Grounds Real Estate Development : Annual Report 2023

ANNUAL REPORT | 2023

ANNUAL REPORT

for the financial year

1 January to 31 December

2023

This annual report was published on 29 April 2024 and is also available in English. The German­version takes precedent in the case of any doubt.

Both versions of the annual report are available online on our website: www.thegroundsag.com/de/investor-relations/finanzberichte-und-praesentationen/geschaeftsberichtewww.thegroundsag.com/en/investor-relation/financial-reports-and-presentations/annual-reports

For reasons of better legibility, we mostly use the masculine form of personal nouns in this annual report. This always refers to female and male persons at the same time and expressly includes other gender identities.

CONTENT

06		Key Figures
08		Letter to Shareholders
12		Report of the Supervisory Board
16		Portfolio and Properties
24		The Grounds on the Capital Market
28		Group Management Report
61		Consolidated Financial Statements
70		Notes to the Consolidated Financial Statements
128		Independent Auditor's Report
134		Financial Calendar
135		Credits

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The Grounds Annual Report 2023 | Key Figures

KEY FIGURES

Group key figures

Sales revenues

• of which sales
• of which rental income

Earnings before interest and taxes (EBIT)

Consolidated profits

Earnings per share

Total assets

Equity

Equity ratio

Financial liabilities & bonds

Loan to value (LTV)

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activities

Employees

	31 Dec. 2023	31 Dec. 2022
TEUR	23,896	36,751
TEUR	21,908	34,600
TEUR	1,972	1,885
TEUR	-4,794	3,359
TEUR	-7,586	1,186
EUR	-0.39	0.07
TEUR	147,816	138,279
TEUR	24,833	32,569
%	16.8%	23.6%
TEUR	99,947	80,104
%	75%	67%
TEUR	-14,907	-12,453
TEUR	405	-4,421
TEUR	15,257	16,732
	14	15

Portfolio key figures

Portfolio properties (Fixed assets)

31 Dec. 2023	31 Dec. 2022

Living/usable space

Units

Rental income p.a.

m²	26,511	27,319
	421	434
TEUR	1,729	1,667

Portfolio development (Current assets)

Living/usable space

Units

Rental income p.a.

Land development

m²	2,304	3,024
	20	26
TEUR	156	208

Planned living/usable space	m²	175,045	180,145
Planned living/usable space in joint venture projects	m²	10,322	10,322

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The Grounds Annual Report 2023 | Key Figures

Overview of The Grounds shares (Xetra prices)		2023	2022
Market capitalisation (as at 31 Dec.)	TEUR	14,779	34,542
Share capital (as at 31 Dec.)	TEUR	17,806	17,806
Closing price	EUR	0.83	1.94
Share price low	EUR	0.68	1.88
Share price high	EUR	1.94	2.60
ISIN			DE000A2GSVV5
Segment	Primary market, Düsseldorf Stock Exchange

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The Grounds Annual Report 2023 | Letter to Shareholders

LETTER TO THE SHAREHOLDERS

Dear Shareholders,

Dear Ladies and Gentlemen,

2023 posed particular challenges for the whole of the property sector in Germany. These included the significant increase in interest rates and the consistently high level of prices in construction, which rapidly outpaced the consumer price index at times. In addition, there was considerable uncertainty among many market players due to developments in the political arena, such as the debate over the German Heating Act that went on for several months and political decisions regarding subsidy programmes for residential construction. The effects of these developments were dramatic: Transaction volumes declined massively in virtually all segments of the property market, as did the number of building permits. Following a phase lasting several years in which prices rose almost constantly, the price level fell significantly as well. In turn, declining market values led to significant write- downs on the balance sheets of a large number of property companies. These trends were bucked in several segments, as rents continued to rise for residential properties in major cities and urban areas in particular.

There have thus been stabilising trends over the past four months since September 2023, when the European Central Bank (ECB) halted further interest rate hikes and the Heating Act was approved in Germany, providing clarification as to the regulatory standards on this front at least. The housing summit provided various incentives to revitalise the sector, even if the effects so far have been barely noticeable. Parallel to this, inflation has slowed significantly, though it is still above the ECB's target range.

Accordingly, there were initial signs of stabilisation towards the end of the year, which appear to have been confirmed in the first few months of 2024. Interest rates are stable or are even declining slightly. Price for properties are rising again, at least slightly, in most regions. Overall, the market is increasingly coming to feel that the situation will not deteriorate further in 2024, though a swift and far-reaching recovery is also considered unlikely. This is consistent with the general economic assessment by leading research institutes, which have lowered their growth forecasts for 2024 and do not anticipate stronger growth momentum in Germany again until 2025.

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The Grounds Annual Report 2023 | Letter to Shareholders

The past year, which was hit by a string of bad news, has also left its mark on The Grounds, as a result of which it was unable to achieve its original goals for 2023. Revenue was down year-on-year and the financial year ended with a negative result. Nevertheless, we enjoyed some success in the sale of condominiums. The condominiums in Meppen have now all been sold, the purchase agreement for the last available apartment of our new construction and densification project in Margaretenstraße in Berlin-Lichtenberg was notarised shortly before the editorial deadline for this annual report, and more purchases have been agreed in Dallgow-Döberitz as well. Meanwhile, however, there were also delays at other locations.

For example, while we consider the sales negotiations for our Central Offices project in Magdeburg to be promising, they have not yet led to the signing of a contract. And in

JACOPO MINGAZZINI

Management Board

Jacopo Mingazzini, business graduate (Dipl.-Kfm.) and real estate economist, has been member of the Company's Management Board since August 2020 and its sole member since 1 May 2023.

Until March 2020 he was Managing Director of Accentro GmbH, which he founded in 1999 - since 2011 he also was CEO of Accentro Real Estate AG.

Jacopo Mingazzini is lecturer at IREBS and, amongst others, he is member of the Management Board of "Liberale Immobilienrunde" as well of "Association to Promote residential property" in Berlin.

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The Grounds Annual Report 2023 | Letter to Shareholders

Hangelsberg, our debtor warrant has been postponed once again and is still pending. The mutually agreed cancellation, at the buyer's request, of the purchase agreement for the project development in Erkner caused an unexpected drop in revenue and necessitated a reassessment of the project under current market conditions. While The Grounds

did not suffer any financial losses as the share of the purchase price already received does not have to be repaid, the project nevertheless faced further delays as the new circumstances meant that financing was necessary and the marketing process had to begin again.

In view of these challenges in our operations, it is all the more gratifying that we were able to secure a new investor in the form of H.I.G. Realty, a UK subsidiary of H.I.G. Capital LLC. This investor first provided The Grounds with short-term bridge financing, in addition to an option to assume the majority in the company through a capital increase. Regarding a potential capital increase in 2024, the existing main shareholders have already pledged to transfer their pre-emption rights to the new investor. In addition, bondholders of our convertible bond have agreed to convert it into a bond with a fixed interest rate while also extending its term and thereby cancelling their option to subscribe to new shares.

For the 2024 financial year, we are anticipating a moderate recovery in the property sector and are focusing on selling other project developments, which we are already in promising talks for. Furthermore, we are on the verge of kick-starting sales of condominiums in the first properties from our portfolio in the Berlin area portfolio. We are anticipating we will see the first positive results from individual sales of properties previously held in the portfolio in 2024.

We would like to thank you for the trust you have placed in us and for your continued support in these challenging times. The Management Board also wishes to thank all the employees of the company for their strong personal commitment and ceaseless dedication to The Grounds.

Yours sincerely,

The Management Board

Jacopo Mingazzini

Berlin, April 2024

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