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

Mar 23, 2021

t el . : +48 22 543 16 00 fax: +48 22 543 16 01 e-mail: office@bdo.pl www.bdo.pl BDO spółka z ograniczoną odpowiedzialnością spółka komandytowa ul. Postępu 12 02-676 Warszawa Polska BDO spółka z ograniczoną odpowiedzialnością spółka komandytowa , Sąd Rejonowy dla m. st. Warszawy, XIII Wydział Gospodarczy, KRS: 0000729684, REGON: 141222257, NIP: 108-000-42-12. Wartość wkładu kapitałowego wynosi 10.037.500 zł. Biura BDO w Polsce: Katowice 40- 007, ul. Uniwersytecka 13, tel.:+48 32 661 06 00, katowice@bdo.pl; Kraków 31-548, al. Pokoju 1, tel.: +48 12 378 69 00, krakow@bdo.pl; Poznań 60- 650, ul. Piątkowska 165, tel.:+48 61 622 57 00, poznan@bdo.pl; Wrocław 53-332, ul. Powstańców Śląskich 7a, tel.: +48 71 734 28 00, wroclaw@bdo.pl BDO spółka z ograniczoną odpowiedzialnością spółka komandytowa jest członkiem BDO International Limited, brytyjskiej spółki i częścią międzynarodowej sieci BDO, złożonej z niezależnych spółek członkowskich. Independent Auditor’s Report to the General Meeting and Supervisory Board of Globe Trade Centre S.A. Report on the Audit of the Year-end Consolidated Financial Statements Opinion We have audited the annual consolidated financial statements of the group, where the parent company is Globe Trade Centre S.A. located in Warsaw at Komitetu Obrony Robotników 45A (“the Company”) (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2020, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, as well as notes to the consolidated financial statements including a description of accounting methods and other explanations (“the consolidated financial statements”). In our opinion, the accompanying consolidated financial statements: - give a true and fair view of the Group’s consolidated financial position as at 31 December 2020, as well as of its consolidated financial result and consolidated cash flows for the year then ended, in accordance with the applicable International Financial Reporting Standards endorsed by the European Union, as well as the adopted accounting methods (policies); - are consistent, in content and in form, with the applicable laws and regulations and with the Company’s Statute. The present opinion is consistent with the additional report to the Audit Committee, which we issued on 22 March 2021. Basis for Opinion We conducted our audit in accordance with the International Standards on Auditing adopted by the National Council of Certified Auditors as National Standards on Auditing (“NSA”) and in compliance with the Act on Certified Auditors, Audit Firms and on Public Oversight (“the Certified Auditors Act” – 2020 Journal of Laws, item 1415) and Regulation (EU) No. 537/2014 of 16 April 2014 on specific requirements regarding statutory audit of public interest entities (“Regulation EU” – OJ L 158). Our responsibilities under those standards are further described in the “Responsibilities of the Auditor for the Audit of the Consolidated Financial Statements” section of this report. We are independent of the Group’s companies in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) of the International Ethics Standards Board for Accountants (“the IESBA Code”) and adopted by resolutions of the National Chamber of Certified Auditors, and with other ethical requirements relevant to the audit of financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During the audit, the auditor in charge and the audit firm remained independent of the Company in accordance with the independence requirements laid down in the Certified Auditors Act and Regulation EU. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 2 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of the most significance in the audit of the consolidated financial statements for the current reporting period. They include the most significant assessed types of risks of material misstatements, including assessed types of risks of material misstatements resulting from fraud. We addressed these matters in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and have summarized our response to these types of risks, and where relevant, presented our key observations relating to those risks. We do not express a separate opinion on these matters. 1 Valuation of investment property Investment property amounts to 2,125,128 thousand euro and constitutes more than 85% of total assets of the Group as at 31 December 2020 (31 December 2019: over 89%). It comprises mainly of two categories: completed investment property, which are measured at fair value and investment property under construction, measured either at cost or at fair value, if certain criteria specified in the Group’s accounting policies are met. The fair value of the investment property depends in general on external valuations, which take into account the Company Management’s judgements, assumptions and estimates such as current and expected future rents, occupancy levels, rent-free periods and expected market yields. Inputs used to determine the fair value of the Group’s investment property are classified into Levels 2 and 3 of the fair value hierarchy. The valuations have been performed by third party appraisers. The appraisers were engaged by the Group to carry out the valuations in accordance with applicable valuation and professional standards. We consider valuation of investment property as a key audit matter taking into account the significant impact on the Group’s financial statements as well as high dependency on estimates and judgements of the Group’s Management and valuation experts. Disclosures in the Financial Statements The disclosures and accounting policies relating to the valuation of investment property, incl. assumptions made, are presented in notes 7c, 7d, 17 and 36 of the consolidated financial statements. Audit Procedures Performed in Response to the Risk We documented our understanding of the investment valuation process. We also discussed with the Management current situation in markets where the Group operates in. We engaged our internal real estate and valuation specialists to verify properties’ valuations performed by the Group. Our audit procedures included, among others, the following: - understanding of the process and control systems related to valuation of both investment property and investment property under construction; - evaluation of the objectivity and expertise of the external appraisers; - analysis of the properties selected on a sample basis, including assets that are of the highest value or those showing significant changes in carrying value; - review of the valuation reports and applied valuation models for selected properties and assessment of valuation approach used for determining the carrying value; - substantive audit procedures to evaluate the accuracy of the property information provided to the appraisers by the Management, as well as verification of mathematical accuracy of the valuation models; - evaluation of the appropriateness of the property related data for selected properties, including estimates as used by the external appraisers, in particular, comparison of the applied investment yields to an expected estimated range, including reference to published benchmarks; - assessment of other assumptions that are not so readily comparable with published benchmarks, such 3 as Estimated R ent Value, void rates and periods. Where assumptions were outside the expected range or otherwise unusual, and/or valuations showed unexpected movements, we undertook further investigations and, when necessary, held further discussions with the external appraisers and the Management; - analytical review, including the reasonableness of fair value movements in comparison with expectations built on the knowledge gained during the audit process; - assessment of the appropriateness and completeness of the disclosures relating to the investment property valuation presented in notes of the consolidated financial statements. 2 Financing and debt covenants The outstanding bonds, loans and borrowings amount to 1,261,292 thousand euro and constitute 50.8% of total assets of the Group as at 31 December 2020 (31 December 2019: 47.8%). For the majority of loans and bonds, the entities of the Group have to meet certain covenants specified in the loan and bond agreements. Covenants’ calculation depends to a large extent on investment property valuations as described in “Valuation of investment property” point above. These valuations are based on estimates and assumptions, including expectations of future economic and market developments which may be uncertain and, therefore, may change in the future. Additionally, the ability of the Group’s entities to meet debt covenants in the foreseeable future may depend also on events after reporting date, including effect of the Covid-19 pandemic. Finally, covenants’ calculation results may affect the Group’s liquidity, as well as current and non-current liabilities presentation. The availability of adequate financing and the assessment whether the Group will continue to meet its financial covenants are significant aspects of our audit due to possible impact on the Group’s ability to continue as a going concern. Therefore, we consider this to be a key audit matter. Disclosures in the Financial Statements The disclosures regarding the covenants, loan and bond agreements and amendments are presented in notes 9, 28 and 37 of the consolidated financial statements. In the notes 4 and 36 the Group presented its assessment of the going concern assumption, including Covid-19 effects on the Group’s operations, financial position and performance. Audit Procedures Performed in Response to the Risk We documented our understanding of the financing process and the Group’s control systems on the debt covenants’ compliance and liquidity management. We also documented our understanding of the Group Management’s calculation process of the debt covenant ratios in accordance with the loan and bonds agreements. Our audit procedures, among others, included: - analysis of debt covenants’ requirements resulting from the loan and bond agreements, including the covenant ratios and potential events of default; - analysis of the Group’s assessment of debt covenants’ compliance and going concern assumption; - assessment of compliance - estimated by the Group’s Management - with applicable financial covenants’ requirements by performing recalculation of these covenants as at 31 December 2020 on a sample basis of covenants; - consideration of the events after the reporting date, including potential impact of the Covid-19 pandemic (i.a. decrease in shopping malls turnover on the future investment property valuations, which are subject to financing collaterals), on the uncertainty of meeting debt covenants and the Group liquidity in the foreseeable future and, consequently, the impact of this events on the going concern assumption assessment; - analysis of the Group’s stress tests - the cash flow projections based on certain hypothetical defensive assumptions to assess the reasonableness of the going concern assumption in view 4 of the cur rent development s on the market ; - assessment of the appropriateness and completeness of the disclosures relating to the covenants, loan and bond agreements as well as going concern assumption in notes of the consolidated financial statements. Other matter The Group's financial statements for the year ended 31 December 2019 were audited by an auditor acting on behalf of another audit firm, who expressed an unqualified opinion on those financial statements on 18 March 2019. Responsibilities of the Company’s Management and Supervisory Board for the Consolidated Financial Statements The Company’s Management is responsible for the preparation of the consolidated financial statements that give a true and fair view of the Group’s financial position and financial result in accordance with International Financial Reporting Standards endorsed by the European Union, the adopted accounting methods (policies), the applicable binding regulations and the Statute. The Company’s Management is also responsible for such internal controls as it considers necessary to ensure that the consolidated financial statements are free from material misstatements resulting from fraud or error. In preparing the consolidated financial statements the Company’s Management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, any matters related to going concern and using the going concern basis of accounting, except in situations where the Management intends to either liquidate the Group or discontinue its operations, or has no realistic alternative but to do so. The Company’s Management and members of the Company’s Supervisory Board are required to ensure that the consolidated financial statements meet the requirements of the Accounting Act of 29 September 1994 (“the Accounting Act” – 2021 Journal of Laws, item 217). Members of the Company’s Supervisory Board are responsible for overseeing the financial reporting process. Responsibilities of the Auditor for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with NSA will always detect an existing material misstatement. Misstatements can arise from fraud or error and are considered material if it could be reasonably expected that they, individually or in the aggregate, could influence the economic decisions of users made on the basis of these consolidated financial statements. The concept of materiality is applied by the auditor at the planning stage and when performing the audit and evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements, as well as when formulating the auditor’s opinion. In view of the above, all of the opinions and statements contained in the auditor’s report are expressed subject to the qualitative and quantitative level of materiality set in accordance with the applicable standards on auditing and the auditor’s professional judgement. The scope of the audit does not include an assurance regarding the Group’s future profitability, or regarding the effectiveness of the Company’s Management in the handling of the Group’s affairs now or in the future. Throughout an audit in accordance with NSA we exercise professional judgement and maintain professional skepticism, as well as: - identify and assess the risks of a material misstatement of the consolidated financial statements resulting from fraud or error, design and perform audit procedures in response to such risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk 5 of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a material misstatement resulting from error, because fraud may involve collusion, forgery, deliberate omission, misrepresentation or override of internal controls; - obtain an understanding of the internal controls relevant to the audit in order to plan our audit procedures, but not to express an opinion on the effectiveness of the Group’s internal controls; - evaluate the appropriateness of the accounting policies used and the reasonableness of the estimates and related disclosures made by the Company’s Management; - conclude on the appropriateness of the Company Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern; - evaluate the overall presentation, structure and contents of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation; - obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group in order to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group’s audit and remain solely responsible for our audit opinion. We provide the Company’s Audit Committee with information about, among others, the planned scope and timing of the audit and significant audit findings, including any significant weaknesses of internal controls that we identify during our audit. We provide the Company’s Audit Committee with a statement that we have complied with the relevant ethical requirements relating to independence, and that we will communicate to them all relationships and other matters that may reasonably be considered to constitute a threat to our independence, and where applicable, inform them of the related safety measures. From the matters communicated to the Company’s Audit Committee we determined those matters that were of the most significance to the audit of the consolidated financial statements for the current reporting period and were therefore chosen as key audit matters. We describe these matters in our auditor’s report, unless law or regulations prohibit their public disclosure or when, in exceptional cases, we find that a given matter should not be presented in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such information. Other Information, Including Report on Activities Other information comprises the Report on the Activities of the Group for the financial year ended 31 December 2020 (“the Report on Activities”) along with the representation on the application of corporate governance, as well as the Annual Report for the financial year ended 31 December 2020 (“Annual Report”) (together “Other Information”). Responsibilities of the Company’s Management and Supervisory Board The Company’s Management is responsible for the preparation of Other Information in accordance with binding regulations. The Company’s Management and members of its Supervisory Board are required to ensure that the Report on Activities along with its separate sections meets the requirements of the Accounting Act. 6 Responsibilities of the Auditor Our opinion on the consolidated financial statements does not cover Other Information. In connection with our audit of the consolidated financial statements, our responsibility is to read Other Information and, in doing so, consider whether it is materially inconsistent with the consolidated financial statements or with our knowledge obtained during the audit, or otherwise appears to be materially misstated. If based on the work we have performed, we find a material misstatement of Other Information, we are required to state this fact in our auditor’s report. In accordance with the requirements of the Certified Auditors Act, it is also our responsibility to issue an opinion whether the Report on Activities has been prepared in accordance with binding regulations, and whether it is consistent with the information presented in the financial statements. We are also required to issue an opinion whether the Company’s representation on application of corporate governance contains the required information. We received the Report on the Activities of the Group prior to the issue of the present auditor’s report, whereas the Annual Report will be available after this date. In the event that we find a material misstatement in the Annual Report, we are required to communicate this to the Company’s Supervisory Board. Opinion on the Report on Activities Based on the work we have performed during the audit, in our opinion the Report on the Activities of the Group: - has been prepared in accordance with Article 49 of the Accounting Act and par. 71 of the Minister’s of Finance Decree of 29 March 2018 on the current and periodic information reported by the issuers of securities and on the conditions for recognizing as equally valid the information required by the regulations of a state that is not a member state (the “Current Information Decree” – 2018 Journal of Laws, item 757); - is consistent with the information presented in the consolidated financial statements. Furthermore, based on our knowledge obtained during the audit about the Group and its environment we have identified no material misstatements in the Report on the Activities of the Group. Opinion on the corporate governance application representation In our opinion, the Company’s representation on application of corporate governance contains all of the information specified in paragraph 70 section 6 par. 5 of the Current Information Decree. In addition, in our opinion, the information indicated in paragraph 70 section 6 point 5 letters c-f, h and letter i of the Decree, contained in the representation on application of corporate governance is consistent with the applicable regulations and with the information contained in the consolidated financial statements. Report on Other Legal and Regulatory Requirements Declaration on the Provision of Non-audit Services To the best of our knowledge and belief we declare that any non-audit services we have provided to the Group were consistent with the law and the regulations binding in Poland, and that we have not provided any non-audit services prohibited by virtue of Article 5 par. 1 of Regulation EU and Article 136 of the of the Certified Auditors Act. The non-audit services we have provided to the Company and its subsidiaries in the audited period are listed in the Report on the Activities of the Group. Appointment of the Auditor We were appointed as auditors of the Group’s consolidated financial statements in a resolution passed by the Company’s Supervisory Board on 29 April 2020. We audited the consolidated financial statements of the Group for the first time. 7 The auditor in charge of the audit resulting in this independent auditor’s report is Krzysztof Maksymik. BDO spółka z ograniczoną odpowiedzialnością sp.k. with its registered office in Warsaw entered on the list of audit firms in number 3355 represented by the auditor in charge Signed with a qualified electronic signature Krzysztof Maksymik Certified Auditor No. 11380 Podpisano kwalifikowanym podpisem elektronicznym Dr. André Helin Managing Partner of the General Partner Certified Auditor No. 90004 Warsaw, 22 March 2021