Globalworth Regulatory News (GWI)

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11 March 2019

Globalworth Real Estate Investments Limited

("Globalworth" or the "Company")

Preliminary Financial Results for the year ended 31 December 2018 & Intention to raise additional equity capital

Globalworth, the leading office investor in Central and Eastern Europe, is pleased to provide a comprehensive update of its operations, along with a preliminary release of its unaudited Condensed Consolidated Financial Statements for the year ended 31 December 2018.

Dimitris Raptis, Deputy Chief Executive Officer and Chief Investment Officer of Globalworth, commented: "2018 was a tremendous year for Globalworth as we continued our strong growth trajectory both through compelling investments in income producing assets with asset management potential and through development projects, delivered a significant step-up in our financial results, and demonstrated strong operating results across our portfolio in Romania and Poland. We are proud to have established Globalworth as the leading institutional office landlord in the CEE region with a portfolio of prime office assets, supported by a strong team of experienced professionals. With further investments targeted and, in our view, a compelling market outlook, we are set to take further strides forward in 2019".

Operational Highlights

· €538.3 million of acquisitions were completed in Poland spanning five standing investments in Warsaw (€346.0 million), Krakow (€139.0 million) and Wroclaw (€35.8 million) and three land plots in Bucharest, Romania (€17.5 million) on which the Group aims to develop new office projects.

· Globalworth's combined portfolio1 value rose by 35.6% to €2.5 billion at 31 December 2018 (31 December 2017: €1.8 billion), split 51% in Romania and 49% in Poland. The total GLA of the Group's combined portfolio reached 1.0 million sqm, an increase of over 250k sqm on 31 December 2017.

· During 2018, the Group negotiated the take-up or extension of 121.8k sqm of commercial space in Romania and Poland, comprising some 67.9k sqm of new lettings or expansions and 54.0k sqm of renewals, with an average weighted average lease length (WALL) of 7.1 years.

· As at 31 December 2018, 955.8k sqm of commercial space was let to some 650 tenants, of which 76% is to multinational corporates, with a WALL of 5.0 years (31 December 2017: 5.3 years). Total annualised contracted rental income for the standing combined portfolio increased by 46.2% to €159.5 million (31 December 2017: €109.1 million).

· Occupancy of the commercial standing portfolio was 95.1% (96.3% including tenant expansion options) at 31 December 2018, compared to 93.3% (95.4% including tenant expansion options) at 31 December 2017. Like-for-like occupancy of the portfolio improved by 2.8% over the year.

· In terms of the Company's developments, Phase A of Globalworth Campus (following the delivery of the second tower of the project) and Renault's new HQ, both in Bucharest, were completed adding 70.5k sqm of new high-quality space. Construction of the 34.8k sqm third and final Campus tower is well underway and due for completion in Q4-19, and the Group is pleased to have 60.0% of the development leased or subject to a letter of intent since 31 December 2018. Two further projects have started: the 26.4k sqm Globalworth Square project in Bucharest and a 17.7k sqm unit at the Group's TAP II logistics project in Timisoara. In addition, plans are in progress for a further 76k sqm of new office projects in Bucharest and up to 150k sqm of light-industrial and logistics projects in Timisoara.

· Green-certified properties accounted for 70.6% of our standing commercial portfolio at 31 December 2018, with the potential to rise to 100% through properties currently under certification.

Financial Highlights 

· Net operating income ("NOI") of €133.4 million (2017: €51.1 million), an increase of 161% on 2017. This increase, as is the case across other earnings metrics, was largely driven by the full year consolidation of Globalworth Poland, as compared to the prior year when Polish operations were consolidated for less than one month, alongside the further acquisitions in Poland2. In addition, NOI saw ongoing growth from our properties in Romania following leasing activity and development completions.

· EBITDA3 of €121.8 million, up 287% on 2017 (€31.5 million) as a result of higher valuation gains and lower acquisitions costs, partly offset by higher administration and other expenses. Adjusted EBITDA3, which includes the share of minority interests, was €150.8 million, up 368% on 2017 (€32.2 million).

· Normalised EBITDA3 from ongoing operating activities of €96.9 million an increase of 135% on 2017 (€41.2 million) due to the growth in NOI. Adjusted normalised EBITDA3, which includes the share of minority interests, was €119.0 million, up 178% on 2017 (€42.8 million).

· Earnings before tax of €115.3 million, an increase of 341% on 2017 (€26.2 million). IFRS earnings per share increased by 130% from 26.40 cents to 60.67 cents.

· EPRA earnings of €60.9 million, an increase of 262% on 2017 (€16.8 million). EPRA earnings per share increased by 153% from 18.17 to 46.03 cents per share in 2018.

· Loan to Value of 43.9% (31 December 2017: 34.0%). The weighted average interest rate on debt financing as at 31 December 2018 amounted to 2.91% (31 December 2017: 2.62%), with a weighted average period to maturity of 5.1 years (31 December 2017: 5.4 years).

· EPRA Net Asset Value (NAV) of €1,200.2 million, up 2.5% on 2018 (31 December 2017: €1,171.5 million) and EPRA NAV per share of €9.04, up 2.3% (31 December 2017: €8.84). Factoring in dividend distributions paid during 2018 of 49 cents per share, the combined total accounting return of NAV growth and dividends rose to 7.8%, up from 5.7% in 2017.

· For 2018, the Company declared dividends of €0.54 per share, an increase of 22.7% over 2017 (€0.44 per share). Of this, €0.27 was paid in August 2018, and a second interim dividend of €0.27 per share was paid in February 2019.

· In March 2018, the Company successfully issued a €550 million unsecured Eurobond at a coupon of 3% with seven years duration under the Company's €1.5 billion Euro Medium Term Notes programme, in an issue which was more than twice oversubscribed. In June 2018, Globalworth Poland completed a €450 million equity capital raise to support its ongoing portfolio expansion, of which €300 million was subscribed by Globalworth and €150 million by Globalworth's largest shareholder, Growthpoint Properties.

Outlook

2018 was another dynamic year for Globalworth and one in which the Company bolstered its leading position in the CEE office real estate market. The Company's entry into the Polish market in December 2017 and the successful acquisitions completed since then have, within a very short period, established Globalworth as the largest institutional office landlord in Poland. Meanwhile, the development pipeline in Romania positions the Company well for further expansion in this market. Globalworth's portfolio is now evenly balanced between the two markets, with the weighting towards Poland expected to increase further in the future.

As a result of this expansion, new developments, and successful management of its existing portfolio the Company recorded an impressive increase in both net operating income and operating profits in 2018.

The Company has demonstrated that it is able to acquire and develop high-quality properties at yields which are considerably higher than prime property yields in its core markets and, with healthy tenant demand and a supportive economic environment, it considers that market fundamentals in both markets remain compelling. It is expected that these conditions will sustain investor interest in the region and, as such, provides a healthy backdrop for the Company's activities. In addition, the Company's activities are increasingly well positioned to benefit from greater scale and efficiency as it further consolidates its position.

Intention to Raise Additional Equity

Consistent with its strategy since IPO, the Group continues to evaluate a strong pipeline of further high-quality investment opportunities. Currently, the Group has €280 million of acquisitions under exclusivity in Poland, with a blended stabilised acquisition yield of over 7.5%, and is also currently analysing a number of other value accretive acquisitions. This pipeline offers assets with a clear strategic fit in prime locations alongside an attractive income profile, building not only critical mass and providing scale benefits, but also providing further asset management angles and value creation potential. In addition, the Company has a very active development pipeline in Romania, where the Company has an excellent track record of delivering value from such projects. With these investments in mind, and with a view to managing a long-term LTV target of below 40%, the Company will be looking, in the near term, to raise additional equity capital of up to €500 million at or around prevailing EPRA NAV per share.

A further announcement providing details of any potential equity raise will be issued in due course. In order to provide the shareholder authorities necessary to issue shares as part of the process, a circular (the "Circular") convening an Extraordinary General Meeting ("EGM") at which the required shareholder approvals will be sought will shortly be published and sent to shareholders.

Update on Possible Move to a Premium Listing on the London Stock Exchange 

The Board continues to recognise the potential benefits, including improved liquidity in its shares, of moving to a Premium Listing of the London Stock Exchange. While its previously announced intention in this regard remains valid, the Board is mindful that the uncertainty arising from the UK's proposed departure from the European Union may as yet have unforeseen impacts. Until there is greater clarity, the Board intends to proceed with caution and maintain its strategic flexibility.

In addition, the Board has been considering opportunities to simplify the Company's corporate structure as the business evolves. These are areas of key strategic focus of the Board, and shareholders will be kept updated on all developments in this regard.

The Company's audited 2018 Annual Report and Financial Statements for the year ended 31 December 2018 will be published by early April 2019.

1 Combined real estate portfolio is defined as the aggregation of all assets in the Company's portfolio, including consolidation of 100% of Globalworth Poland, in which the Company has a 73.7% shareholding (31 December 2018: 69.7%), and 100% of the investment referred to as Renault Bucharest Connected.

2 includes the effect of the settlement of certain master lease and NOI guarantees in Poland, as announced on 21 December 2018, which resulted in a €21.5 million cash payment to GPRE.

3 Refer to glossary section below for definition.

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 nearly 200 professionals across Romania and Poland, the combined value of its portfolio is €2.5 billion, as at 31 December 2018. Over 90% of the portfolio is in income-producing assets, predominately in the office sector, and leased to a diversified array of some 650 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.

IMPORTANT NOTICE: This announcement has been prepared for the purposes of complying with the applicable laws and regulations of the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom. This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "targets", "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward looking statements include all matters that are not historical facts and involve predictions. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements reflect the Company's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's business, results of operations, financial position, liquidity, prospects, growth or strategies and the industry in which it operates. Forward-looking statements speak only as of the date they are made and cannot be relied upon as a guide to future performance. Save as required by law or regulation, the Company disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect events or circumstances after the date of this announcement. 

GLOBALWORTH REAL ESTATE INVESTMENTS LIMITED

PRELIMINARY FULL YEAR RESULTS AND UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31 DECEMBER 2018

MANAGEMENT REVIEW

In 2018, our portfolio continued to expand as a result of acquisitions, predominantly in Poland, completed developments and further progress on developments underway in Romania. This expansion and the successful negotiation of ongoing leases led to further growth in our rental income and has created the potential for future rental growth.

REVIEW OF NEW ACQUISITIONS

· Eight investments for €538.3 million in Poland and Romania

· 185.8k sqm of class "A" office GLA acquired in Poland

· Three land plots acquired in Bucharest with the potential to add 76.0k sqm of class "A" GLA in the future

Over the course of the year, Globalworth completed eight new investments in Poland and Romania for a total consideration of €538.3 million.

Poland

We are very pleased to have been able to acquire some of the most recognisable office properties available in the Polish market, which included three of the 10 largest office transactions of the year. In total we concluded five transactions for €520.8 million, adding 185.8k sqm of class "A" office space, which at the end of 2018 were 94.8% occupied and had €37.3 million of contracted rent with an average WALL of 3.5 years.

These acquisitions offer an attractive entry yield of 7.2%, with the scope for this to rise to 7.6% under full occupancy. This is consistent with the Group's strategy of acquiring standing properties at yields above prime market levels, where we believe that we can enhance the attractiveness and performance of our investments by applying different asset management initiatives over time.

The majority of our new acquisitions were properties in Warsaw, the country's principal real estate market, where we have now established a strong presence. In addition, we continued to pursue opportunities in select regional cities, successfully expanding our portfolio through new investments in Krakow and Wroclaw.

· Skylight & Lumen: The Group's largest property transaction to-date was finalised in Q4-18 for a total consideration of €190.0 million. The investment comprises two offices, offering 45.4k sqm of GLA and 453 parking spaces, forming part of the "Złote Tarasy" multifunctional mixed-use complex in the heart of Warsaw, which combines high-quality office, retail and leisure space with excellent connectivity to the capital's main train station.

· Spektrum Tower: is a high-rise class "A" office in the heart of Warsaw's Central Business District, acquired for a total consideration of €101.0 million. It was completed in 2003 and underwent extensive refurbishment in 2015, when it was converted into a multi-tenanted building offering 32.1k sqm of GLA and 318 parking spaces.

· Warta Tower: is a class "A" office located in the extended West Central Business District of Warsaw and was acquired for a total consideration of €55.0 million. It offers 33.7k sqm of GLA and 542 parking spaces.

· Quattro Business Park ("QBP"): is a high-quality office complex of five buildings in Krakow acquired for a total consideration of €139.0 million. QBP was completed in phases and offers a total of 60.2k sqm of GLA and 1,327 parking spaces.

· West Link: is a recently completed class "A" office in Wroclaw, acquired for a total consideration of €35.8 million. West Link is located to the west of the city centre, offering 14.4k sqm of GLA and 265 parking spaces. The property is adjacent to West Gate (also owned by the Group), creating an office complex with a total of 31.0k sqm of high-quality office space almost exclusively leased to Nokia Solutions & Network.

Romania

In Romania, where the Group is looking to its next phase of development projects, Globalworth completed the acquisition of two land plots in the new CBD of Bucharest for a total consideration of €15.5 million.

· On the plot located between Globalworth Plaza and the Green Court "B" offices owned by the Group, a new class "A" office, Globalworth Square (26.4k sqm GLA), is currently under construction

· The second land plot is adjacent to Globalworth's Green Court complex and will be used to further expand this development with a fourth class "A" office (16.2k sqm GLA), Green Court D.

In addition, in June 2018 we acquired a third land plot for €2.0 million, which is directly adjacent to the Renault Bucharest Connected project in the west part of Bucharest, on which we are now progressing preparations and design for a new 33.4k sqm GLA property offering predominantly class "A" office space and, thereby, creating a campus of over 75.6k sqm of GLA at this location.

REVIEW OF STANDING PORTFOLIO

· GAV of our standing income generating properties increased by 39.2% in 2018 to €2.4 billion

· Total standing GLA increased by over 250k sqm to reach 1.0m sqm of leasable space

· 70.6% of standing commercial portfolio by value is green certified

· Standing commercial occupancy of 95.1% (96.3% including tenant options)

· €159.5 million contracted rent (99.0% from commercial properties)

· WALL of commercial properties of 5.0yrs

Our portfolio of standing properties continued to expand in 2018 following the acquisition of five standing investments (10 office properties) in Poland, the completion of Globalworth Campus Tower 2 and Renault Bucharest Connected projects in Bucharest.

As of 31 December 2018, there were 31 standing investments in our portfolio with a total of 52 standing properties in Poland and Romania.

Our standing portfolio comprised 25 class "A" office investments (39 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 (Krakow, Wroclaw, Katowice, Gdansk and Lodz). 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 December 2018 had increased by 34.3% to reach 1.0 million sqm, with the overall standing portfolio GLA increasing 31.7% to 1.04 million sqm.

The independently appraised value of our standing properties rose to €2.4 billion (31 December 2018), representing an annual increase of 39.2%, mainly due to new additions (acquisitions and deliveries), while properties held throughout the period (like-for-like) marginally improved in value (+0.6%) in 2018.

We consider our portfolio to be modern, with the majority of our properties having been completed or refurbished since 2011. It is worth noting that 37 of our standing properties, accounting for 64.1% of our GLA and 65.2% of our standing combined portfolio value have been delivered or significantly refurbished in the past five years. In addition, following the delivery of our development projects (Globalworth Campus - Towers 3 and Globalworth Square) and other future completions, the proportion of modern office stock in our portfolio will further increase in the short-medium term.

Consistent with our commitment to energy efficient properties, we added nine environmentally certified properties to our portfolio. All properties acquired this year were green with WARTA Tower, Quattro Business Park (three of five buildings) and Spektrum Tower being certified with BREEAM Very Good accreditation, and the remaining two buildings at Quattro Business Park, Skylight and Lumen being certified with BREEAM Excellent accreditation. West Link, which was green certified at the time of acquisition, is currently in a re-certification process. In addition, Globalworth Campus Tower 1, a class "A" office developed by the Group, was also awarded BREEAM Excellent certification in Q4-2018.

Overall, our standing portfolio as of 31 December 2018 comprised 30 green certified properties, accounting for 70.6% of our standing commercial portfolio, further increasing to 73.2% in January 2019 following the BREEAM Excellent accreditation received for Globalworth Campus Tower 2, and we are in the process of certifying or re-certifying 19 other properties in our portfolio. Upon receipt of environmentally friendly accreditations for the properties which are under certification or re-certifying process, 100% of our portfolio will be green accredited.

(1) Includes c.42.8sqm and c.37.2k sqm of residential space in 31 December 2017 and 2018 respectively.

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

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

(4) Occupancy including tenant options of 96.3% and 95.4% in 31 December 2017 and 2018 respectively

At 31 December 2018, Renault Bucharest Connected is presented on an 100% basis held by Elgan Offices SRL in Romania. Globalworth holds a 50% share in Elgan Offices SRL.

REVIEW OF DEVELOPMENTS

· Committed pipeline: 78.9k sqm of GLA to be delivered by H1-2020E with total remaining capex of €84.1 million

· Future secured pipeline: 226.6k sqm of GLA in phases

· Potential to increase in current commercial GLA by over 30%

Globalworth continues with its active development/construction programme in Romania, making excellent progress with the construction and delivery of high-quality office and light-industrial space.

In April, we completed Phase A of our Globalworth Campus project in Bucharest with the delivery of the second tower, with Tower 2 offering 28.2k sqm GLA and 180 parking spaces. Phase A comprises two twin class "A" office towers with total GLA of 57.2k sqm. On completion of Phase B, currently under construction, Globalworth Campus will become the largest office campus in Bucharest with a total of 92.0k sqm of GLA and 960 parking spaces.

Renault Bucharest Connected ("RBC") was completed at the end of the year, and was subsequently handed over to the tenant in line with its targeted timeline in February 2019. We are particularly pleased with the efforts of our team and partners in delivering such a high-quality project within a compressed timeline. RBC is 100% leased to Groupe Renault and houses their new headquarters in Romania, as well as a dedicated design centre for the development of future models of cars, over 42.3k sqm of GLA and 1,000 parking spaces.

RBC is the ninth property delivered by Globalworth in Romania since the beginning of 2015, increasing the total GLA developed by the Group to c.250k sqm.

Following the delivery of these high-quality properties and as of year-end, we had two active developments in Bucharest under construction and one in Timisoara, which on completion will further increase our footprint by 78.9k sqm of GLA.

In addition, we continue to prepare our next phase of office and logistic / light-industrial development projects in Bucharest and other regional cities in Romania. These projects are not yet committed, but continue to be progressed in terms of design, planning and pre-leasing, and on current expectations have the potential to add 226.6k sqm of high-quality real estate space.

Right of First Offer (ROFO) Portfolio

Globalworth, through Globalworth Poland, has invested in two projects in Poland which are at different phases of construction, in each of which it owns a 25% economic stake, with the right to acquire the remaining interest once certain conditions have been satisfied.

· Beethovena I & II are a class "A" office project located in Warsaw comprising two, four-floor offices, which on completion will offer total GLA of 35.8k sqm. Beethovena I and II are of similar size (18.9k sqm and 16.9k sqm) and are expected to be delivered in Q2-2019 and Q3-2020 respectively. The first phase is currently pre-leased at c.64% to tenants such as Havas, MasterCard and others.

· The Gatehouse Offices (previously 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 was delivered in Q4-2018 and, offers 15.7k sqm of GLA, of which 100% is leased to blue-chip office tenants (including Epam, L'Oreal, Sony and WeWork).

The sale of Gatehouse Offices to a fund managed by GLL Real Estate Partners was preliminarily signed in Q4 2018.

Other Pipeline Investment Opportunities

Consistent with its on-going growth strategy, Globalworth, through Globalworth Poland, is under exclusivity and in an advanced stage of negotiation for the acquisition of four property investments in Poland.

All investments involve high-quality standing offices in line with the Group's strategy, with one property located in Warsaw and three in major regional cities.

The properties benefit from high occupancy rates and are leased to well-known national and international corporates operating in Poland and abroad, on market standard triple-net, Euro denominated and annually indexed leases. This pipeline is expected to potentially contribute additional contracted rental income of approximately €20.4 million (€21.8 million on stabilisation) per annum. Total investment is estimated at c.€280 million and the Group is currently undertaking the necessary due diligence on the properties.

ASSET MANAGEMENT REVIEW

· 121.8k sqm of commercial space successfully leased in Romania and Poland at an average WALL of 7.1 years

· Net take-up of 31.3k sqm improving like-for-like occupancy by 2.8% to 95.8%

· Overall commercial occupancy up by 2.0% to 95.1% (96.3% including tenant options)

· €15.0 million invested in our renovation and maintenance program on 20 properties of our portfolio

Leasing Review

Globalworth maintained its strong leasing momentum in 2018. Market conditions continued to be positive, with Globalworth benefiting from healthy demand for high quality office space in its target real estate markets.

Over the course of the year, driven by its proactive internal leasing team, the Group successfully negotiated the take-up (including expansions) or extension of 121.8k sqm of commercial space in Romania (62.5% of transacted GLA) and Poland (37.5% of transacted GLA), with an average WALL of 7.1 years.

New leases for 51.3k sqm were signed at a WALL of 8.5 years and included tenants such as Mindspace, Dell, Honeywell, Calypso, Coca Cola and Delphi as well as 47 other corporates. Leases were renewed, and thus extended, for 51 of our tenants for a total of 54.0k sqm of GLA at a WALL of 6.3 years, with the most notable extensions involving Nokia, Huawei, Carrefour and Eurozet. The remaining 16.6k sqm of space signed in the period related to additional expansion space leased to 25 tenants, with an average WALL of 5.7 years.

In December 2018, Globalworth settled certain master lease and net operating income ("NOI") guarantees which had been granted ahead of the GPRE initial public offering in April 2017 by its previous controlling shareholders and were due to expire in April 2022. The purpose of these guarantees was to cover previously unleased office space across GPRE's original IPO portfolio and to top up any NOI shortfall to a specified level on the retail component of GPRE's three mixed-use assets for five years post IPO, as well as covering certain specified situations to top up rent subject to a rent-free period and other related costs. They were settled in exchange for GPRE receiving a cash settlement of €21.5 million (representing the net present value of the expected guaranteed income) to compensate for any and all amounts due now or in the future under these agreements.

The master leases settled accounted for 0.5% of our standing commercial GLA (1.1% of standing commercial GLA in Poland) at the time of their settlement, with the Group being confident that it will be able to lease the corresponding spaces in the short to medium term.

On a like-for-like basis, occupancy increased by 2.8% to 95.8% following the successful lease-up of previously vacant spaces, offsetting the impact of the master lease termination. New take-up exceeded space becoming available during the year, with net take-up for 2018 being 31.3k sqm, thus increasing occupancy in our portfolio.

Overall occupancy of our standing commercial portfolio as of 31 December 18 was 95.1% (96.3% including tenant options), representing a 2.0% increase over the past 12 months (93.3% as of 31 December 2017, 95.4% including tenant options).

The overall vacancy level was modestly weighed down by several new additions to the standing portfolio during the period where occupancy rates were lower than the average, but as part of identified asset management opportunities we are confident there is near-term scope for further upside in both occupancy and contracted rents.

Going forward, our asset management initiatives target a reduction of the remaining available space. Taking into consideration positive market conditions and the quality and location of our properties, we are confident of demonstrating further progress in the forthcoming period.

In total, as at 31 December 2018, we had 955.8k sqm of commercial GLA leased to approximately 650 tenants, at an average WALL of 5.0 years, the majority of which is let to national and multinational corporates which are well-known within their respective markets.

The Group's rent roll is well diversified, with the largest tenant accounting for 6.1% of contracted rents, while the top three tenants account for 12.1% and the top 10 tenants account for 28.4%, a characteristic which we expect to diversify further as the portfolio continues to expand.

Leasing momentum has continued into 2019 with 60.0% (31 December 2018: 0%) of our Globalworth Campus T3 development now leased or subject to a letter of intent, to high-quality international tenants, with a WALL of 10 years.

Renovation and Maintenance Programme of Standing Properties

Globalworth takes a long-term approach to its portfolio, looking to maximise returns over the full life cycle of its individual buildings. Continuous management and investment in our portfolio enables us to preserve value and offer best-in-class real estate space to our business partners.

Every asset has an asset management strategy. Depending on the stage in the life cycle of each of our buildings, improvements in technology and their prevailing condition, we may conduct works which extend from small scale upgrades to large scale refurbishments. Larger scale refurbishments allow us to more fully upgrade an asset, secure new leases and re-set the life clock of the property.

In 2018, €15.0 million was invested under our renovation and maintenance programme, with works on 20 properties in our standing portfolio to upgrade primarily both indoor and outdoor common areas, and minor works on others.

Investment in Co-working

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

‒ Mindspace also occupies 5.5k sqm in our Hala Koszyki property in Warsaw

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

· 23.4k sqm of co-working space in our portfolio

The rising popularity of the co-working concept has become a major global trend in real estate in recent years, with increasing take-up of space by co-working operators in a wide range of locations and building types. While at an early stage of development in our markets, we expect this segment to experience rapid growth in years to come.

In June 2018, Globalworth announced the following transactions with Mindspace Ltd., a leading global operator of high-end, inspiring coworking space:

· Mindspace is opening its first locations in Romania in three of our buildings, taking up 10.8k sqm of GLA in total on 16-year leases. The three locations chosen have been branded as Mindspace Business District (Globalworth Campus) which opened in Q4-2018, Mindspace City Offices (City Offices) and Mindspace Victoriei (TCI), both scheduled to open in 2019. Romania marks the seventh country in which Mindspace is offering flexible workplace solutions

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

Prior to this transaction, Globalworth had already built a close collaboration and respect for the activities and approach of Mindspace through its presence at our flagship Hala Koszyki property in Warsaw.

Overall, as at 31 December 2018, Globalworth had 23.4k sqm of co-working space in its portfolio, let or pre-let to five operators and accounting for 2.8% of our standing office portfolio. We believe that this adds an important vibrancy and added amenity value to all users of the properties in which such space is available.

Investment in Technology Initiatives

Investment in technology is becoming a focal part of our asset management strategy, and it is very much linked to our strategic target of creating communities, connecting the employees that work in our buildings and offering turnkey, flexible, amenity-rich and experience-driven workplace solutions. We strongly believe that this will become a key success factor when it comes to attracting and retaining tenants to our properties as companies will use such offering as a key tool for attracting and retaining talented employees.

Globalworth App

In conjunction with Honeywell, in 2018 we started to develop the Globalworth App through which our portfolio will become "smarter", allowing more interactive engagement and operation between the people working in or visiting our buildings.

The application will include functions such as access to a building, news and events taking place at the building and elsewhere within the Globalworth estate, and alerts. It will also allow administrators to control and monitor the performance of both individual spaces and the building. It is aimed at improving the experience of those working and visiting our properties by allowing access, indoor navigation, the ability to control the working environment, and improving efficiency. At the same time it allows us, as the landlord, to better monitor and operate our portfolio and interact with people working or visiting our properties.

The Globalworth App is currently at a development stage and we plan to implement it in phases, rolling it out to a selection of our buildings in 2019 and deploying it to the whole portfolio once testing is completed.

Supporting Other Technology Initiatives

As part of an effort to promote technological innovation, Globalworth directly or indirectly invests in various opportunities and initiatives, including technology-related venture capital funds. We believe that making modest investments in such ventures will provide Globalworth with direct access and intelligence to the latest property and other technology related developments enabling it to be ahead of the curve compared to other landlords.

In 2018, the Group made a € 2.0 million commitment in Early Games Venture ("EGV"), a venture capital fund focused on innovative companies in Romania and funded through the Competitiveness Operational Program (2014-2020), co-funded by the European Regional Development Fund.

Other initiatives include participation in the Techcelerator in Bucharest, where Globalworth, GapMinder Venture Partners and certain others, target investing up to €1 million in Romanian technology companies.

The Group is also planning to make additional technology related investments in 2019, either in general technology funds or ventures focusing on real estate solutions in the domain of smart buildings / smart city, mobility and energy, property automation and real estate software.

Integration with Globalworth Poland (GPRE)

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

Globalworth's shareholding in GPRE was 69.7% as at 31 December 2018, down slightly from the 71.7% at the start of the year, following the €450 million equity raise in July 2018, in which it invested €300 million (two thirds of the raise) and further share purchases in December 2018. In January 2019, Globalworth acquired a further stake in GPRE in exchange for newly issued shares in Globalworth, increasing its stake to 73.7% as of present.

Reinforcing our In-House Team of Professionals

To meet our expansion needs and to maintain and improve the high standards and success of our business, we have continued to invest in multi-disciplined, skilled professionals, adding 84 team members to the Group in 2018.

The majority of our new team members were recruited to work in Bucharest and Warsaw, primarily to support our asset management operations which are core to our customer service and product offering, as well as maintaining and strengthening the broad network of relationships in our main real estate markets. The asset management function, which is core to our customer service and product offering, has been a prime focus and we have reduced reliance on third-party providers by replacing these services with in-house professionals.

FINANCIAL REVIEW

Overview

The significant expansion of the group in late 2017 through its entry into Poland and subsequent further acquisitions had a positive impact on our 2018 financial results. Along with new leasing activity and the completion of developments in Romania, this produced a strong uplift in our earnings.

Revenue and Net Operating Income (NOI) increased year on year by 148% to €192.8 million and 161% to €133.4 million respectively, while normalised EBITDA and adjusted normalised EBITDA rose by 135% to €96.9 million and 178% to €119.0 million respectively.

EPRA Earnings per share for 2018 increased by 153% compared to 2017, reaching 46.03 cents per share from 18.17 cents per share in 2017, while IFRS Earnings per share for 2018 amounted to 60.67 cents, as compared to 26.40 cents in 2017, an increase of 130%. Dividends declared and paid in respect to 2018 of 54 cents per share, as compared to 44 cents for 2017, represented a 22.7% increase.

EPRA NAV per share as at 31 December 2018 increased by 2.3% from 31 December 2017 to €9.04 per share (31 December 2017: €8.84). Combined with dividends paid in 2018, this resulted in a Total Accounting Return of 7.8%, an increase of 210 basis points on the prior year (2017 TAR: 5.7%).

The Open Market Value of the portfolio grew by €646.8 million, an increase of 35.6%, to €2.5 billion, primarily through acquisitions and revaluation gains.

LTV at 31 December 2018 amounted to 43.9%, increased from 34.0% at 31 December 2017 mainly as a result of the second Eurobond issued in March 2018 of €550 million and subsequent acquisitions of properties. €150 million of equity was invested in Globalworth Poland in June 2018, while the last major equity raise at Globalworth level took place in December 2017.

Revenues and Profitability

Group revenues of €192.8 million in 2018 rose by 148% on 2017 (€77.9 million), driven by:

· the full year consolidation of Globalworth Poland, as well as further acquisitions in Poland, with revenues of €102.7 million, as compared to the prior year (€4.9 million) when it was consolidated for less than one month. This includes the effect of the settlement of master lease and NOI guarantees, as announced on 21 December 2018 (see "Leasing Review"), which resulted in a €21.5 million cash payment to GPRE.

· an increase of 23.5% on 2017 in revenues derived from our properties in Romania following leasing activity, the full year effect of prior year acquisitions and development completions.

Group revenues were split 53% Poland / 47% Romania, which contrasted to 6% Poland / 94% Romania in 2017.

Net Operating Income of €133.4 million in 2018, a 161% increase over 2017 (€51.1 million), in line with the increase in Group revenue. The growth in NOI reflected an increase of €74.6 million in Poland and an additional €7.7 million in Romania. NOI was split 59% Poland / 41% Romania, compared to 8% Poland / 92% Romania in 2017.

EBITDA1 of €121.8 million in 2018, an increase of 287% over 2017 (€31.5 million). In addition to the growth in NOI (by €59.6 million), higher valuation gains on investment property and financial instruments (by €25.5 million) and lower acquisition costs (by €9.0 million) contributed to the increase, partly offset by an increase in administration, other income and other expenses (by €3.8 million) while reflecting the full year inclusion of Globalworth Poland.

Adjusted EBITDA2 of €150.8 million, which includes the share of minority interests, an increase of 368% over 2017 (€32.2 million), resulting from the increase of NOI (by €82.3 million) but also higher valuation gains on investment property and financial instruments (by €32.8 million) and lower acquisition costs (by €9.6 million), partly offset by the increase in administration, other income and other expenses (by €6.1 million).

Normalised EBITDA3 of €96.9 million, an increase of 135% over 2017 (€41.2 million), while adjusted normalised EBITDA4 amounted to €119.0 million, which includes the share of minority interests, an increase of 178% over 2017 (€42.8 million), tracking more closely the rise in NOI.

A modest 3.8% increase in net financial costs reflecting the additional €550 million Bonds issuance and reduction in secured bank loan balances of c.€167 million during the year, but offset by €15.2 million lower one-off refinancing restructuring charges (2018: €0.9 million; 2017: €16.1 million).

Earnings before tax of €115.3 million, an increase of 341% over 2017 (€26.2 million), mainly as a result of the increase in NOI and savings from non-recurring costs incurred in 2017 related to the acquisition of the majority stake in Globalworth Poland. IFRS earnings per share increased by 130% from 26.40 cents to 60.67 cents.

EPRA earnings of €60.9 million, an increase of 262% over 2017 (€16.8 million), similarly resulting from the ongoing expansion of the Group's operations and notably NOI but which also factors in the positive effect of the Polish master lease and NOI guarantee settlement. EPRA earnings per share increased by 153% from 18.17 cents per share to 46.03 cents per share in 2018.

 1 Earnings attributable to equity holders of the Company before finance cost, tax, depreciation, amortisation of other non-current assets and purchase gain on acquisition of subsidiaries.

2 Earnings before finance cost, tax, depreciation, amortisation of other non-current assets and purchase gain on acquisition of subsidiaries.

3 EBITDA less: fair value gains on investment property and financial instruments (2018: €32.2 million; 2017: €6.7 million), non-recurring income (2018: €0.2 million; 2017: €nil); plus: acquisition costs (2018: €1.0 million; 2017: €10.0 million); plus: non-recurring administration and other expense items (2018: €6.5 million; 2017: €6.4 million).

4 Adjusted EBITDA less: fair value gains on investment property and financial instruments (2018: €39.6 million; 2017: €6.7 million), non-recurring income (2018: €0.3 million; 2017: €nil); plus: acquisition costs (2018: €1.2 million; 2017: €10.8 million); plus: non-recurring administration and other expense items (2018: €6.9 million; 2017: €6.5 million). The adjustments listed include the share of minority interests.

Balance Sheet

The Open Market Value of the portfolio grew by €646.8 million, an increase of 35.6%, to €2.5 billion. This comprises €2.4 billion of investment property and a further €0.1 billion representing other balance sheet adjustments including the full share of our JV property, RBC.

Investment activity in 2018, which included c.€573.0 million of new acquisitions and development projects as well as valuation gains of €34.1 million, contributed to a 33.4% increase in the balance sheet value of our investment property portfolio at 31 December 2018 to €2.4 billion (31 December 2017: €1.8 billion).

Total assets at 31 December 2018 exceeded €2.7 billion and increased by 26.6% from 31 December 2017 (€2.2 billion), primarily due to the expansion of the property portfolio.

EPRA NAV of €1,200.2 million at 31 December 2018, an increase of 2.5% on 31 December 2017 (€1,171.5 million), while EPRA NAV per share increased by 2.3% to €9.04 per share (31 December 2017: €8.84 per share). Factoring in the receipt of the dividend distributions paid during 2018 of 49 cents per share, the adjusted EPRA NAV per share at 31 December 2018 would be €9.53 per share, representing a total accounting return of NAV growth and dividend return for 2018 of 7.8%, up from 5.7% in 2017.

Cash Flows

Cash flows from operating activities were €80.1 million, compared to €10.1 million in 2017, reflecting the expansion of the Group's operating activities and the full inclusion of Poland.

Net proceeds from the successful debt financing in 2018 of €648.7 million, with €270.7 million being used to repay senior debt facilities secured on some of our properties in Poland.

Cash used for investments made in 2018 of €575.0 million, including the acquisition of six standing properties in Poland, two land plots in Romania and the completion or further advancing of the construction of properties under development in Romania.

Dividends paid in 2018 of €64.9 million in respect of the six-month periods ended 31 December 2017 and 30 June 2018 of €29.1 million and €35.8 million respectively.

Cash and cash equivalents at 31 December 2018 stood at €229.5 million, €43.8 million lower than 31 December 2017 (€273.3 million). At 31 December 2017 the higher level of cash and cash equivalents was due in large part to the €340 million of equity raised in December 2017.

Dividends

In January and August 2018, the Company made interim dividend payments of 22 cents per share (c.€29.1 million) and 27 cents per share (c.€35.8 million) in respect of the six-month periods ended 31 December 2017 and 30 June 2018 respectively. A second interim dividend of 27 cents per share (c.€35.8 million) was paid in February 2019 in respect of the six-month period ended 31 December 2018, resulting in a full year dividend of 54 cents per share in respect to the 2018 financial year, an increase of 22.7% over 2017 (44 cents per share).

Financing Activity

In March 2018, the Group successfully issued a second €550 million unsecured seven-year Eurobond at a coupon of 3% to March 2025. This was part of a newly established €1.5 billion Euro Medium Term Notes programme, under which a further €950 million of bonds can still be issued. This bond issuance, despite being undertaken at a time of 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 more than two times. Part of the net proceeds (c.€214 million) were used in April 2018 to repay 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 and further simplifying the Group's financial structure by consolidating debt and reducing the number of financing banks.

Although primarily focused on unsecured debt, the Group selectively uses secured bank financing facilities in order to diversify sources of funding and build greater flexibility in its debt book. In 2018, the Group took advantage of favourable conditions in the bank financing market to secure various facilities. In June 2018, the Group signed a €100 million seven-year facility in Poland at a competitive interest rate with a consortium consisting of Landesbank Hessen-Thüringen and Deutsche Pfandbriefbank AG, following the above-mentioned repayment of all but one of the bank loan facilities secured on our properties in Poland. In August 2018, a new €46 million long-term facility was signed in Romania with Banca Comerciala Romana (BCR, part of Erste Bank Group) for the financing of the development costs of the Renault Bucharest Connected project, which was completed by the end of 2018 and delivered to the tenant in mid-February 2019. In December 2018, a subsidiary of the Group signed a €65 million 10-year secured financing agreement with Erste Bank AG (part of Erste Bank Group) for the refinancing of Globalworth Tower in Bucharest, Romania. It is anticipated that the facility will be drawn down during March 2019.

In June 2018, at the Globalworth Poland subsidiary level, the Group completed a €450 million equity capital raise. The transaction was fully subscribed by Globalworth (66.7%) 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.

Debt Summary

The total debt portfolio of the Group at 31 December 2018 of €1.26 billion comprises predominately medium to long-term debt, denominated mostly in EUR, with insignificant facilities denominated in Romanian Leu ('RON') and Polish Zloty ('PLN').

Loan to value at 31 December 2018 was 43.9%, increasing over the course of the year as a result of acquisitions (31 December 2018: 34.0%). The Group has a long-term LTV target of below 40%, but is comfortable with this level at this time, marking its intention to issue further equity as it seeks to sustain its dynamic growth profile while managing its leverage target.

The weighted average interest rate on debt financing as at 31 December 2018 amounted to 2.91% versus 2.62% at 31 December 2017. The small increase in the weighted average interest rate should be viewed in light of the seven-year €550 million unsecured Eurobond issued in March 2018 at a 3% coupon, which has helped to maintain the weighted average period to maturity of our debt at 31 December 2018 (5.1 years) at a similar level as at 31 December 2017 (5.4 years).

The Group has delivered on its strategy over the last few years of extending the weighted average period to maturity of its debt financing, while reducing the applicable weighted average interest rate. The current weighted average interest rate of 2.91% compares to 5.25% at 31 December 2016, while the average maturity has increased to 5.1 years at 31 December 2018.

Servicing of Debt During 2018

In 2018, we repaid in total c.€270.7 million of loan capital, the majority of which relates to the refinancing of existing facilities using the proceeds of the Eurobond issued in March 2018, and c.€21.2 million of accrued interest on the Group's drawn debt facilities.

Liquidity

The Group seeks to maintain at all times sufficient liquidity to enable it to finance its ongoing, planned property investments and the completion of properties under development, while maintaining the flexibility to react quickly to attractive new investment opportunities.

As at 31 December 2018, the Group had cash and cash equivalents of €229.5 million, while additional available liquidity from committed, undrawn loan facilities at 31 December 2018 amounted to €30.8 million.

Debt Structure as at 31 December 2018

Secured vs. Unsecured Debt

The majority of the Group's debt at 31 December 2018 (€1.1 billion of Eurobonds) is unsecured (87.3%; 31 December 2017: 63.2%), with the remainder secured with real estate mortgages, pledges on shares, receivables and loan subordination agreements in favour of the financing parties.

Maturity Profile

The Group has credit facilities and Eurobonds with different maturities, 99.9% of which are long-term (compared to 98.5 % at 31 December 2017).

Maturity by year of the principal balance outstanding at 31 December 2018 (€ million)

Debt Denomination Currency and Interest Rate Risk

Our long-term loan facilities are almost entirely Euro-denominated and bear interest based either at one-month or three-months Euribor plus a margin, or at a fixed interest rate. This ensures a natural hedging to the Euro, the currency in which the most significant part of our liquid assets (cash and cash equivalents and rental receivables) is originally denominated and the reporting currency for the fair market value of our investment property.

Debt Covenants and Securities

The Group's financial indebtedness is arranged with standard terms and financial covenants, the most notable as at 31 December 2018 being the following:

Unsecured Eurobonds

· the Consolidated Coverage Ratio, with minimum value of 200%;

· the Consolidated Leverage Ratio, with maximum value of 60%; and

· the Consolidated Secured Leverage Ratio with a maximum value of 30%.

Secured Bank Loans

· the debt service cover ratio ('DSCR') / interest cover ratio ('ICR'), with values ranging from 120% to 300% (be it either historic or projected);

· the LTV ratio, with contractual values ranging from 60% to 83% (versus the significantly lower overall LTV at 31 December 2018 of 43.9%); and

· the loan to cost ratio ('LTC') with a maximum value of 75%.

There were no breaches of the aforementioned covenants during the year ended 31 December 2018.

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.

Further details on the Group's debt financing facilities are provided in note 13 of the condensed consolidated financial statements.

GLOBALWORTH REAL ESTATE INVESTMENTS LIMITED

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

1Net of the €2.3 million (2017: €2.3 million) cash reserve, see note 16.

NOTES TO THE 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 at Ground Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 2HT. Globalworth, being a real estate Company, has had its ordinary shares admitted to trading on AIM (Alternative Investment Market of the London Stock Exchange) under the ticker "GWI" since 2013. The Company's Eurobonds were admitted to trading on the Official List of the Irish Stock Exchange and the Bucharest Stock Exchange since 2017. 

Basis of Preparation and Compliance

The financial information contained in this announcement has been based on the unaudited results for the year ended 31 December 2018 which have been prepared in conformity the International Financial Reporting Standards ('IFRS'), as adopted by the European Union ('EU') and in compliance with the Companies (Guernsey) Law 2008, as amended.

This financial information ('unaudited condensed consolidated financial statements' or 'financial statements') has been prepared on a historical cost basis, except for investment property, financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss which are measured at fair value.

Accounting policies

These unaudited 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 except for those new accounting policies where it is 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 (further analysis on adoption of IFRS 9, IFRS 15 and IFRS 16 are disclosed in note 27). The unaudited condensed consolidated financial statements included in this announcement should be read in conjunction with the consolidated financial statements for the year ended 31 December 2017.

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 IFRS, see note 27, which were adopted on 1 January 2018. These condensed consolidated financial statements are prepared in Euro ('EUR' or '€'), rounded to the nearest thousand unless otherwise indicated, being the functional currency and presentation currency of the Company.

These financial statements are prepared on a going concern basis. The Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements. The Directors based their assessment on the Group's detailed cash flow projections for the period up to 30 June 2020. These projections take into account the latest contracted rental income, anticipated additional rental income from new lease agreements to be concluded during the period covered by the projections, as well as contracted debt financing, CAPEX, and other commitments. The projections show that, in the period up to 30 June 2020, the Company has sufficient resources to continue to fund ongoing operations and asset development without the need to raise any additional debt or equity financing or the need to reschedule existing debt facilities or other commitments.

Basis of Consolidation

These unaudited condensed consolidated financial statements comprise the financial statements of the Company and its subsidiaries ('the Group') as of and for the year ended 31 December 2018. Subsidiaries are fully consolidated (refer to note 23) 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 31 December, 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 interest represents 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 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 judgement 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.

Further additional critical accounting judgements, estimates and assumptions are disclosed in the following notes to the condensed consolidated 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 6;

§ Taxation, see note 10;

§ Financial assets at fair value through profit or loss, see note 14;

§ Performance Incentive Scheme, see note 19.3;

§ Subsidiaries acquisitions, see note 21;

§ Investment in Joint venture, see note 22;

§ Investment in Subsidiaries, see note 23.

3. Investment Property

3.1 Other operating lease commitment

Other operating lease commitment of €1.9 million (2017: €2.3 million) as of 31 December 2018 (a similar corresponding amount was recorded as provisions for tenant lease incentives under current and non-current liabilities) 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 Colliers Valuation and Advisory SRL, CBAR Research & Valuation Advisors SRL, Cushman & Wakefield LLP and for Poland by Knight Frank Sp. z o.o. and CBRE Sp. z o.o., independent professionally qualified valuers who 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 twice in a financial year 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.

The fair value hierarchy levels are specified in accordance with IFRS 13 Fair Value Measurement. Some of the inputs to the valuations are defined as "unobservable" by IFRS 13 and these are analysed in the tables below. Any change in valuation technique or fair value hierarchy (between Level 1, Level 2 and Level 3) is analysed at each reporting date or as of the date of the event or variation in the circumstances that caused the change. As of 31 December 2018 (2017: same) the values of all investment properties were classified as Level 3 fair value hierarchy under IFRS 13 and there were no transfers from or to Level 3 from Level 1 and Level 2.

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

Property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer. Key information about fair value measurements, valuation technique and significant unobservable inputs (Level 3) used in arriving at the fair value under IFRS 13 are disclosed below:

All class 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 €34.1 million (2017: €6.7 million) for fair value measurements as of the statement of financial position date related to investment properties categorised within Level 3 of the fair value hierarchy. In arriving at estimates of market values as at 31 December 2018 and 2017, the independent valuation experts used their market knowledge and professional judgement and did not rely solely on comparable historical transactions. 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.

Other Disclosures Related to Investment Property

Interest-bearing loans and borrowings are secured on investment property, see note 13 for details.

5. Advances for Investment Property

6. Commitments

Commitments for Investment Property Under Construction

As at 31 December 2018 the Group had agreed construction contracts with third parties and is consequently committed to future capital expenditure in respect of completed investment property of €5.5 million (2017: €3.4 million), investment property under construction of €34.6 million (2017: €13.6 million) and had committed with tenants to incur fit-out works of €5.5 million (2017: €7.3 million).

The Group's joint venture was committed for the construction of investment property for the amount of €2.1 million (2017: €37.2 million) at 31 December 2018.

Operating Leases Commitments - Group as Lessor

Judgements Made for Properties Under Operating Leases

The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of the investment properties leased to third parties, therefore, accounts for these leases as operating leases.

The duration of these leases is one year or more (2017: one year or more) and rentals are subject to annual upward revisions based on the consumer price index.

The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:

7. Revenue

The total contingent rents and surrender premiums recognised as rental income during the year amounted to €0.6 million (2017€0.8 million) and €0.3 million (2017: €0.3 million), respectively.

8. Operating Expenses