BCRE.L Regulatory News (BCRE)

BCRE - Brack Capital Real Estate Investments N.V.

("BCRE" or the "Company")

FINAL RESULTS 2015

The Board of BCRE announces its results for the year ended 31 December 2015 and the publication of its 2015 Annual Report.

2015 Key highlights

· The Group generated revenues of €75.39 million from rental income during the period (31 December 2014: €68.04 million).

· The net asset value ("NAV") of the Group amounted to €240.7 million as at 31 December 2015 (31 December 2014: €267.3 million); reflecting the expansion in the US and Germany, and the effect of the current economic situation in Russia.

· As at 31 December 2015, the aggregate value of assets in which the Company is interested (in different percentages) was approximately €2.1 billion (31 December 2014: €1.9 billion).

· The Company recently extended the programme for the issuance of bonds from $60 million to $180 million. During 2015 an amount of $3.65 million, net of expenses, has been raised completing the $60 million programme. In 1 April 2016, an amount of $17.5 million, net of expenses, has been raised.

· The Group successfully completed two major development projects, which have increased the Company's income producing portfolio, and continued balancing its global portfolio with new acquisitions and increased interest in the US and Germany.

· The Group completed the acquisition of 720 West End Avenue, a major residential building with a net area of approximately 240,000 sf in the Upper West Side of Manhattan, New York

· Opened the hotel Indigo Lower East Side, a 295 hotel, at 180 Orchard Street in Manhattan, New York, US.

· Acquired 224 residential units in Cincinnati, Ohio bringing the multifamily portfolio in the US to over 500 units. The holding of the existing multifamily residential assets and any future ones will be made through a (private) REIT structure in 2016.

· BCRE Germany purchased 430 residential units in Kiel, northern Germany for a total consideration of €24.5 million.

· Opened the 27,000m² shopping centre in Lyubertsy, Moscow region, with good occupancy levels (currently signed leases and term sheets nearing 85%) despite the challenging economic situation in Russia.

· Midroog, the credit rating agency accredited by Israel and a subsidiary of Moody's Investor Service Inc. (Midroog), reaffirmed the credit rating of the Company's Series A, B and C bonds of A2 on a local Israeli scale, changing the outlook from Credit Review with negative implications to negative outlook.

· BCRE Germany completed the purchase of 296 residential units in Northern Germany in 2016, bringing our multifamily portfolio in Germany to over 9,900 units for a total consideration of €20.4 million

· Recently, Standard & Poor's Maalot, a credit rating agency accredited by Israel, increased the credit rating of BCRE Germany and its existing debentures to ilAA- from ilA+, with stable outlook.

2016 up to the signing of this report key highlights

· The shareholders of BCRE Germany's approved at a general meeting in 2016 to distribute capital to its shareholders in a total amount of approximately €6 million. The capital distribution is expected to be carried out in early 2016.

· The shareholders of the Company approved at a general meeting in 2016 to distribute capital to its shareholders in the total amount of approximately €4.8 million. The capital distribution was paid to the shareholders on 11 April 2016.

· BCRE Germany issued 60,058 additional bonds in 2016 at a price of NIS 1,021 each. The gross proceeds in respect of the bond issuance amounted to NIS 61.3 million.

Ariel Podrojski, Chief Executive Officer, said

"Following the acquisition of 720 West End Avenue and completion of the Indigo Lower East Side hotel in Manhattan, New York, we have successfully managed to increase our exposure to the US market and move towards a more balanced global portfolio, as intended.

It was a challenging year with the crisis in Russia and the overall global uncertainty. With the completion of the Lyubertsy shopping centre in the Moscow region, we have reduced our development exposure significantly.

Going forward, the Company intends to continue focusing on the US and German markets, and carry on stabilising its portfolio in Russia."

The Annual Report 2015 is now available to view or download from the company's website, www.brack-capital.com.

Enquiries

1 DIRECTORS' REPORT

Please read the following directors' report in conjunction with the audited consolidated financial statements and the notes to those statements, included elsewhere in this annual report. In addition to historical facts, this annual report contains forward-looking statements.

1.1 CHAIRMAN'S STATEMENT

Harin Thaker, Chairman, said:

"I am pleased to present the full year results of the Group for 2015. The results highlight the value of the Company's global strategy and local platforms based business model. As the Company achieved major milestones in increasing its income producing portfolio and sourcing new investments, while its geographic diversification enabled the Group to weather to a certain extent the effect of the Russian crisis on the overall performance of the Company."

1.2 OVERVIEW

1.2.1 About us

BCRE-Brack Capital Real Estate Investments N.V. ("BCRE" or the "Company") is a public limited liability company incorporated under the laws of the Netherlands. BCRE, its subsidiaries (as defined in section 2:24a of the Dutch Civil Code) and other affiliates which are controlled by BCRE (as defined in section 2:24b of the Dutch Civil Code) are collectively referred to as the "Group". BCRE was converted from a private limited liability company into a public limited liability company on 28 May 2014, prior to the listing of the Company on the London Stock Exchange.

BCRE is an internationally active real estate investment, development and management group. The Group is part of the group of BCH - Brack Capital Holdings Ltd, established in 1992. The Group's investment and management philosophy is based on the combination of local expertise and high professional standards.

The Group operates through its key geographical platforms in the US, Germany, Russia, and India. The Group currently is interested in 10,147 income producing residential units (9,493 as at 31 December 2014 and 9,717 as at 30 June 2015) and in 40 income producing commercial properties (38 as at 31 December 2014 and 30 June 2015) across the US, Germany and Russia. Such properties have a total built area (both commercial and residential) of approximately 1,296,459m² (1,179,000m² as at 31 December 2014 and 1,196,050m² as of 30 June 2015).

The Group also has an interest in 10 residential and commercial projects (11 as at 31 December 2014 and 30 June 2015) in various stages of development and refurbishment across the US, Germany and Russia, with a total lettable or saleable area of such properties expected to be approximately 288,000m² (approximately 375,000m² as at 31 December 2014 and 30 June 2015). The Group is also interested in approximately 349,000m² of land plots available for sale and in approximately 300 hectares of land plots available for future development.

The combined value of these properties in which the Group is interested in differing percentages was approximately €2.1 billion as at 31 December 2015.

The Group operates through highly experienced and on the ground management teams. For each property, the relevant local team performs the entire project cycle of activities; from market research and deal sourcing, negotiating and financing, to asset and property management. The Group is also active in running the development process and closely supervises the construction phase of its developments.

1.2.2 Investment philosophy

BCRE's investment policy includes an analytical approach to the investment decisions throughout the life cycle of a project. The Group's financial approach to portfolio allocation is focused on the continuous monitoring and adjustment of its portfolio, ensuring diversification by country, asset class, currency, specification and development to income-producing properties.

As part of our business model, we control and manage our deals by establishing our own proprietary local teams. We focus on value addition to our properties through proactive asset and property management. Rigorous research & analysis and risk management are cornerstones to our business philosophy.

1.2.3 Objective and strategy

The Group's objective is to identify and execute opportunities in local markets by leveraging off its global investment, development and management experience and to generate exceptional returns by employing expert local management teams.

The following are key components of the Group's strategy:

a. an analytical approach to investment decisions based on multi-layered risk management throughout the life cycle of a project, taking into consideration the special financial attributes of the project, including the length of the project, liquidity and transaction costs. The Group's financial approach to portfolio allocation is focussed on the continuous monitoring and adjustment of its portfolio, ensuring diversification by country, asset class, currency, specification and development to income producing properties;

b. maintaining independently managed local teams in each of its key markets;

c. focusing investment primarily on the Group's key markets;

d. benefiting from organic return growth at project level;

e. accessing quality deal flow in each local market through the strength and depth of its local platforms and their connections;

f. retaining staff with a substantial aggregate knowledge base and diversified experiences who have remained with the Group over a long period of time;

g. taking a global view on investment based on detailed knowledge of the drivers in its key markets which allows for diverse risk analysis and efficient funds allocation;

h. developing and retaining in-house research and finance capabilities including experience with M&A transactions and structured finance;

i. developing and retaining in-house development capabilities such as design coordination, procurement and property management; and

j. developing and retaining in-house construction, management, supervision, procurement and estimation capabilities by employing internal construction and engineering experts, and maintaining financial flexibility through reasonable leverage and debt duration and maturity.

1.2.4 Key strengths

Combination of local market presence and international transactional expertise

The Group combines local knowledge of, and contacts within, its key markets with international experience of research, due diligence, structuring, financing, developing and delivering large scale real estate projects to international standards. The Group considers this combination uncommon.

Focus on known markets and sectors

The Group has been active in its key markets for many years - in Manhattan since 1994 (initially, as Brack Capital Group), in Germany since 2005, in Russia since 2006 and in India since 2005. The Group focuses its attention mostly on specific sectors in these markets which it knows and understands - in Germany commercial (mainly retail) and multifamily residential income producing, in Russia development for commercial (mainly retail) and in the US on Manhattan conversion, renovation and development (recently mainly in the residential and hospitality sectors). The Company believes this enables the Group to understand its markets and to analyse the real risks and opportunities of each project in the context of those markets.

Substantial "on the ground" platforms

The Company believes that real estate is a local business and believes the foundation of its strength is real, local experience and expertise. The Group's local teams in each market are managed by dedicated, specialised, experienced and incentivised professionals with a local knowledge and an understanding of the business they are carrying out. Their capabilities and expertise are full service and include sourcing off-market deals, in-house research and analysis, underwriting budgets, timetables, sales and leases, raising finance from local and international lenders, maintaining close working relationships with local authorities, detailed, hands on, property management, development capabilities, experience of refurbishment works and improvements and lease negotiations. The Company believes this depth of knowledge, experience and contacts gives the Group a competitive advantage over other international investors in its key markets and the Company believes this enables the Group to identify and deliver transactions other international investors are often unable or unwilling to source or deliver.

Experienced management team

Most of the senior executives of the Group's platforms have years of experience in real estate transactions in their local market and most of them have been with the Group for many years. In addition, in most of the Group's platforms the Group has experienced management below these senior executives who also have been with the Group for long periods. The Group believes the depth of its management expertise in its key markets gives it a competitive advantage over its competitors and enables it to better manage its portfolio even in adverse conditions. For instance our local team in Russia has been instrumental in keeping our assets operational and in addressing various challenges on the ground.

Significant large scale development expertise

The Group has significant expertise of delivering large scale development projects and is able to use and transfer that experience to develop large scale projects in each of its key markets. Since its establishment, the Group has developed projects (across hospitality, residential, retail, office and logistics segments) with a significant lettable area.

Strong transaction structuring skills

The Group is experienced in structuring transactions so as to seek to mitigate risk. It occasionally seeks to do this as early as practicable in the transaction through co-investing with international investors or its Co-Investment Club, seeking pre-lets or other contractual protections wherever practicable prior to development, adopting phased development when possible in large developments and only commencing a phase when the previous phase is significantly underwritten by sales or leases. The Group adopts an analytical approach to identify the risks in its projects in accordance with international standards before acquiring a property and continues throughout the project to seek to find ways to reduce risk and realise value as early as possible through sales or refinancing.

Access to co-investors

The Group is able to leverage its operational platform by co-investing with international investors and its Co-Investment Club. This often enables it to share the risk and in many cases earn management fees and potential promote fees in addition to its equity interest in the project. The Group's relationship with its co-investors enables it to react quickly and flexibly to investment opportunities.

Good access to debt financing

The Company believes that the Group's deep connections with local and international banks enable it to secure finance for its projects either internationally or locally on favourable terms. For instance, the Group has been able to achieve financing and refinancing for its projects in Russia in the past with local banks at a time when bank lending has been difficult or almost impossible to obtain from the international financial markets. The Company believes that the depth of its relationships with both international and local banks enables it to source debt financing even when availability is relatively limited.

1.3 BUSINESS OVERVIEW

1.3.1 CEO's statement

Ariel Podrojski, Chief Executive Officer, said:

"Following the acquisition of 720 West End Avenue and completion of the Indigo Lower East Side hotel in Manhattan, New York, we have successfully managed to increase our exposure to the US market and move towards a more balanced global portfolio, as intended.

It was a challenging year with the crisis in Russia and the overall global uncertainty. With the completion of the Lyubertsy shopping centre in the Moscow region, we have reduced our development exposure significantly.

Going forward, the Company intends to continue focusing on the US and German markets, and carry on stabilising its portfolio in Russia."

1.3.2 Our key markets

Set out below are the highlights for the period in relation to the Company's main regional platforms:

US

The Company's interest in the geographical platform BCRE USA is 100% as of 31 December 2015 and mainly focuses on residential conversions and hotel developments in Manhattan, in addition to income producing activity that includes the acquiring and owning of multifamily residential properties outside New York.

In October 2015, BCRE USA completed the acquisition of 720 West End Avenue, a major residential building with a gross area of approximately 240,000 sf in the Upper West Side of Manhattan, New York for approximately $109 million, resulting in a low acquisition base.

In 90 Morton Street, Manhattan, the property with a net area of approximately 90,000 sf, since acquisition, the Company has made important and meaningful advancement in the planning process, thus diminishing the risks associated with the project's planning.

In November 2015, BCRE completed the ground up development of an InterContinental's Indigo hotel in Manhattan's trendy Lower East Side and opened the hotel with outstanding reviews. The 25 stories, 295 rooms hotel includes a considerable food & beverage component and benefits from magnificent unobstructed views, and has been regularly ranked high on different platforms since its opening. Earlier in the period, the Group completed the sale of the garage and retail space owned by it in the project.

Our other hotels in Manhattan are also doing well. The 230 room CitizenM Hotel in Times Square achieved an average occupancy of 89% and Average Daily Rate (ADR) of $254 during the period, and is also consistently receiving good reviews on different platforms. In addition, the construction of the 300 room CitizenM Hotel at Bowery St. is progressing well and is scheduled to complete in the second half of 2017.

In line with its strategy, BCRE USA commenced about two years ago investing in the multifamily real estate market in the US (primarily in Cincinnati, Ohio), using the Group's extensive experience of this asset class in Manhattan and in other parts of the world. As at 31 December 2015, the total number of multifamily units under management in the US stands at 516. The performance of the portfolio continues to improve with an overall average occupancy of around 95% as at 31 December 2015.

The holding of the new multifamily residential assets along with the existing ones will be made through a (private) REIT structure. The properties are managed by the Group's proprietary on the ground experienced and dedicated team. BCRE USA is predominantly targeting stabilised assets in the Mid-West of the US, potentially expanding to additional hubs at a later stage, with the intention of creating value through internal management. Further value enhancement is intended through the acquisition and management of value add assets as well as portfolio premium and improved economics. BCRE is also currently looking for other opportunities in areas outside New York, offering similar value added potential. The Group intends to significantly increase its US multifamily portfolio over the next few years, among other things, to obtain the benefits of scale.

The real estate lending business, since inception, has been undertaken by BCRE USA at a relatively limited scale compared to other activities of the Group and outside the Group's core business. In light of this and with the intention of focusing on its main activities, the Group has decided to discontinue this business by not granting new loans, awaiting the conclusion of the outstanding ones.

Overall, it has been an active year with the closing of new deals and completion of a hotel development, reducing our non-core businesses, focusing on our main activities and rebalancing our global asset allocation in line with our objective of increasing BCRE's exposure to the US market.

Germany

The Company's interest in Brack Capital Properties N.V. (BCRE Germany) is 34.76% as of 31 December 2015.

The Company's German portfolio embodies a balanced business model, stable cash flow and growth. A quality player in the multifamily sector, BCRE Germany is among the large players in the retail parks sector in Germany and the leading condo developer in Dusseldorf.

During the period, BCRE Germany performed exceptionally well with the rental income growing by 10% to €66.42 million (31 December 2014: €60.51 million), net profit attributable to equity holders growing by 67% to €63.44 million (31 December 2014: €37.95 million) and funds from operations, excluding contribution from the Grafental project in Dusseldorf, increasing by 22% to €24.27 million (31 December 2014: €19.89 million).

BCRE Germany is interested in a total of 9,901 multifamily units (9,201 as at 31 December 2014 and 9,631 as of 30 June 2015) with a total leasable area of approximately 571,000m² (524,000m² as at 31 December 2014 and 553,000m² as of 30 June 2015) and overall occupancy of 96%. During the period, the multifamily residential portfolio witnessed around 4.5% annual increase in the rental income from the same assets and achieved 10% growth in the new leases.

BCRE Germany is interested in 32 commercial properties with a total lettable area of approximately 377,000m². The occupancy rate of these properties is approximately 96%, with a significant part of this portfolio benefiting from leases with major retail tenants such as OBI and Kaufland.

BCRE Germany's development projects (including a large scale development project in Dusseldorf of approximately 1,250 residential units currently being built or under planning/improvement) that are expected to drive high growth and generate attractive cash flows and profitability are also progressing well.

Recently, Standard & Poor's Maalot, a credit rating agency accredited by Israel, has increased the credit rating of BCRE Germany and its existing debentures to ilAA- from ilA+, with stable outlook.

Russia

The Company, with around 85% interest in the geographical Russian platform, is continuing with its hands-on management approach and focus on the execution of its projects in Russia. Political developments, including the range of sanctions and their extension, the drop in oil prices and the considerable depreciation of the Russian Rubble had a significant negative affect on the Russian economy during the period.

The effect of the current economic situation in Russia is being reflected in the valuations of December 2015, thus reducing the Company's exposure to this geography. However, the Group has managed to keep its assets in Russia fully operational, reduce overall risk profile by completing projects under progress and have shifted from development risk to the domain of income producing assets.

In December 2015, BCRE Russia completed a 27,000m² shopping center which accounts for the only modern shopping centre in Lyubertsy (one of Moscow region's biggest and most densely populated cities). The shopping centre has opened with an attractive tenant mix. Shortly after the opening, the shopping centre benefits from signed leases and term sheets nearing 85%.

The Group's wholesale and retail complex in Kazan continues to witness healthy footfall with two fully operational modules with a combined occupancy of 74% along with another module with 100% occupancy leased to an agro operator.

Despite the need to make the necessary adjustments to address the concerns of tenants in light of the overall economic situation, the Group's other income producing properties in Russia continue to perform relatively well.

With the development completion of the shopping center in Lyubertsy all four income producing assets in Russia are yielding. Two of the assets are stabilised at approximately 100% occupancy, while the others are at ramp up stage. The Company's strategy for this platform is to focus on the portfolio's stabilization.

In relation to the land plot in Novosibirsk, Russia, the Company does not intend to pursue the development of the site.

Overall, it was a challenging period and uncertainty remains in Russia. However, our team in Russia with its proactive approach is well equipped to monitor and react to the various challenges on the ground. The Company believes that its efforts to maintain and stabilise its Russian position will turn fruitful in the long run.

1.4 FINANCIAL OVERVIEW

1.4.1 CFO's statement

Nansia Koutsou, Chief Financial Officer, said:

"Despite the situation in Russia and its impact on valuations, the strong performance of our US and German operations reflects the strength of our rebalanced global portfolio. 

During the period, we completed the placement of bonds under series C and recently extend the programme to raise additional funds at the same rating, which was reaffirmed by the rating agency. With an increased income producing portfolio and the potential to raise additional funds under the bond programme, the Company is expected to maintain a solid liquidity".

 Financial review

The Group prepared its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and in accordance with Book 2, section 9 of the Dutch Civil Code.

The gross rental income of the Group increased by approximately 11% to €75.39 million (31 December 2014: €68.04 million) mainly due to the newly acquired income producing properties and growth from our existing properties. In addition, the Group generated a gross profit of €13.79 million (31 December 2014: profit of €9.80 million) from the sale of residential units primarily from the Grafental project in Dusseldorf, Germany. The overall administrative expenses were €12.62 million, similar to the administrative expenses for the year 2014 (31 December 2014: €12.02 million).

The loss attributable to the equity holders of the Company amounted to €27.68 million (31 December 2014: profit of €30.04 million).

Investment property of the Group increased by €324.77 million to €1,618.13 million (31 December 2014: €1,293.36 million) primarily from the new acquisitions made during the year with a total value of €146.64 million and from the revaluation gains of €146.23 million (31 December 2014: gain of €113.06 million, excluding the valuation of the asset held for sale).

Interest-bearing loans and other borrowings of the Group increased by €183.72 million to €1,222.21 (31 December 2014: €1,038.49 million) primarily for financing the acquisition of new projects. The Group continues to manage its financial liabilities and its exposure to interest rate changes. As of 31 December 2015, approximately 43% (31 December 2014: 57%) of the Group's loans and debentures are hedged.

The consolidated cash position (including restricted bank accounts and deposits) of the Group decreased by approximately 28% to €87.66 million (31 December 2014: €121.39 million) and the NAV attributable to the equity holders decreased to €240.65 million during the period (as referred to in paragraph 1.4.4 below) (31 December 2014: €267.35 million).

1.4.2 Fund raising

In June 2015, BCRE successfully raised the remaining $3.65 million net of expenses of its US60 million programme issuance of bonds (series 'C'). The proceeds are to be used to partly repay existing debt and partly for general corporate purposes, working capital and the funding of current and new developments.

The bond issuance was undertaken within the A2 rating on a local Israeli scale, by Midroog, wherein the Company could raise up to $60 million.

On 3 March 2016, BCRE has increased the bond programme to $180 million. On 1 April 2016, BCRE raised an additional amount of $17.5 million, net of expenses. The proceeds are to be used to refinance existing or future debt upon or prior to their maturity, to make investments, to on-lend and/or for general corporate purposes. The bond issuance was undertaken within the A2/negative rating on a local Israeli scale by Midroog.

Another loan agreement was entered into in December 2015 by BCRE and few of its subsidiaries, pursuant to which BCRE borrowed from various lenders $10.25 million under the terms as detailed in the agreement with a maturity date of 31 December 2018. As a security for the loan, BCRE's subsidiaries pledged their rights in BCRE Funding Holdings LLC. A trust having Shimon Weintraub as its beneficiary signed a loan agreement as lender on the same terms as the other third party lenders.

A loan agreement was entered into in December 2015 by BCRE, pursuant to which BCRE borrowed from a trust having Ronen Peled as its beneficiary the amount of $2.6 million under the terms as detailed in the agreement with a maturity date of 16 February 2017. As a security for the loan, BCRE's subsidiaries pledged its rights in BCP shares. This loan will be converted into Bonds upon the first issuance of Bonds under the Programme if still outstanding.

1.4.3 Distribution

Following a capital reduction in March 2016, the Company distributed approximately €4.8 million (€0.03 per share) to its shareholders in April 2016, in line with its dividend policy. This follows the capital reduction of €0.03 per share totalling to approximately €4.8 million made by the Company for the year 2014 and which was paid in January 2015.

1.4.4 Rating

In November 2015, Midroog has reaffirmed the credit rating of Company's Series A, B and C of A2 on a local Israeli scale, changing the outlook from Credit Review with negative implications to negative outlook.

1.5 CORPORATE GOVERNANCE STATEMENT

1.5.1 Directors and senior managers

Directors of the Company (the "Directors")

Senior managers

1.5.2 Introduction

As a company, whose shares are admitted to the standard listing segment of the Official List of the UK Listing Authority, the Company is not required to comply with the requirements of the UK Corporate Governance Code published by the Financial Reporting Council ("FRC") in 2014 (the "Corporate Governance Code"). However, the board of Directors of the Company (the "Board") acknowledges the importance of good corporate governance and has put in place a framework which enables the Company to voluntarily comply with some aspects of the Corporate Governance Code as described below and which, in the opinion of the Directors, is appropriate for the Group.

The Directors are committed to maintaining a high standard of corporate governance and intend to continue to comply with those aspects of the Corporate Governance Code which they consider appropriate, taking into account the size of the Company and the nature of its business.

The Company is also subject to the Dutch Corporate Governance Code, which applies, among others, to all companies whose registered offices are in the Netherlands and whose shares have been admitted to listing on a stock exchange or to trading on a regulated market, whether in the Netherlands or elsewhere.

The Corporate Governance Code and the Dutch Corporate Governance Code are mainly based upon the same or at least comparable principles of good corporate governance. However, as the Company has decided to voluntarily comply with the Corporate Governance Code, it shall not comply with the Dutch Corporate Governance Code.

The Corporate Governance Code can be found on the FRC website at: www.frc.org.uk and the Dutch Corporate Governance Code can be found at: www.commissiecorporategovernance.nl.

1.5.3 Board composition, roles and independence

The Corporate Governance Code recommends that the board of directors of a listed company should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the board's decision making. The Corporate Governance Code also recommends that the chairman should, on appointment, be independent. The Company currently has five Directors (biographies are set out in Section 1.5.1), three of whom are non-executive Directors: Harin Thaker, Jan van der Meer and Daniel Aalsvel and two executive Directors: Michiel Olland and Luca Tomesani Melotti. One non-executive Director, Daniel Aalsvel, is regarded by the Company as being independent of management and free from any business or other relationship that could materially interfere with the exercise of his independent judgement. Jan van der Meer has been on the Board since 2007 when he was first appointed as an executive Director before being appointed as a non-executive Director in 2014. Harin Thaker (non-executive Chairman) is not technically independent given that he was appointed as an executive Director of the Company in October 2013 before being appointed as a non-executive Director in 2014, was a director of BCRE UK Limited (in relation to which he has been granted co-investment rights) and is a member of the Investment Advisory Committee. Harin Thaker also has co-investment rights in the Group's lending business. However, the Board considers that his extensive experience of European real estate makes him appropriate to be Chairman notwithstanding his other involvement in the Group's business. This and the number of independent non-executive Directors does not comply with the recommendation of the Corporate Governance Code that the chairman should on appointment be independent. Jan van der Meer is the current chairman of BCRE Germany. Luca Tomesani Melotti holds indirectly shares in the Company and has co-investment rights in the Group business.

The independence of non-executive Directors is based on criteria suggested in the Corporate Governance Code. The Corporate Governance Code recommends that the Board should appoint one of its independent non-executive Directors as Senior Independent Director. At present, the Company does not intend to appoint any Director to fulfil this role (given the limited size of the Board) but may decide to do so in the future.

The Directors of the Company, have entered into letters of appointment with the Company for an initial period ending the first day following the annual General Meeting to be held in 2015 after which their agreements are renewable upon their re-appointment. The agreements may be terminated by either the applicable Director or the Company by giving the other party three months' notice in writing. These are available for inspection at the Company's registered office during the normal business hours and are also available at annual General Meetings.

Pursuant to the articles of association of the Company ("Articles"), a Board member shall be appointed or re-appointed for a period ending on the first day following the annual General Meeting held in the year after his appointment, unless the resolution provides for a longer or shorter term. This is consistent with the Corporate Governance Code which recommends that all directors should be subject to re-election by shareholders at intervals of no more than three years after the first annual General Meeting after their appointment.

The Board has responsibility for the Group's strategic, financial policies and general business activities and meets regularly. All the Directors have access to the advice and services of the Company Secretary and are able to gain access to external independent professional advice at the Company's expense should they wish to do so in relation to their duties. The Company offers to all the Directors the possibility to regularly update and refresh their skills and knowledge. The new appointed Directors receive an induction training offered by the Company. Further details of the Board's powers and function are described in Section 1.5.13.

An appropriate balance of executive and non-executive members of the Board is maintained and the Board is supplied with regular and timely information concerning the activities of the Group in order to enable it to exercise its responsibilities and control functions in a proper and effective manner. The Board has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board's composition can be managed without undue disruption.

1.5.4 Board meetings and Committees attendance

1. Chairman of the Remuneration Committee.

2. Chairman of the Nomination Committee.

3. Chairman of the Audit Committee.

4. Luca Tomesani Melotti was appointed on 30 June 2015. He was eligible to attend six out of the eleven meetings of the Board.

* Attended the meeting by invitation (not a Committee member)

The Board considers agenda items laid out in the notice of Board meetings and agendas which are formally circulated to the Board in advance of the Board meetings as part of the Board papers and therefore Directors may request any agenda items to be added that they consider appropriate for Board discussion. In instances when the Chairman is not present, the members of the Board present shall appoint a Director from among them to chair that meeting. Each Director is required to inform the Board of any potential or actual conflicts of interest prior to Board discussion. Each Director contributes positively to Board and where relevant Committee meeting deliberations. The primary focus at Board meetings is a review of the Company's strategy and management, regular business activities and other matters such as financing arrangements, risk management, general administration and compliance.

1.5.5 Board effectiveness

The Corporate Governance Code recommends that the board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. Taking into consideration the fact that the Board and Committees were established in May 2014, the first performance evaluation of the Board was undertaken in April 2015. On 25 February 2016, the Chairman of the Board has reviewed the performance of the current Board based on the following factors and questions: i) the appropriate composition of the Board with the right mix of knowledge and skills; ii) the internal and external Board relationships; iii) the level of interaction between non-executive and executive Directors; iv) interaction between the Board and its main committees and between the committees themselves; v) interaction between the Board and the executive management; and vi) the operation of the Board, including the conduct of Board meetings. The outcome of the Board evaluation was approved as being satisfactory. The evaluation of the individual Directors was conducted by the Board Chairman by means of phone calls to each Director and concluded during a Board meeting on 25 February 2016. The evaluation of the Chairman was led by Daniel Aalsvel in his capacity of independent non-executive director. The results of the evaluation of the individual Directors and of the Chairman were satisfactory and new targets were set. The evaluation of the Board committees was undertaken in November 2015 by means of completing a self-evaluating questionnaire by the committees and concluded by the Board as being satisfactory with some recommendations to action during 2016 sent to the committees. The results of the committees' evaluations for the year 2015 were reconfirmed by the Board and its committees on 25 February 2016.

The roles of the Chairman and the Chief Executive Officer are separate and clearly defined. The scope of these roles is approved and kept under review by the Board so that no individual has unfettered decision-making powers.

The Chairman is responsible for the leadership and governance of the Board and the Chief Executive Officer, for the management of the Group and the implementation of the Board strategy and policy on the Board's behalf. In discharging his responsibilities, the Chief Executive Officer is advised and assisted by the other members of the senior management. Biographies of the Chief Executive Officer and the other members of the senior management team are set out in Section 1.5.1.

During the financial year, the Board held eleven Board meetings. In addition, the Board held discussions with the senior management team on a regular basis during 2015. Several meetings of non-executive directors were held during 2015.

1.5.6 Directors' duties

The Directors have adopted a set of reserved powers, which establish the key purpose of the Board and detail its major duties. Full details are set out in the Regulations for the Board of Directors, available on the BCRE website at: www.brack-capital.com

These duties cover the following areas of responsibility:

· statutory obligations and public disclosure;

· strategic matters and policy designed to achieve the Company's objectives;

· financial reporting process;

· annual budget and important capital investments;

· financing of the Company;

· oversight of management;

· risk assessment and management, including reporting;

· monitoring, governance and control; and

· corporate social responsibility issues.

These reserved powers of the Board have been adopted by the Directors to clearly demonstrate the seriousness with which the Board takes its fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of its actions.

1.5.7 External appointment of Directors

Directors may hold directorships or other significant interests with companies outside of the Group which may have business relationships with the Group. Executive Directors may not be a member of a supervisory board or act as a non-executive board member of more than one other large Dutch company or FTSE 100 company. Such appointment requires approval of the Board. Nor can an executive Director be chairman of a supervisory board or one-tier board of another large Dutch company or FTSE 100 company. Other positions held by the executive Directors must be notified to the Board. A non-executive Director may not be a member of a supervisory board or non-executive director of more than four other large Dutch companies. Being chairman of a supervisory board or a one-tier board counts as double. Such membership requires approval of the Board. Other positions held by a non-executive Director must be notified to the Board.

1.5.8 Directors' indemnities and protections

The Company has arranged appropriate insurance cover in respect of any legal action against Directors and senior members of companies within the Group. In addition, according to the Articles of the Company, the Company indemnifies the Directors and officers of the Company in respect of liabilities incurred as a result of their office.

1.5.9 Board Committees

In accordance with the Corporate Governance Code, the Company has established the following Committees in order to carry out work on behalf of the Board: an Audit Committee, a Remuneration Committee and a Nomination Committee. Only the chairman and members of each of the Audit, Remuneration and Nomination Committees are entitled to attend meetings, although others may attend by invitation of the relevant committee. In addition, the Company has established an Investment Advisory Committee. Terms of reference for the Audit, Remuneration and Nomination Committees are available on BCRE's website at: www.brack-capital.com.

Audit Committee

The Audit Committee is comprised of Harin Thaker (non-executive Chairman), Michiel Olland (executive Director) and Daniel Aalsvel (independent non-executive Director). Daniel Aalsvel chairs this committee.

The Board considers that the members' substantial experience of dealing with financial matters is more than adequate to enable the Audit Committee to properly discharge its duties in light of the nature of the Company's business. Michiel Olland has recent and relevant financial experience. There have been five Audit Committee meetings during 2015.

For further details in respect of the Audit Committee's role, function and responsibilities, please refer to the Audit Committee Report in Section 1.8.

Remuneration Committee

A Remuneration Committee has been established and comprises Harin Thaker (non-executive Chairman), Daniel Aalsvel (independent non-executive Director) and Jan van der Meer (non-executive Director). Harin Thaker chairs this committee, contrary to the recommendation of the Corporate Governance Code that recommends the Chairman of the Board may be a member of, but not chair, this committee provided he was independent on appointment as Chairman.

The Remuneration Committee advises the Board on an overall remuneration policy. The Remuneration Committee also proposes individual remuneration of the Chief Executive Officer, Chief Financial Officer, the Chairman of the Board (if the Chairman is an executive Director), the executive Director, the Company secretary, and such other members of the senior management of the Company to whom the Board has extended the remit of the Remuneration Committee. The remuneration of all Directors (including non-executive Directors and members of the Remuneration Committee) shall be determined by the Board within the limits set in the Articles and within the scope of the remuneration policy of the Board adopted by the annual General Meeting on 2 February 2015, provided that no Director or senior manager shall be involved in any decisions as to his or her own remuneration. The Remuneration Committee advises the Board on an overall remuneration policy and meets as and when required. The Remuneration Committee also determines, on behalf of the Board, the remuneration packages of the executive Directors.

There have been five Remuneration Committee meetings during 2015.

Further details in respect of the remuneration of the Directors are contained in the Remuneration Report in Section 1.7 and in Note 30 in the explanatory notes to the Consolidated financial statements.

Nomination Committee

A Nomination Committee has been established and comprises Harin Thaker (non-executive Chairman), Michiel Olland (executive Director) and Daniel Aalsvel (independent non-executive Director). Michiel Olland chairs this committee, but in accordance with the provisions of the Articles, as an executive Director, he does not take part in the decision-making process on the nomination of Board members. As such, Michiel Olland did not participate in the decision-making process relating to the nomination of Luca Tomesani Melotti to be appointed as a Board member.

The Nomination Committee leads the process for Board appointments and makes recommendations to the Board. The Nomination Committee also reviews the structure, size and composition of the Board and makes recommendations to the Board with regard to any changes. The Nomination Committee also gives consideration to succession planning for Board members and senior management and keeps under review the leadership needs of the Company.

During 2014 and 2015, when selecting candidates for vacant seats on the Board, female candidates of the desired profile were not found. However, when filling future vacancies, the Board will continue to strive to identify female candidates and nominate them for appointment at a General Meeting.

The Company primarily considers skills, experience and background for internal appointments, ensuring that appropriate candidates are appointed.

There have been five Nomination Committee meetings during 2015.

Investment Advisory Committee 

An Investment Advisory Committee has been established, (although not required under the Corporate Governance Code), to consider and provide advice only to the Board in respect of new acquisitions, asset management, financing and disposal of the Group's assets or, in relation to the German platform, the acquisition and disposal of shares in BCRE Germany. The committee provides an independent evaluation on market movements, assessing their impact on the Group's portfolio over the medium to long term and makes recommendations to the Board concerning potential investments and/or the management of risks associated with the Group's investments.

1.5.10 Communications with shareholders

The Board is accountable to the Company's shareholders and as such it is important for the Board to appreciate the aspirations of the shareholders and equally that the shareholders understand how the actions of the Board and short-term financial performance relate to the achievement of the Company's longer-term goals.

The Board reports to the shareholders on its stewardship of the Company through the publication of interim and final results each year. Regulatory news releases are issued throughout the year and the Company maintains a website: www.brack-capital.com on which regulatory news releases and the Annual Report and Accounts are available to view. Additionally, this Annual Report contains extensive information about the Company's activities. Enquiries from individual shareholders on matters relating to the business of the Company are welcomed. The Board and senior management also discuss with major shareholders the progress of the Company and to understand their issues and concerns, as well as discussing governance and strategy.

The senior management, as necessary, provides periodic feedback to the Board following discussions with shareholders.

The annual General Meeting provides an opportunity for communication with all shareholders and the Board encourages the shareholders to attend and welcomes their participation. Members of the Board attend the annual General Meeting and are available to answer questions.

1.5.11 Internal controls

The Board has overall responsibility for the Group's system of internal control and for reviewing its adequacy and effectiveness. Such system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and aims to provide reasonable but not absolute assurance against material misstatement. In order to discharge that responsibility in a manner that ensures compliance with laws and regulations and promote effective and efficient operations, the Directors have established an organisational structure with clear operating procedures, lines of responsibility and delegated authority. These are designed to safeguard the assets of the Group and to ensure the reliability of financial information for both internal use and external publication.

The Audit Committee reviews the adequacy and effectiveness of the Group's internal control policies and procedures for the identification, assessment and reporting of risks.

The Group's internal control procedures include Board approval for all significant capital investment projects. All major expenditures require either senior management or Board approval at the appropriate stages of each transaction. A system of regular reporting covering both technical progress of projects and the state of the Group's financial affairs provides appropriate information to management to facilitate control. The Board reviews, identifies, evaluates and manages the significant risks that the Group faces. Section 0 1.9.2 sets out in detail the key risk factors relating to the strategy of the Company. The Group has in place internal control and risk management systems in relation to the Group's financial reporting process and the Groups' process for preparing financial statements. These systems include policies and procedures to ensure that adequate accounting records are maintained and transactions are recorded accurately and fairly to permit the preparation of financial statements in accordance with the applicable accounting standards.

The Directors, having reviewed the effectiveness of the system of internal financial, operational and compliance controls and risk management, consider that the system of internal control operated effectively throughout the financial year and up to the date the financial statements were signed.

1.5.12 Share dealing code

The Company has adopted a share dealing code which is compliant with the Dutch Financial Supervision Act and is broadly consistent with the provisions of the Model Code on directors' dealings in securities (as set out in the Listing Rules of the UK Listing Authority). The share dealing code applies to the Directors and other relevant employees of the Group.

1.5.13 Board responsibility and powers

The Articles provide that the number of directors shall be determined by the General Meeting, and shall consist of at least one and no more than four executive directors and at least two and no more than six non-executive directors. The Board members are collectively responsible for the Company's management, the general affairs of the Company's business and the general affairs of the group companies affiliated with the Company. The Board is responsible for complying with all relevant laws and regulations, for managing the risks associated with the Company activities and for financing the Company. The division of tasks and responsibilities in the Board as well as its operating procedures are established in the Articles and the Board's regulations. The Articles and the regulations are available on BCRE's website at www.brack-capital.com.

The Board is entrusted with the management of the Company. Under Dutch law, the Board is collectively responsible for the general affairs of the Company. Pursuant to the Articles, the Board may divide its duties among its members. Tasks that have not been specifically allocated fall within the power of the Board as a whole. The distinction between executive Directors and non-executive Directors implies at least that the executive Directors shall in particular be entrusted with the day-to-day management of the Company and the enterprise connected with it and that the non-executive Directors shall have the duty of supervising the Directors performing their duties. This last duty cannot be deprived from the non-executive Directors by means of an allocation of duties. In addition, both executive Directors and non-executive Directors must perform such duties as are assigned to them pursuant to the Articles and, as applicable, the Company's board regulations. Each Director has a duty towards the Company to properly perform the duties assigned to him or her. Furthermore, each Director has a duty to act in the corporate interest of the Company. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as shareholders, creditors, employees and other stakeholders.

Pursuant to Dutch law and the Articles, an executive Director may not be allocated the tasks of: (a) serving as chairperson of the Board; (b) fixing the remuneration of the executive Directors; or (c) nominating Directors for appointment. Nor may an executive Director participate in the adoption of resolutions (including any deliberations in respect of such resolutions) related to the remuneration of executive directors. The non-executive Directors appoint a chairperson of the Board from among the non-executive Directors.

The Company may be represented by the Board. In addition, each Director shall also be authorised to represent the Company.

1.5.14 Appointment and dismissal of Directors

Appointment

Pursuant to the Articles, the Directors shall be appointed by the General Meeting from a nomination drawn up by the Board. Pursuant to Dutch law and the Articles, executive Directors may not take part in the decision-making process regarding the nomination of Directors. If and for as long as BCI - Brack Capital Investments Ltd ("BCI") holds at least 25% of the Company's shares or depositary interests representing Company's shares, it is entitled to draw up the nomination of one Board member. During 2015, BCI has not exercised this right.

Upon appointment, the General Meeting may determine whether the Director shall be appointed as an executive Director or as a non-executive Director. A nomination made in time by the Board (or BCI, as applicable) shall be binding. The General Meeting shall be free to make the appointment if the nomination has not been made within three months after the vacancy has arisen. Furthermore, the General Meeting can deprive a nomination of its binding character at any time by a resolution adopted with a majority of at least two-thirds of the votes cast, representing more than half of the issued share capital.

In the following cases, but only if BCI holds at least 25% of the Company's shares or depositary interests representing Company's shares, the binding nomination system as described above does not apply and the General Meeting is free to make the appointment of a Director:

(a) the General Meeting in which the appointment at hand is made was convened by or at the request of BCI; or

(b) the proposal to appoint the Director at hand was placed on the agenda at the request of BCI.

Suspension and dismissal

The Articles stipulate that a Director may be suspended or dismissed by the General Meeting at any time. A resolution of the General Meeting to suspend or dismiss a Board member requires a simple majority in the following cases:

(a) the General Meeting in which the resolution is adopted was convened by or at the request of BCI;

(b) the proposal to suspend or dismiss the Board member was placed on the agenda of the General Meeting at the request of BCI.

In all other cases a resolution to suspend or dismiss a Board member requires a majority of at least two thirds of the votes cast, representing more than half of the issued share capital.

An executive Director may also be suspended by the Board. The executive Directors shall not participate in the discussion and decision-making process of the Board on suspensions and dismissals. A suspension by the Board may be discontinued at any time by the General Meeting. Any suspension may be extended one or more times, but may not last longer than three months in the aggregate. If, at the end of that period, no decision has been taken on termination of the suspension or on dismissal, the suspension shall end.

1.5.15 General Meeting

General Meetings of shareholders are normally convened by the Board. Furthermore, shareholders, persons with depositary receipts rights and/or holders of depositary interests together representing at least ten percent (10%) of the Company's issued capital have the right to request the Board to convene a General Meeting, clearly stating the items to be dealt with. If (i) the request was made by BCI, (ii) at the moment of the request BCI held at least twenty-five percent (25%) of the shares and/or depositary interests and (iii) within four weeks from the date of the request, the Board has not proceeded to convene a General Meeting at such request, in such way that the General Meeting can be held within eight weeks after the receipt of the request, BCI may convene a General Meeting itself.

1.5.16 Amendment of the Articles

The General Meeting may resolve to amend the Articles at the proposal of the Board. A resolution of the General Meeting to amend the Articles is adopted by absolute majority of the votes cast. The General Meeting may furthermore resolve to change the corporate form of the Company. A change of the corporate form shall require a resolution to amend the Articles at the proposal of the Board. However, a resolution to an amendment that adversely affects the rights of the holders of depositary interests under the Articles requires a majority of at least two thirds of the votes cast, representing more than half of the issued capital.

1.5.17 Issuance of Company's shares

The Articles delegate the authority to issue shares in the capital of BCRE or grant rights to subscribe for shares to the Board. This authority of the Board: (a) relates to 28,918,340 shares in the capital of the Company during the period that commenced on 28 May 2014 and ends on the day of the annual General Meeting held in 2015, and (b) relates to 18,796,921 shares in the capital of the Company during the period that commenced on 28 November 2014 and that ends on the day of the annual General Meeting held in 2015 in addition to the number of shares in the capital of the Company set out under subsection (a) of this paragraph. Such authority may be extended, either by an amendment to the Articles, or by a resolution of the General Meeting, for a subsequent period of up to five years in each case. On 30 June 2015 the General Meeting approved to extend the authority to issue shares in the capital of BCRE or grant rights to subscribe for shares to the Board up to 10% of the issued share capital of the Company at the date of the Meeting being equivalent to 16,161,006 shares that ends on the day of the annual General Meeting held in 2016.

1.5.18 Acquisition of Company's shares

Subject to certain provisions of Dutch law and the Articles, the Company may acquire fully paid shares in its own capital if (a) its shareholders' equity less the payment required to make the acquisition, does not fall below the sum of the paid-in and called-up share capital plus the reserves as required to be maintained by Dutch law or by the Articles (such excess, the "Distributable Equity"), and (b) the Company and its subsidiaries would thereafter not hold shares or hold a pledge over the Company's shares with an aggregate nominal value exceeding 50% of the Company's issued share capital. Other than shares acquired for no consideration, shares may only be acquired if the General Meeting has authorised the Board thereto. This authorization shall remain valid for a maximum of 18 months. The Board was so authorised by the General Meeting on 15 May 2014 for a period of 18 months. At the General Meeting on 30 June 2015 this authorization was approved to extend for a period that ends on the day of the Annual General Meeting which will be held in 2016.

No authorization from the General Meeting is required for the acquisition of fully paid Company's shares for the purpose of transferring these shares to employees of the Company or any other member of the Group under a scheme applicable to such employees.

1.5.19 Depositary interests and the CREST system

In order to enable the trading of the Company's shares on the London Stock Exchange main market, the Articles permit the holding of shares under the CREST system. CREST is a paperless settlement procedure enabling securities to be transferred from one person's CREST account to another without the need to use share certificates or written instruments of transfer. CREST is a voluntary system and shareholders who wish to receive and retain shares will be able to do so. The Company's shares have been enabled for settlement in CREST on the date of admission to the London Stock Exchange.

To enable investors to settle the securities of non-UK registered companies through CREST, a depositary or custodian in the United Kingdom must hold the relevant securities and issue uncertificated depositary interests ("DIs") representing the underlying securities which are held in trust for the holder of the DIs. With effect from admission of BCRE to the London Stock Exchange, it is possible for CREST members to hold and transfer DIs in respect of Company's shares within CREST pursuant to a depositary interest arrangement established between the Company and Capita IRG Trustees Limited (the "Depositary"). From a practical perspective, DIs can be credited to the same member account as all of the other CREST investments of a particular investor and held and transferred in the same way as the securities of any other company participating in CREST.

Holders of DIs do not have the rights which Dutch law confers on shareholders, such as voting rights. In respect of the shares underlying the DIs those rights vest in the Depositary (or its custodian). Consequently, if the holders of DIs wish to exercise any of those rights they must rely on the Depositary (or its custodian) to either exercise those rights for their benefit or authorise them to exercise those rights for their own benefit. Pursuant to the deed poll which creates the DIs, the Depositary (or its custodian) must pass on to, and so far as it is reasonably able, exercise on behalf of the relevant holders of DIs all rights and entitlements which it receives or is entitled to in respect of the underlying shares and which are capable of being passed on or exercised.

1.5.20 Major shareholders

The Company is aware of the following persons who are interested, directly or indirectly, in more than 3% of the shares in the Company's capital. According to the public register of the Dutch Authority of the Financial Markets, as per 14 April 2016 this interest was as follows: S. Weintraub 46.67%, Medinol Ltd. 6.72%, Warburg Pincus Real Estate I L.P. 4.92% and L.J. Schreyer 4.37%.

Shimon Weintraub is the controlling shareholder of the Company. On 21 May 2014, the Company and each of BCI, BCH - Brack Capital Holdings Limited and Shimon Weintraub entered into a controlling shareholders agreement, pursuant to which they have each undertaken to the Company to not pursue any real estate opportunities (subject to certain exceptions) without first referring them to the Company for consideration. Under the agreement, each of BCI, BCH - Brack Capital Holdings Ltd and Shimon Weintraub has agreed that all arrangements between such person and its respective associates on the one hand and each member of the Group, on the other hand, will be on arm's length terms and on a normal commercial basis.

Furthermore, the Articles stipulate that a Board member shall not participate in deliberations and the decision-making process in the event of a direct or indirect personal conflict of interest between that Board member and the Company and the enterprise connected with it. If there is such personal conflict of interest in respect of all Board members, the preceding sentence does not apply and the Board shall maintain its authority.

1.6 DECREE ARTICLE 10 TAKEOVER DIRECTIVE

With regard to the information referred to in the Decree Article 10 Takeover Directive (2004/25/EC) which is required to be provided according to Dutch law, the following can be reported:

· BCRE has an authorised share capital consisting of 700,000,000 ordinary shares. On 31 December 2015, 161,610,064 shares with a nominal value of €0.01 were issued and fully paid up. Following the decision of the General Meeting held on 15 January 2016, the nominal value of the shares has been increased from €0.01 to €0.04 on 15 January 2016 with a view to the announced distribution which will be effected by means of a capital reduction (as referred to in paragraph 1.4.4 above).

· There are no restrictions on the transfer of shares.

· Information on major shareholders can be found above in Section 1.5.20.

· If and for as long as BCI holds at least 25% of the Company's shares or depositary interests representing Company's shares, it is entitled to draw up the nomination of one Board member, please refer to Section 1.5.14.

· The Company is a party to an employee option plan pursuant to which the Board may grant options from time to time to employees of BCH - Brack Capital Holdings Ltd, BCI and S.I.B. Capital Future Market Ltd. Options may be exercised by the eligible employees to acquire shares in the Company against payment of the exercise price. For further details on employee option plans within the Group, please refer to Note 15 in the explanatory notes to the consolidated financial statements.

· There are no restrictions on voting rights on the Company's shares nor are the periods for exercising voting rights restricted.

· There are no agreements between the shareholders which are known to the Company that may result in restrictions on the transfer of securities and/or voting rights.

· The applicable provisions regarding the appointment and dismissals of the member of the Board and amendments to the Articles are set forth above, please refer to Section 1.5.14 and 1.5.16.

· The powers of the Board regarding the issue of shares and the exclusion of pre-emptive rights and the repurchase of shares are set forth above, please refer to Section 1.5.17 and 1.5.18.

· The bonds issued by the Company in November 2014 include change of control provisions. A change of control event occurs in case any person other than BCI shall become interested in (i) more than 50% of the issued share capital of the Company, or (ii) shares in the capital of the Company carrying more than 50 per cent of the voting rights normally exercisable at a General Meeting. Please refer to the bonds prospectus that is available on the Company's website at www.brack-capital.com. Under the update bond programme similar provisions apply for the new issuance of bonds.

· There are no agreements between the Company and its Board members or employees providing for compensation if they resign or are made redundant without valid reason or if their employment ceases, all because of a takeover bid.

1.7 REMUNERATION REPORT

In accordance with Dutch law and the Articles, the Company has a policy with respect to the remuneration of the Board. Executive Directors may not take part in the decision-making process in respect of the remuneration of executive Directors. The Board has established a remuneration committee of one independent non-executive Director and two non-independent non-executive Directors. The aim of the remuneration committee is to ensure that there is a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors.

Executive Directors

On 30 June 2015 Luca Tomesani Melotti was appointed as an executive Director.

The remuneration package for the executive Directors is fixed and is payable monthly in arrears. Michiel Olland and Luca Tomesani Melotti are both entitled to a basic annual salary of €40,000 (less any tax and / or social security contributions).

Non-executive Directors

The remuneration packages for the non-executive Directors are fixed, except for Harin Thaker, who, in his capacity as a member of the Investment Advisory Committee, had been granted a share option (as described under section 'Variable income' below) in addition to his fixed remuneration and co-investment rights in the US.

Harin Thaker, Jan van der Meer and Daniel Aalsvel are each entitled to a basic annual salary of €30,000 (less any tax and / or social security contributions) payable monthly in arrears. In addition, Harin Thaker, in his capacity as a member of the Investment Advisory Committee, receives an additional annual salary of €168,700 or its equivalent in any other currency and is fixed at GBP 122,500 annually.

Variable income

Harin Thaker, the Chairman of the Board, has an option to purchase 2.5% of the equity of any deal in which BCRE UK Properties B.V. ("BCRE UK") invests in accordance with the following terms: (a) term: 36 months from the closing of each deal; (b) exercise price: 2.5% of the equity invested by BCRE UK and the Co-investment Club, adjusted for distributions and additional investments; and (c) type: regular or cashless as determined by Harin Thaker at the time of the exercise.

On 8 January 2016, Harin Thaker exercised his option to purchase 2.5% equity in Fountain Court, Manchester using the cashless type. Following the sale of the Fountain Court, Harin Thaker realised a profit GBP 46,979 (€58,000).

Remuneration policy

The remuneration policy regarding the remuneration of the Board, as proposed by the Company's remuneration committee, has been adopted by the General Meeting on 2 February 2015. The remuneration policy is available on Company's website at www.brack-capital.com.

1.8 AUDIT COMMITTEE REPORT

Audit Committee

The Audit Committee is comprised of Harin Thaker (non-executive Chairman), Michiel Olland (executive Director) and Daniel Aalsvel (independent non-executive Director). Daniel Aalsvel is the chairman of this committee.

Role

The Audit Committee assists the Board in observing its responsibility of ensuring that the Group's financial systems provide accurate and up-do-date information on its financial position and that the published consolidated financial statements represent a true and fair reflection of this position. It also assists the Board in ensuring that appropriate accounting policies, internal financial controls and compliance procedures are in place.

The Audit Committee receives and reviews information from the Chief Financial Officer, the Company Secretary and the external auditors regularly throughout the year and upon request.

External auditors

EY Netherlands are the Company's current external auditors.

The Audit Committee considers the appointment of the external auditors and reviews their terms of appointment and negotiates fees on behalf of the Company prior to making recommendations through the Board to the shareholders to consider at the General Meeting.

EY Netherlands was recommended by the Audit Committee and proposed to the Board to be appointed as the statutory auditor starting with the audit of the financial statements for the year ended 31 December 2014 and this appointment was approved by the General Meeting on 2 February 2015. There was no tender for the audit contract. Under Dutch law there is no requirement to re-appoint the external auditor each financial year to hold office until the conclusion of the next general meeting when the accounts are laid before the meeting. An auditor, whose appointment has been approved by the general meeting of shareholders, will remain in office until such time as that auditor is replaced and the new auditor is approved at the general meeting. EY Israel is the auditor for the non-statutory accounts and EY Netherlands is the auditor for the statutory accounts.

In accordance with corporate governance requirements, the Audit Committee reviewed on 17 November 2015 the independence and objectivity of the external auditors and has reported to the Board that it considers that the external auditors' independence and objectivity have been maintained.

To analyse audit effectiveness, the Audit Committee meets with senior management to discuss the performance of the external auditors without them being present. Separate meetings are also held with the external auditors without the presence of any member of the senior management, as requested.

The Audit Committee met on 13 April 2016 for the approval of the accounts. The Audit Committee recommended to the Board that:

(a) the Consolidated financial statements for the year ended 31 December 2015 give a true and fair view of the assets and liabilities, the financial position and profit or loss of BCRE and the undertakings included in the consolidation taken as a whole;

(b) the Company financial statements for the year ended 31 December 2015 give a true and fair view of the assets and liabilities, the financial position and profit or loss of BCRE;

(c) the additional management information report provided in the annual report gives a true and fair view of the situation on the balance sheet date and the state of affairs at BCRE during the financial year 2015 and the undertakings included in the consolidation taken as a whole; and

(d) the principal risks to which BCRE is exposed are described in the annual report. For a description of these risks, see Section 1.9 above.

No non-audit fees were paid to the external auditors during 2015.

Internal audit

The Company does not have an internal audit function. The Audit Committee will continue to monitor and review the need for an internal audit function.

Financial reporting 

Prior to submission to the Board, the Audit Committee monitors the integrity of the financial statements and annual accounts and confirms that they have been properly prepared in accordance with IFRS and the requirements of Dutch law.

The Audit Committee reviews the draft annual and interim reports before recommending their publication to the Board. The Audit Committee discusses with the relevant senior managers, as required, and external auditors the significant accounting policies, estimates and judgments applied in preparing these reports.

The Audit Committee or the Board or the senior management also reviews the reports to shareholders and any other public announcement concerning the Group's financial position and corporate governance statements.

During February 2016 and March 2016 the Audit Committee met in order to discuss and approve the valuations of all investments in Russia and the major investments in the US in relation to the 2015 Annual Report. The Audit Committee has held detailed discussions with the management and the Russia valuator in the presence of both external auditors with regards to the assumptions and methodology used in valuing these investments. The Audit Committee has also considered the auditor's approach to the valuation of these investments. The auditors did not report any significant differences between the valuations used by the Company and the work performed during the testing process. Based on their above review and analysis the Audit Committee concluded that they are satisfied with the valuation of investments.

Whistleblowing

The Company has a policy in place to receive, retain, investigate and act on employee complaints or concerns regarding accounting, internal controls and auditing matters.

Audit Committee attendance and meetings

The Audit Committee met five times during 2015 and received regular financial updates from the Chief Financial Officer on the Group's performance. All members of the Audit Committee attended all meetings. Certain other Board members also attended some of the audit committee meetings by invitation.

Throughout the year, the Audit Committee reviewed and considered the following:

· The financial information that is publicly disclosed, which included the accounts for the year ended 31 December 2015; and the interim results for the period ended 30 June 2015;

· The Annual Report 2014;

· The performance of the Group's assets throughout the year;

· The adequacy and effectiveness of the Group's internal control policies and procedures as per Section 1.5.11;

· Selection and recommendation of the external auditors; and

· Fees for the external auditors.

On behalf of the Board

Daniel Aalsvel

CHAIRMAN OF THE AUDIT COMMITTEE

1.9 RISK MANAGEMENT

The following section describes the Group's risk management and control system.

The risk management and control system forms an essential part of the business operations and reporting, and aims to ensure with a reasonable degree of certainty that the risks to which the Group is exposed are identifies and controlled adequately within the margins of a conservative risk profile

1.9.1 Risk Appetite

BCRE's approach to portfolio allocation is focused on the continuous monitoring and adjustment of its portfolio, ensuring diversification by country, asset class, currency, specification and development to income-producing properties. In addition to following an analytical approach to the investment decisions throughout the life cycle of a project, BCRE focuses on value addition to its properties through proactive asset and property management. Rigorous research & analysis and risk management are cornerstones to our business philosophy. BCRE's objective is to identify and execute, through its proprietary teams, opportunities in local markets by leveraging off its global investment, development and management experience.

BCRE, as part of its strategy which involves conservative underwriting, carries out continual high level reviews of the real estate sector in the markets in which it is present to ensure that it understands the opportunities they offer and reviews its existing portfolio in line with market movements. Our teams in the markets where the Group operates are vertically integrated and comprise of professionals with many years of experience in the real estate sector and ensures that Group operations, follow high standards of governance, procedures and documentation. The Group's highly experienced management team monitor the industry movements in their respective markets and globally to understand the impact of variables such as interest rates, investor demand, occupier demand, consumer demand and hospitality trends on our portfolio and potential opportunities under consideration.

The business in which BCRE is engaged inevitably involves risks. However, as mentioned in the Risk Management and other sections, the Company makes continuous efforts to balance and mitigate these risks through, among others , the use of different transaction and investments structuring methods. The Group has formulated guidelines for adhering to various compliance requirements and has implemented those through internal codes and regulations to ensure laws and regulations are adhered to.

The Risk Appetite of the Group varies from zero to moderate depending on the risk category as follows:

1.9.2 Key business risks

The key business risk factors relating to the strategy and operating activities aspect of the Group include the following:

Risks relating to the real estate sector

The Group is exposed to a number of specific real estate factors, including all of the risks inherent in the business of acquiring, developing, owning, managing and using real estate, changes in laws and governmental regulations, property valuations and fluctuations in the property markets generally and in the local markets where the Group operates. If any of these factors were to materialise and be adverse, they could have a material adverse effect on the Group's business, financial condition and prospects. Liquidity of real estate assets differs substantially between markets, asset classes and between development and investment and during the development stage. Many of the Group's assets are less liquid due to their location (mainly in emerging markets), type (requiring intensive management and/or deterring institutional investors) and their state of development (particularly in relation to uncompleted developments). Such illiquidity may affect the Group's ability to dispose of or liquidate some projects in a timely fashion and at satisfactory prices in response to changes in the economic environment, the local real estate market or other factors. The Group operates in highly competitive markets for investment opportunities. Competition in the real estate markets in the countries in which the Group invests may reduce investment opportunities and affect sale prices and occupancy and rental rates of the Group's properties.

The Group carries out continual high level reviews of the real estate sector in the markets in which it is present to ensure that it understands the opportunities they offer and reviews its existing portfolio in line with the market movements. Regular interaction and updates are presented by the local teams to senior management to gauge economic trends and analyse its impact on the Group's portfolio. Our teams in the markets where the Group operates are vertically integrated and comprise of professionals with many years of experience in the real estate sector.

Risks relating to the Group's business

The Group's financial performance depends, amongst other things, on the economic situation in the markets in which it operates. There is uncertainty, and there will always be uncertainty, regarding whether real estate markets in these countries will continue to develop, or develop at the rate anticipated by the Group, or that the market trends anticipated by the Group will materialise.

The Group's portfolio suffers from a relatively high exposure level to large developments and re-developments, which are, a retail and wholesale market development project in Kazan, Russia (the Company's part in the loss for 2015 is approximately €60 million), a residential and office development project in Düsseldorf, Germany and a conversion project in Manhattan, New York, United States (the Company's equity value as of December 2015 is approximately €37 million). A deterioration in any of these projects or local markets or economies, as well as the Group's failure to achieve its business objectives in any of them, might have a material negative effect on the Group's value, business and prospects. The Group's revenues from retail properties, Manhattan Hotels, and multifamily residential properties are exposed to the risk of changes in retail economic conditions, fluctuations in the value, occupancy levels, regulation and other factors.

The Group relies on its years of experience across asset classes and across geographies in which it is operating to manage the risks associated with the industry. The Group's highly experienced management team monitor the industry movements in their respective markets and globally to understand the impact of variables such as interest rates, investor demand, occupier demand, consumer demand and hospitality trends on our portfolio and potential opportunities under consideration.

Risks relating to property development

The real estate development projects executed by the Group require significant capital outlays for the land acquisition, the obtaining of various permits and investment preparation as well as during the construction stages. The Company's part in future development cost (to be incurred over the next few years) in the Company's current development assets is currently estimated at $250 million - $350 million (under the assumption that all developments are completed and none are sold). Hence, a 10% - 15% cost overrun in all of the development would result in an additional cost of $25 million - $50 million.

Due to extensive financing requirements, such ventures are typically associated with considerable risks. The Group relies on subcontractors for all of its construction and development activities. If the Group cannot enter into subcontracting arrangements on terms acceptable to it or at all, the Group will incur additional costs which will have an adverse effect on its business. The revenue stream in the business plan of developments is difficult to project long term, and estimation thereof exposes the Group to significant fluctuations to the projected profitability of a development project. Sites that meet the Group's criteria must be zoned for the activity designated in the business plan (such as retail, residential or any other relevant designation). In instances where the existing zoning is not suitable or in which the zoning has yet to be determined, the Group will apply for the required zoning classifications. If the Group does not receive zoning approvals or if the procedures for the receipt of such zoning approvals are delayed, the Group's costs will increase, which will have an adverse effect on the Group's business.

In particular, an important element in the success of the Group's development projects is the Group's ability to supervise the construction process and to complete its projects ahead of its budgeted completion date. The Group works across its platforms with strong and experienced management teams and keeps control over most of its projects. Project execution is controlled through in-house teams and performed through contractors / sub-contractors with proven track-records. The Group, with years of experience, maintains regular engagement with relevant authorities at regional level to ensure development proposals are in accordance with regulatory requirements.

Risks associated with the Group's investment property business

The Group's operations include the letting of business premises for commercial purposes and letting of residential units to occupiers. If the premises intended for this purpose are not completed on time, are different from those stipulated in the lease agreements, or are damaged, the Group may be exposed to the risk which may have a material adverse effect on the operations, financial standing or results of the Group. The Group may be subject to the risk in maintenance of the properties and increases in operating and other expenses. The Group may also take on additional costs and liabilities associated with existing lease obligations, and is dependent on attracting third parties to enter into lease agreements.

The Group continuously monitors its exposure to key tenants across income generating properties, including upcoming vacancies and breaks. It undertakes comprehensive analysis of the market in which properties are located with a deep understanding of market terms (such as rent, breaks, and tenant incentives.) and compare those with our properties to see the advantage and potential value addition our properties offer. The Group makes sure that its properties are offering competitive terms in the market and tenants are given incentives to continue their engagement with the Group. The Group's properties are managed internally through its dedicated highly experienced teams in order to keep control over the operations.

Risks related to the geographic markets in which the Group operates

The Group is subject to various risks related to its operations in Russia and India, including economic and political instability, political and criminal corruption and the lack of experience and unpredictability of the civil justice system. Operating in developing economies may be subject to various risks, which may include instability or changes in national or local government authorities, land expropriation, changes in taxation legislation or regulation, changes in the terms and conditions of permits, changes to business practices or customs, changes to laws and regulations relating to currency repatriation and limitations on the level of foreign investment or development. In addition, German legal requirements may impose additional obligations on the Group and its portfolio in Germany.

The Group, while operating in its markets ensures that its operations, follow high standards of governance, procedures and documentation. In order to achieve this, the Group utilises its years of experience and operations across geographies, and avails services of top professional advisors in each of the markets it operates.

Risks related to the hotel portfolio of the Group

The Group's revenues from hotel properties are exposed to the risk of changes in economic conditions, lodging demand, fluctuations in the value, occupancy levels and daily room rate. The hotel portfolio in which the Group is interested is subject to certain risks common to the hotel industry. The Group currently has interests in one hotel development property in Manhattan, two operating hotels in Manhattan and one operating hotel in Hamburg. The Group's operations and the results of its operations are subject to a number of factors that could adversely affect its business, many of which are common to the hotel industry and beyond the Group's control. The impact of any of these factors (or a combination of them) may adversely affect room rates and occupancy levels in the Group's hotels, or otherwise cause a reduction in the Group's rental streams generated from its hotel properties. Such factors (or a combination of them) may also adversely affect the value of the Group's hotels and in either such case would have a material adverse effect on the Group's business, financial condition and results of operations.

Risks relating to the Group's operations in Russia

Political developments, including the range of sanctions and their extension, the drop in oil prices and the considerable depreciation of the Russian Rouble had a significant negative affect on the Russian economy over the last year. Russia's involvement in political and military conflicts in the Middle East and Eastern Europe adds to the instability in the region. Overall, the situation in Russia continues to be volatile and events can still develop in various adverse directions and magnitudes. If these were to materialise, the Russian economy could be dragged into a prolonged recession or stagnation with a significant negative effect on the business of the Group. The deterioration of economic situation in Russia could be sharp and quick with further negative consequences on general macroeconomic conditions and the willingness of international tenants to operate in Russia and/or to enter into leases, particularly US denominated leases.

The Group may be subject to various risks relating to the imposition of sanctions by various regimes on Russia. Such sanctions currently include, among others, the imposition of visa bans, the blocking of property and interests in property, trade and investment restrictions and other sanctions including sectoral sanctions against state owned banks and capital raises in the EU and the US.

The economic deterioration in Russia impacted the overall operations of our Russian assets during the period and resulted in reduction of valuation of our assets.

The Group is operating with a hands-on approach in Russia with our local team. The Group's management is closely monitoring developments at macro level in Russia and at micro level in its assets. The local team in Russia continue to work closely on ground with tenants in our properties. In light of the overall economic situation, necessary adjustments are continuing to be made with tenants.

1.9.3 Main financial risks and others

The Company's main financial risks and risk factors relating to the financial position, financial reporting and regulatory aspect of the Group can be summarised as follows:

The Group may be subject to interest rate risk

To the extent that the Group incurs floating rate indebtedness, changes in interest rates may increase its cost of borrowing, impacting on its profitability and having an adverse effect on the Group's free cash flow, property valuation and the Group's ability to pay interest and principal (as the case may be) under the bonds issued by the Group and other loans.

Currently the Group undertakes various hedging arrangements, including interest rate swaps and caps, but it does not fully hedge against interest rate fluctuations. In the case of interest rate swap arrangements, a reduction of the relevant market interest rates would cause the market value of the swap contract to become negative, with a corresponding negative effect of the Group's net value.

The Group is exposed to changes in foreign currency exchange rates

The Group's reporting currency is Euro but a number of the Group's subsidiaries and affiliates operate in jurisdictions outside the Eurozone. In many of the Group's properties and developments, particularly in the US, Russia and India, the entire cash flow of the project is denominated in non-Euro currencies, including purchase of plot or property, all the investment, development and operating costs, financing and revenues. The exchange rates between these currencies and the Euro may fluctuate significantly. Weakening of one or more of these non-Euro currencies against the Euro, and in particular the US, may have a negative impact on the financial position of the Group and results of operations.

The Group seeks to reduce these risks by matching, in each project, the currency denomination of its principal liabilities (financing and construction) and its principal sources of revenue (sale proceeds and rentals). Where such matching is not possible, the exposure of the Group to changes in currency exchange rates is even higher, and may adversely affect further the Group's profits and cash flows. In some cases, the Group may succeed in matching the currency in lease agreements to the currencies of the loans (for example, both may be in US in a Russia retail project), but the income of the tenant would still be in local currency (RUB in that example). In such cases, a weakening of the local currency, while legally not affecting the tenant's obligation to pay in US, would reduce his profitability and weaken his ability to pay rent, thus creating for the Group an additional, indirect, exposure to changes in the local exchange rates. This phenomenon occurred most recently in Russia, whereby the ability to pay rent of tenants with leases denominated in US have been severely compromised by the strong devaluation in the Rouble / US rate of exchange, creating a situation where BCRE Russia - as most other landlords - had no choice but to reduce the required payment to adjust to the market reality. There is also a risk due to a US denominated loan and income which is inherently linked to the Rouble: if the Rouble weakens, the equivalent value of the income in US terms is reduced, but the obligation to repay the principal remains constant. Additionally, the loan coverage ratio (the rent divided by the loan) is reduced.

Risks relating to regulation and taxation

The Group currently operates in several highly regulated markets. A variety of laws and regulations of local, regional, national and EU authorities, including planning, zoning, environmental, health and safety, tax and other laws and regulations must be complied with by the Group. If the Group fails to comply with these laws and regulations, it may have to pay penalties or private damage awards. In addition, changes in existing laws or regulations, or their interpretation or enforcement, could require the Group to incur additional costs in complying with those laws, alter its investment strategy, operations or accounting and reporting systems, leading to additional costs or loss of revenue, which could materially adversely affect the Group's business, results of operations and financial condition.

The Group and its subsidiaries conduct its business and structure their respective property investments in each relevant country in a manner which, based on professional advice, complies with the regulations and seeks to optimise their respective tax position in those countries.

Risks relating to the Group's borrowings

The Group's borrowings and any outstanding bonds issued by the Company could have a significant impact on the Group's business, financial condition and/or results of operations. 25% of the principal of Series C bonds will be repaid by December 2018. During this period, approximately €57 million will be redeemed under the Series A Notes and Series B Notes.

The Group's existing bank borrowings could have a significant impact on the Group's business, financial condition and/or results of operations. The ability of the Group to operate its business largely depends on being able to raise funds. There can be no assurance that the Group will be able to find lenders who are willing to lend on similar terms to those which apply to existing financing arrangements, or at all, or that existing financing arrangements will be able to be refinanced on similar terms, or at all, upon maturity. The Group operates at a certain level of leverage which it assesses to be suitable to its needs. An increase in the leverage could cause the risk level of the Group's business to increase.

However, the Group maintains relationships with a wide range of both banking and non-banking institutions/lenders, in each of its markets. Long-term relationships established in our main markets i.e. the USA, Germany and Russia, assists the Group to achieve financing for its assets. Our assets, especially in BCRE Germany, are leveraged at an appropriate LTV (loan to value) levels and with sufficient coverage ratios, and hence on maturity are attractive for refinance.

For further details on the bonds issued by the Company and BCRE Germany, please refer to Note 16 in the explanatory notes to the consolidated financial statements.

Risks relating to the Group's Financial Reporting

The Group operates across many financial jurisdictions and ensuring that all financial departments within the Group are reporting based on the same financial policies and delivering the same quality of reporting with trained, experienced finance staff is very important. The consolidated financial reports of the Group are being prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (IFRS as adopted by the EU). A material mispresentation of the Group's financial performance and reports may cause restatements on the financial reports which can have severe impact on our Group's reputation.

Some important risks which are associated with the preparation of the financial reports of the Group are the revenue recognition (revenues may be subject to improper recognition, inflating or misappropriating), the measurement of the fair value of investment property and investment property under construction and the meeting of the loan covenants.

Maintaining a sound financial control system over the financial reporting, setting up clear accounting policies within the Group and hiring professional finance staff can assist to reduce the risk that the financial reporting does not contain any errors of material importance.

Please note that the risks that the Company may incur are not limited to the risks as set forth in the Risk Management section. For further details, please refer to the Company's bonds prospectus dated 3 March 2016 and the Company's listing prospectus dated 21 May 2014 as available on the Company's website at www.brack-capital.com.

1.9.4 Risk and Control Framework

The set-up and functioning of the related internal risk management and control systems are periodically evaluated and discussed with the Audit Committee and the Board. Our risk management framework is transparent capturing the main risks which are relevant to our business. We continuously reassess the methodologies used in our risk management framework. 

The Board is in the process of creating a Risk Matrix and a control process of continuous update and monitoring in order to ensure that all the risks are being identified and dealt with on time.

1.10 STATEMENTS

1.10.1 Going concern

The Board has reviewed the current and projected financial position of the Group, making reasonable assumptions about future performance. After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. This has led the Board to conclude that it is appropriate to prepare the 2015 financial statements on a going concern basis.

1.10.2 Viability statement

In addition to the going concern assessment, the Board has considered the viability of its business. Provision C2.2 of the 2014 Code requires that the Board assess the prospects of the Group over an appropriate period of time selected by the Board. The Board has considered whether the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period from approval of this Annual Report, taking into account the Group's current position, business plan and budgets relevant to the Group's projects ('Business Plan'') and the main risks stated in the risk management section above.

The assessment, which reflects the Group's strategy, Business Plan and associated main risks of the various business units across the Group, is underpinned by a detailed financial model which is based on a variety of assumptions about the key drivers of profit and cash flow. The financial model has been subject to sensitivity testing, which involves flexing a number of the main assumptions underlying the Business Plan and evaluation of the potential impact of the Group's main risks. Against these stress scenarios, the potential mitigation actions, which are expected to be available to the Group over the relevant timeframe, have also been considered. The sensitivity testing described above allows testing of both the cash flow and balance sheet outlook with respect to the Company's solvency, financial covenants and general performance based on a range of scenarios.

On this basis, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they mature over the three year period from approval of this Annual Report.

1.10.3 Directors' statement

The Board confirms that to the best of its knowledge the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

Furthermore, in view of all the above and with reference to the EU Transparency Directive (2004/109/EC), as amended by Directive (2013/50/EU), and section 5:25c paragraph 2 under c of the Dutch Financial Supervision Act (Wet op het financieel toezicht), the Board declares that to the best of its knowledge:

(e) the Consolidated financial statements for the year ended 31 December 2015 give a true and fair view of the assets and liabilities, the financial position and profit or loss of BCRE and the undertakings included in the consolidation taken as a whole;

(f) the Company financial statements for the year ended 31 December 2015 give a true and fair view of the assets and liabilities, the financial position and profit or loss of BCRE;

(g) the additional management information report provided in the annual report gives a true and fair view of the situation on the balance sheet date and the state of affairs at BCRE during the financial year 2015 and the undertakings included in the consolidation taken as a whole; and

(h) the principal risks to which BCRE is exposed are described in the annual report. For a description of these risks, see Section 1.9 above.

Shareholder enquiries

For information about the management of shareholdings please contact:

BCRE - Brack Capital Real Estate Investments N.V.

Barbara Strozzilaan 201

1083 HN Amsterdam

The Netherlands

Tel. 31 20 514 1000

Fax. 31 20 514 1009

Investor relations enquiries

Irina Scharow

Investor Relations Officer

investor.relations@brack-capital.com

Website

www.brack-capital.com

Annual reports, half year reports and shared information are all available on our website.

BCRE - BRACK CAPITAL REAL ESTATE INVESTMENTS N.V.

STATUTORY FINANCIAL STATEMENTS

INDEX

- - - - - - - - - - - - -

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

*) Retrospective application due to change in presentation, see note 2ac.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(1) See Note 14.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL

a. The Company is a public limited company listed on the London Stock Exchange and incorporated and domiciled in The Netherlands. The address of its registered office is 201 Barbara Strozzilaan, 1083HN, Amsterdam, The Netherlands.

The consolidated financial statements of the Company for the year ended 31 December 2015 comprise the Company and its subsidiaries and the Group's interest in associates and joint arrangements which are accounted for using the equity method. The Group is international development and investment group interested in, develops and operates an international portfolio of real estate assets predominantly located in the US, Germany, Russia and India.

b. Definitions:

In these consolidated financial statements:

c. The statutory consolidated financial statements were authorized in accordance with a resolution of the Board of Directors on 14 April 2016.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation:

The consolidated financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (IFRS as adopted by the EU) and with Part 9, Book 2 of the Nethrlands Civil Code.

b. Measurement basis:

The consolidated financial statements have been prepared on a historical cost basis, with the exception of financial instruments (including derivative financial instruments) measured at fair value through profit or loss, available for sale financial assets, investment property and property, plant and equipment measured at fair value.

The Company has elected to present the consolidated income statement using the function of expense method.

c. Consistent accounting policies:

The following accounting policies have been applied consistently in the consolidated financial statements for all periods presented.

d. Significant accounting judgments, estimates and assumptions:

1. Estimates and assumptions:

The preparation of the Group's consolidated financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported in the period of the change in estimate. The key assumptions made in the consolidated financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Group that may result in a material adjustment to the consolidated financial statements are discussed below.

- Investment property and property, plant and equipment:

Investment property (which also includes investment property under development that can be reliably measured) and property, plant and equipment (which are measured using revaluation model) are presented at fair value at the reporting date. Changes in its fair value are recognized in profit or loss and revaluation reserve, respectively. Fair value is determined generally by external independent valuation specialists using valuation techniques and assumptions as to estimates of projected future cash flows from the property and estimates of the suitable discount rate for these cash flows. When possible, fair value is determined based on recent real estate transactions with similar characteristics and location of the valued property.

In determining the fair value of investment property, valuation specialists and the Group's management are required to use certain assumptions in order to estimate the future cash flows from the properties, the required yield rates on the Group's properties, the future rental rates, occupancy rates, lease renewals, the probability of leasing vacant spaces, property operating expenses, the financial strength of tenants and the implications of any investments for future development. Any change in these assumptions would be affecting the fair value of investment property. See also Note 3.

- Determining the fair value of an unquoted financial asset and financial liability:

The fair value of unquoted financial assets and liabilities classified as Level 3 is determined using valuation techniques including projected cash flows discounted at current rates applicable for items with similar terms and risk characteristics. The projected future cash flows and discount rates are subject to uncertainty and include consideration of inputs such as liquidity risk, credit risk and volatility. See also Note 16.

2. Judgments:

In the process of applying the significant accounting policies, the Group has made the following judgments which have the most significant effect on the amounts recognized in the consolidated financial statements:

- Recognizing revenue on a gross or net basis:

In cases where the Group acts as agent without bearing any of the risks and rewards derived from the transaction, revenue is presented on a net basis. In contrast, if the Group acts as the principal and bears the risks and rewards derived from the transaction, revenue is presented on a gross basis.

- Acquisition of subsidiaries that are not business combinations:

According to IFRS 3 "Business combination" at the time of acquisition of subsidiaries and activities, the Group considers whether the acquisition represents a business combination pursuant to IFRS 3. The following criteria which indicate acquisition of a business are considered to determine if an acquisition represents a business combination: the number of assets acquired and the complexity of the management of the property.

- Classification of properties as inventory, fixed assets or investment property:

The Group evaluates whether an asset or property should be classified as inventory based on IAS 2, fixed assets based on IAS 16 or investment property based on IAS 40, in particular an asset is accounted for as an investment property when its being held to earn rentals or for capital appreciation or both.

e. Consolidated financial statements:

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.

The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies of the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.

Specifically, the Group controls an investee if and only if the Group has a) power over the investee, b) exposure, or rights, to variable returns from its involvement with the investee, and c) the ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee.

Although the Group directly holds as of 31 December 2015, 34.76% of the voting rights of BCP, the Group has determined that it has de facto control in BCP due to the size of its voting rights and including voting rights held by companies controlled by the Group's parent company, which companies are considered de facto agents of the Group. The size of the Group's holding in voting rights relative to the size or dispersion of the holdings of the other shareholders of BCP has enabled the Group to exercise a majority of the voting power that participates in the shareholder's meetings and appoints a majority of the directors and indirectly, the senior management of BCP.

Profit or loss and each component of other comprehensive income (OCI) are attributable to the equity holders of the parent of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

f. Functional currency, presentation currency and foreign currency:

1. Functional currency and presentation currency:

The functional currency is separately determined for each Group's entity and is used to measure its financial position and operating results. The functional currency of the Company is the Euro. In addition, the consolidated financial statements are presented in Euro. All values are rounded to the nearest thousand (€000), except when otherwise indicated.

When the functional currency of an entity within the Group differs from the Group's presentation currency that entity represents a foreign operation whose financial statements are translated to the Group's presentation currency so that they can be included in the consolidated financial statements.

Upon the partial disposal of a subsidiary which disposal results in the loss of control of the subsidiary, the cumulative gain/(loss) recognized in other comprehensive income is transferred to profit or loss whereas upon the partial disposal of a subsidiary that is a foreign operation which disposal results in the retention of control, the relative portion of the cumulative amount is reattributed to non-controlling interests. Intergroup loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in that foreign operation and are accounted for as part of the investment.

2. Transactions, assets and liabilities in foreign currency:

Transactions denominated in foreign currency are recorded on initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange differences, other than those capitalized to qualifying assets or carried to equity in hedging transactions, are recognized in profit or loss.

3. Index-linked monetary items:

The Group has debentures that are linked to the Israeli Consumer Price Index ("Israeli CPI"). Monetary assets and liabilities linked to the changes in the Israeli CPI are adjusted at the relevant index at the end of each reporting period according to the terms of the agreement.

g. Interest in joint arrangements and associates:

Under IFRS 11 the Group classifies its joint arrangements as joint ventures based on the contractual rights and obligations. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The Group does not have an interest in a joint operation.

The Group's investments in its associates and joint ventures are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group's share of net assets of the associate or joint venture since the acquisition date. Unrealized gains and losses resulting from transactions between the Group and associates or joint ventures are eliminated to the extent of the interest in the associates and joint ventures.

Certain investees provide for profits interests in excess of the investor's ownership. The Company has adopted the hypothetical liquidation approach in determining the allocation of earnings. The investor's share of the investee's earnings is calculated assuming that the investee has recognized and/or distributed the assets based on their book value, taking into consideration other distributions and investments made.

The financial statements of associates and joint ventures are prepared for the same reporting period as the Group. Accounting policies have been changed were necessary to ensure consistency with the policies adopted by the Group. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investments in associates and joint ventures. At each reporting date, the Group determines whether there is objective evidence that these investments are impaired. See also i.

Losses of an associate in amounts which exceed its equity are recognized by the Group to the extent of its investment in the associate plus any losses that the Group may incur as a result of a guarantee or other financial support provided in respect of the associate. The equity method is applied until the loss of significant influence in the associate or loss of joint control in the joint venture or upon classification as held-for-sale.

h. Derivative financial instruments not designated as hedges:

The Group entered into contracts for derivative financial instruments such as interest rate swaps and CAP transactions to hedge risks associated with interest rate fluctuations. Such derivative financial instruments are measured at fair value. Any gains or losses arising from changes in the fair values of derivatives that do not qualify for hedge accounting are recorded immediately in profit or loss.

i. Impairment of non-financial assets:

The Group evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use.

The following criteria are applied in assessing impairment of these specific assets:

Investment in associate or joint ventures:

After application of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the investment in associates or joint ventures. The Group determines at each reporting date whether there is objective evidence that the carrying amount of the investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire investment, including the goodwill attributed to the associate or the joint venture.

j. Fair value measurement:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling the asset to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities,

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable,

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

k. Borrowing costs in respect of qualifying assets:

The Group capitalizes borrowing costs that are attributable to the acquisition, construction or production of qualifying assets.

A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, comprising of inventories and investment property that require a substantial period of time to bring them to a saleable condition or for its intended use.

The capitalization of borrowing costs commences when expenditures for the asset are being incurred, borrowing costs are being incurred and the activities to prepare the asset are in progress and ceases when substantially all the activities to prepare the qualifying asset for its intended use or sale are complete.

The amount of borrowing costs capitalized in the reported period includes specific borrowing costs and general borrowing costs based on a weighted capitalization rate.

l. Inventories of buildings and apartments for sale:

Cost of inventories of buildings and apartments for sale comprises identifiable direct costs of land such as taxes, fees and duties and construction costs. The Group also capitalizes borrowing costs as part of the cost of inventories of buildings and apartments for sale from the period in which the Group commenced development of the land.

Inventories of buildings and apartments for sale are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated selling costs.

m. The operating cycle:

The Group's normal operating cycle is one year. With respect to construction work the operating cycle can last between two and three years. Accordingly, the current assets and current liabilities include items that are held and are expected to be realized by the end of the Group's normal operating cycle. If the operating cycle exceeds one year, the assets and liabilities attributed to this activity are classified in the consolidated statement of financial position as current assets and liabilities based on the operating cycle.

n. Investment property:

Investment property is measured initially at cost, including costs directly attributable to the acquisition. After initial recognition, investment property is measured at fair value which reflects market conditions at the end of the reporting period. Gains or losses arising from changes in the fair values of investment property are included in profit or loss when they arise. Investment property is not systematically depreciated.

The fair value model is also applied to property under construction for future use as investment property when fair value can be reliably measured.

Fair value is determined generally by external independent valuation specialists using economic valuations that involve valuation techniques and assumptions as to estimates of projected future cash flows from the property and estimates of the suitable discount rate for these cash flows. Investment property under development also requires an estimate of construction costs. If applicable, fair value is determined based on recent real estate transactions with similar characteristics and location of the valued property.

Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

Investment property is derecognized on disposal or when the investment property ceases to be used and no future economic benefits are expected from its disposal.

o. Property, plant and equipment:

Property, plant and equipment comprise mainly of operating hotels and owner occupied commercial center which are measured using revaluation model. Other property, plant and equipment items such as machinery equipment are measured at cost less depreciation and impairment. Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates.

A revaluation of a revalued asset is recognized directly in other comprehensive income to the extent of any credit balance existing in the revaluation reserve in respect of that asset. Any additional reduction, if any, is recognized in profit or loss. If an asset's carrying amount is increased as a result of the revaluation, the increase is recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss. Any subsequent increase is carried to a revaluation reserve.

All other property, plant and equipment is stated at cost less accumulated depreciation and provisions for impairment. Depreciation is calculated on a straight-line basis, over the estimated useful life of the equipment.

p. Financial instruments:

1. Financial assets:

Financial assets within the scope of IAS 39 "Financial Instruments: Recognition and Measurement" are initially recognized at fair value plus directly attributable transaction costs, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.

a) Financial assets at fair value through profit or loss:

The Group has financial assets at fair value through profit or loss comprising financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Some hybrid contracts contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an embedded derivative, with the non-derivative component representing the host contract.

b) Loans and receivables:

The Group has loans and receivables that are financial assets (non-derivative) with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans are measured based on their terms at amortized cost using the effective interest method.

c) Available-for-sale financial assets:

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Available-for-sale financial assets are initially recognized and subsequently carried at fair value. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale financial assets are recognized in other comprehensive income. When securities classified as available-for-sale financial assets are sold or impaired the accumulated fair value adjustments are included in the consolidated income statement.

2. Impairment of financial assets:

The Group assesses, at the end of each reporting period, whether there is any objective evidence of impairment of a financial asset or group of financial assets as follows:

Financial assets carried at amortized cost:

There is objective evidence of impairment of debt instruments, loans and receivables carried at amortized cost as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows.

Assets classified as available-for-sale:

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a Group of financial assets is impaired.

3. Financial liabilities: