Globalworth Regulatory News (GWI)

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this information is considered to be in the public domain.

19 September 2018

Globalworth Real Estate Investments Limited

("Globalworth" or the "Company")

Interim Results for the six months ended 30 June 2018

Globalworth, the leading office investor in Central and Eastern Europe, is pleased to release its Interim Report and Unaudited Consolidated Financial Results for the six month period ended 30 June 2018.

Dimitris Raptis, Deputy Chief Executive Officer and Chief Investment Officer of Globalworth, commented: "Globalworth has continued to demonstrate strong momentum in 2018, led by its strategic expansion into Poland. We are delighted with the acquisitions we have made, which include two of the five largest office transactions in the Polish market so far this year, and we continue to assess further pipeline opportunities under attractive market conditions. The significant step-up in our financial results reflects the considerable expansion of our footprint over the past 12 months and the proactive management of our capital structure. In line with our ambition, we continue to establish Globalworth as the leading institutional office landlord in the CEE through our activities in Romania and Poland and we seek to be the partner of choice for the wide variety of high-quality tenants which are either present or seeking a presence in the region."

Operational Highlights

· The Group had an active first half, with the acquisition of three office buildings in the key Polish cities of Krakow, Warsaw and Wroclaw, and three land plots for future office developments in Bucharest. In total, €276.2 million was invested, predominantly in acquisitions and our development programme. In addition, the Group made a further acquisition in Warsaw for €101 million in July 2018. The Company is also delighted to have established a collaboration with Mindspace, the leading global operator of high-end, inspiring coworking space. Besides extending our business relationship with them in Romania, with three new locations to be opened at Globalworth properties in Bucharest, we have made a US$10 million (€8.6 million) equity investment in Mindspace to support their ongoing growth.

· Within its development programme, the Company completed Tower 2 of its Globalworth Campus project in Q2-18 and has now commenced the construction of the 34.8k sqm third and final tower, which is due for completion in Q4-19. Development at the Company's 42.3k sqm Renault Bucharest Connected joint venture is progressing well and is set for completion in Q1-19. In addition, plans are being progressed for a further 130k sqm of new office projects in Bucharest and up to c.175k sqm of light-industrial and logistics projects in Timisoara.

· Globalworth's combined real estate portfolio1 was valued at €2,129.5 million at 30 June 2018 (31 December 2017: €1,815.4 million), comprising €1,197.2 million in Romania and €932.4 million in Poland via Globalworth Poland. The total GLA of the Group's combined real estate portfolio was 923.6k sqm at 30 June 2018. 

· During H1-18, the Group negotiated the take-up or extension of 60.5k sqm of commercial space in Romania and Poland, resulting in 879.3k sqm of commercial space being let or pre-let as at 30 June 2018 to some 510 tenants, of which over 77% is to multinational corporates, with a weighted average lease length of 5.4 years.

· Occupancy of the commercial standing portfolio was 94.6% (96.4% including tenant expansion options) at 30 June 2018, compared to 93.3% (95.4% including tenant expansion options) at 31 December 2017. Like-for-like occupancy of the portfolio improved by 2.1% over the first six months to 95.2%. Total annualised contracted rental income for the combined portfolio stood at €141.1 million (31 December 2017: €115.9 million), including pre-leases on developments, an increase of 21.7% compared to 31 December 2017. 

Financial Highlights

· Net operating income ("NOI") of €51.7 million (H1-17: €22.0 million), an increase of 135% over H1-17 mainly as a result of the significant increase in the number of the Group's revenue yielding assets following the expansion into the Polish market at the end of December 2017, as well as new lease agreements signed in Romania.

· Normalised EBITDA2 from ongoing operating activities of €38.7 million (H1-17: €18.8 million), an increase of 106% over H1-17 due to the growth in NOI.

· EPRA Earnings of €28.4 million (H1-17: €7.1 million), an increase of 300% over H1-17 indicating a significant increase in the results from the Group's operating activities.

· Earnings before tax of €64.0 million, compared to a €6.8 million loss in H1-17. This significant improvement reflects the growth in net operating income, a reduction of the one-off bank loan break costs and debt issue cost amortisation resulting from debt refinancing activities that impacted H1-17 (H1-18: €0.9 million, H1-17: €16.1 million). H1-18 also benefited from a €38.6 million fair value gain on investment property (H1-17: €0.7 million).

· Net Loan to Value of 36.2% (31 December 2017: 34.3%), up 1.9 per cent compared to 31 December 2017.

· EPRA NAV of €1,200.6 million (31 December 2017: €1,171.5 million) and EPRA NAV per share of €9.06 (31 December 2017: €8.84), both up 2.5% compared to 31 December 2017. The level of increase was impacted by the interim dividend distribution declared in January 2018, of €0.22 per share; including this dividend, the increase would be 5.0% for the six-month period. Compared to 30 June 2017, the EPRA NAV per share rose 9.2% (30 June 2017: €8.30), or 11.8% including the H2-17 dividend.

· The Company paid a dividend of €0.22 per share in January 2018 relating to H2-17. Post period end, the Company declared and paid an interim dividend in respect of H1-18 of €0.27 per share, with a second interim dividend expected to be paid in January 2019, resulting in an aggregate dividend for the financial year 2018 of not less than €0.54 per share, as previously announced.

· Successful issuance of a €550 million unsecured Eurobond at a coupon of 3% with seven years duration under the Company's Euro Medium Term Notes programme, in an issue oversubscribed by more than two times. Net proceeds have been used to refinance all but one of the bank loans secured on our properties in Poland, thereby extending the flexibility of Globalworth's predominantly unsecured debt structure across the Group, as well as for general corporate purposes.

· Globalworth Poland completed a €450 million equity capital raise supporting its continued portfolio expansion, comprising €300 million from Globalworth and €150 million of new equity capital from the Company's largest shareholder, Growthpoint Properties.

The Interim Report and Unaudited Condensed Consolidated Financial Statements is presented below. The full document is available in the "Investor Relations" section of the Company's website at www.globalworth.com.

1 Combined real estate portfolio is defined as the aggregation of all assets in the Company's portfolio, including consolidation of 100% of GPRE and 100% of the investment referred to as Renault Bucharest Connected.

2 Normalised EBITDA is calculated as earnings attributable to equity holders of the Company before finance cost, tax, depreciation, amortisation of other non- current assets, purchase gain on acquisition of subsidiaries, fair value movement, and other non-operational and/or non- recurring income and expense items.

For further information visit www.globalworth.com or contact: 

About Globalworth / Note to Editors: 

Globalworth is a listed real estate company active in Central and Eastern Europe, quoted on the AIM-segment of the London Stock Exchange. It has become the pre-eminent office investor in the CEE real estate market through its market-leading positions both in Romania and in Poland, where the Company has a majority shareholding in Globalworth Poland, a pure-play Polish real estate platform listed on the Warsaw Stock Exchange. Globalworth acquires, develops and directly manages high-quality office and logistics/light-industrial real estate assets in prime locations, generating rental income from high quality tenants from around the globe. Managed by over 170 professionals across Romania and Poland, the combined value of its portfolio is in excess of €2 billion, as at 30 June 2018. Over 90% of the portfolio is in income-producing assets, predominately in the office sector, and leased to a diversified array of some 510 national and multinational corporates. In Romania, Globalworth is present in Bucharest, Timisoara and Pitesti, while in Poland its assets span Warsaw, Wroclaw, Lodz, Krakow, Gdansk and Katowice. For more information, please visit www.globalworth.com and follow us on Facebook, Instagram and LinkedIn.

GLOBALWORTH REAL ESTATE INVESTMENTS LIMITED

INTERIM REPORT AND UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 JUNE 2018

CHIEF EXECUTIVE'S STATEMENT

Globalworth's strong momentum at the end of 2017, led by its strategic expansion into Poland, was maintained in the first half of 2018. The Group has continued to expand its portfolio, improving its operations and further strengthening its balance sheet; all consistent with our goal of being the leading office landlord in Central and Eastern Europe, with a dominant presence in two of the most significant markets in the region, Romania and Poland.

In the first half of the year we invested €276.2 million in new acquisitions, mainly in Poland, our development programme in Romania, and our renovation and maintenance programme. With the addition of the high-rise Spektrum Tower office in Warsaw in July-18, we are proud to have been able to complete two of the five largest office transactions in the Polish market so far this year, resulting in our overall combined portfolio exceeding €2.2 billion and positioning us as the largest institutional office landlord in Poland. Given our market leading position in Romania, we have now become the largest institutional office landlord in the broader CEE region.

We are delighted to have established a collaboration with Mindspace Ltd., the leading global operator of high-end, inspiring coworking space. As part of this collaboration, Globalworth has made an equity investment in Mindspace of US$10 million (c.€8.6 million) to support its ongoing growth, and Mindspace will establish operations in three locations in Bucharest, in addition to its existing location with Globalworth in Warsaw.

Our two countries of focus continue to enjoy economic growth ahead of the wider European region and are forecast to continue to do so over the coming years. This strong economic backdrop is supportive for the real estate markets, which continue to evolve and institutionalise. Vacancy rates in our submarkets fell during the first half of the year, putting upward pressure on both headline and net effective rents. The established regional cities in Poland continue to develop steadily and, in addition, certain regional cities in Romania have started to emerge with healthy investor and tenant demand for good quality schemes. We remain confident that the market will continue to grow and have been encouraged by rising investor appetite. As a result of this and with the support of continued economic expansion, we believe that property yields, which remain higher than those of more mature real estate markets, will continue to contract.

Our portfolio performance continues to be strong, with average occupancy remaining at a high level at 94.6% following an underlying improvement in like-for-like occupancy of 2.1% over the first six months of the year to 95.2% (as at 30 June 2018), while our annualised contracted rents increased by 21.7% during the first half of the year to €141.1 million as at 30 June 2018.

Our financial results for the first half of 2018 benefited from the full effect of consolidation of the GPRE acquisition completed in December 2017, resulting in total revenue generated more than doubling compared to the same period last year to reach €78.1 million. Normalised EBITDA and EPRA Earnings both increased by 2.1x and 4.0x to €38.7 million and €28.4 million respectively.

Globalworth continues to be active in the capital markets. In March 2018 we issued €550m in senior unsecured notes with 7-year maturity and a coupon of 3.0% in an offering that was more than two times oversubscribed. We are proud that Fitch assigned us an investment grade rating of BBB-, while Moody's upgraded our rating to Ba1 (from Ba2). In addition, Globalworth Poland completed a €450 million equity capital raise supporting its continued portfolio expansion, comprising €300 million from Globalworth and €150 million of new equity capital from our largest shareholder Growthpoint Properties. We consider our balance sheet to be strongly positioned, with Net LTV remaining at a conservative level at 36.2% (34.3% in December 2017).

EPRA NAV rose by 2.5% to €1.2 billion, or €9.06 per share (€8.84 at 31 December 2017). This follows the payment of a dividend of €0.22 per share in January 2018 relating to the second half of 2017. Post the period end, in August 2018 our shareholders received an interim dividend in respect of the first half of 2018 of €0.27 per share, with a second interim dividend expected to be paid in January 2019, resulting in an aggregate dividend for the financial year 2018 of not less than €0.54 per share, as previously announced.

Our continuous growth and success over the years could not have been achieved without our team of professionals in Romania and Poland. I would once again like to thank them for their dedication, expertise and enthusiasm. Our combined team has now grown to over 170 professionals and this number will increase further to support our business needs into the future.

Finally, as part of its strategic initiatives in the Polish market, Globalworth took steps to further strengthen its collaboration with GPRE. This included rebranding GPRE as Globalworth Poland and the appointment of Mr Norbert Sasse, CEO of Growthpoint Properties, and Mr George Muchanya, Growthpoint's Head of Corporate Strategy to the Board of Directors of Globalworth Poland, in addition to being board members of Globalworth. I would like to wish my fellow board members every success in their new roles.

Our priorities for the remainder of 2018 are to expand our footprint through value-enhancing acquisitions and developments and to further improve our occupancy rate and enhance our tenant experience and satisfaction, while maintaining capital discipline and a prudent capital structure as we seek to maximise returns for our shareholders. We continue to strengthen our in-house asset management capabilities and improve the operational efficiencies between our operations in Romania and Poland. In addition, we continue to prepare for our planned move to the Main Market of the London Stock Exchange. As always, the team at Globalworth remains busy and committed to driving the business forward.

Ioannis Papalekas

Chief Executive Officer

18 September 2018

MANAGEMENT REVIEW

Through our investments in Romania and Poland we have set ourselves the goal of being the leading office investor and landlord in Central and Eastern Europe and the partner of choice for the wide variety of high-quality tenants active or seeking to become established in the region.

Essential to achieving this goal is creating a portfolio of high quality properties, in prime locations within their respective sub-markets, which will allow Globalworth to target attractive, risk-adjusted returns through sustainable recurring rents and capital growth. As part of our strategy we have invested, and will continue to invest, in a combination of standing properties and development opportunities, which are then actively managed by our team of professionals.

INVESTMENT ACTIVITY

· Total combined portfolio value exceeded the €2 billion threshold for the first time in our history, reaching €2.1 billion (95% in standing properties) as of 30 June 2018

· Acquired six new investments for a total of €247.3 million and delivered Globalworth Campus Tower 2 in the first half of the year

· Acquired one additional property in Poland for €101.0 million in July-18

Globalworth's real estate portfolio continued to grow in the first half of 2018, with the Company maintaining its strong momentum through new acquisitions mainly in Poland and further progress in its development programme in Romania.

As at 30 June 2018, Globalworth's combined portfolio comprised 35 investments in Romania and Poland with an appraised value of €2.1 billion, representing an increase of 17.3% compared to 31 December 2017.

Our main focus is to invest in office properties (standing or developments), which are subsequently actively managed by the Group. Such properties account for 73.9% of our appraised value, followed by the three high-street mixed-use (office and retail) properties in Poland, owned through Globalworth Poland and which account for 14.9%. The remainder of our combined portfolio comprises light-industrial / logistics properties, a residential complex which is partially owned, and land for future development in Bucharest and Timisoara (Romania).

Our real estate portfolio in Poland grew in the first half of the year mainly through the addition of three new standing investments, which resulted in the value of our Polish properties reaching €932.4 million as at 30 June 2018, accounting for 43.8% (37.5% at 31 December 2017) of our combined portfolio value.

Bucharest and Warsaw account for 51.0% and 11.5% respectively of our combined portfolio, with the remainder of our properties located in seven regional cities in Romania and Poland.

The greatest concentration by value remains in the new Central Business District (CBD) of Bucharest (Romania) where we have 10 investments with 11 standing properties and one office tower under development, accounting as of 30 June 2018 for 39.3% of the combined portfolio value and made up of 287.9k sqm of standing commercial GLA and 309 residential units. In Warsaw, our six standing investments, offering 82.7k of commercial GLA, are spread around the city and occupy prime locations within their respective sub-markets.

New Investments

In the first half of 2018, Globalworth made six new investments in Poland and Romania for a total of €247.3 million.

The most significant transaction was the acquisition in Poland of a high-quality office complex of five buildings known as Quattro Business Park ("QBP") for a total consideration of €139.0 million. The property is located in the northern part of Krakow, c.5.0km from the city centre and close to the city ring road. QBP was completed in phases between 2010 and 2015 and offers in total 60.3k sqm of GLA and 1,335 parking spaces. The property is multi-tenanted to c.50 national and multinational corporates, with Capgemini, Google and Luxoft being the largest occupiers. The park is almost fully occupied (99.0% occupancy), with annual contracted rental income of €10.7 million and a weighted average lease length of 3.1 years as at 30 June 2018.We are excited to have acquired the well recognisable office tower known as "Warta Tower" in Warsaw, Poland in which we have identified some interesting asset management angles. The property is located at the extended West Central Business District of Warsaw and was acquired for a total consideration of €55.0 million. Warta Tower was completed in 2000 and offers 33.7k sqm (post re-measurement of areas) of GLA and 542 parking spaces over 21 floors above ground and three underground levels. Its distinct features include its dark blue glazed glass and its iconic lobby with a sculpture by Barbara Falender. The property is multi-tenanted and has a high occupancy rate (91.3%), with TUiR Warta S.A. (insurance company, subsidiary of Talanx International AG) as its largest tenant. It has an annual contracted rental income of €5.9 million and a weighted average lease length of 2.9 years as at 30 June 18. Whilst, the property is already offering a very attractive current income, we are currently assessing longer-term repositioning alternatives, which are consistent with the Group's active asset management approach.

The third transaction completed in Poland during the first half of 2018 involved the acquisition of the class "A" office property known as "West Link", completed in 2018, for a total consideration of €35.8 million. West Link is located to the west of the city centre of Wroclaw and is well situated within the city's key communication arteries. It offers 14.4k sqm of GLA and 265 parking spaces over six floors above ground and two underground levels. It is fully let, with an annual contracted rental income of €2.5 million, and had a weighted average lease length of 6.7 years as at 30 June 2018. The main tenant is Nokia Solutions & Network, which is also the main tenant at Globalworth Poland's West Gate, an adjacent high-quality office property which offers a further 16.6k sqm of class "A" office space.

In Romania, where the Group is looking to its next phase of development projects, as previously announced Globalworth completed the acquisition of the two land plots in the new CBD of Bucharest for a total consideration of €15.5 million. The first land plot is located between the Globalworth Plaza and the Green Court "B" offices owned by the Company and represents the last remaining street-facing land plot on Gara Herastrau street. The second land plot is adjacent to Globalworth's Green Court complex and will be used to further expand the complex. The combined lands are anticipated to allow for the development of c.40.0k sqm of commercial (predominantly office) space. A third plot of land was acquired in June 2018 for €2.0 million, directly adjacent to the RBC project in the West of Bucharest, with the potential for building a new c.60k sqm GLA property offering predominantly class "A" office space and, thereby, creating a campus of over 100k sqm of GLA at this location.

New Deliveries

Globalworth continued with its active development/construction programme and in Q2-18 delivered the second tower of the Globalworth Campus project in Bucharest. This is the seventh property delivered by Globalworth in Romania since the beginning of 2015, increasing the total GLA developed by the Company to c.200.0k sqm.

In April 2018, Globalworth Campus Tower 2 opened for business with 28.2k sqm of GLA and 180 parking spaces, extending over 12 floors above ground and two underground levels. The delivery of Tower 2 marks the completion of Phase A of the Globalworth Campus project, which comprises two class "A" office towers with total GLA of 57.2k sqm and 456 parking spaces.

Renovation and Maintenance Programme of Standing Properties

Globalworth's ongoing efforts to offer best-in-class real estate space to its business partners continued in 2018, with further implementation of its renovation and maintenance programme at selected properties in the portfolio. In the first half of the year, we carried out improvement works predominantly on six of our standing properties in our portfolio, with minor works performed on a number of others.

In total, €2.0 million was invested under our renovation and maintenance programme with works involving primarily the upgrade of both indoor and outdoor common areas. The purpose of such investments goes beyond simply maintaining our portfolio as it seeks to preserve and enhance the value of our modern, high quality portfolio well into the future, in-line with our long-term approach.

H2-2018 Investments

In July 2018, Globalworth completed the acquisition of the class "A" office known as Spektrum Tower for a total consideration of €101.0 million. Spektrum Tower is a high-rise office building in the heart of the Warsaw's Central Business District, offering 29.5k sqm of GLA and 318 parking spaces over 33 floors above ground and five underground levels. It was completed in 2003 and underwent extensive refurbishment in 2015, when it was converted into a multi-tenanted building. The property benefits from high occupancy (92.5%), which we are confident can be increased in the near-term. Spektrum is leased to over 60 national and international corporates and is thus well suited to our asset management-led approach. It has an annual contracted rental income of c.€6.3 million and a weighted average lease length of 5.1 years, as at 30 June 18.

LEASING UPDATE

· Total contracted rent reached €141.1million (98.9% commercial properties) as of 30 June 2018

· 60.5k sqm of commercial space leased in Romania and Poland during this period at an average WALL of 8.6 years

· 879.3k sqm of commercial GLA with a remaining average WALL of 5.4years (30 June 2018)

· Occupancy rate of our standing portfolio reached 94.6% (96.4% incl. tenant options) (30 June 2018)

Globalworth's leasing momentum remained strong in the first half of 2018. Market conditions continue to be positive, with Globalworth benefiting from healthy demand for high quality office space in its target real estate markets.

During H1-18, through its proactive internal leasing capabilities, the Group successfully negotiated the take-up (incl. expansions) or extension of 60.5k sqm of commercial space in Romania and Poland, with an average WALL of 8.6 years. New leases, representing 41.8k sqm, were signed at a WALL of 9.8 years and included tenants such as Mindspace, Dell, Honeywell, Calypso, Delphi, Vodafone and 29 other corporates. Leases were renewed, and thus extended for 22 of our tenants for a total of 14.4k sqm of GLA, at a WALL of 6.1 years, with the most notable extensions involving Eurozet, World Calls, Baxter and CITR. The remaining space 4.3k sqm signed in the period involved the expansion of six existing tenants at an average WALL of 6.1 years.

Occupancy of our standing commercial portfolio as of 30 June 18 was 94.6%, representing a 1.5% increase over H1-2018 (93.3% as of 31 December 2017). On a like-for-like basis, occupancy increased by 2.1% to 95.2% following the successful lease-up of previously vacant space. The overall vacancy level was modestly weighed down by several of the new additions to the standing portfolio during the period where current occupancy rates were lower, but where the Company is confident there is near-term scope for further upside in occupancy and contracted rents.

In total we have 879.3k sqm of commercial GLA leased to approximately 510 tenants, at an average WALL of 5.4 years, the majority of which is let to national and multinational corporates which are well-known within their respective markets.

Romania

The Group is pleased that the lease-up of Globalworth Campus is progressing well, with new leases with Dell (6.7k sqm), Honeywell (5.7k sqm), Mindspace (4.5k sqm), Delphi (2.2k sqm) and others signed in 2018. Occupancy in Tower 1 stood at 84.9% (96.2% including tenant options) as at 30 June 2018, compared to 46.8% (73.6% including tenant options) as at 31 December 2017. Tower 2 was 70.8% let at 30 June 2018 (90.1% including tenant options), compared to 28.0% as at 31 December 2017. Occupancy in Towers 1 and 2 has further increased during H2-2018 reaching 88.4% (100.0% including tenant options) and 71.9% (91.5% including tenant options) respectively.

Other notable changes in occupancy were achieved at City Offices and Gara Herastrau in Bucharest, where occupancy improved in the first half of the year by 38.7% and 11.9%, reaching 68.5% (75.3% including tenant options) and 84.0% (92.9% including tenant options) respectively as at 30 June 2018.

At TCI, occupancy temporarily decreased as a result of the space returned by the Ministry of European Funds at the beginning of the year. Part of the space vacated was quickly taken up by EY and Mindspace, however, resulting in this popular building being effectively fully occupied as at 30 June 2018.

Like-for-like occupancy in our standing Romanian portfolio was 94.1% at 30 June 18, increasing by 3.7% from 90.8% at 31 December 2017. The addition of Globalworth Campus Tower 2, which was delivered during the year and is in its lease-up stage, resulted in the overall occupancy rate of our standing portfolio increasing by 2.3% in the first half of the year to 92.9% (95.8% incl. tenant options) (30 June 2018).

Poland

In Poland, like-for-like occupancy was 97.6% as at 30 June 18, decreasing from 98.5% at the 31 December 2017. In addition, the acquisition of the Warta Tower (91.3% occupancy), Quattro Business Park (99.0% occupancy) and West Link (100.0% occupancy) offices, resulted in the overall occupancy rate of our Polish portfolio at 97.3% as of 30 June 2018.

In the first six months of 2018, 21 new contracts were signed in seven of our buildings for a total of 10.1k sqm, with the most notable additions being Calypso (3.5k sqm in Renoma and Supersam), Baxter (1.2k sqm in Nordic Park), City Space (1.1k sqm in Tryton and Supersam). Groupon (1.1k sqm in Supersam) and Mindspace (0.7k sqm in Hala Koszyki). An additional 7.2k sqm of GLA were renewed in our portfolio, the majority of which were associated with the extension of the Eurozet lease (4.0k sqm) in the Bliski property in Warsaw, and the Baxter lease (2.5k sqm, including an expansion of 1.2k sqm mentioned above) in Nordic Park. The positive results of our leasing efforts are improving the risk-profile of our portfolio and are reducing our exposure to Master Leases provided by the vendors from which the portfolio was acquired (€2.3 million on 30 June 2018 vs. €3.5 million on 31 December 2017, on an annualised basis).

Combined Portfolio Snapshot

CAPITAL MARKETS UPDATE

· Successfully issued €550 million of senior unsecured notes in March 18, with a 7-year maturity and a coupon of 3.0% which was more than two times oversubscribed

· Received investment grade rating from Fitch (BBB-), while Moody's upgraded our credit rating to Ba1 (from Ba2)

· Completed a €450 million equity capital raise in June 18 at Globalworth Poland

· Net LTV maintained within targeted levels reaching 36.2% (30 June 2018)

Efficiently managing our equity and debt financing is pivotal to achieving a balance that allows for the sustainable growth of the Company, enhances medium-term shareholder returns, and controls the inherent risk associated with third-party debt.

Two sizeable capital market transactions were completed during the first half of 2018; a €550 million debt issuance by Globalworth and a €450 million equity issuance by Globalworth Poland, which provided additional capital to support the Group's growth and ongoing investment activities. More information on this is contained within the Financial Review.

During H1-18, Moody's and S&P published updates on our credit rating, with Moody's upgrading our rating from Ba1 (from Ba2) and S&P affirming its BB+ rating, while revising the outlook to positive from stable. In addition, Fitch initiated its coverage with an investment grade rating of BBB-. Ongoing positive traction with both debt and equity investors is important to our business, and we continue to widen engagement in this area. We maintain an active investor relations program through participation in industry conferences, hosting site visits and individual investor meetings.

During the period, the Company has undertaken preparatory work as it seeks to move to a Premium Listing on the London Stock Exchange's Main Market. While much progress has been made, the Board has concluded it is optimal to wait until the end of the 2018 financial year before taking this step and, subject to meeting all the necessary regulatory requirements, now envisages that this listing will take place in H1-2019. The Company will continue to update investors on this initiative, alongside its ongoing objective to generate interest from new institutional investors and increasing the liquidity of its shares.

INVESTMENT IN COWORKING AND PARTNERSHIP WITH MINDSPACE

· Strategic partnership with Mindspace, one of the leading operators of high-end coworking spaces

· 10.8k sqm taken up in three locations in Bucharest on long-term contracts

· US$10 million equity investment by Globalworth in Mindspace to facility further growth

In June 2018 Globalworth announced its collaboration with Mindspace Ltd., the leading global operator of high-end, inspiring coworking space. As part of this collaboration:

· Mindspace will open its first locations in Romania in three of our buildings, taking-up 10.8k sqm of GLA in total on a long-term basis. The three locations chosen were branded by the tenant to its perspective partners as Mindspace Business District (Globalworth Campus), Mindspace City Offices (City Offices) and Mindspace Victoriei (TCI). Romania marks the seventh country in which Mindspace offers its flexible workplace solutions.

· Globalworth made an equity investment in Mindspace of US$10 million (c.€8.6 million) to support its ongoing growth

As background to this transaction, Globalworth was already familiar with the activities and approach of Mindspace given the space that it occupies at our flagship Hala Koszyki property in Warsaw.

We have also been firm believers of the benefit of the co-working concept and of the approach offered by Mindspace, as it enables us to cater to a wider universe of potential tenants and their ever-changing needs. In our view, Mindspace offers best in class flex-office solutions that are well aligned with the quality and level of service that Globalworth wishes to offer its partners, and we are delighted to be able to assist in their future growth.

ENHANCING THE GLOBALWORTH IDENTITY AND REINFORCING OUR IN-HOUSE TEAM OF PROFESSIONALS

· Rebranding of GPRE to Globalworth Poland to enhance Globalworth's corporate identity

· Over 170 professionals at Group level

As part of its strategic initiatives in the Polish market, Globalworth has enhanced its corporate identity and further strengthened the integration of GPRE, most notably through the rebranding of its Polish subsidiary to Globalworth Poland.

As part of our continuous effort to offer premium services to our tenants, efficiently manage our high-quality portfolio, and facilitate growth, we have continued to invest in our team of multi-disciplined and skilled professionals, who are key to the success of our business. The asset management function, which is core to our customer service and product offering, remains a prime focus and we have reduced reliance on third-party providers by replacing these services with in-house professionals.

We are excited to have been able to add 60 new team members since the beginning in 2018 to the Globalworth group which now comprises over 170 professionals, the majority of which are located in Bucharest and Warsaw. Our local presence in our two markets of interest, Romania and Poland, has allowed us to build a broad network of relationships with owners, occupiers, property specialists and community representatives, as well as domestic and international investors and capital providers.

FINANCIAL REVIEW

A. Highlights

· Net operating income ("NOI") of €51.7 million (H1-17: €22.0 million), an increase of 135% over H1-17 mainly as a result of the significant increase in the number of revenue yielding assets of the Group following the expansion into the Polish market at the end of December 2017, as well as new lease agreements signed during 2017 in Romania.

· Normalised EBITDA¹ from ongoing operating activities of €38.7 million (H1-17: €18.8 million), an increase of 106% over H1-17 due to the growth in NOI.

· EPRA Earnings of €28.4 million (H1-17: €7.1 million), an increase of 300% over H1-17 indicating a significant increase in the results from the Group's operating activities.

· Earnings before tax of €64.0 million, compared to a €6.8 million loss in H1-17. This significant improvement reflects the growth in net operating income, a reduction of the one-off bank loan break costs, and debt issue cost amortisation resulting from debt refinancing activities that impacted H1-17 (H1-18: €0.9 million, H1-17: €16.1 million). H1-18 also benefited from a €38.6 million fair value gain on investment property (H1-17: €0.7 million).

· Portfolio Open Market Value ("OMV") of €2,129.5 million² (31 December 2017: €1,815.4 million), up 17.3% compared to 31 December 2017 primarily due to acquisitions, development expenditure and appraised fair value gains.

· Net Loan to Value of 36.2% (31 December 2017: 34.3%), up 1.9 per cent compared to 31 December 2017.

· Gross Loan to Value of 60.7% (31 December 2017: 49.5%), up 11.2 per cent compared to 31 December 2017 as a result of the issuance of the 7 year €550 million Eurobond in March 2018.

· EPRA NAV of €1,200.6 million (31 December 2017: €1,171.5 million) and EPRA NAV per share³ of €9.06 (31 December 2017: €8.84), both up 2.5% compared to 31 December 2017. The level of increase was impacted by the interim dividend distribution declared in January 2018 (€0.22 per share in respect of H2-17), the bank loan break costs, and the full amortisation of debt issue costs in Poland. Including the H2-17 dividend distribution, the increase in ERPA NAV would be 5.0% for the six-month period to 30 June 2018. Compared to 30 June 2017, the EPRA NAV per share at 30 June 2018 of €9.06 (30 June 2017: €8.30) rose 9.2%, or 11.8% including the H2-17 dividend.

¹ Calculated as earnings attributable to equity holders of the Company before finance cost, tax, depreciation, amortisation of other non- current assets, purchase gain on acquisition of subsidiaries, current assets, purchase gain on acquisition of subsidiaries, fair value movement, and other non-operational and/or non- recurring income and expense items.

² Portfolio OMV is based on appraised valuations performed by Coldwell Banker, Cushman & Wakefield, Knight Frank and CBRE as of 30 June 2018.

³ The number of ordinary shares used to calculate the EPRA Net Assets Value "EPRA NAV" per share as of 30 June 2018 were 132,525,597 (31 December 2017: 132,485,389).

B. Analysis of results for the six months period ended 30 June 2018

1. Revenues and profitability

· Revenues and NOI increased during H1-18 by 124% and 135% respectively over H1-17 and by 82% and 78% compared to H2-17. This was mainly as a result of the Group's expansion in Poland in December 2017, the acquisition of three additional income yielding investments in Poland during the first six months of 2018, the acquisition of two fully leased properties in Romania in May 2017 and August 2017 respectively, and new leases signed for our standing properties in Romania.

· Revenues derived from our properties and operations in Romania and Poland accounted for 55% and 45% of the total for the Globalworth Group for H1-18 respectively, while NOI derived from our operations in Romania and Poland accounted for 52% and 48% of the total for the Globalworth Group for H1-18.

· Administrative expenses in H1-18 doubled as compared to H1-17 mainly due to the inclusion of administrative expenses incurred by Globalworth Poland (c. €1.8 million) and an increase in Group headcount.

· The significant improvements made in NOI, while maintaining administrative expenses at a reasonable level, also led to a significant increase in Normalised EBITDA in H1-18 of 106%, as compared to H1-17.

· Financing costs in H1-18 decreased by 25% as compared to H1-17 as a result of the refinancing of the Group's bank and corporate debt, secured on our properties in Romania, using the proceeds of the Eurobond issued in June 2017.

2. Portfolio valuation and NAV

· During H1-18 the Company continued the development of the Globalworth Campus property, the Company's largest office development project to-date, as well as the development of Renault Bucharest Connected in cooperation with our joint venture partner.

· €247.3 million worth of properties in Poland (€229.8 million) and Romania (€17.5 million) were acquired in H1-18. In addition, €35.4 million of capex was incurred in H1-18 on properties either under development or completed and, combined with the €38.6 million increase in value of completed properties and properties under development during the period, the portfolio open market value at 30 June 2018 increased significantly as compared to 31 December 2017, rising by c.€314 million or 17.3%.

· The chart below [please refer to full Interim Report on Company Website] highlights the evolution of the Company's EPRA NAV per share and portfolio open market value. Consistent with the practice of other leading real estate companies, the Company will publish its NAV semi-annually, rather than on quarterly basis as done prior to 2018; this follows the pattern of semi-annual financial reporting, and equivalent portfolio valuation dates.

3. Results and dividends

The results for the period are set out in the consolidated statement of comprehensive income (page 19 of the Interim Report).

In August 2018 the Company distributed an interim dividend of €0.27 per share in respect of the six-month financial period ended 30 June 2018. It has also announced its intention to distribute a dividend of €0.27 per share, payable in respect of the six-month financial period ending 31 December 2018. The Company targets a sustainable and growing dividend, paid on a semi-annual basis, with an intention to distribute the equivalent of at least 90% of the Company's Funds from Operations (FFO).

4. Financing activities

In March 2018, the Group successfully issued a second €550 million unsecured Eurobond at a coupon of 3% with seven years duration (until March 2025), and the first under its €1.5 billion Euro Medium Term Notes programme. The transaction, despite being finalised in a period of relative increased market volatility, received significant support from a variety of institutional investors, predominantly from the UK and Continental Europe, resulting in the issue being oversubscribed by more than two times. Part of the net proceeds of the Eurobond (c.€215 million) were utilised for the repayment in April 2018 of all but one of the bank loans secured on our properties in Poland, thereby extending the flexibility of Globalworth's predominantly unsecured debt structure across the Group, with the remainder to be used for general corporate purposes. The first €550 million unsecured Eurobond issued in June 2017 is of five years duration (until June 2022) and carries a coupon of 2.875% per annum, while the first coupon was paid to Bondholders in June 2018.

In terms of bank financing, in June 2018 the Group secured a €100 million, seven-year facility in Poland from a consortium consisting of Landesbank Hessen-Thüringen and Deutsche Pfandbriefbank AG at a competitive interest rate, following the above-mentioned repayment of all but one of the bank loan facilities secured on our properties in Poland. In addition, in August 2018 a new €46 million long-term facility was signed with Banca Comerciala Romana (BCR, part of Erste Bank Group) for the financing of the development costs of the Renault Bucharest Connected project, the development of which is progressing in accordance with the planned schedule.

Available bank loan facilities at 30 June 2018 comprise a €28 million unutilised revolving loan facility from Erste Group Bank AG (part of Erste Bank Group), secured on our TAP property.

The total debt portfolio of the Group at 30 June 2018 comprised €1.1 billion of unsecured Eurobonds and c.€163 million of senior long-term, secured loans. The weighted average remaining duration of the Group's debt at 30 June 2018 is 5.6 years (compared to 5.4 years at 31 December 2017), while the weighted average interest on debt at 30 June 2018 amounted to 2.91% (versus 2.62% at 31 December 2017). The slight increase in the weighted average interest on debt during H1 2018 should be viewed in conjunction with the increased percentage of unsecured debt (87% at 30 June 2018 versus 63% at 31 December 2017) and the increase in the weighted average period to maturity of existing debt financing (5.6 years at 30 June 2018 versus 5.4 years at 31 December 2017). Moreover, the Group has increased to 95% the proportion of debt with fixed interest rate charges, containing to the minimum possible its exposure to interest rate risk. Currency exchange rate fluctuation risk is also at a very low level as the Group's debt is denominated in EUR, with an insignificant portion denominated in Romanian Lei ("RON") and Polish Zloty ("PLN").

The Group's financial indebtedness is arranged with standard terms and financial covenants with no breaches of the aforementioned values occurring for the period ended 30 June 2018. In addition, the Group's credit facilities concluded with local banks in Romania and Poland are secured with real estate mortgages, pledges on shares, receivables and loan subordination agreements in favour of the financing banks.

In June 2018, our subsidiary, Globalworth Poland ("GPRE"), completed a €450 million equity capital raise at a share price of €1.57 per share. The transaction was fully subscribed by Globalworth (66.6%) and Growthpoint Properties (33.3%), resulting in €150 million of new capital becoming available to fund further growth of the Polish portfolio. The remaining €300 million was used to partially repay outstanding debt under various inter-company loans previously entered into between Globalworth Poland and Globalworth.

The net effect of this transaction was that Globalworth's shareholding in Globalworth Poland was reduced to 68.43% (from 71.66%), while Growthpoint's shareholding in GPRE is 21.6%., The Company considers that this reduction in its shareholding is mitigated by the benefit of greater scale and additional firepower for Globalworth Poland.

5. Cash flows

· Cash resources raised during the six months ended 30 June 2018 from new debt financing of €605.2 million (net proceeds).

· €147.1 million net proceeds from the direct participation of Growthpoint in the share capital increase of GPRE in June 2018.

· Cash utilised for the acquisition of completed properties and land for future development of €223.1 million.

· €33 million utilised on completed properties (mainly on fit-out works for tenants) and properties under development in H1-18.

· €234.7 million and €19.3 million utilised in the repayment of interest bearing loans and borrowings and debt interest payments respectively.

· Cash utilised for the payment of dividends by the Company and the payment of dividends by GPRE to minority shareholders of €31.4 million in total.

6. Liquidity

Our Group seeks to maintain, at all times, sufficient liquidity to enable it to finance its ongoing, planned property investments, whilst maintaining flexibility to quickly capture attractive new investment opportunities.

As a result of the successful equity and debt financing activities of the Company in December 2017 and March 2018 respectively, cash and cash equivalents at 30 June 2018 amounted to c.€513 million. This places the Company in a strong position in respect to available funding that can be applied to both the properties currently under development and new development projects in Romania, as well as acquisitions of completed properties in Poland, and other opportunities that may arise.

7. Principal Risks and Uncertainties

The key risks which may have a material impact on the Group's performance, together with the corresponding mitigating actions, are presented on pages 52 to 57 of the Annual Report for the year ended 31 December 2017, which is available at www.globalworth.com.

These risks comprise the following:

· Exposure to the economic environment in Romania and Poland and changes in the political or regulatory framework in Romania, Poland or the European Union;

· Inability to execute planned acquisition of properties and lack of available financing;

· Counterparty credit risk;

· Risk of changes in interest rates and exchange rates;

· Risk of negative changes in the valuation of the portfolio;

· Inability to lease space and renew expiring leases;

· Inability to complete projects under development on time;

· Risk of breach of loan covenants;

· Risk of change in fiscal and tax regulations; and

· Compliance with fire, structural or other health and safety regulations.

There has been no significant change in these risks during the six months period ended 30 June 2018, and these risks are expected to continue to remain relevant during the second half of 2018.

8. Going Concern

The Directors have considered the Company's ability to continue to operate as a going concern based on the Management's cash flow projections for the 12 months subsequent to the date of approval of the unaudited interim condensed consolidated financial statements. The Directors believe that the Company would have sufficient cash resources to meet its obligations as they fall due and continue to adopt the going concern basis in preparing the unaudited interim condensed consolidated financial statements as of and for the six months ended 30 June 2018.

PORTFOLIO OVERVIEW

Standing Portfolio

Globalworth's portfolio of standing properties grew further in H1-2018 with the acquisition of three new standing investments (seven office properties) in Poland and the delivery of Globalworth Campus Tower 2 in Bucharest, which was under construction at the beginning of the year and was subsequently delivered to the market. As at 30 June 2018, there were 28 standing investments in our portfolio with 47 standing properties in Romania and Poland.

Our standing portfolio, as of 30 June 2018, comprised 22 class "A" office investments (34 properties in total) and three mixed-use investments (with seven properties in total) in central locations in Bucharest (Romania), Warsaw (Poland) and five of the largest office markets/cities of Poland. In addition, we own a light industrial park with four facilities in Timisoara (Romania), a modern warehouse in Pitesti (Romania), and part of a residential complex in Bucharest (Romania).

Globalworth's total standing commercial GLA at the end of June 2018 had increased by 18.2% to reach 884.6k sqm, with the overall standing portfolio GLA reaching 923.6k sqm (16.8% increase), impacted by the sale of certain residential units during the period. The appraised value of our standing properties rose to c.€2.0 billion (as at 30 June 2018), representing a 18.3% increase compared to 31 December 2017.

We consider our portfolio to be modern, with almost all of our properties having been completed or refurbished since 2011, and c.62.9% of our GLA and 68.1% of our standing combined portfolio value having been completed or refurbished since 2013. It is worth noting that 25 of our properties have been delivered or significantly refurbished since 2015, accounting for 50.6% of our GLA and 54.2%% of our standing combined portfolio value. In addition, following the delivery of our development projects (Renault Bucharest Connected and Globalworth Campus - Towers 3) and other future completions, the proportion of modern office stock in our portfolio will further increase in the short-medium term.

Consistent with its commitment to energy efficient properties, Globalworth added two new investments to its standing portfolio (six properties) in the first half of 2018 which are green certified. WARTA Tower and the Quattro Business Park are both certified with BREEAM Very Good accreditation or higher (at Quattro, two of the five offices of the park are green certified with BREEAM Excellent).

Overall, our standing portfolio as of 30 June 2018 comprised 26 green certified properties, accounting for 71.4% of our standing commercial portfolio, and we are in the process of certifying or re-certifying a number of other properties in our portfolio.

In Q3-2018 the number of Green Certified properties further increased following the acquisition of Spektrum Tower (BREEAM Very Good).

(1) Includes c.42.8sqm and c.39.0k sqm of residential space in 31 December 2017 and 30 June 2018 respectively.

(2) Appraised valuations as of 31 December 2017 and 30 June 2018 respectively.

(3) Contracted Rent includes c.€1.5 million and c.€1.5 million from residential space in 31 December 2017 and 30 June 2018 respectively.

Developments

Globalworth made good progress on its development programme in the first half of 2018, which involved four properties located in Bucharest. In April 2018 we delivered Tower 2 (28.2k sqm GLA) of our Globalworth Campus project and as at 30 June 2018, we had two active developments (three properties) in Bucharest under construction, which upon completion will further increase our footprint of high quality office space by 77.1k sqm.

The Renault Bucharest Connected project ("RBC") is progressing well, with construction in line with the targeted timeline and the project is expected to be delivered in Q1-2019. RBC is 100% pre-leased and, on completion, will house Groupe Renault's new Headquarters in Romania as well as a dedicated design centre for the development of future models of cars, in total offering 42.3k sqm of GLA and 1,000 parking spaces. Construction of the main Headquarters building structure has been completed and we are currently installing the façade and performing the necessary installation and finishing works. Construction of the second building, a smaller design centre is also in progress, with the structure now completed and further works in progress.

The second development currently in progress is Tower 3 (centre tower) of the Globalworth Campus project. The third tower, which represents the second and final phase of the project, will upon completion offer high-quality Class "A" office space and other amenities such as a 750-seat conference centre, spanning 34.8k sqm of GLA, and will also include c.500 parking spaces. The new building will extend over 14 floors above ground and two underground levels and is expected to be completed in Q4-2019. Currently, excavation and perimeter pilling is being completed and construction is in progress.

The total appraised value of our Developments as of 30 June 2018 was €58.0 million.

Land for Future Development

Globalworth owns land plots in four prime locations in Bucharest (new CBD, Herastrau Lake, historical CBD and Bucharest West), covering a total surface of 28.0k sqm, in which office or mixed-use properties can be developed.

We have prioritised the lands in the new and historical CBD for future development, where we anticipate constructing office and mix-use properties comprising c. 70k sqm GLA in total, subject to relevant approvals. In addition, the Company owns 30 hectares of land near the TAP light-industrial park in Timisoara, which can be developed in phases delivering c.145k sqm of new high-quality light-industrial / logistics space in the area.

We are currently progressing with the required preparatory activities, including performing planning and/or permitting, for this land bank in Bucharest and Timisoara (TAP II) in order to be in a position to progress these schemes expediently.

The total appraised value of our land for future development as of 30 June 2018 was €40.2 million.

Right of First Offer Portfolio

Globalworth, through Globalworth Poland, has a portfolio of two investments in Poland which are at different phases of construction and in which it owns a minority stake (25%), with the right to acquire the remaining interest once certain conditions have been satisfied.

· Beethovena Business Park is a class "A" office project located in Warsaw comprising two, five-floor offices, which on completion will offer total GLA of 35.2k sqm. Beethovena I and II are of similar size and are expected to be delivered in Q3-2019 and Q3-2020 respectively.

· Browary J is a class "A" office project located in Warsaw comprising a stepped shaped "main" building extending over 11 floors and the lower 7th floor wing. The project is expected to be delivered in Q4-2018 and, on completion, will offer 15.4k sqm of GLA, of which c.88% has been pre-leased to blue-chip tenants. Browary J will be part of Browary Warszawskie (Warsaw Brewery) a mixed-use (office, residential and retail) development in the Wola district which has become one of the most dynamic commercial and residential areas of Warsaw.

1. Estimated amount to be invested in the event of the acquisition of the remaining 75% of each property.

2. "As Is" Value of the for 25% currently owned by the GPRE as at 30 Jun. 2018.

3. Estimated "Completion Value" of the property for 100% as at 30 Jun. 2018.

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2018

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2018

These condensed consolidated financial statements were approved by the Board of Directors on 18 September 2018 and were signed on its behalf by:

Geoff Miller

Director

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE SIX MONTHS ENDED 30 JUNE 2018

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2018

* Includes the €2.3 million (2017: €2.3 million) cash reserve, see note 15.

SECTION I: BASIS OF PREPARATION

This section contains the Group's significant accounting policies that relate to the condensed consolidated financial statements as a whole. Significant accounting policies and related management's estimates, judgements and assumptions in the application of those policies specific to one note are included with that note. Accounting policies relating to non-material items are not included in these condensed consolidated financial statements.

1. Basis of Preparation

Corporate Information

Globalworth Real Estate Investments Limited ('the Company' or 'Globalworth') is a company with liability limited by shares and incorporated in Guernsey on 14 February 2013, with registered number 56250. The registered office of the Company is Ground Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 2HT. Globalworth, being a real estate Company, has been listed on AIM Market of London Stock Exchange since 2013 and being traded under the ticker "GWI". The Company's Eurobonds are listed on the Official List of the Irish Stock Exchange and the Bucharest Stock Exchange since 2017.

Directors 

The Directors of the Company are:

• Ioannis Papalekas, Chief Executive Officer

• Dimitris Raptis, Deputy Chief Executive Officer and Chief Investment Officer

• Geoff Miller, Non-executive, Chairman of the Board and the Remuneration Committee

• Eli Alroy, Non-executive, Chairman of Investment Committee and Senior Independent Director

• John Whittle, Non-executive, Chairman of the Audit Committee

• Peter Fechter, Non-executive, member of the Remuneration Committee

• Andreea Petreanu, Non-executive, member of the Audit Committee

• Richard van Vliet Non-executive, member of the Audit Committee

• Akbar Rafiq, Non-executive

• Alexis Atteslis, Non-executive

• Norbert Sasse, Non-executive

• George Muchanya, Non-executive

• Bruce Buck, Non-executive

Basis of Preparation and Compliance

The condensed consolidated financial statements of the Group (or 'financial statements' or 'consolidated financial statements') as of and for the six months ended 30 June 2018 have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting". These consolidated financial statements are prepared in Euro ("EUR" or "€"), rounded to the nearest thousand, being the functional currency and presentation currency of the Company. These financial statements have been prepared on a historical cost basis, except for investment property, financial assets at fair value through profit or loss, derivatives and financial assets at fair value through other comprehensive income which are measured at fair value. The significant accounting policies adopted are set out in the relevant notes to the financial statements and consistently applied throughout the periods presented except for the new and amended IFRSs, which were adopted on 1 January 2018 (see note 26 for more details).

The financial statements are prepared on a going concern basis as explained the financial review section of the interim report.

Accounting policies

These condensed consolidated financial statements apply the same accounting policies, presentation and methods of calculation as those followed in the preparation of the Group's consolidated financial statements for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') and the Companies (Guernsey) Law 2008, as amended. The condensed consolidated financial statements included in this Interim Report should be read in conjunction with the consolidated financial statements for the year ended 31 December 2017. On 1 January 2018, the Group adopted certain new accounting policies where necessary to comply with amendments to IFRS, none of which had a material impact on the consolidated results, financial position or cash flows of the Group (see note 26).

Basis of Consolidation

These condensed consolidated financial statements comprise the financial statements of the Company and its subsidiaries ('the Group') as of and for the six months ended 30 June 2018. Subsidiaries are fully consolidated (refer to note 20) from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the period from the date of obtaining control to 30 June, using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated statement of financial position, separately from net assets and profit and loss attributable to equity holders of the Company.

2. Critical Accounting Judgements, Estimates and Assumptions

The preparation of consolidated financial statements in conformity with IFRS requires management to make certain judgements, estimates and assumptions that affect reported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures and the disclosures of contingent liabilities.

Selection of Functional Currency

The Company and its subsidiaries used their judgment, based on the criteria outlined in IAS 21 "The Effects of Changes in Foreign Exchanges Rates", and determined that the functional currency of all the entities is the EUR.

The preparation of financial statements in conformity with IAS 34 requires management to make certain judgements, estimates and assumptions that effect reported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures and the disclosures of contingent liabilities. 

Further additional critical accounting judgements, estimates and assumptions are disclosed in the following notes to the financial statements.

§ Investment Property, see note 3 and Fair value measurement and related estimate and judgements, see note 4;

§ Commitments (operating leases commitments - Group as lessor), see note 5;

§ Taxation, see note 9;

§ Financial assets at fair value through profit or loss, see note 13;

§ Subsidiaries' acquisitions, see note 20;

§ Investment in Joint ventures, see note 21; and

§ Investment in Subsidiaries, see note 22.

SECTION II: INVESTMENT PROPERTY

This section focuses on the assets in the balance sheet of the Group which form the core of the Group's business activities. This includes investment property and related disclosures on fair valuation inputs and commitments for future property developments. This section quantifies the property portfolio valuations and movements for the period. Further information about each property is described in the Portfolio review section of the Interim Report.

3. Investment Property

3.1 Other operating lease commitment

Other operating lease commitment of €1.93 million (2017: €2.3 million) as of 30 June 2018 (a similar corresponding amount was recorded in trade and other payables as payables for tenant lease incentives) represents the Group's estimated net cost for undertaking existing operating leases in properties owned by third parties, as well as for the commitment to undertake additional operating lease expense, under certain conditions, related to one of the Group's tenants. The net cost is estimated by deducting from the operating lease expenses the revenues from sub-letting the respective properties to third parties selected by the Group, for the unexpired portion of their leases.

4. Fair Value Measurement and Related Estimates and Judgements

Investment Property Measured at Fair Value

The Group's investment property portfolio for Romania was valued by CBAR Research & Valuation Advisors SRL ("Coldwell Banker") and Cushman & Wakefield LLP (C&W). The Group's investment property portfolio for Poland was valued by Knight Frank Sp. z.o.o ("Knight Frank") and CBRE Sp. z.o.o.("CBRE"). All independent professionally qualified valuers hold a recognised relevant professional qualification and have recent experience in the locations and segments of the investment properties valued using recognised valuation techniques.

Our Property Valuation Approach and Process

The Group's investment department includes a team that reviews the valuations performed by the independent valuers for financial reporting purposes. For each independent valuation performed, the investment team, along with the finance team:

§ verifies all major inputs to the independent valuation report;

§ assesses property valuation movements when compared to the initial valuation report at acquisition or latest period end valuation report; and

§ holds discussions with the independent valuer.

Valuation Techniques, Key Inputs and Underlying Management's Estimations and Assumptions

Valuation techniques comprise the discounted cash flows, the sales comparison approach and the residual value method.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Key information about fair value measurements using significant unobservable inputs (Level 3) are disclosed below:

*net surface area basis (2017: gross built area basis)

All classes of property portfolio were categorised as Level 3 under fair value hierarchy. The fair value movement on investment property recognised, as gain, in the income statement includes an amount of €38.5 million (2017: €0.7 million) Level 3 of the fair value hierarchy.

Sensitivity Analysis on Significant Inputs

In arriving at estimates of market values as at 30 June 2018 and 30 June 2017, the independent valuation experts used their market knowledge and professional judgement and did not rely solely on historical transactional comparables. In these circumstances, there was a greater degree of uncertainty in estimating the market values of investment properties than would have existed in a more active market.

The assumptions on which the property valuations have been based include, but are not limited to, rental value per sqm, discount rate, exit yield, cost to complete, comparable market transactions for land bank for further development, tenant profile for the rented properties, and the present condition of the properties. These assumptions are market standard and in line with the International Valuation Standards ('IVS'). Generally, a change in the assumption made for the rental value (per sqm per annum) is accompanied by a similar change in the rent growth per annum and discount rate (and exit yield) and an opposite change in the other inputs.

A quantitative sensitivity analysis, in isolation, of the most sensitive inputs used in the independent valuations performed, as of the statement of financial position date, are set out below: