. The bonds are fully and irrevocable guaranteed by the Company and were issued at a yield of 2.33% with an annual fixed coupon of 2.25%. The bonds are amortized 10% a year starting on the 7 th year with the 70% of the value paid at the maturity on 7 December 2030. On 8 December 2020, GTC Real Estate Development Hungary Zrt. entered into cross- currency interest swap agreements with three different banks to hedge the total green bonds liability against foreign exchange fluctuations. The green bonds were fixed to the Euro, and the fixed annual coupon was swapped for an annual interest fixed rate of 0.99%. COVID- 19 OUTBREAK The Covid-19 pandemic has triggered a wave of strong negative effects on the global economy, which include a pronounced recession. The lockdowns brought a large part of the world’s economic activity to an unparalleled standstill: consumers stayed home, companies lost revenue, and terminated employees – which, consequently, led to a rise in unemployment. Rescue packages by national governments and the EU as well as supporting monetary policies by the Eurpean Central Bank have been implemented to moderate the economic impact of the pandemic. However, the scope and duration of the pandemic and possible future containment measures are still impossible to predict. From mid-March 2020, it became apparent that the economic disruptions caused by the Covid-19 virus and the increased market uncertainty combined with increased volatility in the financial markets might lead to a potential decrease in rental revenues, a potential decrease in the Company assets’ values, as well as impact on the Company’s compliance with financial covenants. While the exact effect of the coronavirus is still to be determined, it is clear that it poses substantial risks (for further information, please see note 36). Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 41 10. Revenue from operations Rental income includes variable rental revenue based on tenants’ turnover for the year ended 31 December 2020 of Euro 2,657 (2019: Euro 2,450). The remaining revenue is based on fixed contractual rental fees. The Group has entered into various operational lease contracts on its property portfolio in Poland, Romania, Croatia, Serbia, Bulgaria, and Hungary. The commercial property leases typically include clauses to enable the periodic upward revision of the rental charge according to European Consumer Price Index (CPI). Future minimum rental receivables under operating leases from completed projects are, as follows (in millions of Euro): 31 December 2020 31 December 2019 Within 1 year 121 130 Within 2 year 100 112 Within 3 year 74 79 Within 4 year 52 52 Within 5 year 33 34 Within 6 year 22 17 More than 6 years 37 22 439 446 Most of the revenue from operations is earned predominantly on the basis of amounts denominated in, directly linked to, or indexed by reference to the Euro. Service charge revenue includes income from charging maintenance costs to tenants. Service charge is billed on a monthly basis, based on the agreed rate from the contract. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 42 11. Selling expenses Selling expenses comprise of the following: Year ended 31 December 2020 Year ended 31 December 2019 Advertising and marketing 140 606 Payroll and related expenses 1,167 1,411 1,307 2,017 12. Administration expenses Administration expenses comprise of the following: Year ended 31 December 2020 Year ended 31 December 2019 Remuneration and fees () 8,396 12,701 Audit and valuations 852 819 Legal and tax advisers 905 1,633 Office and insurance expenses 669 731 Travel expenses 285 448 Supervisory board remuneration fees 137 105 Depreciation 654 660 Investors relations and other expenses 283 400 Total before share based payment 12,181 17,497 Share based payment () (469) (3,087) Total 11,712 14,410 () Phantom shares in an amount of Euro 5,900 were exercised during 2019 year. 13. Financial income and financial expense Financial income comprises of the following: Year ended 31 December 2020 Year ended 31 December 2019 Interest on deposits and other 55 115 Interest on loan granted to non-controlling interest 276 265 331 380 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 43 13. Financial income and financial expense (continued) Financial expense comprises of the following: Year ended 31 December 2020 Year ended 31 December 2019 Interest expenses (on financial liabilities that are not fair valued through profit or loss) and other charges (31,321) (30,541) Finance costs related to lease liability (2,010) (2,100) Amortization of loan raising costs (1,913) (1,993) (35,244) (34,634) The average interest rate (including hedges) on the Group’s loans as of 31 December 2020 was 2.3% p.a. (2.6% p.a. as of 31 December 2019). 14. Segmental analysis The operating segments are aggregated into reportable segments, taking into consideration the nature of the business, operating markets, and other factors. GTC operates in six core markets: Poland, Budapest, Bucharest, Belgrade, Sofia, and Zagreb. Operating segments are divided into geographical zones, which have common characteristics and reflect the nature of management reporting structure: a. Poland b. Belgrade c. Budapest d. Bucharest e. Zagreb f. Sofia g. Other Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 44 14. Segmental analysis (continued) Segment analysis of rental income and costs for the year ended 31 December 2020 and 31 December 2019 is presented below: Year ended 31 December 2020 Year ended 31 December 2019 Portfolio Revenues Costs Gross margin Revenues Costs Gross margin Poland 65,227 (19,218) 46,009 75,793 (20,499) 55,294 Belgrade 33,806 (8,485) 25,321 29,542 (6,658) 22,884 Budapest 21,926 (4,900) 17,026 24,195 (5,792) 18,403 Bucharest 17,229 (2,969) 14,260 17,497 (3,103) 14,394 Zagreb 11,004 (3,684) 7,320 11,624 (3,893) 7,731 Sofia 10,929 (2,271) 8,658 11,111 (1,931) 9,180 Total 160,121 (41,527) 118,594 169,762 (41,876) 127,886 Segment analysis of assets and liabilities as of 31 December 2020 is presented below: Real estate Cash and deposits Other Total assets Loans, bonds and leases Deferred tax liability Other Total liabilities Poland 906,313 44,939 3,872 955,124 532,127 59,536 14,005 605,668 Belgrade 370,123 13,316 3,711 387,150 211,497 10,373 8,628 230,498 Budapest 321,704 149,239 4,680 475,623 223,862 12,240 17,617 253,719 Bucharest 197,247 13,527 1,119 211,893 104,974 11,816 3,103 119,893 Zagreb 159,319 5,905 12,305 177,529 67,142 16,728 4,383 88,253 Sofia 179,109 11,609 1,087 191,805 93,212 8,337 6,850 108,399 Other 9,521 17 18 9,556 - - 1,141 1,141 Non allocated 71,857 220 72,077 78,370 14,200 6,468 99,038 Total 2,143,336 310,409 27,012 2,480,757 1,311,184 133,230 62,195 1,506,609 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 45 14. Segmental analysis (continued) Segment analysis of assets and liabilities as of 31 December 2019 is presented below: Real estate Cash and deposits Other Total assets Loans, bonds and leases Deferred tax liability Other Total liabilities Poland 978,398 38,399 5,062 1,021,859 516,539 70,600 10,506 597,645 Belgrade 404,219 18,427 5,625 428,271 216,805 13,570 19,545 249,920 Budapest 326,832 20,364 4,705 351,901 126,524 14,090 5,756 146,370 Bucharest 219,271 10,578 1,941 231,790 110,272 12,844 4,793 127,909 Zagreb 160,366 4,305 12,326 176,997 58,710 17,538 7,161 83,409 Sofia 166,070 8,825 1,733 176,628 79,321 8,940 5,360 93,621 Other 12,029 20 15 12,064 - - 1,184 1,184 Non allocated 122,886 346 123,232 151,249 9,650 3,123 164,022 Total 2,267,185 223,804 31,753 2,522,742 1,259,420 147,232 57,428 1,464,080 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 46 15. Taxation The major components of tax expense are as follows: Year ended 31 December 2020 Year ended 31 December 2019 Current corporate and capital gain tax expense 8,811 7,132 Deferred tax expense / (income) (13,806) 9,633 (4,995) 16,765 The Group companies are subject to taxes in the following jurisdictions: Poland, Serbia, Romania, Hungary, Ukraine, Bulgaria, Cyprus, and Croatia. The Group does not constitute a tax group under local legislation. Therefore, every company in the Group is a separate taxpayer. The reconciliation between tax expense and accounting profit multiplied by the applicable tax rates is presented below: Year ended 31 December 2020 Year ended 31 December 2019 Accounting profit / (loss) before tax (75,856) 92,186 Taxable expenses at the applicable tax rate in each country of activity (14,818) 11,778 Tax effect of expenses that are not deductible in determining taxable profit 772 1,738 Commercial property tax (416) 764 Tax effect of foreign currency differences 5,975 (1,633) Withholding tax 604 190 Unrecognised deferred tax asset on losses in current year 2,888 3,928 Tax expense / (income) (4,995) 16,765 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (In thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 47 15. Taxation (continued) The components of the deferred tax balance were calculated at a rate applicable when the Group expects to recover or settle the carrying amount of the asset or liability. Net deferred tax assets comprise the following: As of 1 January 2019 Credit / (charge) to income statement As of 31 December 2019 Credit / (charge) to income statement As of 31 December 2020 Financial instruments () 4,302 998 5,300 9,085 14,385 Tax loss carried forwards 13,656 (3,459) 10,197 (3,515) 6,682 Basis differences in non- current assets 140 884 1,024 (59) 965 Accruals 710 79 789 257 1,046 Netting () (18,756) 1,446 (17,310) (5,152) (22,462) Net deferred tax assets 52 (52) - 616 616 Net deferred tax liability comprises of the following: As of 1 January 2019 Disposal of subsidiary Credit / (charge) to income statement Credit / (charge) to equity As of 31 December 2019 Credit / (charge) to income statement Credit / (charge) to equity As of 31 December 2020 Financial instruments () (9,439) (416) (4,930) 10 (14,775) (5,523) 812 (19,486) Basis differences in non- current assets (148,436) 1,875 (3,187) - (149,748) 13,542 - (136,206) Other (1) - (18) - (19) 19 - - Netting () 18,756 - (1,446) - 17,310 5,152 - 22,462 Net deferred tax liability (139,120) 1,459 (9,581) 10 (147,232) 13,190 812 (133,230) (*) Mostly, unrealized interest and foreign exchange differences, () within a particular company, deferred tax asset are accounted separately from deferred tax liabilities as they are independent in their nature. However, as they represent a future settlement between the same parties, they are netted off for the purpose of the presentation in financial statements. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (In thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 48 15.Taxation (continued) The enacted tax rates in the various countries were as follows: Tax rate Year ended 31 December 2020 Year ended 31 December 2019 Poland 19% 19% Hungary 9% 9% Ukraine 18% 18% Bulgaria 10% 10% Serbia 15% 15% Croatia 18% 18% Romania 16% 16% Cyprus 12.5% 12.5% Future benefit for deferred tax assets has been reflected in these consolidated financial statements only if it is probable that taxable profits will be available when timing differences that gave rise to such deferred tax asset reverse. Regulations regarding VAT, corporate income tax, and social security contributions are subject to frequent changes. These frequent changes result in there being little point of reference, inconsistent interpretations not consistent, and few established precedents that may be followed. The binding regulations also contain uncertainties, resulting in differences in opinion regarding the legal interpretation of tax regulations both between government bodies and between government bodies and companies. Tax settlements and other areas of activity (e.g., customs or foreign currency related issues) may be subject to inspection by administrative bodies authorised to impose high penalties and fines, and any additional taxation liabilities calculated as a result must be paid together with high interest. On 15 July 2016, amendments were made to the Polish Tax Ordinance to introduce the provisions of the General Anti-Avoidance Rule (GAAR). GAAR are targeted to prevent origination and use of factitious legal structures made to avoid payment of tax in Poland. GAAR define tax evasion as an activity performed mainly with a view to realizing tax gains, which is contrary, under given circumstances, to the subject and objective of the tax law. In accordance with GAAR, an activity does not bring about tax gains if its modus operandi was false. Any instances of (i) unreasonable division of an operation (ii) involvement of agents despite lack of economic rationale for such involvement, (iii) mutually exclusive or mutually compensating elements, as well as (iv) other activities similar to those referred to earlier may be treated as a hint of artificial activities subject to GAAR. New regulations will require considerably greater judgment in assessing the tax effects of individual transactions. The GAAR clause should be applied to the transactions performed after the clause effective date and to the transactions which were performed prior to GAAR clause effective date, but for which after the clause effective date tax gains were realized or continue to be realised. The implementation of the above provisions will enable Polish tax authority to challenge such arrangements realized by tax remitters as restructuring or reorganization. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 49 15.Taxation (continued) Tax settlements may be subject to inspections by tax authorities. Accordingly, the amounts shown in the financial statements may change at a later date as a result of the final decision of the tax authorities. The Group companies have tax losses carried forward as of 31 December 2020 available in the amount of Euro 260 million. The expiry dates of these tax losses as of 31 December 2020 are as follows: within one year - Euro 14 million, between 2-5 years - Euro 142 million, afterwards – Euro 104 million. As of 31 December 2020, the Group has not recognized deferred tax assets for tax losses carried forward in amount of Euro 212 million, as the Group believes that these losses will not be utilized within claim period. 16. Property, Plant, and Equipment The movement in property, plant, and equipment for the periods ended 31 December 2020 was as follows: Buildings and related improvements Right of use Equipment and software Vehicles Total Gross carrying amount As of 1 January 2020 7,551 286 1,801 934 10,572 Additions 48 - 133 67 248 Foreign exchange differences - 16 11 16 43 Disposals, impairments and other decreases - - (36) (117) (153) As of 31 December 2020 7,599 302 1,909 900 10,710 Accumulated Depreciation As of 1 January 2020 786 37 1,208 382 2,413 Charge for the period 271 60 171 152 654 Foreign exchange differences - - (7) - (7) Disposals, impairments and other decreases - - (27) (108) (135) As of 31 December 2020 1,057 97 1,345 426 2,925 Net book value as of 31 December 2020 6,542 205 564 474 7,785 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 50 16. Property, Plant, and Equipment The movement in property, plant, and equipment for the periods ended 31 December 2019 was as follows: Buildings and related improvements Right of use Equipment and software Vehicles Total Gross carrying amount As of 1 January 2019 6,212 - 1,531 976 8,719 Additions - 286 354 251 891 Transfer from investment property 2,347 - - - 2,347 Transfer to investment property (1,008) - - - (1,008) Disposals, impairments, and other decreases - (84) (293) (377) As of 31 December 2019 7,551 286 1,801 934 10,572 Accumulated Depreciation As of 1 January 2019 555 - 1,091 361 2,007 Charge for the period 274 37 129 220 660 Transfer to investment property (43) - - - (43) Disposals, impairments, and other decreases - (12) (199) (211) As of 31 December 2019 786 37 1,208 382 2,413 Net book value as of 31 December 2019 6,765 249 593 552 8,159 17. Investment Property Investment properties that are owned by the Group are office and commercial space, including property under construction: Investment property can be split up as follows: 31 December 2020 31 December 2019 Completed investment property 1,879,173 2,003,188 Investment property under construction 62,909 84,080 Investment property landbank at cost 140,367 115,277 Right of use of lands under perpetual usufruct 42,679 44,485 Total 2,125,128 2,247,030 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 51 17. Investment Property (continued) The movement in investment property for the periods ended 31 December 2020 and 31 December 2019 was as follows: Right of Use of land Level 2 Level 3 at fair value Level 3 at Cost Total Carrying amount as of 1 January 2019 - 1,377,317 616,779 118,972 2,113,068 Capitalised subsequent expenditure - 13,745 110,985 2,460 127,190 Recognition of right of use of lands under perpetual usufruct 45,362 - - 45,362 Adjustment to fair value / (impairment) - 1,246 13,709 850 15,805 Amortization of right of use of lands under perpetual usufruct (441) - - - (441) Classified to assets for own use, net - (899) (301) - (1,200) Disposals (712) (43,973) - (7,050) (51,735) Foreign exchange differences 276 (1,339) - 44 (1,019) Carrying amount as of 31 December 2019 44,485 1,346,097 741,172 115,276 2,247,030 Reclassification () - (7,799) - 7,799 - Capitalised subsequent expenditure - 11,446 48,184 8,065 67,695 Purchase of completed assets and land 5,600 - 16,502 22,102 Adjustment to fair value / (impairment) - (84,904) (52,844) (3,165) (140,913) Amortization of right of use of lands under perpetual usufruct (440) - - - (440) Increase 96 - - - 96 Reclassified to assets held for sale (*) - - - (900) (900) Disposals () - (62,649) - (500) (63,149) Foreign exchange differences (1,462) (4,830) - (101) (6,393) Carrying amount as of 31 December 2020 42,679 1,202,961 736,512 142,976 2,125,128 () Mainly Center Point 3 building, which was demolished and reclassified to cost of land; () Land in Ukraine (Euro 0.9 million); () Sale of Spiral office building in Hungary (Euro 62.6 million) and sale of Russe land in Bulgaria (Euro 0.5 million). Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 52 17. Investment Property (continued) Reconciliation between capitalized subsequent expenditure and paid subsequent expenditure is presented below: Year ended 31 December 2020 Year ended 31 December 2019 Capitalized subsequent expenditure 67,695 127,190 Change in trade payables and provisions 12,347 14,148 Change in trade receivables (1,762) 4,555 Purchase of property, plant, and equipment 248 - Accrued interest on long term loans - (1,205) Paid subsequent expenditure 78,528 144,688 Fair value and impairment adjustment consists of the following: Year ended 31 December 2020 Year ended 31 December 2019 Adjustment to fair value of completed investment properties () (144,126) (1,697) Adjustment to the fair value of investment properties under construction 6,378 16,652 Reversal of impairment/(Impairment) adjustment (3,165) 850 Total adjustment to fair value / (impairment) of investment property (140,913) 15,805 Reversal of impairment/(Impairment) of assets held for sale (172) 1,437 Amortization of right of use of lands under perpetual usufruct (including on residential landbank) (478) (471) Impairment of residential landbank (1,158) (581) Total recognised in profit or loss (142,721) 16,190 () During the financial year end 31 December 2020, the Covid-19 pandemic has triggered a wave of strong negative effects on the markets that the Group operates. As a result of this, the valuations prepared by independent appraisers over the completed investment properties has been negatively affected primarily driven by the group retail assets. For further information on the COVID-19 pandemic impact over the business of the Group please see note 36. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 53 17. Investment Property (continued) Segment analysis of adjustment to fair value of completed investment properties is presented below: Year ended 31 December 2020 Year ended 31 December 2019 Poland (77,153) (18,326) Belgrade (42,818) (15,368) Budapest 12,610 19,928 Bucharest (19,362) (356) Zagreb (6,353) 1,513 Sofia (11,050) 10,912 Total adjustment to fair value of completed assets (144,126) (1,697) Assumptions used in the fair value valuations of completed assets as of 31 December 2020 are presented below: Portfolio Book value GLA thousand Average Occupancy Actual Average rent Average ERV Fair Value Hierarchy Level Average Yield ‘000 Euro sqm % Euro/ sqm/m Euro/ sqm/m % Poland retail 443,000 113 93% 20.9 20.8 2 6.2% Poland office 381,738 196 88% 14.6 14.3 2 8.2% Belgrade office 264,781 122 93% 16.7 16.2 3 8.6% Belgrade retail 90,700 35 97% 22.0 19.6 3 8.5% Budapest office 206,138 97 95% 14.2 13.8 2 7.5% Bucharest office 172,085 67 93% 20.5 17.7 2 7.7% Zagreb retail 99,512 35 97% 20.2 20.6 3 7.9% Zagreb office 44,719 21 76% 14.3 14.6 3 7.6% Sofia office 75,800 34 79% 14.6 14.6 3 7.8% Sofia retail 100,700 33 98% 18.8 20.8 3 7.8% Total 1,879,173 753 91% 17.2 16.7 7.8% Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 54 17. Investment Property (continued) Assumptions used in the fair value valuations of completed assets as of 31 December 2019 are presented below: Portfolio Book value GLA thousand Average Occupancy Actual Average rent Average ERV Fair Value Hierarchy Level Average Yield ‘000 Euro sqm % Euro/ sqm/m Euro/ sqm/m % Poland retail 497,370 113 94% 21.7 21.7 2 5.6% Poland office 398,888 196 92% 14.4 14.1 2 7.4% Belgrade office 263,081 117 98% 16.9 16.6 3 8.1% Belgrade retail 119,300 35 97% 20.8 21.5 3 7.1% Budapest office 259,419 125 97% 12.9 13.9 2 7.3% Bucharest office 190,418 67 96% 19.0 19.4 2 7.4% Zagreb retail 104,812 35 99% 20.7 20.1 3 6.7% Zagreb office 24,500 11 89% 13.3 14.6 3 7.5% Sofia office 36,800 16 99% 14.0 14.1 3 7.3% Sofia retail 108,600 33 98% 21.3 20.8 3 7.6% Total 2,003,188 748 95% 17.0 17.0 7.0% () ERV- Estimated Rent Value (the open market rent value that a property can be reasonably expected to attain based on characteristics such as a condition of the property, amenities, location, and local market conditions) Information regarding investment properties under construction as of 31 December 2020 is presented below: Book value Estimated area (GLA) ‘000 Euro thousand sqm Budapest (Pillar) 60,300 29 Sofia (Sofia Tower 2) 2,609 8 Total 62,909 37 Information regarding investment properties under construction as of 31 December 2019 is presented below: Book value Estimated area (GLA) ‘000 Euro thousand sqm Belgrade (Green Heart N3) 10,310 5 Sofia (ABC II) 20,670 18 Budapest (Pillar) 36,600 29 Zagreb (Matrix II) 16,500 11 Total 84,080 63 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 55 17. Investment Property (continued) Information regarding book value of investment property landbank for construction as of 31 December 2020 and 31 December 2019 is presented below: 31 December 2020 31 December 2019 Poland 37,961 38,148 Serbia 10,164 7,052 Hungary 49,895 25,398 Romania 15,500 15,256 Croatia 14,638 14,097 Total 128,158 99,951 Information regarding book value of investment property landbank (long term pipeline – with no current plan for construction) as of 31 December 2020 and 31 December 2019 is presented below: 31 December 2020 31 December 2019 Poland 8,859 7,969 Hungary 3,350 3,400 Bulgaria - 1,900 Ukraine - 2,057 Total 12,209 15,326 GRAND TOTAL 140,367 115,277 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 56 18. Residential landbank The movement in residential landbank and inventory for the period ended 31 December 2020 was as follows: Residential landbank Total Carrying amount as of 1 January 2019 12,698 12,698 Recognition of right of use 1,219 1,219 Amortization of right of use of lands under perpetual usufruct (29) (29) Capitalised subsequent expenditure 81 81 Impairment of residential landbank (581) (581) Carrying amount as of 31 December 2019 13,388 13,388 Amortization of right of use of lands under perpetual usufruct (36) (36) Disposal (1,420) (1,420) Reclassified to assets held for sale (680) (680) Impairment of residential landbank (1,158) (1,158) Carrying amount as of 31 December 2020 10,094 10,094 The carrying amount of residential landbank as of 31 December 2020 refers to two non-core land plots designated for residential development, in Marlera (Croatia) and Bucharest (Romania). 19. Derivatives The Group holds instruments (IRS, CAP, currency SWAP and cross-currency interest rate SWAP) that hedge the risk involved in fluctuations of interest rate and currencies rates. The instruments hedge interest on loans for a period of 2-5 years The movement in derivatives for the years ended 31 December 2020 and 31 December 2019 was as follows: 31 December 2020 31 December 2019 Fair value as of the beginning of the year (6,085) (5,623) Charged to other comprehensive income () (7,748) (462) Charged to income statements () (5,427) - Fair value as of the end of the year (19,260) (6,085) () Increase is mainly attributable to the new cross-currency swap established as per note 9. () This loss offset a foreign exchange differences profit in an amount of Euro 5,427 on bonds nominated in PLN and HUF. For more information regarding derivatives, see note 35. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 57 20. Trade and other payables The balance of trade and other payables decreased from Euro 37,290 to Euro 27,299 in the year ended 31 December 2020. The majority of the payables relate to development activity payables in Green Heart, ABC, and Pillar. The amount is planned to be financed mostly by long term loans. 21. Blocked deposits Blocked deposits include deposits related to loan agreements and other contractual commitments and can be used only for certain operating activities as determined by underlying agreements. Blocked deposits related to contractual commitments include mostly tenants’ deposit account, security account, capex accounts, and deposits in order to settle contractual commitments related to the construction of this project. 22. Cash and cash equivalents Cash balance consists of cash in banks. Cash at banks earns interest at floating rates based on periodical bank deposit rates. Except for minor amounts, all cash is deposited in banks. All cash and cash equivalents are available for use by the Group. 23. Other expenses Other expenses relate mainly to one-off expenses as well as unrecoverable VAT and maintenance costs related to undeveloped land. 24. Deposits from tenants Deposits from tenants represent amounts deposited by tenants to guarantee their performance of their obligations under tenancy agreements. Deposits from tenants that shall be returned within a year are presented within current liabilities. 25. Long term payables Long term payables consist long term commitments related to the purchase of land and development of infrastructure. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 58 26. VAT and other tax receivable VAT and other tax receivable represent VAT receivable on the purchase of assets and due to development activity. 27. Non-controlling interest Summarised financial information of the material non-controlling interest as of 31 December 2020 is presented below: Avenue Mall Non-core projects Total Non-current assets 138,366 2,153 140,519 Current assets 3,338 721 4,059 Total assets 141,704 2,874 144,578 Equity 79,347 (21,799) 57,548 Non-current liabilities 58,869 24,670 83,539 Current liabilities 3,488 3 3,491 Total equity and liabilities 141,704 2,874 144,578 Revenue 9,280 - 9,280 Profit /(loss) for the year (290) (1,755) (2,045) NCI share in equity 23,804 (7,266) 16,538 Loan granted to NCI (11,252) - (11,252) NCI share in profit / (loss) (87) (585) (672) In September 2020, the Group acquired the remaining 20% in Marlera Golf LD d.o.o. for a consideration of Euro 2.8 million. Summarised financial information of the material non-controlling interest as of 31 December 2019 is presented below: Avenue Mall Non-core projects Total Non-current assets 142,740 13,388 156,128 Current assets 3,268 92 3,360 Total assets 146,008 13,480 159,488 Equity 81,034 (37,992) 43,042 Non-current liabilities 61,711 51,225 112,936 Current liabilities 3,263 247 3,510 Total equity and liabilities 146,008 13,480 159,488 Revenue 10,953 - 10,953 Profit /(loss) for the year 4,546 (2,934) 1,612 NCI share in equity 24,310 (10,270) 14,040 Loan granted to NCI (10,976) - (10,976) NCI share in profit / (loss) 1,364 (768) 596 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 59 28. Long-term loans and bonds 31 December 2020 31 December 2019 Bonds mature in 2022-2023 (Poland) (PLGTC0000318) 48,117 52,140 Green bonds mature in 2027-2030 (HU0000360102GTC) 108,614 - Bonds 0320 (PLGTC0000235) - 18,671 Bonds 0620 (PLGTC0000243) - 40,070 Bonds 1220 (PLGTC0000268) - 10,117 Bonds 0321 (PLGTC0000276) 20,737 20,737 Bonds 0422 (PLGTC0000292) 9,515 9,515 Loan from Santander (Globis Poznan) 16,951 17,579 Loan from Santander (Korona Business Park) 41,966 43,361 Loan from PKO BP (Pixel) 19,224 19,901 Loan from Santander (Globis Wroclaw) 21,368 22,061 Loan from Berlin Hyp (Corius) 10,036 10,378 Loan from Pekao (Sterlinga) 15,138 15,663 Loan from Pekao (Galeria Polnocna) 175,404 189,904 Loan from PKO BP (Artico) 13,848 14,359 Loan from Erste and Raiffeisen (Galeria Jurajska) 125,125 - Loan from Pekao (Galeria Jurajska) - 84,136 Loan from Berlin Hyp (UBP) 42,413 43,283 Loan from ING (Francuska) 18,929 21,577 Loan from OTP (Centre Point) 49,669 51,476 Loan from CIB (Metro) 13,277 14,437 Loan from Erste (Spiral) - 20,593 Loan from UniCredit Bank (Kompakt) 13,718 - Loan from OTP (Duna) 38,518 39,919 Loan from Erste (GTC House) 14,820 15,444 Loan from Erste (19 Avenue) 21,510 22,504 Loan from OTP (BBC) 20,985 21,790 Loan from Intesa Bank (Green Heart) 55,907 53,642 Loan from Raiffeisen Bank (Forty one) 36,295 38,148 Loan from Intesa Bank (Ada) 58,256 61,571 Loan from Erste (City Gate) 71,951 75,113 Loan from Banca Transilvania (Cascade) 3,797 4,118 Loan from Alpha Bank (Premium) 14,486 15,873 Loan from OTP (Mall of Sofia) 54,668 57,125 Loan from UniCredit (ABC I) 18,816 19,800 Loan from UniCredit (ABC II) 19,622 2,217 Loan from Erste (Matrix) 21,921 11,485 Loan from Zagrabecka Banka (Avenue Mall Zagreb) 44,000 46,000 Loans from NCI 8,529 8,283 Deferred issuance debt expenses (6,838) (6,768) 1,261,292 1,206,222 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 60 28. Long-term loans and bonds (continued) Long-term loans and bonds have been separated into the current portion and the long-term portion as disclosed below: 31 December 2020 31 December 2019 Current portion of long term loans and bonds: Bonds mature in 2022-2023 (Poland) (PLGTC0000318) 442 479 Bonds 0320 (PLGTC0000235) - 18,671 Bonds 0620 (PLGTC0000243) - 40,070 Bonds 1220 (PLGTC0000268) - 10,117 Bonds 0321 (PLGTC0000276) 20,737 243 Bonds 0422 (PLGTC0000292) 75 75 Loan from Santander (Globis Poznan) 629 449 Loan from Santander (Korona Business Park) 1,395 1,395 Loan from PKO BP (Pixel) 19,224 677 Loan from Berlin Hyp (UBP) 870 870 Loan from Erste and Raiffeisen (Galeria Jurajska) 4,875 Loan from Pekao (Galeria Jurajska) - 84,136 Loan from Santander (Globis Wroclaw) 693 693 Loan from Berlin Hyp (Corius) 10,036 342 Loan from Pekao (Sterlinga) 15,138 525 Loan from PKO BP (Artico) 510 510 Loan from Pekao (Galeria Polnocna) 5,000 5,000 Loan from ING (Francuska) 18,929 21,577 Loan from OTP (Centre Point) 1,807 1,807 Loan from OTP (Duna) 1,401 1,401 Loan from CIB (Metro) 1,172 14,437 Loan from Erste (Spiral) - 1,446 Loan from Erste (GTC House) 624 624 Loan from Erste (19 Avenue) 994 994 Loan from Intesa Bank (Green Heart) 2,873 2,367 Loan from OTP (BBC) 805 805 Loan from Raiffeisen Bank (Forty one) 1,853 1,853 Loan from Intesa Bank (Ada) 3,473 3,315 Loan from OTP (Mall of Sofia) 2,457 2,457 Loan from UniCredit (ABC I) 816 1,000 Loan from UniCredit (ABC II) 801 58 Loan from Zagrabecka Banka (Avenue Mall Zagreb) 2,000 2,000 Loan from Erste (Matrix) 580 524 Loan from Alpha Bank (Premium) 1,025 1,025 Loan from Banca Transilvania (Cascade) 240 240 Loan from Erste (City Gate) 71,951 3,168 193,425 225,350 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 61 28. Long-term loans and bonds (continued) 31 December 2020 31 December 2019 Long term portion of long term loans and bonds: Bonds mature in 2022-2023 (Poland) (PLGTC0000318) 47,675 51,661 Bonds 0422 (PLGTC0000292) 9,440 9,440 Green bonds mature in 2027-2030 (HU0000360102GTC) 108,614 - Bonds 0321 (PLGTC0000276) - 20,494 Loan from Santander (Globis Poznan) 16,322 17,130 Loan from Santander (Korona Business Park) 40,571 41,966 Loan from PKO BP (Pixel) - 19,224 Loan from Santander (Globis Wroclaw) 20,675 21,368 Loan from Berlin Hyp (Corius) - 10,036 Loan from Pekao (Sterlinga) - 15,138 Loan from Pekao (Galeria Polnocna) 170,404 184,904 Loan from PKO BP (Artico) 13,338 13,849 Loan from Erste and Raiffeisen (Galeria Jurajska) 120,250 - Loan from Berlin Hyp (UBP) 41,543 42,413 Loan from OTP (Centre Point) 47,862 49,669 Loan from CIB (Metro) 12,105 - Loan from OTP (Duna) 37,117 38,518 Loan from Erste (Spiral) - 19,147 Loan from UniCredit Bank (Kompakt) 13,718 - Loan from Erste (GTC House) 14,196 14,820 Loan from Erste (19 Avenue) 20,516 21,510 Loan from Intesa Bank (Green Heart) 53,034 51,275 Loan from Intesa Bank (Ada) 54,783 58,256 Loan from OTP (BBC) 20,180 20,985 Loan from Raiffeisen Bank (Forty one) 34,442 36,295 Loan from Erste (City Gate) - 71,945 Loan from Banca Transilvania (Cascade) 3,557 3,878 Loan from Alpha Bank (Premium) 13,461 14,848 Loan from OTP (Mall of Sofia) 52,211 54,668 Loan from UniCredit (ABC I) 18,000 18,800 Loan from UniCredit (ABC II) 18,821 2,159 Loan from Zagrabecka Banka (Avenue Mall Zagreb) 42,000 44,000 Loan from Erste (Matrix) 21,341 10,961 Loans from NCI 8,529 8,283 Deferred issuance debt expenses (6,838) (6,768) 1,067,867 980,872 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 62 28. Long-term loans and bonds (continued) As securities for the bank loans, the banks have mortgage over the assets and security deposits together with assignment of the associated receivables and insurance rights. In its financing agreements with banks, the Group undertakes to comply with certain financial covenants that are listed in those agreements. The main covenants are: maintaining a Loan- to-Value and Debt Service Coverage ratios in the company that holds the project. In addition, substantially, all investment properties and IPUC that were financed by a lender have been pledged to secure the long-term loans from banks. Unless otherwise stated, fair value of the pledged assets exceeds the carrying value of the related loans. Bonds (series matures in 2022-2023) are nominated in PLN. Green Bonds (series matures in 2027-2030) are denominated in HUF. All other bank loans and bonds are denominated in Euro. In its financing agreements with banks, the Company undertakes to comply with certain financial covenants that are listed in those agreement. The main covenants are: maintaining a Loan-to-Value and Debt Service Coverage ratios in the company that holds the project. With respect to a Euro 175,404 loan from Bank Pekao SA on 17 September 2020, a whole owned subsidiary of the Company, operating the Galeria Północna project, entered into an annex to a loan agreement with the bank in order to relax the DSCR (debt service coverage ratio) covenant and to cure the LTV (loan-to-value) covenant breach. According to the annex, the subsidiary repaid in advance a part of outstanding loan in the amount of EUR 9,500 and agreed to repay additionally up to €3,000 within 12 months of the date of the Annex. As of the date of these financial statements the financial covenants are cured. With respect to a Euro 58.2 million loan from Banka Intesa ad Beograd, Vseobecna Uverova Banka a.s. and Privredna Banka Zagreb d.d. granted to a whole owned subsidiary of the Company, operating the Ada Shopping Mall, the DSCR covenant was waived by the banks until the end of June 2021.In addition the LTV (loan-to-value) covenant was waived by the banks until the end of December 2021. With respect to a Euro 125.1 million loan from Erste Group Bank AG and Raiffeisenlandesbank Niederosterreich-Wien AG granted to a whole owned subsidiary of the Company, operating Galeria Jurajska Shopping Mall, the DSCR covenant was waived until the end of June 2021. As at 31 December 2020, the Group continue to comply with the financial covenants set out in their loan agreements. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 63 28. Long-term loans and bonds (continued) The movement in long term loans and bonds for the years ended 31 December 2020 and 31 December 2019 was as follows: 31 December 2020 31 December 2019 Balance as of the beginning of the year (excluding deferred debt expenses) 1,212,990 1,121,718 Drawdowns 286,807 264,520 Repayments (224,293) (152,561) Transactions with of non-controlling interest - (1,785) Change in accrued interest (73) 394 Deconsolidation of Neptune - (19,915) Capitalization of interest - 1,205 Foreign exchange differences (7,301) (586) Balance as of end of the year (excluding deferred debt expenses) 1,268,130 1,212,990 29. Lease liability and Right of Use of land Lease liabilities include mostly lease payments for land subject to perpetual usufruct payments and classified as land under investment property (completed, under construction, and landbank) and residential landbank. The balance of Right of Use as of 31 December 2020 was as follows: Country Completed investment property Investment property landbank at cost Residential landbank Property, plant and equipment Total Poland 10,722 22,021 - - 32,743 Romania 6,211 - - - 6,211 Serbia 3,725 - - - 3,725 Croatia - - 1,140 - 1,140 Bulgaria - - - 131 131 Hungary - - - 74 74 Balance as of 31 Dec. 2020 20,658 22,021 1,140 205 44,024 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 64 29. Lease liability and Right of Use of land (continued) The balance of Right of Use as of 31 December 2019 was as follows: Country Completed investment property Investment property under construction Investment property landbank at cost Residential landbank Property, plant and equipment Total Poland 11,648 - 22,247 - - 33,895 Romania 6,884 - - - - 6,884 Serbia 3,606 100 - - - 3,706 Croatia - - - 1,197 - 1,197 Bulgaria - - - - 179 179 Hungary - - - - 70 70 Balance as of 31 Dec. 2019 22,138 100 22,247 1,197 249 45,931 The balance of lease liability as of 31 December 2020 was as follows: Country Completed investment property Investment property landbank at cost Residential landbank Property, plant and equipment Total Discount rate Poland 10,722 21,003 - - 31,725 4.2% Romania 6,211 - - - 6,211 5.7% Serbia 3,724 - - - 3,724 7.6% Croatia - - 1,222 - 1,222 4.4% Bulgaria 106 106 4.5% Hungary - - - 66 66 3.9% Balance as of 31 Dec. 2020 20,657 21,003 1,222 172 43,054 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 65 29. Lease liability and Right of Use of land (continued) The balance of lease liability as of 31 December 2019 was as follows: Country Completed investment property Investment property under construction Investment property landbank at cost Residential landbank Property, plant and equipmen t Total Discount rate Poland 11,648 - 22,726 - - 34,374 4.2% Romania 6,884 - - - - 6,884 5.7% Serbia 3,606 100 - - - 3,706 7.6% Croatia - - - 1,225 - 1,225 4.4% Bulgaria 179 179 4.5% Hungary - - - - 62 62 3.9% Balance as of 31 Dec. 2019 22,138 100 22,726 1,225 241 46,430 The lease liabilities were discounted using discount rates applicable to long term borrowing in local currencies in the countries of where the assets are located. The movement in Right of Use of land for the year ended 31 December 2020 and 31 December 2019 was as follows: 2020 2019 Balance as of 1 January 45,931 - Recognition of Right of Use asset for lands under perpetual usufruct 96 46,580 Recognition of Right of Use for property plant and equipment during the year - 273 Amortization of right of use (556) (498) Disposals - (712) Foreign exchange differences (1,447) 288 Balance as of 31 December 44,024 45,931 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 66 29. Lease liability and Right of Use of land (continued) The movement in lease liability for the year ended 31 December 2020 and 31 December 2019 was as follows: 2020 2019 Balance as of 1 January 46,430 - Recognition of lease liability for lands under perpetual usufruct 96 46,580 Recognition of Right of Use for property plant and equipment during the year - 273 Payments of leases (162) (1,739) Change in provision for disputable amounts of perpetual usufruct (1,350) (352) Change in accrued interest 1,336 1,817 Disposals - (712) Foreign exchange differences (3,296) 563 Balance as of 31 December 43,054 46,430 The group pays an annual amount of EUR 2,300 as lease payment (principal and interest) for lands under perpetual usufruct. 30. Capital and Reserves SHARE CAPITAL As at 31 December 2020, the shares structure was as follows: Number of Shares Share series Total value Total value in PLN in Euro 139,286,210 A 13,928,621 3,153,995 1,152,240 B 115,224 20,253 235,440 B1 23,544 4,443 8,356,540 C 835,654 139,648 9,961,620 D 996,162 187,998 39,689,150 E 3,968,915 749,022 3,571,790 F 357,179 86,949 17,120,000 G 1,712,000 398,742 100,000,000 I 10,000,000 2,341,372 31,937,298 J 3,193,729 766,525 108,906,190 K 10,890,619 2,561,293 10,087,026 L 1,008,703 240,855 13,233,492 M 1,323,349 309,049 2,018,126 N 201,813 47,329 485,555,122 48,555,512 11,007,473 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 67 30. Capital and Reserves (continued) All shares are entitled to the same rights. Shareholders who as at 31 December 2020, held above 5% of the Company shares were as follows: • GTC Dutch Holdings B.V • OFE PZU Zlota Jesien • OFE AVIVA Santander CAPITAL RESERVE Capital reserve represents a loss attributed to non-controlling partners of the Group, which crystalized once the Group acquired the non-controlling interest in the subsidiaries of the Group. RETAINED EARNING On 27 August 2020, the Company held an ordinary shareholders meeting. It was decided that the profit for the year 2019 presented in the financial statements of Globe Trade Centre S.A. prepared in accordance with the International Financial Reporting Standards in the amount of PLN 321.8 million will remain within retained earnings. 31. Provision for share based payments PHANTOM SHARES Certain key management personnel of the Group is entitled to specific cash payments resulting from phantom shares in the Group (the “Phantom Shares”). The company uses binomial model to evaluate the fair value of the phantom shares. The input data includes date of valuation, strike price, and expiry date. The Phantom shares (as presented in below mentioned table) have been accounted for based on future cash settlement. Strike (PLN) Blocked Vested Total 6.11 100,000 751,200 851,200 6.31 4,275,000 20,000 4,295,000 Total 4,375,000 771,200 5,146,200 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 68 31. Provision for share based payments (continued) As at 31 December 2020, phantom shares issued were as follows: Last year of exercise date Number of phantom shares 2021 500,000 2022 220,000 2023 4,426,200 Total 5,146,200 As at 31 December 2019, phantom shares issued were as follows: Last year of exercise date Number of phantom shares 2020 50,000 2021 1,837,400 2022 330,000 Total 2,217,400 The number of phantom shares were changed as follows: Number of phantom shares as of 1 January 2020 2,217,400 Granted during the period 4,275,000 Exercised during the year (1,346,200) Number of phantom shares as of 31 December 2020 5,146,200 32. Earnings per share Basic earnings per share were calculated as follows: Year ended 31 December 2020 Year ended 31 December 2019 Profit/(loss) for the period attributable to equity holders (Euro) (70,189,000) 74,825,000 Weighted average number of shares for calculating basic earnings per share 485,555,122 484,659,406 Basic earnings per share (Euro) (0.14) 0.15 There have been no potentially dilutive instruments as at 31 December 2020 and 31 December 2019. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 69 33. Related party transactions Transactions with the related parties are arm’s length transactions. The transactions and balances with related parties are presented below: Year ended 31 December 2020 Year ended 31 December 2019 Transaction Asset management services - 21 Financial arrangement fee 88 - Management and Supervisory Board GTC S.A. remuneration for the year ended 31 December 2020 amounted to EUR 2.2 million, and 1,100,000 phantom shares were vested. Management and Supervisory Board GTC S.A. remuneration for the year ended 31 December 2019 amounted to EUR 1.3 million, and 800,000 phantom shares were vested. On 13 November 2020, GTC Future Kft, a newly established wholly owned subsidiary acquired a land plot from a subsidiary owned by the Company’s majority shareholder with an existing old office and industrial buildings in Vaci Corridor in Budapest for a total amount of Euro 21.35 million. The buildings have a leasable area of 12,000 sqm. The Company plans to demolish the buildings and develop office buildings in phases with a total leasable area of 64,000 sqm. 34. Commitments, contingent liabilities and Guarantees COMMITMENTS As of 31 December 2020 (and as at 31 December 2019), the Group had commitments contracted for in relation to future building construction without specified date, amounting to Euro 40 million (Euro 77 million). These commitments are expected to be financed from available cash and current financing facilities, other external financing, or future instalments under already contracted sale agreements and yet to be contracted sale agreements. GUARANTEES GTC gave guarantees to third parties. As of 31 December 2020 and as at 31 December 2019, the guarantees granted amounted to 0. Additionally, the Company gave typical warranties in connection with the sale of its assets under the sale agreements and construction completion and cost-overruns guarantee to secure construction loans. The risk involved in the above warranties and guarantees is very low. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 70 34. Commitments, contingent liabilities and Guarantees (continued) CROATIA In relation to the Marlera Golf project in Croatia, part of the land is held on a lease basis from the State. There is furthermore a Consortium agreement with the Ministry of Tourism of Croatia (Ministry) which includes a deadline for the completion of a golf course that has expired in 2014. If the deadline is not met, then the Ministry has the right to terminate the Consortium agreement which might automatically trigger the termination of the Land Acquisition Agreements, as well as collateral activation and damages claims. Prior to 2014, the Company has taken active steps to achieve an extension of the period for completing the project. In February 2014, the Company received a draft amendment from the Ministry expressing its good faith and intentions to prolong the abovementioned timeline however, the amendment was not formalized since then. Since formalization of the amendment is not at the sole discretion of the Group, the Management has decided to revalue the freehold asset in assuming no development of the golf course project. Furthermore, as a prudential measure, the Management has also written off the related collateral in the amount of Euro 1 million provided to the Ministry as a guarantee for completing the golf course. As of 31 December 2020 the book value of the investment in Marlera Golf project was assessed by an independent valuer at €6.8 million. 35. Financial instruments and risk management The Group’s principal financial instruments comprise bank and shareholders’ loans, bonds, hedging instruments, trade payables, and other long-term financial liabilities. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various financial assets such as trade receivables, loans granted, derivatives, and cash and short-term deposits. The main risks arising from the Group’s financial instruments are cash flow interest risk, liquidity risk, foreign currency risk, and credit risk. INTEREST RATE RISK The Group exposure to changes in interest rates that are not offset by hedge relates primarily to the Group's long-term debt obligations and loans granted. The Group’s policy is to obtain finance bearing variable interest rates. To manage the interest rate risk in a cost-efficient manner, the Group enters into interest rate swaps, swap currency, or cap transactions. The majority of the Group’s loans are nominated or swapped into Euro. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 71 35. Financial instruments and risk management (continued) As at 31 December 2020, 95% of the Group’s borrowings are hedged (As at 31 December 2019 – 95%). A 50bp increase in EURIBOR rate would lead to Euro 2,022 change in loss before tax. FOREIGN CURRENCY RISK The Group enters into transactions in currencies other than the Group's functional currency. Therefore, it hedges the currency risk by either matching the currency of the inflow, outflow and cash and cash equivalent with that of the expenditures. Exchange rates as of 31 December 2020 and 2019 were as following: 31 December 2020 31 December 2019 PLN/EURO 4.6148 4.2585 The table below presents the sensitivity of profit (loss) before tax due to change in foreign exchange: 2020 2019 PLN/Euro PLN/Euro Rate/Percentage of change 5.0763 (+10%) 4.8455 (+5%) 4.3841 (-5%) 4.1533 (-10%) 4.6844 (+10%) 4.4714 (+5%) 4.0456 (-5%) 3.8327 (-10%) Cash and blocked deposits (4,303) (2,151) 2,151 4,303 (8,105) (4,053) 4,053 8,105 Trade and other receivables (353) (176) 176 353 (519) (259) 259 519 Trade and other payables 1,052 526 (526) (1,052) 818 409 (409) (818) Land leases 3,172 1,586 (1,586) (3,172) 3,486 1,743 (1,743) (3,486) The Group does not see any credit risk related to bond denominated in PLN and HUF. Exposure to other currencies and other positions in the statement of financial position are not material. CREDIT RISK Credit risk is the risk that a party to a financial instrument will fail to discharge an obligation. To manage this risk, the Group periodically assesses the financial viability of its customers. The Group does not expect any counter parties to fail in meeting their obligations. The Group has no significant concentration of credit risk with any single counterparty or Group counterparties. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 72 35. Financial instruments and risk management (continued) With respect to trade receivables and other receivables that are neither impaired nor past due, there are no indications as of the reporting date that those will not meet their payment obligations. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and blocked deposits, the Group’s exposure to credit risk equals the carrying amount of these instruments. The maximum exposure to credit risk as of the reporting date is the full amount presented. There are no material financial assets as of the reporting dates, which are overdue and not impaired. There are no significant financial assets impaired. LIQUIDITY RISK As at 31 December 2020, the Group holds Cash and Cash Equivalent (as defined in IFRS) in the amount of approximately EUR 272 million. As described above, the Group attempts to efficiently manage all its liabilities and is currently reviewing its funding plans related to: (i) debt servicing of its existing assets portfolio; (ii) capex; and (iii) development of commercial properties. Such funding will be sourced through available cash, operating income, sales of assets, and refinancing. The Management Board believes that based on its current assumptions, the Group will be able to settle all its liabilities for at least the next twelve months. Repayments of long-term debt and interest are scheduled as follows (Euro million) (the amounts are not discounted): 31 December 2020 31 December 2019 First year 218 251 Second year 211 189 Third year 204 199 Fourth year 272 198 Fifth year 155 270 Thereafter 292 196 1,352 1,303 The above table does not contain payments relating to the market value of derivative instruments. The Group hedges significant parts of the interest risk related to floating interests rate with derivative instruments. Management plans to refinance some of the repayment amounts. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 73 35. Financial instruments and risk management (continued) All derivative instruments mature within 1-5 years from the balance sheet date. Maturity dates of current financial liabilities as of 31 December 2020 were as following: Total Overdue Up to a month From a month to three months From three months to one year Investment and trade payables and provisions 27,299 6,289 5,905 15,105 Current portion of long- term borrowing 193,425 19,284 49,874 124,267 VAT and other taxes payable 1,551 1,551 - - Deposits from tenants 1,790 149 448 1,193 Lease liabilities 163 41 122 Income tax payable 4,220 76 11 4,133 Derivatives 3,365 841 2,524 231,813 - 27,349 57,120 147,344 Some of loans, classified as current liabilities, were refinanced post balance sheet date (for details please refer to note 37). Maturity dates of current financial liabilities as of 31 December 2019 were as following: Total Overdue Up to a month From a month to three months From three months to one year Investment and trade payables and provisions 37,289 6,674 14,374 16,241 Current portion of long- term borrowing 225,350 1,965 111,172 112,213 VAT and other taxes payable 1,817 1,817 - - Deposits from tenants 1,605 117 433 1,055 Lease liabilities 208 - 52 156 Income tax payable 1,542 410 - 1,132 Derivatives 3,739 66 868 2,805 271,550 - 11,049 126,899 133,602 Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 74 35. Financial instruments and risk management (continued) FAIR VALUE As of 31 December 2020 and 2019, all bank loans bear floating interest rate (however, as of 31 December 2020 and 2019, 95% of loans are hedged). The fair value of the loans which is related to the floating component of the interest equals to the market rate. Fair value of all other financial assets/liabilities is close to carrying value. For the fair value of investment property, please refer to note 17. FAIR VALUE HIERARCHY As at 31 December 2020 and 2019, the Group held several hedge instruments carried at fair value on the statement of financial position. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities, Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly, Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. Valuations of hedges are considered as level 2 fair value measurements. During the year ended 31 December 2020 and 31 December 2019, there were no transfers among Level 1 and Level 3 fair value measurements. PRICE RISK The Group is exposed to fluctuations of in the real estate markets in which it operates. These can have an effect on the Group’s results (due to changes in the market rent rates and in occupancy of the leased properties). Further risks are detailed in the Management Report as of 31 December 2020. CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to provide for operational and value growth while prudently managing the capital and maintaining healthy capital ratios in order to support its business and maximise shareholder value. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 75 35. Financial instruments and risk management (continued) The Group manages its capital structure and adjusts it to dynamic economic conditions. While observing the capital structure, the Group decides on leverage policy, loans raising and repayments, investment or divestment of assets, dividend policy, and capital raise, if needed. No changes were made in the objectives, policies, or processes during the years ended 31 December 2020 and 31 December 2019. The Group monitors its gearing ratio, which is Gross Project and Corporate Debt less Cash & Deposits, (as defined in IFRS) divided by its real estate investment value. The Group’s policy is to maintain the loan-to-value (“LTV”) ratio at the level not higher than 50%. 31 December 2020 31 December 2019 (1) Loans, net of cash and deposits () 949,192 980,903 (2) Investment properties (exc. land leases), residential landbank, assets held for sale and building for own use 2,099,300 2,220,994 LTV [(1)/(2)] 45.2% 44.2% (*) Excluding loans from non-controlling interest and deferred issuance debt expenses. 36. COVID-19 The COVID-19 pandemic has triggered a wave of strong negative effects on the global economy. The lockdowns brought a large part of the world’s economic activity to an unparalleled standstill: consumers stayed home, companies lost revenue, and terminated employees – which, consequently, led to a rise in unemployment. Rescue packages by national governments and the EU, as well as supporting monetary policies by the European Central Bank have been implemented to moderate the economic impact of the pandemic. However, the scope and duration of the pandemic and possible future containment measures are still impossible to predict. From mid-March 2020, it became apparent that the economic disruptions caused by the Covid-19 virus and the increased market uncertainty combined with increased volatility in the financial markets might lead to a potential decrease in rental revenues, a potential decrease in the Company assets’ values, as well as impact on the Company’s compliance with financial covenants. While the exact effect of the coronavirus is still to be determined, it is clear that it poses substantial risks. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 76 36. COVID-19 (continued) CLOSING AND REOPENING OF THE GROUP’S SHOPPING CENTRES The COVID-19 pandemic has significantly impacted the Company’s business. Following the outbreak of the COVID-19 pandemic, the authorities in many of the markets the Group operates in imposed restrictions on the opening of its shopping centres. Except for select “essential” retailers, or those able to offer curb side pickup or fulfill delivery orders from the store. The tenants in the Group’s centres were unable to trade for a period beginning mid- March and ending between beginning-May and end-May depending on the country, and later in the period between beginning-November and ending end-December and end- January. In addition, even in those regions in which there were no mandatory shutdowns, or when shopping centres were allowed to reopen, not all retailers continued or restarted operations. As at 31 December 2020, shopping centres in Poland and Bulgaria were closed. These centres contributed 69% of total retail rental revenue for 2020. RENT DISCOUNTS AND COLLECTION In several countries of our operations, governments adopted tenant support packages, such as a rental payments holiday in Poland for the period of lockdown or rent support through subsidizing part of any rental discounts. Upon the re-opening of its shopping centres, the Group engaged tenants in discussions about collecting rent and service charges as well as the terms of any support by the Group. The Group implemented multi-pronged measures to support tenants and encourage consumer spendings, such as reducing rent, allowing rent payment in instalments, waiving late payment interest and service charges. The financial impact of this in terms of loss of rent and service income related to the COVID-19 amounted to Euro 14,700. Overall, we have collected 99% of the rent originally due for the year ended 31 December 2020 (99% for offices and 97% for retail). VALUATION OF INVESTMENT PROPERTIES As for each year end, investment properties have been valued by external independent appraisers as described in the Note 17 Investment properties. Those appraisals have been performed in a context of the current COVID-19 pandemic characterised by lack of transactions since the outbreak of the pandemic and difficulties to estimate future market prospects. The increased uncertainty and increased volatility in the financial markets have negatively affected the investment properties of the Group and might have an effect in the future asset valuations, as well as impact on the Company’s compliance with financial covenants. While the exact effect of the coronavirus is unknown and unknowable, it is clear that it poses substantial risks of reduction of income, increasing yields, increasing collection costs, and FX volatility. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 77 36. COVID-19 (continued) During the financial year end 31 December 2020, the valuation of the investment properties decreased by EUR 142,721 (for details please refer to note 17). LIQUIDITY POSITION During the COVID-19 pandemic, the Group took immediate steps to preserve its strong liquidity position in light of the uncertain impact of the pandemic. These steps included cost and CAPEX measures, as well as the decision to retain profit for the year ended 31 December 2019 in the Company. As of 31 December 2020, the Group holds cash in the amount of EUR 271,996. The Group runs stress tests, which indicated that the going concern assumption remains valid for at least 12 months from the financial statement publication date. The Group is continuously assessing the situation and undertakes mitigating steps to reduce the impact that may be caused by the adverse market situation. 37. Subsequent events On 8 January 2021, GTC Pixel and GTC Francuska signed a loan agreement with Santander Bank Polska, which refinanced the existing loans. GTC Pixel repaid the loan in PKO BP in amount of EUR 19.2 million and obtained the new loan in Santander Bank Polska in amount of Euro 19.7 million. GTC Francuska repaid the loan in ING in amount of EUR 18.9 million and obtained the new loan in Santander Bank Polska in amount of Euro 19.3 million. On 5 March 2021 Globe Office Investments Ltd an indirect wholly-owned subsidiary of the company signed a sale and purchase agreement with a company related to the majority shareholder of the Company for the purpose of acquisition of a Class A office building on Váci corridor, Budapest for a consideration of EUR 51 million. Subsequently on 19 March 2021 a loan agreement in the amount of EUR 25 million with Erste Group Bank AG was signed for the purpose of financing the acquisition. The transaction is expected to be close during Q2 2021 upon certain conditions precedents are fulfilled. On 5 March 2021, GTC SA repaid all bonds issued under ISIN code PLGTC0000276 (full redemption). The original nominal value was EUR 20,494. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 78 37. Subsequent events (continued) On 11 March 2021 GTC Real Estate Development Hungary Zrt, a wholly-owned subsidiary of the Company and Groton Global Corp signed a sale and purchase agreement for the purpose of acquisition of the Napred company from Belgrade holding a land plot of 19,537 sqm for a consideration of EUR 33.8 million. The site has potential office development of cca 79,000 sqm. The transaction is expected to be finalized during Q2 2021 upon certain conditions precedents are fulfilled. On 17 March 2021, GTC Real Estate Development Hungary Zrt. , a wholly-owned subsidiary of the Company issued 10-year green bonds with the total nominal value of 53.8 million euro denominated in HUF to finance real estate acquistions , redevelopment and constructions of projects. . The bonds are fully and irrevocable guaranteed by the Company and were issued at a yield of 2.68% with an annual fixed coupon of 2.6%. The bonds are amortized 10% a year starting on the 7th year with the 70% of the value paid at the maturity on 17 March 2031. On 17 March 2021, GTC Real Estate Development Hungary Zrt. a wholly-owned subsidiary of the Company entered into cross-currency interest swap agreements with two different banks to hedge the total green bonds liability against foreign exchange fluctuations. The green bonds were fixed to the Euro, and the fixed annual coupon was swapped for an average annual interest fixed rate of 0.93%. As of 17 March 2021, the Polish government has announced a lockdown from 20 March 2021 till 9 April 2021 and implemented rigorous measures to contain the spread of COVID- 19, including, among others, the closure of shops in shopping malls, except those selling essential goods (such as groceries, other food stores and pharmacies). Measures taken by the government will affect our business. The currently known impact is a decline in revenues of shopping malls. The magnitude of the impact is not yet fully known and will depend between the others, on the length of the closure. On 18 March 2021 Erste Group Bank AG, Raiffeisenlandesbank Niederosterreich-Wien AG and GTC CTWA Sp. z o.o., a wholly-owned subsidiary of the Company, operating Galeria Jurajska Shopping Mall, signed a waiver letter, according to which the DSCR covenant was waived until the end of September 2022 and a prepayment of EUR 5 million will be done by the end of March 2021. On 19 March 2021 City Gate SRL and City Gate Bucharest SRL wholly-owned subsidiaries of the Company signed on loan agreement prolongation with Erste Group Bank AG, for additional 5 years. Globe Trade Centre S.A. Notes to the Consolidated Financial Statements for the year ended 31 December 2020 (in thousands of Euro) The accompanying notes are an integral part of this Consolidated Financial Statements 79 37. Subsequent events (continued) On 19 March 2021, Commercial Development d.o.o. Beograd, a wholly-owned subsidiary of the Company, operating Ada Mall, and Intesa Bank signed a restated loan agreement whereby the existing loan in the amount of EUR 58.3 million shall be early prepaid by 31 March 2021 in the amount of EUR 29 million and margin reduced from 3.15% to 2.9%. Following the prepayment, the outstanding loan amount shall be payable in full at maturity in 2029. 38. Approval of the financial statements The financial statements were authorised for issue by the Management Board on 22 March 2021.