Annual Report 2003/2004

Transcription

1 Annual Report 2003/2004

2 Corporate Profile The leading European property investor in Cental and Eastern Europe as well as Austria s Number 1 listed property company in this region. High yield on property investments through proactive portfolio management Local partners with broad-based experience Fair value of property portfolio: EUR million Diversification of risk over 1,762,098 sqm of usable space in 13 properties in two countries Annual valuation of properties by well-known valuation committee

3 H Budapest, Arpad Center

4 Key figures Key figures IMMOEAST 2003/ /03 Corporate Data Revenues in TEUR 9, ,037.9 Operating profit (EBIT) 1) in TEUR 7, ,135.6 Earnings before tax (EBT) 1) in TEUR 14, ,296.4 Gross cash-flow in TEUR 3, ,512.7 Return on equity (ROE) 1)2) in % Return on capital employed (ROCE) 1)3) in % Equity in TEUR 163, ,277.5 Equity ratio in % 5) Balance sheet total in TEUR 268, ,622.6 Property Data Number of properties Thereof investments in other companies 4) 41 6 Usable space in sqm 397, ,206 Thereof investments in other companies 4) 221, ,769 Occupancy in % 95,5 Fair value in TEUR 269, ,013.1 Thereof investments in other companies 4) 111, ,734.6 Investments in TEUR 49, ,883.3 Stock exchange data Earnings per share 1) in EUR P/E-ratio 1) 16.6 Share price at year-end 6.39 Number of shares 29,647, ,255 Market capitalisation at year-end in TEUR 189, ) This indicator is based on data calculated according to the fair value method( IAS 40). 2) Net profit for the Group divided per average equity 3) NOPAT (net operating profit after tax) in relation to the capital employed. 4) Investments in other companies include associates consolidated at equity and holdings recorded as financial instruments in accordance with IAS 39. 5) Equity in relation to property at fair value

5 Table of Contents Table of Contents Letter to the Shareholders 2 Boards/Valuation Committee 6 The Company IMMOEAST 8 Investment Strategy 15 Investments 16 Risk Management 18 The IMMOEAST Share 21 Management Report 24 The Development of Business 26 The Economic Environment 26 IAS 40 Cost Model und Fair Value Model 26 Revenues 28 Earnings 29 Assets and Financial Structure 30 Investments 31 Property Valuation 32 Overview of Properties 35 Segment Reporting 38 Current Market Situation 38 Czech Republic 41 Hungary 46 Poland 49 Romania 52 Serbia 53 Markets under Monitoring 54 Outlook 57 Subsequent Events 58 Consolidated Financial Statements 60 Auditor s Opinion 92 Report of the Supervisory Board 93 Glossary 94

6 Letter to the Shareholders Dear IMMOEAST Shareholders, It was a terrific year. The heart of Europe shifted towards the east with the accession of the first countries in this region to the EU. The core markets of IMMOEAST Poland, the Czech Republic and Hungary are now membersofthe European Union. And as shareholders of IMMOEAST, we give you an opportunity to participate in the success of this region. IPO in Vienna on Property portfolio with a fair value of EUR million Market entry in Poland, further expansion of the portfolio Apartment properties We opened our company to a broad-based investment public through an initial public offering (IPO) in December This transaction raised EUR 30.1 million, which will be used for further investments in Central Europe. The IMMOEAST share is now included in the WBI and IATX indexes. IMMOFINANZ Immobilien Anlagen AG remains the largest shareholder with a stake of 51%, and will continue to hold this investment over the long-term. IMMOFINANZ contributes the broad-based expertise developed during its many years of business activities in a wide variety of sectors and regions. The IMMOEAST portfolio totalled EUR million as of 30 April 2004, and covers 52 properties with total usable space of 1,799,598 sqm (proportional share owned: 397,172 sqm) in five countries. Usable space is allocated among the various countries as follows: 11.10% Poland, 45.48% Czech Republic, 42.68% Hungary, 0.27% Serbia and 0.47% Romania. The classification of usable space by sector shows: 45.57% offices, 14.64% logistics, 15.49% parking spaces, 13.99% retail/commercial, 2.92% recreation/hotel and 7.39% residential. The current level of debt financing is 11.6%, but plans call for an increase to 30% over the mid-term. Major acquisitions raised the total amount of usable space to 2,097,655 sqm as of 31 July 2004, and the share of space in Romania to 11.13%. IMMOEAST entered the Polish market one of the three most important core markets for investment activities during the reporting year after extensive preparatory work by acquiring a specialty shopping centre northwest of Warsaw. This 13,200 sqm property with 635 parking spaces is fully rented to a Metro subsidiary. IMMOEAST also purchased a 7.79% stake in GTC (Globe Trade Centre), the largest Polish property developer. This company has compiled an extensive portfolio in Poland, which has since been expanded to also include investments in Hungary, the Czech Republic and Serbia. The ideal timing of the GTC acquisition is underscored by a 25% increase in the value of this investment since the firm's initial public offering. IMMOEAST now holds a share in properties such as the Mokotow Business Park in Warsaw, Poland's largest office complex, and the Galeria Mokotow, the country's leading shopping and entertainment centre, through GTC. IMMOEAST also entered the market in Slovakia after the end of the reporting year through its 11.43% stake in Heitman Central Europe Property Partners, which acquired a large office complex. Heitman will soon start to develop six shopping centres in Poland with total letable space of 146,000 sqm together with a partner. Polonia Property Fund L.P., in which IMMOEAST holds a 20% share, is managed by Allied Irish Bank and will concentrate on projects in Poland. IMMOFINANZ also continued to strengthen its presence in the Czech Republic and Hungary by acquiring objects in the office, shopping and logistics sectors. The first 2 Annual Report 2003/2004

7 Letter to the Shareholders Karl Petrikovics CEO Norbert Gertner Member of the Board apartment properties in Central Europe were added to the portfolio through the investment in Heitman Central Europe Property Partners. Heitman works with the international developer Engel, and will construct and sell apartment complexes in Prague, Budapest, Györ and Warsaw together with this firm in the coming years. These projects are designed to target the developing middle class, which should profit from an improvement in purchasing power throughout the new EU accession countries over the coming years. Annual valuation of property The mission of IMMOEAST is to create a lasting increase in the value of the property portfolio through sound professional management. This continuous growth is reflected in the annual determination of fair value by local and international experts. IMMOEAST 3

8 Letter to the Shareholders Fair value method provides more accurate presentation IMMOEAST has prepared its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS, formerly IAS) since the 2001/02 Business Year. In keeping with standard practice in Austria, the company reports data calculated under the cost model with the deduction of accumulated depreciation. A second income statement also shows results under the fair value method, an alternative procedure allowed by IFRS. Particularly on the international market, the fair value model is becoming more and more popular. Annual depreciation produces a distorted picture of the actual development of a company because it does not reflect the increase in value of property that can be realised through expert management and the optimisation of rental space. The European Public Real Estate Association (EPRA), an organisation of listed property companies in Europe, recommends the use of the fair value model. Our decision to report also in accordance with this model reflects our goal to provide the greatest possible transparency, which is of special importance given the intercontinental scope of IMMOEAST activities and growing international interest in the company. The fair value method requires the recognition of all changes in the value of properties, and not just annual depreciation expense, to the income statement. These changes are based on the assessment of properties by the Valuation Committee as of the balance sheet date. Earnings per share reach EUR 0.39 significant increase over prior year Strong capital base for further investments IMMOEAST recorded operating profit (EBIT) of EUR 8.0 million for the 2003/04 Business Year under the fair value model and earnings per share of EUR 0.39 results that we are proud of. This represents an increase of 81.5% over the previous year. The initial public offering raised IMMOEAST equity to EUR million as of 30 April These funds will be used to continue investment activities in the core markets of Poland, the Czech Republic and Hungary, with additional projects in countries that will join the EU in the next round of accession. The purchase of the IRIDE Business Park in Bucharest represents not only the first step in this direction but also the largest individual investment ever concluded by an Austrian company in Romania. The sector focus of investments will remain on office and retail/commercial properties. Acquisitions will also include selected logistics facilities on major traffic routes as well as hotel and residential projects. An important criterion for these supplementary investments is to maintain a balance between rented objects that generate cash flow and high-return development projects. IMMOEAST will also continue to cooperate with experienced regional and international partners. Experienced management A management contract with Constantia Privatbank AG provides IMMOEAST with broad-based expertise in all areas. Asset management is the responsibility of three experienced specialists: Günther Bukor, previously active in Eastern Europe as the Managing Director of Raiffeisen Property Invest, Peter Österle, former Managing Director of Philip Holzmann for Eastern Europe and, since June 2004, Edgar Rosenmayr, former Managing Director of the European Bank for Reconstruction and Development in 4 Annual Report 2003/2004

9 Letter to the Shareholders charge of property investments in Central Europe. The members of this team not only have extensive knowledge of property markets in Central Europe and a widespread network of contacts, but also experience in working together with local and international partners and managing such ventures. Good outlook 3-year goal: portfolio with a fair value of EUR 770 million Together with this team, we plan to increase the IMMOEAST property portfolio by a further EUR 500 million to EUR 770 million over the next three years. Our forecast for the 2004/05 Business Year calls for a total property portfolio of EUR 440 million and revenues of EUR 25 million. Our efforts have been directed to investing the funds provided by our shareholders with the greatest possible diligence. The portfolio we have compiled to-date and the results recorded by the company confirm the success of this approach. We will continue to pursue this proven strategy, and also make IMMOEAST a profitable investment for all its shareholders in the future. Vienna, August 2004 Norbert Gertner Member of the Board Karl Petrikovics CEO IMMOEAST 5

10 Boards / Valuation Committee Executive Board and Supervisory Board Supervisory Board Helmut Schwager Chairman Wolfgang Reithofer Vice-Chairman Executive Board Karl Petrikovics CEO Norbert Gertner Christian Böhm since 9 October 2003 Herbert Kofler since 9 October 2003 Erhard Schaschl since 9 October 2003 Rudolf Fries up to 5 December 2003 Valuation Committee Wolfgang Foglar-Deinhardstein Court-certified expert for real estate valuation Dagobert Pantschier Court-certified expert for construction and real estate Peter Steppan Court-certified expert for construction and real estate 6 Annual Report 2003/2004

11 RO Bukarest, Iride Business Park

12 H Budapest, West Gate Business Park

13 The Company

14 The Company The Company The Development of Business IMMOEAST was founded in 1999 as a subsidiary of IMMOFINANZ Immobilien Anlagen AG to cover the activities of the parent company in Central Europe, and has since grown to become one of the most active players on the Central European property market. The development of the company's portfolio up to 30 April 2004 has been impressive: IMMOEAST holds stakes in 52 properties with total usable space of 1,799,598 sqm (proportional share owned: 397,172 sqm), and the fair value of the shares held by IMMOEAST in these objects totals EUR million. Development of IMMOEAST IMMOEAST Number of properties Total usable space (sqm) 341, ,484 1,799,598 Proportional share owned (sqm) 138, , ,172 Fair value (TEUR) 52, , ,883.1 As of Overview of Investments Investments Czech Republic Poland Hungary Romania Serbia IMMOEAST Total Number of properties Total usable space (sqm) 707, , ,591 24,000 13,500 1,799,598 Proportional share owned (sqm) 180,648 44, ,528 1,872 1, ,172 Share of usable space (%) Fair value (TEUR) 144, , , ,883.1 Share of fair value (%) As of Annual Report 2003/2004

15 The Company Usable Space by Region As of Hungary 40.23% Romania 11.13% Slovakia 1.71% Serbia 0.20% Usable Space by Sector As of Residential 5.69% Recreation/hotel 2.24% Retail/commercial 14.39% Car parks/ parking spaces 13.45% Logistics 11.27% Czech Republic 34.57% Poland 12.16% Offices 52.96% Regional and Sector Diversification IMMOEAST has concluded investments in the Czech Republic, Hungary, Poland, Romania and Serbia, and entered the market in Slovakia after balance sheet date. The regional distribution of usable space as of 30 April 2004 shows: 42.68% in Hungary, 45.48% in the Czech Republic, 11.10% in Poland, 0.27% in Serbia and 0.47% in Romania. A classification of the portfolio by fair value places 31.3% in Hungary, 53.5% in the Czech Republic, 14.8% in Poland, 0.2% in Serbia and 0.2% in Romania. IMMOEAST expanded the regional scope of its activities in Central Europe by acquiring a property in Slovakia during the reporting year. Acquisitions completed after the end of the reporting year raised the percentage of total space in Romania to 11.13% as of 31 July Other countries such as the Baltic States, Bulgaria, Croatia, Russia, Slovakia and Slovenia are currently under analysis. The sector distribution of usable space as of 30 July 2004 reflects the company's focus on office properties, which comprise 45.57%. Investments in other sectors include: 14.64% in logistics properties, 15.49% for parking spaces, 13.99% in the retail/commercial area, 2.92% recreation/hotel and 7.39% residential. Proactive Portfolio Management In order to protect and preserve the security, lasting earning power and long-term stability of the portfolio, IMMOEAST pursues a strategy of proactive portfolio management. The selection of properties is designed to establish an optimal balance according to geographic criteria, development status rented objects, projects under construction and realization as well as sector and age. The focus of activities is placed on safeguarding the long-term return of the IMMOEAST portfolio while, at the same time, minimising risk. The strict selection process for the acquisition of properties includes extensive market research by IMMOEAST or local partners as well as legal, technical and commercial due diligence audits. An important facet of business activities in core markets is not the creation of a presence through the purchase of a single object, but the establishment of wide-ranging access to the market usually together with partners who provide the basis for broadbased entry through existing portfolios and structures. It is, however, neither feasible nor cost-effective to develop always the extensive local structures required for profitable investments on foreign markets. IMMOEAST therefore cooperates with local and international partners who can demonstrate widespread experience and proven success in business development and, in some cases, also own an existing portfolio. A substantial part of the extensive experience, contacts and know-how that IMMOFINANZ has compiled in Austria since its founding in 1990 also serves the activities of IMMOEAST in Central Europe. IMMOEAST 11

16 The Company Geographical Focus of IMMOEAST ESTONIA LATVIA RUSSIA LITHUANIA BYELORUSSIA POLAND CZECH REPUBLIC SLOVAKIA UKRAINE AUSTRIA HUNGARY MOLDAVIA SLOVENIA CROATIA ROMANIA SERBIA BULGARIA IMMOEAST precence Acquisition after the reporting year Market under monitoring As of Annual Report 2003/2004

17 The Company Lean Organisation IMMOEAST has no employees. A management contract with Constantia Privatbank AG provides the company with access to the wide-ranging financial skills and extensive range of services offered by one of the leading private banks in Austria. Constantia Privatbank AG, a real estate specialist, provides the management, complete infrastructure and staff for IMMOEAST. All areas of business from asset management to research, investment management, controlling, administration and accounting to legal issues and marketing are covered by this expert institution. The asset managers of the Constantia Privatbank AG who are responsible for IMMOEAST investments include: Günther Bukor Asset Management Central Europe Responsible for Poland, Romania, Russia and Bulgaria Former Managing Director of Raiffeisen Property Invest Peter Österle Asset Management Central Europe Responsible for Hungary, Czech Republic, Slovakia and Slovenia Former Managing Director of Philip Holzmann for Central Europe Edgar Rosenmayr Asset Management Central Europe Since June 2004 responsible for Russia, the Baltic States and countries in the second round of EU accession Former Managing Director of the European Bank for Reconstruction and Development for property investments in Central Europe Edgar Rosenmayr Günther Bukor Peter Österle IMMOEAST 13

18 The Company Access to extensive local structures IMMOFINANZ can rely on the existing resources of its partners in the Czech Republic and Poland. The company's two partners in Prague have a combined team of roughly 70 local property management experts. Polonia Property Fund L.P. also has the necessary infrastructure on site together with BZ/WKB Bank, one of the five largest banks in Poland and a subsidiary of Allied Irish Bank. When analysing a market for entry opportunities, IMMOEAST secures access to local structures by selecting appropriate partners who usually have an established portfolio. In Hungary IMMOEAST is developing its own local structure. A specific asset manager is responsible for each property acquired directly or in partnership with local investors. This manager serves asthe contact for all project-related information, represents the interests of the owner, and makes decisions in coordination with the IMMOEAST Executive Board and any other partners. On joint ventures with investor groups, the Executive Board of IMMOFINANZ is represented on investment advisory boards that make decisions in keeping with contract guidelines. Proactive Financial Management Continuous optimisation of financing mix to reflect market conditions Continuous monitoring of financial and capital markets determine the best timing for financial transactions. This includes the optimal combination of terms, currencies, financial institutions and interest rates for each project and regular adjustment to meet current market conditions. Management by Constantia Privatbank AG allows IMMOEAST to benefit from the extensive know-how available from one of the leading asset management banks in Austria. For IMMOEAST, proactive financial management means continuous optimisation of the financing mix with regard to terms, currencies, conditions and lock-in periods. Proactive financial management also includes the adjustment of debt and equity to reflect the present business environment. As of 30 April 2004 IMMOEAST had an equity ratio of 88.4%, including cash and cash equivalents. 14 Annual Report 2003/2004

19 The Company Investment Strategy Core markets: Poland, the Czech Republic and Hungary Market research as the basis for investments Investments in developed portfolios Poland, the Czech Republic und Hungary represent the core markets for IMMOEAST. These countries now also members of the EU have formed the focal point of investment activities in recent years. This concentration will remain but will be rounded out by acquisitions in other Central European countries, some of which are scheduled to join the EU in a second round of accession. First investments in Serbia and Romania were completed through partners, and a business park in Romania was acquired after balance sheet date. IMMOEAST also acquired its first property in Slovakia through Heitman Central Europe Property Partners. Monitoring activities are currently underway in countries such as the Baltic States, Bulgaria, Croatia, Russia and Slovenia, and a number of interesting projects have already been evaluated or are under negotiation. Acquisitions will be realised together with suitable partners, depending on the markets and specific opportunities. The strategic goal of this approach is to minimise risk through regional diversification in the developed markets of Central Europe. In addition to applying strict economic and legal criteria, IMMOEAST places key value on the status of development in the real estate markets of target countries. The risk for investors declines after a certain level of development has been reached, as is shown by the free operation of mechanisms on tenant and investment markets. Credible signs of this proper functioning are inquiries or acquisitions by international investor groups or funds. For example, the interest of international investors in Poland, the Czech Republic and Hungary is so great that there are virtually no attractive rented properties on the market. IMMOEAST does not seek to play a pioneer role, but enters markets only after a certain stage of development has been reached and a higher degree of security is guaranteed but wherever possible before the majority of investors start to act. One example of this strategy is the acquisition of the IRIDE Business Park in Romania, which was completed after the end of the reporting year. IMMOEAST invests in the existing portfolios ofpartner companies in order to gain faster access to a larger number of developed projects and local structures in its respective target markets. This also provides IMMOEAST with local know-how and minimises risk through investment in a range of properties. In addition to these strategic investment partnerships, IMMOEAST invests directly in sub-markets with an existing infrastructure such as Budapest. Entry into new markets may also take the form of participation in joint ventures with international investor groups that acquire, develop, and manage extensive portfolios with skilled teams. IMMOEAST 15

20 The Company IMMOEAST targets investments in Central Europe to achieve the best possible balance between rented objects with optimal cash flow and development projects that promise a higher return. Construction on development projects is started only after a suitable level of pre-letting has been reached, based on an evaluation of the degree of completion and market situation together with local specialists. Important criteria for acquisition Sector focus remains on offices, retail and logistics space IMMOEAST Usable Space by Region in % Comparision of and Czech Republic Romania Hungary Slovakia Poland Serbia Investments in Hungary, the Czech Republic and Poland The acquisition of rented objects is dependent on factors such as location, lease terms and the credit standing of tenants, as well as the technical and architectural quality of the building. Vacancy rates are relatively high in buildings with sub-standard equipment and furnishings, and IMMOEAST therefore places special emphasis on differentiation in these areas. For development projects, the key criteria are location plus access to public and private transportation and the uniqueness of the project. The sector spread of the IMMOEAST portfolio shows a concentration on office buildings as well as retail/shopping, logistics and hotel space. These focal points will be maintained over the mid-term and will be complemented by investments in residential properties, with the exact weighting dependent on opportunities in these branches. IMMOEAST plans to increase its activities in the logistics sector over the coming months, and is currently working to select partners for these projects. Investments IMMOEAST also invests through stakes in local companies or international investor groups that have the necessary structures and market know-how. S+B CEE Beteiligungsverwaltungs GmbH IMMOEAST and the Austrian S+B Plan&Bau Group founded S+B CEE Beteiligungsverwaltungs GmbH at the end of IMMOEAST holds a 50% share in this company. The S+B Plan&Bau Group, which has compiled a successful record on property development in Prague over 15 years, transferred an attractive portfolio in the Czech capital to this subsidiary. As of the balance sheet date S+B CEE owned six properties in Prague, and further projects are currently under evaluation or negotiation. Heitman Central Europe Property Partners IMMOEAST invested EUR 20 million in Heitman Central Europe Property Partners at the end of 2002, and now holds 11.43% of capital stock totalling EUR 160 million. In addition to the well-known developer Heitman, the firm's partners include experienced property investors such as GE Capital, the European Bank for Reconstruction and Development and ABP, the largest Dutch pension fund. The firm is operated by Heitman, one of the top ten US real estate investment management companies with a managed portfolio of roughly US$ 12 billion. 16 Annual Report 2003/2004

21 The Company Heitman plans to invest more than EUR 500 million in target markets throughout Central Europe. Activities will focus on Poland, the Czech Republic and Hungary, with additional projects in Slovakia, Slovenia and the Baltic States. Acquisitions will concentrate on rented objects but also include selected development projects. In addition to four shopping centres in the Czech Republic, Heitman acquired one logistics park in Prague and another such facility in Warsaw during 2003/04. Plans also call for the construction and sale of apartment complexes in Poland, the Czech Republic and Hungary together with the international developer Engel. These projects will utilise opportunities provided by the growing purchasing power of the middle class in larger cities across Central Europe. Heitman also acquired a large office complex in Bratislava after the end of the reporting year, and will soon start to develop six shopping centres with total usable space of 146,000 sqm in Poland together with a partner. Local know-how and existing portfolio International investor group portfolio goal EUR 400 million European Property Group IMMOEAST holds a 25% stake in the European Property Group (EPG). The other EPG partners are the European Bank for Reconstruction and Development with 25%, the RFP investor foundation with 15% and EWAT, a management investment and one of the most successful property developers in Prague, with 35%. As of the balance sheet date EPG owned four properties in Prague, and further projects are currently under evaluation. Polonia Property Fund L.P. Polonia Property Fund L.P. was founded under the direction of Allied Irish Bank, the leading banking and financial group in Ireland and one of the five largest banks in Poland together with BZ/WKB Bank. Polonia's shareholders include well-known institutions such as the European Bank for Reconstruction and Development; IMMOEAST holds a 20% stake in the company. Investment activities are concentrated in Warsaw, with additional projects in other major Polish cities as well as Prague and Budapest. Acquisitions generally involve properties that are rented or pre-let, with an underweighting of development projects to reflect market opportunities. The sector focal point is placed on office properties, retail/commercial and logistics. Polonia plans to leverage its EUR 100 million equity base into investments of roughly EUR 400 million. The company has already acquired two office complexes in Budapest and further investments, above all in Poland, will soon follow. IMMOEAST 17

22 The Company Access to excellent Polish portfolio Globe Trade Centre S.A. (GTC) IMMOEAST acquired a 7.79% stake in Globe Trade Centre S.A. (GTC), the leading property developer in Poland, from the Citibank subsidiary Bank Handlowy during the reporting year. Co-investors at that time were a Deutsche Bank subsidiary and the European Bank for Reconstruction and Development. GTC has since completed an initial public offering and now trades on the Warsaw Stock Exchange. The optimal timing of this acquisition has allowed IMMOEAST to realise a 25% increase in the value of its investment since the IPO. GTChas a first rate portfolio with 659,400 sqm of usable space. Of this total 258,700 sqm are completed and 400,700 sqm are under construction. The company's properties include the Mokotow Business Park in Warsaw, the largest office complex in Poland, as well as the Galeria Mokotow, the country's leading shopping and entertainment centre. The GTC portfolio was expanded through a contribution by the majority shareholder prior to the IPO, and now also includes stakes in an international portfolio of projects in Romania, Serbia, the Czech Republic and Hungary. New investments under evaluation New Investments IMMOEAST is currently evaluating the acquisition of holdings in other companies that focus on investments in Central Europe. Risk Management Entrepreneurial activity is, by nature, associated with risk. To recognise risks at an early stage and eliminate them to the greatest extent possible through effective management and control systems is a key objective of IMMOEAST operations. Further diversification after market analysis Strategic risks IMMOEAST works to continually expand the geographic scope of its activities in order to achieve the widest possible regional diversification. Before a project is started in a new IMMOEAST market, the local business environment is analysed in detail by the company or a qualified partner. A market study is prepared to evaluate the country's general economic position and identify relevant legal regulations in the areas of zoning, construction, taxes and company law as well as the jurisdiction of municipal authorities. IMMOEAST generally has direct access to such information through its partners, but can also draw on international or local consultants for assistance on specific issues. Regional and sector diversification reduce investment risk In order to create a solid base for steady earnings over the long-term and also safeguard investments, IMMOEAST concentrates on the generally stable markets of the new EU member states in Central Europe, with additional projects in countries that may join the EU in a second round of accession. The company held investments in Poland, Romania, Serbia, the Czech Republic and Hungary as of 30 April After 18 Annual Report 2003/2004

23 The Company the close of the reporting year direct investments were acquired in Hungary and Romania, and a property in Slovakia was purchased through a partner company. Target countries for possible investments also include the Baltic States, Bulgaria, Croatia, Russia and Slovenia. Any activity by IMMOEAST in these countries will be weighted in accordance with the level of risk. The sector diversification of the portfolio is weighted in accordance with forecasts for long-term performance. The basis is formed by offices, retail/commercial space and logistics facilities and, for the first time, also residential properties. This well-planned regional and sector distribution allows IMMOEAST to reduce the level of risk across the entire portfolio. Strict analysis of all new projects Both local and international factors are decisive Identify risks and act appropriately Before a decision is made on any new investment, the physical condition and legal structure of the target property are examined systematically. If the detailed selection process leads to a positive decision by the Executive Board, the investment must then be approved by the IMMOEAST Supervisory Board. For investments in international projects, IMMOEAST exercises its right of approval as a member of the relevant investment committee. Sector and economic risks Real estate markets are not completely removed from global economic trends, but the degree of influence does vary significantly by region depending on local market prices, the development of supply and demand, and vacancy rates. "The real estate business is a local business" and the successful development of a property company is dependent on regional conditions and factors. The target markets of Central Europe are now characterised by relatively high vacancy rates, which are concentrated in sub-standard buildings. Objects that meet international standards for quality and furnishings, like those in the IMMOEAST portfolio, are usually in great demand. Operational risk The credit standing of tenants is evaluated before the conclusion of every property acquisition or rental contract. In order to ensure the fulfilment of contractual obligations, new rental contracts call for a deposit that is based on the tenant's credit rating. The credit standing of tenants is also a factor in determining the purchase price for acquisitions. Standard leases for each sector are designed to meet the specific interests of property-owners. Extensive negotiations are also conducted with potential tenants to determine the optimal term and lock-in period for contracts. In new leases, IMMOEAST counteracts the risk of inflation through an annual index adjustment. Depending on the given market situation, an optimal tenant structure is determined for each property based on lease terms and cancellation rights. A comprehensive reporting system provides the Executive Board and Supervisory Board with key information for decision-making. The facility management department provides regular status reports and forecasts to ensure the optimal maintenance of IMMOEAST 19

24 The Company properties. IMMOEAST incorporates the demands ofpotential local and international tenants into its strict decision-making process, and only acquires properties that meet high standards of quality for construction, facilities and architecture. Leading partners report regularly on the return and condition of properties, and the IMMOEAST team verifies this information on site. Proactive financial management Financing and foreign exchange risk The financing currency is selected for each project in a function of the respective market situation. Foreign investments are financed in Austria or through local banks, but only in major international currencies. In the area of financial management, IMMOEAST is supported by the specialists of Constantia Privatbank AG. The scope of outside financing is adjusted over the medium to long-term as required by the market environment. IMMOEAST currently has an equity ratio of 88.4%, including cash and cash equivalents, which allows the company to counteract the present economic turbulence from a strong foundation. H Budapest, Obuda Gate Office Center

25 The Company The Share The IMMOEAST Share The Stock Exchange Successful IPO IMMOEAST has traded in the Standard Market Segment of the Vienna Stock Exchange since 12 December The initial public offering was not only placed in full, but substantially oversubscribed. IMMOFINANZ Immobilien Anlagen AG remains the largest shareholder with a stake of 51%, and the remaining shares are held by institutional investors, foundations and private persons. The IPO raised EUR million, which will allow IMMOEAST to increase its investment activity in Central Europe. IMMOEAST has been a part of the Vienna Stock Exchange WBI Index since 22 December 2003 and was added to the IATX, Vienna's property share index, as of 16 July IMMOEAST IPO Number of shares 29,647,078 Business year low* EUR 6.10 Business year high* EUR 6.39 Price on EUR 6.39 Market capitalisation as of EUR mill. * Since the start of trading Development of Share Price Investors were able to profit from an increase of 4.75% in the price of the IMMOEAST share from the IPO on 12 December 2003 to the end of the business year on 30 April Shareholders also receive annual dividends, and the recommendation of the Executive Board calls for a distribution of EUR 0.23 per share for This distribution must be approved by the Annual General Meeting. Development of the IMMOEAST Share: to IMMOEAST 21

26 The Company The Share Shareholder Structure Opening of IMMOEAST IMMOFINANZ remains major shareholder IMMOFINANZ Immobilien Anlagen AG is the major shareholder of IMMOEAST with a stake of 51%. The remaining shares are held in free float. Corporate Governance Guidelines for corporate management and control The Austrian Corporate Governance Code marks the first step toward the implementation of new guidelines for the management and control of corporations. Equal treatment for all shareholders, greater transparency, open communications between the managing board and supervisory board, the avoidance of conflicts of interest, and improved control of business transactions by the supervisory board and auditor form the general principles of the code. The regulations set forth in the code exceed current legal requirements, and differentiate between three categories of rules: L-Rules ("LEGAL") are binding and compliance is mandatory, C-Rules ("COMPLY-OR-EXPLAIN") must be observed and non-compliance must be explained publicly, and R-Rules ("RECOMMENDATION") are optional and noncompliance must neither be explained nor announced. IMMOFINANZ Newsletter for shareholders Voluntary compliance by IMMOEAST A wide range of up-to-date information for all shareholders as well as a clear and transparent corporate and investment strategy form the cornerstones of the IMMOEAST philosophy and the success of its share. The information policies of IMMOFINANZ Immobilien Anlagen AG, the company's majority shareholder, and IMMOEAST extend well beyond legal requirements for example, shareholders are provided with regular reports on the development of business at IMMOEAST through the IMMOFINANZ Newsletter, which was introduced during the reporting year. This publication can be ordered over the IMMOFINANZ homepage under and is also available for download. Compliance with the majority of rules set forth in Austrian Corporate Governance Code is a matter of course for IMMOEAST as a listed property company. These principles have been an integral part of the company's reliable and responsible management for years. IMMOEAST has declared its general intention to voluntarily comply with the Austrian Corporate Governance Code beginning in the 2005/06 Business Year. In cases where there is a need for action, the Executive Board will introduce the necessary measures in coordination with the Supervisory Board and provide relevant information on the company's website. In the future IMMOEAST will publish annual statements on the subject of corporate governance, as required by the code. The Corporate Governance Code also calls for regular external evaluations of compliance by companies. This requirement will be met for the first time through an evaluation by certified public accountants during the audit of the consolidated financial statements for the 2005/06 Business Year. 22 Annual Report 2003/2004

27 The Company The Share Investor Relations Open and transparent communications policy IMMOEAST is committed to an open and transparent communication policy that serves the information needs of shareholders as well as the general public. The IMMOEAST website provides a wide range of information on the property portfolio plus detailed reports on the development of business. In addition, the newsletter published by IMMOFINANZ Immobilien Anlagen AG also provides the latest facts and figures on IMMOEAST. This bulletin not only supplies up-to-date information on the portfolio but also provides commentaries by management and press reports. It can be ordered on the IMMOFINANZ homepage under and will be sent automatically by . Information on the IMMOEAST share: Investor relations contact Karl Petrikovics Shareholders' telephone 01 / investor@immoeast.at Internet Traded on Vienna Stock Exchange Trading segment Standard Market Market segment Standard Market Auction Vienna Stock Exchange abbreviation IEA ISIN AT Reuters IMEA.VI Bloomberg IEA AV Equity Included in the following indexes WBI, IATX IPO IMMOEAST 23

28 Management Report

29 Management Report The Development of Business The Development of Business The Economic Environment Central Europe with higher growth rates than the EU-25 average The global economy as measured by average growth in the OECD countries rose from 1.4% in the prior year to 2.1% for Central and Eastern Europe was unable to completely avoid this subdued trend, but a number of countries clearly outpaced the 0.8% average growth recorded by the EU-25. Examples are the Czech Republic and Russia, which reported GDP increases of 2.9% and 7.3% respectively for The expansion of the EU is expected to generate added momentum in the property branch, but the extent of this development is not yet certain. Developments in the euro region were influenced by budget austerity measures and efforts to stabilise prices, and GDP growth fell from 0.9% in 2002 to 0.4% for In contrast, average growth recorded by the ten new EU member states rose from 2.4% in the previous year to 3.5% for Although the global economy has an important influence on the property branch, success is determined primarily by local factors in the individual markets and sectors. Global Economic Development: GDP growth (real)* e 2005e 4 3,5 3 2,5 2 1,5 1 0,5 0 OECD total USA Euro region EU new EU countries Source: WIFO *Changes vs. prior year in % IAS 40 Cost Model and Fair Value Model Consolidated financial statements in accordance with IFRS The creation of a lasting increase in the value of the property portfolio through professional management forms the cornerstone of IMMOEAST activities. Since the 2001/02 Business Year, IMMOEAST has prepared consolidated financial statements in accordance with International Financial Reporting Standards (IFRS, formerly IAS). IAS 40 provides enterprises with an option for recording real estate held as investment property. Companies may use a cost model, which requires property to be reported at 26 Annual Report 2003/2004

30 Management Report The Development of Business acquisition or production cost less ordinary and extraordinary depreciation. This method corresponds to the accounting rules set forth in the Austrian Commercial Code and reflects general practice in Austria. IFRS also permit the recording of property in keeping with a fair value model, which requires the recognition of any changes in market value to the income statement. Voluntary increase in scope of information and transparency through fair value model IMMOEAST utilises the cost model in keeping with common practice in Austria, and deducts accumulated depreciation from the acquisition or production price of property. In order to ensure the transparent and complete presentation of information on the development of business, IMMOEAST also presents a transition from the cost model to a fair value model. This data reflects the growing popularity of the fair value model on the international market as well as greater interest by international investors in IMMOEAST. The fair value model is also recommended by the European Public Real Estate Association (EPRA), an organisation of listed property companies in Europe. Fair value model recognises actual changes in value to income statement Under the cost model, only annual depreciation is charged to the income statement. The recognition of actual increases or decreases in value, which are determined through expert opinions prepared by a valuation committee, are only guaranteed by the use of a fair value model. Changes in value can be based on an expected future return adjusted for risk, as well as maintenance and other management costs incurred IAS 40 Fair Value Model in TEUR Cost Fair Value Model Model 2003/04 Expenses Revenues 2003/04 Revenues 9, ,944.0 Revaluation of property (IAS 40) 4, ,252.8 Other operating income 1, ,258.8 Depreciation -2, , ,132.2 Expenses related to properties -1, ,636.7 Other operating expenses -4, ,699.6 Personnel expenses Operating profit (EBIT) 2, , ,987.1 Net financing costs -1, ,826.6 Income/(loss) on financial assets 8, ,259.3 Share of profit/(loss) from associated companies Financial results 6, ,296.3 Earnings before tax (EBT) 8, , ,283.3 Income taxes -2, ,485.2 Deferred taxes on revaluation (IAS 40) -1, ,509.2 Net profit for the period 5, , , ,288.9 Earnings per share in EUR IMMOEAST 27

31 Management Report The Development of Business over the useful life of a property. The technical or real worth of a property, including its age and use, also has an influence on value. IMMOEAST supplies this information to provide the greatest possible transparency for shareholders. EBIT under fair value model EUR 8.0 million, under cost model EUR 2.1 million The application of the fair value model and inclusion of actual changes in the value of property increased EBIT from EUR 2.1 million to EUR 8.0 million and raised EBT to EUR 14.3 million. IFRS regulations also call for the creation of a tax provision on all temporary differences between the value of an asset for tax purposes and the IFRS value. Measures designed to optimise taxes, such as the use of investment allowances, are also available to companies to distribute and minimise this tax liability to a substantial degree when a property is sold. After the inclusion of all provisions for taxes, profit after tax totalled EUR 10.3 million for the 2003/04 Business Year under the fair value model. Revenues Revenues doubled to EUR 9.9 million IMMOEAST was able to record excellent results for the 2003/2004 Business Year in spite of stagnation in the global economy. Revenues nearly doubled from EUR 5.0 million for 2002/2003 to EUR 9.9 million for 2003/2004. This positive development was supported by both a high overall occupancy rate and acquisitions. Total revenues of EUR 9.9 million include EUR 8.2 million of rental income and EUR 1.7 million of operating expenses charged to tenants. Income Statement Summary according to the fair value model in EUR mill. 2002/ /2004 Revenues EBIT Financial results EBT Net profit Earnings per share in EUR Selective investments in Central Europe as well as the proactive management of properties and resulting increase in value as determined by the Valuation Committee raised fair value earnings per share to EUR Annual Report 2003/2004

32 Management Report The Development of Business Revenues by Sector As of Recreation/hotel 6.5% Logistics/ commercial 21.5% Residential 0.4% Car parks/parking spaces 3.1% Offices 68.5% Revenues for the 2003/04 Business Year are classified by sector as follows: 68.5% offices, 3.1% car parks/parking spaces, 21.5% logistics/commercial, 6.5% recreation/hotel, and 0.4% residential. Revenues by Country in EUR million 2002/ /2004 Czech Republic Hungary Poland Other income Total revenues A number of acquisitions made by IMMOEAST have taken the form of investments in other companies, and the results generated by these holdings are not reported under revenues but financial results. Investments in Polonia Property Fund L.P. and Heitman Central Europe Property Partners were acquired during the reporting year. IMMOEAST also purchased shares in Globe Trade Centre S.A., which are recorded under availablefor-sale securities. Projects under construction only generate revenues after completion and rental. Earnings Earnings before tax total EUR 14.3 million EBIT reported by the IMMOEAST Group totalled EUR 8.0 million for the 2003/04 Business Year. After the inclusion of EUR 6.3 million in financial results, earnings before tax reached an impressive EUR 14.3 million. Revenues by Country in EUR mill Poland 0.1 Hungary 4.8 Czech Rep. 4.7 Total Revenues 9.9 * Consolidated Statement of Cash Flows Summary in EUR million 2002/ /2004 Gross cash flow Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Gross cash flow nearly increased threefold over the prior year level. This upward trend is expected to continue during the present business year. * Including other and Group eliminations IMMOEAST 29

33 Management Report The Development of Business Asset and Financial Structure Balance Sheet Structure Assets in EUR mill. Non-current assets Thereof property Current assets Thereof cash and cash equivalents 03/04 02/03 Balance Sheet Structure Equity and Liabilities in EUR mill. Consolidated Balance Sheet Summary 2002/ /2004 in EUR mill. in EUR mill. in %* Property Intangible assets and goodwill Financial assets and other non-current assets Non-current assets Receivables and available-for-sale securities Cash and cash equivalents Current assets Deferred tax assets Total Assets Equity Non-current liabilities Current liabilities Deferred tax liabilities Total Equity and Liabilities * As a % of the balance sheet total Balance Sheet Data 2002/ /2004 Equity ratio in % Equity ratio to fair value in % Investments in EUR mill Balance sheet total in EUR mill Equity The structure of the balance sheet is largely determined by property, cash and cash equivalents, and liabilities. Equity as shown on the balance sheet rose from EUR million to EUR million, and non-current assets at book value increased from EUR million to EUR million. Non-current liabilities Current liabilities 03/04 02/03 30 Annual Report 2003/2004

34 Management Report The Development of Business Investments As of 30 April 2004 IMMOEAST had invested available funds in Poland, the Czech Republic und Hungary as follows: Property in EUR mill. 2002/ /2004 Czech Republic Hungary Poland Total IMMOEAST* Gross cash flow * Including Group eliminations Investments made after the reporting year in EUR mill Investments made during the 2003/04 Business Year in EUR mill Total H Budapest, Globe 13

35 Management Report Property Valuation Property Valuation Annual valuation of properties IMMOEAST provides the highest possible transparency to its owners and meets stateof-the art appraisal standards with the annual valuation of its properties. Each year since the founding of the company, IMMOEAST has obtained an external appraisal of the fair value of all acquired objects as well as properties owned through its holdings in S+B CEE Beteiligungsverwaltungs GmbH and the European Property Group. A committee of well-known and certified specialists was formed several years ago to conduct this annual valuation. The procedures they use by far exceed the provisions of the Austrian Property Fund Act that took effect in September They are based on a combination of earnings and tangible value, whereby each property is valued separately. Properties owned through investments in other companies are valued in accordance with the stake held. Properties owned through IMMOEAST investments in Heitman Central Europe Property Partners, Polonia Property Fund and Globe Trade Centre S. A. are valued each year by well-known international experts such as CB Richard Ellis. The value of properties acquired near the balance sheet date generally reflects the purchase price, until an external valuation can be prepared. Valuation Committee Wolfgang Foglar-Deinhardstein Court-certified expert for real estate valuation Dagobert Pantschier Court-certified expert for construction and real estate Peter Steppan Court-certified expert for construction and real estate 32 Annual Report 2003/2004

36 Management Report Property Valuation IMMOEAST Properties* As of CZ Brünn Futurum Centrum CZ Hradec Kralove Futurum Centrum CZ Olomouc Hana Centrum CZ Ostrau Futurum Centrum CZ Prague Arbes CZ Prague European Business Center CZ Prague Italská CZ Prague Lighthouse Offices CZ Prague Novy Eden CZ Prague Opletalova CZ Prague Palladium CZ Prague Pankrác Business Corner CZ Prague Pankrác House CZ Prague Park Hostivar CZ Prague Praha City Center CZ Prague Rudna Logistics Park CZ Prague Stodulky CZ Prague Valdek CZ Prague Vinice CZ Prague Vitek CZ Prague Vokovice H Budapest Arpad Center H Budapest Center Point Office H Budapest East-West Business Centre H Budapest Engel Park H Budapest Globe 13 H Budapest Mester Business Park H Budapest Obuda Gate Office Center H Budapest Skala H Budapest Xenter 13 Office Building H Györ Györ PL Krakow Galeria Kazimierz PL Krakow Galileo Office Building PL Poznan Globis Office Building PL Warsaw Aero Park Office Building PL Warsaw Galeria Mokotow PL Warsaw Mokotow Business Park 1 9 PL Warsaw Topaz Office PL Warsaw Vega Office PL Warsaw Zabki PL Warsaw Zeran Park PL Wloclawek Real RO Bucharest America House SER Belgrade GTC House 2004 Total IMMOEAST EUR 269,883,094 * Valuation proportional to share owned INGENIEUR DIPLOMKAUFMANN PETER STEPPAN DIPL. ING. WOLFGANG FOGLAR-DEINHARDSTEIN DIREKTOR DAGOBERT PANTSCHIER ALLGEMEIN BEEIDETE UND GERICHTLICH ZERTIFIZIERTE SACHVERSTÄNDIGE Immobilienbewertung IMMOEAST per IMMOEAST 33

37 Management Report Geographical Presence Geographical Presence of IMMOEAST BYELORUSSIA POLAND 582,053 m 2 CZECH REPUBLIC 707,518 m 2 SLOVAKIA 55,000 m 2 UKRAINE AUSTRIA HUNGARY 659,998 m 2 MOLDAVIA SLOVENIA CROATIA ROMANIA 79,586 m 2 SERBIA 13,500 m 2 BULGARIA Usable space per country Investment after the reporting year As of Annual Report 2003/2004

38 Management Report Properties Overview of Properties* Usable Space Country City Property Acquired in in sqm** 1) Offices CZ Prague Lighthouse Offices ,000 CZ Prague Praha City Center ,396 CZ Prague European Business Center ,830 CZ Prague Italská ,060 CZ Prague Palladium ,510 CZ Prague Pankrác House ,528 CZ Prague Arbes ,449 CZ Prague Pankrác Business Corner ,215 CZ Prague Valdek ,866 CZ Prague Vitek ,277 CZ Prague Vinice ,840 H Budapest Mester Business Park ,000 H Budapest Arpad Center ,933 H Budapest Globe ,934 H Budapest Obuda Gate Office Center ,191 H Budapest Xenter 13 Office Building ,482 H Budapest East-West Business Centre ,032 H Budapest Center Point Office ,600 PL Warsaw Mokotow Business Park ,200 PL Krakow Galileo Office Building ,300 PL Poznan Globis Office Building ,000 PL Warsaw Vega Office ,000 PL Warsaw Topaz Office ,000 PL Warsaw Aero Park Office Building ,000 RO Bucharest America House ,000 SCG Belgrade GTC House ,500 Retail/Commercial CZ Brünn Futurum Centrum ,557 CZ Ostrau Futurum Centrum ,051 CZ Hradec Kralove Futurum Centrum ,568 CZ Olomouc Hana Centrum ,000 CZ Prague Park Hostivar ,882 PL Warsaw Galeria Mokotow ,600 PL Krakow Galeria Kazimierz ,000 PL Wloclawek Real ,200 Logistics CZ Prague Rudna Logistics Park ,917 PL Warsaw Zeran Park ,411 Residential CZ Prague Novy Eden ,468 CZ Prague Vokovice ,319 CZ Prague Stodulky ,500 H Budapest Skala ,759 H Budapest Engel Park ,660 H Györ Györ ,000 PL Warsaw Zabki ,278 Recreation/Hotel CZ Prague Opletalova ,284 Total usable space as of ,799,598 *Properties are grouped by their primary use ** Usable space incl. parking spaces 1) Total usable space is shown for reasons of transparency. The proportional share of usable space owned by IMMOEAST as of was sqm. Acquired after the reporting year H Budapest Globe ,900 H Budapest Szepvölgyi Business Park ,399 H Budapest West Gate Business Park ,108 PL 6 Shopping centres ,064 RO Bucharest Iride Business Park ,586 SK Bratislava Bratislava Business Center ,000 Total usable space as of ,097,655 IMMOEAST 35

39 UNDER CONSTRUCTION UNDER CONSTRUCTION CZ Prague Arbes CZ Prague, European Business Center CZ Prague Italská CZ Prague Lighthouse Offices CZ Prague Novy Eden UNDER CONSTRUCTION UNDER CONSTRUCTION UNDER CONSTRUCTION CZ Prague Opletalova CZ Prague Palladium CZ Prague Pankrác Business Corner CZ Prague Pankrác House CZ Prague Park Hostivar UNDER CONSTRUCTION CZ Prague Praha City Center CZ Prague Rudna Logistics Park CZ Prague Stodulky CZ Prague Valdek CZ Prague Vinice UNDER CONSTRUCTION UNDER CONSTRUCTION CZ Prague Vitek CZ Prague Vokovice CZ Brünn Futurum Centrum CZ Hradec Kralove Futurum Centrum CZ Olomouc Hana Centrum UNDER CONSTRUCTION UNDER CONSTRUCTION CZ Ostrau Futurum Centrum H Budapest Arpad Center H Budapest Center Point Office H Budapest, East-West Business Centre H Budapest Engel Park 36 Annual Report 2003/2004

40 Management Report Properties UNDER CONSTRUCTION UNDER CONSTRUCTION UNDER CONSTRUCTION H Budapest Globe 13 H Budapest Xenter 13 Office Building H Budapest Mester Business Park H Budapest Obuda Gate Office Center H Budapest Skala UNDER CONSTRUCTION UNDER CONSTRUCTION UNDER CONSTRUCTION UNDER CONSTRUCTION H Györ Györ PL Krakow Galeria Kazimierz PL Krakow Galileo Office Building PL Poznan Globis Office Building PL Warsaw, Aero Park Office Building UNDER CONSTRUCTION UNDER CONSTRUCTION UNDER CONSTRUCTION PL Warsaw Galeria Mokotow PL Warsaw, Mokotow Business Park 1 9 PL Warsaw Topaz Office PL Warsaw Vega Office PL Warsaw Zabki UNDER CONSTRUCTION ACQUIRED AFTER THE REPORTING YEAR PL Warsaw Zeran Park PL Wloclawek Real H Budapest Globe 3 H Budapest Szepvölgyi Business Park H Budapest West Gate Business Park UNDER CONSTRUCTION UNDER CONSTRUCTION UNDER CONSTRUCTION ACQUIRED AFTER THE REPORTING YEAR UNDER CONSTRUCTION RO Bucharest America House SCG Belgrade GTC House PL Poland 6 Shopping centres RO Bucharest Iride Business Park SLO Bratislava Bratislava Business Center IMMOEAST 37

41 Management Report Segments Segment Reporting In accordance with International Financial Reporting Standards (IFRS), the primary segments of business reflect the countries in which investment properties are located. Secondary segmentation is based on the sector of business. Current Market Situation Central Europe Real GDP Growth, Change in % e 2005e Czech Republic Poland Hungary Russia Slovakia Slovenia Bulgaria Romania Estonia Latvia Lithuania Source: National statistics, BA-CA Central Europe Foreign Direct Investment in EUR bill e 2005e Czech Republic Poland Hungary Russia Slovakia Slovenia Bulgaria Romania Estonia Latvia Lithuania Source: National statistics, BA-CA 38 Annual Report 2003/2004

42 Management Report Segments Growth in the new EU countries is forecasted to outpace the EU-15 average, and this development should also provide added impulses for property markets in major cities throughout Central Europe. Foreign direct investment, a measure of confidence in national economies, is highest in the Czech Republic followed by Poland, Hungary and Russia. Investment in these countries should create further impulses for the entire region. Office markets at West European levels Top Office Rents in EUR/sqm/Month London West End 87.2 London City 58.3 Paris 54.9 Milan 42.1 Zurich 41.8 Moscow 41.4 Frankfurt 37.7 Rome 33.9 Munich 32.3 Brussels 30.3 Amsterdam 28.3 Madrid 28.3 Barcelona 25.8 Berlin 23.7 Warsaw 22.3 Hamburg 21.5 Vienna 21.1 Prague 21.1 Bratislava 20.0 Munich 18.3 Budapest 18.3 Interest for countries in the second round of EU accession A ranking of rental prices places Moscow near the top position in Europe, and rents in Warsaw and Prague have also reached continental levels. The supply of new space in Central European capitals has risen significantly during recent years, and the market standard is now set by these facilities. Older space if not fully renovated is difficult to let. These markets are still relatively small in comparison to Western Europe, which means that larger projects often have an immediate impact on prices and vacancy rates. For example, the Prague office market has roughly 1.5 million sqm of space compared to nearly 10 million sqm in Vienna. The extreme shortage of modern space and exorbitantly high rents in the new EU member states are a phenomenon of the past. Not only rental prices but also yields have reached European levels. Strong demand by international investors, which is assumed to be a reliable indicator for the attractiveness and security of investments, have pushed initial yields towards the averages reported by West European capitals. The best opportunities in these countries are now found in development projects, and IMMOEAST has adjusted its acquisition strategy to reflect this situation. Superior yields and generally higher rental prices can be realised in the countries targeted for the second round of EU accession. IMMOEAST will enter these markets together with experienced partners after thorough analysis, as an addition to activities in its core markets. A first step was the company's entry into Romania, where returns for rented objects are also higher than in the new EU countries. IMMOEAST 39

43 Management Report Segments The European Rental Price Cycle (status: 1st Quarter 2004) Antwerpen, Kopenhagen Moscow Brussels Slower growth in rental prices Faster growth in rental prices Prague, Budapest Faster decline in rental prices Slower decline in rental prices Lissabon Frankfurt, Munich Amsterdam, Düsseldorf Dublin, Milan, Rome Barcelona, Madrid Paris, Berlin, Hamburg Edinburgh, Lyon, Helsinki Athen Oslo, London, Luxemburg, Warsaw Stockholm Notes: The cycle provides a method to compare various positions on the rental price market. The cycle shows the status of various office markets in Europe at the end of March 2004, as estimated by Jones Lang Lasalle. A local market can move in either direction, and at different speeds. These positions do not necessarily represent the state of the investment market. The positions reflect top rental prices. Source: Jones Lang Lasalle European Consumer Checkout Retail Sales Growth (y-o-y) Weak Neutral Strong Belgium Germany Netherlands Hungary, Czech Rep. Italy EUROPE Ireland Portugal Poland UK Spain France Sweden Strong Neutral Weak Consumer Confidence Benchmark Note: Consumer Confidence Benchmark is based on the Jones Lang LaSalle Consumer Confidence Index, which is derived from long-term average Eurostat series. Countries can move in either direction along Consumer Confidence Benchmark axis. Quaterly changes of Consumer Confidence Benchmark are based on the threemonth rolling average for each quarter. Retail Sales Growth is based on quaterly data from Eurostat expressed in real terms. Source: Jones Lang LaSalle European Research, Eurostat, OECD, January Annual Report 2003/2004

44 Management Report Segments Czech Republic Prague Prague office market: vacancy rate 10 11%, top rents EUR 20/sqm/month Roughly 160,000 sqm of new office space chiefly outside the city centre was placed on the market in 2003, raising the total volume on the Prague office market to nearly 1.5 million sqm by the end of that year. Rentals of 241,000 sqm set a new record, with the greatest demand coming from the banking/insurance, IT and advertising/media sectors. The current vacancy rate currently equals 10 11%, whereby new state-of-the art space is less affected than renovated offices in older buildings. Top rents in prime locations are approximately EUR 20/sqm/month and average rents equal EUR 13 16/ sqm/month. Forecasts for 2004 include the completion of 160,000 sqm, which reflects the prior year volume. Vacancy rates are expected to fluctuate over the short-term because of the relatively small size of the market, but supply and demand should reach equilibrium over the mid-term. In the retail sector, businesses should profit from a rise in the purchasing power of Czech consumers as well as a boom in tourism to Prague. Roughly 150 well-known foreign retailers have already opened shops in the Czech Republic, which has benefited locations in the capital city such as the Park Hostivar, in which IMMOEAST holds a share through S+B CEE. Inner city properties are currently in short supply, and IMMOEST will meet this strong interest with the Vitek and Palladium projects at top sites in the heart of Prague. Economic recovery in the Czech Republic is expected to continue following accession to the European Union, and steady GDP growth of 3% is forecasted for the coming years. Czech Republic e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** 5,349 6,114 9,591 2,290 4,980 5,200 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA IMMOEAST 41

45 Management Report Segments NEW THROUGH INVESTMENTS S+B CEE IMMOEAST holds a 50% stake in S+B CEE. This object is of special interest, above all because of its location and unusually large size for inner city properties. It is located on the periphery of the most central part of Prague's inner city, and offers excellent transportation connections. There is direct access to two subway stations and a number of streetcar lines, and a direct link to the city autobahn is also planned. The complex will have 105,278 sqm of letable space after completion. The sector allocation of space will concentrate on offices, with additional shopping/entertainment and warehouse facilities. Prague 10, Vinice The Vinice Business Centre, a modern office complex that was completed in 2001 on a prime location in the Strasnice district, was acquired by Liberty Properties in April The object has 36,765 sqm of usable space and is fully rented to leading Czech and international companies through long-term contracts. The major tenant is Cesky Mobil, the number three firm on the Czech mobile telephone market. Prague 1, Vitek This old building complex in the centre of Prague's 1st District was renamed from çeská Typografie to Vitek. The 15,000 sqm site has both historical older buildings as well as newer facilities. The property currently has 40,000 sqm of office and warehouse space, which are now only rented on a short-term basis so as not to delay the fast start of project work or optimisation during renovation and construction. An underground garage is located under part of the property. This should release the company from most of the extensive archaeological excavations required by Prague authorities prior to project realisation, and also have a positive influence on the implementation schedule. Geographical Presence of IMMOEAST in Prague Two Austrian lead architects and a well-known Czech architect were selected to prepare the plans required for approval by district authorities, and an application will be filed for this permit as soon as the necessary documentation is available. The permit should be granted within one year, making completion possible by the end of Final decisions on the building will be made in accordance with market conditions and the level of pre-rentals. 2Objects 1Object 4Objects 2Objects 3Objects 2Objects 2Objects Number of properties per district Prague 2, Valdek This property has 5,866 sqm of letable space and garages, 95% of which are rented on a long-term basis to Czech and international tenants. The remaining shares in the property were acquired during the reporting year, and the object is now wholly owned by S+B CEE. This representative office building was renovated completely in 1995, under conservation of a facade that is protected by historical preser- 42 Annual Report 2003/2004

46 Management Report Segments vation laws. The property is located in the central 2nd District only a short walk from Wenzel's Square. Prague 4, Pankrác Business Corner The 6,215 sqm in these two adjoining buildings was completed in two stages during 1995 and A total of 81.19% of the space is rented to international tenants. The building has a representative design and glass-covered inner courtyard, and can be easily seen from the city autobahn. The Pankrac Business Corner is situated in the 4th District, one of the fastest growing commercial hubs in Prague. Prague 10, Park Hostivar This modern centre with 37,000 sqm of letable space is one of the top shopping addresses in Prague's 10th District. The Park Hostivar has excellent traffic connections, and city plans call for the construction of a subway station nearby. The object is fully rented over the longterm to tenants such as Interspar, C&A and McDonalds. The company also has sizable space reserves for future expansion of the facility. NEW Heitman Central Europe Property Partners IMMOEAST holds a 11.43% stake in Heitman Central Europe Property Partners. IMMOEAST acquired 40% of the shares in four shopping centres in the Czech Republic through its investment in Heitman Central Europe Property Partners. The major tenant in each facility is a Carrefour market, and a large number of parking facilities are available. NEW Brünn, Futurum Centrum, 29,000 sqm of usable space plus parking, a Carrefour supermarket and 90 retail shops, opening October 2001 NEW Prague 5, Arbes Arbes, a modern office building with nearly 6,500 sqm of usable space, is located in the 5th District of Prague across the Moldau River directly opposite the Old City. It was completed in 1999, and offers excellent connections to subway and streetcar lines. Retail space on the ground floor is let to tenants that include a bank and druggist shop. The building is fully rented to Czech and international tenants over the long-term. Prague 1, Opletalova This property, which was acquired during the reporting year, is located close to Wenzel's Square. An analysis is currently in progress to determine its future use, whereby the alternatives include an office building or hotel. International hotel chains have already expressed specific interest in a project with ca. 270 rooms or 10,284 sqm, including 68 garage spaces. Ostrau, Futurum Centrum, 31,000 sqm of usable space plus parking, a Carrefour supermarket and 65 retail shops, opening May 2000 IMMOEAST 43

47 Management Report Segments NEW Cooperation Heitman Engel: The following condominium projects were started in Prague during the reporting year as part of the joint venture between Heitman Central Europe Property Partners and the international developer Engel Residential: NEW + UNDER CONSTRUCTION Hradec Kralove, Futurum Centrum, 27,000 sqm of usable space plus parking, a Carrefour supermarket and 65 retail shops, opening November 2000 NEW NEW + UNDER CONSTRUCTION Prague 6, Vokovice This project covers the construction of 150 condominium apartments with an average size of 73 sqm. Construction was started in May 2004, and completion is expected during December European Property Group IMMOEAST owns a 25% share of the European Property Group. Olomouc, Hana Centrum, 15,000 sqm of usable space plus parking, a Carrefour supermarket and 65 retail shops, opening September 2002 NEW Prague, Rudna Logistics Park This 115,917 sqm logistics facility is located southwest of Prague along the Prague-Nürnberg autobahn. It comprises 13 warehouses (90,258 sqm) and office buildings (25,659 sqm). The available space is fully rented to international companies, and a further 21,855 sqm are under development. Prague 2, Novy Eden The Novy Eden property in the 2nd District of Prague involves the construction and rental of 51 apartments with an average size of ca. 80 sqm. Engel has already completed a number of similar projects in Prague and Budapest, with sales totalling 70% to 98% before completion. This project will utilise opportunities provided by the increasing disposable income of the growing middle class in Central Europe. NEW + UNDER CONSTRUCTION Prague 5, Stodulky This residential project involves the construction of 360 units with an average size of 58 sqm. Completion is scheduled for December 2006, and plans call for sale of the apartments. Prague 1, Palladium A modern shopping and office centre will be constructed on this 13,633 sqm site in the heart of Prague's inner city along the pedestrian zone. The facility will be located directly above a subway line and have its own station. The legendary Kotvar department store is situated directly opposite the property, and the area is a popular stop for tourists. Realisation of the project will include conservation of the historical facade, with the addition of modern facilities in the interior areas. District authorisation, the first step in the municipal approval process, has already been granted and the extensive archaeological excavations required by Prague authorities are currently progressing as expected. 44 Annual Report 2003/2004

48 Management Report Segments Current plans call for a total of 80,000 sqm, which will be distributed over five floors of shopping and entertainment space, three floors of offices and a three-storey underground car park with space for 910 cars. This project is unique because of its size in the heart of Prague only several minutes from Wenzel's Square and the option to include an indoor car park. Completion of the shopping and entertainment space is currently scheduled for mid Atom Centrum a.s. IMMOEAST holds a 5% stake in this company. UNDER CONSTRUCTION Prague 1, Praha City Center This 26,400 sqm office complex is located in the centre of Prague's 1st District. The property covers an entire block of buildings, which were constructed in It has a representative appearance from the facade to the stonecovered lobby. The ground floor includes a small shopping area with restaurants and a post office. The occupancy rate in the Praha City Center is close to 100%, with tenants including both Czech and international companies. Prague 7, European Business Center This office building was constructed in 1992, and has usable space of 3,800 sqm on seven floors as well as a garage. The property is located in Holesovice, the central 7th District of Prague, and offers excellent connections to public transportation via subway, streetcar and train. The historical facade was retained during renovation, but the building meets modern standards for furnishings and equipment. Part of the space is currently available for rent. Globe Trade Centre S.A. (GTC) IMMOEAST owns a 7.79% share in Globe Trade Centre S.A. NEW + UNDER CONSTRUCTION Prague 4, Pankrác House This office project is comprised of the existing Heroes House and Park House, and will have letable space of more than 21,250 sqm with 170 garage spaces. The property is located in the 4th District, one of the fastest growing business quarters in Prague, and offers excellent connections to the autobahn and subway. The major part of the shell has already been completed. Approximately40% of the complex has been let to an international publishing house on a long-term basis, and completion is scheduled for autumn Negotiations are currently underway to raise the investment to 50%. IMMOEAST is currently evaluating the purchase of additional objects either direct or through investments in other companies in the office, shopping and logistics sectors. Prague 2, Italská This 3,000 sqm office building is located in the central 2nd District, only a short walk from Wenzel's Square. It is fully rented to a major German bank. The general renovation of the building was completed in 1995, and included conservation of the historical facade. Prague 7, Lighthouse Offices Two modern office buildings with total usable space of 27,000 sqm and 333 parking spaces are under construction in the Holosovice District. The site for this 18-storey building is located near the Prague harbour along the Moldau, and is scheduled for completion in the near future. GTC also has extensive land reserves available for the realisation of new projects in Prague. IMMOEAST 45

49 Management Report Segments Hungary Budapest Budapest office market: vacancy rate 17.6%, top rents EUR 18/sqm/month The office market in Budapest comprises 1.5 million sqm, of which roughly 1 million sqm represent modern space. Supply and demand were balanced at 78,000 sqm in 2003, and nearly 77,000 sqm of offices are currently under construction. The vacancy rate for modern facilities is 17.6%, but this figure is expected to decline following the forecasted rental of approximately 100,000 sqm in Average rents fluctuate at EUR 12 15/sqm/month, and top rents for prime locations are EUR 17 18/sqm/month. GDP growth slowed from 2002 to 2004, but is expected to reach 3.8% in Foreign direct investment is expected to approach the EUR 2,800 million-mark in Hungary e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** ,320 2,510 2,800 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA revitalise this former slaughterhouse quarter. The property has a central location in the 9th District of Budapest near the National Theatre and the Millennium City project. Budapest, Mester Business Park This long-range project for the construction of a modern office and business park with stateof-the-art infrastructure has been started by IMMOEAST and local partners. IMMOEAST holds a 45% stake in the joint venture that will The zoning plan for the city of Budapest and conservative studies and calculations indicate that the construction of substantially more than 200,000 sqm of usable space will be possible at this site. Work is in progress to prepare the documents required for the first building permits. The property will be developed in several stages, depending on pre-letting. Part of the older building has been rented on a short-term basis. IMMOEAST is currently holding discussions on the sale or rental of the new buildings and on possible cooperation with other firms for the joint development of sections of this property. Budapest 13, Arpad Center Excellent subway, bus and streetcar connections in close proximity and a restaurant and other infrastructure in-house characterise this 7,000 sqm property. The building was completed in 1997 and is currently two-thirds rented to Hungarian and international companies. 46 Annual Report 2003/2004

50 Management Report Segments NEW + UNDER CONSTRUCTION ACQUIRED AFTER THE REPORTING YEAR Budapest 13, Globe 13 The Globe 13 office building with 22,000 sqm of space is located near the Arpad Center in the 13th District/Pest Quarter on the Vaci Ut, one of the prime office areas in Budapest. Connections to subway, bus and streetcar lines are optimal, and the outer Budapest Ring is located in close proximity. This 22,000 sqm building, which was completed in 2001, has state-of-the-art furnishings as well as a restaurant and other infrastructure. The building has been fully rented on a long-term basis, primarily to public sector tenants. Budapest 13, Xenter 13 Office Building A new office building with 11,700 sqm of space, including a garage, is under development adjacent to the Globe 13. Construction began in April 2004 and work will soon commence on the foundation; completion is scheduled for summer The design of the building will allow a floor-by-floor connection to the Globe 13. Discussions with potential tenants have already started. Budapest, West Gate Business Park This 68,000 sqm property currently has 12,500 sqm of usable space, which is fully rented to International tenants such as Goodyear/Dunlop, Johnson&Johnson and KTM. The West Gate office and commercial park is located in the city's fastest growing industrial and commercial zone and can be easily reached over several highways. A further 5,620 sqm of office and warehouse space plus infrastructure is currently under construction. Completion is planned for autumn 2004, and a significant part of this space has been pre-let. Land reserves will allow the construction of an additional 20,000 sqm of letable space in the future. ACQUIRED AFTER THE REPORTING YEAR Geographical Presence of IMMOEAST in Budapest 3Objects 1Object 1Object 4Objects 1Object 1Object Budapest 3, Globe 3 The Globe 3 office building, which was acquired during June 2004, is located in the Altbuda quarter of the 3rd District of Budapest. The 7,900 sqm of space meet latest standards, and the location offers good connections to public and private transportation systems. The facility is over 90% rented to Hungarian and international companies through long-term contracts. Number of properties per district IMMOEAST 47

51 Management Report Segments ACQUIRED AFTER THE REPORTING YEAR NEW + UNDER CONSTRUCTION NEW Budapest 3, Szépvölgyi Business Park This office complex is located on the Buda side of the city's 3rd District. It has 15,399 sqm of first-class space and was completed in July The business park is 90% rented to international tenants such as XEROX, ADP Clearing, Schering, the Saudi Arabian embassy, Gilette, Samsung, Fresenius and the Starcom Mediavest Group. Through investments in other companies Heitman Central Europe Property Partners IMMOEAST owns an investment of 11.43% in Heitman Central Europe Property Partners. The joint venture between Heitman Central Europe Property Partners and the international developer Engel Residential also started to develop a number of condominium projects in Budapest. These properties are designed to meet the increased purchasing power of the growing middle class in Central Europe. NEW + UNDER CONSTRUCTION Budapest 3, Skala This project involves the construction of 575 apartments with an average size of 69 sqm in the 3rd District of Budapest. The apartments will sold as condominiums, and completion is planned for mid NEW + UNDER CONSTRUCTION Györ Heitman and Engel have also started a joint project in this city 2,000 condominium apartments with an average size of 80 sqm will be completed by June Polonia Property Fund L.P. IMMOEAST holds a 20% investment in Polonia Property Fund L.P. NEW Budapest, Obuda Gate Office Center The Obuda Gate Office Center is located roughly 3 km south of the historic inner city in a mixed office, business and residential area in the 2nd District of Budapest. The object has 14,000 sqm of usable space as well as an underground garage with parking for 250 cars. It is 82% rented, primarily to international firms such as L Oreal, Unisys, Sony, Ford and Acer. Negotiations to rent additional space are currently in progress. Globe Trade Centre S.A. (GTC) IMMOEAST owns 7.79% of Globe Trade Centre S.A. NEW + UNDER CONSTRUCTION, Budapest 13, Center Point Office This modern office complex on the Vaci Utca in the 13th District will be constructed in two phases. It is located roughly 10 minutes by car from the city centre in a popular office quarter of Budapest. Phase I will have 18,600 sqm, Phase II 22,000 sqm of space. Budapest 4, Engel Park Heitman/Engel are building 139 condominium apartments with an average size of nearly 90 sqm. Completion is scheduled for fall Budapest, East-West Business Centre, This office complex has 21,000 sqm of office and retail space plus 208 parking spaces, and is located directly at a subway station. Occupancy currently totals roughly 90%. International companies such as British Airways, Hitachi, KLM, Aventis Pasteur, Reuters and Nomura form the majority of tenants. The acquisition of further office and retail properties in Budapest is the subject of current negotiations. 48 Annual Report 2003/2004

52 Management Report Segments Poland Warsaw Warsaw office market: vacancy rate 15%, top rents EUR 23/sqm/month The Warsaw office market has nearly 2 million sqm of space. The production of new space has declined in recent years: 195,000 sqm were placed on the market in 2002, and only 178,000 sqm in The market was able to absorb 270,000 sqm in 2003, compared to 260,000 sqm in 2002, which led to the present vacancy rate of almost 15%. Vacancy rates are higher in the central districts than in outlying areas at this time. Top rents remain relatively stable at EUR 23/sqm/month, and average rents total EUR 15 16/sqm/month. Rising demand and declining supply will trigger a further drop in the vacancy rate during Rental prices are expected to remain relatively stable. Economic growth in Poland is expected to accelerate substantially over the coming years. Forecasts call for an increase from 1.4% in 2002 to 4% for Poland e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** 10,319 6,373 4,371 3,760 4,470 4,900 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA IMMOEAST entered the market in Poland during the reporting year through the acquisition of a 7.79% stake in GTC, the leading Polish property developer. GTC has an extensive portfolio that includes the largest business park and one of the most popular shopping centres in the country. New acquisitions include a fully rented department store in Wloclawek as well as a logistics object that was acquired through the investment in Heitman. The regional focus of investments will remain on rented buildings in Warsaw and other major Polish cities. The sector focal point will be placed on offices, shopping and logistics properties. Negotiations are currently in progress for a number of objects. IMMOEAST 49

53 Management Report Segments NEW NEW + UNDER CONSTRUCTION Globe Trade Centre S.A. (GTC) IMMOEAST owns a 7.79% stake in Globe Trade Centre S.A. NEU Wloclawek, Real-Hypermarket This object was completed at the end of 2000, and has 13,200 sqm of space plus 635 parking spaces. It is fully rented through a longterm contract to a subsidiary of the German Metro retail chain, which operates a Real- Supermarkt and small mall on the site. The property is located along the main southern access road to Wloclawek, ca. 120 km northwest of Warsaw and can also be easily reached via public transportation. Through investments in other companies Heitman Central Europe Property Partners NEW Warsaw, Zabki A joint venture between Heitman Central Europe Property Partners and the international developer Engel Residential has started work on a number of condominium projects in Warsaw. These buildings are designed to reflect the increased purchasing power of the growing middle class in Central Europe. A total of 606 condominium apartments with an average size of 60 sqm will be built in Warsaw, with completion scheduled for mid ACQUIRED AFTER THE REPORTING YEAR Warsaw, Mokotow Business Park (9 buildings) The Mokotow Business Park with its 107,331 sqm of space in nine buildings and 2,500 parking spaces in garages and open-air car parks is the largest office complex in Poland. The occupancy rate currently equals 90%. This business park, which is situated between the city centre and airport, has excellent traffic connections and extensive infrastructure on site. NEW + UNDER CONSTRUCTION Warsaw, Zeran Park The Zeran Logistics Park in Warsaw was acquired through the 11.43% stake in Heitman Central Europe Property Partners. This 52,411 sqm property has 46,500 sqm of warehouse space and nearly 6,000 sqm of offices. Zeran Park is located northeast of the Warsaw city centre, and offers excellent connections to the area's roadway system. It comprises four buildings that were constructed between 2000 and 2001, and is almost fully rented. 6 shopping centres in Poland Heitman and the experienced US developer Polimeni will soon start to develop six shopping centres with total usable space of 146,000 sqm in Poland. The facilities will be located in mid-sized cities like Kalisz, Poznan and Gniezno. Construction will begin after the successful completion of pre-rentals, and all centres will have an anchor tenant such as Tesco. The shopping centres are scheduled to open in 2005 and Warsaw, Vega Office A tenth building is under construction on the grounds of the Mokotow Business Park. The 17,000 sqm of office space should be completed towards the end of 2005, and the facility is fully rented to a telecommunications company. 50 Annual Report 2003/2004

54 Management Report Segments NEW + UNDER CONSTRUCTION NEW + UNDER CONSTRUCTION NEW Warsaw, Topaz Office A complex with three buildings and 40,000 sqm of space is under construction near the Galeria Mokotow and Mokotow Business Park. Phase I with 11,800 sqm will be completed in late 2004, and is fully rented to a large German insurance company. Krakow, Galileo Office Building/GTC Office Centre Four buildings with 35,000 sqm of office space are under construction on the road connecting the inner city with Krakow Airport. Galileo, the first building with roughly 10,000 sqm of space and 250 indoor and outdoor parking spaces, was completed at the start of Poznan, Globis Office Center This 10-storey office building has 13,000 sqm of office space and an underground garage with parking for 230 cars. A hotel adjoins the building, which is also close to the trade fair centre and Poznan central railway station. The project is a joint venture with Orbis S.A.; GTC holds a share of 75%. NEW NEW + UNDER CONSTRUCTION NEW + UNDER CONSTRUCTION Warsaw, Galeria Mokotow The Galeria Mokotow has 58,200 sqm of fully rented space as well as 2,166 parking spaces, and is the leading shopping and entertainment centre in Poland. This project is a joint venture with Rodamco Europe. The Galeria was opened in September 2000, and now draws one million visitors per month for shopping and entertainment. Krakow, Galeria Kazimierz The Galeria Kazimierz will have more than 36,000 sqm of shopping and entertainment facilities as well as 1,800 parking spaces after completion in mid This property is located near the Old City and the Kotlaski Bridge. Roughly 470,000 inhabitants live in a catchment area within a 20-minute drive. Warsaw, Aero Park Office Building The Aero Park Office Building/Okecie Business Park, a modern office complex with 80,000 sqm of space, is under construction adjacent to Warsaw Airport. The various project phases will be completed between 2006 and GTC acquired further objects in Poland after the close of the reporting year, including large office and residential properties in Krakow and Warsaw. Other investments are under evaluation, and Polonia Property Fund L.P. is negotiating to conclude its first investment in Poland. IMMOEAST 51

55 Management Report Segments Romania Bucharest Bucharest office market: vacancy rate 10%, top rents EUR 24/sqm/month The Bucharest property market has roughly 500,000 sqm of modern space, and is still characterised by an insufficient supply of high-quality offices. New production will total approximately 60,000 sqm in 2004, and rentals are expected to reach 70,000 sqm. The vacancy rate for modern space is around 10%. Top rents are now EUR 20 24/sqm/month, and are expected to level at slightly under EUR 20/sqm/month. Forecasts for Romania call for a continuation of strong growth at roughly 5%, a reduction in unemployment, and a decline in the inflation rate from the previous extreme level. The development of economic indicators for Romania lead to expectations that the country will join the EU at some point in the future. Romania e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** 1,134 1,310 1,192 1,340 1,910 1,500 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA ACQUIRED AFTER THE REPORTING YEAR 30,000 sqm of largely pre-let office space will be completed by The IRIDE Business Park profits from close proximity to both the city centre and Bucharest International Airport. It also has excellent connections to public transportation, including a subway station in the vicinity. NEW + UNDER CONSTRUCTION Bucharest, IRIDE Business Park IMMOEAST entered the market in Romania after the close of the reporting year with the acquisition of the 55,000 sqm IRIDE Business Park in Bucharest. This fully rented property has 35,000 sqm of offices and 20,000 sqm of warehouse space. The tenant base consists almost exclusively of prominent western companies such as Raiffeisen Bank, Procter & Gamble, Nestle, Wella, Xerox and Whirlpool. Substantial land reserves will allow the expansion of the IRIDE Business Park, and a further Through investments in other companies: Globe Trade Centre S.A. (GTC) IMMOEAST owns a investment of 7.79% in Globe Trade Centre S.A. Bucharest, America House A 24,000 sqm office building with excellent traffic connections is under development roughly five minutes from the centre of Bucharest. The building will be constructed in two phases, with Phase I scheduled for completion at the end of The building will meet state-ofthe-art western standards. Further projects in the office, logistics and hotel sectors are currently under evaluation. 52 Annual Report 2003/2004

56 Management Report Segments Serbia Although the current political turmoil is not proving beneficial to growth, economic indicators and forecasts show substantial improvement. The inflation rate has declined by a significant amount, but the extent and pattern of further economic development is not predictable at this time. Serbia and Montenegro e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** , Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA Through investments in other companies: Globe Trade Centre S.A. (GTC) IMMOEAST holds a 7.79% stake in Globe Trade Centre S.A. NEW + UNDER CONSTRUCTION Belgrade, GTC House This modern office property with 13,500 sqm of space is under construction roughly three kilometres from the city centre. The building is located in a developing office quarter of New Belgrade, which has good traffic connections and easy access to the autobahn. The GTC House will be completed at the end of 2004 and meet the latest western standards for offices. IMMOEAST 53

57 Management Report Segments Markets under Monitoring In addition to the core markets of Poland, the Czech Republic and Hungary, IMMOEAST pursues selected projects in other countries. The company entered the market in Romania during 2004, and projects in other regions are under evaluation. Bulgaria Sofia Sofia office market: vacancy rate 10%, top rents EUR 18/sqm/month Sofia will have roughly 100,000 sqm of modern office space by the end of 2004, whereby the vacancy rate for these facilities is10%. The increase in new space totals 20,000 sqm per year, and the majority of this space is absorbed by existing demand. Top rents currently equal EUR 18/sqm/month. Together with Romania, Bulgaria is a candidate for the next round of EU accession. However, hard work will be required in many sectors before the country is able to demonstrate EU maturity. Bulgaria e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** 1, ,230 1,300 1,210 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA 54 Annual Report 2003/2004

58 Management Report Segments Russia Moscow Moscow office market: vacancy rate 6%, top rents EUR 40/sqm/month The addition of 500,000 sqm of new space will push the Moscow office market over the 3 million sqm-mark in Demand is expected to reach 600,000 sqm this year. Together with London, Moscow is one of the most dynamic cities for new office construction in Europe. The overall vacancy rate is 6%, with 3 5% for A-category space and 6 10% for B-category space. Top rents are generally stable at EUR 40/sqm/month. Forecasts for economic development in Russia call for strong economic growth, albeit at a lower level than in 2003, and a declining but still high inflation rate during the coming years. Russia e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** 2,936 2,756 3,658 1,010 2,010 2,600 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA IMMOEAST 55

59 Management Report Segments Slovakia Bratislava Bratislava office market: vacancy rate 12%, top rents EUR 18-20/sqm/month The Bratislava office market has increased to 750,000 sqm in recent years, but only part of this space represents the latest standards. The 12% vacancy rate is concentrated primarily in sub-standard buildings. Top rents range from EUR 18 20/sqm/month, and average rents equal EUR 15/sqm/month. A total of 75,000 sqm were completed in 2003 and roughly 70,000 sqm of new space will be placed on the market in Forecasts for Slovakia call for steady economic growth of 4% and a high but declining unemployment rate. Accession to the EU should bring positive impulses for further growth. Slovakia e 2005e GDP* Industrial production* Consumer price index** Unemployment rate in % Foreign direct investment*** 2,077 1,674 4, ,910 1,600 Federal deficit**** Foreign debt**** * Real, change in %; ** Change in %; *** In EUR million; **** As a % of GDP; Source: National statistics, BA-CA ACQUIRED AFTER THE REPORTING YEAR complex with three buildings in Bratislava. The property has 55,000 sqm of space plus garages, whereby ca. 34,000 sqm are under construction. The finished space is fully rented, and pre-rentals are high for the remaining facilities. Investments in Slovakia will focus on the office, shopping, logistics and residential sectors over the mid-term. Bratislava Business Center IMMOEAST entered the market in Slovakia after the end of the reporting year through its investment in Heitman Central Europe Property Partners. Heitman, in which IMMOEAST holds a stake of 11.43%, acquired an office Slovenia and Croatia as well as the Baltic region are possible investment targets over the mid-term. 56 Annual Report 2003/2004

60 Management Report Outlook Outlook Forecasts for worldwide economic growth in 2004 and 2005 differ widely by region. Forecasts for the 10 new EU countries and the Euro region Latest forecasts for 2005 show average real GDP growth of 2.2% for the Euro region, 3.2% for the USA and 4.3% for the 10 new EU countries. Expectations for Central Europe generally exceed the Euro region. IMMOEAST will continue to follow its selective investment strategy to utilise best these developments. Depending on local factors and regional market trends, the focal point of investment activity will be placed in Poland where a number of projects are currently under negotiation. GDP Growth (real)* e 2005e OECD total USA Euro region EU new EU countries * Change vs. prior year in % Focus on Poland, Czech Republic and Hungary in the office, retail and logistics sectors The strategy for the regional distribution of the property portfolio remains unchanged for the mid-term. Investments in Central Europe will concentrate on the office, retail/ commercial and logistics sectors, with additional projects in the residential area. The regional focus will remain on Poland, the Czech Republic and Hungary. Selected projects will be pursued in other Central European countries such as Romania, where an investment was completed after the end of the reporting year. IMMOEAST has set a target to increase the property portfolio to EUR 440 million and generate revenues of EUR 25 million for the 2004/05 Business Year. Outlook IMMOEAST Actual Forecast Change 2003/ /2005 in % Property Revenues IMMOEAST 57

61 Management Report Subsequent Events Subsequent Events Market entry in Romania New objects in Budapest Budapest: business park with land reserves IMMOEAST acquired the IRIDE Business Park in Bucharest during May This property has 55,000 sqm of usable space, which is divided into 35,000 sqm of offices and 20,000 sqm of warehouses. The business park is fully rented, almost exclusively to prominent western companies such as Raiffeisen Bank, Procter & Gamble, Nestle, Wella, Xerox and Whirlpool. The IRIDE Business Park is located on a prime site, and profits from close proximity to the city centre as well as Bucharest International Airport. A further advantage is the property's excellent connections to the public transportation network, which include a subway station on site. Substantial undeveloped land provides reserves for expansion, and an additional 30,000 sqm of pre-let offices are scheduled for completion by IMMOEAST is currently evaluating additional investments in Romania. The Globe 3, a new office building at the centre of the Altbuda quarter of Budapest's 3rd District, was purchased in June The property has 5,575 sqm of usable space plus a garage parking for 93 cars. It reflects the latest standards, and has good connections to both public (bus, street car, and rapid transit railway) and private transportation. The occupancy rate exceeds 90%, with the tenant structure showing a mix of Hungarian and international companies that have concluded long-term contracts. The Szépvölgyi Business Park is centrally located on the Buda side of the city's 3rd District. It has 15,399 sqm of first-class space and was completed in July The business park is 90% rented to international tenants such as XEROX, ADP Clearing, Schering, the Saudi Arabian embassy, Gilette, Samsung, Fresenius and the Starcom Mediavest Group. The West Gate Business Park in Budapest was acquired in July This office and commercial park is located in the city's most dynamic industrial and commercial zone, and has excellent connections to a number of major transportation routes. The site comprises 68,000 sqm and currently has 12,500 sqm of usable space, which is fully rented to International tenants such as Goodyear/Dunlop, Johnson&Johnson and KTM. An additional 5,620 sqm of office and warehouse space plus infrastructure is under construction. Completion is scheduled for autumn 2004, and significant sections of this space have already been rented. First property in Slovakia IMMOEAST also entered the market in Slovakia during June 2004 through its investment in Heitman Central Europe Property Partners. Heitman, in which IMMOEAST holds a share of 11.43%, acquired an office complex with three buildings in Bratislava. This property has 55,000 sqm of usable space plus garages, with 34,000 sqm still under construction. The finished buildings are fully rented, and pre-letting is high on the other facilities. 58 Annual Report 2003/2004

62 Management Report Subsequent Events 6 shopping centres in Poland Heitman Central Europe Property Partners will soon start the development of six shopping centres with 146,000 sqm of space in Poland together with its US partner Polimeni. Construction will begin after the completion of pre-letting, and each facility will have an anchor tenant such as Tesco. Completion is planned for 2005 and These shopping centres will be built in mid-sized cities throughout Poland, including Kalisz, Poznan and Gniezno. PL Kalisz, Galeria Kalisz

63 H Budapest, Globe 3

64 Consolidated Financial Statements

65 Consolidated Financial Statements Consolidated Balance Sheet IMMOEAST Immobilien Anlagen AG Consolidated Balance Sheet as of 30 April 2004 with comparison to prior year Note 30 April April 2003 TEUR TEUR Investment property (4.1) 136, ,108.6 Other tangible assets (4.2) ,657.9 Intangible assets and goodwill (4.3) ,068.7 Shares in associated companies (4.4) 35, ,286.6 Other financial assets (4.5) 22, ,090.2 Non-current assets 194, ,212.0 Receivables and other assets (4.6) 11, ,072.5 Available-for-sale securities (4.7) 28, ,556.7 Cash and cash equivalents 30, ,586.7 Current assets 70, ,215.9 Deferred tax assets (4.13) 4, ,194.7 ASSETS 268, ,622.6 Share capital 29, Reserves 127, ,702.4 Retained earnings and consolidated profit 5, Cumulative translation adjustment Equity (4.8) 163, ,277.5 Non current borrowings (4.9) 78, ,955.7 Trade accounts payable (4.10) Other liabilities (4.12) Non-current liabilities 79, ,134.0 Current borrowings (4.9) 3, ,333.5 Trade accounts payable (4.10) 3, ,923.0 Provisions (4.11) 1, Other liabilities (4.12) 8, ,754.9 Current liabilities 16, ,893.1 Deferred tax liabilities (4.13) 9, ,318.0 EQUITY AND LIABILITIES 268, ,622.6 The following Notes to the Consolidated Financial Statements form an integral part of this Consolidated Balance Sheet. 62 Annual Report 2003/2004

66 Consolidated Financial Statements Consolidated Income Statement IMMOEAST Immobilien Anlagen AG Consolidated Income Statement with comparison to prior year IAS 40 Cost Model Note 2003/ /03 in TEUR in TEUR Revenues (5.1) 9, ,037.9 Other operating income (5.2) 1, Depreciation and amortisation -2, ,156.5 Expenses related to properties (5.3) -1, ,043.3 Other operating expenses (5.4) -4, ,315.0 Operating profit (EBIT) 2, Net financing costs -1, Income/(loss) on financial assets 8, Share of profit/(loss) from associated companies Financial results (5.5) 6, Earnings before tax (EBT) 8, Income taxes (5.6) -2, Net profit for the period 5, Undiluted and diluted earnings per share in EUR (8.2) The following Notes to the Consolidated Financial Statements form an integral part of this Consolidated Income Statement. IMMOEAST 63

67 Consolidated Financial Statements Consolidated Income Statement IMMOEAST Immobilien Anlagen AG Consolidated Income Statement for 2003/04 according to the Fair Value Model with comparison to prior year IAS 40 Fair Value Model 2003/ /03 Revenues 9, ,037.9 Revaluation of investment property (IAS 40) 4, ,635.8 Other operating income 1, Depreciation and amortisation -1, Expenses related to properties -1, ,043.3 Other operating expenses -4, ,315.0 Operating profit (EBIT) 7, ,135.6 Net financing costs -1, Income/(loss) on financial assets 8, Share of profit/(loss) from associated companies Financial results 6, Earnings before tax (EBT) 14, ,296.4 Income taxes -2, Deferred taxes from revaluation (IAS 40) -1, ,293.6 Net profit for the period 10, ,240.0 Undiluted and diluted earnings per share in EUR IAS provides companies with an option to select either the cost model or the fair value model. For additional information on this alternative presentation, see footnote Annual Report 2003/2004

68 Consolidated Financial Statements Consolidated Statement of Cash Flows IMMOEAST Immobilien Anlagen AG Consolidated Statement of Cash Flows with comparison to prior year 2003/ /03 in TEUR in TEUR Net profit before tax 8, Depreciation and amortisation of non-current assets 1, ,156.5 Share of profit/(loss) from associated companies Income taxes paid Net interest income/(expense) 1, Other non-cash income/(expenses) -7, Gross cash flow 3, ,512.7 Receivables and other assets -7, Trade accounts payable -14, ,567.0 Provisions (excl. tax provisions) Other liabilities -10, ,574.6 Cash flows from operating activities -29, ,165.7 Acquisition of investment property -14, ,970.3 Acquisition of investment property companies less liquid funds -10, ,761.0 Foreign currency changes to non-current assets Acquisition of other tangible assets Acquisition of intangible assets Acquisition of non-current financial assets -22, ,952.3 Acquisition of current assets -20, Interest income from financial assets ,417.1 Cash flows from investing activities -64, ,120.2 Proceeds from borrowings 17, ,883.6 Proceeds from capital increases 29, ,130.7 Repayment of current borrowings -2, ,765.0 Repayment of non current borrowings -1, Interest expense -1, ,281.3 Cash flows from financing activities 41, ,448.0 Differences arising from foreign currency translation Movement in cash and cash equivalents -53, ,984.5 Cash and cash equivalents at the beginning of the period 84, Cash and cash equivalents at the end of the period 30, ,143.5 Movement in cash and cash equivalents -53, ,984.5 The following Notes to the Consolidated Financial Statements form an integral part of this Consolidated Statement of Cash Flows. IMMOEAST 65

69 Consolidated Financial Statements Changes in Equity Changes in Non-Current Assets IMMOEAST Immobilien Anlagen AG Statement of Changes in Equity Share Reserves Retained Cumulativ Total Capital Earnings Translation All amounts in TEUR Adjustment Balance on 30 April , ,444.3 Shareholder contributions 50, ,689.9 Net profit for Capital increase , ,945.2 Cost of capital increase -2, ,312.9 Currency translation adjustment Balance on 30 April , ,277.5 Capital increase 4, , ,141.2 Cost of capital increase Capital increase from internal funds 24, , Fair value reserve Hedging reserve Net profit for , ,929.9 Currency translation adjustment Balance on 30 April , , , ,194.1 The following Notes to the Consolidated Financial Statements form an integral part of this Statement of Changes in Equity. Statement of Changes in Non-Current Assets Acquisition/Production Cost Balance on Changes in Currency Additions Disposals Transfers Balance on 1 May 2003 consoli- translation 30 April 2004 All amounts in TEUR dation range differences Land, rights to land and buildings, and buildings on land owned by third parties 85, , , , ,463.5 Prepayments and properties under construction 0.0 2, ,743.4 Investment property 85, , , , ,206.9 Machinery and equipment Other equipment, fixtures and furniture 2, ,102.4 Other tangible assets 2, ,102.4 Other intangible assets Goodwill 3, ,432.0 Negative goodwill -1, , ,014.5 Intangible assets and goodwill 2, , The following Notes to the Consolidated Financial Statements form an integral part of this Statement of Changes in Non-Current Assets. 66 Annual Report 2003/2004

70 Consolidated Financial Statements Changes in Non-Current Assets Accumulated Depreciation Carrying amount Balance on Currency Disposals Transfers Depreciation Balance on 1 May 2003 translation for the 30 April April April 2003 differences current year , , , , , , , , , , , , , , , , , ,068.6 IMMOEAST 67

71 Consolidated Financial Statements Segment Reporting Segment Reporting Segmentation by Region Other and Group IMMOEAST Hungary Czech Republic Poland Eliminations Group All amounts in TEUR 03/04 02/03 03/04 02/03 03/04 02/03 03/04 02/03 03/04 02/03 Revenues from property rental/leasing 3, , , , , ,383.7 Operating costs charged to tenants , Other revenues Revenues 4, , , , , ,037.9 Depreciation and amortisation -1, , , ,156.5 Operating profit (EBIT) 2, , , , , , Financial results 6, Earnings before tax (EBT) 8, Thereof share of profit/(loss) from joint ventures Thereof share of profit/(loss) from associated companies Segment assets 58, , , , , , , , ,622.6 Thereof share of profit/(loss) from associated companies 9, , , , , ,286.6 Liabilities 42, , , , , , , , ,345.1 Investments 1, , , , , , , , Annual Report 2003/2004

72 Consolidated Financial Statements Segment Reporting Segment Reporting Segmentation by Sector 2003/ /03 All amounts in TEUR Revenues Investments Assets Revenues Investments Assets Offices 6, , , , , ,494.9 Logistics/Commercial 2, , , , ,091.0 Recreation/Hotel , , ,522.7 Residential Parking Total 9, , , , , ,108.6 Shares in associated companies 35, ,286.6 Investments in other companies 17, Other assets 79, ,085.2 Total Group assets 268, ,622.6 IMMOEAST 69

73 Notes Notes 1. General Principles IMMOEAST IMMOBILIEN ANLAGEN AG (hereafter IMMOEAST AG) maintains its registered headquarters in A-1010 Vienna, Bankgasse 2. The business activities of the IMMOEAST Group include the acquisition and development of properties, above all in Central and Eastern Europe, as well as the sale, commercial utilisation and management of properties to optimise investments. The company's share has traded in the standard market segment of the Vienna Stock Exchange since 12 December These consolidated financial statements of IMMOEAST IMMOBILIEN ANLAGEN AG were prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as well as interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which were in effect as of the balance sheet date. In December 2003 the IASB concluded its largest regulatory amendment process (Improvement Project) to date, which covered 13 standards. Amended rules for financial instruments (IAS 32 and IAS 39) as well as completely new versions of IFRS 1 to 5 were also issued during the first half of The new and amended standards generally include an option that permits application before the rules formally take effect. These consolidated financial statements do not reflect the option for early application because IMMOEAST AG is currently evaluating the new rules due to their extensive scope. The new standards will be applied for the 2004/05 Business Year, which is prior to the effective date announced by the IASB. These consolidated financial statements were prepared pursuant to the Austrian Consolidated Financial Statements Act, which was issued in March As set forth in this law, parent companies that prepare consolidated financial statements in accordance with internationally accepted accounting standards and also issue a group management report are released from the obligation to provide consolidated financial statements in keeping with the requirements of the Austrian Commercial Code. The annual financial statements of all fully consolidated Austrian and foreign companies were audited by independent certified public accountants and awarded unqualified opinions. The correct transition from the annual financial statements prepared under national requirements to IFRS-conform financial statements that meet Group guidelines was also verified. In accordance with IAS 27, the balance sheet date for the consolidated financial statements is the same as the balance sheet date of the parent company. The balance sheet dates for the annual financial statements of all fully consolidated companies are generally the same as the balance sheet date for the consolidated financial statements. 70 Annual Report 2003/2004

74 Notes The principle of fair presentation was observed in preparing the consolidated financial statements. The asset, financial and earnings positions as well as cash inflows and cash outflows of the company provide a true and fair view of the actual situation and events. The consolidated financial statements are presented in thousand EURO ("TEUR", rounded). The use of automatic data processing equipment can lead to rounding differences in the addition of rounded amounts or percentage rates. 2. Basis of Consolidation 2.1 Consolidation Methods For subsidiaries included in the consolidation, the purchase method of accounting is used. This method determines a new fair value for all acquired assets and liabilities. Any remaining difference between purchase cost and the new fair value of net assets, which results primarily from the recognition of deferred tax liabilities, is recorded as goodwill in accordance with IAS 22. The amortisation of goodwill is based on the average expected holding period for the property, which ranges from 7 to 50 years. Negative goodwill is reported under the same caption as goodwill. In accordance with IAS 22.62, the carrying value of this goodwill reflects only identifiable non monetary assets. Negative goodwill is released over the weighted average remaining useful life of the relevant depreciable assets. The release of negative goodwill is shown under other operating income on the income statement. Joint ventures are included at their proportionate share according to the same general principles described above. All receivables and liabilities, revenues, other income and expenses from the provision of goods and services between fully consolidated and proportionately consolidated companies are eliminated. The elimination of intragroup profits was not necessary. The difference resulting from consolidation for associated companies consolidated at equity is determined according to the same general principles as outlined above. The carrying values of assets and liabilities as well as the amount of revenues and expenses were determined in accordance with IAS on a uniform basis as required by IFRS. 2.2 Consolidation Range An overview of the member companies of the IMMOEAST AG Group is provided at the end of the Notes. The consolidation range was determined in keeping with the principles of IAS In addition to IMMOEAST AG, the consolidated financial statements include two IMMOEAST 71

75 Notes domestic and six foreign subsidiaries in which IMMOEAST AG directly or indirectly holds the majority of shareholder voting rights or exercises legal or actual control. In accordance with IAS 31, 11 companies are included in the consolidation using the proportionate consolidation. Two companies and one sub-group were accounted at equity in the consolidated financial statements. The consolidation range changed as follows during the reporting year: Consolidation Range Joint Equity Control Control Accounting Balance on 30 April Included during reporting year for first time Balance on 30 April Thereof foreign companies The following table shows the proportionate carrying amounts of joint ventures included in the consolidated financial statements: 30 April 30 April 30 April 30 April All amounts in TEUR Non-current assets 48,994 44,222 Equity 17,702 17,926 Current assets 3,385 10,618 Non-current liabilities 31,113 20,166 Current liabilities 3,565 16,748 Total 52,379 54,840 52,379 54,840 All amounts in TEUR 2003/ /2003 Revenues 4, ,298.6 Operating profit 1, Financial results -1, Earnings before tax Annual Report 2003/2004

76 Notes 2.3 Major Acquisitions The following major acquisitions were made during the 2003/04 Business Year and consolidated for the first time: Name of Company Share Consolidation Method Lentia Real (1) Kft % V Immofinanz Polska Sp.z.o.o % V ATLAS 2001 CRO s.r.o % V ALAG Beta Praha spol. s.r.o. 50.0% Q VSP VALDEK PRAHA 50.0% Q V= Full consolidation, Q = Proportional consolidation IMMOEAST acquired 100% of the shares in Lentia Real (1) Kft. as of 24 February This company is constructing an office building with 7,780 sqm of usable space in the 13th District of Budapest on the rear side of the Globe 13 office complex. Immofinanz Polska Sp.z.o.o. acquired the Real SB department store, which is located 120 km west of Warsaw in the city of Wloclawek, during the fourth quarter of the 2003/04 Business Year. This property has total usable space of 13,200 sqm. As of 30 April 2004 IMMOEAST acquired 100% of the shares in ATLAS 2001 CR s.r.o. ATLAS 2001 CR s.r.o. owns land in Prague 10, Vinohradská 167, as well as an office building with 22,000 sqm of space that is located on this site. IMMOEAST Beteiligungs GmbH purchased a 50% stake in S+B CEE Beteiligungsverwaltungs GmbH during December This firm increased its portfolio during the reporting year through the acquisition of ALAG Beta Praha spol.s.r.o. and VSP VALDEK PRAHA. The purchase of shares in VSP VALDEK PRAHA raised the stake held in Valdek from 77.13% at the point of purchase in the prior year by percentage points to 100%. ALAG Beta Praha spol.s.r.o. owns the Opletalova Hotel in the centre of Prague, which will be expanded to 19,000 sqm. In accordance with IAS 22.19, companies included for the first time were consolidated at the acquisition date when control over net assets and business operations were also transferred. The acquisition of companies and subsequent initial consolidations had the following impact on the consolidated balance sheet: 30 April 30 April 30 April 30 April All amounts in TEUR Non-current assets 38,930 75,671 Equity 10,986 36,477 Current assets ,080 Non-current liabilities 19,803 24,886 Current liabilities 8,684 33,388 Total 39,473 94,751 39,473 94,751 IMMOEAST 73

77 Notes 2.4 Foreign Currency Translation The individual Group companies record foreign currency transactions at the average exchange rate in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date using the average exchange rate in effect at that date. Any resulting foreign exchange gains or losses are recognised to the income statement for the reporting year. The Group currency is the EURO. Subsidiaries located outside the EURO region are considered to be foreign entities. In accordance with IAS 21 and the functional currency concept, assets and liabilities, goodwill and any valuation adjustments resulting from the initial consolidation of these companies are translated at the average exchange rate on the balance sheet date. Income statement items are translated at the weighted average exchange rate for the reporting year. Any resulting foreign exchange gains or losses are recorded to the cumulative translation adjustment in equity, with no effect on the income statement. The following exchange rates were used for foreign currency translation: HUF CHF PLN CZK Balance sheet date on 30 April Average rate Prior year rate Accounting and Valuation Principles 3.1 Intangible Assets In accordance with IAS 38, intangible assets are recorded at acquisition cost less amortisation and impairment losses. Amortisation is calculated according to the straight-line method, based on the following useful lives: Useful Life in Years Goodwill 7 50 Other intangible assets Investment property and Other Tangible Assets Investment property is measured in accordance with the cost model, in keeping with an option set forth in IAS 40. As required by this model, property is valued at acquisition cost less straight-line depreciation and impairment losses. Other tangible assets are carried at acquisition cost less depreciation in keeping with IAS Annual Report 2003/2004

78 Notes Depreciation is calculated on a pro rata basis. Government grants are recorded as a reduction of acquisition cost after a binding commitment is received. Straight-line depreciation on depreciable tangible assets is based on the following useful lives: Useful Life in Years Property (buildings) Other tangible assets Leasing 3.4 Financial Assets In keeping with IAS 17, the allocation of a leased asset to the lessor or lessee is based on the transfer of all material risks and rewards incident to ownership of the asset. Investments in other companies are measured at fair value. If this figure cannot be determined reliably, such investments are reported at acquisition cost less impairment losses. Loans granted are generally recorded at acquisition cost or the lower present value as of the balance sheet date. Securities reported under non-current assets and investments in other companies are classified as available-for-sale in keeping with IAS 39, and recorded at their fair value or market value as of the balance sheet date. Temporary fluctuations in fair value are charged or credited to equity with no effect on the income statement; these changes are only recognised to the income statement in the event of impairment or when the securities are sold. 3.5 Receivables and Other Assets 3.6 Available-for-Sale Securities 3.7 Cash and Cash Equivalents Receivables and other assets are stated at nominal value. Recognisable individual risks are reflected in appropriate valuation adjustments. Securities recorded under current assets are classified as available-for-sale in keeping with IAS 39, and shown at their fair value or market value as of the balance sheet date. Temporary fluctuations in fair value are recognised in the income statement. Cash on hand and deposits with financial institutions are recorded at their actual value as of the balance sheet date. IMMOEAST 75

79 Notes 3.8 Impairment of Assets Assets are assessed for signs of impairment as of each balance sheet date. If such signs are apparent, the recoverable amount of the impaired asset is determined as the value in use or higher net selling price. If this figure is less than the carrying amount of the asset, an impairment loss is recognised. Net selling price is defined as the amount obtainable from the sale of an asset in an arm's length transaction between independent parties, less any transaction costs. Any impairment loss is charged to the income statement. If the grounds for impairment cease to exist, the carrying amount of the asset is increased up to the carrying amount that would have been determined after the deduction of ordinary depreciation from acquisition or construction cost. 3.9 Provisions for Deferred Taxes 3.10 Financial Liabilities 3.11 Provisions and Other Liabilities 3.12 Realisation of Revenue 3.13 Estimates In accordance with the balance sheet liability method required by IAS 12, provisions for deferred taxes are calculated on all temporary differences between the carrying amount of an asset or liability in the IFRS consolidated financial statements and its tax base. This calculation includes probable realisable tax benefits from existing tax loss carry-forwards. For Austrian companies, the calculation of deferred taxes is based on a corporate tax rate of 34%. The relevant local tax rate is used for foreign companies. Liabilities are recorded at the amount of funds received less transaction costs. Any premium, discount or other difference (e.g. costs for the procurement of funds) between the amount received and the repayment amount is distributed over the term of the financing according to the effective interest rate method and recorded under financial results. In accordance with IAS 37.14, an obligation arising from past events whose timing or amount is uncertain is recorded as a provision when it becomes probable that an outflow of resources will be required to settle this obligation. The provision is based on the best estimate possible at the time the financial statements are prepared. Revenues from the rental of property are recognised during the appropriate period as called for by the rental agreement. In preparing the Groups financial statements, it is necessary to estimate certain figures and make assumptions that influence the recording of assets and liabilities, the declaration of other obligations as of the balance sheet date, and the recording of revenues and expenses during the reporting period. The actual figures that become known at a later time may differ from these estimates. 76 Annual Report 2003/2004

80 Notes 4. Notes to the Balance Sheet Detailed information on the development of fixed assets is provided in the Statement of Changes in Non-Current Assets. The effect of changes in the consolidation range is shown separately. Also shown separately are currency translation differences, which result from the translation of assets by foreign companies using different exchange rates at the beginning and end of the year. 4.1 Investment property The development of investment property is shown on the Statement of Changes in Non- Current Assets, which forms an integral part of these consolidated financial statements. Property owned by the IMMOEAST Group was appraised as of 30 April 2004 by an independent Valuation Committee of three court-certified experts, in keeping with general market conditions based on an average of net asset value and earnings value. The fair value of the property portfolio developed as follows during the 2003/04 Business Year: Fair Value of Fair Value of Property held as Property Fair value Financial Invest- under Con- of other Total All amounts in EUR million ments (IAS 40) 1) struction 2) Property 3) Fair Value Balance on 30 April Additions Disposals Changes in value Balance on 30 April Additions Changes in value Balance on 30 April ) Additions resulting from the acquisition of property classified as financial investments (IAS 40) represent the following objects: Vinice (Prague, CZ), Lentia Real (Budapest, H) and Real-SB Warenhaus (Wloclawek, PL). 2) Properties under development or construction are generally valued at acquisition cost in accordance with IAS 16. This item includes the VITEK property (Prague, CZ) as of the balance sheet date on 30 April ) The investments in Heitman Central Europe Property Partners, Polonia Property Fund and Atom Center a.s. are recorded as financial instruments and shown under other financial investments in the consolidated financial statements in accordance with IAS 39. Objects shown under 'Other Property' are stated at the proportional share fair value, or the proportional share of acquisition cost if purchased close to the balance sheet date. The property portfolios of associated companies consolidated at equity were also appraised by the independent Valuation Committee. These stakes were recorded as additions to investments in other companies at their proportional share, or in keeping with any differing agreements for the distribution of profit. Land, rights to land and buildings, and buildings on land owned by third parties include land with a value of TEUR 43,957.1 (2002/03: TEUR 30,321.9). The book value of tangible assets pledged as collateral for long-term debt totalled TEUR 104,480.9 (2002/03: TEUR 66,566.9). Contractual liens of TEUR 84,646.5 (2002/03: TEUR 48,018.1) are recorded in the land register. IMMOEAST 77

81 Notes 4.2 Other Tangible Assets Details on the development of these assets are shown on the Statement of Changes in Non-Current Assets, which forms an integral part of these consolidated financial statements. Other tangible assets primarily comprise furniture, fixtures and office equipment as well as machinery and equipment located in the individual properties. 4.3 Intangible Assets and Goodwill Details on the development of this item are shown on the Statement of Changes in Non-Current Assets, which is a part of these consolidated financial statements. Intangible assets mainly consist of goodwill from acquisitions as well as rights. The amortisation of intangible assets and goodwill is shown under depreciation and amortisation on the Statement of Changes in Non-Current Assets and the Income Statement. 4.4 Shares in Associated Companies Development of Shares in Associated Companies All amounts in TEUR Acquisition cost as of 1 May ,292.6 Additions 2,760.4 Acquisition cost as of 30 April ,053.0 Book value as of 1 May ,286.6 Additions 2,760.4 Investor s share in items credited to equity 1,165.2 Share of profit/(loss) for 2003/ Book value as of 30 April ,075.7 Shares in associated companies include a 45% stake in Mester Park Kft. and Mester Park Ost Bt. as well as a 25% stake in European Property Group Ltd. 4.5 Other Financial Assets All amounts in TEUR Investments Securities Other Loans Total in Other Granted Companies Acquisition cost as of 1 May , ,090.2 Additions 17, , ,537.8 Disposals Acquisition cost as of 30 April , , ,628.0 Book value as of 30 April , ,090.2 Book value as of 30 April , , ,466.4 Investments in other companies represent the stakes in Heitman Central Europe Property Partners, Polonia Property Fund L.P. and Atom Center a.s. Securities mainly consist of loans granted and shares in investment funds. 78 Annual Report 2003/2004

82 Notes Other loans granted comprise a mezzanine loan to Atom Centrum a.s. 4.6 Receivables and Other Assets Carrying amount Carrying amount All amounts in TEUR 30 April April 2003 Trade accounts receivable Rents receivable 1, Other Accounts receivable from joint venture partners Accounts receivable from parent company 7, Other receivables and assets Fiscal authorities Property management Financing Accrued interest Insurance Administrative duties Commissions Other 1, Total 11, ,072.5 All receivables and other assets have a remaining term of less than one year. 4.7 Available-for-Sale Securities 4.8 Equity This item includes a TEUR 28,015.9 stake in Globe Trade Centre S.A, which was acquired for TEUR 20, This investment was valued as of the balance sheet date, based on an issue price of PLN 87. The resulting valuation gain of TEUR 7,647.4 is shown under financial results. The development of equity in the IMMOEAST Group is shown on the Statement of Changes in Equity, which forms an integral part ofthese consolidated financial statements. The share capital of IMMOEAST IMMOBILIEN ANLAGEN AG totalled EUR 29,647,080 as of 30 April 2004 and is divided into 29,647,080 no par value shares. The classification of shares as of 30 April 2004 is as follows: Number of Shares Share Capital in EUR Number of Shares Share Capital in EUR 30 April April April April 2003 Registered shares Bearer shares 29,647,078 29,647, , ,253 Total 29,647,080 29,647, , ,255 IMMOEAST 79

83 Notes The extraordinary general meeting of IMMOEAST IMMOBILIEN ANLAGEN AG on 7 November 2003 approved an increase of EUR 24,568,645. in share capital from EUR 137,255. to EUR 24,705,900. from internal funds through the conversion of EUR 24,568,645. of appropriated reserves as shown in the annual financial statements as of 30 April This increase was approved retroactively as of 1 May Share capital was increased through the issue of 24,568,645 new bearer shares, with existing shareholders receiving subscription rights in proportion to their holdings in previous share capital. Following this transaction, share capital was increased from EUR 24,705,900. by EUR 4,941,180. to EUR 29,647,080. through the issue of 4,941,180 new bearer shares. The extraordinary general meeting on 7 November 2003 cancelled the authorisation of the Executive Board to increase share capital by up to EUR 68,627, to EUR 205,882, with or without the exclusion of subscription rights in accordance with 169 of the Austrian Stock Corporation Act. Furthermore, it rescinded the concurrent authorisation of the Executive Board to increase share capital by a further EUR 12,352,950. through the issue of up to 12,352,950 new bearer shares with or without the exclusion of subscription rights in exchange for cash or contributions in kind within five years after an appropriate amendment to the articles of association is recorded in the company register as well as the right to determine the issue price and conditions together with the Supervisory Board. The share premium includes appropriated reserves of TEUR 70,509.3 (2002/03: TEUR 69,877.9) as defined by 130 Par. 2 of the Austrian Stock Corporation Act. The capital increase carried out during the 2003/04 Business Year generated premiums of TEUR 25,200.0, which were credited to the share premium account. Issue costs of TEUR were charged to the share premium account after the deduction of taxes. The TEUR 5,753.6 change in retained earnings includes net profit of TEUR 5,929.9 for the 2003/04 Business Year as well as a TEUR 69.6 change in the cash flow hedge and a valuation change of TEUR in available-for-sale assets. The proportional inclusion of equity components belonging to the EPG Group as part of the equity accounting reduced retained earnings by TEUR 69.6, which were related to the valuation of cash flow hedges by the EPG Group. Changes in retained earnings, resulted from the valuation of available-for-sale assets, comprise TEUR 0.9 of additions and TEUR of reversals before the inclusion of related provisions for taxes. 80 Annual Report 2003/2004

84 Notes 4.9 Financial Liabilities 30 April Thereof Thereof Thereof 30 April 2004 remaining remaining remaining 2003 term less term between term over All amounts in TEUR than 1 year 1 and 5 years 5 years Amounts due to financial institutions 82, , , , ,289.2 Total 82, , , , ,289.2 The key conditions of financial liabilities are as follows: Currency Nominal Value Interest Rate Effective All amounts in TEUR Fixed/Variable Interest Rate Amounts due to financial institutions Loans and advances EUR 83,211, variable 3.50% CHF 9,130, variable 1.80% Changes of TEUR 1,348.4 in exchange rates were recognised to the income statement (2002/03: TEUR 198.4) Trade Accounts Payable 30 April Thereof Thereof Thereof 30 April 2004 remaining remaining remaining 2003 term less term between term over All amounts in TEUR than 1 year 1 and 5 years 5 years Trade accounts payable 3, , ,101.3 Total 3, , , Provisions Provisions were created primarily for taxes aswell as auditing and consulting expenses. This item developed as follows during the reporting year: Other Provisions All amounts in TEUR 2003/ /03 Balance on 1 May Use Reversal Creation Foreign currency incr./(decr.) Change in consolidation range Balance on 30 April , Thereof current 1, IMMOEAST 81

85 Notes 4.12 Other Liabilities All amounts in TEUR 30 April April 2003 Amounts due to Group companies 6, ,288.7 Fiscal authorities Advance rental and leasing payments Property management Financing 0.0 5,517.4 Other 1, Total 8, ,754.9 Other liabilities have a remaining term of less than one year, with the exception of TEUR Provisions for Taxes Deferred tax assets and liabilities as of 30 April 2004 and 30 April 2003 are the result of the following timing differences in valuation or accounting treatment between book values in the IFRS consolidated financial statements and the related tax bases. 30 April April 2003 All amounts in TEUR Assets Liabilities Assets Liabilities Investment property 0.0 6, ,115.6 Intangible assets Other financial assets , Total , ,196.7 Financial liabilities Total Tax loss carry-forwards 3, , Deferred tax assets/liabilities 4, , , ,327.2 Net sum of tax credits and liabilities to the same fiscal authorities Net sum of deferred tax assets and liabilities 4, , , ,317.9 On 6 May 2004 the Austrian parliament approved a reduction in the corporate tax rate from 34% to 25% beginning in In accordance with International Financial Reporting Standards, the provision for taxes was calculated based on the current rate of 34%. The announced reduction in the corporate tax rate will presumably lead to a positive tax effect of TEUR 88.6 for the 2004/05 Business Year. IAS requires the adjustment of TEUR 14.5 directly to be debited to equity. Provisions for taxes totalling TEUR 54.9 were directly credited to equity. This item was set off with the change in the fair value reserve for presentation in the statement of changes in equity. 82 Annual Report 2003/2004

86 Notes 5. Notes to the Income Statement 5.1 Revenues Detailed information on revenues is presented by region (primary segmentation) and sector (secondary segmentation) under segment reporting, which forms an integral part of these consolidated financial statements. The management approach that forms the basis for IAS 14 requires primary segments to be defined so as to reflect the internal reporting structure of the company. Rental revenues are classified by sector as follows: All amounts in TEUR 2003/04 % 2002/03 % Offices 5, , Logistics/commercial 1, Recreation/hotel Residential Car parks and parking spaces Rental income 7, , Operating costs 1, Other revenues Revenues 9, , Other Operating Income All amounts in TEUR 2003/ /03 Reversal of negative goodwill Reversal of provisions Reversal of valuation adjustments to receivables Insurance compensation Other Total 1, Expenses related to Properties All amounts in TEUR 2003/ /03 Operating costs charged on 1, Maintenance Other regular expenses Commissions Vacancies Other directly allocated expenses Total 1, ,043.3 IMMOEAST 83

87 Notes 5.4 Other Operating Expenses All amounts in TEUR 2003/ /03 Administration 1, Legal, auditing and consulting fees Taxes and duties Advertising Commissions Rental and leasing expenses Other 1, Total 4, , Financial Results All amounts in TEUR 2003/ /03 Interest and similar income 1, ,448.0 Interest and similar expenses -3, ,281.2 Net financing costs -1, Profit/(loss) on financial assets and proceeds from the disposal of financial assets Share of profit/(loss) from investments in other companies 7, Profit/(loss) on financial assets 8, Share of profit/(loss) from associated companies Financial results 6, The valuation of the shares owned in Globe Trade Centre S.A. led to a gain of EUR 7,647.4 (see 4.7), which is included under financial results. 5.6 Income Taxes This item includes income taxes paid or owed by Group companies and provisions for deferred taxes. All amounts in TEUR 2003/ /03 Income tax expense Tax provisions -2, Total -2, The difference between theoretical income tax expense (profit before tax multiplied by the national tax rate of 34%) and actual income expense for 2003/04 as per the income statement is due to the following factors: All amounts in TEUR 2003/04 % 2002/03 % Profit before tax 8, Income tax expense at tax rate of 34% -2, Foreign tax rates Changes in tax rates Amortisation of goodwill/reversal of negative goodwill Other non-temporary differences Effective tax rate -2, Annual Report 2003/2004

88 Notes 6. Notes to the Statement of Cash Flows The Statement of Cash Flows for the IMMOEAST Group shows the changes in cash and cash equivalents resulting from the inflow and outflow of funds during the reporting year. The Statement of Cash Flows distinguishes between cash flows from operating activities, investing activities, and financing activities. Cash flow from operating activities is calculated using the indirect method in accordance with IAS 7.18 (b). Cash and cash equivalents of TEUR 2,394.5 are attributable to proportionately consolidated companies. All information required by IAS 7 is provided in the statement of cash flows. The following assets and liabilities, which were acquired through the purchase of property companies, are stated at fair value: All amounts in TEUR 2003/04 Cash and cash equivalents Receivables and other assets Deferred tax assets 1,136.8 Property 41,291.4 Financial liabilities -20,164.3 Trade payables Other liabilities -4,518.2 Tax provisions -3,726.4 Net assets acquired 14,484.0 Negative goodwill -3,498.2 Total purchase price 10,985.7 Less cash and cash equivalents acquired Net purchase price for property companies 10,837.5 Acquisitions of investment property companies totalled TEUR 10,985.7; this amount was paid in cash. Cash and cash equivalents comprise the following: All amounts in TEUR 2003/ /03 Available-for-sale securities ,556.7 Liquid funds 30, ,586.7 Cash and cash equivalents 30, ,143.4 Liquid funds as shown on the Statement of Cash Flows comprise exclusively cash and cash equivalents. Available-for sale securities were also included under this item in the previous year because these investments had a remaining term of less than three months and therefore met the classification requirements for cash equivalents under IAS 7.7. IMMOEAST 85

89 Notes 7. IAS 40 Fair Value Model IAS 40 provides an option for the reporting of investment property, and allows companies to choose between the fair value model and cost model. IMMOEAST AG continues to account for investment property at cost less accumulated depreciation. Especially in the international arena, the fair value model is becoming more and more the method of choice. IMMOEAST has opted to also present a fair value income statement in the interest of providing the greatest possible transparency following the inclusion of the share of the parent company, IMMOFINANZ IMMOBILIEN ANLAGEN AG, in the GPR 15 Real Time Index and MSCI World Index. IMMOEAST AG thereby follows a recommendation by the European Public Real Estate Association (EPRA), an organisation of listed property companies in Europe. Application of the fair value model and the recognition of changes in fair value to the income statement yield the following: Cost Fair Value Model Model 2003/ /04 in TEUR Expense Income in TEUR Revenues 9, ,944.0 Revaluation of investment property (IAS 40) 4,252.8 (1) 4,252.8 Other operating income 1, ,258.8 Depreciation and amortisation -2, ,615.5 (2) -1,132.2 Expenses related to properties -1, ,636.7 Other operating expenses -4, ,699.6 Personnel expenses Operating profit (EBIT) 2, , ,987.1 Net financing costs -1, ,826.6 Profit/(loss) on financial assets 8, ,259.3 Share of profit/(loss) from associated companies Financial results 6, ,296.3 Earnings before tax (EBT) 8, , ,283.3 Income taxes -2, ,485.2 Deferred taxes from revaluation (IAS 40) -1,509.2 (1) (2) -1,509.2 Net profit for the period 5, , , ,288.9 Undiluted and diluted earnings per share in EUR (1) (2) 0.39 The revaluation of investment property (1) resulted in a gain of TEUR 4, A deferred tax asset was recognized for this gain, which using the tax rate applicable for the country in which the property is located. Depreciation on investment properties (2), which was recorded under the fair value model, was cancelled. In this case, a provision for taxes was recognized in keeping with the tax rate of the country in which the property is located. The adjustment of net profit to reflect the fair value model leads to an increase of EUR 0.17 in earnings per share. 86 Annual Report 2003/2004

90 Notes 8. Other Information 8.1 Financial Instruments IAS 32 and IAS 39 distinguish between financial instruments and derivative. Financial instruments include investments in other companies that are reported under financial assets, securities and loans granted, trade accounts receivable, available-forsale securities, deposits with financial institutions, debt, and trade accounts payable. The volume of financial instruments held by the Group is shown on the balance sheet. The maximum credit risk equals the amounts shown under assets on the balance sheet. The risk associated with receivables due from tenants is low because the credit standing of all tenants and customers is reviewed on a regular basis, and no single tenant or customer is responsible for more than 5% of total outstanding receivables. The risk of non-payment associated with other financial or derivative instruments is also low because all financing transactions are concluded with financial institutions that have excellent credit ratings. Risks associated with interest rate fluctuations are related primarily to long-term borrowings and changes in the fair value of derivative instruments. A list of all major interest-bearing liabilities with information on the effective interest rate and remaining term as well as information on existing hedges are provided under Note 4.9. Foreign exchange risks on liabilities are associated with loans concluded by subsidiaries (see Note 4.9). These obligations are generally offset by rental income, which is calculated monthly based on the Euro exchange rate. The fair value of financial assets and financial liabilities is indicated by the relevant item. The fair value of the remaining primary financing instruments is generally equal to book value because these items are payable on demand or short-term in nature. 8.2 Earnings per Share In accordance with IAS 33, earnings per share are calculated by dividing net profit for the period by the weighted average number of issued shares. 2003/ /03 Total number of shares 29,647,080 24,705,900 Weighted number of shares 26,722,984 24,705,900 Net profit in EUR 5,929,895 20,165 Earnings per share in EUR IMMOEAST 87

91 Notes Separate information on diluted earnings per share is not provided because the company has no dilutive potential ordinary shares. The comparative information for earnings per share was restated to reflect the higher number of shares that resulted from the capital increase in accordance with IAS Information on the Company The members of the Executive Board and Supervisory Board of IMMOEAST AG are as follows: Executive Board: Karl Petrikovics CEO Norbert Gertner Member Supervisory Board: Helmut Schwager Chairman Wolfgang Reithofer Vice-Chairman Christian Böhm Herbert Kofler Erhard Schaschl 8.4 Related party transactions The company has concluded an agreement with Constantia Privatbank Aktiengesellschaft, Vienna, for the provision of administrative services (asset management, finance and accounting, management, selection of properties, purchase negotiations etc.). Constantia Privatbank Aktiengesellschaft provides IMMOEAST with a complete infrastructure and personnel. Payment for the calendar year was set at 1% of new investments and commissioned projects plus 0.60% of existing properties at the beginning of the year. This second component is linked to the consumer price index. In addition, Constantia Privatbank Aktiengesellschaft also receives an annual payment equal to 0.60% of stakes in other companies that are purchased by member companies of the Group. For the 2003/04 Business Year, Constantia Privatbank Aktiengesellschaft charged administrative fees of TEUR 1,854.9 (2002/03: TEUR 836.7) to IMMOEAST AG. The company also conducts investment and service transactions with the Constantia Privatbank Group and IMMOFINANZ IMMOBILIEN ANLAGEN AG at arm's length conditions. As of the balance sheet date IMMOEAST AG had concluded financing of TEUR 7,801.3 with IMMOFINANZ IMMOBILIEN ANLAGEN AG at arm's length conditions. 88 Annual Report 2003/2004

92 Notes The Executive Board receives no compensation from the company. The members of the Supervisory Board do not receive any compensation as well. IMMOEAST AG is included in the consolidated financial statements of IMMOFINANZ IMMOBILIEN ANLAGEN AG; the executive boards of these two companies are identical. 8.5 Subsequent Events Negotiations to acquire the IRIDE Business Park in the Romanian capital of Bucharest were successfully concluded after the end of the reporting year. The purchase price for the Business Park equals roughly EUR 63 million. This property has 55,000 sqm of usable space, which is divided into 35,000 sqm of offices and 20,000 sqm of warehouse facilities. IMMOEAST AG substantially increased its presence in Budapest through the acquisition of three properties after the end of the reporting year. The Szépvölgi Business Park was completed in July 2004 and has 15,400 sqm of usable space, and is the most modern office building in the Hungarian capital. The West Gate Business Park will be constructed in a number of stages; the first 12,500 sqm of this office and commercial facility are fully rented to international tenants. The modern Globe 3 has 7,900 sqm of office space, and is located in the centre of Altbuda in the 3rd District. On 6 May 2004 the Austrian parliament approved a reduction in the corporate tax rate from 34% to 25% beginning in the year 2005 (see 4.15). These consolidated financial statements were completed and signed by the Executive Board of IMMOEAST AG on 23 July Vienna, 23 July 2004 The Executive Board of IMMOEAST IMMOBILIEN ANLAGEN AG Norbert Gertner Member Karl Petrikovics CEO The consolidated financial statements of IMMOEAST AG and all relevant documents will be filed with the Company Register of the Commercial Court in Vienna under registry number d. IMMOEAST 89

93 Notes Major differences between the Austrian Commercial Code and IFRS accounting principles General Differences Goodwill Deferred Taxes Other Provisions Foreign Currency Valuation Issue Costs Austrian accounting standards and International Financial Reporting Standards (IFRS) are based on fundamentally different principles. The Austrian Commercial Code places the principle of caution and protection of creditors in the foreground, while the primary goal of accounting under IFRS is the provision of appropriate decision-useful information for shareholders. For this reason, IFRS places a higher value on the comparability of annual financial statements than the Austrian Commercial Code. In accordance with IAS 22, goodwill or the difference between the acquisition cost of an investment in a company and the fair value of net assets acquired is capitalised and amortised over the estimated useful life. The Austrian Commercial Code allows a credit to reserves, with no effect on the income statement. IFRS require the recognition of deferred taxes on all temporary differences arising between the financial statements prepared for tax purposes and IFRS financial statements; in such cases deferred taxes are calculated based on the current actual tax rate. IFRS also require the calculation of deferred tax assets on tax loss carry-forwards that are expected to be realised in the future. The Austrian Commercial Code calls for the creation of provisions for deferred taxes on timing differences if a tax liability is expected to arise when these differences are reversed. In contrast to the Austrian Commercial Code, IFRS interpret the principle of caution differently with respect to provisions. IFRS tend to place stricter requirements on the probability of an event occurring and on estimating the amount of the provision. Under IFRS the exchange rate in effect on the balance sheet date is used to translate foreign exchange liabilities; the historical exchange rate in effect on the date of the initial recognition is disregarded. In contrast to Austrian accounting practice, IFRS therefore recognise both unrealised gains and unrealised losses. In keeping with SIC (Standing Interpretations Committee) 17, directly allocable external transaction costs associated with a security offering shall be recorded as a reduction of equity after the deduction of any related income tax benefits. The Austrian Commercial Code requires these transaction costs to be expensed in their entirety. 90 Annual Report 2003/2004

94 Notes GROUP COMPANIES of IMMOEAST IMMOBILIEN ANLAGEN AG Initial Type of Share Consoli- Consoli- Company Headquarters Share Capital Currency Owned dation dation IMMOEAST IMMOBILIEN ANLAGEN AG Vienna 29,647,080 EUR IMMOEAST Beteiligungs GmbH Vienna 35,000 EUR 100% V I-E Immoeast Real Estate GmbH Vienna 35,000 EUR 100% V Mester Park Kft. Budapest, H 626,000,000 HUF 45% E Mester Park Ost Bt. Budapest, H 1,403,000,000 HUF 45% E European Property Group Ltd. Tortula, BVI 133,902,000 CHF 1) 25% E Arpad Center Kft. Budapest, H 31,000,000 HUF 100% V Globe 13 Kft. Budapest, H 50,000,000 HUF 100% V IMMOFINANZ Hungária Harmadik Kft. Budapest, H 3,000,000 HUF 100% V Lentia Real (1) Kft. Budapest, H 227,000,000 HUF 100% V S+B CEE Beteiligungsverwaltungs GmbH Vienna 35,000 EUR 50% Q BSF Property Development, spol.s.r.o. Prague, CZ 100,000 CZK 50% Q SBF Development, spol.s.r.o. Prague, CZ 30,600,000 CZK 50% Q ODP Office Development Praha spol.s.r.o. Prague, CZ 10,700,000 CZK 50% Q WEGE, spol.s.r.o. Prague, CZ 100,000 CZK 50% Q SB Praha 4, spol.s.r.o. Prague, CZ 26,532,000 CZK 50% Q RHP Development s.r.o. Prague, CZ 200,000 CZK 50% Q VERDI Development s.r.o. Prague, CZ 200,000 CZK 50% Q ALAG Beta Praha spol. s.r.o. Prague, CZ 100,000,000 CZK 50% Q ALAG Delta Praha spol.s.r.o. Prague, CZ 100,000 CZK 50% Q VSP VALDEK PRAHA Prague, CZ 100,000 CZK 50% Q Immofinanz Polska Sp.z.o.o. Warsaw, Pl 50,000 PLN 100% V ATLAS 2001 CR s.r.o. Prague, CZ 200,000 CZK 100% V 1) The application of the equity method is based on the last available financial statements as of No adjustments were required to reflect significant events or business transactions. V= Full consolidation, Q = Proportional consolidation, E = Equity accounting IMMOEAST 91

95 Auditor s Opinion Auditor s Opinion We have audited the accompanying consolidated financial statements of IMMOEAST IMMOBILIEN ANLAGEN AG as of April 30, 2004 prepared in accordance with International Financial Reporting Standards (IFRS). These financial statement are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Austria and International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of IMMOEAST IMMOBILIEN ANLAGEN AG as of April 30, 2004, and the results of its operations and its cash flows for the year then ended in accordance with IFRS. We confirm that the Management Report complies with the consolidated financial statements. Vienna, July 23, 2004 KPMG Alpen-Treuhand GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft Mag. Dr. Johann Perthold Mag. Yann-Georg Hansa Certified Public Accountants On publication (except publication prescribed by law) or circulation of the combined financial statements in a version deviating from the certified English and German versions (e.g. abbreviation or translation into other languages), our auditors opinion or audit may only be refferred to with our permission. 92 Annual Report 2003/2004