Graphisoft Park : Half-year report 2018

GRAPHISOFT PARK SE

Interim Management Report - First Half 2018

August 7, 2018

GRAPHISOFT PARK- ENTRANCE

VISUALIZATION

Dear shareholders,

Graphisoft Park SE was registered as a regulated real estate investment company (SZIT) effective as of January 1, 2018. In order to comply with the rules of this status, the IFRS consolidated balance sheet and statement of income will not be presented based on the historical cost of real estate less depreciation, but - unlike in our previous practice - based on the actual fair value, determined quarterly by an independent appraiser.

Property portfolio and fair value of net assets

In the second quarter of 2018 development activities in the southern area progressed significantly: the South Park office building consisting of 4 blocks received the occupancy permit, of which blocks A and B were entered into possession by SAP till July 10. Delivery of blocks C and D, which are partly covered by rental contracts, is expected by the end of the third quarter. This translates to a delay of around one month compared to our original plans, which is negligible considering the current capacity shortage in the building industry. For all this the originally estimated 1.7 million euros increase in 2018 to 2017 in rental revenue is revised at 1.4 million euros in this report.

The fair value of the Company's entire property portfolio were valued by the independent appraiser (ESTON International Zrt.) at 258 million euros in the 2018 Q2 report compared to the 252 million euros figure at the end of 2018 Q1 and 243 million euros at the end of 2017 (property valuations for the comparative periods were also prepared by ESTON International Zrt.).

[thousands of EUR]December 31, 2017

March 31, 2018

June 30, 2018

Completed, delivered properties Properties under development Development lands

Estimated fair value of the entire property portfolio

186,660 23,900 32,450 243,010

188,680 209,170

31,290 18,550

32,450 29,880

252,420 257,600

Upon delivery of block A of South Park office building it was transferred from "Properties under development" and further increased the fair value of "Completed, delivered properties". The 8% decrease in fair value of development lands is due to the significantly increased construction costs in the building industry. According to the assumptions used in the valuation, increase of rental fees (which fundamentally determines the fair value of the properties) will not completely follow the increase in construction costs.

Despite the fair value of properties is around 5 million euros higher than at the end of the first quarter, the fair value of net assets amounts to 182.4 million euros, that is around 3 million euros lower compared to the first quarter. The reason for the decrease is the increased completion costs of South Park office building compared to the original budget, and the 3 million euros dividend paid in May 2018.

December 31, 2017	March 31, 2018	June 30, 2018
Net asset value at estimated fair value (tEUR)	181,800	185,456	182,435
Net asset value at fair value per share (EUR)	18.0	18.4	18.1
Financing

On November 30, 2017 we concluded a new euro-based, 10 years to maturity loan facility with Erste Bank Hungary Zrt., for the refinancing of the previous loan facility before its maturity, concluded with Westdeutsche Immobilien Bank AG (which has been acquired by Aareal Bank AG) in 2007 with expiration in May 2019. The new loan facility is complemented by an interest rate swap agreement (IRS) for its entire term, thus the interest rate is fixed for the entire term. The date of the refinancing was June 28, 2018; all the outstanding amounts were settled to Aareal Bank AG. After the refinancing, all of the Company's outstanding loan liabilities have been switched to fixed interest rates, which further strengthen the Park's stable operation.

Pro forma results

As we called the attention earlier, our results are presented both according to financial statements prepared based on the "SZIT" regulation (investment properties are fair valued) and also according previously applied accounting policies (investment properties are on historical cost less depreciation); "pro forma" results presented as changes in fair value of investment properties which might be outside of the Company's control, can have significant impact on the results.

In the first half of 2018 our "pro forma" results developed as expected. We have reached a rental revenue figure surpassing the previous year by 500 thousand euros, it was 5.7 million euros, in addition a one-off other revenue from engineering services provided also increased the results (accounted as other revenue). EBIDTA rose by more than 700 thousand euros while the operational expenses increased. Due to the delivery of new buildings depreciation charge increased and a one-off financial charge in connection with the refinancing of the loan also decreased the financial results. We have reached 2.3 million euros net profit, surpassing the figure of 2017 first half by 500 thousand euros, to which also contributed the exemption from corporate income and local business tax (as a result of obtaining the SZIT status).

Forecast

Starting from 2018 Graphisoft Park Engineering & Management Kft., established for this purpose, carries out the Company's real estate development, operations and administrative activities; therefore the real estate development related expenditures will be capitalized in the "pro forma" consolidated reports as well (similarly to the industry practice). Beginning also from January 1, 2018 the Company have changed the depreciation key of building engineering assets uniformly to 7%. This change is based on the Company's 20 years experience in property operation, on the quality of materials built in and technology applied during the current refurbishment works.

Below we present our forecasted results for 2018 and 2019 taking into consideration the above changes. We modify our forecast for year 2018 as follow:

GRAPHISOFT PARK SE

BUSINESS REPORTFIRST HALF 2018

	Effect of later than planned delivery of a new building to
rental revenue:	(300) thousand euros
	Increase in one-off revenue from engineering service provided:	100 thousand euros
	Increase in operating costs:	(200) thousand euros
	Change in depreciation key:	300 thousand euros

As a result of the changes above the forecasted net result in 4 million euros for 2018, which is 100 thousand euros less than it was published in our first quarter report dated May 8, 2018. Our 2019 forecasted results increased compared to the previously published one mainly due to the change in depreciation keys.

(million euros)	2017 actual	2018 forecast	2019 estimate
Rental revenue	10.62	12.0	13.6
Other revenue	-	0.4	-
Other income (net)	0.44	0.3	0.4
Operating expense	(1.55)	(1.4)	(1.4)
EBITDA	9.51	11.3	12.6
Depreciation	(4.60)	(6.1)	(7.0)
Operating profit	4.91	5.2	5.6
Net interest expense	(0.90)	(1.2)	(1.1)
Profit before tax	4.01	4.0	4.5
Income tax expense	(0.22)	0.0	0.0
Net profit	3.79	4.0	4.5

These results prove that we are right in our pursuit of the "micro-silicon-valley" concept articulated some 20 years ago: targeting a well-defined market - Hungarian and international technology companies pursuing innovation - and focusing real estate developments to cater to their needs. The key to success in their fields is attracting talent. We are aiming to contribute to this with quality and environmentally conscious architecture, in a uniquely quiet setting on the green banks of the river Danube surrounded by the Park's state-of-the art renovated industrial monument buildings preserving the marvelous ambiance of the old OǶbuda Gas Works. Our achievements prove that the leading companies in the technology field appreciate this; therefore we are continuing the development along the lines of the same concept.

Bojár Gábor Chairman of Board of Directors

Kocsány János Chief Executive Officer

Financial highlights

IFRS, consolidated, thousand EUR

Results:

"Pro forma" results (1)Results according to financial statements

6 months ended

6 months ended

6 months ended

6 months ended

June 30, 2017 modified

June 30, 2018

June 30, 2017 modified

June 30, 2018

Rental revenue

Other revenue Operating expense (2)

Other income

EBITDA

5,124- (600) 2014,725

5,682400 (730)

5,124 5,682

- 400

(600) (730)

865,438

201 86

4,725 5,438

Valuation gains from investment property (3)

-

-

12,948 2,762

Depreciation and amortization

(2,168)

(2,562)

(83) (92)

Operating profit

Net interest expense Other financial costs (4)

2,557(376)

Other financial result

Profit before taxIncome tax expense

Profit for the period Earnings per share (EUR) (5)

- (20)2,161(332)1,829 0.18

2,876(363) (258)

17,590 8,108

(376) (363)

- (258)

942,349(41)2,308 0.23

(20) 94

17,194 7,581

(332) (41)

16,862 7,540

1.67 0.75

(1) Since the Company received the "SZIT" status, the Company changed its accounting policies. Effective from January 1, 2018 in relation to investment properties the Company changed from "Cost model" to "Fair value model". Financial highlights are presented both according to the financial statements and also according previously applied accounting policies ("pro forma" results). "Pro forma" results presented due to the fact that changes in fair value of investment properties which might be outside of the Company's control, can have significant impact on the results.

• (2) Operating expenses were adjusted in the comparative period with the capitalized development direct costs.

• (3) Significant increase in fair value in the comparative period is due to the progress in real estate developments, the delivery of the new SAP wing and extremely fast decrease in expected return (yield). In the current period the independent appraiser has not considered such significant decrease in yield yet; further increase in fair value is due to the progress in the development in the southern area and the delivery of block A.

• (4) Early repayment of loan provided by Aareal Bank resulted 258 thousand euros one-off cost.

• (5) Treasury shares possessed by the Company and employee shares are excluded when the earnings per share value is determined (refer to Note 1.3 to the financial statements).