BCRE.L Regulatory News (BCRE)

BCRE - Brack Capital Real Estate Investments N.V.

("BCRE" or the "Company")

FINAL RESULTS ANNOUNCEMENT

The Board of BCRE - Brack Capital Real Estate Investments N.V. announces results for the twelve months ended 31 December 2014 and has published its Annual Report 2014.

The Annual Report 2014 is now available to view or download from the company's website, www.brack-capital.com.

2014 Key highlights

· The Group generated revenues of EUR 68.04 million from rental income during the period (31 December 2013: EUR 50.08 million).

· The net asset value ("NAV") of the Group amounted to EUR 267.3 million as at 31 December 2014 (31 December 2013: EUR 232.3 million).

· As at 31 December 2014, the aggregate value of assets in which the Company is interested (in different percentages) was approximately EUR 1.9 billion (31 December 2013: EUR 1.5 billion).

· The Company successfully raised around EUR 87.7 million net of expenses during the period from the listing on the London Stock Exchange in May 2014, the issuance of bonds (series 'C') in November 2014 and the private placement in December 2014.

· Following a capital reduction in December 2014, the Company distributed around EUR 4.82 million (EUR 0.03 per share) in January 2015, in line with our dividend policy.

· The Group completed the acquisition of a major asset on 627 Greenwich Street in the West Village and is nearing the closing for the acquisition of another property in the Upper West Side, both in Manhattan, New York.

· Increased the income producing activities in the US with the acquisition of two multifamily residential properties in Cincinnati Ohio (one completed in April 2015) taking the number of units under management in the region to over 500, and increased our lending business in the Greater New York area.

· The Group increased its exposure to the German market with new acquisitions as well as through the purchase of additional shares in Brack Capital Properties N.V. ("BCRE Germany"), our subsidiary, bringing our shareholding in BCRE Germany to approximately 34.63%.

· BCRE Germany acquired over 2,100 multifamily residential units totalling approximately 134,000 sq. m. and commercial assets totalling approximately 16,000 sq. m., through four transactions during the period.

· BCRE Germany's income producing portfolio now includes around 9,200 multifamily residential units totalling approximately 524,000 sq. m. (31 December 2013: 7,040 units totalling approximately 390,000 sq. m.) and commercial assets totalling approximately 381,000 sq. m. (31 December 2013: approximately 365,000 sq. m.).

· In addition to an excellent year from an operational point of view for its income producing multifamily residential and commercial portfolios, BCRE Germany has continued to create value also through its development arm. It recently reached a preliminary agreement with the Dusseldorf municipality for the rezoning of the land designated for office use in the Grafental project from office to residential use. This will add approximately 650 units to the project.

· BCRE Germany also reached an in principle agreement with the Dusseldorf municipality to change the zoning of the land spanning over 20,000 sq. m. in Grafenberg (near the Grafental project) on which there is a portfolio comprising several residential and office buildings, acquired in 2014.

· Increased our stake in the income producing wholesale and retail centre in Kazan and the shopping centre development in Lyubertsy.

Ariel Podrojski, Chief Executive Officer, said

"2014 has been a defining year for the Group both from a corporate and a business point of view. During the period, BCRE successfully joined the London Stock Exchange raising funds upon listing and through the subsequent private placement and the bonds issuance to support our existing investments and the expansion of our portfolio.

A big step towards global portfolio balancing was achieved during the period with the new acquisitions in the US and Germany, and increasing of our holding in BCRE Germany.

The geopolitical environment in Russia continues to be challenging. Although, the situation in Russia seems to have recently stabilized to a certain extent, we continue to monitor it closely and remain cautious as it can still develop in various directions and magnitudes. However, we believe that our team in Russia with its hands-on approach is well equipped to monitor and react to the various challenges on the ground."

ENQUIRIES:

1 DIRECTORS' REPORT

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

1.1 CHAIRMAN'S STATEMENT

Harin Thaker, Chairman, said:

"I am pleased to present the full year result of the Group post listing on the London Stock Exchange. We are glad to see BCRE progressing in the right direction with expansion of our existing portfolio and making new investments during the period."

1.2 OVERVIEW

1.2.1 About us

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

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

The Group's simplified corporate structure as at 31 December 2014 is shown in the chart below.

As at 31 December 2014, the portfolio of properties in which the Group is interested comprises income-producing residential and commercial properties with a total built area of 1,044,000 sq.m. (831,000 sq.m in December 2013). In addition, the Group has an interest in development projects currently under construction with a total combined lettable and saleable area of approximately 190,000 sq.m (221,000 sq.m in December 2013). The Group holds an interest in approximately 350,000 sq.m of land available for sale as plotted development (same as in December 2013), and approximately 186,000m² of lettable and saleable area available for development (180,000 sq.m in December 2013), where development has not yet started. In addition, the Group has as an interest in approximately 450 hectares of land available for future development (300 hectares in December 2013).

1.2.2 Investment philosophy

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

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

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

1.2.3 Strategy

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

a) maintaining independently managed local teams in each of its key markets;

b) focusing investment primarily on the Group's key markets;

c) benefiting from organic return growth at project level;

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

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

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

g) developing and retaining in-house research and finance capabilities;

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

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

The key objectives of the Group include:

With the various global developments, movement in currencies and oil prices and the geopolitical situation, a key objective of the Group is to maintain a diversified balanced portfolio across its key markets as well as between income producing properties and development assets. In addition, we aim to:

a) Continue balancing our global portfolio with increased exposure in the US market towards exceptional investment opportunities in Manhattan (in line with our recent deals) and income producing activities, mainly multifamily residential, leveraging our experience in Germany.

b) Continue growing our German portfolio through the operational improvement and strong cash flows of our income producing properties and continue value creation by the development arm.

c) Maintain liquidity at the corporate level with the objective of being prepared, among others, for the potential impact of different global events.

d) Continue to closely monitor with a cautious approach the developments in Russia and maintain our local teams close to our assets. New acquisitions or increased stake where the current situation presents attractive opportunity with low immediate investment requirements.

1.2.4 Key strengths

Combination of local market presence and international transactional expertise

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

Focus on known markets and sectors

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

Substantial "on the ground" platforms

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

Experienced management team

Most of the senior executives of the Group's platforms are very experienced in real estate transactions in their local market and most of them have been with the Group for over 5 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 a number of years. The Group believes the depth of its management expertise in its key markets gives it a competitive advantage over its competitors.

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 with a significant lettable area, including the Group's three major developments currently underway in Kazan, Lyubertsy and Düsseldorf.

Strong transaction structuring skills

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

Access to co-investors

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

Good access to debt financing

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

1.3 BUSINESS OVERVIEW

1.3.1 CEO's statement

Ariel Podrojski, Chief Executive Officer, said

"2014 has been a defining year for the Group both from a corporate and a business point of view. During the period, BCRE successfully joined the London Stock Exchange raising funds upon listing and through the subsequent private placement and the bonds issuance to support our existing investments and the expansion of our portfolio.

A big step towards global portfolio balancing was achieved during the period with the new acquisitions in the US and Germany, and increasing of our holding in BCRE Germany.

The geopolitical environment in Russia continues to be challenging. Although, the situation in Russia seems to have recently stabilized to a certain extent, we continue to monitor it closely and remain cautious as it can still develop in various directions and magnitudes. However, we believe that our team in Russia with its hands-on approach is well equipped to monitor and react to the various challenges on the ground."

1.3.2 Our key markets

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

USA

The Group's portfolio in the US includes conversions to residential use and hotel developments in Manhattan, income producing activities comprising multifamily residential properties and lending to smaller residential real estate developers within the greater New York area.

Capitalizing on its success and experience in the multifamily business in Germany and in light of the successful acquisition and integration of Cobblestone Grove last year, our dedicated, experienced and skilful management team is well positioned to expand the multifamily business in the US. We have recently acquired Century Lakes Apartments, our second multifamily property in Cincinnati Ohio bringing the total number of units under management in the region to over 500.

Performance of the Cobblestone Grove Apartments continues to improve with c.97% occupancy vs. c.91% occupancy at the time of purchase in January 2014. The new rents achieved have increased over the same period by approximately 6%. The acquisition of Century Lakes Apartments located in a suburb of Cincinnati Ohio was completed in April 2015 and consists of 224 apartments with 94% occupancy.

These investments are building on our strategy to balance our global portfolio, expand our income producing activities and increase our exposure to the US market in general and particularly to the multifamily sector while we continue to look for unique investment opportunities in Manhattan similar to our recent deals.

Our lending business is performing well and expanding. Following the successful deployment of the initially committed funds, we have recently added fresh capital for the purposes of originating additional loans and supporting the operations and activities of the lending business. The Group has an experienced and skilful team in place that is leveraging its experience to expand the lending business.

The 230 room CitizenM Hotel in Times Square opened in April 2014 and has outperformed the operator's budget for the period. The development of the 300 room CitizenM hotel in Bowery, Manhattan is scheduled to commence during mid-2015 and completion is expected in 2017.

The development of the 295 room Indigo Hotel on 180 Orchard Street, Manhattan is progressing well and is scheduled for opening in mid-2015. The Group has recently completed the sale of the retail and garage component of 180 Orchard Street for USD 21 million.

The acquisition of a major property at 627 Greenwich Street in West Village Manhattan was completed in the second half of 2014 and is currently under the planning stage. Benefitting from its local expertise, prior experience with the planning authorities and quick response, the Group recently solved some zoning issues with the property adding significant value to the project. Once the relevant permits are obtained, the Group will assess whether to sell or develop the property.

Progress has been achieved towards the acquisition of a major property in the Upper West Side in Manhattan, New York. Once the transaction is approved by the court, the Group will proceed towards closing.

BCRE USA has successfully undertaken these types of Manhattan condominium conversion projects many times in the past. With BCRE's approach of creating value while at the same time reducing investment risk, these two Manhattan projects are expected to contribute significant value to the Group.

Overall, it has been an active year with the closing of the new deals, and continuing with our objective of increasing BCRE's exposure to the US market, thereby getting closer to achieving our goals in relation to balancing the portfolio.

Germany

The Group continues to view Germany as a highly attractive market. The Company increased its exposure to the German market during the period through the investment in new deals as well as through the purchase of additional shares in BCRE Germany, bringing our holding to 34.63% as of 31 December 2014.

During the period, BCRE Germany performed exceptionally well with the rental income growing by 22% to EUR 60.51 million (31 December 2013: EUR 49.54 million), net profit attributable to equity holders growing by 47% to EUR 37.95 million (31 December 2013: EUR 25.84 million) and funds from operations ("FFO") increasing by 26% to EUR 21.86 million (31 December 2013: EUR 17.38 million).

Through four acquisitions during the period, BCRE Germany acquired over 2,100 multifamily residential units totalling approximately 134,000 sq. m. and commercial assets totalling approximately 16,000 sq. m.

With the new acquisitions, the income producing portfolio of BCRE Germany now includes approximately 381,000 sq. m. of commercial assets with around 97% overall occupancy and 9,200 multifamily units with a total area of around 524,000 sq. m. and around 96% overall occupancy.

During the period, BCRE Germany's income producing portfolio witnessed a healthy growth with a further potential to grow organically. The residential portfolio witnessed around 4% annual increase in the rental income from the same assets during the last quarter where the current rents are about 15% below the market rents, reflecting significant growth potential.

BCRE Germany's development projects that are expected to drive high growth and generate attractive cash flows and profitability are progressing well.

Recently, BCRE Germany reached a preliminary agreement with the Dusseldorf municipality for the rezoning of the land designated for office use in the Grafental project from office to residential use. The rezoning will add approx. 650 residential units to the project. BCRE Germany also reached an in principle agreement with the Dusseldorf municipality to change the zoning of the land spanning over 20,000 sq. m. on which there is a portfolio comprising several residential and office buildings. This portfolio was acquired in 2014 in Grafenberg close to the Grafental project.

Once the rezoning is fully approved, the number of apartments to be developed in the next few years in the Grafental project and in the new project in the Grafenberg neighbourhood in Dusseldorf will be approximately 1,230 units. Based on the current selling prices, the sale of the units can generate approx. EUR 620 million and a development profit and cash flows (pre-tax) of approx. EUR 140 million and EUR 230 million, respectively. With the residential units currently under development and to be developed in the next few years, the Grafental project and the project in Grafenberg totals approximately 1,600 units.

Russia

The geopolitical situation in Russia continues to be challenging with the steep drop in oil prices, a weakening of the Rouble and a combination of negative growth coupled with a rise in inflation. Though the situation seems to have stabilized to a certain extent, the Group continues to monitor it closely and remains cautious as the events in Russia can still develop in various directions and magnitudes.

The Group, with around 85.07% interest in the platform, is continuing with its hands-on management approach and focus on the execution of its projects. The current volatile economic scenario affecting its tenants has resulted in a negative impact at the property level as well. Undertaking lease terms adjustments with tenants where necessary is also likely to have an effect on the operational parameters. It is difficult to gauge the full impact of these events on the Group's projects until the situation stabilizes. We believe that our team in Russia with its proactive approach is well equipped to monitor and react to the various challenges on the ground.

The Group's wholesale and retail complex in Kazan continues to witness healthy footfall with two fully operational modules. The latest module became operational in the second half of 2014. The master tenant for these modules was replaced owing to non-performance issues and the Group's willingness to obtain better understanding of the businesses operating in the property. Since the tenant replacement, we have witnessed a substantial increase in the leasing activity of the second module which is now approximately 60% leased. We are in the process of turning the third module into an off-the truck sales format semi-agro business (a format that exists in several Russian cities) and expect it to be operational shortly. This will generate additional income without any major investment as the major infrastructure works of this module have been already completed. During the period, the Group increased its stake in Kazan to approximately 35%.

The development of the shopping centre in Lyubertsy is on track with the scheduled completion expected in Q3 2015. The leasing activity for the property has been challenging and below initial estimates due to the current situation. During the period, the Group increased its stake in Lyubertsy to approximately 64%.

At the corporate level, the crisis has presented a few attractive opportunities with no or minimal cash outlay and attractive potential upside. The Group intends to capitalize on its experience in Kazan and undertake activities with similar attributes. Towards the end of 2014, the Group entered into a deal requiring limited equity for investment in Novosibirsk to develop an agro-industrial wholesale market and distribution centre, in a format similar to Kazan and in phase wise manner over a very large parcel of land of 155 hectare.

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

Overall it has been a challenging period in Russia, especially the latter part of the year with significant changes in economic and geopolitical situations. With the Group's local team and hands-on approach, BCRE believes that it is well equipped to address the challenges and capitalize on the opportunities the situation presents.

1.4 FINANCIAL OVERVIEW

1.4.1 CFO's statement

Nansia Koutsou, Chief Financial Officer, said:

"The successful raising of funds during the period from the listing on the London Stock Exchange, the issuance of bonds and the private placement continues to strengthen the overall financial position of the Group. The utilisation of these funds for general corporate purposes, working capital and the funding of current and new projects is expected to further drive the overall growth of the Group."

1.4.2 Financial review

The Group prepared its Consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU).

In July 2014, the IFRIC issued a decision regarding the recognition of deferred taxes in respect of temporary differences relating to single asset entity ("SAE") when an entity expects the reversal of temporary difference to be in the form of sale of shares in the SAE rather than the sale of the asset itself. Prior to the issuance of this decision, the Group's accounting policy was to record deferred taxes in respect of temporary differences based solely on the tax implications and tax rate applicable to the sale of the shares in the SAE and not to the sale of the asset itself. As a result, (part of) the Group's Consolidated financial statements for the year ended 31 December 2013 have been restated. For further details, please refer to Note 2ad to the Consolidated financial statements.

The gross rental income of the Group increased by approximately 36% to EUR 68.04 million (31 December 2013: EUR 50.08 million) mainly due to the newly acquired income producing properties and growth from our existing properties. In addition, the Group generated a gross profit of EUR 9.79 million (31 December 2013: loss of EUR 0.46 million) from the sale of residential units primarily from the Grafental project in Dusseldorf, Germany. The overall administrative expenses were EUR 12.02 million, similar to the administrative expenses for the year 2013 (31 December 2013: EUR 11.69 million).

The profit attributable to the equity holders of the Company amounted to EUR 30 million (31 December 2013: EUR 30.5 million restated).

Investment property of the Group increased by EUR 333 million to EUR 1,293.4 million (31 December 2013: EUR 960.4 million restated) primarily from the eight new acquisitions made during the year with a total value of EUR 219.5 million and from the revaluation gains of EUR 113.1 million, excluding the valuation of the asset held for sale (31 December 2013: gain of EUR 66.9 million restated, excluding the valuation of the asset held for sale). In addition to our properties in Germany and Russia, the investment property now also includes properties in the US and the UK acquired during the period.

Interest-bearing loans and other borrowings of the Group increased by EUR 282.8 million to EUR 1,038.5 (31 December 2013: EUR 755.7 million) primarily for financing the acquisition of new projects. The Group continues to manage its financial liabilities and its exposure to interest rate changes. As of 31 December 2014, approximately 70% of the Group's loans and debentures are hedged.

The consolidated cash position (including restricted bank accounts and deposits) of the Group increased by over 50% to EUR 121.4 million at the year-end (31 December 2013: EUR 80.8 million) and the NAV attributable to the equity holders increased to EUR 267.3 million during the period, including the new funds raised and net of capital reduction (as referred to in paragraph 1.4.4below) (31 December 2013: EUR 232.3 million).

1.4.3 Fund raising

The Company successfully listed on the London Stock Exchange in May 2014, raising funds of around EUR 24 million net of expenses.

In November 2014, BCRE successfully raised around USD 55.5 million net of expenses through the issuance of bonds (series 'C'). The proceeds are to be used to partly repay existing debt and partly for general corporate purposes, working capital and the funding of current and new developments.

The bond issuance was undertaken within the A2 rating on a local Israeli scale, by Midroog (a subsidiary of Moody's), wherein the Company could raise up to USD 60 million.

In December 2014, the Company also raised additional funds through a private placement totalling around EUR 18.1 million net of expenses partially through the issuance of new shares and partially through the issuance of convertible loan notes. The net proceeds are to be used for the financing of general corporate purposes and/or the direct or indirect financing of real estate.

1.4.4 Distribution

Following a capital reduction in December 2014, the Company distributed around EUR 4.82 million (EUR 0.03 per share) to its shareholders in January 2015, in line with its dividend policy. The capital reduction is recognised in the financial statements for the year ended 31 December 2014 and became legally effective through an amendment of the Articles on 2 January 2015. This follows the distribution of EUR 5.09 million made by the Company for the year 2013.

1.4.5 Rating

Following a rating upgrade in 2014, Midroog (a subsidiary of Moody's) continues to maintain the rating of BCRE's bonds (Series A, B and C) at A2 with a review on a local Israeli scale and examine the impact of the recent events in Russia on the Company's risk profile.

1.5 CORPORATE GOVERNANCE STATEMENT

1.5.1 Directors and senior managers

Directors of the Company (the "Directors")

Senior managers

1.5.2 Introduction

As a company, whose shares are admitted to the standard listing segment of the Official List of the UK Listing Authority, the Company is not required to comply with the requirements of the UK Corporate Governance Code published by the Financial Reporting Council ("FRC") in 2012 (the "Corporate Governance Code"). However, the board of Directors of the Company (the "Board") acknowledges the importance of good corporate governance and has put in place a framework which enables the Company to voluntarily comply with some aspects of the Corporate Governance Code as described below and which, in the opinion of the Directors, is appropriate for the Group.

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

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

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

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

1.5.3 Board composition, roles and independence

The Corporate Governance Code recommends that the board of directors of a listed company should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the board's decision making. The Corporate Governance Code also recommends that the chairman should, on appointment, be independent. The Company currently has four Directors (biographies are set out in section 1.5.1), three of whom are non-executive Directors: Harin Thaker, Jan van der Meer and Daniel Aalsvel and one executive Director: Michiel Olland. 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. Harin Thaker (non-executive Chairman) is not technically independent given that he has been appointed as a Director of the Company since October 2013, was a director of BCRE UK Limited (in relation to which he has been granted co-investment rights) and is a member of the Investment Advisory Committee. Harin Thaker also has co-investment rights in the Group's lending business. However, the Board considers that his extensive experience of European real estate makes him appropriate to be Chairman notwithstanding his other involvement in the Group's business. This and the number of independent non-executive Directors does not comply with the recommendation of the Corporate Governance Code that the chairman should be independent and that smaller companies have at least two independent non-executive Directors. The Board has nominated Luca Tomesani Melotti to be appointed as an executive Director at the Company's next annual general meeting of shareholders (the general meeting of shareholders of the Company; the "General Meeting").

Michiel Olland, Harin Thaker, Jan van der Meer and Daniel Aalsvel, 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. 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.

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

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

The Board has responsibility for the Group's strategic, financial policies and general business activities and meets regularly. All the Directors have access to the advice and services of the Company Secretary and are able to gain access to external independent advice at the Company's expense should they wish to do so in relation to their duties. Further details of the Board's powers and function are described in section 1.5.13.

An appropriate balance of executive and non-executive members of the Board is maintained and the Board is supplied with regular and timely information concerning the activities of the Group in order to enable it to exercise its responsibilities and control functions in a proper and effective manner. The Board has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board's composition can be managed without undue disruption. As mentioned above, on 6 March 2015 the Board nominated Luca Tomesani Melotti to be appointed as a Board member at the next annual General Meeting. 

1.5.4 Board meetings and Committees attendance

1. Chairman of the Remuneration Committee.

2. Chairman of the Nomination Committee.

3. Chairman of the Audit Committee.

4. Michiel Olland was appointed to the Board and to the Audit and Nomination Committees on 15 May 2014. He was eligible to attend six of the seven meetings of the Board and two meetings of the Audit and Nomination committees.

5. Daniel Aalsvel was appointed to the Board and to the Audit, Remuneration and Nomination Committees on 15 May 2014. He was eligible to attend six of the seven meetings of the Board and two meetings of each of the Committees.

6. Michael Frain retired from the Board on 15 May 2014. He was eligible to attend one of the seven meetings of the Board.

7. Rotem Nir retired from the Board on 15 May 2014. She was eligible to attend one of the seven meetings of the Board.

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

1.5.5 Board effectiveness

The Corporate Governance Code recommends that the board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. The current Board and Committees were established in May 2014 and as a consequence a formal evaluation process was not undertaken during 2014. Performance evaluation of the Board was undertaken in April 2015.

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

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

During the financial year, the Board held seven Board meetings. In addition, the Board held discussions with the senior management team on a regular basis during 2014.

1.5.6 Directors' duties

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

These duties cover the following areas of responsibility:

· statutory obligations and public disclosure;

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

· financial reporting process;

· annual budget and important capital investments;

· financing of the Company;

· oversight of management;

· risk assessment and management, including reporting;

· monitoring, governance and control; and

· corporate social responsibility issues.

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

1.5.7 External appointment of Directors

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

1.5.8 Directors' indemnities and protections

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

1.5.9 Board Committees

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

Audit Committee

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

The Board considers that the members' substantial experience of dealing with financial matters is more than adequate to enable the Audit Committee to properly discharge its duties in light of the nature of the Company's business. Michiel Olland has recent and relevant financial experience. There have been two Audit Committee meetings during 2014.

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

Remuneration Committee

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

The Remuneration Committee advises the Board on an overall remuneration policy. The Remuneration Committee also proposes individual remuneration of the Chief Executive Officer, Chief Financial Officer, the Chairman of the Board (if the Chairman is an executive Director), the executive Director, the Company secretary, and such other members of the senior management of the Company to whom the Board has extended the remit of the Remuneration Committee. The remuneration of all Directors (including non-executive Directors and members of the Remuneration Committee) shall be determined by the Board within the limits set in the Articles and within the scope of the remuneration policy of the Board adopted by the annual General Meeting, 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 two Remuneration Committee meetings during 2014.

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

Nomination Committee

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

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

Under Dutch law, 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 women. This rule is temporary and will cease to have effect on 1 January 2016. The threshold of 30% is currently not met. During 2014, 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 two Nomination Committee meetings during 2014.

Investment Advisory Committee

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

1.5.10 Communications with shareholders

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

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

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

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

1.5.11 Internal controls

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

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

The Group's internal control procedures include Board approval for all significant capital investment projects. All major expenditures require either senior management or Board approval at the appropriate stages of each transaction. A system of regular reporting covering both technical progress of projects and the state of the Group's financial affairs provides appropriate information to management to facilitate control. The Board reviews, identifies, evaluates and manages the significant risks that the Group faces. Section 1.9.1 sets out in detail the key risk factors relating to the strategy of the Company. The Group has in place internal control and risk management systems in relation to the Group's financial reporting process and the Groups' process for preparing financial statements. These systems include policies and procedures to ensure that adequate accounting records are maintained and transactions are recorded accurately and fairly to permit the preparation of financial statements in accordance with the applicable accounting standards.

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

1.5.12 Share dealing code

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

1.5.13 Board responsibility and powers

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

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

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

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

1.5.14 Appointment and dismissal of Directors

Appointment

Pursuant to the Articles, the Directors shall be appointed by the General Meeting from a nomination drawn up by the Board. Pursuant to Dutch law and the Articles, executive Directors may not take part in the decision-making process regarding the nomination of Directors. If and for as long as BCI - Brack Capital Investments Ltd ("BCI") holds at least 25% of the Company's shares or depositary interests representing Company's shares, it is entitled to draw up the nomination of one Board member. During 2014, BCI has not exercised this right.

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

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

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

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

Suspension and dismissal

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

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

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

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

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

1.5.15 General Meeting

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

1.5.16 Amendment of the Articles

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

1.5.17 Issuance of Company's shares

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

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 authorized the Board thereto. This authorization shall remain valid for a maximum of 18 months. The Board was so authorized by the General Meeting on 28 May 2014 for a period of 18 months.

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

1.5.19 Depositary interests and the CREST system

In order to enable the trading of the Company's shares on the London Stock Exchange main market, the Articles permit the holding of shares under the CREST system. CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument. CREST is a voluntary system and shareholders who wish to receive and retain shares will be able to do so. The Company's shares have been enabled for settlement in CREST on the date of admission to the London Stock Exchange.

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

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

1.5.20 Major shareholders

The Company is aware of the following persons who are interested, directly or indirectly, in more than 3% of the shares in the Company's capital. According to the public register of the Dutch Authority of the Financial Markets, as per 30 April 2015 this interest was as follows: S. Weintraub 46.67%, Medinol Ltd. 6.72%, Warburg Pincus Real Estate I L.P. 4.92% and L.J. Schreyer 4.37%.

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

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

1.6 DECREE ARTICLE 10 TAKEOVER DIRECTIVE

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

· BCRE has an authorised share capital consisting of 700,000,000 ordinary shares. On 31 December 2014, 161,610,064 shares with a nominal value of EUR 0.04 were issued and fully paid up. Following the decision of the General Meeting held on 14 October 2014, the nominal value of the shares has been reduced to EUR 0.01 on 2 January 2015.

The Company has issued convertible loan notes on 24 December 2014 for an aggregate amount of EUR 16,800,000. The convertible loan notes bear 2.25% annual compounded interest and have a term maturing on 14 November 2016. The convertible loan notes (including accrued interest) are convertible in whole into ordinary shares in the capital of the Company (i) at the holder's option at any time up to the end of the term, and (ii) at the Company's option on the maturity date. The conversion price is EUR 1.68. Furthermore, the conversion price shall be reduced to the lowest effective price per Share paid for any share or securities convertible into shares following the date of the convertible loan agreement (save for certain customary exceptions).

· BCRE entered into a controlling shareholders agreement with BCI, BCH - Brack Capital Holdings Ltd, Shimon Weintraub and Peel Hunt LLP on 21 May 2014. Pursuant to this controlling shareholders agreement BCI was not allowed to sell or transfer any shares in the capital of the Company for a period of six months from admission of the Company's shares to the standard listing segment of the Official List of the London Stock Exchange. As admission to trading of the Company's shares became effective on 28 May 2014, this lock-in period ended on 28 November 2014.

· Information on major shareholders can be found above in paragraph 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 paragraph 1.5.14.

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

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

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

· The applicable provisions regarding the appointment and dismissals of the member of the Board and amendments to the Articles are set forth above, please refer to paragraphs 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 paragraph 1.5.17 and 1.5.18.

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

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

1.7 REMUNERATION REPORT

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

Executive Directors

The remuneration package for the executive Director is fixed with a basic annual salary of EUR 40,000 (less any tax and / or social security contributions) payable monthly in arrears.

Non-executive Directors

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

Each of Harin Thaker, Jan van der Meer and Daniel Aalsvel is entitled to a basic annual salary of EUR 30,000 (less any tax and / or social security contributions) payable monthly in arrears. In addition, Harin Thaker, in his capacity as a member of the Investment Advisory Committee, receives an additional annual salary of EUR 150,000 or its equivalent in any other currency and is fixed at GBP 122,500 annually.

Variable income

Harin Thaker, the Chairman of the Board, has an option to purchase 2.5% of the equity of any deal in which BCRE UK Properties B.V. ("BCRE UK") invests in accordance with the following terms: (a) term: 36 months from the closing of each deal; (b) exercise price: 2.5% of the equity invested by BCRE UK and the Co-investment Club (i.e. the co-investment pool established by the Group in 2011), adjusted for distributions and additional investments; and (c) type: regular or cashless as determined by Mr. Thaker at the time of the exercise.

Remuneration policy

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

1.8 AUDIT COMMITTEE REPORT

Audit Committee

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

Role

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

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

External auditors

EY Netherlands are the Company's current external auditors.

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

JPA Van Noort Gassler & Co resigned as the Company's auditor on 11 November 2014 as a result of not being in a position to fulfil its duties as auditor to a listed company. EY Netherlands was recommended by the Audit Committee and proposed to the Board to be appointed as the statutory auditor starting with the audit of the financial statements for the year ended 31 December 2014 and this appointment was approved by the General Meeting on 2 February 2015. There was no tender for the audit contract. Under Dutch law there is no requirement to re-appoint the external auditor each financial year to hold office until the conclusion of the next general meeting when the accounts are laid before the meeting. An auditor, whose appointment has been approved by the general meeting of shareholders, will remain in office until such time as that auditor is replaced and the new auditor is approved at the general meeting. EY Israel is the auditor for the non-statutory accounts and EY Netherlands is the auditor for the statutory accounts.

In accordance with corporate governance requirements, the Audit Committee reviewed 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 20 April 2015 to discuss the draft final Annual Report 2014, with representatives of the auditors. The Audit Committee then met on 30 April 2015 for the approval of the accounts. The Audit Committee recommended to the Board that the Annual Report 2014 were in their view, fair, balanced and understandable in accordance with accounting standards, regulatory requirements and best practice.

Non-audit fees were paid to EY Israel for Financial Processes and Procedures (FPP) at the time of preparation of the prospectus for the Company's listing on the London Stock Exchange.

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

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

Whistleblowing

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

Audit Committee attendance and meetings

The Audit Committee met two times during 2014 and received regular financial updates from the Chief Financial Officer on the Group's performance. Attendance of the individual Directors, who all served on the Audit Committee since May 2014 (when the current Audit Committee was established), is shown in the table below.

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

· The financial information that is publicly disclosed, which included the accounts for the year ended 31 December 2014; and the interim results for the period ended 30 June 2014

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

· Selection and appointment of auditors

· Fees for the auditors

Audit Committee meetings and attendance during 2014

On behalf of the Board

Daniel Aalsvel

CHAIRMAN OF THE AUDIT COMMITTEE

1.9 RISK MANAGEMENT

1.9.1 Key risk factors

The key risk factors relating to the strategy of the Group include the following:

The Group is exposed to a number of specific real estate factors, including changes in laws and governmental regulations, property valuations and fluctuations in the property markets generally and in the local markets where the Group operates. If any of these factors were to materialise and be adverse, they could have a material adverse effect on the Group's business, financial condition and prospects.

Liquidity of real estate assets differs substantially between markets, asset classes and between development and investment and during the development stage. Many of the Group's assets are less liquid due to their location (mainly in emerging markets), type (requiring intensive management and/or deterring institutional investors) and their state of development (particularly in relation to uncompleted developments). Such illiquidity may affect the Group's ability to dispose of or liquidate some projects in a timely fashion and at satisfactory prices in response to changes in the economic environment, the local real estate market or other factors.

The Group may be subject to various risks relating to the imposition of sanctions under various regimes regarding the situation in Ukraine and Crimea. There is a risk that individuals or entities with whom the Group engages, are, or at any time in the future may become, subject to sanctions. For instance, sanctions against some Russian lending institutions already have affected severely, and may increasingly affect the credit availability to borrowers. Additionally, as a result of such sanctions, the Group may, unknowingly, be or become in breach of those sanctions. Furthermore, it is possible that further sanctions may be announced which may result in foreign lenders and investors freezing their activities in Russia and/or may affect the clearance of US Dollars and/or Euros through Russian banks and the repatriation of foreign currency out of Russia (which can also be a result of self-imposed capital controls by the Russian government), any of which could have a material adverse effect on the Group's business, its financial condition and the results of its operations.

The Group may be subject to various risks related to its operations in Russia. Since 2014, the political situation in Russia is extremely unstable due to the continuing conflict between Russia and Ukraine with an occasional ceasefire. The political developments, including the range of sanctions, and the drop in oil prices have negatively affected the Russian economy and the Ruble which considerably depreciated in 2014. If the situation deteriorates further, this could lead to such increased political instability and regulatory changes that the Group might even be forced to cease the projects situated in Russia in whole or in part. In addition, the deterioration of the economic conditions in Russia could be sharp and quick with further negative consequences on general macroeconomic conditions and the terms upon which tenants will be willing to enter into leases, particularly USD denominated leases or fixed lease. This would have a material negative effect on the Group's business, financial condition and results of operations.

The Group's portfolio suffers from a relatively high exposure level to four large projects, a retail and wholesale market project in Kazan (Russia), a residential and office project in Düsseldorf (Germany), a shopping centre in Lyubertsy, Moscow Oblast (Russia) and a potential development in Manhattan (New York). The projects in Russia are particularly exposed to additional risks relating to operating in Russia(see also above). Any kind of deterioration in any of these projects, these local markets or economies, as well as the Group's failure to achieve its business objectives in any of them, will have a material negative effect on the Group's value, business and prospects.

The Group's income producing portfolio suffers from exposures to two asset classes in Germany, multifamily and retail, which together constitute the majority of the Group's income producing property portfolio. A deterioration in either of these asset classes will cause a material negative effect on the Group's value, business and prospects. Additionally, the Group's portfolio in the US has a relatively large exposure to three Manhattan lodging developments. A downturn in that asset class may cause a material negative effect on the Group's portfolio value and its ability to meet its business objectives.

The Group is reliant on its key management teams in the countries where it operates. The departure of any member of its key skilled management teams in any of its key platforms could cause increased risk, substantial delays and cost overruns in existing projects, disruption to the management structure and relationships, an increase in costs associated with staff replacement, lost business relationships or reputational damage, which could have a material adverse effect on the Group's business, financial condition and result of operations.

A number of the Group's real estate assets are held through joint venture arrangements with third parties (including the development projects in Kazan (Russia), the property in Dmitrov (Russia) and projects in India), meaning that ownership and control of such real estate assets is shared with such third parties. If any material differences or disputes arise between the Group and its joint venture partners, this could prevent the Group from achieving its business objectives.

Please note that the risks that the Company may incur are not limited to the risks as set forth in this section. For further details, please refer to the Company's bonds prospectus dated 28 November 2014 and the Company's listing prospectus dated 28 May 2014 as available on the Company's website at www.brack-capital.com.

1.9.2 Main financial risks and risk management

The Company's main financial risks and its risk management can be summarized as follows:

Changes in interest rates may increase the Group's cost of borrowing, impacting its profitability and having an adverse effect on the Group's free cash flow, property valuation and the Group's ability to make distributions to Shareholders. The Group undertakes various hedging arrangements including interest rates 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 NAV.

The Group's current hedging arrangements relate primarily to variable rate investment loans (which typically have a minimum five-year term) and certain development loans (with a minimum three-year term), and consist of interest rate swaps for the duration of the loan and/or cap instruments which cap the interest rate at a certain rate (often higher than the applicable rate) for the duration of the loan. At a corporate level, the Group seeks to hedge financial risks through its portfolio allocation and diversification. In addition, the Group seeks to reduce these risks by seeking to match, in each project, the currency denomination of its principal liabilities (financing and construction) and its principal sources of revenue (sale proceeds and rentals). For further details on the Group's financial risk/hedging, please refer to Note 27 in the explanatory notes to the Consolidated financial statements.

The Group's reporting currency is Euro but a number of the Group's subsidiaries and affiliates operate in non-Euro currencies. Any fluctuations between such currencies and the Euro may have a negative impact on the financial position of the Group and results of operations. Weakening of one or more of these non-Euro currencies against the Euro, and in particular the USD, may have a negative impact on the financial position of the Group and results of operations.

The Group seeks to reduce its currency 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 results and cash flows. In some cases, the Group may succeed in matching the currency in lease agreements to the currencies of the loans, but the income of the tenant would still be in local currency. In such cases, a weakening of the local currency, while legally not affecting the tenant's obligation to pay in USD, 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.

Further, a relatively large currency exposure exists in the first series of corporate bonds issued by the Company and, separately, the three series of corporate bonds issued by BCRE Germany. All of these bonds are denominated in NIS and interest payable on them is linked to the Israeli Consumer Prices Index ("CPI"). However, neither the Company nor BCRE Germany has any matching assets valued in NIS, and as a result, both companies are exposed to fluctuations in the Euro / NIS rate of exchange and the rate of CPI change in Israel. Strengthening of the NIS against the Euro and/or accelerated CPI inflation in Israel may have a negative effect on the Group's results and financial position.

The Company also incurs an exchange risk on the USD denominated bonds (Series B and Series C).

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

1.10 STATEMENTS

1.10.1 Going concern

The Board has reviewed the current and projected financial position of the Group, making reasonable assumptions about future performance. After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. This has led the Board to conclude that it is appropriate to prepare the 2014 financial statements on a going concern basis.

1.10.2 Directors' statement

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

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

(a) the Consolidated financial statements for the year ended 31 December 2014 fairly reflect the assets, liabilities, financial position and results of BCRE and its consolidated subsidiaries;

(b) the additional management information provided in the annual report fairly reflect the situation on the balance sheet date and the state of affairs at BCRE and its consolidated subsidiaries during the financial year; and

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

Shareholder enquiries

For information about the management of shareholdings please contact:

BCRE - Brack Capital Real Estate Investments N.V.

Barbara Strozzilaan 201

1083 HN Amsterdam

The Netherlands

Tel. 31 20 514 1000

Fax. 31 20 514 1009

Investor relations enquiries

Irina Scharow

Investor Relations Officer

investor.relations@brack-capital.com

Website

www.brack-capital.com

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

2 STATUTORY FINANCIAL STATEMENTS

AS OF 31 DECEMBER 2014

EURO IN THOUSAND

Consolidated financial statements 43

Notes to the consolidated financial statements 51

Company financial statements 117

Notes to the company financial statements 120

Other information 130

Independent auditor's report 131

*) Restated. Refer to Note 2ad.

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

*) Restated. Refer to Note 2ad.

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

*) Restated. Refer to Note 2ad.

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

*) Restated. Refer to Note 2ad.

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

*) Restated. Refer to Note 2ad.

(1) See Note 14.

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

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