Next Re SIIQ S p A : Annual financial report 2021

Annual Financial Report

The Annual financial report 2021 has been translated into the English language solely for the convenience of international readers. The version compliant with the provisions of the Commission Delegated Regulation (EU) 2019/815 is the document named "Relazione finanziaria annuale al 31.12.2021 (formato ESEF)" published on the company websitewww.nextresiiq.it on April 4, 2022.

Contents

LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER .......................... 3

• 1. COMPANY PROFILE .................................................................................................... 5

  Company information and structure ........................................................................................................ 5

  Company offices/positions ...................................................................................................................... 6

  Board of Directors ................................................................................................................................. 6

  Board of Statutory Auditors .................................................................................................................. 6

  The manager in charge pursuant to Article 154-bis paragraph 2 TUF (Consolidated Finance Act). 7

  Independent Auditors ............................................................................................................................ 7

  Shareholding structure as at 31 December 2021 .................................................................................... 8

• 2. DIRECTORS' REPORT .................................................................................................. 9

  Financial highlights ................................................................................................................................... 9

  Relevant events during the year ............................................................................................................. 11

  Events following the reporting period .................................................................................................... 17

  Stock performance .................................................................................................................................. 18

  The economic context and the real estate market ................................................................................ 20

  Real estate portfolio ................................................................................................................................ 22

  Merger by incorporation of Cortese Immobiliare S.r.l ........................................................................... 32

  Economic performance analysis ............................................................................................................ 34

  Balance sheet analysis ............................................................................................................................ 35

  Transactions with related parties ........................................................................................................... 37

  Legal and regulatory framework of Listed Real Estate Investment Companies (SIIQ) ....................... 40

  Risk management .................................................................................................................................... 43

  Corporate Governance ............................................................................................................................ 49

  Remuneration report ............................................................................................................................... 51

  Organisational model & Code of Ethics ................................................................................................. 51

  Equity investments held by directors and members of the board of statutory auditors .................... 51

  Other information on the management .................................................................................................. 52

  Update on the impact of COVID-19 ........................................................................................................ 53

  Foreseeable performance trend ............................................................................................................. 54

  Proposed allocation of operating results for the period ....................................................................... 55

  EPRA performance indicator .................................................................................................................. 56

• 3. FINANCIAL STATEMENTS OF NEXT RE SIIQ S.P.A ............................................... 63

Financial statements of NEXT RE ........................................................................................................... 64

Statement of financial position .............................................................................................................. 64

Statement of profit/loss for the year ..................................................................................................... 65

Statement of other comprehensive income .......................................................................................... 66

Statement of changes in shareholders' equity ...................................................................................... 67

Cash-flow statement ............................................................................................................................... 68

Notes to the financial statements .......................................................................................................... 70

Management and coordination activities ............................................................................................ 113

Certification of the Financial Statements ............................................................................................ 120

Annexes ................................................................................................................................................. 121

Report of the Independent Auditors ..................................................................................................... 123

Report of the Board of Statutory Auditors ........................................................................................... 130

Independent expert report .................................................................................................................... 151

LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Dear Shareholders and Stakeholders,

In 2021, your Company confirmed its corporate mission as a listed real estate investment company (SIIQ), consolidating the foundations for positioning itself among the leading operators in the REIT segment at national and European level. With the completion of the take-over bid procedure in February, CPI PG reinvigorated its status as a controlling and reference shareholder and formalised its management and coordination role. In the second half of 2021, CPI PG initiated a process to acquire control over Immofinanz AG, listed on the Vienna Stock Exchange, a process that was completed on 15 February of this year. Immofinanz is an investment company which owns a significant real estate portfolio, mainly for office and retail use, located in the major markets of Central European countries. The success of the transaction has caused CPI PG to be ranked in the top 5 European investment companies in the commercial real estate sector, with consolidated assets in excess of € 20 billion. Today, therefore, our group is on its way to becoming one of the largest players worldwide, and in this sense is applying an internationalisation strategy that hinges on the active local presence of structures and managerial skills of high standing. In this framework and with a view to expansion, at the shareholders' meeting last April, held to approve the financial statements for 2020, you were asked to approve a capital increase of up to € 2 billion, by granting the Board of Directors the authority to implement it, in one or more tranches, depending on market developments, over the next two years. In August 2021, your Company signed a Framework Agreement of significant industrial value with the shareholder CPI PG and the DeA Capital Group. DeA Capital Real Estate Sgr is the number one asset management company in Italy, specialising in real estate alternative investment funds (AIFs), which has a market share of over 22% and manages € 11.7 billion in assets. The essential guidelines of this Agreement move towards the development of the business of your SIIQ which is based, on the one hand, on the commitment of the contracting parties to participate in a capital increase of up to € 1 billion and, on the other hand, on the assumption by Dea Capital Sgr of the role of strategic-management advisor. The combination of these two fronts enhances the capital strength of businesses at the very highest international levels, both with a significant investment presence in the main European countries, together with characteristics of excellence in terms of the quality of their portfolios as well as leased structure and management performance. It is a basket of reputational and material resources that puts the positioning objectives assumed into a very concrete perspective. The advisory mandate to DeA Capital Sgr constitutes an innovative model that is "internally managed with advisory support on certain key management phases", in which the distinctive managerial skills of the company are supported and enhanced by an external party with excellent credentials in terms of market presence and the specialised service offered. This framework of enabling factors includes the project to make your SIIQ grow and render it a leading investment tool in a segment that still sees very broad space for domestic growth, in order to adapt its scale and depth to those of REIT peers in other national contexts, similar in terms of institutional development of the market. These initial months of 2022 have required us to face the sadness of a war at Europe's doorstep, which has come immediately on the heels of the pandemic crisis, and has once again set in motion variables destabilising the macroeconomic backdrop, throwing the primary capital market into paralysing uncertainty. This waiting time can and must be used to start and complete a strengthening process that will allow the company to turn up at the reopening with asset size and profitability dynamics that are highly attractive to primary investors. Your Company has taken an intensely symbolic and significant step in this regard with its name change, approved by the Extraordinary Shareholders' Meeting in November 2021. "NEXT RESIIQ" strives to affirm at the identity level exactly this momentum towards the future, this next phase in which, on the strong foundation it has laid, your Company aims to take on the role of protagonist of the transformative process through which the Italian REIT segment can finally take shape and fly. During 2021, NEXT RE maximised the use of available resources; investments were made to expand the share of ownership of the commercial property in Milan at Via Spadari / Via Torino, acquiring spaces adjacent to the commercial platform already in the portfolio, some already leased and some subject to redevelopment. Your Company closes the 2021 financial statements in profit (€ 0.4 million); investment property rose from € 120.5 million in 2020 to € 138.3 million in 2021; rental income remainsconstant at approximately € 6 million. EBITDA is negative (€ -1.6 million). The most significant debt component is attributable to financing from the controlling shareholder. The real estate portfolio occupancy rate decreased from 100% in 2020 to 82% in 2021, due to the vacant portions acquired and the final termination of the lease on the Verona hotel, in view of the better economic redevelopment of this asset. The signing of the advisory mandate with Dea Capital Sgr has had the immediate effect of increasing company costs, which are destined to be absorbed within the framework of the asset growth programme, after which it will play favourably in the direction of a preponderance of variable costs over fixed costs, thus conferring flexibility on the income statement in the future. In 2021, your Company maintained the certification of its quality system and consistently worked on processes to constantly and continuously improve its organisational and control mechanisms. In 2021, it was honoured by the European Public Real Estate Association ("EPRA") with two major international awards for its level of adherence to Best Practices Recommendations ("BPR"). NEXT RE, in particular, received the "EPRA BPR Gold Award" on its 2020 Annual Financial Report and also earned the "Most Improved Award," given to companies that have extraordinarily improved the compliance of their reporting with BPRs compared to the previous year. EPRA's BPRs represent a European standard in terms of transparency, comparability and relevance of key business performance indicators. EPRA's annual awards are intended to recognise and commend the efforts of the real estate companies that have successfully adopted the above-mentioned guidelines. In 2021, your Company has still continued with the integration of ESG topics within its business model, with the deep conviction that the adherence to recognised environmental, social and corporate governance standards makes it possible to increase the value of its real estate portfolio, improving performance over time and mitigating the risk linked to environmental issues, with the aim of obtaining lasting and tangible benefits in favour of all stakeholders and promoting sustainable economic development. In this context, a training course for employees has been undertaken, aimed at disseminating the main ESG topics and including these principles within internal policies; an internal sustainability policy is being defined, containing the main objectives and procedural actions of the company's ESG strategy. Priority was given to raising the level of practices in the 'green' sphere, within which a process was defined and adopted for analysing and improving the performance of owned properties, obtaining certification in accordance with the "Breeam In Use" sustainability protocol on two assets in the property portfolio. This process is being implemented on other owned assets with the aim of creating a quality portfolio aligned with the most advanced international metrics. Today, NEXT RE is a reliable and functional operating machine, fully aware of the formidable complementarity and coherence that the SIIQ statute assigns to it within the domestic system of real estate investment tools. It is aware that the meagre REIT segment - which distances Italy from its peer countries - naturally limits the full expression of the potential of a real estate market playing out in a unique geographical area in the world, leaving behind exceptional opportunities. Let's overcome this significant challenge together!

With best regards,

The Chairman and Chief Executive Officer