Graphisoft Park Ingatlanfejleszto Európai Reszvenytársaság : Half-yearly Report 2023 H1

GRAPHISOFT PARK SE

Interim Management Report - First Half 2023

August 9, 2023

GRAPHISOFT PARK SE

BUSINESS REPORT

FIRST HALF 2023

Executive Summary

The 2023 H1 pro forma net result of 3.68 million euros is significantly, by 900 thousand euros, or 32% higher, than the same period of the previous year, and is also more favorable than the previously published forecast for 2023. The result, which is significantly higher than the previous ones, is due to the higher-than-expected indexation of rents following the consumer price index of the European Union, as well as the still high occupancy rate of 97%, which exceeds the Budapest average. In addition, the interest income realized on free funds in the current interest rate environment and the exchange rate difference accounted due to current period strengthening of the forint, also have a significant effect on profit.

Contrary to our earlier cautious expectations, even in the uncertain economic environment, there were no significant requests from the tenants to reduce the area in the current year, and the area reduction of some tenants was largely compensated by the growth of other tenants. The research and development work involving a high degree of creativity and intensive cooperation do not exist without personal presence, at least partially, so the rented areas did not significantly decrease. In the case of companies renting in Graphisoft Park, employing mostly technology- and knowledge-based, highly qualified employees, personnel costs still make up the most significant part of the total costs. Thus, the rental fees and the increased utility costs because of the energy crisis represent only a small proportion of the total cost structure for most tenants. In the first half of 2023, world energy market prices calmed down after the drastic jump that occurred last fall, and in cooperation with the tenants, focusing on efficient building management and conscious energy consumption, significant savings were achieved in both gas and electricity consumption compared to the same period of the previous year. The Company is currently evaluating the 2022 carbon footprint calculation and developing the ESG strategy with the involvement of experts. The main pillars of the strategy will be the determination of renovation and modernization programs to help achieve the decarbonization goals, as well as the further encouragement, continuous maintenance, and support of conscious energy consumption.

Based on the considerably better-than-expected first half results and expectations for the rest of the year, the Company amends its previous forecast for the year 2023: we expect rental revenue to be 400 thousand euros higher than previously published, and pro forma net profit to be approximately 500 thousand euros higher. The expected rental revenue of 16.7 million euros calculated in this way represents a 7.5% increase, and the pro- forma net result of 6.8 million euros represents an increase of nearly 13% compared to the previous year.

Property portfolio and fair value of net assets

At the end of 2023 H1, the independent valuer estimated the fair value of the real estate portfolio at 230.1 million euros, which represents a relatively small decrease of 760 thousand euros compared to the end of 2022. In more detail, the fair value of the completed and delivered properties decreased by 620 thousand euros compared to the end of the previous year, while the fair value of development lands decreased by 140 thousand euros. Volatility of energy prices, high inflation, and general market uncertainty - especially with regard to the development of oversupply in the office market - are the risk factors that caused the yield to increase further during the last two quarters, at the same time, thanks to the stable tenant base in the office park and the high utilization of the buildings, this together caused a marginal decrease in the value of properties. In the first half year, the slight (1%) decrease in the value of the development lands was primarily caused by the further increase in the expected cost requirements of future developments, the well-known cause of which is the drastic increase in raw material prices and labor fees. In addition, the expected completion time of the constructions and the narrowing investment opportunities due to the emerging oversupply also affect the fair value, which is also influenced by the prolonged and currently completely uncertain duration of the remediation affecting the northern development area.

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GRAPHISOFT PARK SE

BUSINESS REPORT

FIRST HALF 2023

Due to the upward trend in interest rates in the eurozone, and interest rates are not expected to decrease soon, the fair value1 of the interest rate swap hedging transactions concluded by the Company to fix the interest rates of its euro-based loans is still favorable, which increase is reflected in equity (net asset value). In the meantime, the Company's outstanding loan portfolio went below 90 million euros due to the continuous repayments. By the end of the first half of 2023, the Company's cash balance is nearly 12 million euro, which will ensure the long-term safe operation of the company, the financing of individual tenant designs, building upgrades and renovations, and forms a reserve for the possible negative effects of the changing economic environment.

As a result of all this, despite the slight decrease in the fair value of the real estate portfolio, the net asset fair value of the Company exceeded the previous yearend's value by 360 thousand euros and reached 158 million euros.

[thousands of EUR]

Pro forma results

Our "pro forma" financial results for the first half of 2023 were favorable: due to the high utilization and the applied euro-based indexation, revenues exceeded the same period of the previous year by 700 thousand euros, about 9%. Most of the other income reflects the current period result of the construction and renovation works of the rental property requested and financed by the tenants. This result was reduced by the costs related to the decarbonization strategy of the leased areas, which were financed by the Company. Operating costs developed as planned, which, in addition to a small increase in personnel costs, mainly reflects the inflationary increase in the fees for some services used. Depreciation charge - due to the depletion of some older assets - decreased slightly compared to the same period of the previous year. The significant increase in the financial result is the combined result of several effects: on the one hand, the interest payable on the capital outstanding decreased because of the loan repayments, and the interest income realized on free funds was more favorable than expected. Furthermore, in the first half of this year, the strengthening of the forint also had a positive effect on the exchange rate difference realized on our forint-denominated assets. As a result of the above, in the first half of 2023, the EBITDA exceeded the same period of the previous year by 220 thousand euros, that is around 3%, and the profit after tax exceeded

900 thousand euros, or 33%.

1 The fair value of hedges is intended, among other things, to estimate how much more expensive (in the case of a negative fair value, cheaper) a similar loan could be obtained today. In addition to the current market interest rate environment, the fair value is influenced by several external factors (HUF/EUR exchange rate, monetary policy measures or future interest rate expectations). The development of these factors may result in a significant and in some cases unpredictable changes in the direction and degree of change in the fair value.

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GRAPHISOFT PARK SE

BUSINESS REPORT

FIRST HALF 2023

Forecast

Considering the better-than-planned first half results, the expected stable utilization level for the rest of the year, and the market conditions (interest rate environment) that also affect the financial result, the Company modifies its forecast for the year 2023: we expect rental revenue of 16.7 million euros, that is 400 thousand euros higher than previously forecasted and we expect a pro forma result of 6.8 million euros, which is 500 thousand euros higher than our forecast and which may represent a 7.5% increase in revenue and a 13% pro forma result compared to the previous year.

In terms of rental fees, in addition to the high utilization rate and the increasing effect of the applied indexing, it is favorable that there were no significant area reduction needs for the current year, despite the economic situation and uncertainty. The total operating costs include the inflationary increase in the price of individual services, the increase in personnel costs, as well as the costs of other tasks arising in accordance with our ESG strategy to be published during the year (including measurements, data collection, and analysis necessary to optimize building operations). Most of the other income reflects the result of the design and renovation of the rental property ordered by the tenants, the feasibility of which depends on the volume and timing of the tenant's needs. However, this year it will be reduced by the contributions undertaken by the Company, which support the reduction of energy consumption in the leased areas and therefore the achievement of decarbonization goals. Accordingly, the total of other revenues may reach 200 thousand euros, which will be about 300 thousand euros lower than our previous forecast. As previously published, the depreciation is expected to decrease by 100 thousand euros compared to the previous year due to the depletion of some older assets. As a result of continuous loan repayments, the interest to be paid on the outstanding debt is reduced, and the interest income realized on free funds is also favorable, although a decrease in the interest income is expected in the second half of the year. At the same time, in our forecast we also calculate a reserve for exchange rate differences that cannot be predicted due to the hectic exchange rate movement of the forint. Taking all of this into account, we calculate a net financial cost of 1.4 million euros, which is significantly more favorable than previously published, by about 400 thousand euros.

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GRAPHISOFT PARK SE

BUSINESS REPORT

FIRST HALF 2023

The Company's strategy articulated some 25 years ago also works in the light of the "home office" practice that has become common in recent years. Research and development activities that require a high degree of creativity and intensive cooperation cannot exist without at least partial personal presence. The target market defined by the Company at the beginning, which are domestic and international enterprises dealing with technological development, proved to be a good choice even during uncertain economic prospects, since the key to success in this field is attracting talent. This is greatly enhanced by the high-quality and environmentally conscious architecture, a uniquely quiet park rich in ancient trees, on the truly green bank of the Danube, surrounded by the monuments of the former Óbuda Gas Works and preserved in a modern way.

Further Development potential

In addition to the 82,000 m2 completed and delivered leasable area on the 18 hectares currently owned by the Company, there is potential for further expansion in the entire area of the former Gas Works. On the one hand, an additional 66,000 m2 of leasable area can be built in the development areas owned by Graphisoft Park - partly immediately and partly after the required remediation (see details in the "Main risk factors - rehabilitation of the northern development area" section). Furthermore, an additional 120,000 m2 of leasable area can be developed in an area (also affected by remediation) located directly next to the northern development area, which is owned by the Municipality of Budapest, and for the greater part of which the Company has the right of pre-emption in the event of a possible sale. In summary, the entire area of the former Óbuda Gas Works could be developed into a high-techpark with almost 270,000 m2 of leasable space, which is unique in Central Europe and based on technology companies and education.

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