mei - real estate n.v. - arcona property fund · other non-current assets 2,683 2,917 3,110 3,192...

MEI - REAL ESTATE N.V.

ANNUAL REPORT 2011

MERE Net Asset Value per share development in 2011

Source: MEI-Real Estate N.V.

Key figures balance sheet (IFRS)

2011 2010 2009 2008 2007

EUR x1,000

EUR x1,000

EUR x1,000 EUR x1,000 EUR x1,000

Investment properties 63,973 70,518 71,120 67,855 70,626

Other non-current assets 2,683 2,917 3,110 3,192 5,808

Current assets 2,412 4,061 4,765 3,244 4,742

Total assets 69,068 77,496 78,995 74,291 81,176

Shareholders' equity 23,670 28,594 25,593 23,756 40,328

Deferred tax liabilities 4,018 4,493 4,437 3,220 3,179

Other non-current liabilities 32,935 37,334 38,528 36,120 21,113

Current liabilities 8,445 7,075 10,437 11,195 16,556

Total equity and liabilities 69,068 77,496 78,995 74,291 81,176

2011 2010 2009 2008 2007

Key figures results (IFRS) EUR x1,000

EUR x1,000

EUR x1,000 EUR x1,000 EUR x1,000

Direct result before tax 1,019 1,464 1,250 1,064 208

Indirect result before tax -/- 6,151 1,889 1,524 -/- 7,129 2,012

Profit before tax -/- 5,132 3,353 2,774 -/- 6,065 2,220

Income tax expense -/- 499 250 899 -/- 585 378

Profit after tax -/- 4,633 3,103 1,875 -/- 5,480 1,842

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KEY FIGURES OF MEI - REAL ESTATE N.V.

Total Return on NAV per share

- 17.2%

EUR 20.49 per share The calculated Net Asset Value decreased over the year by 17.2%. The NAVEPRA

1 per share changed from EUR 25.07 to EUR 20.49 per share. The negative return on NAV per share is due to the devaluation of the assets related to the increased vacancy (see §12.25).

Total Assets

- 10.9%

To EUR 69.07 million The Total Assets decreased net with EUR 8.43 million or 10.9% compared to EUR 77.50 million, mainly because of a value decrease of the real estate assets in portfolio.

Gross Rental Income

- 2.1%

To EUR 8.04 million

The Gross Rental Income for the period for the financial year ending 2011 decreased to EUR 8.04 million from EUR 8.22 million in the previous financial year. The decrease is related to reduced rental income, related to higher vacancy.

1 The European Public Real Estate Association (EPRA)

-18%

-13%

-8%

-3%

2%

7%

12%

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1 MEI- REAL ESTATE N.V. Incorporation MEI-Real Estate N.V. (“MERE”) is an investment company with variable capital within the meaning of article 76a of Book 2 of the Dutch Civil Code. MERE was incorporated on 27 November 2002 by a notarial deed executed before Prof. D.F.M.M. Zaman, civil-law notary in Rotterdam. Registered Office and entry in Trade Register MEI-Real Estate N.V. is registered in Amsterdam and is entered in the Trade Register of the Chamber of Commerce ‘Oost Nederland’ under number 08110094. Office Address Parkweg 4 7411 SH Deventer the Netherlands Tel: +31 (0)570 66 58 60 F: +31 (0)570 66 58 61 E-mail: [email protected] Website: www.mei.nl Correspondence Address Postbus 211 7400 AE Deventer the Netherlands Supervisory Board The Supervisory Board of MERE consists of: Prof. Dr. J.L. Bouma (chairman) B. Vos M.Sc. E. Roden (until 1 April 2011) The members of the Supervisory Board have chosen domicile at the offices of MERE. Managing Board MERE is managed by MEI-Fondsenbeheer B.V. MEI-Fondsenbeheer B.V. was incorporated on 10 June 2002 under the name Midden-Europa Fondsenbeheer B.V. by a notarial deed executed before Mr. C.E.M. van Steenderen, public notary in Rijswijk. MEI-Fondsenbeheer B.V. is registered in Lochem and is entered in the Trade Register of the Chamber of Commerce ‘Oost Nederland’ under number 08107686. MEI-Fondsenbeheer B.V. has currently the following directors: G.St.J. Barker LBB FRICS (since 27 February 2012) H.H. Kloos RBA (since 18 February 2011) P.H.J. Mars M.Sc. Mr. R.E. de Rooy resigned as managing director of MFB per 19.01.2011. As of 22 October 2010 Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, the "AFM") appointed a silent Administrator at MEI-Fondsenbeheer B.V. This means that the Managing Board of MEI-Fondsenbeheer B.V. can no longer exercise its powers without the approval and taking into account the instructions of the silent Administrator.

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Following the enquiry request made by RCM Consultancy B.V. on 21 September 2010, the Court of Justice at Amsterdam decided on 10 February 2011 to require an investigation to the conduct and the course of affairs within MEI-Fondsenbeheer B.V. In addition, on 18 February 2011 the Court appointed H.H. Kloos RBA as director of MEI-Fondsenbeheer B.V. The appointment of mr. Kloos is in first instance for the duration of the proceedings. To improve corporate governance, a Supervisory Board at MEI-Fondsenbeheer B.V. is installed as of 1 May 2011. The following Supervisory Board members are appointed: B. Vos M.Sc. (chairman), J.B. Boekhold RA, C.J.M. Borst, prof. Dr. J.L. Bouma, Th. H.M. Van der Heijden M.Sc. and A.D. Plaggemars LL.M. These Board Members – apart of supervising the investment funds – supervise the Managing Board itself. At February 27, 2012, Middle Europe Investments (MEI) and its subsidiary MEI-Fondsenbeheer B.V. (MFB) was acquired by Palmer Capital Investments GmbH (Palmer Capital). The new directors of MFB and MEI have been approved by the Authority Financial Markets (AFM) and the further completion of the transaction has taken place in consultation with the AFM. The Managing Board has chosen domicile at the offices of RMF. More information can be found on the website: www.mei.nl. Stichting Prioriteit MERE Stichting Prioriteit MERE (the “Foundation”) is currently managed by a Managing Board consisting of two members: G.St.J. Barker LBB FRICS (since 27 February 2012) H.H. Visscher (whole 2011) In 2011 the Managing Board of the Foundation also consisted of: H.H. Kloos RBA (appointed per 10 May 2011, resigned per 27-02-2012) Mr. R.E. de Rooy (resigned per 09-05-2011) Auditors KPMG Accountants N.V. Laan van Langerhuize 1 1186 DS Amstelveen the Netherlands Legal Advisor Loyens & Loeff N.V. Blaak 31 3011 GA Rotterdam the Netherlands Listing and Paying Agent SNS Securities N.V. Nieuwezijds Voorburgwal 162 1012 SJ Amsterdam the Netherlands

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Administrator KroeseWevers Accountants B.V. Pantheon 2, 2th floor 7500 AC Enschede the Netherlands Identification codes The ISIN code is NL0006311706 The REUTERS code is MERE.AS The BLOOMBERG code is MERENVFNA The Managing Board of ‘MEI-Real Estate N.V.’ (MEI-Fondsenbeheer B.V.) holds a licence from the Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, the "AFM") under the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht, the “Wft”). This investment involves risks. The price of shares may go down as well as up. Past performance is not a guarantee for future performance. Consult your broker or financial advisor prior to make any investment decisions.

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CONTENTS

1 MEI- REAL ESTATE N.V. 4

2 SUMMARY 10

3 PROFILE 11

4 PRE-ADVICE OF THE SUPERVISORY BOARD 13

5 REPORT OF THE MANAGING BOARD 14

5.1 DEVELOPMENTS IN 2011 14 5.2 EXCHANGE RATE 17 5.3 DEBT FINANCING 18 5.4 RESULTS 18 5.5 RISKS AND UNCERTAINTIES 20 5.6 OUTLOOK 20 5.7 STATEMENT REGARDING ADMINISTRATIVE ORGANISATION AND INTERNAL CONTROL 21

6 THE REAL ESTATE PORTFOLIO 22

6.1 THE CZECH REPUBLIC AND SLOVAK REPUBLIC ECONOMY 23 6.2 THE REAL ESTATE PORTFOLIO IN THE CZECH REPUBLIC 24 6.3 THE REAL ESTATE PORTFOLIO IN THE SLOVAK REPUBLIC 26 6.4 PORTFOLIO OVERVIEWS PER CATEGORY 29

7. CONSOLIDATED STATEMENT OF FINANCIAL POSITION 33

8. CONSOLIDATED INCOME STATEMENT 34

9. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 35

10. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 36

11. CONSOLIDATED STATEMENT OF CASH FLOW 37

12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 38

12.1 GENERAL 38

12.2 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES 38

12.3 STATEMENT OF COMPLIANCE AND FUTURE RELATED ASSUMPTIONS 38

12.4 BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS 39

12.5 BASIS OF CONSOLIDATION 40

12.6 BASIS OF PREPARATION OF CONSOLIDATED STATEMENT OF CASH FLOW 41

12.7 FOREIGN CURRENCY 41

12.8 FINANCIAL INSTRUMENTS 42

12.9 INVESTMENT PROPERTY 43

12.10 OTHER INVESTMENTS 43

12.11 GOODWILL 44

12.12 DEFERRED TAX ASSETS 44

12.13 INCOME TAX RECEIVABLE 44

12.14 TRADE AND OTHER RECEIVABLES 44

12.15 CASH AND CASH EQUIVALENTS 44

12.16 IMPAIRMENT 44

12.17 SHAREHOLDERS’ EQUITY 45

12.18 LIABILITIES 45

12.19 INCOME 46

12.20 EXPENSES 47

12.21 FINANCIAL EXPENSES 47

12.22 INCOME TAX EXPENSE 47

12.23 SEGMENT REPORTING 48

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12.24 ACQUISITION OF SUBSIDIARIES 52

12.25 INVESTMENT PROPERTY 52

12.26 OTHER INVESTMENTS 53

12.27 GOODWILL 54


12.29 TRADE AND OTHER RECEIVABLES 55



12.32 CALCULATION OF NET ASSET VALUE 59

12.33 INTEREST-BEARING LOANS AND BORROWINGS 59

12.34 DEFERRED TAX LIABILITIES 60

12.35 TRADE AND OTHER PAYABLES 61

12.36 FINANCIAL INSTRUMENTS 62

12.37 LEASE AGREEMENTS 62

12.38 NON-CONTINGENT LIABILITIES 62

12.39 CONTINGENT LIABILITIES 62

12.40 GROSS RENTAL INCOME 62

12.41 REBILLED AND NON-REBILLED SERVICE CHARGES AND PROPERTY OPERATING EXPENSES 63

12.42 NET VALUATION GAINS ON INVESTMENT PROPERTY 64

12.43 PROFIT ON DISPOSAL OF INVESTMENTS IN GROUP COMPANIES 64

12.44 FINANCIAL INCOME 65

12.45 OTHER OPERATING INCOME 65

12.46 ADMINISTRATIVE EXPENSES 65

12.47 IMPAIRMENT OF GOODWILL 66

12.48 OTHER OPERATING EXPENSES 66

12.49 PERSONNEL COSTS 69

12.50 FINANCIAL EXPENSES 69

12.51 TOTAL EXPENSE RATIO 69

12.52 TAX ON PROFITS 70

12.53 EARNINGS PER ORDINARY SHARE 71

12.54 RISK MANAGEMENT 72

12.55 RELATED PARTIES 80

12.56 EVENTS AFTER STATEMENT OF FINANCIAL POSITION’S DATE 81

12.57 ESTIMATES AND FORMATION OF AN OPINION BY THE MANAGEMENT 81

13. COMPANY BALANCE SHEET 83

14. COMPANY PROFIT AND LOSS ACCOUNT 84

15. NOTES TO THE COMPANY FINANCIAL STATEMENTS 85

15.1 GENERAL 85

15.2 PRINCIPLES OF VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS 85

15.3 SIZE AND COMPOSITION OF THE CONSOLIDATED AND COMPANY EQUITY 86

15.4 RECONCILIATION STATEMENT WITH THE CONSOLIDATED INCOME STATEMENT 86

15.5 INVESTMENTS IN GROUP COMPANIES 86

15.6 GOODWILL 87

15.7 RECEIVABLES FROM GROUP COMPANIES 88

15.8 OTHER FINANCIAL INVESTMENTS 89

15.9 OTHER RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME 90




15.13 DEBTS TO CREDIT INSTITUTIONS 92

15.14 DEFERRED TAX LIABILITIES 93

15.15 CURRENT LIABILITIES 94

15.16 PERSONNEL COSTS 94

15.17 REMUNERATION FOR THE MANAGING BOARD AND SUPERVISORY BOARD 94

15.18 RELATED PARTIES 95

15.19 TAXES 96

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16. OTHER INFORMATION 97

16.1 GENERAL PROVISIONS OF THE ARTICLES OF ASSOCIATION CONCERNING RESULT APPROPRIATION 97

16.2 PROPOSAL FOR THE COMPANY RESULT APPROPRIATION 97

16.3 DECREE ON THE DUTCH ACT ON FINANCIAL SUPERVISION 97

16.4 PERSONAL INTERESTS 97

16.5 SPECIAL CONTROLLING RIGHTS 98

16.6 EVENTS AFTER BALANCE SHEET DATE 98

16.7 INDEPENDENT AUDITOR’S REPORT 99

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2 SUMMARY MEI-Real Estate N.V. (“MERE”) is an investment company with variable capital incorporated under Dutch law and registered in Amsterdam. The shares are listed on the NYSE Euronext Amsterdam since 2003. MERE invests in commercial real estate in Central Europe. Since local laws, regulations and various administrative requirements make direct investments in real estate in those countries difficult for most investors, Middle Europe Investments (“MEI”) took the initiative to incorporate MERE. MERE offers several important features that distinguishes it from other real estate funds: – the focus on Middle Europe; – local representation of MEI, with own offices in Prague (Czech Republic), Cluj-Napoca

(Romania), Moscow (Russia) and Sofia (Bulgaria), with its own highly qualified staff and specific know-how;

– access to regional property management knowledge and facilities; – a long term experience in Middle Europe since 1992. Middle Europe Investments N.V. (MEI) is a Dutch, independent managing company of investment funds and has its seat in Deventer. MEI invests exclusively in the countries of Central Europe. MEI was established in 1992. MEI manages three other Equity Funds which are listed on the NYSE Euronext Amsterdam: – MEI-Tsjechië en Slowakije Fonds N.V. (“TSF”); – MEI-Roemenië en Bulgarije Fonds N.V. (“RBF”); – MEI-Rusland Midcap Fonds N.V. (‘RMF”). MEI also manages three non-listed Private Equity and Project Development Funds: – MEI-Middle Europe Opportunity Fund N.V. (“MEOF”); – Middle Europe Opportunity Fund II N.V. (“MEOF II”); – Middle Europe Opportunity Fund III N.V. (“MEOF III”). Portfolio and historical returns MERE’s real estate portfolio consists at 31 December 2011 out of 18 properties, distributed over three cities in the Czech Republic and three cities in the Slovak Republic. The majority of the rentable space is designated good secondary office space and the rest is mostly retail and ho(s)tel space. The fair value of the real estate portfolio as at end of 2011 is EUR 63.97 million, a -9.3% decrease compared to EUR 70.52 million ultimo 2010.

Table 1 – Development of the annual return on Net Asset Value per share

2005 2006 2007 2008 2009 2010 2011

Return (%) 8.7 11.3 11.6 -17.3 5.6 11.0 -17.2


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3 PROFILE MEI-Real Estate N.V. (MERE) invests in the established and emerging real estate markets of Middle Europe. MERE is an investment company with variable capital incorporated under Dutch law. The shares have been listed on the NYSE Euronext Amsterdam since 2003. MERE specialises in commercial real estate investments in Central Europe, with a current emphasis on the Czech Republic and the Slovak Republic. MERE invests in principle through local companies on the basis of local legislation. Middle Europe Investments N.V. (MEI), formerly Oost-Europa Participaties B.V., is established in Deventer with its own offices in Prague (Czech Republic), Cluj-Napoca (Romania), Sofia (Bulgaria) and Moscow (Russia). Objective MERE offers small and large investors the possibility to invest in a real estate portfolio in the emerging markets of Middle Europe. MERE pursues an average annual return of 10%, through increases in the Net Asset Value and/or dividend payments. It uses the expertise of experienced real estate and legal specialists, who operate in the local markets concerned. MERE’s investment policy is aimed at both well cash-flow-generating commercial real estate and commercial real estate that generates an above-average result at the time of sale. The strategy is aimed at portfolio renewal, increasing the rental value of the properties by selective improvements and better tenant management. Since demand for better (cash flow generating) property is higher, portfolio renewal also helps to improve marketability. Fund Structure Until 4 January 2012 MERE operates as an open-end investment institution. Barring unforeseen circumstances, MERE will issue or redeem its own Shares on any trading day of NYSE Euronext Amsterdam. With regard to the redemption of shares, MERE will ensure that, barring exceptional circumstances, the obligation to redeem is fulfilled. The Managing Board may, however, suspend the redemption of Shares and the repayment of the value of the Shares in the interest of MERE. As of 1 October 2008, both issuance and redemption of shares of MERE was temporarily suspended. The General Meeting of Shareholders at 7 July approved the decision to transition to a closed-end investment institution. As of 4 January 2012 MERE N.V. operates as a closed-end company. As of 5 January 2012 ordinary shares continuously can be traded through NYSE Euronext Amsterdam. MEI-Fondsenbeheer B.V. is the management company for MERE, and obtained per 24 January 2006 a permit from the Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, the "AFM") under the Financial Supervision Act (Wet op het financieel toezicht, the “Wft”). Financing policy MERE finances a substantial portion of the real estate portfolio with long-term external debt. Hereby we consider the need for flexibility, so to be able to sell real estate in the portfolio without high breakage costs. Investment Policy MERE invests in commercial real estate in Middle Europe in accordance with predetermined investment criteria. The company aims at a diversified real estate portfolio, spreading the risks between multiple sectors and multiple locations. Positions will be analysed regularly and adjusted where necessary. MERE will use the local organization of MEI to continuously identify, acquire and manage its real estate. Besides A-class real estate, which is often relatively expensive, MERE primarily invests on B

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and C-class real estate, which combined with MERE’s strategy, generates relatively higher returns on investments. The result is a diversified real estate portfolio with a good yield/risk ratio. Investment Criteria The management board will pursue an investment policy that takes the following investment criteria into consideration: - MERE will invest in commercial real estate in Middle Europe, both direct and indirect; - 60% of the assets, with a maximum deviation of 10% above, will be financed with debt capital; - MERE is allowed to invest in securities or place money on deposit to have enough cash

available; - Investments will be diversified at the following levels:

o countries in Middle Europe; o commercial sectors, including offices, retail, industry, logistics; o property classes: A- / B- / C-class locations; o regions and cities: capital/major cities/other locations; o size of individual projects.

MERE may use financial instruments to hedge the currency risks. MERE pursues active management of its portfolio, using its knowledge of the local real estate markets and its experience in various Middle European countries to identify new investment opportunities. Existing assets will be assessed regularly, to determine whether they should stay in portfolio or be sold; all possible merits of potential investment opportunities will be assessed. MERE’s properties are valued at fair value. Valuations take place annually by independent external professional valuators. Internal valuations are carried out semi-annually. Corporate Governance Clarity and transparency in supervision and accounting is considered by MERE the cornerstone of good management and entrepreneurship. It acknowledges a sound system of good corporate governance. Such as is demonstrated in this Annual Report, the objectives are clearly defined and MERE has a clear strategy. The dialogue with the shareholders is primarily conducted at the Annual General Meeting of Shareholders, but also the website offers the opportunity for shareholders and other interested parties to inform themselves and to ask the company questions directly. Fund governance MEI-Fondsenbeheer B.V. endorses the DUFAS Principles of Fund Governance, as formulated by the Dutch Fund and Asset Management Assocation (DUFAS). Following these Principles, MEI-Fondsenbeheer B.V. will act in the interests of investors of the funds MEI-Fondsenbeheer B.V. manages. In case of a possible conflict of interest, transactions will be submitted for approval by the Supervisory Board. DUFAS Principles of Fund Governance are presented on the website of DUFAS: www.dufas.nl

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4 PRE-ADVICE OF THE SUPERVISORY BOARD

Hereby we present the annual report of MEI-Real Estate N.V. (MERE) that has been prepared by the Managing Board. This report contains the financial statements for the period from 1 January until 31 December 2011.

The financial statements are audited by KPMG accountants N.V. and were approved. The auditor’s report is presented on pages 99-100. The Supervisory Board has received notice of this approval.

The Supervisory Board recommends the financial statements for the year 2011 to the General Meeting for approval. The proposal by the Managing Board to pay no dividend over the year 2011 has been approved by the Supervisory Board.

During 2011, the Supervisory Board had a number of meetings. During these meetings, the Supervisory Board discussed the enquiry request at the Court of Justice to require an investigation to the conduct and the course of affairs within MEI-Fondsenbeheer B.V. The (potential) consequences of these events for the Fund and its investors were thoroughly discussed. The Supervisory Board would like to stress that it will continue to monitor developments closely to protect the continuity of MERE and the interests of its investors.

During the four other meetings, the Supervisory Board discussed the (administrative) organization, transition closed-end fund structure, investment strategy, commercial strategy and financial reporting. These meetings were attended by the Managing Board.

Deventer, 26 April 2012

Supervisory Board Prof. Dr. J. L. Bouma, chairman B. Vos M.Sc.

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5 REPORT OF THE MANAGING BOARD We hereby present you the annual report 2011 of MEI-Real Estate N.V. (MERE). The reporting period is from 1 January 2011 to 31 December 2011. The main developments during this period are discussed and an overview of the fund and real estate portfolio is given. Finally an outlook for the year to come is provided. 5.1 DEVELOPMENTS IN 2011

The year 2011 was characterized by general signs of a recovering property market, but at the same time experienced a significant occupancy decrease related to delayed economic effects. In 2011, the Net Asset Value (NAV) of MEI-Real Estate N.V. decreased by 17.2%.

Subsequently the developments in the real estate market, the Net Asset Value development and the events during the year 2011 are discussed below.

Property markets

The backlash of the 2008 credit crisis was still a force to reckon with during 2011, but the second wave now showed negative impact on the occupancy level within the portfolio. The bank financing is still limited available in the market, but partly because of equity rich investors entering the market, transactions seem to increase. However it is far from before credit crisis levels. Net Asset Value development

The Net Asset Value is determined on a daily basis. However during 2011 there was no daily share price development. This is because trading in MERE shares on the stock market is suspended for undetermined time since 1 October 2008.

The Total Assets decreased in 2011 from approximately EUR 77.50 million at 31 December 2010 to EUR 69.07 million at 31 December 2011. The decrease is mainly related to the lower real estate asset values due to the occupancy decrease during 2011. The Total Equity decreased to EUR 23.67 million as a result of the sales and the negative revaluation of the real estate portfolio. The number of outstanding shares remained the same during the year at 1,180,943 shares.

The following table shows the development of MERE’s Net Asset Value per share during the period 1 January 2011 to 31 December 2011.

Table 2 – the development of the Net Asset Value per share during 2011

31-12-2010 31-3-2011 30-6-2011 30-9-2011 31-12-2011

Net Asset Value per share (EUR)1 25.07 25.38 25.69 25.64 20.49

12-month yield (%) 11.0 11.7 12.1 7.9 -17.2


Note 1: NAV is the Net Asset Value per share as at the end of the half year.

Events during 2011 The following events influenced the development of the NAV and share price during 2011:

7 July 2011 the EGM approved the decision to transform MERE N.V. into a closed-end company. Prior to the change of structure to a closed-end company, shareholders had the opportunity to sell their ordinary shares for redemption as of 3 October 2011 until 3 January 2012. The EGM approved that the share price during this three-month period was fixed at EUR 6.70 per ordinary share. As of 4 January 2012 MERE N.V. operates as a closed-end company. As of 5 January 2012 ordinary shares continuously can be traded through NYSE Euronext Amsterdam.

The whole property portfolio has been externally valuated by independent appraiser DTZ. The value of the portfolio decreases net by 9.2%. Due to this devaluation the Net Asset Value per share decreased by 17.2%. The valuation was implemented in the NAV on 22 December.

MERE continued to invest in the portfolio, but did not acquire or dispose properties during 2011.

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Development of the portfolio

At 31 December 2011 the Total Assets are EUR 69.07 million. This is a decrease of 10.9% compared to EUR 77.50 million of Total Assets ultimo 2010. During 2011 investments were only made if they improved the estimated rental value2 directly. Graph 1 shows the fair value development per property during the period 2004 up to 2011. Noticeable is that most Slovak properties show a positive value development over time, but the Czech properties, which are generally longer in portfolio, show a net decrease during the period. This decrease is because most Czech properties were bought at a higher price in the real estate market cycle. However during 2011 generally the Slovak property values were hit, in contrary to the Czech properties. Especially the Slovak portfolio saw a significant occupancy decrease, which negatively impacted the property values. Graph 1: the fair values development per property from 2004 up to 2011

Source: DTZ Zadelhoff valuation reports

Throughout 2011 MERE bought no additional properties. Graph 2 below shows the development of the property size distribution from 2004 up to 2011. The real estate portfolio has a strong property size distribution. Graph 2: the relative property values in the portfolio from 2004 up to 2011


Graph 3 shows that the largest five properties represent 46.1% (2010: 44.6%) of the total fair value of the property portfolio ultimo 2011. Graph 4 shows that the smallest five properties represent

2 it is the amount that would be paid for rental of similar real property in the same condition and in the same area

0123456789

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Slovak propertiesCzech properties

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2004 2005 2006 2007 2008 2009 2010 2011

Politikych vezn.10 Štefánikova 167 Marianske nam.1 Prvniho pluku 621 Na Zertvach 34Sujanovo nam.3 Drahobejlova 27 Letna 45 Kysucká 16 Zahradnicka 46A. Rudnayova 21 Kriva 23 Kriva 18 Prazska 2 Prazska 4Gemerska 3 Saca Racianska 71 Juzna Trieda Dunajska

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12.2% (2010: 12.7%) of the portfolio. Due to still reluctant bank financing, local equity rich parties are now still an important force in the market. These parties are interested in relative smaller investments, hence better affordable properties are more in demand.

Graph 3 – the five highest value properties Graph 4 – the five lowest value properties


Graph 5 shows the cumulative development of the realized and unrealized real estate portfolio value. The unrealized value is the fair value at the end of each year. The realized value is the cumulative revenue from property sales from portfolio. Noticeable is the positive trend since date of establishment of the MEI-Real Estate N.V. up to ultimo 2011.

Graph 5 – the development of realized and unrealized real estate portfolio value


The exploitation The exploitation result is considered as direct result. Table 3 shows that the net rental income decreased during 2011. This is mainly because of the occupancy decrease within the Slovak part of the portfolio. Table 3 – overview of key data representing the rental income developments in 2011 and 2010

X 1,000 EUR 2011 2010 change %

Gross rental income 8,042 8,218 -/- 176 -/- 2.1

Service income 1,536 1,637 -/- 101 -/- 6.2

Total gross rental income 9,578 9,855 -/- 277 -/- 2.8

Service costs 2,823 2,879 -/- 56 -/- 1.9

Property operating expenses2 2,373 2,453 -/- 80 -/- 3.3

Net rental income 4,382 4,523 -/- 141 -/- 3.1

0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

2011

Letna 45 (SK)

Kysucká 16 (SK)

Politikych vezn.10 (CZ)

Štefánikova 167 (CZ)

Marianske nam.1 (CZ)

0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

2011

Prazska 4 (SK)

Drahobejlova 27 (CZ)

Gemerska 3 (SK)

Saca (SK)

Racianska 71 (SK)

0

20

40

60

80

100

2004 2005 2006 2007 2008 2009 2010 2011

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ns

(EU

R)

unrealized value realized value

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Property value development

The unrealized property value result is considered the indirect result. The table below shows the year-on-year change within the MERE-portfolio during 2011. Maintaining a quality portfolio is the basis for favourable results now and in the future. For MERE this means creating and maintaining a well-leased, manageable, well-diversified portfolio of international real estate.

Table 4 – overview of the key data representing the property developments in 2011

x 1,000 EUR 2011 2010 change

Fair value of the portfolio (investment assets) 63,973 70,518 -/- 6,545

Number of properties 18 18 0

Rentable area (sqm.)1 133,015 132,334 681

Occupancy rate (%)2 79.8% 84.0% -/- 4.2%

Note 1: Based on the detailed content of Chastia property management system. See also §6.4

Note 2: The weighted average occupancy rate. See also §12.40.1

In 2011 the whole portfolio was externally valued by DTZ during the last quarter of 2011. See paragraph §12.25 for more information about the fair values of the properties. 5.2 EXCHANGE RATE

The Czech Koruna depreciated by 2.9% during 2011. On 31 December 2010 the Czech Koruna was 25.061 CZK/EUR and at 31 December 2011 25.787 CZK/EUR. The Managing Board has decided not to hedge the risk since the macro-economic factors point to the currency appreciating rather than depreciating in the future. The Czech Republic is not expected to adopt the Euro before 2015. Graph 6 – exchange rate development of the CZK compared to the EUR in 2011

Source: European Central Bank

23,75

24,00

24,25

24,50

24,75

25,00

25,25

25,50

25,75

26,00

26,25

I II III IV V VI VII VIII IX X XI XII

CZK/EUR

18

5.3 DEBT FINANCING

The absolute bank financing amount decreased to EUR 37.05 million (2010: EUR 40.33 million). Despite the decrease of the total bank loans, the loan-to-value (LTV) ratio slightly increased to 57.9% (see table 5). This percentage will decrease by loan amortizations based on regular bank payment schedules and instalments to the SNS bank. Ultimo 2011 MERE has EUR 37.05 million of external bank debt in CZK’s (Czech loans) and Euros (Slovak loans). This is within the 50-70% range, the debt policy of the fund. At the end of 2011, the weighted remaining maturity of the interest-bearing loans and borrowings is 5.68 years (see also §12.54.14). Table 5 – Loan to Value ultimo 2011 and 2010

2011 2010 change

Loan to Value1 57.9% 57.2% 0.7%

Bank loans2 (EUR x 1,000) 37,049 40,328 -/- 3,279

Note 1: Value is based on investment property amount

Note 2: This includes current and non-current interest-bearing loans and borrowings and provisions (see §7)

5.4 RESULTS

Profit The profit for 2011 after EUR 0.50 million negative income tax expense (see table 6 and §12.52.2) amounted to EUR -/- 4.63 million (2010: EUR 3.10 million). The devaluation of the portfolio influenced this result. The value of the portfolio decreased by net EUR 6.55 million3. The basic earnings per share amounted in 2011 to -/- EUR 3.92 per share (2010: EUR 2.63) (see chapter 8). The profit can be divided into direct result and the indirect result. A detailed summary with comparative figures of the direct and indirect result is provided in the consolidated annual accounts in chapter 7 and in the following paragraphs. We refer to §12.25 for a specification of the revaluations. Table 6 – Tax stated in the income statement

EUR thousands 2011 2010

Tax due on profits -/- 72 72

Deferred tax on profits -/- 427 178

-/- 499 250

Direct result The direct result is the result generated from lettings net of costs. The direct result after tax for 2011 amounted to EUR 1.02 million (2010: EUR 1.21million). This decrease is comparable to the decrease of the net rental income to EUR 4.38 million (2010: EUR 4.52 million). It is the result of the faster income decrease related to the decrease of expenses. Among others the lower net financial income of EUR 0.29 million (2010: EUR 0.76 million), the lower expenses of EUR 2.15 million (2010: EUR 2.32 million) and negative income tax expense of EUR 0.5 million (2010: EUR 0.25 million). See chapter 8 for more details.

Indirect result The indirect result for 2011 (including minority interest) amounted to -/- EUR 6.15 million (2010: EUR 1.89 million). The indirect result is the result that arises primarily from realised and unrealised increases in the value of the portfolio. The average applied yield4 by the external appraiser for the

3 Including exchange rate loss on the Czech Koruna based on the 2.9% depreciation

4 the capitalization factor applied by appraisers to capitalize the rental value. This results in the gross property value.

19

portfolio valuation did not change in 2011. The stable net average yield, in combination with the lower estimated rental income related to the higher vacancy of rentable areas at year ultimo, has resulted in a devaluation of the property portfolio as at 31 December 2011. Dividend The year 2011 showed a decrease of the Net Asset Value per share. The year 2011 suffered from the backlash of the economical uncertainty. This resulted in some large tenants reducing there exposure and breaking their leases and at the same time new tenants were more reluctant to commit. In order to maintain or adjust the capital structure, it is not expected that MERE will distribute any dividend over the year 2011 (see also §12.31) Net Asset Value MERE reached a total annual return on Net Asset Value of -17.2% at year end 2011 (2010: 11.0%). The European Public Real Estate Association (EPRA)-Net Asset Value per share decreased by EUR 4.58 from EUR 25.07 to EUR 20.49. The Net Asset Value stated is the adjusted Net Asset Value, which is calculated by adding 50% of the deferred tax. The percentage is an estimate of the present value of the deferred tax applicable. For the calculation (see also §12.32) of the Net Asset Value, used as basis for the listing price, the deferred tax liabilities concerning the revaluation gains on investment property are eliminated. This is common in the market and is mentioned by EPRA as well. In the annual accounts the deferred tax liabilities are fully taken into account, in accordance with IFRS. In table 7 the comparative NAV per share at the end of 2011 and 2010 is stated. Table 7 – Comparative statement of the NAV per share

31-12-2011 31-12-2010

Shareholders’ equity (in EUR thousands) 23,670 28,594

Number of ordinary shares in issue 1,180,943 1,180,943

Net asset value per ordinary share (in EUR) 20.04 24.21

Deferred tax liabilities concerning revaluation gains on investment property (EUR thousands)1 533

1,016

Shareholders equity in accordance with EPRA (EUR thousands) 24,203 29,610


EPRA-NAV (in Euro) 20.49 25.07


Note 1: corresponds with 50% of the deferred tax amount (see also §12.32)

Investment result The result comprises the operating result, the valuation loss and the results on the currency exchange rates. The following table provides a statement of the investment result for the year 2011 and the preceding year. Table 8 – Consolidated Statement of recognised income and expense for year 2011 and 2010


Foreign exchange translation differences on net investment in group companies -/- 291 -/- 102

Net gain/ (loss) recognised directly in equity -/- 291 -/- 102 Profit for the period -/- 4,633 3,103

Total recognised income and expense for the period -/- 4,924 3,001


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In 2011 there was a loss for the period instead of a profit the same period last year. The decrease in 2011 is the result of the property devaluation, related to the increased vacancy level and the lower market rent level. Expense ratio

The Total Expense Ratio (TER) is the ratio between total expenses during the financial year and MERE’s average Net Asset Value. The TER (including local property exploitation costs) further decreased to 14.60% in 2011 (2010: 16.64%). The TER mainly decreased as a result of the increase of the average shareholders’ equity by about 7% as well as a decrease of the total expenses with about 6% (see §12.51). 5.5 RISKS AND UNCERTAINTIES

For a description of the main risks and uncertainties, we refer to the Risk paragraph §12.54 and the notes to the consolidated financial statements. 5.6 OUTLOOK

In 2011, MEI-Real Estate N.V. (MERE) experienced significant pressure on the rental market and saw significant vacancy increase. This resulted into lower real estate values (indirect result). This market event more than offset the positive trends that we noted last year. Especially the Czech real estate market shows increasing activity in the A-class property sector, however until now the secondary property sector did not benefit from this. We expect MERE will still benefit from this by restoring the rental income by vacancy decrease and by strengthening value development.

The Czech economy continued to recover during the year, with GDP growth reaching 1.7% in 2011. The economic growth in 2012 is expected to slow down to 0.2%. The Czech Central Bank three-month interest rate is currently 1.24%, historically a low level. The interest rate is expected to follow the Central European Bank interest rate development, however given the latest Czech inflation data, the Czech interest rate is not expected to increase before winter. MERE expects to continue to benefit from the low interest rate and does not expect a strong increase during 2012.

The Slovak economy shows an accelerated GDP growth, mainly driven by export. The GDP growth reached 3.3% in 2011. We expect that the Slovak economy will continue to grow with 2.3% over 2012. The Slovak Republic benefits from a huge demand in cars and as one of the biggest car producing countries, Slovak industrial production ros with 8.3% during 2011.

Although both countries show deficits, the macro-economic data still look solid compared to many other countries in the European Union (see also §6.1). Economic development has a strong positive correlation with the development of office space demand. Hence we expect to benefit on the short to medium term from the positive economic development by contracting yields and higher uptake. However at the same time we expect that the market rental level will not increase significantly.

The Managing Board would like to extend its thanks to all parties involved for their sound work during 2011 and looks forward to a strengthening year 2012.

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5.7 STATEMENT REGARDING ADMINISTRATIVE ORGANISATION AND INTERNAL CONTROL

We have judged several aspects of the administrative organization during the reporting period. We established that there is no basis which could lead to the conclusion that the description of the administrative organization and internal control as prescribed by Article 121 of the Bgfo (“Besluit gedragstoezicht financiële ondernemingen”), does not meet the requirements as prescribed by the Financial Supervision Act (Wet op het financieel toezicht, the “Wft”) and related regulations. Pursuant to this, we declare as Managing Board of MEI-Real Estate N.V. that the Company possesses a description as prescribed by Article 121 of the Bgfo, that meets the requirements as prescribed by the Bgfo. In addition, the Managing Board declares with a reasonable degree of certainty that the administrative organization and internal control functions effectively and in accordance with this description. Deventer, 26 April 2012 The Managing Board, MEI-Fondsenbeheer B.V. H.H. Kloos RBA P.H.J. Mars M.Sc. G.St.J. Barker LBB FRICS (since 27 February 2012)

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6 THE REAL ESTATE PORTFOLIO

At the end of 2011 the MEI-Real Estate N.V. portfolio contains eighteen properties. The following section gives a short impression of the real estate in the MERE portfolio. At the end of 2011 MERE has properties in six Middle European cities: Bratislava, Košice, Zlin, Brno, Prague and Žilina. The cities are regarded as regional and (inter)national economic centres with strong economic fundamentals. Building and maintaining a good-quality portfolio, forms the basis for favourable results now and in the future. For MERE, this means creating and maintaining a well-rented, manageable, well diversified portfolio of international real estate.

Figure 1 – The city locations of the MERE Portfolio in the Czech and Slovak Republic

The following section gives a brief description of the properties in the Czech Republic and Slovak Republic Real Estate portfolio of MEI – Real Estate N.V.

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6.1 The Czech Republic and Slovak Republic economy

The Czech currency, the Czech Koruna (CZK) had a relatively weak year. In particular the Eurozone events in the summer months had their impact on the CZK, but also the less favourable (economic as political) developments in Hungary were not helping the CZK. Although the CZK is regarded as the safe haven in the CEE-region, the currency weakened 2.9% in 2011. MERE does not hedge its currency exposure since hedging brings significant costs. Total exposure of the financial assets of MERE towards the CZK is 79.0% as at end of 2011 (see for an overview paragraph 12.54.3). Since the Slovak Republic already adopted the EUR, the Slovak assets do not create a currency risk. The Czech but also the Slovak economy recovered further during 2011. The Slovak Republic benefitted from a huge demand in cars and as one of the biggest car producing countries, Slovak industrial production rose with 4.1% during 2011. Major car producers such as Volkswagen and Hyundai have large factories in the country, and both car makers see huge demand in their cars. Although both countries show deficits, the macro-economic data still look solid compared to many other countries in the European Union. Table 9 - Macroeconomic indicators Czech Republic

2009 2010 2011F 2012F

Real GDP growth (%) -3.1 2.2 1.7 0.2

Industrial output growth (%) -13.3 -1.0 1.0 4.0

Inflation (%) 1.8 1.4 2.4 3.2

Unemployment (average, %) 9.2 9.0 9.1 9.0

Budget Balance (% of GDP) -5.8 -5.0 -3.7 -3.7

Source: Reuters, Czech Finance Ministry, Czech National Bank, Unicredit Table 10 - Macroeconomic indicators Slovak Republic

2009 2010 2011F 2012F

Real GDP growth (%) -5.0 3.9 3.3 2.3

Industrial output growth (%) -19.0 19.0 6.1 7.9

Inflation (%) 1.9 1.0 2.6 2.6

Unemployment (average, %) 13.0 14.5 13.6 13.2

Budget Balance (% of GDP) -8.0 -7.8 -4.8 -3.5

Source: Reuters, Slovak Finance Ministry, Unicredit

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6.2 THE REAL ESTATE PORTFOLIO IN THE CZECH REPUBLIC

MEI – Real Estate N.V. has seven properties in the Czech portfolio. The office properties are located in three cities, with a dominant position in the two largest cities of the country, Prague and Brno. Below the main characteristics of each property are presented.

Sujanovo nam.3

Location Brno

Type Offices & Storage

Rentable Surface (sqm) 8,228

Occupation Rate 56%

Fair value (mln. EUR) 2.701

This administrative complex is located 1,200 meters southeast of the Brno city centre, in a commercial and residential area. The accessibility by car and public transport is excellent. The total rentable area is 8,228 sqm. There are sufficient parking spaces available.

Marianske nam.1

Location Brno



Occupation Rate 58%


This large office complex including commercial space is located at the main traffic venue connecting the city centre of Brno with the highway D1. The building is excellent accessible by car and public transport and has 6,766 m2 of good standard B-class quality office space, 4,526 m2 industrial company space and more than 200 parking lots.

Na Zertvach 34

Location Prague

Type Office


Occupation Rate 69%


The office building is located in Prague near the Palmovka metro station in the fast developing area on the boarder of Prague districts Karlin, Libeň and Vysočany. The total area is 2,829 sqm. of which is rentable 2,127 sqm. The accessibility by road is good and by public transport excellent. The building is from 1998-1999 and was put into operation in January 2000. It has 28 underground parking spaces.

Prvniho pluku 621

Location Prague

Type Office


Occupation Rate 96%


This office complex contains two opposing buildings. It is located in district Prague 8, named Karlin. One of the buildings was recently refurbished to modern

25

standard and the other building was constructed in 2002. Both buildings have 4 floors. The total rentable space (predominant office space) is 3,009 sqm. The total plot size is 2,500 sqm. The property has a good mix of high quality tenants and the building is virtually fully occupied. There is sufficient parking capacity, with 35 parking spaces in the courtyard.

Politickych veznu 10

Location Prague

Type Office


Occupation Rate 79%


This representative office building is located in the Prague city centre, near Wenceslas Square. The main building has 8 floors. The total space is 2,922 sqm of which 2,306 sqm is rentable. The whole complex has partly been reconstructed with among others additional parking spaces. Especially given its prime location is the building is good accessible.

Drahobejlova 27

Location Prague

Type Office


Occupation Rate 55%


This office building is located in the booming area of Prague, the district Libeň and Vysočany. The building has good accessibility. The total space is 4,552 sqm, of which 2,552 sqm. is rentable. In 2000, the building was reconstructed to a modern administrative building that meets all market requirements for this property class.

Štefánikova 167

Location Zlin

Type Office


Occupation Rate 88%


This complex is an administrative building that was constructed in 1969. Štefánikova has a very good location; it takes a mere three minutes to walk to the city centre. The total space is 10,538 sqm. of which 8,054 sqm. is rentable. It is easy accessible, just of the main square in the south-east direction. There is also a sheltered parking for approximately 70 cars in the courtyard. The building has a mix of quality tenants (Komercní banka, Volksbank, Centroprojekt) under long-term contracts and full occupancy. It is one of the largest and prominent commercial properties in Zlin.

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6.3 THE REAL ESTATE PORTFOLIO IN THE SLOVAK REPUBLIC

MEI – Real Estate N.V. has eleven properties in the Slovak portfolio. The mainly office properties are located in three cities, with a dominant position in the two largest cities of the country, Bratislava and Košice. Below the main characteristics of each property are briefly represented.

Racianska 71

Location Bratislava



Occupation Rate 64%


The building is used for office, storage and production purposes and is located approximately 1,5 km from the Bratislava city centre. The total space is 3,405 sqm. and 2,935 sqm. is rentable. The access by car is excellent and there are 34 parking spaces available.

Zahradnicka 46

Location Bratislava

Type Office


Occupation Rate 59%


The underground floors and first 4 stories are used for administrative purposes. The building is located near the main road, in the middle of the business centre of Bratislava. It has 6 stories and 2 underground floors. The total space is 4,871 sqm. of which 3,768 sqm. is rentable office area. The traffic access is excellent and the building has 28 parking spaces.

Gemerska 3

Location Kosiče

Type Office


Occupation Rate 78%


This administrative building is located on the main road of Košice city, near the commercial centre Cassovia. The total space is 6,490 sqm. of which 4,523 sqm. is rentable. The building is well accessible by car as well as by the public means of transport. There is a parking lot with 88 parking spaces available.

Kriva 18

Location Kosiče

Type Office


Occupation Rate 70%


These two administrative 10-floor buildings are build on an attractive location approximately 500 m south east from the city centre. The premises can be used for office or retail purposes. The total space of Krivá 18 is 7,766 sqm. of which

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6,091 sqm. is rentable. There are 111 parking places available.

Prazska 4

Location Kosiče

Type Office


Occupation Rate 71%


The two administrative 10-floor buildings are located in the residential area Terasa, approximately 1,5 km west from the historical centre of Košice. The premises can be used for office, business and accommodation purposes. The total space of Pražská 2 is 7,735 sqm. of which 6,164 sqm. is rentable. There are 71 parking spaces available.

Prazska 2

Location Kosiče

Type Office


Occupation Rate 87%


The two administrative 10-floor buildings are located in the residential area Terasa, approximately 1.5 km west from the historical centre of Košice. The premises can be used for office, business and accommodation purposes. The total space of Pražská 2 is 7,724 sqm. of which 6,055 sqm. is rentable.

Kriva 23

Location Kosiče

Type Office


Occupation Rate 75%


These two administrative 10-floor buildings are build on an attractive location approximately 500 m south east from the city centre. The premises can be used for office or retail purposes. The total space of Krivá 23 is 9,030 sqm. of which 7,286 sqm. is rentable. There are 111 parking places available.

Letna 45

Location Kosiče

Type Office


Occupation Rate 83%


This administrative building is situated on the Festival Square, approx. 1 km north west from the historical centre of Košice. The business centre is permanently undergoing a refurbishment in terms of increasing its already high quality and design. The total space is 14,782 sqm. of which 10,738 sqm. is rentable. The building is well accessible. The property is near the outer city circle road. There are 70 parking places and 14 garages available.

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Saca

Location Kosiče

Type Storage & Logistics


Occupation Rate 48%*


This industrial park consists of masonry and steel buildings serving for manufacturing, storage and office purposes. It is located near the road I/50, direction Košice-Rožňava. The total space is 28,327 sqm. of which 27,400 sqm. is rentable. The park has a favourable accessibility by a truck as it is located on the main road through Košice. The area provides more than sufficient parking facilities. * considering 100% of outdoor concrete area as rentable area

Kysucká 16

Location Kosiče

Type Office/hotel


Occupation Rate 96%


Two stories with a total of 1,885 sqm. are used for administrative purposes and retail. Eleven stories of 8,843 sqm. are used as temporarily apartments. The building has 13 stories in total. The building is suited for tenants who specifically need affordable space such as students and employees of large corporations. The building is easy to reach and is located just 1 km west from the historic centre.

A. Rudnayova 21

Location Zilina

Type Office


Occupation Rate 76%


This is a relative large office building on a 6,200 m2 plot. It is located on a favourable and well-accessible location in Zilina. The building is well recognized in the local office market (telecom company T-Com, software company Kros). There is sufficient parking, currently over 100 spaces with possibilities to expand. The building is expected benefit from regional developments; car maker KIA opened a new factory in Zilina.

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6.4 PORTFOLIO OVERVIEWS PER CATEGORY

Overview of business categories: gross area in m²

In m²

Office

Business

Storage Retail Ho(s)tel Apartment

Other

Subtotal rented

out area

Non-rentable

area Vacant area Gross area

Name of investment property 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Czech Republic:

Drahobejlova 1,098 1,329 - - 225 286 - 108 - - - - 89 122 1,412 1,845 1,999 803 1,140 1,874 4,551 4,522

Palmovka 752 752 - - 54 54 267 267 - - - - 400 365 1,473 1,438 702 694 654 662 2,829 2,794

Karlin 2,554 2,566 17 17 208 199 - - - - - - 97 63 2,876 2,845 1,974 1,948 133 106 4,983 4,899

GiTy 2,645 2,821 1,236 1,205 1,332 1,588 700 700 - - - - 644 669 6,557 6,983 2,184 2,318 4,735 4,122 13,476 13,423

VUP 2,255 2,380 1,114 1,118 584 818 63 63 - - - - 577 576 4,593 4,955 1,219 1,230 3,635 3,251 9,447 9,436

Newton House 1,241 1,062 29 29 89 69 60 60 - - 104 27 306 277 1,829 1,524 616 629 477 757 2,922 2,910

Štefánikova 5,070 5,037 268 268 1,012 991 607 607 - - - - 125 125 7,082 7,028 2,484 2,450 972 1,064 10,538 10,542

Total Czech Republic 15,615 15,947 2,664 2,637 3,504 4,005 1,697 1,805 - - 104 27 2,238 2,197 25,822 26,618 11,178 10,072 11,746 11,836 48,746 48,526

Slovak Republic:

Račianska 576 750 594 433 577 370 - - - - - - 142 78 1,889 1,631 470 412 1,046 1,114 3,405 3,157

Záhradnicka 1,125 1,827 87 54 169 91 579 1,107 - - - - 280 - 2,240 3,079 1,103 1,050 1,528 677 4,871 4,806

Pražská 2 3,009 2,361 164 - 20 20 - 757 2,055 2,128 - - - 87 5,248 5,353 1,669 2,256 807 115 7,724 7,724

Pražská 4 4,246 3,524 - - 29 5 94 1,182 - - - - 31 47 4,400 4,758 1,575 1,621 1,764 1,356 7,739 7,735

Krivá 18 4,234 3,655 - - 12 14 - 765 - - - - - 215 4,246 4,649 1,675 1,697 1,845 1,403 7,766 7,749

Krivá 23 4,447 3,782 - - 472 564 22 806 - - - - 523 564 5,464 5,716 1,745 1,745 1,821 1,570 9,030 9,031

Gemerská 3,326 2,684 - - 201 201 - 667 - - - - - 176 3,527 3,728 1,967 1,967 996 795 6,490 6,490

Letná 7,471 7,044 142 41 271 344 493 1,082 - - - - 585 781 8,962 9,292 4,044 4,322 1,776 1,172 14,782 14,786

Šaca 297 357 1,100 550 638 1,504 - 182 - - - - 11,155 17,550 13,190 20,143 926 926 14,210 7,258 28,326 28,327

Vural 4,013 4,243 847 505 544 289 1,855 1,918 - - - - 126 615 7,385 7,570 4,669 4,835 2,375 1,793 14,429 14,198

Kosmalt 770 526 190 - 117 - 289 687 8,843 8,843 - - 44 - 10,253 10,056 5,591 5,611 475 652 16,319 16,319

Total Slovak Republic 33,514 30,753 3,124 1,583 3,050 3,402 3,332 9,153 10,898 10,971 - - 12,886 20,113 66,804 75,975 25,434 26,442 28,643 17,905 120,881 120,322

Total CR + SR 49,129 46,700 5,788 4,220 6,554 7,407 5,029 10,958 10,898 10,938 104 - 15,124 22,310 92,626 102,593 36,612 36,514 40,389 29,741 169,627 168,848

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Overview of business categories: gross rental income

EUR thousands Office Business Storage Retail Ho(s)tel Apartment Other Total

Name of investment property 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Czech Republic:

Drahobejlova 127 142 - - 13 15 - 17 - - - - 2 3 142 177

Palmovka 141 183 - - 5 7 75 98 - - - - 19 22 240 310

Karlin 443 447 1 1 18 17 - - - - - - 4 3 466 468

GiTy 272 250 63 54 68 71 108 94 - - - - 16 15 527 484

VUP 205 190 51 45 27 33 8 7 - - - - 13 12 304 287

Newton House 280 253 3 3 10 8 20 21 - - 12 3 17 16 342 304

Štefánikova 551 493 15 13 55 48 99 89 - - - - 3 3 723 646

Total Czech Republic 2,019 1,958 133 116 196 199 310 326 - - 12 3 74 74 2,744 2,676

Slovak Republic:

Račianska 72 100 37 29 36 25 - - - - - - 4 3 149 157

Záhradnicka 222 236 9 4 17 6 171 215 - - - - 14 - 433 461

Pražská 2 338 243 9 - 1 1 - 116 115 109 - - - 2 463 471

Pražská 4 390 284 - - 1 - 13 142 - - - 1 1 405 427

Krivá 18 412 329 - - 1 1 - 104 - - - - - 5 413 439

Krivá 23 428 338 - - 23 25 3 108 - - - - 13 13 467 484

Gemerská 291 207 - - 9 8 - 77 - - - - - 3 300 295

Letná 885 817 8 2 16 20 87 188 - - - - 17 23 1,013 1,050

Dunajská - 39 - - - - - - - - - - - - - 39

Šaca 14 11 26 8 15 23 - 8 - - - - 133 136 188 186

Vural 249 256 26 15 17 9 173 173 - - - - 2 9 467 462

Kosmalt 133 94 16 - 10 - 75 185 764 792 - - 2 - 1,000 1,071

Total Slovak Republic 3,434 2,954 131 58 146 118 522 1,316 879 901 - - 186 195 5,298 5,542

Total CR + SR 5,453 4,912 264 174 342 317 832 1,642 879 901 12 3 260 269 8,042 8,218

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Overview of tenant categories: gross rental income

EUR thousands

Residential

and hospi-

tality Government

Professional

services

Industrial,

manufacturi

ng

Farmaceu-

tical and

healthcare

IT,

communicat

ion, media

Construc-

tion

Financial

services

Retail and

catering

General

commerce Other

Total gross

rental

income

Name of investment property 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Czech Republic:

Drahobejlova - - 22 6 18 18 - 12 - - 21 77 - - 5 - 41 41 24 18 11 5 142 177

Palmovka - - - 9 17 16 - 9 48 47 36 62 87 95 - - 43 72 - - 9 - 240 310

Karlin - - 62 54 114 55 149 189 4 4 45 41 4 4 13 12 36 27 32 29 7 53 466 468

GiTy - - - - 95 49 40 36 20 10 262 265 1 2 2 - 92 69 11 48 4 5 527 484

VUP - - 113 114 17 14 109 106 - - 42 21 8 8 - - 2 9 13 12 - 3 304 287

Newton House - - 20 21 233 213 2 3 1 - 28 21 - - 3 3 - - 46 41 9 2 342 304

Štefánikova - - 78 83 221 156 17 16 2 2 17 17 - - 371 362 1 - 13 8 3 2 723 646

Total Czech Republic - - 295 287 715 521 317 371 75 63 451 504 100 109 394 377 215 218 139 156 43 70 2,744 2,676

Slovak Republic:

Račianska - - - - 41 28 74 67 21 21 - - - - - - - - 5 25 8 16 149 157

Záhradnicka - - 108 121 106 104 14 12 44 37 9 11 1 - 26 29 31 52 28 27 66 68 433 461

Pražská 2 13 13 5 - 78 40 25 26 19 5 24 23 3 - 14 - 19 18 16 5 247 341 463 471

Pražská 4 - - - - 69 38 20 18 56 33 26 24 13 6 14 1 13 5 62 32 132 270 405 427

Krivá 18 - - 42 42 104 75 22 26 29 27 72 49 8 7 3 5 21 14 17 13 95 181 413 439

Krivá 23 3 - 19 9 45 28 34 29 38 38 28 32 57 60 35 30 18 9 83 68 107 181 467 484

Gemerská 3 5 - - 57 41 16 14 40 43 32 25 1 - 28 27 61 45 27 10 35 85 300 295

Letná - - 20 17 70 61 67 67 107 112 530 523 28 20 54 54 50 51 23 23 64 122 1,013 1,050

Dunajská - - - - - - - - - 4 - - - 14 - - - - - 5 - 16 - 39

Šaca - - - - 2 - 55 67 - - 5 - 67 69 - - 33 - 13 16 13 34 188 186

Vural - - - - 5 4 33 40 - - 229 172 - - 3 - 108 108 41 23 48 115 467 462

Kosmalt 35 32 - - 34 - 110 124 9 - 7 75 67 108 153 23 8 - 37 10 540 699 1,000 1,071

Total Slovak Republic 54 50 194 189 611 419 470 490 363 320 962 934 245 284 330 169 362 302 352 257 1,355 2,128 5,298 5,542

Total CR + SR 54 50 489 476 1,326 940 787 861 438 383 1,413 1,438 345 393 724 546 577 520 491 413 1,398 2,198 8,042 8,218

32

CONSOLIDATED FINANCIAL STATEMENTS 2011

33

7. CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR thousands Notes 2011 2010 Assets Investment property 12.25 63,973 70,518 Other investments 12.26 1,286 1,347 Goodwill 12.27 - 381 Deferred tax assets 12.28 976 909 Trade and other receivables 12.29 421 280 Total non-current assets 66,656 73,435

Trade and other receivables 12.29 730 1,095 Cash and cash equivalents 12.30 1,682 2,966 Total current assets 2,412 4,061

Total assets 69,068 77,496

Shareholders’ equity Issued capital 12.31 5,905 5,905 Share premium 12.31.5 14,628 14,628 Revaluation reserve 12.31.6 4,798 7,196 Reserve for currency translation differences 12.31.7 2,732 3,023 Retained earnings 12.31.8 -/- 4,393 -/- 2,158 Total shareholders’ equity (attributable to parent company shareholders)

23,670

28,594

Liabilities Interest-bearing loans and borrowings 12.33 32,935 37,334 Deferred tax liabilities 12.34 4,018 4,493 Trade and other payables 12.35 1,035 - Total non-current liabilities 37,988 41,827

Interest-bearing loans and borrowings 12.33 4,114 2,994 Trade and other payables 12.35 3,296 4,009 Income tax payable - 72 Total current liabilities 7,410 7,075

Total liabilities 45,398 48,902

Total shareholders’ equity and liabilities 69,068 77,496

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8. CONSOLIDATED INCOME STATEMENT

EUR thousands Notes 2011 2010

Gross rental income 12.40 8,042 8,218 Service charge income 1,536 1,637 Service charge expenses 12.41 -/- 2,823 -/- 2,879 Property operating expenses 12.41 -/- 2,373 -/- 2,453 Net rental and related income 4,382 4,523 Valuation gains on investment property 315 3,864 Valuation losses on investment property -/- 6,466 -/- 1,975 Net valuation gains on investment property 12.42 -/- 6,151 1,889 Financial income 12.44 257 730 Other operating income 12.45 28 31 Other income 285 761 Total income -/- 1,484 7,173 Administrative expenses 12.46 1,130 1,434 Amortisation of goodwill 12.47 370 325 Other operating expenses 12.48 653 557 Total expenses 2,153 2,316 Net operating result before financial expenses -/- 3,637 4,857 Financial expenses 12.50 1,495 1,504 Profit before income tax -/- 5,132 3,353 Income tax expense 12.52 499 -/- 250 Profit for the period -/- 4,633 3,103

Attributable to: Parent company shareholders -/- 4,633 3,103 Non-controlling interest - - Profit for the period -/- 4,633 3,103

Basic earnings per ordinary share (EUR) 12.53.1 -/- 3.92 2.63

Diluted earnings per ordinary share (EUR) 12.53.4 -/- 3.92 2.63

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9. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

EUR thousands Notes 2011 2010 Items never reclassified subsequently to profit or loss: - - Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences on net investment in group companies

-/-374 -/- 8

Income tax on foreign currency translation differences on net investments in group companies

83 -/- 94

-/- 291 -/- 102 Net gain / loss (-/-) recognized directly in shareholders’ equity

12.31.7 -/- 291 -/- 102

Profit for the period 8 -/- 4,633 3,103 Total comprehensive income for the period -/- 4,924 3,001

Attributable to: Parent company shareholders -/- 4,924 3,001 Non-controlling interest - - Total comprehensive income for the period -/- 4,924 3,001

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10. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’

EQUITY

EUR thousands

Issued capital

Share premium

Revaluation reserve

Reserve for

translation

differences

Retained earnings

Total

shareholders’

equity

Balance as at 1 January 2010 5,905 14,628 7,772 3,125 -/- 5,837 25,593 Total comprehensive income - - -/- 576 -/- 102 3,679 3,001 Own ordinary shares issued - - - - - - Own ordinary shares redeemed - - - - - - Balance as at 31 December 2010 5,905 14,628 7,196 3,023 -/- 2,158 28,594

Balance as at 1 January 2011 5,905 14,628 7,196 3,023 -/- 2,158 28,594 Total comprehensive income - -/- 2,398 -/- 291 -/- 2,235 -/- 4,924 Own ordinary shares issued 498 169 - - - 667 Own ordinary shares redeemed -/- 498 -/- 169 - - - -/- 667 Balance as at 31 December 2011 5,905 14,628 4,798 2,732 -/- 4,393 23,670

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11. CONSOLIDATED STATEMENT OF CASH FLOW

EUR thousands Notes 2011 2010 Cash flow from operating activities Profit for the period 8 -/- 4,633 3,103 Adjustments for: Net valuation gains on investment property 12.42 6,151 -/- 1,940 Net valuation gains on other investments 12.50 23 -/- 2 Amortisation of goodwill 12.47 370 325 Exchange and currency translation results 111 -/- 27 Interest income 12.44 -/- 257 -/- 730 Interest received 8 7 Interest expensed 12.50 1,372 1,504 Income tax expensed 12.52 -/- 582 344 Change in trade and other receivables 380 216 Change in trade and other payables 370 744 Net cash from / used in (-/-) operating activities 3,313 3,544 Interest paid -/- 1,420 -/- 1,568 Income tax received - 1 Net cash from / used in (-/-) operating activities 1,893 1,977

Cash flow from investment activities Proceeds from the sale of investment properties - 2,370 Acquisition of / additions to investment properties -/- 405 -/- 396 Net cash from / used in (-/-) investment activities -/- 405 1,974

Cash flow from financing activities Proceeds from loans and borrowings 4 3,354 Repayment of loans and borrowings -/- 2,805 -/- 7,722 Net cash from / used in (-/-) financing activities -/- 2,801 -/- 4,368

Net increase / decrease (-/-) in cash and cash equivalents -/- 1,313 -/- 417 Cash and cash equivalents as at 1 January 2,966 3,325 Effect of exchange and currency translation result on cash held 29 58 Cash and cash equivalents as at 31 December 12.30 1,682 2,966

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12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12.1 GENERAL The company MEI-Real Estate N.V., hereinafter referred to as MERE N.V., was incorporated on 27 November 2002 in accordance with Dutch law and is established in Amsterdam (the Netherlands). MERE N.V. obtained a listing on the NYSE Euronext Amsterdam on 13 November 2003. As of 30 September 2008 until 3 October 2011 MERE N.V. suspended issuance and redemption of own ordinary shares. At the Extraordinary General Meeting of Shareholders (EGM) of MERE N.V. dated 7 July 2011 the EGM decided to transform MERE N.V. into a closed-end company. Prior the change of structure to a closed-end company shareholders had the opportunity to sell their ordinary shares for redemption as of 3 October 2011 until 3 January 2012. The EGM approved that the share price during this three-month period is fixed at EUR 6.70 per ordinary share. As of 4 January 2012 MERE N.V. operates as a closed-end company. As of 5 January 2012 ordinary shares continuously can be traded through NYSE Euronext Amsterdam. As of 21 October 2009 (certificates of) ordinary shares of MERE N.V. can also be traded on Nederlandsche Participatie Exchange (NPEX), an alternative trading platform. The ordinary shares of MERE N.V. remain listed on NYSE Euronext Amsterdam.

The consolidated financial statements of MERE N.V. for the 2011 financial year comprise MERE N.V. and its subsidiaries (together referred to as MERE).

12.2 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards and the interpretations thereof adopted by the International Accounting Standards Board (IASB) as adopted by the European Union (hereinafter referred to as “EU-IFRS”). In the preparation of these consolidated financial statements also there has been taken account of other legal regulations, under which Book 2, Title 9 of the Dutch Civil Code (Boek 2, Titel 9 Burgerlijk Wetboek) and the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).

Use has been made for purposes of MERE N.V.’s company profit and loss account of the exemption pursuant to Book 2, article 2:402 of the Dutch Civil Code.

12.3 STATEMENT OF COMPLIANCE AND FUTURE RELATED ASSUMPTIONS MERE has applied the significant accounting principles as set out in section 12.2 to 12.23. The consolidated financial statements were authorized for issue by the Managing Board on 26 April 2012.

As at 31 December 2011, shareholders‘ equity of MEI-Real Estate N.V. (MERE N.V.) is positive. As stated in the supplied liquidity forecast till 2013, the current cash position is sufficient to cover budgeted costs. Based on these assumptions, the Managing Board is of the opinion that MERE N.V. is able to continue as a going concern and that the annual accounts are based on assumptions of going concern.

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12.4 BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS 12.4.1 General The consolidated financial statements are presented in Euros, rounded to the nearest thousand. The financial statements have been prepared on the historical cost basis, except for investment property. The accounting policies explained below have been consistently applied to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements and are consistent with those used in the previous year. 12.4.2 Judgements, estimates and assumptions Preparation of the consolidated financial statements in accordance with EU-IFRS requires the management to make judgements, estimates and assumptions that affect the application of policies and the reported value of assets and liabilities, income and expenses. The estimates and associated assumptions have been based on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of which forms the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of the EU-IFRS that have significant effect on the financial statements, and estimates with a significant risk of material adjustment in the next year are discussed in section 12.57 of the Notes. 12.4.3 New standards and amendments The following new standards, amendments to standards and interpretations relevant to MERE N.V. are applied for the first time for the financial year beginning 1 January 2011: 1 IAS 24 Related Party Disclosures

The amended IAS 24 standard clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduced a partial exemption of disclosure requirements for government-related entities. This amendment did not have a significant impact on the financial statements.

2 IAS 32 Financial Instruments: Presentation – Classification of Rights Issues

The amendment to IAS 32 changed the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. This amendment did not have a significant impact on the financial statements.

40

3 IFRIC 14 Prepayments of a minimum funding requirement (pension assets) The amendment of IFRIC 14 provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. This amendment did not have a significant impact on the financial statements.

4 IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case this value cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. This amendment did not have a significant impact on the financial statements.

Improvements to IFRSs Amendments resulting from improvements to IFRSs to the following standards did not have a material impact on the accounting policies, financial position or performance of MERE during this financial year:

IFRS 7 Financial Instruments: Disclosures;

IAS 1 Presentation of Financial Statements;

IAS 27 Consolidated and Separate Financial Statements;

IFRIC 13 Customer Loyalty Programmes.

New accounting standards and interpretations A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2011, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except for • IFRS 9 Financial Instruments, which becomes mandatory for the Group’s 2013 consolidated

financial statements and could change the classification and measurement of financial assets and

• IFRS 10 Consolidated Financial Statements which becomes mandatory for the Group’s 2013 consolidated financial statements. Consolidation is required when there is control that is defined as a combination of power, exposure to variability in returns and a link between the two.

The Group does not plan to adopt these standards early and the extent of the impact has not been determined.

12.5 BASIS OF CONSOLIDATION 12.5.1 Subsidiaries Subsidiaries are those entities controlled by MERE N.V. Control exists when MERE N.V. is exposed or has rights to variable returns from its involvement with that entity and has the ability to affect those returns through its power over that entity. The financial statements of subsidiaries have been included in the consolidated financial statements with effect from the date on which control commences until the date that control ceases.

41

12.5.2 Consolidated subsidiaries All subsidiaries of MERE N.V. have been included in the consolidation. This relates to the following companies:

Vitosha Property I EOOD concerns a dormant company. 12.5.3 Elimination of transactions on consolidation All intercompany receivables, payables, significant transactions and any unrealized profits and losses on transactions within MERE, or income or expenses from such transactions within MERE have been eliminated in the consolidated financial statements.

12.6 BASIS OF PREPARATION OF CONSOLIDATED STATEMENT OF CASH FLOW MERE has used the indirect method for the consolidated statement of cash flow. Given the nature of MERE (investment company) financial income is not netted against financial expenses, but presented separately under the total income (see also section 12.19.4), so financial income is presented in the consolidated statement of cash flow under “cash flow from operating activities”. Cash and cash equivalents as mentioned in the consolidated statement of cash flow includes the statement of financial position’s item “Cash and cash equivalents” and “Bank overdrafts”. Cash flows in foreign currencies are converted at the exchange rate applicable on settlements date. Transactions without settlement in cash are not recognized in the consolidated statement of cash flow.

12.7 FOREIGN CURRENCY 12.7.1 Foreign currency transactions The functional currency of the Fund is the Euro (EUR) reflecting the fact that the majority of MERE N.V.’s transactions are settled in EUR. The Fund has adopted the EUR as its presentation currency as the ordinary shares of the Fund are denominated in EUR. Foreign currency transactions are translated into Euros at the exchange rate applicable on the transaction date. Monetary assets and liabilities in foreign currency are translated into Euros at the statement of financial position’s date at the exchange rate applicable on that date. Exchange rate differences arising from translation are recognized in the income statement. Non-monetary assets and liabilities expressed in a foreign currency and stated on a historical cost basis are translated at the exchange rate on the transaction date. Non-monetary assets and liabilities in foreign currency that are stated at fair value are translated into Euros at the exchange rates applicable on the dates on which the fair values were determined.

Company

Registered office

Country of incorporation

Holding as at

31 December

2011

Holding as at

31 December

2010

A MERE Bohemia s.r.o. Prague Czech Republic 100% 100% B MERE Slovakia s.r.o. Bratislava Slovak Republic 100% 100% C Vitosha Property I EOOD Sofia Bulgaria 100% 100%

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12.7.2 Financial statements of foreign activities The assets and liabilities of foreign operations, including goodwill and fair-value adjustments arising on consolidation are translated into Euros at the exchange rate applicable on the statement of financial position’s date. The income and expenses of foreign operations are translated to Euro at rates approximating to the foreign exchange rates applicable at the dates of the transactions. Foreign currency translation differences arising on translation are recognized as a separate component of equity. 12.7.3 Net investment in foreign activities Foreign currency translation differences resulting from translation of the net investment in foreign activities, and the associated hedging transactions, are recognized in the reserve for currency translation differences. In case of disposal they are transferred to the income statement. 12.7.4 Exchange rates

12.8 FINANCIAL INSTRUMENTS 12.8.1 General In accordance with IAS 39 financial assets must be classified into one of four categories: 1. Financial assets at fair value through the profit or loss; 2. Held-to-maturity investments; 3. Loans and receivables; 4. Available-for-sale financial assets. All MERE’s financial assets are classified as “loans and receivables”, with the exception of the 5%-investment in Yellow Properties s.r.o. This investment is classified as “financial assets at fair value through the profit or loss”. Loans and receivables are measured at amortized cost. In accordance with IAS 39 financial liabilities must be classified into one of two categories: 1. Financial liabilities at fair value through the profit or loss; 2. Financial liabilities measured at amortized cost. All MERE’s financial liabilities are classified as “financial liabilities measured at amortized cost”. 12.8.2 Recognition The Fund recognizes a financial instrument on its statement of financial position when it becomes a party to the contractual provisions of the instrument. 12.8.3 Derecognition The Fund derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition. A transfer will qualify for derecognition when the Fund transfers substantially all the risks and rewards of ownership. A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired.

31-12-2011 31-12-2010 31-12-2009 31-12-2008 31-12-2007

Czech Koruna (CZK / EUR) 25.7870 25.0610 26.4730 26.8750 26.6280 Bulgarian Lev (BGN / EUR) 1.9558 1.9558 1.9558 1.9558 1.9558

43

12.8.4 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the assets and settle the liability simultaneously.

12.9 INVESTMENT PROPERTY

An investment property is a property that is held to realize rental income or an increase in value, or both. Investment properties are stated at fair value. An external, independent valuer with a relevant recognized qualification and recent experience with the location and the type of property to be appraised, values the portfolio annually. The valuations has been made in accordance with the appropriate sections of the current Valuation Standards contained within the RICS Valuation standards. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeable, prudently and without compulsion. The valuations are made on the basis of the total of the net annual rents generated by the properties and, where relevant, the associated costs. Three standard methods of valuation computation are used, namely Term and reversion, Hardcore and Initial Yield. The application of one of these methods depends on the level of vacancy. In order to arrive at the valuation of the property, the annual net rents are capitalized using a yield factor that includes the specific risks inherent to the net cash flows. The following is a statement of the range of yields factors used for each type of property. Property category Yield factor 2011 Yield factor 2010 A. Office A-class 6.50% – 7.75% 6.50% – 7.85% B. Office B-class 9.50% - 11.50% 9.50% - 11.50% C. Office / storage A-class 9.50% - 11.00% 9.50% - 11.25% D. Office / storage B-class 11.00% - 11.70% 11.00% - 11.70% E. Industrial storage B-class 11.00% - 12.75% 11.00% - 12.75% Where necessary the following is reflected in the valuation: the type of tenant that uses the property or that is responsible for fulfilling the rental

obligations, or the type of tenant that is likely to use the property after vacancy, and the general expectation regarding their creditworthiness;

the division of maintenance and insurance responsibilities between the lessor and the lessee; the residual economic life of the property; whereby it is assumed that in the case of rent adjustment or extension of the lease, in the case

of which a rent increase is expected, all notifications, and where necessary notices to the contrary, meet the requirements to be set and have been sent in good time.

Profits or losses arising from changes in the fair value are recognized in the income statement.

12.10 OTHER INVESTMENTS All other investments are financial instruments. The accounting principles for financial instruments are described in section 12.8 “Financial instruments”.

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12.11 GOODWILL All business combinations are recognized for accounting purposes using the acquisition method. Goodwill is an amount that arises from the acquisition of subsidiaries. The goodwill corresponds with the difference between the cost of the acquisition and the net fair value of the acquired identifiable assets, liabilities and contingent liabilities. Goodwill is stated at cost less cumulative impairment losses. An annual check is made to determine whether impairment has occurred. Negative goodwill arising from acquisition is recognized directly in the income statement.

12.12 DEFERRED TAX ASSETS For the principles of valuation with regard to the deferred tax assets refer to section 12.22 “Income tax expense”.

12.13 INCOME TAX RECEIVABLE The tax on profits still to be received, which is presented under this heading, is recognized at nominal value.

12.14 TRADE AND OTHER RECEIVABLES Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

12.15 CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and bank balances. Time deposits are only included in cash and cash equivalents if the expectation is that they will be used to fund working capital. In the consolidated statement of cash flows bank overdrafts at call, which constitute an integral part of MERE’s asset management, from part of cash and cash equivalents.

12.16 IMPAIRMENT

Other investments, trade and other receivables and cash and cash equivalents are classified as loans and receivables and are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that MERE will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments are considered indicators that a receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the consolidated income statement. When a receivable is uncollectible, it is written off against the

45

allowance account for receivables. Subsequent recoveries of amounts previously written off are credited in the consolidated income statement. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Goodwill is allocated to each business segment in each country MERE operates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold.

12.17 SHAREHOLDERS’ EQUITY 12.17.1 Issued capital The issued capital of MERE N.V. is considered as shareholders’ equity since, MERE N.V. operates as an open-end investment institution until 4 January 2012. MERE N.V. does not have a contractual obligation to take back its own issued ordinary shares. As of 4 January 2012 MERE N.V. operates as a closed-end company. 12.17.2 Redemption of own ordinary shares Given the open-end nature of MERE N.V. until 4 January 2012, the amount paid on redemption of the share capital of MERE N.V., including directly attributable costs, is deducted from the issued capital and the share premium. As of 4 January 2012 MERE N.V. operates as a closed-end company.

12.18 LIABILITIES 12.18.1 Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognized initially at fair value, net of transaction costs incurred. The cost in foreign currency is translated at the exchange rate applicable on the transaction date. After first inclusion, interest-bearing loans and borrowings are stated at amortized cost, with any difference between cost and the redemption amount being stated in the income statement over the term of the loans on the basis of the effective interest method. 12.18.2 Provisions A provision is recognized in the statement of financial position when MERE has a legal or constructive obligation as result of a past event, and when it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value money and, where appropriate, the risks to the obligation. 12.18.3 Deferred tax liabilities For the principles of valuation with regard to the deferred tax liabilities refer to section 12.22 “Income tax expense”. 12.18.4 Income tax payable Income tax on profits still to be paid, which is presented under this heading, is recognized at nominal value.

46

12.18.5 Trade and other payables Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

12.19 INCOME 12.19.1 Gross rental income Rental income from investment properties is stated in the income statement excluding value added tax, on the basis of the period of the lease. If the investment property has been acquired in the course of the financial year, the rental income is accounted for from the date of acquisition by MERE. If office or other equipment is leased together with the premises, this is included in the rental income. Incentives paid as encouragement for entering into leases are included in the statement of financial position as prepayments, and recognized in the income statement as an integral part of total rental income. The incentives included in the statement of financial position are stated in the income statement on a straight-line basis on the basis of the duration of the lease. Amounts separately charged to lessees, which are regarded as service charges, are not included in rental income but stated in the income statement as income from service charges. 12.19.2 Property operating expenses Property operating expenses consist mainly of maintenance costs, property taxes, insurance premiums, and management and collection costs. Service charges are stated separately in the income statement. If the investment property has been acquired in the course of the financial year, the direct operating expenses are accounted for from the date of acquisition by MERE. 12.19.3 Valuation gains / losses on investment property The profits and losses on investment properties recognized relate to changes in the fair value of the investment properties in relation to the fair value as at 31 December of the preceding financial year. Classification of the change in value of an investment property under profits or losses is based on the cumulative change in value over the financial year as a whole. 12.19.4 Financial income Interest income on funds invested is recognized in the income statement as it accrues, by means of the effective interest method. Given the nature of MERE (investment company) finance income is not netted against finance charges, but presented separately under the total of income. Financial income arises principally from the investments held in order to be used for investment in property. Financial income also includes the exchange and currency translation profits that arise principally from the settlement of monetary items or from the translation of monetary items in foreign currency. 12.19.5 Other operating income Other operating income is recognized in the income statement when it is probable that economic benefits will flow into MERE and the (net) revenues can be measured reliably.

47

12.20 EXPENSES Administrative expenses and other operating expenses are recognized in the income statement as incurred. Expenses may only be deferred if they meet the definition of an asset.

12.21 FINANCIAL EXPENSES Net finance charges comprise the interest expense on funds taken up, calculated using the effective interest method, exchange and currency translation losses, which arise principally from the settlement of monetary items, or in the translation of monetary items in foreign currency. Interest expense is recognized in the income statement as it accrues, by means of the effective interest rate method.

12.22 INCOME TAX EXPENSE The income tax expense for the financial year comprises the tax on profits and deferred tax on profits owed and deductible for the period under review. The tax on profits is recognized in the income statement. The tax owed and deductible for the financial year is the anticipated tax payable on the taxable profits for the financial year, calculated on the basis of tax rates applicable at the statement of financial position’s date, or which have been materially decided upon at the statement of financial position’s date, and adjustments on the tax owed for preceding years. The provision for deferred tax liabilities is formed on the basis of the statement of financial position method, whereby a provision is made for temporary differences between the book value of assets and liabilities for the purposes of financial reporting and the book value of those items for tax purposes. No provision is made for the following temporary differences: goodwill not deductible for tax purposes, the first inclusion of assets or liabilities that influence neither the profit for financial statements purposes nor the profit for tax purposes, and differences associated with investments in subsidiaries to the extent that they will probably not be settled in the foreseeable future. The amount of the provision for deferred tax liabilities is based on the manner in which it is expected that the carrying value of the assets and liabilities will be realized or settled, whereby use is made of the tax rates adopted at the statement of financial position’s date, or which have already been materially decided upon at the statement of financial position’s date. A deferred tax asset is included only to the extent that it is probable that taxable profits will be available in the future which can be used for realization of the asset item. The amount of the deferred tax assets is reduced to the extent that it is no longer probable that the associated tax benefit will be realized. Additional tax on profits as a result of dividend distributions is recognized at the same time as the obligation to distribute the dividend concerned.

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12.23 SEGMENT REPORTING 12.23.1 General Segment information is given for each operating segment. An operating segment is a component of MERE: that engages in business activities from which it may earn revenues and incur expenses

(including revenues and expenses related to transactions with other components of MERE); whose operating results are regularly reviewed by MERE’s chief operating decision maker to

make decisions about resources to be allocated to the segment and assess its performance; and for which discrete financial information is available.

Given MERE’s management decision-making structure and internal reporting structure each investment property is indicated as an operating segment. The investment properties held during the financial year (current year and / or previous year), as mentioned in section 12.25.1 “Analysis of investment properties” are taken into account in the segment reporting overviews. The following segment reporting overviews are given for each investment property: A. Overview of segment result (net operating income), distinguished to MERE’s geographic

categories; B. Overview of assets distinguished to MERE’s geographic categories. Since each separate investment property is indicated as an operating segment, most of MERE’s assets and liabilities cannot be allocated to the operating segments. Therefore only the carrying value of each investment property is reported as segment assets (see section 12.25.1 “Analysis of investment properties”). The prices for transactions between segments are determined on a business-like, objective basis. 12.23.2 MERE’s geographic categories MERE distinguishes the following geographic categories: A. The Czech Republic; B. The Slovak Republic; C. Bulgaria; D. The Netherlands. The following segmentation criteria are used: the allocation of the investment property is based on the geographic location of the premises; the allocation of goodwill is based on the geographic location of the assets the goodwill

concerns; the allocation of deferred tax assets is based on the geographic location of the company

generated the deferred tax assets; the allocation of investments in associates are based on the business location of the company

MERE invests in; the allocation of other assets (bank accounts, cash, receivables, etc.) are based on the

geographic location of the debtor. The allocation of segment results (net operating income) to the several geographic categories is based on the geographic location of the premises. The geographic category “The Netherlands” relates primarily to other investments held by MERE in anticipation of their investment in property.

49

12.23.3 Overview of segment result (overview A) EUR thousands Gross rental

income

Service charge

income

Service charge

expenses

Property operating

expenses

Realized

valuation gains

Unrealized

valuation gains

Other operating

income

Other operating

expenses

Total segment

result

Name of investment property 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Czech Republic:

Drahobejlova 142 177 50 59 -/- 97 -/- 109 -/- 80 -/- 69 - - -/- 776 -/- 38 - - - - -/- 761 20

Palmovka 240 310 84 113 -/- 78 -/- 116 -/- 52 -/- 36 - - -/- 221 -/- 390 - - - - -/- 27 -/- 119

Karlin 466 468 149 162 -/- 125 -/- 144 -/- 73 -/- 58 - - -/- 39 - - - - - 378 428

GiTy 527 484 392 434 -/- 348 -/- 360 -/- 165 -/- 227 - - -/- 62 -/- 115 - - - - 344 216

VUP 304 287 218 201 -/- 154 -/- 140 -/- 135 -/- 87 - - -/- 16 309 - - - - 217 570

Newton House 342 304 111 105 -/- 128 -/- 104 -/- 111 -/- 358 - - -/- 301 441 - - - - -/- 87 388

Štefánikova 723 646 330 315 -/- 293 -/- 272 -/- 89 -/- 66 - - 305 76 - - - - 976 699

Total Czech Republic 2,744 2,676 1,334 1,389 -/- 1,223 -/- 1,245 -/- 705 -/- 901 - - -/- 1,110 283 - - - - 1,040 2,202

Slovak Republic:

Račianska 149 157 9 7 -/- 84 -/- 77 -/- 63 -/- 68 - - -/- 89 -/- 331 - - - - -/- 78 -/- 312

Záhradnicka 433 461 10 50 -/- 81 -/- 87 -/- 130 -/- 125 - - -/- 1,970 740 - - - - -/- 1,738 1,039

Pražská 2 463 471 11 12 -/- 164 -/- 170 -/- 124 -/- 230 - - -/- 100 -/- 100 - - - - 86 -/- 17

Pražská 4 405 427 - - -/- 96 -/- 96 -/- 110 -/- 210 - - -/- 190 -/- 460 - - - - 9 -/- 339

Krivá 18 413 439 3 3 -/- 104 -/- 100 -/- 114 -/- 92 - - -/- 638 -/- 15 - - - - -/- 440 235

Krivá 23 467 484 8 6 -/- 107 -/- 106 -/- 109 -/- 109 - - -/- 245 -/- 468 - - - - 14 -/- 193

Gemerská 300 295 8 9 -/- 122 -/- 115 -/- 74 -/- 67 - - -/- 60 -/- 20 - - - - 52 102

Letná 1,013 1,050 28 32 -/- 153 -/- 155 -/- 237 -/- 204 - - -/- 919 575 - - - - -/- 268 1,298

Južná Trieda - - - 5 - -/- 9 - -/- 1 - 1,989 - -/- 2,025 - - - - - -/- 41

Dunajská - 39 - 2 - -/- 16 - - - 194 - 175 - - - - - 394

Šaca 188 186 8 10 -/- 86 -/- 86 -/- 60 -/- 78 - - 10 -/- 31 - - - - 60 1

Vural 467 462 112 108 -/- 261 -/- 270 -/- 189 -/- 135 - - -/- 680 264 - - - - -/- 551 429

Kosmalt 1,000 1,071 5 4 -/- 342 -/- 347 -/- 458 -/- 233 - - -/- 160 1,119 - - - - 45 1,614

Total Slovak Republic 5,298 5,542 202 248 -/- 1,600 -/- 1,634 -/- 1,668 -/- 1,552 - 2,183 -/- 5,041 -/- 577 - - - - -/- 2,809 4,210

Total CR + SR 8,042 8,218 1,536 1,637 -/- 2,823 -/- 2,879 -/- 2,373 -/- 2,453 - 2,183 -/- 6,151 -/- 294 - - - - -/- 1,769 6,412

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12.23.4 Reconciliation segment result with profit for the period The reconciliation between the total segment result as calculated in section 12.23.3 with the profit for the period, mentioned in the consolidated income statement, is made below. EUR thousands

2011 2010

Total segment result (overview A) -/- 1,769 6,412

Unallocated income 285 761

Unallocated expenses -/- 3,648 -/- 3,820 Profit before income tax -/- 5,132 3,353 Income tax expense 499 -/- 250 Profit for the period -/- 4,633 3,103

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12.23.5 Overview of geographic assets (overview B) EUR thousands Czech Republic Slovak Republic Bulgaria The Netherlands Subtotal Unallocated Total assets

Assets 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Investment property 26,339 27,987 37,634 42,531 - - - - 63,973 70,518 - - 63,973 70,518

Other investments 1,286 1,347 - - - - - - 1,286 1,347 - - 1,286 1,347

Goodwill - 381 - - - - - - - 381 - - - 381

Deferred tax assets 179 596 797 275 - - - 38 976 909 - - 976 909

Trade and other receivables 834 969 317 406 - - - - 1,151 1,375 - - 1,151 1,375

Cash and cash equivalents 1,132 1,338 545 819 2 2 3 807 1,682 2,966 - - 1,682 2,966

Total geographic assets 29,770 32,618 39,293 44,031 2 2 3 845 69,068 77,496 - - 69,068 77,496

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12.24 ACQUISITION OF SUBSIDIARIES 12.24.1 Analysis of acquired subsidiaries During 2011 MERE N.V. acquired no subsidiaries.

12.25 INVESTMENT PROPERTY

12.25.1 Analysis of investment properties

12.25.2 Statement of changes in investment properties

No.

Name of premises

Address

Ownership by Fair value

2011 Fair value

2010 Interest

2011 Interest

2010

EUR thousands

1 Drahobejlova Drahobejlova 27, Prague MERE Bohemia s.r.o. 1,788 2,640 100% 100%

2 Palmovka Na Žertvách 34, Prague MERE Bohemia s.r.o. 2,854 3,164 100% 100%

3 Karlin Prvního Pluku 621/8a, Prague MERE Bohemia s.r.o. 4,314 4,477 100% 100%

4 GiTy Mariánské Námestí 617/1, Brno MERE Bohemia s.r.o. 4,407 4,505 100% 100%

5 VUP Šujanovo námĕsti 3, Brno MERE Bohemia s.r.o. 2,701 2,683 100% 100%

6 Newton House Politických Vězňu 10, Prague MERE Bohemia s.r.o. 5,154 5,580 100% 100%

7 Štefánikova Štefánikova 167, Žlin MERE Bohemia s.r.o. 5,121 4,938 100% 100%

8 Račianska Račianska 71, Bratislava MERE Slovakia s.r.o. 860 949 100% 100%

9 Záhradnicka Záhradnícka 46, Bratislava MERE Slovakia s.r.o. 4,170 6,140 100% 100%

10 Pražská 2 Pražská 2, Košice MERE Slovakia s.r.o. 2,800 2,900 100% 100%

11 Pražská 4 Pražská 4, Košice MERE Slovakia s.r.o. 2,550 2,740 100% 100%

12 Krivá 18 Krivá 18, Košice MERE Slovakia s.r.o. 2,990 3,613 100% 100%

13 Krivá 23 Krivá 23, Košice MERE Slovakia s.r.o. 3,090 3,321 100% 100%

14 Gemerská Gemerská 3, Košice MERE Slovakia s.r.o. 1,700 1,760 100% 100%

15 Letná Letná 45, Košice MERE Slovakia s.r.o. 8,410 9,270 100% 100%

16 Šaca Šaca, Železiarenska 49, Košice MERE Slovakia s.r.o. 924 911 100% 100%

17 Vural Alexandra Rudnaya 21, Žilina MERE Slovakia s.r.o. 3,710 4,337 100% 100%

18 Kosmalt Kysucká 16, Košice MERE Slovakia s.r.o. 6,430 6,590 100% 100 %

Total fair value 63,973 70,518


Balance as at 1 January 70,518 71,120 Purchases and additions 405 -/- 2 Exchange rate differences -/- 799 1,490 Fair value adjustments -/- 6,151 1,940 Sales - -/- 4,030 Balance as at 31 December 63,973 70,518

Cost of investment properties 64,938 64,533

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12.25.3 Valuation of investment properties The investment properties stated under section 12.25.1 “Analysis of investment properties” were valued by an external, independent valuer as at 31 December of the year under review. The valuations are prepared for accounting purposes and are in accordance with relevant IFRS regulations. The market values of the investment properties are primarily derived using comparable recent market transactions at arm's length terms. All investment properties are valued at fair value.

12.25.4 Analysis of purchases of and additions to investment properties EUR thousands 2011 2010

Investments / additions 405 396 Release of estimated acquisition fee - -/- 398 405 -/- 2

12.25.5 Transactions (investment property) with related parties The transactions executed during the financial year in respect of purchase and sale of investments were not executed with parties affiliated with the Managing Board or MERE. 12.25.6 Security As at 31 December 2011 investment properties for an amount of EUR 63,973,000 (31 December 2010: EUR 70,518,000) have been provided as collateral security for secured bank loans (see section 12.33 “Interest-bearing loans and borrowings”).

12.26 OTHER INVESTMENTS 12.26.1 Analysis of other investments

Principal of

investment

Principal of

investment

Interest rate

31-12-2011

Final date

Local currency thousands EUR thousands

Yellow Properties s.r.o. (5.00%) CZK 1,691 65 n.a. n.a. Loan to MEI Properties a.s. CZK 32,000 1,310 12% December 2013

1,375

12.26.2 Statement of changes of other investments EUR thousands

Yellow

Properties s.r.o.

Loan to MEI

Properties a.s. Total 2011

Total 2010

Balance as at 1 January 70 1,277 1,347 1,273 Exchange rate differences -/- 2 -/- 36 -/- 38 72 Fair value adjustments -/- 23 - -/- 23 2 Balance as at 31 December 45 1,241 1,286 1,347

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12.27 GOODWILL 12.27.1 General Goodwill is the amount that arises from the acquisition of subsidiaries. The goodwill corresponds with the difference between the cost of the acquisition and the net fair value of assets and liabilities of the subsidiary. 12.27.2 Analysis of goodwill

12.27.3 Statement of changes in goodwill EUR thousands 2011 2010

Cost Balance as at 1 January 982 982 Additions - - Balance as at 31 December 982 982

Impairment Balance as at 1 January 676 351 Impairment 370 325 Balance as at 31 December 1,046 676

Exchange rate results Balance as at 1 January 75 37 Exchange rate results -/- 11 38 Balance as at 31 December 64 75

Net as at 31 December - 381

12.27.4 Impairment of goodwill The net book value of the goodwill can be allocated fully to the investment property Štefánikova. The fair value of the building as at 31 December 2010 was EUR 5,121,000, based on a yield of 11.50%. As at 31 December 2011 the Managing Board expects also a yield of 11.50%. Since the book value of the goodwill concerning Štefánikova exceeds the realizable value of the goodwill (i.c. EUR 0), the Managing Board decided for an impairment of the goodwill for the current financial year for the amount of EUR 370,000.

No.

Name of subsidiary

Ccost (revaluated)

2011

Impairment (revaluated)

2011 Net

2011 Net

2010

EUR thousands 1 CTP Real a.s. (currently MERE Bohemia s.r.o.) 686 -/- 686 - 381 2 Kobyt a.s. (currently MERE Slovakia s.r.o.) 351 -/- 351 - - Total 1,037 -/- 1,037 - 381

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12.28 DEFERRED TAX ASSETS 12.28.1 Deferred tax assets stated in the statement of financial position The deferred tax assets are attributable as follows: EUR thousands 2011 2010

Investment property 761 602 Value for tax purposes of stated loss carry-forward 215 307 976 909

12.28.2 Statement of changes in deferred tax assets stated in the statement of financial

position EUR thousands 2011 2010

Balance as at 1 January 909 1,169 Additions 604 691 Withdrawal -/- 520 -/- 980 Exchange rate differences -/- 17 29 Balance as at 31 December 976 909

The Managing Board expects that there will be sufficient taxable profit in the future for MERE to set off these losses.

12.28.3 Deferred tax assets not stated in the statement of financial position Deferred tax assets for an amount of EUR 317,000 (2010: EUR 0) have not been included in the statement of financial position. The Managing Board expects that with regard to these tax losses for an amount of EUR 1,268,000 (2010: EUR 0) there will not be sufficient taxable profit in the future for MERE to set off these losses.

12.29 TRADE AND OTHER RECEIVABLES 12.29.1 Analysis of trade and other receivables EUR thousands 2011 2010

Non-current part of trade and other receivables 421 280 Current part of trade and other receivables 730 1,095 1,151 1,375

Trade and other receivables are presented after deduction of impairment losses. No such losses were stated in the year under review.

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12.29.2 Specification of trade and other receivables EUR thousands 2011 2010

Trade receivables from lessees 520 920 Prepayments and deferred expenses 103 150 Interest 421 280 Arrangement fees 96 - Value Added Tax and other taxes 3 4 Other receivables 8 21 1,151 1,375

12.29.3 Security As at 31 December 2011 trade receivables with a book value of EUR 331,000 (31 December 2010: EUR 564,000) have been provided as collateral for secured bank loans (see section 12.33 “Interest-bearing loans and borrowings”).

12.30 CASH AND CASH EQUIVALENTS 12.30.1 Analysis of cash and cash equivalents EUR thousands 2011 2010

Bank balances 1,667 2,953 Cash 15 13 1,682 2,966

12.30.2 Security The cash and cash equivalents are entirely at the free disposal of MERE. An amount of EUR 1,663,000 (31 December 2010: 2,144,000) is granted as collateral for bank loans granted as mortgages (see section 12.33: “Interest-bearing loans and borrowings”).

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12.31 SHAREHOLDERS’ EQUITY 12.31.1 Comparative statement

2011 2010 2009 2008 2007

Shareholders’ equity (in EUR thousands) 23,670 28,594 25,593 23,756 40,328

Number of ordinary shares in issue 1,180,943 1,180,943 1,180,943 1,180,943 1,551,621

Net Asset Value per ordinary share (in EUR) 20.04 24.21 21.67 20.12 25.99

12.31.2 Closed-end structure At the Extraordinary General Meeting of Shareholders (EGM) of MERE N.V. dated 7 July 2011 the EGM decided to transform MERE N.V. into a closed-end company. Prior the change of structure to a closed-end company shareholders had the opportunity to sell their ordinary shares for redemption as of 3 October 2011 until 3 January 2012. The EGM approved that the share price during this three-month period is fixed at EUR 6.70 per ordinary share. As of 4 January 2012 MERE N.V. operates as a closed-end company. 12.31.3 Capital management All issued ordinary shares are part of MERE’s capital management objectives. MERE’s objectives when managing capital are to safeguard MERE’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, it is not expected that MERE will declare any dividend over the year 2011. However MERE reserves the right to declare dividends or make distributions if the management so decides. 12.31.4 Share capital Ordinary shares Priority shares

2011 2010 2011 2010

In issue as at 1 January 1,180,943 1,180,943 1 1 Issued without payment in cash 99,666 - - - Redeemed without payment in cash -/- 99,666 - - - In issue as at 31 December – fully paid up 1,180,943 1,180,943 1 1

As at 31 December 2011 the authorized share capital consisted of 2,999,999 ordinary shares (31 December 2010: 2,999,999) and 1 priority share (31 December 2010: 1). Both the ordinary and the priority shares have a nominal value of EUR 5.00. The holders of ordinary shares are entitled to dividends, the distribution of which has been resolved by the General Meeting of Shareholders. The holders of ordinary shares are entitled to exercise one vote per ordinary share at the General Meeting of Shareholders. From the profit earned in a financial year, primarily and as far as possible a dividend is distributed on the priority shares amounting to seven percent (7%) on an annual basis, calculated of the nominal value of the priority shares. No further distributions are made on the priority shares.

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12.31.5 Share premium The share premium comprises the amount paid in by the shareholders on ordinary shares of MERE N.V. over and above the nominal value. The uplift received on issuance of own ordinary shares or the reduction applied on redemption of own ordinary shares is recognized directly in the share premium reserve. The paid-up share premium for tax purposes as at 31 December 2011 was EUR 14,628,000 (31 December 2010: EUR 14,628,000). 12.31.6 Revaluation reserve The revaluation reserve comprises the cumulative unrealized positive net change in the fair value of the investment properties, less the related deferred tax liabilities. The deferred tax liabilities are deducted with due regard for the principles of valuation for deferred taxes (see section 12.22 “Income tax expense”). In case of sale of the investment property the cumulative unrealized positive net change in the fair value of the investment property sold, as well as the related deferred tax liabilities, are no longer stated in the revaluation reserve but recognized under retained earnings. EUR thousands 2011 2010

Balance as at 1 January 7,196 7,772 Addition to / reduction on (-/-) change in fair value in the financial year -/- 2,398 1,197 Reduction on change in connection with sale of investment properties - -/- 1,773 Balance as at 31 December 4,798 7,196

12.31.7 Reserve for currency translation differences The reserve for currency translation differences comprises the exchange rate differences that arise from the foreign currency translation of net investments in subsidiaries outside the euro-zone into MERE N.V.’s reporting currency. EUR thousands 2011 2010

Balance as at 1 January 3,023 3,125 Addition / reduction (-/-) in connection with translation net investments -/- 198 323 Reduction in connection with decrease of net investments -/- 93 -/- 425 Balance as at 31 December 2,732 3,023

12.31.8 Proposed appropriation of the consolidated profit The consolidated profit for the 2011 financial year amounts to EUR 4,633,000 negative. In connection with the mandatory net reduction of EUR 2,398,000 on the “revaluation reserve” the remaining profit for the 2011 financial year is EUR 2,235,000 negative. It is proposed to the General Meeting of Shareholders to deduct the whole of the remaining profit for 2011 financial year from the retained earnings. This proposal has not been recognized in the statement of financial position since this is still a proposal of the Managing Board.

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12.32 CALCULATION OF NET ASSET VALUE For the calculation of the Net Asset Value (NAV), used as basis for the listing price in 2011, the deferred tax liabilities concerning revaluation of investment property and development property held for investment are eliminated for 50%. The percentage of 50% is an estimation of the present value of the tax applicable in the (near) future. In this annual report the deferred tax liabilities are taken into account without applying any discount, which is in accordance with IFRS and not required by EPRA. 2011 2010

Shareholders’ equity in accordance with IFRS (EUR thousands) 23,670 28,594 Deferred tax liabilities concerning revaluation of investment property and development property held for investment (EUR thousands) 533

1,016

Shareholders’ equity in accordance with NAV (EUR thousands) 24,203 29,610


Net Asset Value (in Euro) 20.49 25.07

12.33 INTEREST-BEARING LOANS AND BORROWINGS 12.33.1 Analysis of interest-bearing loans and borrowings EUR thousands 2011 2010

Long-term liabilities

Secured bank loans 32,661 37,034 Other long-term liabilities 274 300 32,935 37,334

Current liabilities Current portion of secured bank loans 4,105 2,994 Current portion of other long-term liabilities 9 - 4,114 2,994

Total interest-bearing loans and borrowings 37,049 40,328

12.33.2 Statement of changes in secured bank loans


Balance as at 1 January 40,028 43,305 Loans advanced 4 3,354 Redemptions -/- 2,796 -/- 7,713 Exchange rate differences -/- 470 1,082 Balance as at 31 December 36,766 40,028

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12.33.3 Analysis of other long-term liabilities EUR thousands 2011 2010

Unsecured bank loan - - Long-term advance payments from tenants 283 300 283 300

12.33.4 Statement of changes in other long-term liabilities EUR thousands 2011 2010

Balance as at 1 January 300 293 Redemptions -/- 9 -/- 9 Exchange rate differences -/- 8 16 Balance as at 31 December 283 300

12.33.5 Pledges to the bank and bank covenants As at 31 December 2011 the following securities and bank covenants were given for the secured bank loans. For the bank loan of SNS Bank N.V. amounting to EUR 1,976,000 see section 15.13. As at 31 December 2011 the debt service coverage ratio on the Raiffeisen Bank loan is 1.22 and on the Tatra Banka loan is 1.20. EUR thousands Raiffeisenbank Tatra Banka

Outstanding principal loan 16 943 17 847 Securities - Investment property - Trade receivables - Cash equivalents

26 339

138 1 130

37 634

193 533

Bank covenants - DSCR 1.20 1.15

12.34 DEFERRED TAX LIABILITIES 12.34.1 General The deferred tax liabilities relate to the differences between the carrying value of the assets and the book value of the assets for tax purposes. 12.34.2 Deferred tax liabilities stated in the statement of financial position The deferred tax liabilities stated in the statement of financial position are attributable as follows: EUR thousands 2011 2010

Investment property 3,836 4,315 Provisions 152 156 Other items 30 22 4,018 4,493

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12.34.3 Statement of changes in deferred tax liabilities EUR thousands 2011 2010

Balance as at 1 January 4,493 4,437 Additions on account of temporary differences 368 1,278 Withdrawal on account of temporary differences -/- 807 -/- 1,295 Exchange rate differences -/- 36 73 Balance as at 31 December 4,018 4,493

12.35 TRADE AND OTHER PAYABLES 12.35.1 Analysis of trade and other payables EUR thousands 2011 2010

Non-current part of trade and other payables 1,035 - Current part of trade and other payables 3,296 4,009 4,331 4,009

12.35.2 Specification of trade and other payables EUR thousands 2011 2010

Administrative expenses 3,270 2,524 Trade payables 568 698 Deposits received 375 533 Interest payables - 48 Taxes 14 42 Other liabilities, accruals and deferred income 104 164 4,331 4,009

12.35.3 Analysis of administrative expenses EUR thousands 2011 2010

Administrative expenses 2008 338 338 Administrative expenses 2009 1,563 1,563 Administrative expenses 2010 623 623 Administrative expenses 2011 746 - 3,270 2,524

At 27 February 2012 MEI-Fondsenbeheer B.V. partly transfers its amount receivable amounting to EUR 3,386,000 from MERE N.V. to Middle Europe Investments N.V. (MEI). From this amount receivable, MEI will convert an amount of EUR 2,234,000 to 104,782 ordinary shares MERE N.V. At 3 January 2013 the remainder of the amount receivable amounting to EUR 1,152,000 shall convert also into ordinary shares MERE N.V., based on the Net Asset Value (NAV) of the ordinary shares on this date.

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12.36 FINANCIAL INSTRUMENTS 12.36.1 General In the context of normal operations MERE incurs credit, interest and currency risks. These risks are not hedged by MERE. The net investment in foreign subsidiaries is also not hedged by MERE. At the statement of financial position’s date there were no unsettled derivative financial instruments. 12.36.2 Fair value The book value of MERE’s financial assets and financial liabilities is a reasonable approach for its fair value, as all financial assets, classified as “loans and receivables”, and all financial liabilities, classified as “financial liabilities measured at amortized cost” will be repriced within 3 months after statement of financial position’s date (see also section 12.54.2.2 “Interest rate risk”).

12.37 LEASE AGREEMENTS 12.37.1 Lease agreements in which MERE is lessee MERE has not entered as lessee into operating or finance lease agreements. 12.37.2 Lease agreements in which MERE is lessor MERE has not entered as lessor into operating or finance lease agreements other than the leases indicated in section 12.40.2 “Non-cancellable operating lease agreements”.

12.38 NON-CONTINGENT LIABILITIES As at 31 December 2011 MERE was not subject to contractual obligation concerning investments, repairs, maintenance or other non-contingent liabilities that will be settled in the following financial year.

12.39 CONTINGENT LIABILITIES As at 31 December 2011 MERE Bohemia s.r.o. provided guarantee, together with Middle Europe Opportunity Fund II N.V., as shareholders of Yellow Properties s.r.o., in favour of Raiffeisenbank a.s. for the amount of CZK 18,675,000 (EUR 724,000). MERE Bohemia guarantees 5% of this guarantee, corresponding to the pro rato share holder structure of Yellow Properties s.r.o. As at 31 December 2011 MERE was not subject to any further contingent liabilities, among which included obligations that result from security transactions related to (exchange) rate risk in connection with investments.

12.40 GROSS RENTAL INCOME 12.40.1 General During the financial year, as well as during the previous financial year no contingent rental income was accounted for as income in the income statement. Leases are normally indexed yearly with annual inflation stated by respectively the Czech and Slovak central banks. New leases for determined time are normally signed for a term of five years. All lease contracts include at least a three-month deposit. Weighted to the fair value, the weighted average percentage of the vacant space of the investment properties during 2011 was 20.2% (2010: 18.9%).

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12.40.2 Non-cancellable leases The gross rental income receivable on account of non-cancellable leases related to the investment properties as at 31 December of the relevant financial year is as follows. The future minimum gross rental income receivable in foreign currency has been translated at the exchange rate as at 31 December of the relevant financial year. EUR thousands 2011 2010

<1 year 3,179 2,978 1–5 years 4,662 4,472 >5 years 4,486 4,603

12,327 12,053

12.41 REBILLED AND NON-REBILLED SERVICE CHARGES AND PROPERTY OPERATING

EXPENSES 12.41.1 General In connection with the fact that MERE invoices the service charges independently (or as principal) to the lessees on the basis of the leases entered into, such reimbursed service charges are shown separately in the income statement. The work associated with the service charges is carried out either by MERE, or by third parties on a contract basis. Contracts for the performance of service work are normally entered into for a maximum period of six months. 12.41.2 Analysis of property operating expenses EUR thousands 2011 2010

Property management 1,053 1,204 Maintenance expenses in respect of investment properties 1,066 977 Insurance premiums 31 29 Taxes on investment properties 200 206 Other direct operating expenses 23 37 2,373 2,453

12.41.3 Allocation of service charges and property operating expenses The determination of costs connecting with not rented investment properties is based on investment properties that had an average vacancy of more than 10% during the year. The analysis of the service charges and direct operating expenses to the investment properties, whether or not rent-generating, is as follows: EUR thousands 2011 2010

For investment properties let 4,547 4,691 For investment properties not let 649 641 5,196 5,332

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12.42 NET VALUATION GAINS ON INVESTMENT PROPERTY 12.42.1 General The analysis of value adjustments (profit and losses) during the financial year consists as well realized as unrealized value adjustments. Value adjustments are presented as a profit (or loss) in case the total of unrealized and realized value adjustments are positive (or negative). 12.42.2 Analysis of net valuation gains on investment property EUR thousands 2011 2010

Realized value adjustments - 2,183 Unrealized value adjustments -/- 6,151 -/- 294 -/- 6,151 1,889

12.42.3 Specification of realized value adjustments The realized value adjustments are attributable as follows: EUR thousands 2011 2010

Južná Trieda 117, Košice - 1,989 Dunajská 12, Košice - 194 - 2,183

The realized value adjustments consists of the total value adjustments of the sold property, calculated as the difference between selling price and its purchase price. Therefore the realized value adjustments include also the cumulative unrealized value adjustments booked in previous years. The specification is as follows: EUR thousands 2011 2010

Value adjustments booked in current year - 384 Value adjustments booked in previous years - 1,850 - 2,234 Transaction costs on sale of investment property - -/- 51 - 2,183

12.43 PROFIT ON DISPOSAL OF INVESTMENTS IN GROUP COMPANIES Profit on disposal of investments in group companies comprises gains or losses resulting from the sale of investments in group companies sold during the year, i.e. the amount received above the book value of the group company at the selling date. The group companies are valued at selling date in accordance with MERE’s own accounting policies. During the financial year 2011 MERE sold no investments in group companies.

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12.44 FINANCIAL INCOME EUR thousands 2011 2010

Interest income 164 159 Other exchange and currency translation results - 146 Released from “reserve for currency translation differences” 93 425 257 730

12.45 OTHER OPERATING INCOME EUR thousands 2011 2010

Other 28 31

12.46 ADMINISTRATIVE EXPENSES 12.46.1 Administration fee This is the fee received by the Managing Board (MEI-Fondsenbeheer B.V.) for the management it performs. The fee is calculated by percentages on the value of MERE’s total assets on the last day of the month. These percentages are: for the assets below EUR 75,000,000: 1.50% per annum (0.125% per month); for the assets from EUR 75,000,000 and above: 1.00% per annum (0.083% per month).

12.46.2 Performance-related remuneration The Managing Board receives performance-related remuneration, which is dependent on MERE’s total annual return. The total return is defined as the difference between the Net Asset Value per ordinary share at the start of the relevant financial year and at the end of the relevant financial year, increased with the dividends distributed during that financial year; expressed as a percentage of the Net Asset Value of the ordinary share at the start of the year. The total performance-related remuneration is calculated on the total average number of outstanding ordinary shares in the relevant year multiplied by the Net Asset Value per ordinary share at the start of the relevant financial year. The level of the performance-related remuneration is composed as follows: A. In the case of a total return of up to 12% the performance-related remuneration is 0%; B. In the case of a total return of 12% to 15% the performance-related remuneration is 20% of

the total return less 12%; C. In the case of a total return of more than 15% the performance-related remuneration is 30%

of the total return less 15%. In addition, the remuneration indicated under B above will be awarded.

The performance-related remuneration is charged annually in arrears. This performance-related remuneration is budgeted and put aside on a three-monthly basis. This performance-related remuneration will not be due if the stock exchange price of the share plus the dividends distributed in the relevant financial year is lower than that of a preceding period for which the remuneration was deducted. For the financial years 2011 and 2010 the Managing Board received no performance-related remuneration.

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12.46.3 Agreement with MEI-Fondsenbeheer B.V. MERE N.V. has entered into an agreement dated the 22th of December 2005 with its Managing Board, MEI-Fondsenbeheer B.V. (Deventer, the Netherlands) for its appointment as management company of MERE N.V. under the Articles of Association subject to the following terms and conditions: 1. MEI-Fondsenbeheer B.V. will perform its tasks in accordance with the Articles of Association

and that which is provided in this regard in MERE N.V.’s prospectus dated 27th of December 2004.

2. The management of MEI-Fondsenbeheer B.V. will consist of natural persons approved by AFM with sufficient competence to manage a company such as MERE N.V.

3. The appointment is for an indefinite period. Termination will be possible in accordance with the relevant provisions of MERE N.V.’s Articles of Association. The applicable Articles of Association can be viewed on the website www.mei.nl.

4. For its management of MERE N.V., MEI-Fondsenbeheer B.V. will be entitled to a fee, as well as any share in profits, as indicated in MERE N.V.’s prospectus dated 27th of December 2004.

5. In the case of termination of this agreement without the consent of MEI-Fondsenbeheer B.V. the latter will be entitled to receipt, up to the date of termination, of a fee equal to five times the administration fee for the preceding financial year plus five times the amount of the profit share to which MEI-Fondsenbeheer B.V. would have been entitled for that year.

As of 25 January 2011 the Managing Board decided not to use the clause point 5 as set out in the agreement with MEI-Fondsenbeheer B.V.

12.47 IMPAIRMENT OF GOODWILL The impairment of goodwill concerns the impairment loss on goodwill arised from the acquisition of subsidiaries. In 2011 EUR 370,000 goodwill was impaired (2010: EUR 325,000) (see also section 12.27 “Goodwill”).

12.48 OTHER OPERATING EXPENSES 12.48.1 Specification other operating expenses


Audit fees 79 95 Accounting expenses 96 79 Consultancy fees 84 60 Costs of valuing premises 47 28 Listing, Paying and Fund Agent fees 20 -/- 12 Marketing expenses - 1 Portfolio fees 17 19 Supervisory Board fees 26 41 Supervisors’ expenses 7 6 Non-refundable value added tax 130 123 Change in provision irrecoverable debtors 34 59 Wages and salaries statutory directors 31 31 Compensation related to sale of property in prior years 50 - Other general operating expenses 32 27 653 557

http://www.mei.nl/

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With regard to the items mentioned above the following explanation can be given: The audit fees for the annual report 2011 of MERE N.V. are estimated at EUR 39,000 (2010:

EUR 50,000). In 2011 audit fees related to previous years are booked to an amount of EUR 1,000 negative (2010: 3,000). Except for auditing, no services of KPMG have been used.

The accounting expenses include the expenses related to bookkeeping, determination of monthly Net Asset Value (NAV), preparation of (semi)-annual year report and other activities on account of administrative requirements for MERE N.V. and its local companies.

The consultancy fees relate principally to fees associated with restructuring of the investment properties and tax advice.

The Listing, Paying and Fund Agent fees 2011 amount to EUR 20,000 (2010: EUR 10,000). In 2011 Listing, Paying and Fund Agent fees related to previous years are booked to an amount of EUR 0 (2010: EUR 22,000).

The supervisors’ expenses include costs related to the supervision of the Dutch Authority for the Financial Markets, (Stichting Autoriteit Financiële Markten, the "AFM").

The costs related to sale of property in prior years (compensation) related to the sale of the property Južná Trieda 117, Košice, which was sold in 2010.

Other general expenses include, among others, costs of press releases, NYSE Euronext, bank costs and costs of registration in the Commercial Trade Register.

12.48.2 Analysis of Supervisory Board fees EUR thousands 2011 2010

Prof. Dr. J.L. Bouma (chairman) 112 15 B. Vos M.Sc. 14 14 E. Roden (until 1th of April 2011) - 12 26 41

MERE N.V. has provided no loans, advances or guarantees for the members of the Supervisory Board. The members of the Supervisory Board receive no options or remuneration in the form of MERE N.V.’s shares.

12.48.3 Transaction costs In accordance with the EU-IFRS principles of valuation MERE includes the transaction costs incurred on purchase of investments in the purchase price of the investment, and recognizes the transaction costs incurred on sale of investment property and other investments under realized changes in the value of investments. The analysis of identifiable and quantifiable transaction costs on purchase and sale of investments during the financial year is as follows: EUR thousands 2011 2010

Transaction costs on purchase of investments - - Transaction costs on sale of investments - 51 - 51

12.48.4 Costs of lending financial instruments During the financial year no financial instruments were borrowed or lent by MERE nor her associated parties (so-called securities lending). In this connection no expenses were therefore incurred or fees requested.

1 This amount also includes the correction of VAT over 2010 to an amount of EUR 2,000 negative.

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12.48.5 Remuneration for orders on behalf of MERE The Managing Board, the directors of the Managing Board, MERE or the custodian of MERE, parties affiliated with these parties, or third parties did not receive any remuneration, in any way, received nor promised for performing assignments for MERE. 12.48.6 Outsourcing expenses MERE has in the ordinary course of business outsourced the following activities to third parties: The management of investment properties, the (performing of) maintenance of the

investment properties, tenant management, servicing the administration of subsidiaries, as well as work from other (administrative) obligations of subsidiaries to MEI Properties Services a.s., residing in Prague (the Czech Republic). The related expenses have been stated under the section “property management”, as indicated in section 12.41.2 “Analysis of property operating expenses”.

The Managing Board of MERE N.V. has outsourced the performance of the accounting, the determination of the monthly Net Asset Value (NAV), as well as the work arising from other accounting obligations to KroeseWevers Accountants B.V., residing in Enschede (the Netherlands). The related expenses are included in the section “accounting expenses”, as indicated in section 12.48.1 “Specification other operating expenses”.

12.48.7 Comparison of actual costs with prospectus In percent 2010 and 2011 2011 2011 2010 2010

Basis of calculation actual prospectus actual prospectus

Administrative expenses Value of assets at month-end 0.12% 0.21% 0.16% 0.21%

Direct operating expenses Average value of the assets 3.13% 0.75-1.00% 3.21% 0.75-1.00%

Investment committee Average shareholders’ equity - - - -

General expenses Average shareholders’ equity 1.42% 0.38% 1.17% 0.38%

Auditing and accounting expenses

Average shareholders’ equity 0.62% 0.21% 0.65% 0.21%

Costs of valuing premises Average shareholders’ equity 0.16% 0.08% 0.11% 0.08%

5.45% 1.63-1.88% 5.30% 1.63-1.88%

In percent

Placement fees Placement of own ordinary shares

- Max. 2.00% - Max. 2.00%

In EUR

Supervisory Board fees Per member of the Supervisory Board (average)

13,000 12,000 14,000 12,000

For comparison of actual expenses with budgeted expenses as per MERE N.V.’s prospectus the prospectus dated the 1th of June 2007 was used, as well as the addendum to MERE N.V.’s prospectus dated the 5th of March 2012. As a result of the decrease of the average shareholders’ equity in the past years, most actual costs exceed the estimated costs in the prospectus. In the above table general expenses refers to the expenses of third parties, including consultancy fees, costs of press releases and shareholders’ meetings, marketing expenses, costs of NYSE Euronext, Listing, Paying and Fund Agent fees, portfolio fees and placement fees, supervisors’ expenses, as well as other general operating expenses, including transaction costs (as far included in the income statement).

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12.49 PERSONNEL COSTS MERE does not employ any personnel, without the exemption of statutory directors of MERE’s group companies.

12.50 FINANCIAL EXPENSES EUR thousands 2011 2010

Interest expense on loans taken up 1,372 1,438 Other exchange and currency translation results 100 - Valuation losses on other investments 23 - Penalty interest for prepayment of bank loans - 66 1,495 1,504

12.51 TOTAL EXPENSE RATIO The Total Expense Ratio (TER) is calculated by dividing the total expenses (including operating expenses) during the financial year by the average Net Asset Value (NAV) of MERE N.V. during the financial year. Total expenses include the expenses charged to the result as well as to shareholders’ equity. They also include the operating expenses of the investment properties. No net service charges are included in the total expenses, since these are fully covered by the service income from service fees and the fees part of the gross rental income. On the basis of the regulated interest charges for loans contracted, as well as costs of investment transactions, are not included in the calculation of the Total Expense Ratio (TER). The average Net Asset Value (NAV) is calculated on the basis of the sum of Net Asset Values, divided by the number of observations. The number of observations during one year is five: 31 December of the previous financial year, 31 March, 30 June, 30 September and 31 December of the current financial year. The number of observations are considered as weighted averages and are assigned to the following weights: 0.5:1:1:1:0.5. In percent 2011 2010 2009 2008 2007

Total Expense Ratio 14.60% 16.64% 20.03% 15.88% 11.16%

In 2011 the Total Expense Ratio decreased as a result of the increase of the average shareholders’ equity with about 7% as well as a decrease of the total expenses with about 6%.

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12.52 TAX ON PROFITS 12.52.1 Tax position As of 1 January 2009, MERE N.V. has left the status of fiscal investment institution. As of this date, taxable profits are subject to income tax. 12.52.2 Stated in the income statement EUR thousands 2011 2010

Tax due on profits Year under review - -/- 72 Adjustments for previous years 72 - 72 -/- 72 Deferred tax on profits Occurrence and settlement of temporary differences 745 -/- 870 Adjustments in respect of previous years 2 49 Reduction in tax rate -/- 3 - Income on account of stated tax losses -/- 317 643 427 -/- 178 Total tax on profits in the income statement 499 -/- 250

12.52.3 Reconciliation with the effective tax rate EUR thousands 2011 2011 2010 2010

Profit before tax -/- 5,132 3,353

Tax on profits on the basis of the local tax rates -/- 62.3% 3,200 -/- 38.9% -/- 1,305 Effect of changes in the local tax rates 0.1% -/- 3 0.0% - Effect of unused fiscal losses 5.5% -/- 280 0.0% - Effect of used fiscal losses (not stated in the statement of financial position in previous years)

0.7% -/- 37 19.2% 643

Tax exempt revenues 45.5% -/- 2,337 11.2% 375 Non-deductible expenses 2.3% -/- 119 -/- 0.4% -/- 12 Too little / too much (-/-) provision in previous accounting periods

-/- 1.5% 75 1.5% 49

-/- 9.7% 499 7.4% -/- 250

12.52.4 Deferred tax recognized directly in shareholders’ equity EUR thousands 2011 2010

Related to currency translation differences 83 -/- 94

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12.52.5 Applicable local tax rates EUR thousands 2011 2010 2009 2008 2007

The Netherlands: Up to EUR 200,000 20.0% 20.0% 20.0% 0.0% 0.0% As of EUR 200,000 25.0% 25.5% 25.5% 0.0% 0.0% The Czech Republic 19.0% 19.0% 20.0% 21.0% 24.0% The Slovak Republic 19.0% 19.0% 19.0% 19.0% 19.0%

The applicable local tax rates in The Netherlands were 0.0% in 2007 and 2008, because in these years MERE N.V. had the status of fiscal investment institution. As of 1 January 2009 MERE N.V. has left this status.

12.53 EARNINGS PER ORDINARY SHARE 12.53.1 Calculation of earnings per ordinary share The earnings per ordinary share is calculated by dividing the profit for the period attributable to shareholders of ordinary shares by the weighted average number of outstanding ordinary shares during the financial year. 12.53.2 Profit for the period attributable to shareholders of ordinary shares EUR thousands 2011 2010

Profit for the financial year -/- 4,633 3,103

12.53.3 Weighted average number of outstanding ordinary shares 2011 2010

Issued ordinary shares as at 1 January 1,181,943 1,181,943 Effect on issued ordinary shares during the financial year 12,450 - Effect on redeemed ordinary shares during the financial year -/- 12,450 - Weighted average number of outstanding ordinary shares during financial year 1,181,943 1,181,943

12.53.4 Calculation of diluted earnings per ordinary share The diluted earnings per ordinary share is calculated by dividing the profit for the period attributable to shareholders of ordinary shares by the weighted average number of ordinary shares during the financial year including all outstanding convertible securities. Since there are no outstanding convertible securities the calculation of the diluted earnings per ordinary share is in accordance with the calculation of earnings per ordinary share.

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12.54 RISK MANAGEMENT 12.54.1 General According to its investment policy set out in the prospectus MERE may hold investments in direct property in Middle Europe. MERE’s investment portfolio currently consists primarily of property in the Czech Republic and the Slovak Republic. These investment properties in principle are held for an indefinite period. MERE’s investment activities result in exposure to various risks. The Managing Board of MERE determines the tactical investment mix. The deviation between the previously determined tactical investment mix and the actual investment mix is monitored regularly by the Managing Board. The nature and scope of investment properties at the statement of financial position’s date and the risk policy with regard to the above-mentioned risks and other risks are discussed below.

12.54.2 Market risk Property values are affected by many factors, including the outlook for economic growth, inflation rate, developments on the capital markets and the rental income at the time of sale of the property. The greater the fluctuation in the development of these factors, the greater the risk. The fund cannot resist macro-economic factors that determine property value. However, through good real estate management and vision the fund will guarantee the attraction of the properties. MERE invests in countries which have sometimes other laws and regulations than in Western Europe. In some areas there is much less public information available in relation to Western Europe. Control of the market risk is determined largely by the management’s investment policy, which is aimed at achieving investment results by purchasing investments that are assumed to have been undervalued and are expected to benefit from the further development of the Czech and Slovak economy. The market risk is managed on a day-to-day basis.

12.54.3 Currency risk The currency risk can be defined as the risk that the fair value of investments, the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. MERE may invest in properties in countries where the euro (not yet) been implemented, there is a currency risks that the exchange rate fluctuate. MERE has the option to use financial instruments to hedge the currency risk. MERE invests in investment property primarily in currencies other than the functional currency (the Euro) used in these financial statements. These currencies consist primarily of the Czech Koruna. Consequently MERE is exposed to the risk that the exchange rate of the functional currency in relation to the foreign currency may develop in such a way that this has a negative impact on the value of the investment portfolio in Czech Koruna. Taking into account the high costs and management’s expectation that the exchange rates will continue to show appreciation in future years, management has opted not to hedge the currency risk by means of financial derivatives, such as forward contracts.

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At the reporting date MERE had the following exposure with regard to financial assets. The percentages are based on the carrying value of financial assets and liabilities.

2011 2010

Czech Koruna (CZK) 79.0% 64.3% Bulgarian Lev (BGN) 0.0% 0.0% Euro (EUR) 21.0% 35.7% 100.0% 100.0%

The following table sets out MERE’s total exposure to currency risk and the net exposure to currencies of the monetary assets and liabilities. The amounts are based on the carrying value of monetary assets and liabilities. EUR thousands Monetary assets Monetary liabilities Net exposure

2011 2011 2011

Czech Koruna (CZK) 3,173 17,174 -/- 14,001 Bulgarian Lev (BGN) 2 - 2 Euro (EUR) 841 23,548 -/- 22,707 4,016 40,722 -/- 36,706

EUR thousands Monetary assets Monetary liabilities Net exposure

2010 2010 2010

Czech Koruna (CZK) 3,527 18,933 -/- 15,406 Bulgarian Lev (BGN) 2 - 2 Euro (EUR) 2,009 24,572 -/- 22,563 5,538 43,505 -/- 37,967

In case the euro had weakened by 5% in relation to all currencies, with all variables held constant, net assets attributable to holders of redeemable shares and the change in the net assets attributable to holders of redeemable shares per the income statement would have decreased by the amounts shown below: EUR thousands 2011 2010

Czech Koruna (CZK) 700 770 Bulgarian Lev (BGN) - - 700 770

A 5% strengthening of the euro against the above currencies would have resulted in an equal but opposite effect on the above financial statement amounts to the amounts shown above, on the basis that all other variables remain constant.

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12.54.4 Interest rate risk The interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

MERE’s investment policy allows loans to be taken up. For reasons of control of liquidity and the obligation to repurchase shares, the fund holds limited cash and cash equivalents. MERE has the possibility of investing these funds in short-term deposits.

The following table details MERE’s exposure to interest rate risks. It includes MERE’s assets and liabilities, categorised by the earlier of contractual re-pricing or maturity date measured by the carrying value of the assets and liabilities.

EUR thousands

Less than 1 month

1 until 3 months

3 months until 1 year

1 until 5 years

More than 5 years

Non-interest bearing

Total

2011 2011 2011 2011 2011 2011 2011

Other investments - - - 1,241 - 45 1,286 Trade and other receivables - - - - - 1,151 1,151 Cash equivalents 1,667 - - - - - 1,667

Financial assets 1,667 - - 1,241 - 1,196 4,104

Interest-bearing loans and

borrowings 1,976 34,790 - - - 283 37,049 Trade and other payables - - - - - 4,331 4,331 Financial liabilities 1,976 34,790 - - - 4,614 41,380

Total interest sensitivity gap -/- 309 -/- 34,790 - 1,241 - -/- 33,858

EUR thousands

Less than 1 month

1 until 3 months

3 months until 1 year

1 until 5 years

More than 5 years

Non-interest bearing

Total

2010 2010 2010 2010 2010 2010 2010

Other investments - - - 1,277 - 70 1,347 Trade and other receivables - - - - - 1,375 1,375 Cash equivalents 2,953 - - - - - 2,953

Financial assets 2,953 - - 1,277 - 1,445 5,675

Interest-bearing loans and

borrowings 2,671 37,357 - - - 300 40,328 Trade and other payables - - - - - 4,009 4,009

Financial liabilities 2,671 37,357 - - - 4,309 44,337

Total interest sensitivity gap 282 -/- 37,357 - 1,277 - -/- 35,798

An increase of 100 basis points in interest rates as at the reporting date would not have increased or decreased the net assets attributable to holders of redeemable shares, while the financial instruments are stated at amortized cost or the financial instruments are non-interest bearing and therefore the change in the interest rate does not have an impact. An decrease of 100 basis points would have an

equal effect (see also section 12.36.2 “Fair value”). In case the interest rates during the financial period would have been 100 basis points higher, the profit for the period (profit before tax) would have been decreased by EUR 339,000 (2010: EUR 358,000).

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The main part of the financial liabilities are the interest bearing loans and borrowings. At the end of the reporting period MERE paid the following weighted average interest:

2011 2010

Weighted average interest rate of interest-bearing loans and borrowings 3.58% 3.26%

12.54.5 Price risk The price risk can be defined as the risk that the value of the investments will fluctuate as a result of changes in market prices (other than those arising from currency risk or interest rate risk), caused by factors specific to the individual investment or the issuing institution or factors applicable to the market as a whole.

Rental risk includes the risk of loss of rental income due to vacancies, the let ability of space and movements in market rents. The economic crisis could result in it taking longer to let property that has become vacant due to companies postponing their relocation decisions. The probability that tenants will no longer be able to meet their obligations is also increasing.

Property value risk includes the risk of loss of property value due to changing economic circumstances, economic decline and / or oversupply of comparable real estate property prices.

Since MERE’s investment properties are stated at fair value, with both realized and unrealized value adjustments being recognized directly in the income statement, a change in market conditions impacts directly on MERE’s investment result. The price risk is controlled by MERE by constructing a portfolio such that optimum diversification across sectors and markets is achieved.

A decrease of 5% of the fair value of the investment property as at the reporting date would have decreased the net assets attributable to holders of redeemable shares with EUR 2,841,000 (31 December 2010: EUR 3,122,000). An increase of 5% of the fair value would have increased the net assets attributable to holders of redeemable shares with EUR 2,841,000 (31 December 2010: EUR 3,122,000). 12.54.6 Concentration risk The concentration risk is the risk that can occur if MERE has a large concentration of investments in certain regions or types of properties or if MERE depends on a number of large tenants. To reduce this risk, investments are spread across different types of properties in several regions in Central Europe and use different (smaller ) tenants. 12.54.7 Risk associated with investing with borrowed money The risk associated with investing with borrowed money lies in the fact that shareholders might lose their investment. Because the money borrowed must be paid back first. The investments are indeed as a security for the bank loans. This risk is limited because there is no requirement for shareholders to possible deficits of MERE if the losses exceed the deposit. If the Loan to Value ratio is too high according to the covenants with the banks it is possible that MERE needs to sell real estate to improve the Loan to Value ratio. 12.54.8 Economic risk Economic risk is to identify for development on interest rates and inflation. Rate trends can attract outside capital affect the yield. Furthermore the development of rental income is related to inflation. At the expiration of leases, the rent is adjusted for market conditions. Rents are indexed annually. Inflation may affect investment returns which yield will be lower. Although the property markets in Central Europe, they grow in size and relatively low prices may therefore fluctuate more than in Western Europe.

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12.54.9 Counterpart risk (credit risk) The credit risk can be defined as the risk of a counterparty being unable to fulfil its obligation to MERE associated with monetary assets. MERE has a credit policy and the counterpart risk is monitored and controlled on a continuous basis. The risk is presumed to be low, given the short settlement period of most of such monetary assets. MERE does business with various parties, the most important are banks, tenants and the local administrator of the properties. MERE will be possible to reduce counterpart risks. MERE will do this through contact with counterparties and continuous risk assessment of these parties. The carrying amount of monetary assets best represents the maximum credit risk exposure at the statement of financial position’s date. At the reporting date, MERE’s monetary assets exposed to credit risk amounted to the following, related to MERE’s net assets attributable to the holders of redeemable shares: EUR thousands 2011 2011 2010 2010

Loan MEI Properties a.s. 1,241 5.2% 1,277 4.5% Trade and other receivables 1,048 4.4% 1,225 4.3% Cash equivalents 1,667 7.1% 2,953 10.3% 3,956 16.7% 5,455 19.1%

Beside the above mentioned items, there were no significant concentrations of credit risk to counterparties as at 31 December 2011 or 31 December 2010. No individual financial investment exceeded 10 percent of the net assets attributable to the holders of redeemable shares either as at 31 December 2011 or 31 December 2010. The following table sets out the ageing analysis of MERE’s monetary assets. The amounts are based on the carrying value of monetary assets.

EUR thousands

Not due Less than

1 month 1 until

3 months 3 months

until 1 year More than

1 year

Total

2011 2011 2011 2011 2011 2011

Gross monetary assets

Other investments 45 - - - 1,241 1,286 Trade and other receivables 430 140 61 163 475 1,269 Cash and cash equivalents 1,682 - - - - 1,682

2,157 140 61 163 1,716 4,238

Impairment of monetary assets

Other investments - - - - - - Trade and other receivables - - - 17 204 221 Cash and cash equivalents - - - - - - - - - 17 204 221

Net monetary assets


2,157 140 61 146 1,512 4,016

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EUR thousands

Not due Less than

1 month 1 until

3 months 3 months

until 1 year More than

1 year

Total

2010 2010 2010 2010 2010 2010

Gross monetary assets


3,560 385 60 159 1,578 5,742

Impairment of monetary assets Other investments - - - - - - Trade and other receivables - - - 30 174 204 Cash and cash equivalents - - - - - -

- - - 30 174 204

Net monetary assets Other investments 70 - - - 1,277 1,347 Trade and other receivables 524 385 60 129 127 1,225 Cash and cash equivalents 2,966 - - - - 2,966 3,560 385 60 129 1,404 5,538

The following table sets out the pledges of MERE’s financial assets. EUR thousands

Guarantee deposits

from tenants

Other pledge

Total

2011 2011 2011

Other investments - - - Trade and other receivables 347 - 347 Cash equivalents - - -

Financial assets 347 - 347

EUR thousands

Guarantee deposits

from tenants

Other pledge

Total

2010 2010 2010

Other investments - - - Trade and other receivables 536 - 536 Cash equivalents - - - Financial assets 536 - 536

12.54.10 Rent risk Rents may be under pressure in economic bad times. In the market vacancy rates can increase and rents will drop. The rent risk is largely mitigated by entering into long-term leases for periods which the annual rent for a longer period is established. It also tried to diversify rental periods, that minimizes the contracts expire at the same time.

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12.54.11 Debtor risk Debtor risk is the risk that arises from the possibility that a specific counter party is unable to meet its obligations to the company. The policy aims to reduce the default by a capital adequacy ratio of (potential) tenants and tenants by diversifying across industries so that dependency that affect only certain sectors is limited. 12.54.12 Vacancy risk The occupancy of the property may decrease by lease termination or bankruptcy of tenants. To reduce the risk of vacancies the fund seeks contracts with medium long term leases. Also, by properly maintaining the integrity of the property secured. 12.54.13 Risks regarding regulations Political decisions concerning soil pollution, zoning, rent control and taxation can affect the yield of MERE. This risk is mitigated to do a detailed analysis of potentially relevant risks (Due Diligence) before an acquisition. The fund also follows new developments and adjusts its policy if necessary based on changes in laws and regulations. 12.54.14 Liquidity risk The liquidity risk can be defined as the risk of MERE being unable to fulfil its obligation to counterparties associated with monetary liabilities. MERE invests in real estate; typically for real estate is that it is not liquid. Sale of real estate takes time and this could potentially affect the liquidity position of MERE. MERE will continuously monitor and manage liquidity to meet its obligations. The following table shows the contractual, undiscounted cash flows of MERE’s monetary liabilities. The interest-bearing loans and borrowings includes the payable interest. The payable interest is calculated by using the weighted average interest rate of interest-bearing loans and borrowings at statement of financial position’s date.

EUR thousands Less than

1 month 1 until

3 months 3 months

until 1 year 1 until

5 years More than

5 years No stated maturity

Total

2011 2011 2011 2011 2011 2011 2011

Interest-bearing loans and borrowings 2,075 726 2,483 28,865 8,282 - 42,431 Trade and other payables 1,061 - - - - - 1,061 Monetary liabilities 3,136 726 2,483 28,865 8,282 - 43,492

EUR thousands Less than

1 month 1 until

3 months 3 months

until 1 year 1 until

5 years More than

5 years No stated maturity

Total

2010 2010 2010 2010 2010 2010 2010

Interest-bearing loans and borrowings 927 682 2,621 26,793 13,915 - 44,938 Trade and other payables 3,423 - - - - 63 3,486 Monetary liabilities 4,350 682 2,621 26,793 13,915 63 48,424

The main parts of the financial liabilities are the interest-bearing loans and borrowings. At the end of the reporting period the weighted remaining maturity of the interest-bearing loans and borrowings was 5.68 year (31 December 2010: 6.71 year). At the end of 2011 MERE has no withdrawable credit facilities (end of 2010: no).

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12.54.15 Operational risk Operational risk is the risk of losses coming from failed internal processes, people or systems or from external operational events. Examples of operational risks incidents are: fraud, claims, losses, errors, violation of laws and system failure. 12.54.16 Tax risk Tax risk is the risk associated with possible changes in tax laws or changing interpretations and effects of government policy and regulation. 12.54.17 Outsourcing risk Risk of outsourcing activities brings with it the risk that the counterparty does not fulfill its obligations, despite agreements. MERE periodically assesses the compliance of the agreements and takes action as it deems necessary. 12.54.18 Integrity risk Within organizations there is a risk that people harm organizations by committing fraud of theft. MEI-Fondsenbeheer B.V. will evaluate its reliability and integrity. All staff in key positions employed by MEI-Fondsenbeheer B.V. will be screened by Pre-Employment Screening of Dutch Securities Institute (DSI).

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12.55 RELATED PARTIES 12.55.1 Identity of related parties With regard to MERE the following categories of related parties were distinguished during the financial period: A. Managers in key positions; B. Major investors; C. All organisational entities within the group designated as “Middle Europe Investments”

(“MEI”); D. Investment trusts, investment funds and other investment companies, which are managed by

an entity belonging to Middle Europe Investments; E. Investments undertaken by Middle Europe Investments, in which Middle Europe Investments

has significant influence (more than 20% of voting rights). 12.55.2 Transactions with and / or interests of managers in key positions (A) During the financial period no transactions occurred with members of the Managing Board and / or members the Supervisory Board. In addition, neither the Managing Board nor the Supervisory Board held interests in MERE or investments of MERE. The remuneration for the Managing Board is described in section 12.46 “Administrative expenses”. The remuneration for the Supervisory Board is described in section 12.48 “Other operating expenses”. 12.55.3 Transactions with and /or interests of major investors (B) Pursuant to the decree on Dutch Act on Financial Supervision (Wet op het Financieel Toezicht, the “Wft”) MERE reports one major investor, namely Stichting Prioriteit MERE (the “Foundation”), which holds all priority shares in MERE N.V.’s capital. No transactions occurred between the Foundation and MERE N.V. during the financial period under review. 12.55.4 Transactions with other related parties (C-D-E) During the financial period MERE entered into the following transactions with the other related parties: A. Providing credit by MERE N.V. to MEI Properties a.s. for the principal amount of

EUR 1,310,000 (2010: EUR 1,310,000). For this credit provision an annual average interest payment of 12.0% (2010: 12.0%) was received. At the end of 2011 the outstanding amounts are EUR 1,241,000 (2010: EUR 1,277,000) and the receivable interest is EUR 421,000 (2010: EUR 280,000);

B. For performing property management, tenant management, due diligence research for acquisition of investments, acquisition support, the management of acquired investment properties and the administration of purchased participations. Related to these services an amount of approximately EUR 957,000 (2010: approximately EUR 1,200,000) was paid to MEI Property Services s.r.o.;

C. MEI-related parties rented of MERE properties (office) about 300 m2.; D. MERE paid wages and salaries for its statutory directors for the amount of EUR 31,000

(2010: EUR 31,000); E. Sale of “project Studies” for the new development at Drahobejlova 27 for the amount of

EUR 12,000 to Yellow Properties s.r.o.; F. Providing guarantee by MERE Bohemia s.r.o, together with Middle Europe Opportunity Fund

II N.V. (together the shareholders of Yellow Properties s.r.o.) in favour of Raiffeisenbank a.s. for the amount of CZK 18,675,000 (EUR 724,000).

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12.55.5 Investments in other related parties (C-D-E) Investment trusts, investment funds and other investment companies, which are managed by an entity belonging to MEI do hold investments in companies in which MERE also holds investments. Middle Europe Opportunity Fund II N.V. (MEOF II) (in)directly holds investments in

companies in which MERE also holds investments. The following table shows the percentages the MEI-companies hold of the outstanding shares in the companies as at 31 December 2011: Company MEOF II MERE Total

Yellow Properties s.r.o. 95% 5% 100%

12.55.6 Agreements with related parties MERE has not entered into any agreements with parties affiliated with the Managing Board or MERE N.V., other than as described in section 12.46.3 “Agreement with MEI-Fondsenbeheer B.V.”.

12.56 EVENTS AFTER STATEMENT OF FINANCIAL POSITION’S DATE At the end of March 2012 the legal and economic transfer of the investment property Štefánikova 167 in Žlin was settled for the amount of about CZK 145,000,000 (EUR 5,623,000).

12.57 ESTIMATES AND FORMATION OF AN OPINION BY THE MANAGEMENT The Managing Board has discussed with the Supervisory Board the development and choice of, and the provision of information on, the critical principles of financial reporting and estimates, as well as the application of those principles and estimates. The major sources of uncertainty in estimates are as follows: A. Development of rents; B. Capitalisation factor for transactions; C. Fair rents per type of property; D. Property prices. In section 12.25.3 “Valuation of investment properties” the critical assessments by the Managing Board in applying MERE’s principles of financial reporting are stated.

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COMPANY FINANCIAL STATEMENTS 2011

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13. COMPANY BALANCE SHEET

EUR thousands Notes 2011 2010 Investments Investments in group companies 15.5 9,776 10,135 Goodwill 15.6 - 381 Receivables from group companies 15.7 17,092 19,342 Other financial investments 15.8 1,241 1,277 Total investments 28,109 31,135

Receivables and other assets Other receivables, prepayments and accrued income 15.9 989 2,020 Deferred tax assets 15.10 - 38 Cash and cash equivalents 15.11 4 809 Total receivables and other assets 993 2,867

Total assets 29,102 34,002 Shareholders’ equity Issued capital 15.12 5,905 5,905 Share premium 15.12.3 14,628 14,628 Revaluation reserve 15.12.4 4,798 7,196 Reserve for currency translation differences 15.12.5 2,732 3,023 Retained earnings -/- 4,393 -/- 2,158 Total shareholders’ equity 23,670 28,594 Long-term liabilities Debts to credit institutions 15.13 - 1,753 Deferred tax liabilities 15.14 13 22 13 1,775

Current liabilities Debts to credit institutions 15.13.2 1,976 918 Other liabilities, accruals and deferred income 15.15.2 3,443 2,715 Total current liabilities 5,419 3,633

Total equity and liabilities 29,102 34,002

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14. COMPANY PROFIT AND LOSS ACCOUNT

EUR thousands Notes 2011 2010 Share in result of group companies (after tax) 15.5.2 -/- 3,389 1,669 Other result (after tax) -/- 1,244 1,434 Result for the financial year -/- 4,633 3,103

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15. NOTES TO THE COMPANY FINANCIAL STATEMENTS

15.1 GENERAL The company financial statements for 2011 form part of MERE N.V.’s financial statements for 2011. With regard to MERE N.V.’s company profit and loss account use has been made of the exemption pursuant to Book 2, article 2:402 of the Dutch Civil Code.

15.2 PRINCIPLES OF VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF

RESULTS 15.2.1 General For the purpose of determining the principles of valuation of assets and liabilities and the determination of results for its company financial statements, MERE N.V. makes use of the option offered in Book 2, article 2:362 (8) of the Dutch Civil Code. This means that the principles of valuation of assets and liabilities and determination of results (hereinafter referred to as the “principles of valuation”) of MERE N.V.’s company financial statements are identical to those that have been applied for the consolidated EU-IFRS financial statements. In this context equity participations, on which significant influence is exercised, are valued on the basis of the equity method. These consolidated EU-IFRS financial statements have been prepared in accordance with the standards adopted by the International Accounting Standards Board and accepted by the European Union (hereinafter referred to as “EU-IFRS”). Reference is made to sections 12.4 to 12.23 inclusive for a description of these principles. 15.2.2 Investments in group companies Investments in group companies are stated at Net Asset Value. MERE N.V. determines the Net Asset Value as well as the cost of acquisition of the equity participation by valuing the assets, provisions and liabilities of the company in which it is participating and calculating its result on the basis of the same principles as its own assets, provisions, liabilities and result. The Net Asset Value of the foreign group companies is translated into Euros at the exchange rate as at the balance sheet date. The results of the foreign group companies are translated at the average exchange rates during the year under review. Results arising from this translation are recognized directly in shareholders’ equity in the “reserve for currency translation differences” related to the equity participations. In the event of sale of equity participation the cumulative exchange differences related to that equity participation are transferred to other reserves. 15.2.3 Accounts receivables from group companies Accounts receivable from group companies are stated at amortized cost. In the case of MERE N.V. this is identical to the acquisition price. The acquisition price in foreign currency is determined on the basis of the exchange rate at the transaction date. At balance sheet date the receivables from group companies are translated into Euros at the exchange rate as at the balance sheet date. Where losses are to be expected on the receivables, a reduction in value is applied in this respect. 15.2.4 Result from investments in group companies The share of the result of companies in which equity participations are held comprises MERE N.V.’s share in the results of such equity participations. The results of the equity participations have been determined on the basis of the principles of valuation adopted by MERE N.V. The revaluations of the equity participations are therefore included in this item. Results on transactions, in the case of which transfer of assets and liabilities has occurred between MERE N.V. and its affiliates and between the affiliates themselves, have not been recognized in so far as they can be regarded as unrealized. If the

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equity participation has been acquired in the course of the financial year, MERE N.V. accounts for the results of the equity participations with effect from the date of acquisition.

15.3 SIZE AND COMPOSITION OF THE CONSOLIDATED AND COMPANY EQUITY In connection with the fact that MERE N.V. makes use of the option provided in Book 2, article 2:362 (8) of the Dutch Civil Code, the size and composition of the consolidated and company capital are identical.

15.4 RECONCILIATION STATEMENT WITH THE CONSOLIDATED INCOME STATEMENT In connection with the fact that MERE N.V. makes use of the option provided in Book 2, article 2:362 (8) of the Dutch Civil Code, the consolidated and company results are identical.

15.5 INVESTMENTS IN GROUP COMPANIES 15.5.1 Analysis of investments in group companies The companies indicated below have all been included in the consolidated financial statements and in investments in group companies:

No.

Company Registered office

Country of

incorporation

% of

shareholders’

equity

Interest

2011

Interest

2010

A MERE Bohemia s.r.o. Prague Czech Republic 37.6% 100% 100% B MERE Slovakia s.r.o. Bratislava Slovak Republic 75.9% 100% 100% C Vitosha Property 1 EOOD Sofia Bulgaria - 100% 100% 113.5%

The above numbering corresponds with the table in section 12.5.2 “Consolidated subsidiaries”. The percentages mentioned in the column “% of shareholders’ equity” are calculated as the sum of the amounts of the investment in the group company and the receivables from the group company with regard to MERE N.V.’s shareholders’ equity. The analysis of investments in group companies is as follows:

EUR thousands

2011 before

reclassification

Reclassification

2011 after

reclassification

2010 after

reclassification

MERE Bohemia s.r.o. -/- 1,300 1,300 - - MERE Slovakia s.r.o. 9,774 - 9,774 10,133 Vitosha Property 1 EOOD 2 - 2 2 Total 8,476 1,300 9,776 10,135

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15.5.2 Statement of changes in investments in group companies Movements in the investments in group companies were as follows: EUR thousands 2011 2010

Balance as at 1 January 10,135 8,422 Acquisitions 3,000 - Share in result of group companies -/- 3,389 1,669 Exchange rate differences 30 44 Balance as at 31 December 9,776 10,135

Acquisition price 11,437 8,437

The amount of the acquisitions relates to the increase of the issued capital MERE Slovakia s.r.o. The payment of the increase of the issued capital has been set off against the receivable “loan to MERE Slovakia s.r.o.”.

15.6 GOODWILL 15.6.1 General Goodwill is the amount that arises from the acquisition of subsidiaries. The goodwill corresponds with the difference between the cost of the acquisition and the net fair value of assets and liabilities of the subsidiary. 15.6.2 Analysis of goodwill

No.

Name of subsidiary

Cost (revaluated)

2011

Impairment (revaluated)

2011 Net

2011 Net

2010

EUR thousands 1 CTP Real a.s. (currently MERE Bohemia s.r.o.) 686 -/- 686 - 381

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15.6.3 Statement of changes in goodwill EUR thousands 2011 2010

Cost Balance as at 1 January 631 631 Additions - - Balance as at 31 December 631 631

Impairment Balance as at 1 January 325 - Impairment 370 325 Balance as at 31 December 695 325

Exchange rate results Balance as at 1 January 75 37 Exchange rate results -/- 11 38 Balance as at 31 December 64 75

Net as at 31 December - 381

15.6.4 Impairment of goodwill The net book value of the goodwill can be allocated fully to the investment property Štefánikova. The fair value of the building as at 31 December 2010 was EUR 5,121,000, based on a yield of 11.50%. As at 31 December 2011 the Managing Board expects also a yield of 11.50%. Since the book value of the goodwill concerning Štefánikova exceeds the realizable value of the goodwill (i.c. EUR 0), the Managing Board decided for an impairment of the goodwill for the current financial year for the amount of EUR 370,000.

15.7 RECEIVABLES FROM GROUP COMPANIES 15.7.1 Analysis of receivables from group companies The analysis of receivables from group companies is as follows:

EUR thousands

2011 before

provision

Provision

2011 after

provision

2010 after

provision

Loan to MERE Bohemia s.r.o. 10,211 -/- 1,300 8,911 8,564 Loan to MERE Slovakia s.r.o. 8,181 - 8,181 10,778 Total 18,392 -/- 1,300 17,092 19,342

As at 31 December 2011 the weighted average interest rate on all receivables from group companies is 5.7% per annum (31 December 2010: 5.7% per annum).

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15.7.2 Statement of changes in receivables from group companies The development of accounts receivable from group companies is as follows: EUR thousands 2011 2010

Balance as at 1 January 19,342 18,799 Loans advanced 2,317 1,525 Redemption on loans advanced -/- 3,647 -/- 2,899 Fair value adjustments (provision) -/- 609 1,544 Exchange rate differences -/- 311 373 Balance as at 31 December 17,092 19,342

Principal of loans advanced (at cost) 42,130 42,130

The redemption on loans advanced relates for the amount of EUR 3,000,000 to the increase of the issued capital MERE Slovakia s.r.o. 15.7.3 Security As at 31 December 2011 receivables from group companies MERE Bohemia s.r.o. and MERE Slovakia s.r.o. for an amount of EUR 11,351,000 (31 December 2010: EUR 13,564,000) are pledged for debts to credit institutions.

15.8 OTHER FINANCIAL INVESTMENTS 15.8.1 Analysis of other investments

EUR thousands

Principal of

investment

Principal of

investment Interest rate

31-12-2011

Final date

Local currency

thousands

EUR thousands

Loan to MEI Properties a.s. CZK 32,000 1,310 12,0% December 2013

15.8.2 Statement of changes of other financial investments EUR thousands 2011 2010

Balance as at 1 January 1,277 1,209 Exchange rate differences -/- 36 68 Balance as at 31 December 1,241 1,277

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15.9 OTHER RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME 15.9.1 Analysis of other receivables, prepayments and accrued income EUR thousands 2011 2010

Interest on receivables from group companies 568 1,501 Other receivables from group companies - 239 Interest on other financial investments 421 280 989 2,020

For the amount of EUR 421,000 (31 December 2010: EUR 280,000) the interest receivable will be received after more than one year, as agreed upon the loan contract. 15.9.2 Security As at 31 December 2011 interest on receivables from group companies MERE Bohemia s.r.o. and MERE Slovakia s.r.o. for an amount of EUR 432,000 (31 December 2010: EUR 1,104,000) are pledged for debts to credit institutions.

15.10 DEFERRED TAX ASSETS 15.10.1 Deferred tax assets stated in the balance sheet The deferred tax assets are attributable as follows: EUR thousands 2011 2010

Value for tax purposes of stated loss carry-forward - 38

15.10.2 Statement of changes in deferred tax assets EUR thousands 2011 2010

Balance as at 1 January 38 35 Additions - 414 Withdrawal -/- 37 -/- 411 Exchange rate differences -/- 1 - Balance as at 31 December - 38

15.10.3 Deferred tax assets not stated in the balance sheet Deferred tax assets for an amount of EUR 317,000 (2010: EUR 0) have not been included in the balance sheet for deferred taxes. The Managing Board expects that with regard to these tax losses for an amount of EUR 1,268,000 (2010: EUR 0) there will not be sufficient taxable profit in the future for MERE N.V. to set off these losses.

15.11 CASH AND CASH EQUIVALENTS Cash and cash equivalents are entirely at the free disposal of MERE N.V.

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15.12 SHAREHOLDERS’ EQUITY 15.12.1 Statement of changes in shareholders’ equity

EUR thousands

Issued

capital

Share

premium

Revaluation

reserve

Reserve for

translation

differences

Retained

earnings

Total

shareholders’

equity

Balance as at 1 January 2010 5,905 14,628 7,772 3,125 -/- 5,837 25,593 Result for the financial year - - - - 3,103 3,103 Change in revaluation reserve - - -/- 576 - 576 - Change in reserve for translation differences

- - - -/- 102 - -/- 102

Own ordinary shares issued - - - - - - Own ordinary shares repurchased - - - - - - Balance as at 31 December 2010 5,905 14,628 7,196 3,023 -/- 2,158 28,594

Balance as at 1 January 2011 5,905 14,628 7,196 3,023 -/- 2,158 28,594

Result for the financial year - - - - -/- 4,633 -/- 4,633

Change in revaluation reserve - - -/- 2,398 - 2,398 - Change in reserve for translation differences

- - - -/- 291 - -/- 291

Own ordinary shares issued 498 169 - - - 667 Own ordinary shares repurchased -/- 498 -/- 169 - - - -/- 667 Balance as at 31 December 2011 5,905 14,628 4,798 2,732 -/- 4,393 23,670

15.12.2 Share capital Ordinary shares Priority shares

2011 2010 2011 2010

In issue as at 1 January 1,180,943 1,180,943 1 1 Issued without payment in cash 99,666 - - - Purchased without payment in cash -/- 99,666 - - - In issue as at 31 December – fully paid up 1,180,943 1,180,943 1 1

As at 31 December 2011 the authorized share capital consisted of 2,999,999 ordinary shares (31 December 2010: 2,999,999) and 1 priority share (31 December 2010: 1). Both the ordinary and the priority shares have a nominal value of EUR 5.00. The holders of ordinary shares are entitled to dividends, the distribution of which has been resolved by the General Meeting of Shareholders. The holders of ordinary shares are entitled to exercise one vote per ordinary share at the General Meeting of Shareholders.

From the profit earned in a financial year, primarily and as far as possible a dividend is distributed on the priority shares amounting to seven percent (7%) on an annual basis, calculated of the nominal value of the priority shares. No further distributions are made on the priority shares.

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15.12.3 Share premium The share premium comprises the amount paid in by the shareholders on ordinary shares of MERE N.V. over and above the nominal value. The uplift received on issuance of own ordinary shares or the reduction applied on redemption of own ordinary shares is recognized directly in the share premium reserve. The paid-up share premium for tax purposes as at 31 December 2011 was EUR 14,628,000 (31 December 2010: EUR 14,628,000). 15.12.4 Revaluation reserve The revaluation reserve, a legal reserve in accordance with Book 2, article 2:390 of the Dutch Civil Code, comprises the cumulative unrealized positive net change in the fair value of the investment properties, less the related deferred tax liabilities. The deferred tax liabilities are deducted with due regard for the principles of valuation for deferred taxes (see section 12.22 “Income tax expense”). In case of sale of the investment property the cumulative unrealized positive net change in the fair value of the investment property sold as well as the related deferred tax liabilities, are no longer stated in the revaluation reserve but recognized under retained earnings. EUR thousands 2011 2010

Balance as at 1 January 7,196 7,772 Addition to / reduction on (-/-) change in fair value in the financial year -/- 2,398 1,197 Reduction on change in connection with sale of investment properties - -/- 1,773 Balance as at 31 December 4,798 7,196

15.12.5 Reserve for currency translation differences The reserve for currency translation differences comprises the exchange rate differences that arise from the translation of the net investment in foreign subsidiaries into MERE N.V.’s currency. EUR thousands 2011 2010

Balance as at 1 January 3,023 3,125 Addition / reduction (-/-) in connection with translation net investments -/- 198 323 Withdrawal in connection with sales / redemptions -/- 93 -/- 425 Balance as at 31 December 2,732 3,023

15.13 DEBTS TO CREDIT INSTITUTIONS 15.13.1 General This includes the debts to credit institutions resulting from the repurchase from the liquidity provider (SNS Bank N.V.) of MERE N.V.’s ordinary shares. 15.13.2 Analysis of debts to credit institutions

EUR thousands Principal of debt Interest rate 31-12-2011

EUR thousands

SNS Bank N.V. 4,250 SNS basis interest rate plus margin 2.5% per annum

The current portion of the debt to SNS Bank N.V. is EUR 1,976,000 (31 December 2010: EUR_918,000). The part longer than 5 years amounts to EUR 0 (31 December 2010: EUR_879,000).

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The debts to credit institutions are presented in the company balance sheet as follows: EUR thousands 2011 2010

Long term liabilities - 1,753 Current liabilities 1,976 918 1,976 2,671

15.13.3 Statement of changes of debts to credit institutions EUR thousands 2011 2010

Balance as at 1 January 2,671 3,554 Loans advanced 5 17 Redemptions -/- 700 -/- 900 Balance as at 31 December 1,976 2,671

15.14 DEFERRED TAX LIABILITIES 15.14.1 General The deferred tax liabilities relate to the differences between the carrying value of the assets and the book value for tax purposes of the assets. 15.14.2 Deferred tax liabilities stated in the balance sheet The deferred tax liabilities are attributable as follows: EUR thousands 2011 2010

Other investments 13 22

15.14.3 Statement of changes in deferred tax liabilities EUR thousands 2011 2010

Balance as at 1 January 22 35 Additions on account of temporary differences - 17 Withdrawal on account of temporary differences -/- 9 -/- 30 Balance as at 31 December 13 22

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15.15 CURRENT LIABILITIES 15.15.1 Other liabilities, accruals and deferred income This relates to other liabilities, accruals and deferred income with a term shorter than one year. The specification is as follows: EUR thousands 2011 2010

Administrative expenses 3,270 2,524 Trade payables 173 143 Interest payables - 48 3,443 2,715

At 27 February 2012 MEI-Fondsenbeheer B.V. partly transferred its amount receivable amounting to EUR 3,386,000 from MERE N.V. to Middle Europe Investments N.V. (MEI). Of this amount receivable, MEI has converted at 27 February 2012 an amount of EUR 2,234,000 into 104,782 ordinary shares MERE N.V. At 3 January 2013 MEI-Fondsenbeheer B.V. shall convert the remainder of the amount receivable, amounting to EUR 1,152,000, also into ordinary shares MERE N.V., based on the Net Asset Value (NAV) of the ordinary shares on this date.

15.16 PERSONNEL COSTS MERE N.V. does not employ any personnel.

15.17 REMUNERATION FOR THE MANAGING BOARD AND SUPERVISORY BOARD In the year under review no (2010: no) remuneration including pension charges in the meaning of article 2:383 (1) of the Dutch Civil Code was charged to MERE N.V. or group companies in respect of (former) members of the Managing Board. For the remuneration of the management of MERE N.V. 0.083%-0.125% of the value of the total assets of MERE N.V. is paid monthly to the Managing Board (MEI-Fondsenbeheer B.V.), as stated in section 12.46 “Administrative expenses”. The remuneration for the (former) Supervisory Board amount to EUR 26,000 (2010: EUR 41,000). The analysis is as follows: EUR thousands 2011 2010

Prof. Dr. J.L. Bouma (chairman) 212 15 B. Vos M.Sc. 14 14 E. Roden (until 1th of April 2011) - 12 26 41

MERE N.V. has provided no loans, advances or guarantees for the members of Managing Board nor the members of the Supervisory Board. The members of the Managing Board nor the members of the Supervisory Board receive no options or remuneration in the form of MERE N.V.’s shares.

2 This amount includes also the correction of VAT over 2010 to an amount of EUR 2,000 negative.

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15.18 RELATED PARTIES 15.18.1 Identity of related parties With regard to MERE N.V. the following categories of related party were distinguished during the 2011 financial period: A. Managers in key positions; B. Major investors; C. All organisational entities within the group designated as “Middle Europe Investments”

(“MEI”); D. Investment trusts, investment funds and other investment companies, which are managed by

an entity belonging to Middle Europe Investments; E. Investments undertaken by Middle Europe Investments, in which Middle Europe Investments

has significant influence (more than 20% of voting rights). 15.18.2 Transactions with and / or interests of managers in key positions (A) During the financial period no transactions occurred with members of the Managing Board and / or members of the Supervisory Board. In addition, neither the Managing Board nor the Supervisory Board held interests in MERE N.V. or investments of MERE N.V. The remuneration for the Managing Board is described in section 12.46 “Administrative expenses”. The remuneration for the Supervisory Board is described in section 12.48 “Other operating expenses”. 15.18.3 Transactions with and / or interests of major investors (B) Pursuant to the decree on Dutch Act on Financial Supervision (Wet op het Financieel Toezicht, the “Wft”) MERE N.V. reports one major investor, namely Stichting Prioriteit MERE (the “Foundation”), which holds all priority shares in MERE N.V.’s capital. No transactions occurred between the Foundation and MERE N.V. during the financial period under review. 15.18.4 Transactions with other related parties (C-D-E) During the financial period MERE N.V. entered into the following transactions with the other related parties: A. Providing loans to group companies, as described in section 15.7 “Receivables from group

companies”; B. Providing credit by MERE N.V. to MEI Properties a.s. for the principal amount of

EUR 1,310,000 (2010: EUR 1,310,000). For this credit provision an annual average interest payment of 12.0% (2010: 12.0%) was received. At the end of 2011 the outstanding amounts are EUR 1,241,000 (2010: EUR 1,277,000) and the receivable interest is EUR 421,000 (2010: EUR 280,000).

15.18.5 Investments in other related parties (C-D-E) During the financial period MERE N.V. has not entered into investments in other related parties.

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15.19 TAXES As of 1 January 2009, MERE N.V. has left the status of fiscal investment institution. As of this date, taxable profits are subject to income tax. Deventer, 26 April 2012 The Managing Board: The Supervisory Board: MEI-Fondsenbeheer B.V. Prof. Dr. J.L. Bouma (chairman) On behalf of, B. Vos M.Sc. H.H. Kloos RBA P.H.J. Mars M.Sc. G.St. J. Barker LBB FRICS

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16. OTHER INFORMATION

16.1 GENERAL PROVISIONS OF THE ARTICLES OF ASSOCIATION CONCERNING RESULT

APPROPRIATION In accordance to Article 28 of the Articles of Association dated 30th October 2009, profits are determined and distributed as follows: 28.1 From the profit earned in a financial year in so far as possible a dividend is first

distributed on the priority share, the amount of which dividend is equal to seven percent (7%) on an annual basis, calculated on the nominal value of the priority share. No further distributions are made on the priority share.

28.2 The priority shareholder determines annually what part of the profit remaining after application of article 28.1 above is added to the reserves.

28.3 It is the prerogative of the general meeting of shareholders to appropriate the profit remaining after application of articles 28.1 and 28.2 above.

28.4 Distribution of profit occurs after adoption of the financial statements evidencing that this is permitted.

28.5 The priority shareholder may resolve to make interim distributions on ordinary shares and / or distributions on ordinary shares charged to a company reserve.

28.6 Distributions on shares may only take place up to a maximum of the amount of the distributable shareholders’ equity.

28.7 Unless the body that decides on distribution determines another time, distributions on shares are payable immediately after declaration.

28.8 In calculating the amount of any distribution on shares the shares held by the company in its own capital are not included.

16.2 PROPOSAL FOR THE COMPANY RESULT APPROPRIATION The company profits for the 2011 financial year amounts to EUR 4,633,000 negative. In connection with the mandatory net reduction of EUR 2,398,000 on the “revaluation reserve” the remaining profit for the 2011 financial year was EUR 2,235,000 negative. It is proposed to the General Meeting of Shareholders to deduct the whole of the remaining profit for 2011 financial year from the retained earnings. This proposal has not been recognized in the balance sheet date since this is still a proposal of the Managing Board.

16.3 DECREE ON THE DUTCH ACT ON FINANCIAL SUPERVISION On 24 January 2006 the Managing Board of MERE N.V., MEI-Fondsenbeheer B.V. obtained a permit from the Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, the “AFM”) under the Dutch Act on Financial Supervision (Wet op het financieel toezicht, the “Wft”) to act as a management company of the Funds.

16.4 PERSONAL INTERESTS During the year under review neither the Managing Board nor the Supervisory Board held interests in investments by MERE N.V., except for B. Vos M.Sc. which had 2,000 ordinary shares (31 December 2010: 2,000) in private possession and 2,074 ordinary shares (31 December 2010: 2,074) in possession through Bas Vos B.V.

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16.5 SPECIAL CONTROLLING RIGHTS Special rights in respect of control of the company have been granted to the holders of priority shares. The priority shares are bearer shares. As provided by the Articles of Association the priority shares entitles the Foundation: to determine the number of members of the Managing Board and Supervisory Board; to make binding nominations for appointment of the members of the Managing Board and the

members of the Supervisory Board; to make the proposal to the General Meeting of Shareholders to suspense or dismiss a

Managing Board member and / or a Supervisory Board member; to make the proposal to the Supervisory Board for the remuneration of the members of the

Supervisory Board; to determine which part of the profits remaining after priority dividend (see also section

16.1) shall be reserved; to make interim distributions on ordinary shares and / or distributions on ordinary shares

charged to a company reserve; to make the proposal to the General Meeting of Shareholders to amend the Articles of

Association of MERE N.V.; to make the proposal to the General Meeting of Shareholders for statutory merger or

statutory demerger of MERE N.V.; to make the proposal to the General Meeting of Shareholders for dissolution of MERE N.V. The General Meeting of Shareholders needs the approval of the Foundation for decisions of the Managing Board concerning: reduction of the issued share capital.

16.6 EVENTS AFTER BALANCE SHEET DATE On 27 February 2012 Palmer Capital completed its acquisition of Middle Europe Investments and its subsidiary MEI-Fondsenbeheer B.V. The completion of the transaction has taken place in consultation with the AFM. Following the acquisition, the Managing Board consists of:

G.St.J. Barker LBB FRICS

H.H. Kloos RBA

P.H.J. Mars M.Sc.

At 27 February 2012 MEI-Fondsenbeheer B.V. partly transferred its amount receivable amounting to EUR 3,386,000 from MEI-Real Estate N.V. to Middle Europe Investments N.V. (MEI). Of this amount receivable, MEI has converted at 27 February 2012 an amount of EUR 2,234,000 into 104,782 ordinary shares MEI-Real Estate N.V. At 12 January 2012 MEI-Fondsenbeheer B.V. decided to capitalize CZK 70,000,000 of the intercompany loan between MEI-Real Estate N.V. to MERE Bohemia, s.r.o. to improve the equity position in MERE Bohemia, s.r.o. At the end of March 2012 the legal and economic transfer of the investment property Štefánikova 167 in Žlin was settled for the amount of about CZK 145,000,000 (EUR 5,623,000).

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16.7 INDEPENDENT AUDITOR’S REPORT To: General Meeting of Shareholders of MEI-Real Estate N.V.

Report on the financial statements

We have audited the accompanying financial statements 2011 of MEI-Real Estate N.V., Amsterdam, which comprise the balance sheet as at 31 December 2011, the statements of comprehensive income, changes in equity and cash flows for the year then ended and notes, comprising a summary of the accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of the financial statements, in accordance with International Financial Reporting Standards as adopted by the European Union, Part 9 of Book 2 of the Netherlands Civil Code and the Financial Supervision Act (“Wet op het financieel toezicht”) and for the preparation of the management board report, in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of MEI-Real Estate N.V. as at 31 December 2011 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, Part 9 of Book 2 of the Netherlands Civil Code and the Financial Supervision Act.

Report on other legal and regulatory requirements

Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Netherlands Civil Code, we have no deficiencies to report as a result of our examination whether the management board report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and if the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we

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report that the management board report, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Netherlands Civil Code.

Amstelveen, 26 April 2012

KPMG ACCOUNTANTS N.V.

J.J.A. van Nek RA

mei - real estate n.v. - arcona property fund · other non-current assets 2,683 2,917 3,110 3,192...

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