Goodman European Partnership Goodman European Logistics Fund, FCP-FIS Annual Report 2017 1,018,717 sqm leasing achievements 5.2 years weighted average lease expiry to first break GEP continued its proven track record of delivering strong portfolio performance and stable income driven returns Delivering quality+ 97.3%stabilised portfolio occupancy 120 properties in 10 countries Manager’s report+ 2 Goodman European Partnership (GEP) is one of the leading European logistics real estate investment vehicles with a €3.2 billion pan-European portfolio of modern, prime logistics assets and stabilised portfolio occupancy rate of 97.3%. Contents+ 02 Manager’s report 08 Consolidated financial statements for the year ended 31 December 2017 (audited) 40 Glossary 41 Corporate directory Consolidated financial statements for the year ended 31 December 2017 (audited) 8 GEP ANNUAL REPORT 2017 | 1 Manager’s report Emmanuel Van der Stichele Director – Investment Management Manager of the AIFM Manager’s report I am pleased to present the Goodman European the strength of Goodman’s in-house property Partnership (GEP or “the Partnership”) Annual Report management team. The stabilised portfolio’s for the financial year ended 31 December 2017. weighted average lease expiry (WALE) to first break Management believes that GEP has successfully was largely stable over the year, with a WALE of delivered on its 2017 objectives by focusing on the 5.2 years as at 31 December 2017 (5.2 years as continued generation of long-term sustainable per 31 December 2016). income and portfolio evaluation. GEP furthermore deployed the remaining proceeds of the 2013 equity The robust portfolio performance resulted in stable commitments and successfully concluded a cash flows for the Partnership and generated a high €277.5 million equity raise, positioning GEP for distribution yield of 7.7% for the financial year further growth by strategically investing the proceeds. (2016: 7.5%). Total distributable income for the Further net growth will not only provide increased year amounted to €125.2 million or €4.17 on a per economies of scale in terms of cost but also in terms Unit basis (€3.92 in 2016). of customer relations, while further diminish risk through diversification in terms of asset granularity External appraisals and disposals resulted in a net and customer exposure. capital gain on investments in property and joint ventures of €162.4 million for the year (€78.8 million Performance in 2016). This result was mainly driven by yield GEP has continued to produce a consistently compression across GEP’s core markets, strong portfolio performance. Leasing activity in particularly in Germany and France. The weighted 2017 exceeded 1 million square metres for the first average equivalent yield for GEP’s stabilised time (1,018,717 sqm), which represents 21.2% of portfolio compressed throughout the year from the total portfolio income for the year. The 6.2% to 5.8%. stabilised portfolio’s occupancy slightly decreased over the year to 97.3% (97.6% excluding Project In combination with other value movements, this Azurite, 31 December 2016: 98.3%), predominantly has resulted in strong growth of the CUV(ex) over as a result of acquiring and developing some the year from €54.02 to €58.76. speculative space in the portfolio. When looking back on the eleven years since GEP’s inception, The income return together with capital movements portfolio occupancy has never fallen below 95%. resulted in GEP’s best performance since inception, with a Unitholder total return of 16.8% This notable performance is a direct result of the for the year (2016: 7.3%). quality of the real estate portfolio, combined with 2 | GEP ANNUAL REPORT 2017 The income return together with capital movements resulted in GEP’s best performance since inception, with a Unitholder total return of 16.8% for the year (2016: 7.3%). Lauwin-Planque, France Manager’s report continued highlights €58.76 current unit value (ex) €125.2 million distributable income (annual) 7.7% distribution yield (annual) 97.3% stabilised portfolio occupancy 32.9% gearing 1,018,717 sqm leasing achievements 257,759 sqm committed acquisitions and developments 5.2 years WALE to first break of stabilised portfolio 4 | GEP ANNUAL REPORT 2017 Hamburg, Germany GEP ANNUAL REPORT 2017 | 5 On 7 July 2017, S&P upgraded GEP’s credit rating Management intends to continue its focus on to BBB+ (from BBB), noting the Partnership’s costs, and to initiate tenders on a regular basis for quality real estate portfolio, lowered gearing target its main service providers, similar to 2017, where and solid e-commerce fundamentals in the logistics the valuation services, audit service, depositary and market. Post the year end, on 10 January 2018, central administration services were all retendered. Moody’s confirmed GEP’s Baa1 status. Looking forward, Management is focused on the The Board of the AIFM is managing the financial long-term success of the Partnership. The portfolio risks that GEP is exposed to as described in note performance has been and will continue to be the 18 of the consolidated financial statements. key driver behind the operational performance of the Partnership. Goodman’s experienced Under the AIFM Directive, GEP is considered an pan-European property management team remains “alternative investment fund” (an “AIF”), as defined committed to the active management of the in the 2013 Law. portfolio, including the existing vacant space and pending lease expiries. Pursuant to the Management Regulations, GEP has appointed the AIFM as its “alternative I would like to thank all GEP’s investors for their investment fund manager” (the “AIFM”), as defined continued support of the Partnership. Management in the 2013 Law, to provide hedging, portfolio will also continue to engage with Unitholders and management, marketing and other ancillary the Investment Committee in order to achieve its services (including the valuation of its assets as set 2018 goals. Management remains determined to out in the Management Regulations). The AIFM is continue delivering attractive risk adjusted returns. authorised and regulated by the CSSF in respect of The following pages provide further analysis of the its AIFM activities. GEP is the sole undertaking for financial results for the full year ended collective investment managed by the AIFM. 31 December 2017. The AIFM maintains own funds in accordance with the requirements under the AIFM Directive, including additional own funds to cover potential liability risks arising from professional negligence. Outlook 2017 was another year of strong achievements, as the Partnership performed well across multiple key Emmanuel Van der Stichele metrics. As Management continues to focus on Director – Investment Management portfolio quality, the stabilised portfolio’s Manager of the AIFM occupancy (97.3%), as well as the average portfolio age (6.9 years), can be considered industry leading in continental Europe. 6 | GEP ANNUAL REPORT 2017 Halle, Germany GEP ANNUAL REPORT 2017 | 7 Audit report 8 | GEP ANNUAL REPORT 2017 GEP ANNUAL REPORT 2017 | 9 Audit report 10 | GEP ANNUAL REPORT 2017 GEP ANNUAL REPORT 2017 | 11 Consolidated statement of comprehensive income For the year ended 31 December 2017 Notes FY 2017 FY 2016 €m €m Net property income 3 176.7 160.9 Net gains/(losses) from fair value adjustments on investments in property 10 160.1 73.5 Net gains/(losses) from disposals of investments in property 10 1.4 5.7 Net gains/(losses) from fair value adjustments on joint ventures 9 0.9 0.3 Net gains/(losses) from fair value adjustments and disposals of investments in property and joint ventures 162.4 79.6 Base management fees 20 (14.1) (12.5) Other expenses12 (5.1) (4.7) Total expenses13 (19.3) (17.2) Result before finance result and income tax 319.8 223.3 Finance costs (18.0) (25.1) Other finance costs 0.0 (24.9) Net gains/(losses) from fair value adjustments on derivative financial instruments (0.2) (0.1) Finance income 0.4 0.8 Finance result 4 (17.8) (49.3) Result before income tax 302.0 174.0 Current income tax (5.3) (5.9) Deferred income tax (40.8) (21.7) Income tax 5 (46.2) (27.5) Result for the year 255.8 146.4 Other comprehensive income for the year 0.0 0.0 Total comprehensive income for the year 255.8 146.4 Non IFRS measures Net (gains)/losses from fair value adjustments on investments in property (160.1) (73.5) Net (gains)/losses from disposals of investments in property, adjusted for capital gain taxes (1.4) (4.9) Net (gains)/losses from fair value adjustments on joint ventures (0.9) (0.3) Net (gains)/losses from fair value adjustments on derivative financial instruments 0.2 0.1 Amortisation of interest rate caps (0.4) (0.9) Other finance costs 0.0 24.9 Deferred income tax 40.8 21.7 Capital expenditure allowance (8.9) (6.1) Distributable income 16 125.2 107.4 12 Depositary/Custody fees are included in Other expenses for €0.3 million (2016: €0.3 million). 13 Management Expense Ratio (MER): 0.64% (2016: 0.66%). The consolidated statement of comprehensive income is to be read in conjunction with the accompanying notes. 12 | GEP ANNUAL REPORT 2017 Consolidated statement of financial position As at 31 December 2017 Notes 31 Dec 2017 31 Dec 2016 €m €m Current assets Cash and cash equivalents 6 33.8 73.6 Receivables 7 21.3 33.8 Other current assets 8 6.2 9.3 Assets held for sale 10 539.5 0.0 Total current assets 600.7 116.6 Non-current assets Completed investments in property 2,570.1 2,584.7 Properties under construction 35.5 104.1 Total investments