01 Annual Report

2017 was another great chapter for HB Reavis. We had already raised our profile from a leading Slovak developer; combining our integrated services and country operations to become a Central European heavyweight.

Maarten J. Hulshoff, Non-Executive Director

2017

02 Introduction

Message from Maarten J. Hulshoff

Message from Maarten J. Hulshoff

We are no longer just a bricks and mortar company – we are now also a service business that offers clients office solutions that help them improve productivity and even attract and retain talent.

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From the CEO

From the CEO

This is the last time that I will reflect officially on our past year. Honestly, I was hoping for a better financial result than an 8% return to shareholders. But when I look at our potential, I am optimistic that our platform’s capabilities and fundamentals are very strong, and will cement our status as one of Europe’s leading workspace players.

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Ivan Chrenko

Ivan Chrenko

Co-founder and Chairman of the Board, and our Chief Executive Officer from 1993 to October 2013.

Maarten J. Hulshoff

Maarten J. Hulshoff

Independent Non-Executive Director – Before he joined us ten years ago, Maarten was CEO of Rodamco Europe and Rabobank International, after 19 years in a number of senior international positions at Citibank.

Pavel Trenka

Pavel Trenka

CEO

Our CEO since October 2013, Pavel joined us in late 2007. A former Associate Partner at McKinsey & Company, he was primarily responsible for our Group strategy, international expansion and transformation.

Marian Herman

Marian Herman

CFO

Marian joined us in March 2010 and was promoted to Group Chief Financial Officer in November 2014. Marian has 18 years’ experience in various financial, investment banking and investment management positions. In his previous role here, he was responsible for the Group’s divestments and real estate funds. Previously, Marian worked for over 10 years in London at RREEF (Deutsche Asset & Wealth Management), Deutsche Bank and ING Group.

Rene Popik

Rene Popik

Member of the Board

Rene is a long-standing executive of the Group who was promoted to the Board in early 2017. Formerly Development Manager of Aupark Shopping Centre in Kosice, and later Head of Development in Poland, he currently leads our Group development activities and oversees our Slovakia business.

Radim Rimanek

Radim Rimanek

Member of the Board

Before Radim joined us in the spring of 2012, he worked for Dun & Bradstreet and McKinsey & Company in New York and Prague. As an Executive Director, he is responsible for international office leasing and our Czechia and UK development activities.

Peter Ceresnik

Peter Ceresnik

Member of the Board

Peter joined HB Reavis in September 2016 and took responsibility for our leasing, marketing and IT, as well as our new Origameo and HubHub services. Peter previously held leadership positions within the IT sector as General Manager at Exe and Country Manager at both Microsoft and the SAS Institute.

Robert Kantor

Robert Kantor

Member of the Board

Robert joined us in 2000, leading our Asset Management and Retail Leasing activities before joining the Executive Board in 2013. After his promotion, Robert also took responsibility for all our construction delivery activities. Previously, he managed a family business in the machine industry.

03 Our people & culture

Headcount 2017, by profession

Headcount 2017, by country

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Years with the company

Company mindsets

In 2014, we defined the ultimate purpose of all our business endeavours as ‘bringing remarkable experience to people’s lives through real estate solutions’.

At the time, we meant mostly the people outside of our organisation – our tenants, customers, external partners, investors, neighbours and of course our end-user community.

In the following years, we implemented this purpose into our daily lives. It supported the company vision and strategy, identifying six core company mindsets, key elements of our corporate culture that were always present and made the business successful and a great place to be.

The initiative that helped us educate the whole organisation and embed these principles into our employees’ daily lives was called ‘building the future’. Its aim was to transform us into a trendsetting, successful and inclusive organisation that would inspire other businesses in our industry and geographical region, and outside of it.

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Company mindsets

04 Our vision & strategy

In 2014, we set ourselves a vision of where we want to be in five years: Vision 2019. It has three pillars.

Last year, we made significant progress on all three pillars and feel confident that we’re on course to achieving our vision.

The strategy to deliver our Vision was broadened with some vital new strategic initiatives, and we also accelerated other programs, going deeper into implementation.

Despite our projects’ long delivery cycles, each of our pillars has already achieved something tangible in 2017. More importantly, the impact is starting to promisingly flow through to our client interactions and financials.

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Being a trendsetter in workspace solutions

Being the most attractive employer for industry professionals

Being a leading pan-European player with global ambitions

Beyond our core business strategy to be uniquely competitive and deliver on our Vision; we have also created an acquisition strategy and financial framework.

Building an attractive and sustainable pipeline

In Central Europe, we focused on building our office project pipeline in strategically selected business districts to:

  • continue the Group’s high quality workspace offering and bring remarkable experiences to people
  • develop products that are uniquely different from the competition
  • secure projects earlier in the development chain, so we move up the permits risk curve in search of greater value

What we achieved in 2017

During 2017, we worked specifically on reinforcing pipelines in Prague and London, and on our initial entry into Germany. We also analysed every reasonable opportunity in Budapest, Warsaw and Bratislava.

  1. In Poland we acquired our first project outside Warsaw - 46,000 sq/m directly connected to the new train station and within an emerging CBD in Lodz.
  2. In Prague, we continued to build our pipeline with a sixth office project - Merkuria in Holesovice, Prague 7
  3. The acquisition of One Waterloo (Elizabeth House), a landmark development opportunity directly next to the Waterloo station, confirms our appetite to invest in uncertain times.
  4. In May 2018, with the acquisition of our first two German sites, in Berlin (45,000 sq m) and Dresden (40,000 sq m).

Core business strategy

2017 was a year when most of our strategic initiatives progressed from developing the proof of concept into deployment within our projects and organisation. We also crystallised the mix of products and services we want to provide to clients and users, and eventually to other landlords/investors.

In response to that crystallisation, we have made a few key adjustments to our business strategy:

  • Shift of focus from B2B to B2U
  • Shift to focus on large-scale business hubs
  • Shift from developer to developer and operator

What we achieved in 2017

  1. Bubbles, our know-how platform for user-centric design, was structured along five productivity domains and 18 elements (bubbles) representing how the built environment might affect people.
  2. Origameo, our workspace advisory unit, has completed 11 client engagements since its foundation in 2016.
  3. HubHub, our co-working platform and business programming services provider, has progressed from an idea into two centres in Warsaw and Bratislava that provide space for about 200 members.
  4. Smart Building 1.0, is our tech initiative to transform projects from hardware to hardware with software. This will uniquely improve our buildings’ functionality and user experience over time.
  5. Asset Management 2.0, effectively upgrades what clients, but especially users, can expect from an active operator like HB Reavis.

Financial Framework

First, our long-term aim is to achieve and keep a 50:50 share of development and income producing assets, and therefore balance our risk and return. Since 2010, we have increased our share of developments from 33% to 45% (at year-end 2017).

Secondly, as we grow in size and our asset base diversifies across countries and development stages, we have opted to slightly soften our conservative external financing strategy. Our target net debt leverage has increased from 30-35% to 35%. However, despite significant year-on-year increase, our net debt leverage stood below 27% at year-end.

While both changes may gradually increase our risk profile; we believe our balance sheet policy is still fairly conservative but provides us with more room to seize interesting opportunities in bottoming or improving market environments.

05 Key projects

33 Central
Valuation€279.2m
GLA21,105 m²
Occupancy100%
West Station II
Valuation€89.8m
GLA37,977 m²
Occupancy87%
Twin City Tower
Expected valuation at completion€113m
Expected GLA35,300 m²
Expected completionH2/2018
Agora Hub
Expected valuation at completion€101m
Expected GLA34,500 m²
Expected completionH2/2019
Agora Tower
Expected valuation at completion€102m
Expected GLA34,100 m²
Expected completionH2/2019
20 Farringdon Street
Expected valuation at completion€138m
Expected GLA7,700 m²
Expected completion4/2018
Cooper & Southwark
Expected valuation at completion€116m
Expected GLA7,200 m²
Expected completion4/2018
Nivy Tower
Expected valuation at completion€102m
Expected GLA30,800 m²
Expected completionH2/2019
Varso 1
Expected valuation at completion€153m
Expected GLA29,800 m²
Expected completionH2/2019
Varso 2
Expected valuation at completion€254m
Expected GLA44,800 m²
Expected completionH2/2019
Varso Tower
Expected valuation at completion€421m
Expected GLA70,300 m²
Expected completionH2/2020
Stanica Nivy
Expected valuation at completion€403m
Expected GLA105,100 m²
Expected completionH2/2020

Market value on completion, by country

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Market value on completion, by segment

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Planned Gross Leasable Area, by phase

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06 How we performed

In 2017, our financial performance slightly improved. However, it’s still lagging behind our long-term target due to permit delays.

The Group generated a total comprehensive income of €96.5m (€85.2m in 2016). This translates into a 7.6% return on shareholders’ equity (6.9% in 2016). Our balance sheet grew to €2.3bn, and adjusted net asset value reached around €1.27bn at the end of 2017. At 26.8%, the Group’s net debt leverage returned closer to our target. In addition, the business performed well: we signed leasing contracts worth over 108,000 sq m of GLA with 207 clients, 75% of which was new business.

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Gross development value of projects under construction (€m)

33 Central, London

In 2016, we negotiated the forward sale of 33 Central to Wells Fargo which completed in 2017. In the first quarter of 2017, we secured 127m GBP financing for the project, our first in the UK. Then, in December, we successfully divested and handed the keys to Wells Fargo.

Acquisitions

The acquisition of One Waterloo (Elizabeth House) in London was the largest in our history. The project has a prominent location at South Bank next to Waterloo Station, and has an office led permit in place for almost 96,000 sq m of GLA. We plan to optimise the current permit and start construction in 2020. In last quarter of 2017, we bought our first Polish site outside Warsaw. The acquisition in Lodz involves developing around 46,000 sq m of predominantly office GLA in two phases.

Leasing

Even though slightly below our ambitions, our Group’s leasing teams did a solid job, finding no less than 108,000 sq m of GLA for our existing or new clients. The biggest included Wincor Nixdorf with 11,166 sq m; Astra Zeneca with 6,244 sq m and Euronet Polska with 3,461 sq m (all in Warsaw). However, start of the 2018 was exceptionally strong on the back of client activities from last year. In first 100 days our teams signed about 76,000 sq m of GLA with great brands like, Cambridge Innovation Center in Warsaw or CBRE in London and a major international technology company in Bratislava. For the first time we also signed a 25-year lease with leading hotel brand operator to enhance value proposition of Varso Place, our landmark development in Warsaw.

Start of the HubHub operation

HubHub is our co-working platform and business programming services provider. In the first half of the year, it grew from a simple idea to providing space for about 200 members across two sites, in Warsaw and Bratislava.

Varso Place – Central Europe’s first pre-certified WELL building

Varso Place is set to be an exceptional mixed-use space, with a 230m tower (310m with the spire) and two smaller buildings. At 145,000 sq m of GLA, it’ll be Warsaw’s largest business centre – and its designers and engineers are crafting the unique workspace that encourage both productivity and good health. These elements, introduced at the design and construction stage, led to a Gold WELL Precertification: the first in Central Europe.

The world’s first zone registered for BREEAM Communities Assesment Certification

New Nivy, a new business district we’re developing in Bratislava, became the first urban area in the world to be registered with the new BREEAM Communities International standard. The well-connected district is around 230,000 sq m in total. The zone includes eight separate developments including Nivy Station – an inspirational, international bus station complete with contemporary shopping destination and fresh food market. New Nivy will be a well-planned new hub for the city, and comprehensive reimagining of a brownfield site.

Founding member of Well Living Lab Alliance

We are the first European headquartered developer to join the Well Living Lab Alliance and are participating as a founding member of this global consortium. The Lab pioneers research on the effect of the indoor environments on health and wellbeing. Our membership underlines a strong commitment to creating enjoyable workplaces where people can thrive. Based in Rochester, Minnesota, the Well Living Lab is the first scientific research centre to analyse this relationship. A collaboration between Delos, a wellness real estate and technology company and world leading medical provider Mayo Clinic; the lab has access to some of the industry’s brightest minds, and a wealth of innovative knowledge.

Financial highlights

Comprehensive income (€m)

Revaluation gain (€m)

Net Debt Leverage Ratio

Net Asset Value (adjusted, €m)

Return to shareholders

2015 - 2017: Completed office space, (in sq m)

07 Business review

We aim to set trends in office space solutions. We aspire always bring something more than clients and communities expect from us. Something that will differentiate our projects from others. We believe this is the right way to create greater value for our partners, clients and local communities, and for our shareholders to achieve their projected growth and desired return as well.

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Changes in Group development property value, €m

Average growth of total office stock in our four Central European capitals slowed down slightly to 3.8% (2016: 4.1%). New supply of 576,300 sq m was also a little down (2016: 633,000 sq m) – a 9% year-on-year decrease. In terms of the size of the Central European capitals in which we operate, Warsaw’s office stock is still the largest reaching almost 5.3m sq m in 2017, followed by Budapest with more than 3.4m sq m, Prague with 3.3m sq m and Bratislava in fourth place with more than 1.7m sq m.

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Total office stock, thousand sq m GLA

Figures based on external expert valuations and management report.

Leasing activity by country 2016

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Leasing activity

Geographically, the structure of our whole development portfolio is shifting, with the UK and Poland clearly increasing in weight.

At year-end 2017, the share of UK assets represented 44% of the whole portfolio; Poland 17%; Czechia 9%; Slovakia 23%; and Hungary 7%, all based on the expected gross development value. As far as segments are concerned; during 2017 our strategic focus on office development reflects its 94% share of our development portfolio value, while retail accounts for 6% based on gross development value.

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HB Reavis development total GLA (m²) ERV GDV Value change Investments
Retail 105,068 22.8 403 28.1 4.2
Office 1,172,762 342.7 6,832 548.0 441.4
Total development 2017 1,277,830 365.5 7,235 576.0 445.6
Additions to porfolio 2017 31,534 7.4 71 3.5 3.5
Completions 2017 59,082 23.7 443 76.3 52.9
Retail 105,068 22.8 403 28.1 4.2
Office 1,145,214 326.4 6,460 475.2 392.0
Total Pipeline for 2018 1,250,282 349.2 6,864 503.3 396.2

Figures based on external expert valuations and management report.
All figures in €m, except GLA.

United Kingdom

-€2.1m operating profit
€439.5 in investment property
21,105 m² GLA developed
141,000 m² GLA under preparation
51 professionals

Slovakia

€58.0m operating profit
€522.6m in investment property
602,323 m² GLA developed
502,000 m² GLA under preparation
382 professionals including Group functions

Czechia

€3.2m operating profit
€149.5m in investment property
160,345 m² GLA developed
191,000 m² GLA under preparation
57 professionals

Poland

€27.8m operating profit
€658.1m in investment property
251,657 m² GLA developed
255,000 m² GLA under preparation
148 professionals

Germany

4 professionals

Hungary

€16.1m operating profit
€80.4m in investment property
21,603 m² GLA developed
161,000 m² GLA under preparation
35 professionals

Luxembourg

3 professionals

08 Group at glance

1.06 million

m² GLA developed

1.25 million

m² GLA under preparation

235.3 million

Operating profit

681

proffesionals

€3.2 billion

Gross Development Value

450

clients

66,500

users

United Kingdom

-€2.1m operating profit
€439.5 in investment property
21,105 m² GLA developed
141,000 m² GLA under preparation
51 professionals

Poland

€27.8m operating profit
€658.1m in investment property
251,657 m² GLA developed
255,000 m² GLA under preparation
148 professionals

Czechia

€3.2m operating profit
€149.5m in investment property
160,345 m² GLA developed
191,000 m² GLA under preparation
57 professionals

Slovakia

€58.0m operating profit
€522.6m in investment property
602,323 m² GLA developed
502,000 m² GLA under preparation
382 professionals including Group functions

Hungary

€16.1m operating profit
€80.4m in investment property
21,603 m² GLA developed
161,000 m² GLA under preparation
35 professionals

Luxembourg

3 professionals

Germany

4 professionals

Market value on completion, by country

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09

2017’s occupational markets performed much more strongly than anticipated. Leasing volumes across central London totalled 1.09m sq m, 14% ahead of the 10 years average, and 10% ahead of the five years prediction. There were major London contracts with Deutsche Bank, Dentsu Aegis, Freshfields, Spotify, BGC and Arup, highlighting the capital’s appeal. And the trend of larger transactions (38 over 4,600 sq m) and preleasing (55% of all projects in build are already let) has continued. The serviced, or flexible, office market also had its strongest year with 21% (almost 232,000 sq m) of all new contracts.

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Changes in UK development property value (€m)

Central London

Radim Rimanek

Here in the UK, we’re in the midst of a real estate revolution. Companies are demanding far more flexibility from their premises. It’s a reaction to shortening business cycles, rapidly accelerating technologies and uncertainty around events like Brexit.

And that’s not all. There’s a weight of momentum behind occupational wellbeing. Employees are demanding spaces that mirror their professional and personal values, and environments that enhance their ability to thrive. The result? Both the physical form of the office and the contractual way it is leased is changing.

We have clear plans in response to this, including a commitment to make all our projects WELL certified and bring our co-working platform to the UK. It’s what will set us apart from our rivals, who are mainly already well established public companies.

As a private firm, we are free to be more agile and intuitive. As one the very few integrated developers, we have more control over the quality, speed and sophistication of our projects. Together, these unique attributes have allowed us to bring disruptive solutions to our occupier clients’ needs. We will continue in making bold decisions that create long-term value – and meet the demands of the office leasing revolution.

Radim Rimanek

33 Central, London

It will forever be an exceptional milestone in HB Reavis’ history. The acquisition of an existing office building at 33 King William Street in the City was completed in late 2013.

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20 Farringdon Street, London

The existing office building at 20 Farringdon Street was acquired in October 2014 for £29m. The building already had valid planning consent in place for the redevelopment of 6,800 sq m of new office GLA.

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Cooper & Southwark, London

In April 2016, we acquired 61 Southwark Street, our first refurbishment and extension project in London. The building's location in the South Bank area perfectly complements our existing Central London portfolio.

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One Waterloo (Elizabeth House), London

We completed the purchase of One Waterloo (Elizabeth House) over the summer of 2017, our fourth and largest major investment in London to date. At the time of the transaction, the consented scheme comprised 88,000 sq m GLA of which 68,900 sq m was office, 1,200 sq m was retail and 17,900 sq m was residential space. Our ethos is to create remarkable places and experiences for people, and we believe we’ll have that opportunity right here by Waterloo Station.

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In total, €5.1bn was invested in the Polish office market in 2017. That’s not just more than ever before; but far in excess of the €4.6bn spent in 2016. Unsurprisingly Poland is still the CEE’s leader with a 40% share, ahead of Czechia (26%) and Hungary (13%).

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Changes in our Polish development property value (€m)

Warsaw

Stanislav Frnka

It’s been a great year for HB Reavis Poland. And given Warsaw’s potential, it’s a natural base for our operations. This is where our important clients and investors are, or at the very least are looking to be involved.

In total, we won 38 new clients last year, leasing over 52,000 sq m of GLA. That’s 10,000 sq m more than 2016, when we also led the Warsaw market.

It’s a sign that the Warsaw office market is maturing, becoming increasingly demanding and competitive. And with projects like Varso Place, innovations like HubHub, and our broader international gravitas; we’re standing out from the crowd and are looking to continue our success.

That said; we’ve only been here a short time compared to our main competitors. So, we put a lot of effort into PR and marketing in 2017. The results are startling. All our key audiences, including clients, subcontractors, employees and the media, are now familiar with our brand. We look forward to telling them more of our story over the coming year.

Speaking to clients, it’s clear that we’re known for the quality of our buildings. Not just the design and equipment, but also their flexibility and durability. It’s a good reputation to have. With such low unemployment rate, clients are very much in a war for talent, and office space is one of the key battlegrounds.

More generally, there’s a clear social focus on employee health and well-being. This will prove vital to us as we launch business lines and forge new tech and start-up partnerships that focus on healthier working environments. We are confident that with our focus on WaaS we can help them win that battle.

Stanislav Frnka

West Station II, Warsaw

The second phase of the project, West Station II (37,977 sq m of GLA), followed in its older sister’s footsteps to complete six months ahead of schedule. Construction stretched from November 2015 to August 2017, after which we started handing it over to its tenants. At the time of the completion, the building was 68% leased. By April 2018, that had risen to 87% and we expect it to be fully leased soon.

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Varso Place, Warsaw

Varso Place (144,900 sq m of GLA) received valid building permits just before the end of 2016 and we immediately launched construction, which ran at full speed during the reporting year.

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Burakowska, Warsaw

HB Reavis acquired a 2 hectares plot at Burakowska Street in Warsaw in July 2015. The purchase price was €17m and we’re working on developing an office scheme with approximately 78,600 sq m of GLA.

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Office project in Lodz

The development site is located in the central zone of the city of Lodz next to Lodz Fabryczna railway station. The investment area is nearly 1.1 hectares. It’s part of the New Centre of Lodz (NCL) district, an area located in the city centre currently undergoing and planned revitalization.

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The real estate market has a very positive outlook in Czechia. Economic growth has created a good environment for sophisticated office space.

In practice, virtually all developers are focusing on lifestyle features; with sustainability, green spaces and amenities high on clients’ lists of priorities. The big issue, however, revolves around permits. A large legislative backlog has built up, stalling essential infrastructure projects as well as commercial developments. It’s not just a problem for the capital either; numerous developments around the country are waiting to be green lit.

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Changes in Czech development property value (€m)

Prague

Petr Herman

In the last year we successfully continued the development of our business in Czechia – we divested River Garden II/III offices as well as multimodal logistics centre, Lovosice, our latest logistic project in Czechia. We also acquired a new building, Merkuria, that should be our key tool for the revitalisation of the Holesovice neighbourhood nearby in Prague.

Our ambitious office project at Vinohradska Street, an energy efficient and modern poly-functional building in the heart of Prague, is designed to meet the requirements of BREEAM and WELL certificate and will stand out through its roof terraces and superb city views.

Our clients are responding to a competitive labour market by firstly creating new types of jobs; but more importantly investing into offices and workspaces that create a tangible lifestyle. Effectively, we’re providing a point of difference from their competitors.

We’re proud to be considered by our clients as the company that pushes boundaries to create new, non-traditional, innovative solutions and services, and delivers outstanding fit-out solutions.

The upcoming year is set to be a busy one. As our permits work their way through the legislative system, we will scale up our operations and work to bring our developments to fruition.

We also can’t wait to open first two HubHub co-working spaces in Prague near the end of 2018. Equally, we intend to continue our upward trend by creating solutions and services that surpass our clients’ imagination of what’s possible – before they even give us the brief for a new innovation.

Petr Herman

Vinohradska, Prague

The acquisition of an existing older office scheme with an excellent location at Vinohradska Street, just opposite the National Museum, was completed in August 2014. The plan was to redevelop it into a landmark office scheme with 22,600 sq m of GLA.

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Radlicka, Prague

During 2017 we continued to work on the concept and design of our fifth office project in Prague – Radlicka. The plot is well located in Prague’s Smichov at one of most important arteries in the southwest of the city. We acquired it in March 2016 for €6.9m, and have faced some challenges during the permit process. However, we aim to deliver up to 30,000 sq m of top class office GLA in two phases, the first with, of around 17,700 sq m, in mid-2021.

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Merkuria office, Prague

Merkuria – our new project of planned 17,700 sq m of Grade-A offices and more than 1,700 sq m of retail space – will be a key element for the revitalisation of Holesovice, one of Prague’s fastest growing districts.

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There’s an almost equal balance of Grade A (59%) and B (41%) office space here in Slovakia. Whatever their grade, though, offices present a complex set of factors for businesses, particularly in relation to employees who spend the majority of their day in them.

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Changes in Slovak development property value (€m)

Bratislava

Adrian Rac

Currently, the outlook across Slovakia is very positive. It’s good news for us, and business generally.

For our clients though, it does mean their employees can be more difficult to attract and retain. The net result is that employers are listening to employees more; understanding what they want from work and designing new office layouts to suit them. Workspace solutions and change management are no longer nice-to-haves, but essential elements to the employer proposition.

It’s something we’re acutely aware of, because our business is capable of fulfilling so many of our clients’ needs. From Origameo’s consulting and workspace solutions and HubHub’s large-scale co-working platform, to events and services like bike-sharing Hi.bike and Concierge; we have a variety of innovations tailor-made for the current climate. So, between our inventiveness and the quality of our buildings, we continue to play a vital role in solving two of our clients’ biggest issues – hiring the very best people, and then making sure they excel at what they do.

Simply put, we are transforming into a service provider and WaaS is our way to get there.

Adrian Rac

Twin City Tower, Bratislava

Construction of the Twin City Tower (expected 35,300 sq m of GLA) was launched in July 2016. This project, next to the group of already-completed A, B, and C buildings will complete the Twin City sheme.

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Nivy Station, Bratislava

Nivy Station will clearly be a landmark project in a unique location. And that deserves unique solutions. In co-operation with London’s Benoy, the well-known architectural studio behind top class retail schemes, we’re aiming not only for a unique and large (expected 69,300 sq m of retail GLA including terraces) shopping complex – but much more.

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Nivy Tower, Bratislava

With around 30,800 sq m of GLA, will be a remarkable office tower rising out of the Nivy Station. The tower will provide modern office space solutions for demanding clients and will be designed to BREEAM Outstanding standard. The construction of tower was launched in May 2017, followed by Nivy Station in October 2017, due to planned complete at the end of 2019.

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Bratislava

In the Twin City B and C zone, adjacent to the completed A zone, we’re planning the development of more than 130,000 sq m of office GLA. In 2016, we fine-tuned the concept and design, and since then we are in the process of gaining necessary permits. As we continually push the envelope, we engaged with the UK’s AHMM to help us with the concepts, and expect construction to start in the first quarter of 2019, subject to permits and leasing progress, of course.

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We’re currently in the fourth year of a house price boom. Across the country, we saw an 8.6% year-onyear rise in 2017, with Budapest prices rising 13.8%. Altogether, the real estate development market is worth HUF 680bn – a record high. As we write, 1.5m sq m are under construction, 41% of which is office space.

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Changes in Hungarian development property value (€m)

Budapest

Jan Hubner

We’re enjoying the agility that comes with our size here in Hungary. We’re not the biggest player on the market (yet), but already consider ourselves serious competition to some very large local brands – including DVM-Horizon, Granit Polus, Futureal, Property Market, and WING – along with international giants like Skanska and GTC.

They all have flagship developments in Budapest, and ambitious projects along the Vaci office corridor. But so, do we. Our landmark project, Agora Budapest, is one of the city’s largest office developments. Its size will allow us to utilise all the ideas we believe to be the central to our future developments.

This is what will differentiate us from our competitors, letting us gain a healthy piece of the thriving Budapest office market. In fact, we’re already making a great impression with our community focus, human-centric thinking and transparency.

But we are not only focusing on Agora; our new integrated brands, Origameo and HubHub, are also gaining attention, and our ambition is to open our first HubHub office in Budapest before the end of 2018.

All in all, it’s already shaping up to be a very good year.

Jan Hubner

Agora, Budapest

We worked on acquiring of this interesting plot of land in Budapest for over a year, starting in December 2014. Finally, in January 2016, this welllocated Vaci corridor plot at the crossroads with Robert Karoly Street was consolidated and prepared for our development.

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2017 was an exceptional year for commercial property in many respects. Berlin, Munich, Frankfurt, Hamburg, Köln, Düsseldorf, Dresden, Leipzig and Stuttgart – the key cities – all either set new occupation records, or certainly were very near them. Considering potential arrivals from technology, universities, infrastructure and research and development, it is clear businesses feel economic growth is here to stay.

On the investment side, that positive sentiment has intensified even further. The talk across the industry is that, had been more options, there would have been even more than the already impressive €25bn put into new developments.

Demand does outstrip supply. And it’s a situation that will take time to solve. So, given the political stability and solid wider forecast, most people expect the market to continue growing for the foreseeable future. The only possible brake could come from a change to the ECB’s monetary policy.

Berlin, our prime focus, saw a combination of the city’s popularity among young ‘digital’ workers and a positive economic forecast lead to many new or expanded R&D centres. This contributed to the healthy 900,000 sq m of contracts signed last year. All the key market indicators – prime rents, vacancy, net absorption and yields – strengthened, and have created a solid base for even more demand.

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Marcel Sedlak

Germany as a country really put the pedal to metal in 2017. All the economic indicators reinforce our view that it’s the perfect time to be stepping into this market.

From our perspective, 2017 was a year of getting our bearings here in Berlin. A team of eight, we now have an established, enthusiastic culture. In truth, we now feel very much at home, and used all this as a catalyst in our efforts to find our first developments.

While there were many intriguing opportunities in 2017, we didn’t feel 100% positive about any of them to push them through – until this year. Now, we have not one, but two developments in progress.

As you can imagine, we are hugely pleased to have two major acquisitions. The hard work very much starts now.

Marcel Sedlak

10 Asset portfolio overview

Strategically, the Group is focused on achieving and maintaining a balanced share of investment property and assets under development for the longer term.

While we retain and manage these assets, we obviously aim to maintain them at top commercial and operational levels so that, when we divest, we do so in the best possible conditions.

At the same time, and even more importantly, we aim to provide services that exceed tenants’ and employees’ expectations, mainly by focusing on user-centric design and maintaining long-term clients’ relationships.

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Group income
producing portfolio
GLA (m²) Valuation Rental
income
2017
ERV Equival.
yield
Capital
return
Rental
return
Total
return
2015 2016 2017 2016 2017
AM portfolio from 2016 353,412 648.0 852.0 1,197.0 38.0 71.0 5.60% 5.56% 4.1% 4.4% 8.5%
Office 331,270 33.0 763.0 1,107.0 34.0 65.0 6.60% 6.01% 5.0% 5.5% 10.5%
Retail 22,142 615.0 89.0 90.0 4.0 5.0 6.33% 6.00% -3.2% 11.0% 7.8%
Additions to portfolio in 2017 37,977 0.0 38.0 90.0 0.0 7.0 6.33% 6.50% 70.6% 0.1% 70.7%
Property exits in 2017 43,473 30.3 32.0 33.5 2.8 2.1 7.50% 8.53% 4.7% 8.7% 13.3%
AM portfolio for 2017 391,389 678.6 889.2 1,286.4 40.6 77.8 5.70% 5.70% 4.1% 6.0% 10.1%

Note: Figures based on external expert valuations and management report. The external valuations do not reflect IFRS adjustments that are taken into account in IFRS financial statements.

Total Gross Leasable Area, by type

390,624 m2

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Managed assets, by country

€1.29bn

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Managed assets, by segment

€1.29bn

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Country No. of projects Developed GLA (m²) Market value (€m)
Owned income-producing assets 13 326,135 1,094.4
United Kingdom 2 27,843 281.8
Office 2 27,843 281.8
Poland 5 154,469 455.8
Office 5 154,469 455.8
Czechia 1 34,069 89.0
Office 1 34,069 89.0
Slovakia 5 109,754 267.9
Office 5 109,754 267.9
Assets managed by HB Reavis IM 3 64,489 192.0
Total 16 390,624 1,286.4

Note: Figures based on external experts’ valuations and management report, and includes CE REIF and managed assets

11 Investment management

The investment management arm of HB Reavis Group enters its 7th year of successful operation. The business, operated by Luxembourg based subsidiary HB Reavis Investment Management S.a r.l., currently manages assets worth more than €345m and equity of almost €138m from around 200 high net worths and institutional investors in two sub-funds.

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HB Reavis CE REIF – Fund performance

12 Financial review

Workspace-as-a-Service and increasing deployment of analytical data are leading the changes in real estate trends. Collaboration, flexibility in terms of space – as well as duration and technological advancement – are tenants’ key requirements for the way they use space.

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Net profit
€83.2m
Total comprehensive income
€96.5m
EBIT
€118.2m
Net rental income
€38.7m
Revaluation gain
€95.2m
NAV (adjusted)
€1,274.4m
Shareholders’ return
7.6%
Net Debt Leverage Ratio
26.8%

Our financial policy, refined in course of 2017 26.8% by measures outlined below in italic, formalises the key financial measures:

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01

Target Gross Debt to Total Assets at 40% (maximum 45%) and Net Debt to Total Assets at 35% (maximum 40%) with an appropriate mix of non-recourse project debt and Group-level debt

02

Initial maturity of project loan financing and issued bonds to commensurate with length of our product development cycle

03

Cash reserve target at least 5% of total Group debt, with a special reserve build-up profile to cover future debt-bullet repayments well in advance

04

Dividend pay-out in line with historical levels up to 3% of NAV

05

Careful risk management aimed primarily at mitigating foreign exchange fluctuations for all known and estimated non-Euro exposure 12-months forward, and interest-rate risks covering 50 – 100% of total medium to longterm debt exposure, both associated with macroeconomic or property cycles

In terms of overall performance, in 2017 we delivered slightly better financial results than in 2016.

While the overall financial result was not in line with our expectations the fundamentals are strong, as are our business results.

Obviously, the main driver was a revaluation gain of €95.2m over the year, down from €174.5m in 2016. At €38.7m, Net operating income, in line with our expectations, was down modestly (2016: €46.1m) as the result of a huge disposal of matured assets we realised in 2016.

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Net profit
€83.2m
Total comprehensive income
€96.5m
EBIT
€118.2m
Net rental income
€38.7m
Revaluation gain
€95.2m
NAV (adjusted)
€1,274.4m
Shareholders' return
7.6%
Net Debt Leverage Ratio
26.8%
€m 2013 2014 2015 2016 2017
Assets 1,530.1 1,806.1 2,089.3 2,112.3 2,294.8
Cash 49.9 155.3 115.4 316.4 279.1
Borrowings* 505.3 634.4 736.3 683.0 893.0
Net debt leverage ratio 29.8% 26.5% 29.7% 17.4% 26.8%

We delivered an operating profilt of €235.3 million (2015: €302.5), which represents decline of 19% year-on-year.

38.7

Net operating income (€m)

59.1

Revaluation gains (Net of yield shift, €m)

5.58%

Investment portfolio yield

Group profit decomposition (€m)

Note: Figures based on consolidated, IFRS audited report; numbers are rounded.

In 2017, there was no significant change in the behaviour and appetite of financial institutions that finance real-estate projects.

The financing market offered reasonable conditions on loan-to-cost ratio and pricing, and the ability to deploy debt funding at earlier stages of the development phase were favourable. These conditions were the same across all our markets except for London, where Brexit prompted financial institutions to reconsider financing speculative office development.

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Cash flows (€m) 2013 2014 2015 2016 2017
Cash beginning of period (BOP) 48.6 49.9 155.3 115.4 316.4
Operating cash flow 9.0 20.6 24.3 30.6 -67.4
Land/property acquisitions -79.2 -56.7 -40.0 -76.0 -300.4
Construction investments -112.6 -122.6 -215.5 -244.9 -201.5
Land/property exits* 76.1 88.0 13.5 162.6 23.4
Other investments -8.2 -10.8 -8.1 -1.4 -2.8
Investment cash flow -123.9 -102.1 -250.1 -159.7 -481.3
Borrowings change 125.1 200.7 244.9 379.1 541.2
Dividends/equity contributions -8.9 -13.8 -59.0 -49.0 -29.8
Financing cash flow 116.2 186.9 185.9 330.1 511.4
Cash end of period (EOP) 49.9 155.3 115.4 316.4 279.1
Share of cash on total assets 3.3% 8.6% 5.5% 15.0% 12.2%

Note: Figures based on consolidated, IFRS audited report
*Land/property exits presented net of related investment loans repaid in relation to exit

The reporting year was another of strong financing activity for HB Reavis, both in project financing and debt capital markets. After 2016, when a significant part of the existing loan portfolio was refinanced, the Group financing effort focused mostly on new development loans and capital market transactions.

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HB Reavis Group maturity profile as of 31 December 2017 (€m)

Excluding debt related to JV’s and related parties.

Real estate assets continue to attract investors seeking secured, long-term income. The markets continue to see yield compression reaching record levels, as the wealth of capital raised and available for real estate investments stalls due to a lack of good quality assets.

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The Group is exposed to the risks that are part of the general commercial environment, as well as various business-specific risks. An inherent part of the Group’s business management is the emphasis on their identification and monitoring.

Where possible, we deploy proactive mitigation tools to manage any risks that could have a material impact on our business. As a SWOT analysis of our business shows, the majority of weaknesses and threats are the focus of our comprehensive risk management.

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S

Strengths

  • Diversification across markets and locations
  • Efficient construction procurement
  • Strong office product design know-how and experienced team
  • Proven ability to deliver high quality buildings on all Group markets
  • Proven ability to divest property assets on all Group markets
  • Strong financial track record and credibility with banks and investors
W

Weaknesses

  • Robust growth in recent years has put some pressure on some operational processes
  • Less than optimal leverage of Group balance sheet
O

Opportunities

  • Strong demand in Bratislava and Budapest
  • Strong leasing activity in Warsaw and Prague
  • Increased leverage through sustainable and diversified funding sources – loans and bonds
  • Accelerated know-how transfer and implementation in markets outside CE
  • Acceleration of leasing through higher engagement with clients
  • Higher efficiency through successful implementation of new processes
  • Leadership in setting office trends
T

Threats

  • Continuing oversupply in Warsaw office market intensifies pressure on rents
  • Not enough opportunities to redeploy Group capital that would meet our Group risk-return expectations
  • Uncertain environment in London market due to Brexit
  • Unexpected shock on financial markets
SWOT Analysis

13 Our responsibility

Corporate Social Responsibility (CSR) has been part of our business from the very beginning. We were the first to bring BREEAM to Central European commercial real estate and are pioneering the notion of buildings as areas of ‘well-being’ for users. In our own organization, we have created a corporate culture in which sustainability and responsibility have become an integral part of everything we do.

Throughout our history, HB Reavis has acquired numerous abandoned and run-down areas and has developed them gently so that once again they become vibrant and useful sites where people can live and work.

And we continue to do so. In recent years, we’ve changed the face of the brownfield site in Prague’s Karlin district through our awardwinning River Garden Offices I and II-III; in Warsaw, we did the same with our Konstruktorska Business Centre; and with Gdanski Business Centre we created a basis for a new business district that has been welcomed by both the professional community and by clients.

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Looking ahead, we’ll continue to integrate a number of proactive sustainability initiatives throughout the Group and in certain properties, to help reduce our environmental footprint.

Business wise, CSR has evolved into a natural part of our vision and strategy. We want to bring remarkable experiences to people’s lives through our realestate solutions. That’s why we always aim to create something unique and innovative. Something our clients and the communities we serve do not expect from a real-estate developer.

Our clients want future-proofed properties that are environmentally efficient, helping them to meet not just their own sustainability targets but also create spaces in which their employees feel great.

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Buildings have a significant impact on people’s quality of life, well-being and health, especially in today’s ‘war for talent. In fact, it is essential that businesses provide workspaces that foster staff wellness and productivity.

We see wellbeing as an essential building block for a healthy work life and believe that by providing a high quality-built environment, we help our clients increase their business success through a healthier, happier and more engaged workforce.

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By pursuing this certification, we’re continuing our commitment to overall human health and wellbeing in building design, construction and operations. Projects registered include Varso Place and Burakowska in Warsaw, Twin City Tower, Nivy Tower and our own, new HB Reavis office in Twin City C in Bratislava (registered for New and Existing Interiors certification), Agora Hub and Agora Tower in Budapest, and our Vinohradska Street project in Prague (registered for WELL Core & Shell Certification).

Once completed, the projects will undertake rigorous testing and a final evaluation by Green Business Certification Inc., the third-part certification body for WELL. And we hope all these projects will soon be awarded WELL Certification by the IWBI. In the meantime, we’re proud to say that Varso Tower, Varso 2 and Burakovska have already succeeded in WELL pre-certification for Core & Shell.

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The HB Reavis Foundation supports communitybased projects proposed, selected and carried out by our employees. We see the Foundation’s activities as an important message to all our people, show that the Group welcomes and supports a broad spectrum of volunteering activities.

In 2017, the Foundation continued to facilitate activities related to quality of life in local communities where our people live.

During the reporting year, we supported almost 30 employees’ projects, and donated more than €32,000. We also started the expansion of the HB Reavis Foundation’s activities outside Slovakia. In Poland, we supported a series of ice hockey tournaments for around 240 children who really enjoyed the events. In the coming months we plan to initiate activities in all our countries.

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14 Awards

Eurobuild Awards - Poland
New Office of the Year
Eurobuild Awards - Poland
Office Developer of the Year
Best of Realty - Czech Republic
2nd best shopping center / Aupark Hradec Králové
CIJ Awards 2017 - Poland
PR & Marketing Campaign of the Year
CIJ Awards 2017 - Poland
Best Office Development & Developer
Europaproperty CEE Investment & Green Building Awards
Office Developer of the Year
Estates Gazette Awards - United Kingdom
Global Real Estate Investor of the Year
Prime Property Prize - Poland
Best Office Development of the Year
OAS Development Awards - United Kingdom
City Deal of the Year
CEEQA
Developer of the Year & Company of the Year
CIJ Europe | Hall of Fame Awards - Poland, HB Reavis Group
Best of the Best Leadership

View or download our annual reports

Find out how we performed in previous years. Have a look at our financial highlights or download whole annual reports in PDF

Annual reports online