BCRE.L Regulatory News (BCRE)

This announcement contains inside information within the meaning of the Market Abuse Regulation (EU) (No 596/2014).

26 April 2018

BCRE - Brack Capital Real Estate Investments N.V.

("BCRE" or the "Company")

FINAL RESULTS 2017, DIRECTORATE CHANGE AND POSTING OF AGM

The Board of BCRE announces its results for the year ended 31 December 2017 and the publication of its 2017 Annual Report.

Key highlights for the year ended 31 December 2017 and up to the publication of the Annual Report

· The net asset value ("NAV") of the Group amounted to €201.7 million as at 31 December 2017 (31 December 2016: €254.1 million).

· As at 31 December 2017, the aggregate value of total assets in which the Company has a holding interest in different percentages was approximately €762 million (31 December 2016: €947 million).

· Sale of total holding in Brack Capital Properties N.V. ("BCP") on 14 June 2017 through an off-market transaction at a price of NIS345 per share, for a total consideration of approximately NIS695 million (approximately €174 million). The net profit from the discontinued operations of BCP amounted to €4.9 million.

· 720 West End Avenue project is being let to the Salvation Army and serves as a senior housing facility. The building will be vacated once the replacement facility that is being built on 125th street is completed, expected by early 2019. As of now the steel structure of the 125th street building is almost completed and the mechanical, electrical, plumbing and façade work is underway.

· Development at 90 Morton Street, a high end residential development in the West Village Manhattan, is continuing to progress on schedule and is approximately 70% complete. Marketing and sales campaign was launched in April 2018 together with the official opening of the on-site sales office.

· The acquisition of 336 multifamily units (c. 334,000 sq ft) in January 2017 by the BCRE REIT in Preserve at Sagebrook, in Dayton, Ohio, brought the multifamily portfolio in Ohio, US to over 850 units. The performance of the US multifamily residential portfolio continues to run steadily with an overall average occupancy of around 95%.

· On 8 March 2018, the Group signed a letter of intent with a third party for the sale of the property owned by BCRE IHG 180 Orchard Holdings LLC which is classified as held for sale as at 31 December 2017.

· On 27 March 2018, the Group signed an agreement with its partner for the sale of the Group's total shareholding in OSIB-BCRE Bowery Street Holdings LLC which is classified as held for sale as at 31 December 2017.

· The Company continues the efforts of stabilizing the Russian platform, as the shopping centers in Dmitrov and Lyubertsy, the logistic warehouse in Lobnia and Kazan's main retail module are almost fully occupied, whereas the two additional modules in Kazan are still ramping up and the difficulties in filling them has not eased.

· On 22 March 2018, the Group completed the refinancing of the existing bank loan facilities, in the total amount of approximately US$267 million, of subsidiaries/associates of BCRE Russia concerning the four projects in Russia (Kazan, Lyubertsy, Lobnia and Dmitrov).

· In December 2017, Midroog, has reaffirmed the credit rating of the Company's Series B and C bonds of A2 on a local Israeli scale and changed the outlook from negative to stable. In addition, Midroog changed the credit rating of the Company's Series A bonds from A2 to A3 on a local Israeli scale and changed the outlook from negative to stable.

· During December 2017, the Company has early repaid the whole outstanding principal amount of around US$93.1 million of Series C bonds along with the accrued interest and early repayment fee. On 26 January 2018, the Financial Conduct Authority cancelled the Series C bonds from the Official List of the London Stock Exchange.

· On 15 December 2017, the Company announced that the Board continues to examine and analyse, together with its advisers, a potential De-Listing as well as alternative methods that could, amongst others, provide liquidity with respect to the ordinary shares, taking into consideration the interests of the Company and all its stakeholders.

· On 3 January 2018, the Company repaid early the whole outstanding principal amount of around US$23.8 million of Series B bonds including accrued interest and early repayment fee.

· On 6 February 2018, CEO Ariel Podrojski resigned from his position but remains as a consultant to the Company. On the same day Nansia Koutsou and Shai Shamir were appointed as interim co - CEOs and Yiannis Peslikas as CFO of the Company.

· In February 2018, the Company agreed with a group of lenders for the provision of a financing facility for the total amount of US$20 million. The facility will bear interest of 6.5% per annum and will mature on 30 June 2020, on which date the whole outstanding amount of interest and principal will need to be paid. As at 31 December 2017 an amount of US$6 million has been provided to the Company in respect of this loan facility.

· No distribution will be made for the year ended 31 December 2017, with a view to increasing the Company's liquidity.

The Annual Report 2017 is now available to view or download from the Company's website, www.brack-capital.com.

The Company announces that Mr. Luca Tomesani Melotti informed on his decision to step down as a non-executive Director of the Company's Board of Directors ("Board") to focus on his business, with immediate effect. The Board would like to thank Mr. Luca Tomesani Melotti for his significant contribution to the Company and to express its gratitude for the opportunity to work with Mr. Luca Tomesani Melotti during the past years.

The Company further announces that the Board has recommended to the Annual General Meeting ("AGM") the appointment of Mr. Moshe Lustig as an independent non-executive director who will replace Mr. Daniel Aalsvel on the date of the AGM (as announced earlier) that will be held at Barbara Strozzilaan 201, 1083HN Amsterdam, the Netherlands on 7 June 2018 at 9 a.m. GMT (10 a.m. CEST).

The notice of the AGM 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:

"On behalf of the Board and our shareholders, I would like to thank our management team and all our colleagues for the hard work in delivering the financial results set out in this annual report.

The financial results for the 12 months to 31 December 2017 reflect the benefits of our strategy of consolidation on growth economies and our efforts to stabilize the emerging market portfolios.

The Board announced its Business Plan in early 2018 including its new strategic plan going forward for the Company, the fundamentals of which are summarized as follows: a policy with a focus on de-risking, deleveraging and improving balance sheet quality, reducing asset exposure and cutting costs. In addition, this policy entails no new investments in emerging and/or non-core markets and being extremely selective in new investments while taking into consideration shareholders' distributions time horizon expectations.

The Board is confident that BCRE will continue to exercise its strategy with financial discipline with conservative liquidity policy and overhead reduction thus creating a better match with the modified balance sheet and activities profiles.

Management continues to remain focused on funding and liquidity management in what appears to be uncertain times with the threats of interest rates rising and inflation raising its heads.

All capital commitments will continue to be made in a disciplined manner and will remain subject to rigorous strategic and financial considerations.

On behalf of all shareholders, the Board continues to monitor BCRE's performance in important areas such as compliance, risk management and remuneration.

BCRE puts an emphasis to the quality of its people at every level including the Board. As part of this commitment to quality, we will continuously evaluate our own Board and that of our investee companies. The Board welcomes the promotions of interim co-CEOs of Nansia Koutsou and Shai Shamir and the promotion of Yiannis Peslikas to CFO as of 6 February 2018.

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 and other affiliates which are controlled by BCRE 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 with a standard listing.

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 platform in the US and also operates through its important platform in Russia. The Group currently has an interest (through various holding percentages) in income producing residential units and residential and commercial projects as follows:

*For the purposes of this analysis, the figures of 2016 have been adjusted to exclude the figures of Brack Capital Properties N.V. ("BCP").

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. The Group did not undertake any R&D activities during the period under review.

1.2.2 Key highlights

The key highlights for 2017 and 2018 until the signing of this annual report are as follows:

Financial:

· The Group generated revenues of €16.2 million from rental income during the period (31 December 2016: €11.22 million).

· The net asset value ("NAV") of the Group amounted to €201.7 million as at 31 December 2017 (31 December 2016: €254.1 million).

· As at 31 December 2017, the aggregate value of total assets in which the Company has a holding interest in different percentages was approximately €762 million (31 December 2016: €947 million). The significant decrease in the aggregate value of total assets compared to last year is due to the sale of the entire holding in BCP.

· The revaluation gains of investment property for the period amounted to €4.8 million (31 December 2016: loss of €38 million). In addition, the impairment of assets held for sale for the period amounted to €19.3 million (31 December 2016: nil).

· The share in the loss of the associates and joint ventures for the period amounted to €16.4 million (31 December 2016: loss of €53.5 million).

· On 14 June 2017, the Company completed the transaction for the sale of its entire holding in the issued and outstanding share capital of BCP (investing in real estate in Germany), for a total gross consideration of approximately NIS695 million (approximately €174.8 million). Until the date of disposal and following the deconsolidation of BCP effected at 30 September 2016, the Company has accounted for its investment in BCP using the equity method of accounting. The net profit from the discontinued operations of BCP amounted to €4.9 million.

USA:

· 720 West End Avenue project is being let to the Salvation Army and serves as senior housing facility. The building will be vacated once the replacement facility that is being built on 125th street is completed, expected by early 2019. As of now the steel structure of the 125th street building is almost completed and the mechanical, electrical, plumbing and façade work is underway. Once the 720 West End Avenue project is vacant, the Company will have a number of options, among others, a conversion of the existing building to a major residential building in the Upper West Side of Manhattan.

· Development at 90 Morton Street, a high end residential development in the West Village Manhattan, is continuing to progress on schedule and is approximately 70% complete. Marketing and sales campaign was launched in April 2018 together with the official opening of the on-site sales office.

· IHG's flagship Indigo hotel, opened in November 2015 and was fully operational by mid-2016. In 2017, its first fully operational year, the hotel was still stabilizing and capturing its share in the lower east side submarket while its F&B outlet is continuing to perform extremely well by increasing the total revenues by 15% of the year before. The hotel's overall performance represents a substantial ramp up as compared to 2016 with occupancy increasing 11% and gross rooms revenue increasing 15%. On 8 March 2018, the Group signed a letter of intent with a third party for the sale of the property owned by BCRE IHG 180 Orchard Holdings LLC which is classified as held for sale as at 31 December 2017. The 230 room CitizenM Hotel in Times Square performance is stabilized. The construction of the 300 room CitizenM Hotel at Bowery Street is progressing well and is scheduled to be completed by the end of 2018. On 27 March 2018, the Group signed an agreement with its partner for the sale of the Group's total shareholding in OSIB-BCRE Bowery Street Holdings LLC which is classified as held for sale as at 31 December 2017.

· The acquisition of 336 multifamily units (approximately 334,000 sf) in January 2017 by the (private) BCRE REIT (Real Estate Investment Trust) for a total consideration of US$26.5 million in Preserve at Sagebrook, in Dayton, Ohio, brought the multifamily portfolio in Ohio, US to over 850 units. The performance of the US multifamily residential portfolio continues to run steadily with an overall average occupancy of around 95%.

Russia:

· Despite the persisting signs of recovery in Russian economy, including the recent trend reversal in private consumption (retail sales increasing in the past few months), the still dire state of the Russian household and consumers continues to impact our Russia operation. The Company continues the efforts of stabilizing the Russian platform, as the shopping centers in Dmitrov and Lyubertsy, the logistic warehouse in Lobnia and Kazan's main retail module are almost fully occupied, whereas the two additional modules in Kazan are still ramping up and the difficulties in filling them has not eased.

· In December 2016, certain subsidiaries/associates of BCRE Russia entered into agreements with the existing financing bank concerning four major projects in Russia (Kazan, Lyubertsy, Lobnia and Dmitrov). The main loan terms have been amended and the corporate structure of the subsidiaries/associates will be revised as mentioned below. The aggregate principal amount of the restructured loans is approximately US$267 million. The key amendments to the existing loan facilities and to the corporate structure of the subsidiaries/associates , include among other things, prolonging the final maturity dates by 3 to 5 years, amortisation payment schedules shall be postponed towards the maturity dates, improved interest rates, significant loan covenants have been relaxed and the financing bank shall obtain a 'golden' share in each project, which provides the financing bank with a veto right in respect of material decisions at the level of the subsidiaries/associates. The 'golden' shares can be repurchased subject to meeting certain conditions such as simultaneously meeting of certain figures of loan to value and debt service coverage ratios. On 22 March 2018, the above deal was completed.

Corporate:

· In May 2017, Midroog, the credit rating agency accredited by Israel and a subsidiary of Moody's Investor Service Inc. (Midroog), placed under credit review with negative implications the rating of Company's Bonds currently rated A2 on a local Israeli scale with negative outlook.

· In December 2017, Midroog, has reaffirmed the credit rating of the Company's Series B and C bonds of A2 on a local Israeli scale and changed the outlook from negative to stable. The Company has fully redeemed Series C and B bonds in December 2017 and in January 2018, respectively. In addition, Midroog changed the credit rating of the Company's Series A bonds from A2 to A3 on a local Israeli scale and changed the outlook from negative to stable. Following the Series, A bonds' scheduled payment on 19 December 2017, the outstanding principal amount of Series A bonds due on 19 December 2018 will amount approximately to NIS75 million (approximately €18 million).

· The share capital of the Company was reduced by approximately 1.5 million and 479 thousand shares by means of a cancellation of these shares following the purchase of shares under the share buyback programme (which was completed on 31 December 2016), effected on 10 January 2017 and 6 September 2017 respectively.

· A total amount of approximately US$19 million, net of expenses, has been raised under the bond programme (US$180 million) during the first half of 2017.

· During December 2017, the Company has early repaid the whole outstanding principal amount of around US$93.1 million of Series C bonds along with the accrued interest and early repayment fee. On 26 January 2018, the Financial Conduct Authority ("FCA") cancelled the Series C bonds from the Official List of the London Stock Exchange.

· On 15 December 2017, the Company announced that the Board continues to examine and analyse, together with its advisers, a potential De-Listing as well as alternative methods that could, amongst others, provide liquidity with respect to the ordinary shares, taking into consideration the interests of the Company and all its stakeholders.

· On 3 January 2018, the Company repaid early the whole outstanding principal amount of around US$23.8 million of Series B bonds including accrued interest and early repayment fee.

· On 6 February 2018, CEO Ariel Podrojski resigned from his position but remains as a consultant to the Company. In addition, Board member Daniel Aalsvel (independent non - executive) announced his wish to resign from his position but agreed to continue as a Board member and chairman of the Audit Committee until the approval of the Company's 2017 annual report. On the same day Nansia Koutsou and Shai Shamir were appointed as interim co - CEOs and Yiannis Peslikas as CFO of the Company.

· On 14 February 2018, the Company entered into a financing agreement with a group of individual lenders for the total amount of US$20 million (€16.7 million). BCRE borrowed the amount of US$3 million from a trust having Ronen Peled as its beneficiary, and the amount of US$500 thousand from a trust having (relatives of) Shimon Weintraub (a majority shareholder) as its beneficiaries. The facility carries interest of 6.5% and matures on 30 June 2020. The Company agreed with the group of lenders that any proceeds received from certain Group's investments, either through dividend payments or through sale proceeds, should be used for the repayment of the loan facility.

· No distribution will be made for the year ended 31 December 2017, with a view to increasing the Company's liquidity.

1.2.3  Investment philosophy

BCRE's investment policy includes an analytical approach to the investment decisions throughout the life cycle of a project.

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.

1.2.4 Objective and strategy

The Group has announced on 6 February 2018 its new strategic plan. Its objective and new strategy of the Company is to follow a policy with a focus on de-risking, deleveraging and improving balance sheet quality, reducing asset exposure and cutting costs. In addition, this policy entails no new investments in emerging and/or non-core markets and being extremely selective in new investments while taking into consideration shareholder's distributions time horizon expectations. Subject to a conservative liquidity policy, in particular with cash reserves and financing requirements for its development projects, the Company will consider distributions to shareholders, by way of share buyback, dividend or otherwise.

1.2.5 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.

Focus on known markets and sectors

The Group has been active in its key Manhattan market since 1994 (initially, as Brack Capital Group). The Group focused its attention mostly on specific sectors such as conversion, renovation and development (mainly in the residential and hospitality sectors). The Company believes this enables the Group to analyse the real risks and opportunities of each project.

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 and experienced professionals with a local knowledge and an understanding of the business they are carrying out.

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 significant lettable/saleable areas.

1.2.6 Outlook

BCRE believes that under the current global economic and financial conditions, the probability of a reduction in the pace of growth has increased relative to the past few years. These circumstances prescribe, in the Company's view, a policy with a focus for 2018 on de-risking, deleveraging of our investment portfolio by discontinuing certain non-core activities, disposals and improving balance sheet quality, reducing asset exposure and cutting costs. With significant profit expected in the next few years from the US (as previously announced), the execution and optimization of its considerable development portfolio is a key focus. In Russia the macro environment is improving slowly and the Group will focus on the continuing stabilization and gradual improvement in property metrics. We will be further focusing on reducing exposure to rising rates, refinancing the bank loans or any other loan arrangements which will be maturing in the next 12 - 24 months from the signing of this report and raise further equity or bonds if this is necessary. Subject to a conservative liquidity policy, in particular cash reserves and financing requirements for its development projects, the Company will consider distributions to shareholders by way of share buyback, dividend or otherwise. We do expect some but not significant reduction to the workforce of the Group in its main locations, subject to the above. BCRE will continue to examine and analyse, together with its advisers, a potential De-Listing as well as alternative methods that could, amongst others, provide liquidity with respect to the ordinary shares, taking into consideration the interests of the Company and all its stakeholders.

1.2.7 Sustainability

Stakeholder involvement is fundamental to our business. We are successful in making our portfolio more attractive because our employees work closely together with our key stakeholders: visitors, local communities, tenants, investors and suppliers. For the Group sustainability means investing time, effort and money in our assets and employees, in order to strengthen the relationship with all stakeholders. The Group expects this to lead to more sustainable and profitable returns on capital in the short and long term. BCRE wants to combine sustainability and commercial business in an integrated approach, investing not only in projects, but at the same time in our employees, partners, and the society.

1.3 BUSINESS OVERVIEW

1.3.1 CEO's statement

Shai Shamir and Nansia Koutsou, co- Chief Executive Officers, said:

"Following the Company's strategic plan which states that "under the current global economic and financial conditions, the probability of a downturn of the current cycle has increased relative to the past few years", we will focus on de-risking, deleveraging and improving balance sheet quality, reducing asset exposure and cutting costs. We will only consider any new investments if it provides an attractive opportunity with an extraordinary low risk profile to the Company and its shareholders."

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 has an interest in BCRE USA of 100% as of 31 December 2017. Currently BCRE USA mainly focuses on residential conversions and hotels in Manhattan, in addition to income producing activity that includes acquiring and owning multifamily residential properties outside New York.

BCRE USA continued the advancement in both major residential projects in Manhattan, 720 West End Avenue and 90 Morton Street.

The programme of the replacement facility which is being built on 125th street in Manhattan for the 720 West End Avenue project, a major residential building with a gross area of approximately 240,000 sq ft in the Upper West Side of Manhattan, is progressing well. The completion date of the replacement facility is expected by early 2019.

Following the approval, by the New York City attorney general, of the condo offering plan for 90 Morton Street, a major development in the West Village, Manhattan with a net area of approximately 90,000 sq. ft., construction is expected to be completed during the second half of 2018. Marketing and sales campaign will be launched in April 2018 together with the official opening of the on-site sales office.

IHG's flagship Indigo hotel, opened in November 2015 and was fully operational by mid-2016. In 2017, its first fully operational year, the hotel was still stabilizing and capturing its share in the lower east side submarket while its F&B outlet is continuing performing extremely well by increasing the total revenues by 15% of the year before. The hotel's overall performance represents a substantial ramp up as compared to 2016 with occupancy increasing 11% and gross rooms revenue increasing 15%. In March 2018, the Group signed a letter of intent with a third party for the sale of the property owned by BCRE IHG 180 Orchard Holdings LLC which is classified as held for sale as at 31 December 2017.

The 230 room CitizenM Hotel in Times Square performance is stabilized. The construction of the 300 room CitizenM Hotel at Bowery Street is progressing well and is scheduled to be completed by the end of 2018. In March 2018, the Group signed an agreement with its partner for the sale of the Group's total shareholding in OSIB-BCRE Bowery Street Holdings LLC which is classified as held for sale as at 31 December 2017.

In line with its strategy, BCRE USA commenced more than four years ago investing in the multifamily real estate market in the US (primarily in Ohio), using the Group's extensive experience of this asset class in Germany and in Manhattan. As at 31 December 2017, the total number of multifamily units under management in Cincinnati, Ohio area stands at 852. The performance of the portfolio aligns with BCRE's business plan with an overall average occupancy of more than 94% for the year 2017. Early 2017 the REIT purchased a new property, Preserve at Sagebrook. The property performance in 2017 well aligned with BCRE's original business plan.

Russia

The Company, with around 85% interest in the Russian platform, is continuing with its hands-on management approach and focus on the stabilization of its projects in Russia. Supported by the pickup in energy prices, several 2017 macroeconomic indicators seem to provide positive tailwinds to the Russia economy in general and the Russian median household and consumer in particular. These indicators include resumed growth (albeit still relatively below at sub 2%), reduced inflation, very reasonable fiscal -spending and substantially increasing foreign exchange reserves. The Central Bank of the Russian Federation has gradually reduced the interest rates from a crisis high of 17% to the current 7.5% and Russia has successfully raised sovereign bonds in the international markets. Retail sales continued to decline during the first half of 2017 even after economic GDP growth resumed, but that lag has ended and retail sales has been growing in the past few months - at a modest year on year pace. The Company's management views the change in trend as positive, but moderate at best, and foresees the Russian consumer market to remain under pressure for a longer period, as households gradually rebuild their net worth.

The effect of the current economic situation in Russia is being reflected in the valuations of December 2017 (for further details refer to Section 1.4.1), 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, restructure the bank loans of its 4 main assets by, among others, improving the interest rates and postponing the amortization payments and have shifted from development risk to the domain of income producing assets. During 2017 the Company also started a process of carefully improving tenant mix - especially in Lyubertsy (where the food anchor was replaced) and Lobnia.

The Company continues to focus on stabilizing the Russian platform, as the shopping center in Dmitrov, the logistic warehouse in Lobnia and Kazan's main retail module are income producing assets almost fully occupied, whereas the Lyubertsy shopping center, 27,000 sq m, opened in December 2015 and benefits from signed leases and term sheets nearing 90% occupancy and the two additional modules in Kazan are still ramping up. In addition, BCRE Russia successfully entered into agreements with the existing financing bank concerning four major projects in Russia (Kazan, Lyubertsy, Lobnia and Dmitrov), whereby the main terms have been amended (prolonging the final maturity dates by 3 to 5 years, amortization payment schedules shall be postponed towards the maturity dates, improved interest rates, significant loan covenants have been relaxed) and the corporate structure of the subsidiaries/associates have been revised. The financing bank obtained a 'golden' share in each project, which provides the financing bank with a veto right in respect of material decisions at the level of the subsidiaries/associates. The 'golden' shares can be repurchased subject to meeting certain conditions such as simultaneously meeting of certain figures of loan to value and debt service coverage ratios. The Company expects that the amendments of the existing loan facilities will have a positive impact in the debt servicing obligations and on the liquidity of BCRE Russia.

Overall, 2017 was an improvement relative to 2016 but the overall economic and retail environment is still very challenging and uncertain. 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 stabilize its Russian position will turn fruitful in the long run.

1.3.3 Other markets and activities

In line with the Group strategy over the past two years, BCRE continued to focus on its key growth economies and stabilization of its emerging market portfolio. In parallel, the Group continued to reduce or discontinue activities in its non-core markets.

The BCRE India Fund closure has been extended by 24 months until March 2019 to provide for the time necessary for an orderly disposition of the fund's investments in India and the investments in the USA held through the BCRE India Fund.

In relation to the Marconi project in Rome, Italy, the Group is also exploring ways to monetize the investment.

The Group proceeded with the winding down of the small ticket lending business in the US during the first quarter of 2018.

1.4 FINANCIAL OVERVIEW

1.4.1 CFO's statement

Yiannis Peslikas, Chief Financial Officer, said:

"The strategy of the Company to focus on de-risking, deleveraging and improving its balance sheet quality continues. During the period we have fully repaid the bonds under series B and C.

The economic environment in Russia continued to influence our financial results during 2017."

Financial review

Consolidated income statement

\* The impairment of asset held for sale and the share of loss of associates and joint ventures are explained in the section of the consolidated statement of financial position below.

The Group prepared its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and the requirements of the Dutch law.

The gross rental income and the service charge, management and other income of the Group increased by approximately 44% to €16.2 million and by approximately 3% to €8.7 million, respectively (31 December 2016: €11.2 million and €8.4 million, respectively) due to the acquisition of the multifamily residential property in Dayton, Ohio and the growth from existing rented properties.

The loss recognized from the sale of the entire holding in BCP shares amounted to €11.8 million (net of transaction costs) which was included in the "Profit from discontinued operations, net". The remaining amount of €16.7 million included in the "Profit from discontinued operations, net" relates to the results of BCP for the period from 1 January 2017 up to 14 June 2017, the disposal date of the entire holding in BCP.

The Management and the Board of Directors monitor the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on gross profit including revaluation of investment properties, impairment loss of assets held for sale and share of profit/(loss) of associates and joint ventures. Also, the Group financing (including financial income and financial expenses), administration and other expenses and income taxes are managed on a Group basis and are not allocated to operating segments.

The loss for the year amounted to €44.4 million (2016: profit of €3 million). The loss (2016: profit) can be analysed as follows:

The results of each segment before the unallocated profit and loss items is as follows:

The overall administrative expenses were €10.7 million for the year ended 31 December 2017 (31 December 2016: €8.7 million). Out of which the amount of approximately €4.9 million relates to general and administrative expenses relating to inventory of buildings under construction and investment property (approximately 31 December 2016: €2.5 million). The net financial expenses has increased for the year ended 31 December 2017 by €19.1 million to €24.5 million (31 December 2016: €5.4 million) due to the decrease by €14.5 million in foreign currency translation gains for the year ended 31 December 2017 compared to last year (gain of €5.5 million for the year ended 31 December 2017 compared to a gain of €20 million for the year ended 31 December 2016).

The loss from Russia derives mainly from the valuation loss of the investment properties (including currency translation impact) amounting to €15.7 million (31 December 2016: loss of €51.6 million) and from the share in the loss of its associates and joint ventures amounting to €16.9 million (31 December 2016: loss of €46.7 million), of which the latter mainly relates to the valuation loss of the Kazan project (including currency translation impact). The valuation losses of the investment properties and of the associates'/joint ventures' projects are mainly caused by the reduction of income derived from low tenant's turnovers, by the signing of new rent agreements, and by a slower increase in occupancy than expected, all in context of the Russia market situation.

The profit from USA derives mainly from the valuation gain of the investment properties (including currency translation impact) amounting to €21.1 million (31 December 2016: €15.2 million), partly offset by the impairment loss amounting to €19.3 million (31 December 2016: nil) relating to the investment in BCRE IHG 180 Orchard Holdings LLC classified as asset held for sale (further explained below). The valuation gain of the investment properties is due mainly from the improvements in the capitalisation rates of the 3 multifamily properties in Cincinnati and Dayton, Ohio, driven by the increase in demand and shortage of supply of similar properties in this region, and the increase in the value of 720 West End Avenue project due to the increase in the total net saleable sq. ft., assuming residential condominium conversion.

Consolidated statement of financial position

Investment property of the Group increased by €23.1 million to €412.7 million (31 December 2016: €389.6 million) primarily from the acquisition of the multifamily residential property in Dayton, Ohio amounting to €24.3 million, the acquisition of partner's share of a holding company in Russia owning a property amounting to €35.3 million and as a result its full consolidation, and from revaluation gains of €5.1 million (31 December 2016: €19.7 million). Translation losses for the year of €45.3 million (31 December 2016: translation gains of €32 million) decreased (2016: increased) the value of investment property of the Group.

Investments and loans to associates and joint ventures of the Group decreased by €173.9 million to €23.4 million (31 December 2016: €197.4 million) mainly due to the sale of the investment in BCP amounting to €160.3 million as of 31 December 2016.

Interest-bearing loans and borrowings of the Group decreased by €92.9 million to €450.7 million (31 December 2016: €543.6 million) primarily from the early full repayment of Series C bonds. The short-term part of interest-bearing loans and borrowings amounts to €248.2 million (31 December 2016: €200.5 million) and the long-term part amounts to €202.5 million (31 December 2016: €343.1 million). The increase in short-term part of €47.7 million includes mainly the commitment by the Company before year end for the early full repayment of Series B bonds amounting to €18.6 million which took place on 3 January 2018.

Furthermore, regarding the short-term part of interest-bearing loans and borrowings:

(1) Interest bearing loans and borrowings in the amount of €120.8 million as of 31 December 2017, classified in the consolidated statement of financial position within short-term part in accordance with the Group's operating cycle, have actual contractual terms between the period from November 2019 to October 2021.

(2) The maturity of interest bearing loans and borrowings in the amount of €45.7 million as of 31 December 2017 and with original maturity date on 1 November 2018, classified within short-term, has been extended subsequent to the year end until 1 July 2019.

(3) Interest bearing loans and borrowings in the total amount of €20.3 million has been repaid prior to the date of the Annual Report.

(4) Following the completion of the bank loans refinancing of Company's indirect subsidiaries in Russia on 22 March 2018, an amount of €25.5 million classified within short-term as of 31 December 2017, has been postponed towards the maturity dates of these loans which are after 31 December 2018.

The cash and cash equivalents of the Group increased by €15.6 million to €37.4 million (31 December 2016: €21.9 million) mainly due to the proceeds from the sale of the investment in BCP which were not fully utilised during the year.

Assets classified as held for sale decreased by €26.2 million to €39.9 million (31 December 2016: €66.1 million) mainly due to the impairment loss of €19.3 million recognised for the investment in BCRE IHG 180 Orchard Holdings LLC in order to reflect the agreed price for the sale of the property owned by the associate as per the letter of intent signed with a third party in March 2018, and due to translation losses of €7 million.

The NAV attributable to the equity holders decreased to €201.7 million during the year (31 December 2016: €254.1 million).

Consolidated statement of cash flows

The Group cash flow movements during 2017 and 2016 were as follows:

The decrease in the cash flows provided by operating activities by approximately €65.9 million compared to last year relates mainly to the cash inflows amounting to €54.5 million from discontinued operations in 2016.

The cash outflows in the amount of €29.3 million from operating activities for 2017 relates mainly to the construction activity for the inventory of apartments under construction.

The increase in the cash flows provided by investing activities by approximately €231.2 million relates mainly to the proceeds from the sale of the investment in BCP. The decrease in the cash flows used in financing activities by €93 million relates mainly to the early repayment of Series C Bonds.

During the year, the Group repaid interest bearing loans and other borrowings amounting to €139.2 million (31 December 2016: €112.6 million) and received new interest-bearing loans and other borrowings in the amount of €53.6 million (31 December 2016: €98.9 million). Furthermore, the Group raised cash from the issue of new debentures amounting to €17.5 million (31 December 2016: €24.3 million) which were repaid before the year end.

1.4.2 Fund raising

On 17 February 2017 and 2 March 2017, the Company raised additional amounts of approximately US$12 million and US$7 million, respectively, net of expenses, under the programme. The proceeds were 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 issuances were undertaken within the A2/negative rating on a local Israeli scale by Midroog.

Towards the end of 2017, BCRE preliminary agreed with a group of lenders for the provision of a financing facility to the Company for the total amount of US$20 million. On 14 February 2018, the Company finalized and signed the agreement with the group of lenders. The facility will bear interest of 6.5% per annum and will mature on 30 June 2020, on which date the whole outstanding amount of interest and principal will need to be paid. As at 31 December 2017 an amount of US$6 million has been provided to the Company in respect of this facility.

1.4.3 Debt repayment

On 13 December 2017 and 3 January 2018, BCRE has early repaid the Series C bonds and Series B bonds respectively amounting to approximately US$93.1 million (approximately €82.4 million) and approximately US$23.8 million (approximately €19.9 million), respectively. The amount paid relates to the whole principal outstanding together with the accrued interest as of that date and the early repayment fee.

1.4.4 Distribution

No distribution was made during 2017.

No distribution will be made for the year ended 31 December 2017, with a view to increasing the Company's liquidity.

In accordance with article 30 of the Company's Articles of Association, the Board of Directors proposes to the General Meeting of the shareholders to add the 2017 loss of €33,963 thousand to the other reserves.

1.4.5 Share buyback programme

On 3 June 2016 BCRE announced a share buyback programme up to a maximum of €3 million. BCRE cancelled the shares upon repurchase. The purpose of the share buyback programme was to reduce the discount between the share price and the net asset value per share. The share buyback programme was completed on 31 December 2016.

The total number of shares repurchased under the share buyback programme was 2,013,165 for a total consideration of approximately €1.96 million. The share capital of BCRE was reduced in 2017 by means of a cancellation of all the shares repurchased under the share buyback programme. As a result, the issued share capital of BCRE to date consists of 159,596,899 ordinary shares.

1.4.6 Refinancing of bank loans in Russia

On 22 March 2018, the refinancing of the existing bank loan facilities in a total amount of approximately US$267 million (approximately €222 million) entered into by subsidiaries/associates of BCRE Russia concerning the four projects in Russia (Kazan, Lyubertsy, Lobnia and Dmitrov) has been completed.

1.4.7 Sale of BCP

On 23 May 2017, BCRE entered into an agreement with a third party for the sale of the entire holding held in BCP. The sale was completed on 14 June 2017 for a total gross consideration of approximately NIS695 million (approximately €175 million). The loss from the sale amounting to €11.8 million has been included within "Profit from discontinued operations, net" together with the profit from the results of BCP for the period from 1 January 2017 until 14 June 2017 amounting to €16.7 million, resulting to a net profit from discontinued operations of €4.9 million.

1.4.8 Rating

In December 2017, Midroog, has reaffirmed the credit rating of the Company's Series B and C bonds of A2 on a local Israeli scale and changed the outlook from negative to stable. The Company has fully redeemed Series B and C bonds in January 2018 and December 2017, respectively. In addition, Midroog changed the credit rating of the Company's Series A bonds from A2 to A3 on a local Israeli scale and changed the outlook from negative to stable. Following the Series, A bonds' scheduled payment on 19 December 2017, the outstanding principal amount of Series A bonds due on 19 December 2018 amounts approximately to NIS75 million (approximately €18 million).

1.5 CORPORATE GOVERNANCE STATEMENT

1.5.1 Directors and senior managers

Directors of the Company (the "Directors") as of 31 December 2017:

Senior managers of the Company (the "Senior managers") as of 31 December 2017:

1.5.2 Introduction

The Company is a public limited liability company incorporated under the laws of the Netherlands, and its shares were admitted to the standard listing segment of the Official List of the UK Listing Authority. The Dutch Corporate Governance Code 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. 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 2016 (the "UK 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 comply where considered appropriate with the UK Corporate Governance Code, alternatively to the Dutch Corporate Governance Code. The UK Corporate Governance Code and the Dutch Corporate Governance Code are mainly based upon the same or at least comparable principles of good corporate governance. In view of the listing of its shares on the London Stock Exchange, the Company complies voluntarily with aspects of the UK Corporate Governance Code considered appropriate to the Group instead of complying with the Dutch Corporate Governance Code.

The Board is committed to maintaining a high standard of corporate governance and intend to continue to comply with those aspects of the UK Corporate Governance Code which they consider appropriate, considering the size of the Company and the nature of its business.

The UK Corporate Governance Code consists of principles (main and supporting) and provisions and uses a "comply or explain" approach. Listed companies (with a premium listing, but not those with a standard listing, of shares on the London Stock Exchange) are required to apply the main principles of the UK Corporate Governance Code and report to shareholders on how they have done so. Listed companies are required to either confirm that they have complied with all provisions set out in the UK Corporate Governance Code or, where they have not, to provide an explanation where justified in particular circumstances if good governance can be achieved by other means. Companies with a standard listing can voluntarily comply with the aspects of the UK Corporate Governance Code that are appropriate to be adopted. 

A current version of the UK Corporate Governance Code came into effect in 2016, applying to financial years beginning on or after 17 June 2016 and will apply, where considered appropriate for the Company to comply with it, to the Company from 1 January 2017. The UK Corporate Governance Code can be found on the FRC website at: www.frc.org.uk and the Dutch Corporate Governance Code (as revised on 8 December 2016) can be found at: www.commissiecorporategovernance.nl.

1.5.3 Board composition, roles and independence

The UK 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 UK Corporate Governance Code also recommends that the chairman should, on appointment, be independent. Jan van der Meer has resigned as non-executive Director effective as of 3 March 2017 for personal reasons, as a result of which the Company currently has four Directors (biographies are set out in Section 1.5.1), three of whom are non-executive Directors: Harin Thaker, Daniel Aalsvel and Luca Tomesani Melotti and one executive Director: Michiel Olland. Only 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. Daniel Aalsvel has expressed his intention to retire from the Company as a Director immediately following the approval of the Company's 2017 annual report. Harin Thaker (non-executive Chairman) is not 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. Luca Tomesani Melotti was re-appointed on 30 June 2017 as a non-executive Director. In addition, the number of independent non-executive Directors does not comply with the recommendation of the UK Corporate Governance Code that at least two of the directors, excluding the chairman, should be independent non-executive directors.

The independence of non-executive Directors is based on criteria suggested in the UK Corporate Governance Code. The UK 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 consider it appropriate 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 UK 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. Newly 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.

The Company is in process of assessing the appropriate balance of skills and experience, independence and knowledge of the Board, as part of its succession planning to ensure progressive refreshing of the Board and, in particular, following the implementation of Directive 2014/56/EU on statutory audits of annual accounts and consolidated accounts in the Netherlands and the announcement that Daniel Aalsvel is to retire as a non-executive Director from the Company immediately following the approval of the Company's 2017 annual report.

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.

The Board approved the diversity policy in 2017.This policy sets out the Company's position on providing equal opportunity in all aspects of employment, including recruitment and promotion, giving guidance and encouragement to employees at all levels to act fairly and prevent discrimination on the grounds of sex, race, colour, ethnic or national origins, physical ability, marital status, part-time and fixed contract status, educational or professional background, age, sexual orientation, religion, beliefs, perspective, experience, or other ideologies. This policy applies to all current and potential employees and directors. BCRE sees diversity as an asset to the organization and linked to better economic performance and it helps achieve its objectives. BCRE believes that diversity of competences and views of its Board members, facilitates a good understanding of the business organization and affairs of the Company. It enables Board members to constructively challenge the management decisions and to be more open to innovative ideas.

1.5.4 Board meetings and Committees attendance (1)

(1) Reference made only to the mandatory committees.

a. Chairman of the Remuneration Committee.

b. Chairman of the Nomination Committee.

c. Chairman of the Audit Committee.

d. Jan van der Meer resigned from the Board on 3 March 2017

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

The Board considers agenda items set 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. The 2017 performance evaluation of the Board was undertaken in April 2018. During April 2018, 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 determined to be satisfactory and appropriate. The evaluation of the individual Directors was conducted by the Board Chairman. 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 April 2018 and concluded by the Board as being appropriate with some recommendations to take actions during 2018.

The roles of the Chairman and the interim co - Chief Executive Officers 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 interim co - Chief Executive Officers, for the management of the Group and the implementation of the Board strategy and policy on the Board's behalf. In discharging their responsibilities, the interim co - Chief Executive Officers are advised and assisted by the other members of the senior management. Biographies of the interim co - Chief Executive Officers and the other members of the senior management team are set out in Section 1.5.1.

During the financial year, the Board held thirty-five Board meetings. In addition, the Board held discussions with the senior management team on a regular basis during 2017. Several meetings of non-executive Directors were held, without the presence of the executive Directors, during 2017. The Board considered and discussed, inter alia, the sale of the all the shares held in the issued and outstanding share capital of BCP, the exploration of the possible cancellation of the standard listing of the Company's ordinary shares from the Official List of the United Kingdom Listing Authority and the cancellation of trading in the shares on the Main Market of the London Stock Exchange, as well as, alternative methods that could amongst others provide liquidity to the Company's shares. In addition, the strategic plan going forward and the repayment of the corporate debts have been considered and discussed.

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 of the Company in respect of liabilities incurred as a result of their office.

1.5.9 Board Committees

In accordance with the UK 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, Disclosure Committee and a Risk Management 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 been appointed as a committee member due to his recent and relevant financial experience. The composition of the Audit Committee is expected to be changed to comply with Regulation 537/2014/EC, which came into effect on 17 June 2016 (and applies as from 1 January 2017 in the Netherlands), and Article 2(1) of the Royal Decree of 26 July 2008. There have been twelve Audit Committee meetings during 2017.

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

The Remuneration Committee is comprised of Harin Thaker (non-executive Chairman) and Daniel Aalsvel (independent non-executive Director). Harin Thaker chairs this committee, contrary to the recommendation of the UK 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. His experience and knowledge on this area adds value to the Company.

The Remuneration Committee advises the Board on an overall remuneration policy. The Remuneration Committee also proposes individual remuneration of the interim co - Chief Executive Officers, Chief Financial Officer, Company Secretary and the Chairman of the Board (if the Chairman is an executive Director), the executive Directors, 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 2017.

Further details in respect of the remuneration of the Directors are contained in the Remuneration Report in Section 1.7 and in Note 31 in the explanatory notes to the Consolidated financial statements.

Nomination Committee

The Nomination Committee is comprised of 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 voting 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 in 2015 and his re-appointment as a non-executive Director in 2017.

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 regards 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.

Under Dutch law effective as of 13 April 2017, the Company must pursue a policy of having at least 30% of the seats on the Board held by men and at least 30% held by woman. Between 2014 and 2017, 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 nine Nomination Committee meetings during 2017.

Investment Advisory Committee 

Harin Thaker (non-executive Chairman), as the only board member, is one of the members of the Investment Advisory Committee. The rest of the members are the interim co-Chief Executive Officers, (the former CEO Ariel Podrojski has been a member to this Committee until his retirement), and another senior manager. An Investment Advisory Committee has been established, (although not required under the UK 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. and the acquisition and disposal of shares in BCP. 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.

There have been several Investment Advisory Committee meetings during 2017.

Disclosure Committee 

Michiel Olland (executive Director), as the only board member, is one of the members of the Disclosure Committee. The rest of the members are the interim co-Chief Executive Officers, (the former CEO Ariel Podrojski has been a member to this Committee until his retirement), Chief Financial Officer and Corporate Secretary.

A Disclosure Committee has been established, (although not required under the UK Corporate Governance Code), to lead the disclosure process of inside information and to prevent insider dealing, unlawful disclosure of inside information and market manipulation.

There have been several Disclosure Committee meetings during 2017.

Risk Management Committee

The Risk Management Committee is comprised of all the Directors of the Company who are members in its various sub committees. In addition, the interim co-Chief Executive Officers, (the former CEO Ariel Podrojski has been a member to this Committee until his retirement), Chief Financial Officer, Corporate Secretary and Eyal Gutman are members in the various sub committees of the Risk Management Committee. A Risk Management Committee has been established, (although not required under the UK Corporate Governance Code), to assist the Board in the discharge of its statutory and fiduciary responsibilities of governance, ethics, integrity and risk management.

There have been several Risk Management Committee meetings during 2017.

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, governance and strategy of the Company to understand their issues and concerns.

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 Audit Committee discusses and examines with the senior managers on a quarterly basis regarding the internal policies and procedures. The Audit Committee reviews as well the results of the external auditors' audit findings concerning the audit of the financial statements and proposes recommendations accordingly.

The Group's internal control procedures include Board approval for all significant capital investment projects. All major and/or extraordinary 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 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 (i.e. certain committees were created in order to review the financial and operational performance of the Group) 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, examine whether the system of internal control operated effectively throughout the financial year and up to the date the financial statements were signed and will make recommendations when appropriate.

1.5.12 Share dealing code

The Company adopted on 10 January 2017 a new share dealing code which is compliant with the Market Abuse Regulation (i.e. Regulation (EU) No 596/2014). The share dealing code imposes restrictions on conducting transactions in or relating to Company securities beyond those imposed by law. Its purpose is to ensure that PDMRs (persons discharging managerial responsibilities) and PCAs (persons closely associated with a PDMR) do not abuse, and do not place themselves under suspicion of abusing, inside information that they may be thought to have (in particular during periods leading up to an announcement of the Company's results).

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 executives 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 2017, 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) At the General Meeting at which the appointment at hand is made was convened by or at the request of BCI; or

(b) If 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) At the General Meeting at which the resolution is adopted was convened by or at the request of BCI;

(b) If 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 24 June 2016, 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 annual General Meeting of 2016 (being equivalent to 16,161,006 shares that ends on the day of the annual General Meeting held in 2017. On 3 November 2016 the shareholders of the Company resolved in an Extraordinary General Meeting ("EGM") to designate the Board as the authorised body to issue shares, grant rights to subscribe for shares and to restrict pre-emptive rights by another ten percent 10% (therefor 20% in the aggregate) of the issued share capital of the Company at the date of the annual General Meeting in 2016 (equivalent to 32,332,012 shares), in order to facilitate the issuance of the Company of further convertible bonds. On 30 June 2017, the General Meeting approved to prolong the designation of the Board as the body authorised to resolve to (i) issue shares in the capital of BCRE and (ii) limit or exclude pre-emptive rights related to the issuance of shares or the granting of rights to acquire shares to the Board up to 10% of the issued share capital of the Company at the date of the annual General Meeting of 2017 (being equivalent to 16,007,664 shares) 12 until the first day following the annual General Meeting of 2018.

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 authorisation shall remain valid for a maximum of 18 months. On 24 June 2016 and at the EGM this authorisation was approved to extend for a period that ends on the first day of the following Annual General Meeting which will be held in 2017. At the General Meeting on 30 June 2017 the Board was authorised until the first day following the Annual General Meeting of 2018 to acquire fully paid up shares or DI's (as defined in paragraph 1.5.19), provided that:

(a) the purchase price per share or depositary interest shall not be less than the nominal value and not higher than 110% of the market price at the rime of transaction;

(b) the aggregate nominal amount of the shares or DI's to be acquired together with the shares or DI's which are already held and the shares or DI's on which a right of pledge is held, by the Company of by its subsidiaries, shall not exceed the maximum amount as prescribed by law and regulations;

(c) all other regulations of the Articles and law shall be adhered to; and

(d) market price at the time of the transaction is determined in such case by reference to the previous day's closing price of the Daily Official List of the London Stock Exchange.

No authorisation 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 Link Market Services Trustees Limited (former 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 at 25 April 2017 this interest was as follows: S. Weintraub 46.67%, Medinol Ltd. 6.72% 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 2016, 161,610,064 shares with a nominal value of €0.01 were issued and fully paid up. Following the repurchase of shares under the share buyback programme as announced on 3 June 2016 and further extended on 14 September 2016, the Company had reduced its share capital by means of cancellation of 1,533,415 of its own shares on 10 January 2017. The Company's entire issued share capital following the share cancellation consisted of 160,076,649 ordinary shares, including 479,750 shares purchased under the share buyback program which were not yet cancelled. At the General Meeting on 30 June 2017 it was resolved to further reduce the Company's share capital by means of cancellation of 479,750 of its own shares, which was effected on 6 September 2017. On 31 December 2017, 159,596,899 shares with a nominal value of €0.01 were issued and outstanding.

· 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 17 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 and the convertible bonds issued in September 2016 include change of control provisions. A change of control event occurs in case any person other than BCI will have an interest 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% of the voting rights normally exercisable at a General Meeting. The bonds issued by the Company in November 2014 had been fully repaid on 13 December 2017. Please refer to the bonds prospectus and to the terms and conditions of the convertible bonds that are 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 established a remuneration committee of one independent non-executive Director and two non-independent non-executive Directors. Currently after the resignation of Jan van der Meer, effective as of 3 March 2017 the Remuneration Committee consists of one independent non-executive Director and one non-independent non-executive Director. 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 proposing to the Board its recommendation on the remuneration packages for individual Directors, co-Chief Executive Officers, Chief Financial Officer and Company Secretary.

Executive Directors

The remuneration package for the executive Directors is fixed and consists of a basic annual salary and an additional fee for the participation in the Board's committee as described below.

Michiel Olland and Luca Tomesani Melotti (until his re-appointment as a non-executive director on 30 June 2017) are both entitled to a basic annual salary of €47,000 (less any tax and / or social security contributions) payable monthly in arrears.

Executive Directors are entitled to receive a fee for the participation in the Board's committees, as follows: (a) for being a member of the Audit Committee, an annual fee of €5,000, (b) for being a member of the Nomination Committee, an annual fee of €3,250 (c) for being a member of the Remuneration Committee, an annual fee of €3,250 and (d) for being a member of the Disclosure Committee, an annual fee of €3,250. The fees are payable yearly in arrears calculated according to the actual participations in the committee meetings.

Michiel Olland is entitled to a total annual fee of €11,500 for his participation in the Audit Committee, the Nomination Committee and Disclosure Committee.

Luca Tomesani Melotti is not participating in any of the committees and therefore he is not entitled to any additional fee.

Non-executive Directors

The remuneration package for the non-executive Directors is fixed, except for Harin Thaker, and consists of a basic annual salary and an additional fee for the participation in the Board's committees as described below. 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 UK.

Harin Thaker, Daniel Aalsvel, Luca Tomesani Melotti (after his re-appointment as a non-executive Director on 30 June 2017) and Jan van der Meer (until his resignation from the Board on 3 March 2017) are each entitled to an annual fee of €36,000 (less any tax and / or social security contributions) payable monthly in arrears.

Non-executive Directors are entitled to receive a fee for the participation in the Board's committees, as follows: (a) for being a member of the Audit Committee, an annual fee of €5,000, (b) for being a member of the Nomination Committee, an annual fee of €3,250 (c) for being a member of the Remuneration Committee, an annual fee of €3,250 and (d) for being a member of the Disclosure Committee an annual fee of €3,250. The fees are payable yearly in arrears calculated according to the actual participations in the committee meetings.

Harin Thaker and Daniel Aalsvel are entitled to a total annual fee of €11,500 each for the participation in the Audit Committee, in the Nomination Committee and in the Remuneration Committee. Jan van der Meer was entitled to an annual fee of €3,250 for his participation in the Remuneration Committee, until his resignation on 3 March 2017.

Luca Tomesani Melotti is not participating in any of the committees and therefore he is not entitled to any additional fee as defined in the company's remuneration policy. In addition, he, in his capacity as a consultant for Maraconi project in Italy, received an additional amount of €150,000 from a Company's subsidiary for 2017.

In addition, Harin Thaker, in his capacity as a member of the Investment Advisory Committee, receives an additional annual fixed fee of GBP122,500 (€139,776).

Variable income

Harin Thaker, the Chairman of the Board, had an option to purchase 2.5% of the equity of any transaction 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 transaction; (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.

Remuneration summary table

The total remuneration, as intended in section 2:383 (1) of the Dutch Civil Code, amounted to €545 thousand (2016: €425 thousand) for Directors. The composition of Directors remuneration is as follows:

a. Luca Tomesani Melotti was an executive director until 30 June 2017 and he was re-appointed as a non-executive director on the same day.

b. Jan van der Meer resigned from the Board on 3 March 2017.

c. Harin Thaker is entitled for an additional annual fixed fee of £122,500 (€139,776) in his capacity as a member of the Investment Advisory Committee (besides his fee as a non-executive director). This additional fee is included in the total amount in the above table.

Director fees in relation to Company's subsidiaries for the year ended 31 December 2017 amounted to €234 thousand (31 December 2016: €33 thousand). The increase from last year is due to the payment made to Luca Tomesani Melotti as described above.

Remuneration policy

The remuneration policy regarding the remuneration of the Board, as proposed by the Company's remuneration committee, was adopted by the General Meeting on 2 February 2015.

The fundamental principle of the remuneration policy is that remuneration and other terms of employment for the members of the Board shall be in line with the market and in accordance with services and time commitment of the Directors, in order to ensure that the Company will be able to attract, motivate and retain necessary individuals to enable the Board to promote the interests of the Company in the medium and long term. The total remuneration to the Directors may consist of a fixed salary, remuneration for additional services and other benefits.

The remuneration policy is available on Company's website at www.brack-capital.com.

Remuneration Committee attendance and meetings

The Remuneration Committee met five times during 2017. All members of the Remuneration Committee attended all meetings. Certain other Board members also attended some of the Remuneration Committee meeting by invitation.

Throughout the year, the Remuneration Committee, among others, reviewed and considered the following:

· The determination of the realization of the achievement of the targets based on the general and year specific parameters for the 2016 incentive scheme for the former Chief Executive Officer, Chief Financial Officer and Corporate Secretary; and

· The determination of the realization of the achievement of the targets based on the general and specific parameters for the 2017 incentive scheme for the former Chief Executive Officer.

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. The composition of the Audit Committee is expected to be changed to comply with Regulation 537/2014/EC, which came into effect on 17 June 2016 (and applies as from 1 January 2017 in the Netherlands) and Article 2(1) of the Royal Decree of 26 July 2008.

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

Ernst & Young Accountants LLP is the Company's current external auditor.

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.

Ernst & Young Accountants LLP 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. The maximum term the external auditor can be appointed is 10 years. 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.

In accordance with corporate governance requirements, the Audit Committee reviewed on 7 November 2017 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 17 and 26 April 2018 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 2017 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 2017 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 2017 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 below.

The amount of €21 thousand have been paid to EY Russia for providing advisory services to the Company's subsidiaries/associates. The Audit Committee concluded that this did not impair the auditor's independence in relation to the audit of the consolidated financial statements.

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 and the senior management also review the reports to shareholders and any other public announcement concerning the Group's financial position and corporate governance statements.

During August 2017, the Audit Committee met in order to discuss and recommend to the Board to approve the valuations of the major investments in Russia in relation to 2017 interim reports. During March 2018, the Audit Committee met in order to discuss and recommend to the Board to approve the valuations of all investments in Russia and the major investments in the US in relation to the 2017 annual report. During the above meetings, the Audit Committee has held detailed discussions with the senior management and the Russia valuator in the presence of the external auditors with regards to the assumptions and methodology used in valuating these investments. The Audit Committee has also considered the external auditor's approach to the valuation of these investments. Based on their above review and analysis the Audit Committee concluded that they are satisfied with the valuation of investments and recommended them for approval to the Board.

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.

For the period under review, no incidents have been reported.

Audit Committee attendance and meetings

The Audit Committee met twelve times during 2017 and received regular financial updates from the Chief Financial Officer on the Group's performance. All members of the Audit Committee attended all meetings except Harin Thaker who was not present in two of the meetings due to personal reasons. Luca Tomesani Melotti also attended some of the Audit Committee meetings by invitation.

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

· Monitor the statutory audit of the annual and consolidated financial statements in particular its performance, taking into account any findings and conclusions by the Authority for the Financial Markets pursuant to Article 26(6) of Regulation (EU) No 537/2014;

· The financial information that is publicly disclosed, which included the accounts for the year ended 31 December 2016; and the interim results for the period ended 30 June 2017;

· The annual report 2016;

· 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;

· Discussion of valuations of Russia and US assets;

· Discussion of 3 years' projected cash flow;

· The selection and recommendation of the external auditors;

· The independence and objectivity of the external auditors; and

· The 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 identified and controlled adequately within the margins of a conservative risk profile.

1.9.1 Risk Appetite

Under regular market risk conditions, 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 BCRE's business philosophy. However, BCRE's very cautious current market view (see macro view below in the section Risks related to Changes in macroeconomic conditions) necessitates an ad hoc diversion from its usual asset allocation and diversification - oriented methodology and focus on rapid risk reduction. As the company's Board and management believe that current global market circumstances are of an increased risk level, BCRE's current short and medium business plan includes mostly de-risking by deleveraging, divestment of non-core and some stabilized properties and cost cutting. BCRE believes execution time is of the essence, and has started to pursue the execution of the business plan with rigour since there is no clear timing or probability when the global market conditions will get riskier.

BCRE, as part of its strategy which involves conservative underwriting, carries out continues 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. The Group's 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 monitors 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 the Group's portfolio and potential opportunities under consideration.

The business in which BCRE is engaged inevitably involves risks. However, as mentioned in this Section 1.9 and other sections, the Company makes continuous efforts to balance and mitigate these risks through, among others, the use of different transaction and investment 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 low depending on the risk category as follows:

1.9.2 Business Strategic & Operational - Real Estate Activity Risks

The key business risk factors relating to the strategy and operating activities aspect of the Group relating to the real estate activity risks 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 (partly in emerging markets), type (requiring intensive management and/or deterring institutional investors) and their stage 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. This illiquidity shortcoming might become especially limiting in case of a financial crisis, where in addition to the natural illiquidity of the underlying asset, the crisis itself is typically characterized by a sharp drain in liquidity. 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 continuous high-level reviews and research 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. The Group's teams in the markets where the Group operates are vertically integrated and comprise professionals with many years of experience in the real estate sector. According to the new strategic plan the Group follows a de-risk, deleverage and improving its balance-sheet quality, reducing asset exposure policy.

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 conversion project (as well as another large potential conversion project) in Manhattan, New York, United States (the Company's equity value as of December 2017 is approximately €36 million and a retail and wholesale market development project in Kazan, Russia (the Company's part in the loss for 2017 is approximately €10 million). A deterioration in any of these projects or global and / 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 monitors 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. In accordance with the new strategic plan of BCRE, it has been decided that (i) no new investments in emerging markets will be undertaken, (ii) if new investment opportunities arise, which have abnormally low risk profiles - especially when taking advantage of Group's key proficiencies - consider to invest, (iii) reduce exposure to stabilized assets in the US and (iv) when possible, without a fire sale, reduce exposure to emerging markets and non-core assets/non-core sectors.

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 assuming 720 West End Avenue project may potentially be developed) in the Company's current development assets is currently estimated at around US$160 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 around US$16 million - US$24 million. The decision whether 720 West End Avenue project may be potentially developed is subject to the market conditions and depending on the prevailing financing availability and construction financing terms at the time of such future decision. In case of a development there may be a demand of an additional equity investment. This project represents a relatively high proportion of the Company's NAV, and as such, creates an inherent exposure to a single property.

Due to (inter alia) extensive financing requirements and long market exposure during the development, such ventures are typically associated with considerable, and multifaceted, 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.

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 the Group's properties to see the advantage and potential value addition the Group's 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 Changes in macroeconomic conditions

Real estate in general, and the Group's property portfolio in particular, are exposed to changes in the macroeconomic environment, as was strongly evidenced by the sharp negative impact of the downturn in Russia on the groups operation, performance, and assets. The Company analysed and identified what it currently believes to be a relatively disconcerting combination of global conditions, including (i) interest rate environment (negative nominal and real rates in Europe, very flat curve in the US, historically tight junk bond spreads) (ii) inflated valuations in major asset classes (equities, fixed income, real estate and more) (iii) high levels of global debt combined with deteriorating debt underwriting quality and a high level of debt derivatives held by banks and non-banking institutions (iv) exceedingly unsettling debt and property markets situation in China (v) an evident, announced, trend of reduction in global quantitative easing (especially by the Fed and ECB, and more recently Bank of Japan) a new, (vi) multiple end-of- cycle evidence in the US combined with ETF trade dominance and crisis untested trade strategies such as risk parity and low volume (vii) disturbing indications of disregard to risk in asset pricing globally, similar to those seen in 2006-2007.

1.9.3 Business Strategic & Operational - Geographic Risks

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

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.

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. According to the new strategic business plan, the Group will dispose its investment in emerging markets.

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 has an interest in, is subject to certain risks common to the hotel industry. The Group currently has interests in one hotel development property in Manhattan (regarding which a sale contract was signed after the reporting period) and two operating hotels in Manhattan. 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 related to Changes in the Manhattan residential Condo Market

The Group has a relatively high exposure to 90 Morton Street, a Manhattan development project, and 720 West End Avenue, a Manhattan investment property, if potentially will be developed as described above, but whose value is correlated to the Manhattan condo market prices. The values and potential profits from both assets may drop in case of a continuing decrease in the demand and / or sale prices of Manhattan residential condo market - in particular the luxury segment. One of the potential causes for such future decreases may be a decline in the availably of retail acquisition mortgages and / or a continuing increase in the interest rates on such mortgages. As a result, the values of the two projects is also dependent upon the terms of mortgages.

Risks relating to the Group's operations in Russia

Supported by the pickup in energy prices, several 2017 macroeconomic indicators seem to provide positive tailwinds to the Russia economy in general and the Russian median household and consumer in particular. These indicators include resumed growth (albeit still relatively below at sub 2%), reduced inflation, very reasonable fiscal spending and substantially increasing foreign exchange reserves. The Central Bank of the Russian Federation has gradually reduced the interest rates from a crisis high of 17% to the current 7.25% and Russia has successfully raised sovereign bonds in the international markets. Retail sales continued to decline during the first half of 2017 even after economic GDP growth resumed, but that lag has ended, and retail sales has been growing in the past few months - at a modest year on year pace. The Company's management views the change in trend as positive, but moderate at best, and foresees the Russian consumer market to remain under pressure for a longer period, as households gradually rebuild their net worth. Most recently the latest rounds of US sanctions added sharp downwards pressure on both Russia capital markets and currency. BCRE is carefully monitoring the situation, which can potentially dent the fragile economic recovery. The Group may be subject to various risks relating to the imposition of additional rounds 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 their reduction of valuation of our assets.

The Group is operating with a hands-on approach in Russia with its 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 the ground with tenants in Group's properties. In light of the overall economic situation, necessary adjustments to be made with tenants are continuing.

1.9.4 Financial risks - Interest Rate Currency

The Company's key financial risks and risk factors relating to the financial position of the Group regarding the interest rates and currency risks 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.

As mentioned above in 1.9.2, the negative impact of rising interest rate is not limited to direct increased borrowing cost. There is also a potential correlation between rising rates and property values - in particular income producing assets. Thus, an increase in rates may reduce the values of the Group's property portfolio in the US.

For further details regarding the impact on Group's profitability from changes on the interest rates, please refer to Note 28 in the explanatory notes to the consolidated financial statements.

The Group is exposed to changes in foreign currency exchange rates

The Group's reporting currency is the 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 the purchase of a 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 dollar, may have a negative impact on the financial position of the Group and its 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 dollars for a Russian retail project), but the income of the tenant would still be in local currency (Russian rouble in that example). In such cases, a weakening of the local currency, while legally not affecting the tenant's obligation to pay in US dollars, 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 dollars have been severely compromised by the strong devaluation in the Russian rouble / US dollar 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 dollar denominated loan and income which is inherently linked to the Rouble: if the Rouble weakens, the equivalent value of the income in US dollar 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.

For further details regarding the impact on Group's profitability from changes in the exchange rates, please refer to Note 28 in the explanatory notes to the consolidated financial statements.

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. Until December 2018, approximately €18 million will be fully redeemed under the Series A Notes. The Group has fully redeemed its Series B and C as of the date of this Annual Report.

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 market the US, assists the Group to achieve financing for its assets. Also the Group reviews and analyses the maturity of all the loan facilities at least twice a year and take decisions accordingly.

For further details on the bonds issued by the Company, please refer to Note 18 in the explanatory notes to the consolidated financial statements.

1.9.5 Financial Reporting and Compliance Risks related to regulation and taxation issues

The Company's key financial reporting and compliance risks relating to taxation and regulation compliance risks of the Group can be summarised as follows:

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 IFRS as adopted by the European Union (IFRS as adopted by the EU). A material misrepresentation of the Group's financial performance and reports may cause restatements on the financial reports which can have severe impact on the 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 to ensure to reduce the risk that the financial reporting does not contain any errors of material importance. In addition, the risk that the properties in the Group's portfolio are incorrectly valued is mitigated by executing all property valuations by internationally reputed external appraisers. All the properties of the Group are being appraised once a year and if market conditions change the properties of the Group are being appraised every 6 months.

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.

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.

1.9.6 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 Risk Management Committee, Audit Committee and the Board. The Group's risk management framework is transparent in capturing the main risks which are relevant to the Group's business. Methodologies used in the Group's risk management framework are continuously assessed.

The comprehensive risk and risk framework is divided into three risk areas: business, financial, and legal and regulatory risks. The framework identifies the probability that a risk occurs, the impact and the mitigated actions to be taken.

During 2016, a risk management committee was established by the Board as a committee of the Board with the authority, powers and duties as set out in its terms of reference. The purpose of this committee is to assist the Board in the discharge of its statutory and fiduciary responsibilities of governance, ethics, integrity and risk management. The committee regularly report to the Board and provide assessment of the existing and potential risks, along with the effectiveness of the risk management systems and internal controls.

Among other, the committee has the following responsibilities:

1. Assisting the Board in formulating a strategic approach for risk management across the Group;

2. Ensuring that the appropriate tools and processes are in place to identify, asses and manage various risks from strategic and operational perspective;

3. Ensuring that the appropriate procedures are in place to monitor and review the effectiveness and adequacy of the implementation of risk management procedures;

4. Review and formulate recommendations to the Board on risks and risk management; and

5. Consider and recommend to the Board on Group's risk appetite.

The risk management committee created a risk matrix and a control process of continuous updating and monitoring in order to ensure that all major risks are being identified and dealt with on time.

The committee shall be assisted in its work by working subcommittees which are a business risks subcommittee, a financial risks subcommittee and a legal and regulatory subcommittee.

1.10 STATEMENTS

1.10.1 Going concern

The Directors, consisting of Harin Thaker (non-executive), Daniel Aalsvel (non-executive), Michiel Olland (executive) and Luca Tomesani Melotti (non-executive) have reviewed the current and projected financial position of the Group, making reasonable assumptions about future performance. The Board has a reasonable expectation that the Company and the Group have adequate resources to continue as in operational existence for at least the next 12 months from the approval of this annual report. This has led the Board to conclude that it is appropriate to prepare the 2017 financial statements on a going concern basis.

As in previous years, the company bases its assessment, among others, on the current cash balances, including marketable securities, and its available assets as well as considering cash from future operations and transactions. The repayments of the obligations of the Company are likely to be funded by a combination of one or more of the following, existing cash balances, including marketable securities, its ongoing development activity and operations, cash generated from the repayment of certain shareholder's loans by some of the Company's associates/joint ventures, cash generated through sale of certain assets in accordance with the Group's strategy on developed and stabilized projects (like IHG Orchard and Bowery assets held for sale at year end 2017) and on non-core assets, raising bonds and loans or equity transactions within the existing limits, partial refinancing of existing obligations, dividend distributions from associates/joint ventures. The Board regularly reviews and discusses the cash flow forecast and funding. However, although these forecasts have been made with due care, there is always an inherent risk that results will not materialize as forecasted and reality may differ, taking into consideration the risks identified as described in detail in Section 1.9.

Viability statement

In addition to the going concern assessment, the Board has considered the longer-term viability of its business. Provision C2.2 of the 2016 version of the UK Corporate Governance 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, strategic plan, business plan and budgets relevant to the Group's projects ("Business Plan'') and the main risks stated in section the risk management in Section 1.9 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 cash flow projection model which is based on a variety of assumptions about the key drivers of profit and cash flow. The cash flow projection 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 the cash flow with respect to the Company's solvency 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.

1.10.2 Directors' statement

The Directors, consisting of Harin Thaker (non-executive), Daniel Aalsvel (non-executive), Michiel Olland (executive) and Luca Tomesani Melotti (non-executive), declare that to the best of their 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 Directors confirm that to the best of their knowledge:

(a) the Consolidated financial statements for the year ended 31 December 2017 give a true and fair view of the assets and liabilities, the financial position and profit or loss of BCRE and the companies included in the consolidation taken as a whole;

(b) the Company financial statements for the year ended 31 December 2017 give a true and fair view of the assets and liabilities, the financial position and profit or loss of BCRE;

(c) the director's report provides a true and fair view of the situation on the balance sheet date and of the developments during the financial year 2017 of the Company and of its affiliated companies whose information has been included in its financial statements, together with a description of the main risks the Company faces;

(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; and

(e) the subsequent events are described in the notes 32 and 23 in the consolidated and company financial statements for the year ended 31 December 2017 respectively.

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.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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

CONSOLIDATED INCOME STATEMENT

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Items in the consolidated statement of comprehensive income are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in Note 12.

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

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY