Torunlar REIC ANNUAL REPORT · growth in consumer credit and Turkish lira denominated commercial ... rental income from shopping malls and offices increased 13.5% ... Torunlar REIC

Torunlar REIC

ANNUAL REPORT

2016uwww.torunlargyo.com.tr

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01 Company Profile02 From the Chairman 08 Torunlar Group 10 Torunlar REIC in Brief12 Vision, Mission and Strategic Targets14 Awards and Certifications16 Corporate Social Responsibility Activities18 Board of Directors23 Independence Statements 26 Executive Board 28 Capital and Shareholding Structure 30 Agenda of Torunlar REIC 2016 Ordinary General Assembly Meeting Dated May 23, 201731 Profit Distribution Policy32 2016 Profit Distribution Table34 Financial Highlights 37 Evaluation of 2016 Operating Results on REICs47 Net Asset Value Table 49 Compliance with the Portfolio Limitations on REICs50 Assets of Torunlar REIC108 Risks and Assessment of the Management Body 109 Material Events Disclosure after the Accounting Period Ending on December 31, 2016109 Amendments to the Articles of Association during the Accounting Period and Their Explanations109 Amendments to Real Estate Regulations 110 Information on Consulting Firm, Management Company, Real Estate Appraisal Company, Asset Management Company and Depository Institution Related to the Assets and Rights in the Portfolio of the Company 111 Lawsuits 111 Internal Control System of the Company and Information about Internal and External Control Operations 111 Subsidiaries and Related Party Transactions 112 Sustainability 120 Personnel and Worker Actions, Collective Bargaining Practices, Rights and Benefits Offered to Personnel and Workers 120 Information about Outside Organizations120 Company Financing Sources and Risk Management Policies120 Projections about the Company’s Progress 120 Changes Affecting the Implementation of Principles of Corporate Governance121 Research and Development Activities 121 Quality and Amount of Capital Market Instruments Issued 121 Money and Capital Market Instruments121 Developments in Investments, Use of Incentives, to What Extent Incentives Have Been Used, If Any121 Characteristics and Capacity Utilization Rates of the Company’s Production Units; Related Developments; Capacity Utilization Rate; Developments in Product and Service Production in the Core Business Area; Amount, Quality, Demand and Prices in Comparison with Prior Periods122 Product and Service Prices; Sales Revenues; Sales Conditions and Related Developments that Took Place during the Year; Improvements in Performance and Productivity Coefficients; Reasons for Significant Changes Compared with Previous Years122 Measures Considered to Improve the Company’s Financial Structure 123 Torunlar Real Estate Investment Company Corporate Governance Principles Compliance Report 139 Financial Statements 141 Financial Statements and Independent Auditor’s Report for January 1- December 31, 2016 Reporting Period

CONTENTS

COMPANY PROFILE

TRADE NAME : Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. (Torunlar REIC)DATE OF ESTABLISHMENT : 20.09.1996DATE OF REIC STATUS : 21.01.2008PAID-IN CAPITAL : TL 500,004,283REGISTERED CAPITAL CEILING : TL 1,000,000,000IPO DATE AND PRICE : 21.10.2010 / TL 3.27 HEAD OFFICE : İstanbulTRADE REGISTRY NO. : 353242TRADE REGISTRY OFFICE : İstanbulTAX OFFICE : Anadolu Kurumlar VD - 9460032851STOCK EXCHANGE : Borsa İstanbul A.Ş. CAPITAL MARKET : Collective Products Market THE CAPITAL MARKET INSTRUMENT IS TRADED AT AND INDICES IT IS INCLUDED IN : Collective Products Market BIST Real Estate Investment Company Index (XGMYO) / BIST Finance BIST All / BIST All-100COMPANY TICKER : TRGYOBLOOMBERG TICKER : TRGYO: TIREUTERS TICKER : TRGYO.ISHEAD OFFICE ADDRESS : Rüzgarlıbahçe Mah. Özalp Çıkmazı No: 4 34805 Beykoz İstanbulWEBSITE : www.torunlargyo.com.tr E-MAIL : [email protected] KEP (REGISTERED E-MAIL) : [email protected] REGISTRATION SYSTEM : 0946003285100019

This Annual Report Has Been Prepared in Accordance With Article 516 of the Turkish Commercial Code, the Provisions of the Ministry of Customs and Trade’s “Regulation on the Determination of the Minimum Content of Company Annual Reports” Published in the Official Gazette Dated August 28, 2012 and Numbered 28395, Article 8 of the Capital Markets Board’s Communiqué (Serial: Ii-14.1) on the “Principles of Financial Reporting in Capital Markets,” The Applicable Articles of the Corporate Governance Communiqué (Serial: Ii-17.1) and Article 39 of the Capital Markets Board Communiqué (Serial: Iii-48.1) on the “Principles Regarding Real Estate Investment Companies” (Serial: Ii-17.1), in Order to Assess the Company’s Operational Activities Between January 1, 2015 and December 31, 2015 and to Provide Information to Investors.

Torunlar REIC Annual Report 20162

In 2016, total sales revenue amounted to TL 666 million, most of which was from

rental income. Rental income accounted for 53% and sales of residential and office

units accounted for 37% of total sales revenue generated in 2016.

Esteemed Shareholders,

Following the US elections in November 2016, uncertainty about the global economy continued to worsen, and there appeared stronger expectations that the expansionary fiscal policy in the USA would add momentum to growth and that the Fed would accordingly tighten its monetary policy faster than expected. As a result of these developments, in the final quarter of the year, interest rates headed upwards in the developed economies and the US dollar appreciated. The said development triggered a capital outflow from emerging countries to developed economies from November onwards.

In Turkey, the financial markets pursued a volatile trajectory in the last quarter of 2016 owing to this volatility in the global markets, which was coupled with various geopolitical developments and domestic uncertainty. In terms of the foreign exchange rate and market interest rates, Turkey decoupled negatively from other emerging economies. During this period, there was portfolio flight from Turkey, as from other emerging economies, and the flight was more apparent in the bond market than in the equity market. Owing to macro prudential policies to bolster the financial system, the belated impact of CBRT’s liquidity measures, and government incentives, there has been some recovery in credit volume in recent months. In the final quarter of 2016, growth in consumer credit and Turkish lira denominated commercial loans gained momentum, maintaining the mild increase in credit volume. Furthermore, thanks to government incentives to enterprises, there was a reduction in the interest rates of credits extended by banks to small and medium sized enterprises.

Figures for the final quarter of 2016 point to mild growth in economic activity, leaving aside the technical recovery effect due to the recuperation of workdays lost in the third quarter. While outstanding loans expanded as a result of the measures taken and incentives launched, demand for durable consumer goods was brought forward, resulting in a rise in private consumption. However, the demand for products other than durable consumer goods remained weak, and the recovery of private consumption affected only a limited number of sectors. The recovery in investment is even weaker than that in consumption spending. In light of these developments, we expect mild growth in domestic demand in the final quarter.

FROM THE CHAIRMAN

EBITDA Total Rental Income

TL 362 MILLION TL 352 MILLION


Torunlar REIC Annual Report 2016 3


It is considered that in the upcoming period, the current positive effect of terms of foreign trade on current deficit will decrease, yet the normalization in relations with Russia and the net depreciation of the Turkish lira will prop up net exports, thereby bolstering periodic growth rates. In the period ahead, it is expected that the mild recovery in economic activity will continue owing to the government’s supportive measures and incentives, although the tourism sector has yet to give signals of recovery. Nonetheless, the recently heightened perception of uncertainty may put a brake on domestic demand, via both consumption and investment. Doubts concerning the global growth outlook and developed economies’ monetary policies, the weakness of capital flows, and geopolitical developments create downside risks on economic growth in 2017, as they did in recent years. On the current account side, however, the improvement is expected to continue. Despite the uptick in commodity prices, the mild economic growth outlook will probably limit the increase in imports. Amelioration of relations with neighboring countries, the continued rise in the demand from EU countries, and the diversification of Turkey’s export markets are expected to further improve the current account balance, despite the adverse effect of various geopolitical developments.

On the other hand, as developments in tax regulation and the foreign exchange rate in the last quarter of 2016 brought forward the demand for certain goods such as automobiles and consumer durables, there was a visible recovery in consumer loans in the first quarter of 2017, which however is expected to lose some steam. Recently disclosed figures show that the economy experienced a remarkable slowdown in the third quarter of 2016. The government’s incentives and measures did bring about a certain recovery in domestic demand in the final quarter; however, this recovery was limited to a number of sectors and the economy displayed only mild growth in general. Indicators for the recent period suggest that an aggravation in Turkish lira’s depreciation and the overall perception of uncertainty may bring about a slowdown in domestic demand in the first quarter of the year. However, it is expected that, in the ensuing quarters, uncertainties and financial volatility will decrease, the economy will return to its basic trend, and display mild growth in 2017. Meanwhile, the sluggish recovery in tourism revenues, global economic outlook, uncertainty about developed economy monetary policies, and geopolitical developments create downside risks on economic activity.

We worked hard to maximize our financial and operational performance in line

with our 2016 budget and strategic goals.

Total Portfolio Value Total Market Value

TL 9.8 BILLION TL 2.1 BILLION

From the Chairman



Strong fiscal discipline has figured among the main factors reducing Turkish economy’s vulnerability to external shock in recent years. Furthermore, this advantage created by fiscal discipline has allowed the implementation of countercyclical fiscal policies during economic slowdowns such as the year 2016, without leading to a permanent deterioration in the budget. Nonetheless, any further changes in public spending and tax policy need to be evaluated according to their impact not only on the budget, but also on other macroeconomic variables such as domestic savings and inflation, so as to harmonize monetary policy with fiscal policy and bolster macroeconomic stability.

Meanwhile, we worked hard to maximize our financial and operational performance in line with our 2016 budget and strategic goals.

Important operations and financial results of our Company are presented below:

The Antalya plot on which Deepo Outlet Center is located was combined with neighboring plots of land so as to expand Deepo Outlet Center towards this larger area. In January 2016, the Company received the Construction Permit to start construction on the new shopping mall project as per Article 21 of Law on Zoning. The new shopping mall, which will be named Mall of Antalya and extend across almost 42,000 m2, will open its doors to customers in April 2017.

In 2016, total sales revenue amounted to TL 666 million, most of which was from rental income. Rental income accounted for 53% and sales of residential and office units accounted for 37% of total sales revenue generated in 2016. With the positive impact of Mall of İstanbul and Torun Tower, rental income from shopping malls and offices increased 13.5% year-over-year.

In 2016, our Company’s capital expenditure amounted to TL 757

million. Of this total, TL 231 million was invested in Torun Center, TL

402 million in 5.Levent, and TL 89 million in Mall of Antalya projects.


Our total assets which stood at TL 8.9 billion as of 31.12.2015, grew 17% to reach TL 10.4 billion as of 31.12.2016. The ratio of shareholders’ equity to total assets is 58%, while the ratio of total liabilities to total assets is around 42%. Of the Company’s total assets, 89% is comprised of investment properties, investments in associates and inventories, while 5% is comprised of cash and cash equivalents.

As a result, the Company posted TL 1.2 billion in profits, with the contribution of the rise in the value of investment properties by TL 1.3 billion. Furthermore, EBITDA (earnings before interest, taxes, depreciation, and amortization), which is a key indicator of the Company’s operational performance, was TL 361.9 million, and the EBITDA margin stood at 54.4%.

I would like to take this opportunity to thank our shareholders, customers, suppliers, business partners, managers, and employees.

Best regards,

Torunlar REICChairman Aziz TORUN

Total Sales Revenue Residence and Office Sales Revenue

TL 666 MILLION TL 243 MILLION

We achieved peak sales performance in the 5. Levent project, which we launched

in April 2015. Of the 2,061 residential units included in the first and second phase

of the Project, pre-sales contracts were signed for 1,309 units; and pre-sales revenue

amounted to TL 1.1 billion as of December 2016.

From the Chairman


* Torunlar REIC and Başkent Natural Gas data was calculated in accordance with the International Financial Reporting Standards

(IFRS); Torunlar Food data was calculated in accordance with the Tax Procedure Law.

Torunlar Group contributes to the sustainable development of the Turkish

economy and creates value for its shareholders through investments in the real

estate, energy and food industries. The Group relentlessly continues its business

development activities, by capitalizing on its deep-rooted business experience and

know-how.

TORUNLAR GROUP

Agribusiness17.17%

Real Estate60.45%Energy22.38%

Total Assets

TL 17.2 BILLIONNet Sales

TL 3.9 BILLION

Shareholders’ Equity

TL 8.7 BILLION

Agribusiness17.28%

Real Estate17.20%Energy65.52%

BREAKDOWN OF ASSETS BREAKDOWN OF SALES



• Second largest REIC in terms of portfolio value and market capitalization among the listed REICs on BIST in Turkey

• Best and most diversified portfolio• Over 452,000 m² of gross leasable area

Real Estate

TORUNLAR REIC

• 1.7 million of total customers• 3.6 billion m³ natural gas sales and distribution

volume • 11,456 km of grid length

Energy

BAŞKENT NATURAL GAS

• A leading company in processing oilseeds, soybeans, sunflowers, rice and sugar beets

• Ranked 187th in the İSO Top 500 Industrial Companies list (2015)

• In competition with leading multinationals such as Cargill, Bunge and Noble

Agribusiness

TORUNLAR FOOD


Operating in the Turkish real estate market since 1977, Torunlar Group established Toray Construction - the predecessor of Torunlar REIC - in 1996 to further expand real estate operations with retail, residential, office, and hotel development projects. The Company became a real estate investment company in 2008. The purpose of the Company is to invest in retail, residential, entertainment, and office property development projects.

Torunlar REIC is engaged in all stages of project development and management – including sourcing, land acquisition, project finance, obtaining permissions, project design, construction audits and inspections – in addition to sales and marketing. In addition to these basic services. The Company also carries out other operations after the completion of the projects, such as tenant mix and lease management, lease structuring, renewals and expansion. Additionally, it undertakes efforts to increase traffic to shopping malls, and maximize occupancy rates and rental income.

Its extensive knowledge and experience in the Turkish real estate sector provides Torunlar REIC with a clear view on urban development, demographic trends, and customer profiles in target markets, and with a business network, which enables the Company to find and buy inexpensive parcels of land for development. Strong relationships with local municipalities, contractors, sellers and other sector participants provide the Company access to available land and some development opportunities that international land developers cannot access.

Additionally, Torunlar REIC has an extensive network of local and international retail brands to create its tenant mix at the shopping malls, and a wide customer base for housing development projects. Capitalizing on the good reputation of the Torun Family in the Turkish market, Torunlar REIC builds on the quality and trust those tenants, customers and other players in the Turkish real estate sector associate with the Torunlar name.

Torunlar REIC’s key focus areas include developing and constructing large, comprehensive, and best-in-class shopping malls in major cities like İstanbul, Bursa, Antalya, Samsun and Ankara, and asset management.

As of December 31, 2016, 89.5% of the Company’s total consolidated assets of TL 10.4 billion consisted of mixed use development projects with high growth potential, such as residences, offices and hotels, and also lands for development and real estate projects.

TORUNLAR REIC IN BRIEF

Torunlar REIC is engaged in all stages of project development and management

including sourcing, land acquisition, project finance, obtaining permissions,

project design, construction audits and inspections – in addition to sales and

marketing.

Investments Total Assets

TL 757 MILLION TL 10.4 BILLION


11

Investments TL Million

72% INCREASE

2014 2015 2016

578

440

757

Pre-Sales TL Million

52% DECREASE

2014 2015 2016

110

785

379


VISION, MISSION AND STRATEGIC TARGETS

VISION

MISSION

To make Torunlar REIC a highly preferred brand both globally and nationally scales in the areas of investment, development and management of mixed-use residential and business centers that consist of shopping malls, entertainment venues, housing units, offices, hotels, logistics centers, commercial and industrial buildings; to undertake investments with high returns; and to ensure steady growth by giving first priority to transparency and reliability.

• To be the most trustworthy brand in developing living spaces such as homes, offices, hotels and shopping malls, and to become the name synonymous with the concept of high-quality living,

• To develop and build residential projects, shopping malls, hotels, entertainment and business centers that meet the needs and expectations of our customers to the maximum extent possible while maximizing the benefits for them,

• To attract and retain the best talent by offering employees a rewarding and satisfying work environment.

The main concern of Torunlar REIC is the development of best shopping malls in

their categories and the management of its assets.



STRATEGIC TARGETS

The Company aims to secure competitive advantage by pursuing the strategies outlined below:

• Developing retail-based mixed-use projects and retaining a focus on shopping malls,• Engaging in active and dynamic management of shopping malls,• Following developments in the real estate sector,• Capitalizing on opportunities in areas and property types that offer high growth and

development potential,• Developing crisis management, and turning crises into opportunities,• Playing a pioneering role in the sector, and developing exemplary projects,• Employing the latest technology in the real estate and other sectors in new projects so as to

create spaces that make life easier,• Moving the sector forward through the use of technology,• Combining international consultancy and know-how with our local experience to build the

projects of the future,• Keeping a close eye on opportunities that add value to provide the highest returns to our

shareholders,• Becoming a trusted real estate investment company preferred by investors by strengthening

its position in the sector and distributing the highest dividends.

Through strategic decision-making, the Board of Directors of Torunlar REIC aims to ensure optimal balance between risk, growth and income by adopting a rational and cautious approach to risk management; manages and represents the Company; and looks out for long-term corporate interests. The Board of Directors sets the strategic goals of Torunlar REIC, determines the need for personnel and financial resources, and oversees management performance.

The Board of Directors of Torunlar REIC holds four strategic meetings each year to evaluate the Company’s financial performance in comparison to the budget on a quarterly basis, oversees matters and developments of strategic importance, devises new strategies and makes investment decisions by taking into consideration management’s recommendations.

Torunlar REIC Board of Directors made decisions to ensure optimal

balance amongst risk, growth and income in the strategic meetings

of 2016 and monitored Senior Management’s performance in this

direction.


5. Levent, Istanbul’s newest neighborhood created by Torunlar REIC with an

investment of TL 2 billion, was deemed worthy of “The Best Transformation

Project” award at the “Sign of the City Awards” that designate the most successful

projects in the sector.

AWARDS AND CERTIFICATIONS

Mall of İstanbul, which has breathed new life into the Turkish retail sector with its unique architecture, the 350 stores and thousands of brands it hosts, and its groundbreaking novelties in entertainment as well as arts & culture, was selected “The Best Shopping Center in Europe” in the “Extra Large Shopping Malls” category by the International Council of Shopping Centers (ICSC). Since 1975, ICSC designates the most prestigious and popular shopping centers -new or renovated- across Europe at the ICSC Europe Conference held every year. Torunlar REIC’s CFO İsmail Kazanç and Torunlar REIC Executive Committee Member Zeynep Torun were present at the award ceremony organized in Milan on April 19.

5. Levent, Istanbul’s newest neighborhood created by Torunlar REIC with an investment of TL 2 billion, was deemed worthy of “The Best Transformation Project” award at the “Sign of the City Awards” that designate the most successful projects in the sector. Promising “a better life” with its unique location and concept, 5. Levent stands out as one of the most ambitious projects in Istanbul with its vast social areas. As part of the project, the Company also realizes the private sector’s largest ever power transmission system transformation project. Thanks to this 7 km transformation scheme, not only project residents but all Istanbulites will be relieved of the unwanted effects of the high-voltage transmission line in question.

The Torunlar REIC annual report 2015, which depicts in minute by minute photographs the daily life in the REIC’s projects across Turkey, left behind numerous competitors to garner the Bronze Prize in the photo category and the Honorary Award in the interior design category of the ARC Awards, considered to be the Oscars of annual report publishing. Furthermore, the annual report 2015 won two very special awards at the Galaxy Awards, also viewed as one of the top competitions in the field: The report garnered the Gold Prize being designated the very best REIC annual report across the world, and was also selected “The Best Non-Conventional Report” in its category in the European region. For the annual report, 14 photography majors from Mimar Sinan Fine Arts University, under the leadership of Assoc. Prof. Ozan Bilgiseren, had captured “moments” in completed or ongoing Torunlar REIC projects; their photographs were then brought together in a special layout placed as the introduction of the report. Setting an example in annual report design, the publication showcases the different daily lives across various Torunlar REIC projects through its unique lens.


Torunlar REIC continued to support to the “Bibliophile Parent” project that was

developed by the Books to Everyone Foundation in order to foster a love of reading

among the students of Darüşşafaka, and help them develop the habits of going to a

bookstore, reviewing a book, choosing, buying and reading a book.

CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES

In addition to many successful projects in the real estate sector, Torunlar REIC also carries out projects aimed at creating social value. In 2016, the Company undertook a number of valuable social responsibility initiatives, including:

“Bibliophile Parent” of Darüşşafaka’s Class 9/A: Torunlar REICTorunlar REIC continued to support to the “Bibliophile Parent” project that was developed by the Books to Everyone Foundation in order to foster a love of reading among the students of Darüşşafaka, and help them develop the habits of going to a bookstore, reviewing a book, choosing, buying and reading a book.

Becoming the “Bibliophile Parent” of Darüşşafaka’s class 9/A under the project, the Company has given all 25 of the students in the class the opportunity to use a monthly renewed TL 50 “Bibliophile Card”, and to choose their books at the bookstore, and read them regularly. With the help of this support, children had the opportunity to own their own personal library at a young age. Torunlar REIC employees went together, as Bibliophile Parents, with the students at suitable times to buy books, also had the opportunity to share their thoughts and feelings about books.

Torunlar REIC Postgraduate Scholarship ProjectTurkey’s most innovative REIC in terms of developing living spaces such as shopping malls, entertainment centers, residential areas, office space and hotels centered around humans and life, Torunlar REIC continued its scholarship program designed to raise highly competent professionals for the sector in 2016. In line with its corporate mission, the Company provides grants to students penning their Master’s theses and doctoral dissertations on topics related to Real Estate, Urbanization, Business Law, and Occupational Health and Safety at construction, law, architecture, urban and regional planning, and economics faculties of Turkish universities.

With a 30-year know-how in the construction industry and its motto “Worth Living, Worth Investing”, Torunlar REIC provided a monthly grant of TL 500 each to seven postgraduates students working on their theses in 2016 so as to support their projects that will add value to the real estate sector in the future.

Torunlar REIC continued its scholarship program designed to raise

highly competent professionals for the sector in 2016.


BOARD OF DIRECTORS

Seated Left to RightAziz TORUN, Mehmet TORUN

Standing Left to RightAssoc. Prof. Saim KILIÇ, Haluk SUR, Aziz YENİAY, Mahmut KARABIYIK, Prof. Dr. Ali ALP



AZİZ TORUN Chairman and CEO

Born in Kemah, Erzincan in 1950, Mr. Torun graduated from the Faculty of Economics at İstanbul University, in 1975. He worked as an inspector at the Ministry of Labor and Social Security between 1976 and 1982. He then decided to work in the private sector and quit his job in 1982. Together with his brother Mehmet Torun, he laid the foundations of the Torunlar Group of Companies. He currently serves as Chairman and Member of the Board of Directors of several subsidiaries of Torunlar Group. He is also Chairman of the Board of Directors at GYODER (The Association of Real Estate and Real Estate Investment Companies).

MEHMET TORUN Vice Chairman

Born in 1953 in Ağaçsaray, near Kemah in Erzincan. He started his business career at an early age. He is currently the Chairman of the Board of Directors of Torunlar Food Industry and Trade Inc., Torunlar Energy Industry and Trade Inc. and Başkent Natural Gas Distribution REIC; all of which are within Torunlar Group. He is the Vice Chairman of the Board of Directors of Kütahya Sugar Factory Inc., Torun Construction Industry and Trade Inc., Vice Chairman of the Board of Directors of Nokta Construction Inc. and Member of the Board of Directors of Netsel Tourism Inc. He is also a founding partner of Torunlar Real Estate Investment Company.

MAHMUT KARABIYIKMember of the Board of Directors

Born in 1961, Afyon – Sincanlı. Graduated from İstanbul University Faculty of Law in 1982. Since completing his lawyer internship in 1983, he has been working as a lawyer particularly in the areas of Commercial Law, Corporate Law, Banking and Capital Markets Law and Enforcement-Bankruptcy Law. Mr. Karabıyık is a member of the Board of Directors of Yeni Gimat REIC and Başkent Natural Gas Distribution REIC.

HALUK SURIndependent Member of the Board of Directors

Born in 1956 in Bandırma, Haluk Sur received his Bachelor’s degree from Boğaziçi University, Faculty of Engineering, Department of Civil Engineering, and his Master’s degree from Boğaziçi University, Institute of Environmental Sciences. In 1981, he continued his studies in Environmental Engineering at University of Washington, thanks to a NATO scholarship. He worked as Founder, Chairman and CEO of İhlas REIC, one of Turkey’s very first real estate investment companies. Sur also served the Association of Real Estate Investors GYODER as Vice Chairman in 2004 and as Chairman from 2005 until 2007. Currently, Haluk Sur is Chairman of REDİ Real Estate Development and Investment, Executive Committee Member of the Association of Real Estate Investors (GYODER), Board Member of Torunlar Real Estate Investment Company, Bimeks Founding Partner and Board Member, Founder and Board Member of Housing Developers and Investors Association, Chairman of Gulf Property Marketing GPM and Executive Committee Member of Forum İstanbul.


PROF. DR. ALİ ALPMember of the Board of Directors

Born in 1964 in Rize, he graduated with a Bachelor’s degree in Business Administration from the Faculty of Political Sciences at Ankara University in 1987, before going on to complete a Master’s degree in Business Management at Marmara University in 1991, and a Doctorate in Business Administration at Ankara University in 1995. Having started his career as an assistant specialist at the Undersecretariat of the Treasury in 1987, he then worked as a Specialist at the Capital Markets Board between 1988 and 1996. After 1996, he served as a Consultant to the Minister of Economy, Vice President at General Directorate of Public Housing (TOKİ), an Assistant Adviser at the Ministry of Culture and Tourism, Executive Committee Member at World Tourism Organization, Chairman of Emlak REIC and Board Member at TRT, and Council Member at Turkish Accounting Standards Council. He worked as Faculty Member at Maastricht Faculty of Business Administration, and University of Illinois at Urbana- Champaign. He is currently a Faculty Member at Economy and Technology University founded by the Union of Chambers and Commodities of Turkey, and gives lectures on finance at Bilkent University and Vienna University of Economics and Business as a Visiting Scholar. Furthermore, he is Board Member at Yeni Gimat REIC, Başkent Natural Gas Distribution REIC, and Özak REIC.

AZİZ YENİAYIndependent Member of the Board of Directors

Born in Malatya in 1963. Aziz Yeniay completed his undergraduate and postgraduate studies in the Faculty of Civil Engineering at Yıldız Technical University. After working as a freelance engineer and constructor, he was elected to the Cabinet as a Member in Güngören district in 1992, and continued as Cabinet Member in Esenler district in 1992 and in Zeytinburnu district in 1999. Between 1995-2009, he was the Head of the Istanbul Metropolitan Municipality Zoning Commission, he worked as the Mayor in Küçükçekmece district for two consecutive terms from 2004 until the local elections in March 2014. He started working freelance by withdrawing from politics prior to the 2014 elections. During his tenure of office, he conducted several projects and implementations on planned urbanization, minimization of urbanizational risks, composition of urban awareness, green buildings and environmental values, holistic urban planning, urban regeneration projects, sustainable cities and urbanizational living. He is a partner and Board Member at Group companies engaged in real estate portfolio management and real estate development.

ASSOC. PROF. SAİM KILIÇ Independent Member of the Board of Directors

Born in 1972 in Ardahan, Dr. Kılıç graduated from Ankara University, Faculty of Political Science, Department of International Relations with the highest honors in 1993. He received an M.S.F. degree from the University of Illinois at Urbana-Champaign in 2001, and an MBA from Ankara University, Faculty of Political Science with the highest honors in 2002. He studied “Financial Regulations and Market Abuse” at the University of Greenwich, England during the 2005-2006 academic year on an EU scholarship. He received his PhD on Accounting and Finance in 2007, and became an Associate Professor in Finance in 2012. Moreover, he served in senior positions at CMB, Borsa İstanbul and CRA for over 20 years. He has published a large number of books and articles on capital markets, stock exchanges and corporate governance. Currently, he works as a full-time faculty member at Kemerburgaz University, Faculty of Economics and Administrative Sciences, Department of Business Administration.

Board of Directors



Information related to the seven Board Members, who were elected to office for a period of one year at the 2015 Ordinary General Assembly Meeting held on May 24, 2016, is provided below.

Name/Surname Title Independent/ Non-independent Assigned Date

Aziz TORUN Chairman and CEO Non-independent MemberSince the

establishment of the Company

Mehmet TORUN Vice Chairman Non-independent Member 03.05.2010Prof. Dr. Ali ALP Member Non-independent Member 08.02.2010Mahmut KARABIYIK Member Non-independent Member 21.01.2008Haluk SUR Member Independent Member 29.05.2014Assoc. Prof. Saim KILIÇ Member Independent Member 26.05.2015Aziz YENİAY Member Independent Member 29.05.2014

At the General Assembly, it has been decided to pay TL 4,000 net in attendance fee to the members of the Board of Directors, including independent members.

In the year 2016, TL 2,079 thousand has been paid to the Board of Directors and top management for remuneration and benefits.

Apart from the said attendance fee decided upon at the General Assembly, the Company did not provide any premium, bonus or other such financial benefits to Board Members. The remuneration of Independent Board Members does not include share options or a payment plan based on the Company’s performance. During the year, the Company did not extend any debt, loans, collaterals etc. for Board Members. Articles of Association, Articles 14 - 19 outline the principles concerning the formation, powers and responsibilities of the Board of Directors.

As per Articles of Association, Articles 19, the Board of Directors has to convene at least once a month, and can be invited to a meeting by the Chairman or Vice Chairman when deemed necessary for the affairs of the Company. The Board convened 44 times in 2016.

Board of Directors Committees The committee members and their roles are presented in the below table.

Corporate Governance Committee

Audit Committee

Early Risk Detection

Committee

Nomination Committee

Remuneration Committee

President Saim KILIÇ Saim KILIÇ Haluk SUR Aziz YENİAY Haluk SURMember Ali ALP Aziz YENİAY Aziz YENİAY Saim KILIÇ Ali ALPMember Şerife CABBAR Ali ALP Aziz YENİAYMember İsmail KAZANÇ Saim KILIÇMember Remzi AYDIN

The working principles of the committees are published on the Company web site.


Board of Directors’ Duties outside the CompanyThere are no rules regulating the task and duties of the Members of the Board of Directors outside the Company, and thus some members do carry out tasks and duties outside the Company as members of the Board of Directors at other companies. The tasks and duties of the Members of the Board of Directors outside the Company and their duties and term of office in the Company are specified in their résumés.

Members of the Board of Directors:• Aziz Torun serves as Chairman and Board Member at various Group companies,• Mehmet Torun serves as Chairman and Board Member at various Group companies,• Mahmut Karabıyık is a Lawyer in private practice, and serves as Board Member at Başkent

Natural Gas Distribution REIC and Yeni Gimat REIC,• Prof. Dr. Ali Alp is a University Faculty Member, and serves as Board Member at Yeni Gimat

REIC and Özak REIC,• Aziz Yeniay is a Partner and Board Member at Group companies engaged in real estate

portfolio management and real estate development,• Assoc. Prof. Saim Kılıç is a University Faculty Member, and serves as Board Member at Özak

REIC.

The Company and the Members of the Board of Directors did not make any transaction contrary to the provisions of applicable legislation; and there are no administrative or legal sanctions imposed the Company and the Members of the Board of Directors.

Board of Directors



INDEPENDENCE STATEMENTS

Due to the fact that I am nominated, at the General Assembly Meeting of your Company, as a candidate for assuming the role of Independent Member, I do declare that:

• Within the last five years, no executive employment relation that would give important duties and responsibilities, or no capital relation or significant commercial relation has been established between myself, my spouse, my second degree relatives by blood or by marriage and (i) the Company and (ii) the affiliates of the Company, and (iii) the juridical persons affiliated, in terms of management or capital, with the shareholders who have directly or indirectly 10% or more shares in the Company capital,

• Within the last five years, I have not worked for or have not been a member of the Board of Directors at the companies that provide auditing, rating and consulting services for the Company, or companies that carry out all or part of the activities and organization of the Company within the framework of the signed agreements,

• Within the last five years, I have not been a partner, employee, or a member of the board of directors at any of the firms that provide a significant amount of products and services to the Company,

• I have no shares in the Company capital,

• I do have the professional training, knowledge, and experience that will help me properly carry out the tasks and duties I will assume as a result of being an Independent Member of the Board of Directors,

• Neither am I currently nor will be working after being elected as a member, fulltime in public institutions and organizations (except working as an academician at the university),

• I am considered a resident in Turkey according to the Income Tax Law,

• I do have the strong ethical standards, professional standing and experience that will help me positively contribute to the activities of the Company, and remain neutral in conflicts of interest between the Company and the shareholders, and that will help me make decisions freely by taking the rights of the stakeholders into consideration,

• I will be able to spare the sufficient time for the activities of the Company to an extent that will help me pursue the activities of the Company and fulfil the requirements of my tasks and duties.

Aziz YENİAY












Assoc. Prof. Saim KILIÇ

Independence Statements













Haluk SUR


EXECUTIVE BOARD

Aziz TORUN Chairman and CEO

İlham İnan DÜNDAR Chief Operating Officer of Malls

İsmail KAZANÇ Chief Financial Officer

Remzi AYDINChief Construction and Project Management Officer



Aziz TORUN Chairman and CEO

Aziz Torun’s résumé is given on page 19.

İsmail KAZANÇ Chief Financial Officer Born in Tekirdağ in 1972. Mr. Kazanç graduated from the Faculty of Business Administration at Bilkent University in 1994. He completed a MSc. Degree in International Financial Markets at the University of Southampton in 2001. He worked as an Inspector on the Board of Internal Auditors between 1994 and 2002, and as an Assistant Treasury Manager between 2006 and 2008 at Türkiye İş Bankası, and as the Group Manager in the Treasury Department at İş Bankası between 2006 and 2008. He worked as an Assistant General Manager at Arab-Turkish Bank between 2008 and 2009. Since 2009, İsmail Kazanç has been the CFO at Torunlar REIC. Also, Mr. Kazanç is a Member of the Board of Directors at Başkent Natural Gas Distribution REIC, Torunlar Energy Industry and Trade Inc., Torunlar Food Inc., Torunlar Natural Gas Inc. and TCMA (Turkish Capital Markets Association).

İlham İnan DÜNDAR Chief Operating Officer of Malls

Born in 1960, Eskişehir. Graduated from Anadolu University Faculty of Economics and Administrative Sciences – Kütahya School of Administrative Sciences in 1984. In 1985, he obtained a certificate of specialization in Business Administration from İstanbul University Institute of Business Economics. Worked as Team Leader in the Financial Affairs Department at Tekfen Holding Tekfen Manufacturing and Engineering Inc. between 1987 – 1989; Technical Accounting Manager at Çukurova Holding Inc. between 1989 – 1991; Assistant General Manager at Dempa Forestry Products Inc. between 1991 – 1994. He also worked as General Manager at Şevket Demirel Holding Demponel Forestry Products Industry and Trade Inc. between 1994 – 1996, at Diksan Knitwear Industry and Trade Inc. between 1996 – 2000, Zafer Plaza Mall Management Inc. between 2000 – 2003, and Jones Lang Lasalle Property Management Services between 2006 – 2007. In 2007, Mr. Dündar became a General Coordinator in Torun Mall Investment Management Inc. Since 2008, he has worked as Chief Operating Officer of Malls at Torunlar REIC.

Remzi AYDINChief Construction and Project Management Officer

Born in 1969, Elazığ. Graduated from Fırat University Construction Engineering in 1992. Started working as a Construction Engineer at Torunlar Group in 1993. Since then, he has worked in different positions within the Group. Currently, Mr. Aydın works as Chief Construction and Project Management Officer at Torunlar REIC.


CAPITAL AND SHAREHOLDING STRUCTURE

The Company has accepted the registered capital system in accordance with the provisions of the Capital Markets Law and shifted to this system with the n.1/17 permission given on January 8, 2008 by the Capital Markets Board. The permission given by the Capital Markets Board for the Ceiling of Registered Capital, is valid between 2013-2017 (five years). Even if the upper limit of the registered capital is not reached by the end of 2017, Board of Directors must be authorized, in order to make a decision after 2017 for a capital increase, by the General Assembly for a new period after getting permission from the Capital Markets Board for the previously permitted ceiling of registered capital or for a new ceiling to be determined. In case of not getting this authorization, the Company will be deemed to be out of the registered capital system.

No rights issue was made within the period.

Shareholder Structure

Name Surname/Trade Name Group Type Share Percent (%)

Share Amount (TL)

Aziz TORUN A Registered 20.03 100,164,736.61Aziz TORUN C Registered 17.37 86,870,600.45Mehmet TORUN B Registered 20.03 100,156,875.00Mehmet TORUN C Registered 17.37 86,870,600.45TORUNLAR FOOD INC. A Registered 0.01 70,754.46TORUNLAR FOOD INC. B Registered 0.01 70,754.46Mahmut KARABIYIK B Registered 0.00 7,861.61AKAY ULUS C Registered 0.00 4,283.00Listed Shares C Registered 25.16 125,787,816.96TOTAL CAPITAL 100.00 500,004,283.00

The Company’s free-floating shares have been listed on the İstanbul Stock Exchange (Borsa İstanbul) since October 21, 2010. As of December 31, 2016, the capital and shareholding structure of the Company is as follows:

Capital Structure

Paid-up Capital Registered Capital

TL 500,004,283 TL 1,000,000,000



The paid-up capital of the Company, is TL 500,004,283.00 (five hundred million four thousand two hundred eighty three Turkish lira), divided into 500,004,283.00 (five hundred million four thousand two hundred eighty three Turkish lira) shares each with a par value of TL 1 (one Turkish lira).

The paid-up capital is composed of:a) Group A shares with a nominal value of TL 100,235,491.07 representing 100,235,491.07 registered shares,b) Group B shares with a nominal value of TL 100,235,491.07 representing 100,235,491.07 registered shares,c) Group C shares with a nominal value of TL 299,533,300.86 representing 299,533,300.86 registered shares.

Group A and B shares have the privilege to nominate in the election of the Members of the Board of Directors, within the framework of the principles stipulated in Article 9 of the Articles of Association. Two of the Members of the Board of Directors are elected from among the candidates nominated by Group A shareholders while two members are elected from among the candidates nominated by Group B shareholders; the other three members are elected from among the candidates nominated at the General Assembly. Independent Members of the Board of Directors are nominated and elected in conformity with the Capital Markets Board regulations regarding the Independent Members of the Board of Directors.

Share RepurchaseBetween September 12, 2011 and March 18, 2013, our Company repurchased 273,295 of its own shares through the stock market under the buyback program. After the subsequent bonus issue, the number of repurchased shares rose to 610,033.


AGENDA OF TORUNLAR REIC 2016 ORDINARY GENERAL ASSEMBLY MEETING

DATED MAY 23, 2017

1. Opening and appointing the Meeting Council,2. Authorizing the Meeting Council solely to sign the General Assembly Meeting Minutes,

and having the Meeting Minutes signed by the Meeting Council on behalf of the General Assembly,

3. Presenting and discussing the Annual Report of the Board of Directors regarding the accounts and activities of 2016,

4. Presenting the summary of the Independent External Audit Report issued by the Independent Audit Company Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (Başaran Nas Independent Audit and Financial Consulting Inc.),

5. Presenting, discussing and approving 2016 Financial Statements,6. Exactly approving or rejecting the proposal to distribute the profit or approving it after

making amendment to the proposal,7. Releasing of the members of the Board of Directors from their activities in 2016,8. Re-electing the members of the Board of Directors whose term of office had ended, and

determining their term of office,9. Determining the amount of honorarium for the Chairman and the Members of the Board of

Directors,10. Discussing and approving the Independent Audit Firm selected by the Board of Directors

for 2017 within the framework of the Turkish Commercial Code and Capital Markets Board regulations,

11. Informing the General Assembly about the aid and donations made by the Company in 2016, determining the upper limits of the aid and donations to be made in 2017, determining the upper limits of the aid and donations to be made in 2018 within the period until the 2017 Ordinary General Assembly is held,

12. Informing the General Assembly about the transactions made within 2016 with “Related Parties”, within the scope of the Capital Markets Board regulations,

13. Informing the General Assembly about the Collaterals, Pledges and Mortgages given by the Company in favor of third parties as per the 4th paragraph of the 12th Article of the Capital Markets Board’s Communiqué n.17.1 on Corporate Governance Principles,

14. Informing the General Assembly about whether the Members of the Board of Directors perform for their own account or for the account of others, the activities – as per the Articles 395 and 396 of the Turkish Commercial Code – that are related to a commercial business that is within the scope of Company’s field of activity, and whether they are partners in companies carrying out such activities, or whether they perform other transactions,

15. Authorizing the Members of the Board of Directors to perform for their own account or for the account of others the activities – as per the Articles 395 and 396 of the Turkish Commercial Code – that are related to a commercial business that is within the scope of Company’s field of activity, and to become partners in companies carrying out such activities, and perform other transactions,

16. Wishes and requests,17. Closing.



PROFIT DISTRIBUTION POLICY

Principles regarding the profit distribution of our Company are specified in Article 38th of the Articles of the Association.

The Profit Distribution Policy of our Company, determined within the framework of the Capital Markets Board regulations and the Company strategies, was presented for shareholders’ information, and it was publicly announced. The Profit Distribution Policy of our Company presented below.

1. In principle, it has been decided to distribute dividends every year in accordance with the Turkish Commercial Code, Capital Markets Law, Articles of Association of the Company and other applicable regulations.

2. According to the aforementioned principles, it is desirable to distribute 50% of total distributable profit in dividends. However, in due consideration of the investment plans of the Company, the progress of these investments, the funding needs for investments, and any extraordinary or unexpected developments in the economy, the yearly distribution of the said 50% of the distributable profit may be postponed.

3. The dividend distribution may be performed in cash or in the form of bonus shares, via the addition of the distributable profit to the capital. If the General Assembly decides to distribute dividends, the dividend shall be distributed as specified in the relevant decision, and at the latest, by the end of the year when the General Assembly is held. The General Assembly may decide on the exact date of the distribution within this interval.

4. The Board of Directors opinion on whether or not to distribute dividends is submitted to the approval of the General Assembly. The final decision belongs to the General Assembly.

5. The distributable profit is calculated according to the Turkish Commercial Code, Capital Markets Law and relevant current and future regulations, Corporate Tax Law and relevant current and future regulations, the Articles of Association and General Assembly decisions.

6. The profit share is distributed equally to all shares in good standing as of the date of distribution, irrespective of their dates of issuance and acquisition.

7. The Articles of Association does not provide for any privileges in dividend distribution.8. The Articles of Association allows for the distribution of advance dividends, which may

be distributed to shareholders in line with capital markets legislation.9. In matters not covered here, the rules outlined in the Communique on Dividends issued

on the Official Gazette dated 23.01.2014 and numbered 28891 apply.

In case the Board of Directors presents a proposal to the General Assembly for not making profit distribution, information about the reasons for not making profit distribution, and about the method of using the profit not to be distributed, will be: i) given to the shareholders at the General Assembly, ii) included in the annual report, and iii) publicly announced.


2016 PROFIT DISTRIBUTION TABLE

1. Paid-up/Issued Capital 500,004,2832. Total Legal Reserve (as per Statutory Records) 589,026,640Any Privilege in Dividend Distribution if any according to the Articles of Association: None 2016

Capital Markets Board (IFRS)

Statutory

3. Pre-tax Profit 1,172,384 ,000 178,406,6884. Tax Provision (-)5. Net Profit (=) 1,172,384,000 178,406,6886. Previous Year Losses (-)7. General Legal Reserves (-) 8,920,334 8,920,3348. Net Distributable Profit (=) 1,163,463,666 169,486,3549. Donations within the Year (+) 3,520,00010. Net Distributable Profit including Donation for

Distribution of First Dividend 1,166,983,666

11. First Dividend to the Shareholders 25,000,214 -Cash 25,000,214 -Bonus Shares -Total

12. Dividend to Privileged Shareholders -13. Other Dividend Distributed

Dividend to BoD MembersDividend to EmployeesDividend to Non-Shareholders

14. Dividend to Holders of Usufructuary Shares15. Second Dividend to Shareholders 25,000,21416. General Legal Reserves 2,500,021 -17. Statutory Reserves18. Special Reserves19. EXTRAORDINARY RESERVES 1,110,963,217 116,985,90520. Other Sources to be Distributed

DIVIDEND PAYOUT RATIO TABLEINFORMATION ABOUT THE DIVIDEND PER SHARE

GROUP

TOTAL DIVIDEND AMOUNT

DISTRIBUTED (TL)

DIVIDEND PER SHARE FOR TL 1 NOMINAL VALUE

AMOUNT (TL) RATIO (%)Gross 50,000,428.30 0.10000 10.0Net 50,000,428.30 0.10000 10.0THE RATIO OF DISTRIBUTED DIVIDEND TO THE NET DISTRIBUTABLE PROFIT INCLUDING DONATIONSDIVIDEND AMOUNT DISTRIBUTED TO SHARESHOLDERS (TL)

TOTAL DIVIDEND AMOUNT DISTRIBUTED/NET DISTRIBUTABLE PROFIT (%)

50,000,428.30 4.3


Torunlar REIC aims to complete its current projects with a total investment

expenditure of TL 1.5 billion within the next three years, and bring its sales up to

TL 6.1 billion.

Total Portfolio Value TL Billion

11% INCREASE

2012 2014 2013 2015 2016

4.5

6.9

5.8

8.8 9.

8Market ValueTL Billion

28% INCREASE

2012 2014 2013 2015 2016

1.6 1.

7

1.4

1.6

2.1

RevenueTL Million

7% ıncrease

2012 2014 2013 2015 2016

225

773

344

628

666

Residence and Office Sales RevenueTL Million

3% DECREASE

2012 2014 2013 2015 2016

FINANCIAL HIGHLIGHTS

85

535

194 25

0

243



Breakdown of Portfolio(%)

As per relevant regulations, properties make up 89% of Torunlar REIC’s’s assets

while money and capital market instruments and subsidiaries make up 5%. In

parallel to the appreciation of investment properties, the Company caught up

significant capital gain.

Mall and Office Rental IncomeTL Million

14% INCREASE

2012 2014 2013 2015 2016

Other IncomeTL Million

3% INCREASE

2012 2014 2013 2015 2016

TL 9.8 MILLION

Land Marina8% 0%

Office Ongoing Projects

Mall Cash

26% 2%

46% 5%

Completed Units Other12% 1%

102

177

116

310 35

2

38

61

34

69 71


Our total assets which stood at TL 8,862,509 thousand as of 31.12.2015, grew 17%

to reach TL 10,377,680 thousand as of 31.12.2016. The ratio of shareholders’ equity

to total assets is 58%, while the ratio of external resources to total assets is around

42%.

(TL 000) 2011 2012 2013 2014 2015 2016

Sales 162,909 225,031 343,769 773,240 628,038 665,677

Residence & Office Sales 37,758 84,691 193,451 534,824 249,687 243,273

Mall & Office Rental 91,969 102,232 115,990 177,190 309,864 351,652

Other 33,182 38,108 34,328 61,226 68,487 70,752

EBITDA 76,841 133,939 157,623 398,358 368,872 361,922

EBITDA Margin 50.5% 61.9% 47.4% 51.5% 58.7% 54.4%

Net Profit 177,312 336,885 190,556 1,057,892 953,604 1,172,384

Market Value 889,280 1,610,000 1,380,000 1,725,000 1,625,000 2,075,018

Portfolio Value 3,818,285 4,465,030 5,802,776 6,938,584 8,760,058 9,772,422

Net Asset Value 2,532,906 2,847,035 2,987,591 3,957,423 4,861,088 5,973,549

Capex 206,831 338,872 495,888 578,448 440,241 757,077

Net Debt 444,931 524,529 1,537,415 1,777,147 1,901,906 2,535,224

Loan to Property Value Ratio (LTV)

14.90% 13.96% 35.75% 30.21% 25.78% 27.30%

Financial Highlights



EVALUATION OF 2016 OPERATING RESULTS ON REICs

Our Company’s financial statements have been prepared in accordance with the Capital Markets Board’s “Communiqué on Principles of Financial Reporting in Capital Markets” (Serial: II-14.1), published in the Official Gazette dated June 13, 2013 and numbered 28676, and Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) issued by the Public Oversight, Accounting and Auditing Standards Authority (“POA”) pursuant to Article 5 of the Communiqué, and relevant appendices and comments.

In keeping the accounting records and preparing the statutory financial statements, the Company abides by the requirements of the Turkish Commercial Code (“TCC”), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The attached financial statements, which reflect the fair value measurements of financial assets and liabilities, are based on historical cost accounting and are in Turkish lira. These statements are the result of corrections and classifications made to the statutory TMS/TFRS records based on historical cost accounting, in order to ensure an accurate presentation.

38 Torunlar REIC Annual Report 2016

FINANCIAL STATEMENTSThe following figures were taken from the Independently Audited Financial Statements for the accounting period January 1-December 31, 2016 annexed to this report.

COMPREHENSIVE INCOME STATEMENT

(TL 000) 2015 2016 ChangeSales 628,038 665,677 6.0%

Residence & Office Sales 249,687 243,273 -2.6%Mall & Office Rental 309,864 351,652 13.5%Other 68,487 70,752 3.3%

Cost of Goods Sold (250,444) (273,417) 9.2%Residence & Office (152,924) (164,332) 7.5%Mall & Office Rental (12,306) (14,495) 17.8%Other (85,214) (94,590) 11.0%

Gross Profit 377,594 392,260 3.9%Gross Margin 60.1% 58.9% -1.20 pp

Gross Margin (Residence & Office) 38.8% 32.4% -6.30 pp

Gross Margin (Mall & Office) 74.2% 74.2% -0.05 pp

Operating Expenses (35,083) (48,468) 38.2%General & Administrative Expenses (27,028) (39,037) 44.4%Marketing & Sales Expenses (8,055) (9,431) 17.1%

Other Income (Expenses) 10,971 (1,705) NAFair Value Gains/(Losses) on Investment Property

1,001,470 1,310,797 30.9%

Operating Profit 1,354,952 1,652,884 22.0%Operating Profit excluding Fair Value Gains on Investment Property

353,482 342,087 -3.2%

Dividends Received from Associates 14,392 19,075 32.5%EBIT 367,874 361,162 -1.8%EBIT Margin (%) 58.6% 54.3% -4.32 pp

Depreciation 998 760 -23.8%EBITDA 368,872 361,922 -1.9%EBITDA Margin (%) 58.7% 54.4% -4.37 pp

Gain (Loss) from Associates 35,747 6,770 -81.1%Net Financial Interest Income (Expense) (66,931) (69,058) 3.2%Other Net Financial Income (Expense) (11,175) (1,675) -85.0%Foreign Exchange Gain (Loss) (370,273) (432,895) 16.9%Profit before Tax 956,712 1,175,101 22.8%Corporate Tax (3,108) (2,717) -12.6%Net Profit 953,604 1,172,384 22.94%Net Profit Margin (%) 151.8% 176.1% 24.28 pp

Evaluation of 2016 Operating Results on REICs


39Torunlar REIC Annual Report 2016

FINANCIAL STATEMENTS

(TL 000) 2015 2016 ChangeCash and Cash Equivalents 903,447 511,204 -43.4%Financial Assets 0 0 NATrade Receivables + Other Receivables 198,341 206,477 4.1%Inventory 1,131,546 1,066,462 -5.8%Prepaid Expenses 100,980 96,466 -4.5%Other Financial Assets 11,915 1,198 -89.9%Other Current Assets 2,853 19,475 582.6%CURRENT ASSETS 2,349,082 1,901,282 -19.1%Trade Receivables 103,734 70,926 -31.6%Investments in Associates 321,388 328,158 2.1%Investment Property 5,751,336 7,753,884 34.8%Tangible Fixed Assets 2,680 2,962 10.5%Intangible Fixed Assets 553 568 2.7%Inventory 174,059 137,135 -21.2%Prepaid Expenses 92,468 91,734 -0.8%Other Financial Assets 0 0 NAOther Non-Current Assets 67,209 91,031 35.4%NON-CURRENT ASSETS 6,513,427 8,476,398 30.1%TOTAL ASSETS 8,862,509 10,377,680 17.1%Short-Term Financial Liabilities 751,182 144,096 -80.8%Short-Term Portion of Long-Term Financial Liabilities

149,170 1,104,235 640.3%

Short-Term Other Financial Liabilities 4,195 4,450 6.1%Trade Payables 170,227 141,262 -17.0%Other Payables 15,606 33,420 114.1%Tax Payables 0 360 NADeferred Income 259,735 935,496 260.2%Other Current Liabilities 28,014 23,466 -16.2%CURRENT LIABILITIES 1,378,129 2,386,785 73.2%Financial Liabilities 1,905,001 1,798,097 -5.6%Trade Payables 0 0 NAProvision for Employment Termination Benefits

749 799 6.7%

Deferred Income 717,542 218,450 -69.6%NON-CURRENT LIABILITIES 2,623,292 2,017,346 -23.1%Share Capital 500,000 500,004 0.0%Share Premium 25,770 25,770 0.0%Legal Reserves 37,852 53,732 42.0%Treasury Shares -1,195 -1,195 0.0%Retained Earnings 3,345,057 4,222,854 26.2%Net Profit for the Period 953,604 1,172,384 22.9%SHAREHOLDERS' EQUITY 4,861,088 5,973,549 22.9%TOTAL LIABILITIES AND EQUITY 8,862,509 10,377,680 17.1%


KEY FINANCIAL INDICATORS

2015 2016 ChangeTotal Net Debt (TL 000) 1,901,906 2,535,224 33.30%Average Loan Term (Years) 5 5 -Average Overall Interest Rate* 4.26% 4.73% 0.47 ppLeverage (Financial Loans as % of Total Assets) 31.7% 29.4% -2.30 ppNet Debt/Equity Ratio 39.1% 42.4% 3.32 ppNet Debt/Assets Ratio 21.5% 24.4% 2.97 ppEquity/Assets Ratio 54.9% 57.6% 2.71 ppLoan/Property Value Ratio (LTV) 25.8% 27.3% 1.53 ppInterest Coverage Ratio (times) 5.5 5.2 -4.91%Net Debt/EBITDA (times) 5.16 7.00 35.86%Net Debt/Market Capitalization (%) 117.0% 122.2% 5.14 ppNumber of Employees 175 234 33.71%

* Excl. Loans in TL




KEY FINANCIAL RATIOS (TL 000)

Torunlar Reic/Financial Ratios 31.12.2015 31.12.2016

Current Ratio (Current Assets/Current Liabilities)Current Assets 2, 349, 082 1, 901, 282Current Liabilities 1, 378, 129 2, 386, 785Current Ratio 170.45% 79.66%

Acid Ratio (Current Assets - Inventories)/Current Liabilities)Current Assets - Inventories 1, 217, 536 834, 820Current Liabilities 1, 378, 129 2, 386, 785Acid Ratio 88.35% 34.98%

Cash Ratio (Cash and Cash Equivalents + Securities)/Current Liabilities)

Cash And Cash Equivalents + Securities 903, 447 511, 204Current Liabilities 1, 378, 129 2, 386, 785Cash Ratio 65.56% 21.42%

Debt/Equity Ratio (Total Liabilities/Equity)Total Liabilities 4, 001, 421 4, 404, 131Equity 4, 861, 088 5, 973, 549Debt/Equity Ratıo 82.32% 73.73%

Current Liabilities/Total Liabilities RatioCurrent Liabılities 1, 378, 129 2, 386, 785Total Liabilities 4, 001, 421 4, 404, 131Current Liabılities/Total Liabilities Ratio 34.44% 54.19%

Leverage Ratio (Total Liabilities/Total Assets) Total Liabilities 4, 001, 421 4, 404, 131Total Assets 8, 862, 509 10, 377, 680Leverage Ratio 45.15% 42.44%

Equity/Total Liabilities and Equity RatioEquity 4, 861, 088 5, 973, 549Total Liabilities and Equity 8, 862, 509 10, 377, 680Equity/Total Liabilities and Equity Ratio 54.85% 57.56%


INVESTMENT EXPENDITURES 01.01.2016-31.12.2016/(TL 000)Korupark Shopping Mall 352Torium Shopping Mall 8,229Mall of İstanbul 3,885Mall of İstanbul Phase 2 Hotel-Office-Convention Center

21,905

Mall of İstanbul Offices 17Torun Tower 255Torun Center 231,101Paşabahçe Land 343Mall of Antalya 89,0035. Levent 401,907Kemankeş 74Korupark Independent Areas 6TOTAL 757,077

Total assets, which stood at TL 8,862,509 thousand as of December 31, 2015, rose 17% to TL 10,377,680 thousand at year-end 2016. Equity-to-asset ratio was 58%, and the leverage ratio stood at around 42%.

Of the Company’s total assets, 89.5% is comprised of investment properties, investments in associates and inventories, while 5% is comprised of cash and cash equivalents.

As of December 31, 2016, the Company’s cash balance is TL 511 million. Of the Company’s TL 511 million in liquid assets, TL 136 million is invested in foreign currency denominated deposits (USD 29 million and EUR 9 million).

Committed pre-sales brought in notes receivables amounting to TL 226 million. Of this total, TL 214 million originated from the 5. Levent project, TL 5 million from Mall of İstanbul, TL 1 million from Torun Center, and TL 1 million from the Korupark Phase III housing project.

Short- and long-term inventories decrease by 8% by year-end, totaling TL 1,204 million. The Torun Center and 5. Levent projects make up 96% of the total inventory.

The Company made investment expenditure worth TL 757 million in 2016, of which, TL 231 million corresponds to the Torun Center project, TL 402 million to 5. Levent, and TL 89 million to Mall of Antalya.

Under the Mall of İstanbul project, 1,077 residential units, 133 office units, and 21 flat offices have been delivered to customers; as a result, the Company generated TL 624 million in final sales.

At Torun Center, officers started to be delivered to their owners from December 2015 onwards. As of December 31, 44 offices, 31 horizontal offices and 65 residential units were delivered, yielding sales revenues of TL 416 million. The delivery of offices and residences in the project continue.




The performance of the 5. Levent project, where sales started in April 2015, remains very strong. Until December 2016, preliminary sales contracts were signed for 1,309 housing units out of a total of 2,061 units in the first and second phases, resulting in a preliminary sales revenue of TL 1,097 million.

The value of investment properties increased from TL 5,751 million in December 2015 to TL 7,754 million in December 2016 due to investment expenditure and the completion of the Torun Center project.

The VAT receivables stand at TL 104 million.

On the liabilities side, the main item is financial debt (bank loans and leases), totaling TL 3,046 million, 59% of which are long-term loans. 76.3% of bank loans are denominated in US dollars, 21.5% in Euro and 2.2% in Turkish lira. The Company’s bank loans in original currency totaled USD 658 million, EUR 236 million and TL 135 million in 2015; before shrinking to USD 637 million, EUR 170 million and TL 65 million at year-end 2016.

As of December 31, 2016, the weighted average cost of funding - loans in Turkish lira excluded - stood at 4.73%; the cost of US dollar-denominated loans was 5.08%, while the cost of Euro-denominated loans was 3.47%.

The Company’s net debt stood at TL 2,535 million. The net short foreign exchange position went from TL 2,585 million (EUR 196.1 million and USD 674.6 million) at year-end 2015 to TL 2,860 million (EUR 186 million and USD 618 million) at year-end 2016.

Shareholders’ equity climbed 23% to TL 5.974 million thanks to the rise in the profit for the period.

On the income statement side, sales rose by 6% year-over-year to reach TL 666 million. In the said period, rental income accounted for 53% and housing units sales for 37% of the total sales revenue. In shopping mall and office rental income, there was a 13.5% year-over-year increase due to the effect of Mall of İstanbul and Torun Tower.

Sharp increases in exchange rates are gradually reflected in rents denominated in a foreign currency.

In 2016, retail sales efficiency per square meter at the shopping malls in our portfolio went up 7.8% on a like-for-like basis.

The Company operated with a 58.9% gross margin in 2016, compared to a 60.1% gross margin in 2015. The average gross profit margin in the sale of residential units and offices stands at 32.4% and at 74.2% for offices and shopping malls in 2016.

The Company’s operating expenses rose 38.2% year-over-year to TL 48.5 million. General administrative expenses increased 44.4% while marketing and sales expenses dropped 17.1%.


The Company’s dividend income for the fiscal year 2015 amounted to TL 5.7 million from Netsel Marina, and TL 13.4 million from Yeni Gimat.

EBITDA (earnings before interest, taxes, depreciation, and amortization), which is a key indicator of the Company’s operational performance, was TL 361.9 million, and the EBITDA margin stood at 54.4%.

Due to the sharp depreciation of the Turkish lira, TL 433 million was recorded as non-operating expense (foreign exchange loss) from the Company’s net cash position of TL 2,860 million.

As a result of the year-end independent appraisal, there was a TL 1,311 million increase in the value of investment properties.

In consequence, the Company closed the year 2016 with TL 1,172 million in profits.

INVESTMENT EXPENDITURES PROJECTION (TL MILLION)

INVESTMENT Total Budget

Actual Expenditure to

Date

2017 2018 2019 2020

MOİ Phase 2 Hotel-Office-Convention Center Project

232.5 81.8 71.1 66.7 12.9

Torun Center 681.7 616.8 37.0 27.95. Levent 1,550.4 604.8 538.0 225.1 126.3 56.2Paşabahçe Project 317.5 3.8 105.2 143.9 64.6Mall of Antalya Project 134.2 85.4 48.8TOTAL 2,916.3 1,392.7 800.0 463.6 203.8 56.2

>23% fixed, 77% floating>41% short-term, 59% long-term

* The table represents the outstanding loan principal balances as of 2016. The Company has TL 511 million (27% foreign currency, 73% TL) of

cash and cash deposits.

TL

USD

Euro

Outstanding Bank Loans as of 2016*

Million

2016 2017 2018 2019 2020 2021

700

600

500

400

300

200

100

0

65

626

528

404

270

212

183

198

159

128

102

76 50




Sales

Residence-Office

Long-term EBITDA Forecast TL Million

Long-term Sales ForecastTL Million

2016 2017F 2018F 2019F 2020F 2021F

2016

666

1,15

9

2,42

3

2,52

9

1,92

4

1,77

6

243

625

1,79

3

1,80

4

1,09

9

868

352 44

6 532 71

3

619 78

8

61971 89 98 105

113

120

2017F 2018F 2019F 2020F 2021F

2,0001,800

3,000

1,600

2,500

1,400

2,000

1,200

1,500

1,000

1,000

800600400200

500

0

0

362

Rental

Other

646

1,24

7 1,73

8

1,06

7

1,04

5

EBITDA (earnings before interest, taxes, depreciation, and amortization), which is

a key indicator of the Company’s operational performance, was TL 361.9 million,

and the EBITDA margin stood at 54.4%.


INFORMATION ON STOCK PERFORMANCE The Company’s free float has traded on Borsa İstanbul (BIST) since October 21, 2010. As of December 31, 2016, the closing price of REIC shares in the closing session of BIST was TL 4.15.

According to our Company’s consolidated financial statement dated December 31, 2016, total assets amounted to TL 10,377,680 thousand, total equity (net asset) stood at TL 5,973,549 thousand, and the equity value (net asset) per share was TL 11.95 (our Company has 500,004,283 shares). TL 31.12.2015 31.12.2016 ChangeBIST 100 (XU100) 71,727 78,139 8.94%BIST REIC (XGMYO) 37,751 42,248 11.91%TRGYO 3.25 4.15 27.69%

As of December 31, 2016, the BIST Real Estate Investment Trusts Index (XGMYO) stood at 42,248 points while the BIST 100 Index stood at 78,139 points. When compared to same period of previous year, the BIST National 100 Index dropped 8.94% (in Turkish lira), and Torunlar REIC shares increased 27.69% while the REIC Index rose 11.91%.

IPO Date (October 21, 2010) = 100

210.00

Jan2015

Jan2016

Feb 2015

Feb2016

Mar2015

Mar2016

Apr2015

Apr2016

May2015

May2016

June2015

June2016

July2015

July2016

Aug2015

Aug2016

Sep2015

Sep2016

Oct2015

Oct2016

Nov2015

Nov2016

Dec2015

Dec2016

190.00

170.00

150.00

130.00

110.00

90.00

70.00

50.00

30.00

0

186.63

ISGYO

SNGYO BIST100 (BIST100 NATIONAL INDEX)

EKGYO TRGYO (TORUNLAR REIC)XGMYO (BIST REIC INDEX)

171.51

160.47

145.93151.10 150.00

166.86166.28

176.74 173.84

128.43125.54

110.13

97.60

104.35

113.98

141.91

162.14155.40

133.24

126.87

113.65

125.35

107.00

134.52 129.17139.10

128.40 123.82

122.66126.25 114.76116.75

105.33 101.81104.30

119.61

109.04108.57 110.91124.78

117.68

115.02105.57

109.60110.57

120.73

119.61 122.57

122.66

46.9842.98 44.12

38.39 35.53 36.10 34.38 36.10 33.23 33.23

Stock Performance Benchmark




NET ASSET VALUE TABLE

(TL 000) 31.12.2015 31.12.2016

Real Estate, Real Estate Projects, Real Estate Rights

Appraisal Value

Total Portfolio Value Share

(%)Appraisal

Value

Total Portfolio

Value Share (%)

YoY Appraisal

Change (%)Landbank 604,061 8% 737,649 8% 22.1İstanbul Eyüp (5,720.90 m²) 17,471 0% 19,423 0% 11.2İstanbul, Başakşehir, Kayabaşı Land (60,833.20 m²) 33,260 0% 49,246 1% 48.1İstanbul Paşabahçe Land (70,644.88 m²) 452,460 6% 607,330 7% 34.2Antalya Kepez Lands – Antalya 100,870 1% 61,650 1% -38.9Buildings 6,740,631 86% 7,975,657 86% 18.3Zafer Plaza Shopping Mall-Bursa (72.26% share) 312,857 4% 329,020 4% 5.2Korupark Shopping Mall- Bursa 1,007,213 13% 1,201,798 13% 19.3Torium Shopping Mall – İstanbul 522,572 7% 525,190 6% 0.5Deepo Outlet Center Shopping Mall+Mall of Antalya – Antalya 292,988 4% 513,370 6% 75.2Korupark Residences Phases 1&2 - Bursa, 7 Offices (10,125.47 m²) + 205 Residential storage units (6,152.39 m²) + 1 power center (349.14 m²) 25,340 0% 21,730 0% -14.2Kemankeş Boutique Hotel Building – İstanbul 45,000 1% 51,731 1% 15.0Nishİstanbul – İstanbul - 2 Offices and 7 retail stores (2,248 m²) 14,345 0% 15,853 0% 10.5Korupark Residences Phase 3 - Bursa, 35 Residences + 1 parking lot + 1 power center (8,434.39m²) 31,088 0% 23,184 0% -25.4Torium Residences - İstanbul 2 units (210 m²) 794 0% 484 0% -39.0Mall of İstanbul Shopping Mall – İstanbul 1,617,984 21% 1,640,914 18% 1.4Mall of İstanbul 10 Residences (712.90 m²), 49 Offices (Tower) (8,208.94 m²), 16 Flat Offices (3,393.41 m²) – İstanbul 89,192 1% 97,348 1% 9.1Torun Tower (Office Building) – İstanbul 1,178,280 15% 1,492,410 16% 26.7Torun Center Project - Office, Retail (68,674 m2) – İstanbul* 1,028,194 11%Real Estate Projects 160,091 2% 206,861 2% 29.2Mall of İstanbul Phase 2 (Hotel, Convention Center, Office) – İstanbul 160,091 2% 206,861 2% 29.2Parent Company Total Real Estate Portfolio 7,504,783 96% 8,920,167 96% 18.9


Associates’ Real Estate PortfolioAppraisal

Value

Total Portfolio

Value Share (%)

Appraisal Value

Total Portfolio

Value Share (%)

YoY Appraisal

Change (%)ANKAmall and Crowne Plaza Yeni Gimat GYO A.Ş. (14.83% share) 244,507 3% 251,152 3% 2.7%Netsel Marina, Netsel Turizm Yatırımları A.Ş. (40.60% share) – Marmaris 41,080 1% 38,356 0% -6.6%Bulvar Samsun AVM TTA. Gayrimenkul Yat. ve Yönetim A.Ş. (40% share) – Samsun 66,241 1% 51,543 1% -22.2%Associates’ Total Real Estate Portfolio 351,828 4% 341,051 4% -3.1%Total Real Estate Portfolio 7,856,611 100% 9,261,218 100% 17.9%

Money and Capital Market InstrumentsAppraisal

Value

Total Portfolio

Value Share (%)

Appraisal Value

Total Portfolio

Value Share (%)

YoY Appraisal

Change (%)Demand/Time Forex Deposit 155,151 2% 135,610 1% -12.6%Demand/Time TL Deposit 748,296 9% 375,594 4% -49.8%Total Money and Capital Markets Instruments 903,447 10% 511,204 5% -43.4%Total Portfolio Value 8,760,058 100% 9,772,422 100% 11.6%

Other Assets 102,451 605,258 490.8%

Liabilities 4,001,421 4,404,131 10.1%

Net Asset Value 4,861,088 5,973,549 22.9%

Number of Shares 500,000,000 500,004,283 0.0%

Net Asset Value (NAV) per share 9.72 11.95 22.9%

Share Closing Price 3.25 4.15 27.7%

Note: 5. Levent project with TL 664 million of appraisal value is not included in the portfolio table as it is not annotated on the title deed.

* Torun Center 2015 appraisal value is the value estimated for the whole project.

Net Asset Value Table (TL 000)



70% of rental income, as determined in lease agreements, is fixed in US dollars and 30% in Euro. Lease information per property is as follows:

Real Estate Asset Tenant Name Starting Date TenureAnnual Rental Income (Usd)*

Annual Appraisal

Value (Usd)Zafer Plaza Various Various Various 9,942,000 6,637,000Korupark Shopping Mall Various Various Various 26,842,000 23,552,000Torium Shopping Mall Various Various Various 11,411,000 8,850,000Deepo Outlet Center Various Various Various 6,687,000 6,478,740Mall of İstanbul Various Various Various 40,636,000 32,319,745Torun Tower Various Various Various 20,456,000 17,592,269Total Rental Income 115,974,000 95,429,754

* CBRT’s buying exchange rate was used in calculating rental income.

As of 31.12.2016, the Company’s rental income is TL 352 million.

Summary information presented here has been derived from the Company’s financial statements in accordance with Article 16 of the “Communiqué on Principles of Financial Reporting in Capital Markets” (Serial: II-14.1), published in the Official Gazette dated June 13, 2013 and numbered 28676; and prepared in compliance with the relevant provisions of the “Communiqué on the Principles Regarding Real Estate Investment Companies” (Serial: III-48.1), published in the Official Gazette dated May 28, 2013 and numbered 28660, and the “Communiqué Revising the Communiqué on the Principles Regarding Real Estate Investment Companies” (Serial: III-48.1a), published in the Official Gazette dated January 23, 2014 and numbered 28891, concerning controls and compliance with portfolio limitations on REICs.

As per relevant regulations, properties make up 89% of the Company’s assets while money and capital market instruments and subsidiaries make up 5%. Accordingly, our Company manages a portfolio that remains within the 50% minimum real estate investment limit, and as of December 31, 2016, our portfolio does not include any assets that contradict the limitations set forth in the Communiqué.

COMPLIANCE WITH PORTFOLIO LIMITATIONS ON REICs


As of December 31, 2016, 89.5% of the Company’s total consolidated assets of

TL 10.378 million consisted of mixed use development projects with high growth

potential, such as residences, offices and hotels, and also lands for development

and real estate projects.

Torunlar REIC Portfolio Appraisal Value as of December 31, 2016-Breakdown by City (Except Cash Assets)

ASSETS OF TORUNLAR REIC

Muğla 38.4 - 0%

Bursa 1,575.7 - 17%

İstanbul 6,769.4 - 73%

Samsun51.5 - 1%

Antalya575.0 - 6%

Ankara251.2 - 3%

52 Mall of İstanbul

64 Torium Shopping Mall İstanbul

76

88

56 Torun Center İstanbul

68 Nishİstanbul İstanbul

80

92

60 Torun Tower İstanbul

72 Korupark Shopping Mall Bursa

A S S E T S O F T O R U N L A R R E I C

84

96 Netsel Marina Muğla

Korupark Residences Phases 1, 2 and 3 Bursa Zafer Plaza Bursa Deepo Outlet Center Antalya

ANKAmall - Crowne Plaza Hotel Ankara

Bulvar Samsun Shopping Mall Samsun


MALL OF İSTANBUL

İSTANBUL

The Biggest Mixed Project of

Turkey

GLA (Mall)

Total Residential Units

Total Number of Offices

Operational Date

154,902 M2

1,081

181

MAY 23, 2014




Operational Assets

MALL OF İSTANBUL - İSTANBUL

The Mall of İstanbul project consists of 1,081 residential units, 181 offices and 24

flat offices. As of December 31, 2016, 1,077 residential units, 133 offices and 21 flat

offices have been sold. As a result, the Company posted TL 624 million in final

sales.

Mall of İstanbul, which consists of a shopping mall, residential and office units, is Turkey’s largest mixed-use project. Mall of İstanbul is attracting attention by being an urban transformation project. The Mall of İstanbul Project is built next to Mahmutbey booths on the TEM Motorway. Located only 10 kilometers from Atatürk International Airport, the side is also very close to a future metro line, whose project design phase is complete.

Designed as a new lifestyle center for İstanbul, Mall of İstanbul has a total construction area of 725,845 m². The shopping mall has a 350 retail store and 4,000 vehicle parking capacity, with entertainment and food and beverage areas covering 30% of the space. The Shopping Mall, which has a GLA of 154,902 m², contains a themed indoor amusement park of 10,045 m², a movie theater complex of 8,962 m² with 16 screens and 3,050-seat capacity, an exhibition area of 9,481 m² and a 700-seat conference/multi-purpose hall. Half of the project was designed as a shopping mall, with 40% as sellable residential area and 10% office space.

The Mall of İstanbul project consists of 1,081 residential units, 181 offices and 24 flat offices. As of December 31, 2016, 1,077 residential units, 133 offices and 21 flat offices have been sold. As a result, the Company posted TL 624 million in final sales.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., the total value of the remaining residential units, offices and flat offices amounts to TL 97,348,000.

Holding the title of the shopping mall with the most department store retailers in Turkey with 12 department stores, Mall of İstanbul also stands out by having the most children’s stores. Mall of İstanbul is home to many “firsts” in Turkey like the first two-story store of LCW in a shopping mall, the biggest Toyzz Shop with a 1,600 m² store, De Facto’s first two-story store in İstanbul, Debenhams’ second new concept store in Turkey, first home store of H&M, first Rebel brand store by Mango and the first full concept store of Victoria’s Secret in Turkey with a 1,000 m² space.

The appraisal value of Mall of İstanbul, according to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., is TL 1,640,914,000.

Mall of İstanbul currently operates with a 92% occupancy rate. In 2016, MOİ welcomed 13.1 million visitors and hosted 2.5 million cars in the parking area. 94% of the rental income at Mall of İstanbul is in US dollars and 5% is denominated in Euros.



American brand Build-a-Bear, French Decathlon, Orchestra; the British Miss Selfridge, Danish Ecco, Italian Carnevale, Intimissimi, Swiss Victorinox, German Media Markt, Kryolan and Spanish Pablosky are the international brands that are now tenants in the shopping malls owned by Torunlar REIC for the first time. Mall of İstanbul also draws attention with its entertainment concept. Mall of İstanbul is the home of Turkey’s first themed indoor amusement park, MOİPARK.

Ownership

Torunlar REIC (100%)

Construction Cost

TL 791 Million

Start of Construction

March 2011

Date of Completion

April 2014

Operational Date

May 23, 2014

Number of Stores

350

Occupancy Rate

92%

Average Lease Term (as of December 2016)

5.4 years

Main Tenants

5M Migros, Zara, Media Markt, Koçtaş, Teknosa, Bimeks, Boyner, Debenhams, H&M, Victoria’s Secret, LC Waikiki, Decathlon, FLO, Koton

Leasable/Sellable Area

Shopping mall GLA: 154,902 m2 Residential Units GSA: 121,426 m2 Office Tower GSA: 34,241 m2 Flat Office GSA: 5,091 m2

Appraisal Value

Shopping mall TL 1,641 million (USD 472.6 million)Residential/Office/Flat Office TL 97.3 million (USD 28 million)

Leasehold/Freehold Status

Freehold

Rental Income + Common Area Income

TL 155,103,000

Number of Visitors

13.1 million

www.mallofistanbul.com.tr


TORUN CENTER

İSTANBUL

An “A” Class Project in the

Heart of City

Residence

Tower Offices and Flat Offices

Retail

Operational Date

77,938 M2

82,158 M²

15,312 M²

2016

Operational Assets




Torun Center is being designed as a mixed-use project on the land of the former Ali Sami Yen Stadium. Equipped with features to meet all the requirements of a modern life, the residential units of the Project vary from 100 m² 1-bedroom units to 425 m² 4-bedroom units. Composed of three blocks, two 42-story residential blocks and one 36-story office block, the Project also has 3-story car parking with one of the parking floors reserved for the municipality. The design of the blocks, which are placed at different positions, is inspired from the concept of “tropism”, which means the orientation of plants toward the sun. Thanks to this design, all four sides of the three buildings have panoramic views of the city extending from the Bosphorus to the Sea of Marmara. Through the Project, İstanbul will enjoy a modern town square. The areas below ground level were planned as office floors with terraces and gardens. In addition, the entrance area of the Project is designed as a 10,000 m² town square enriched with restaurants and cafes. On the other hand, the Büyükdere Street of the Project is designed in a way to increase the integration of the Project with the city.

At Torun Center, delivery of offices began in December 2015, and that of residences in 2016. As of 31.12.2016, 65 housing units, 44 tower offices and 31 flat offices were delivered, yielding final sales revenue of TL 416,315 thousand.

The appraisal value in the 2016 report by Epos Property Consulting and Valuation Inc. is TL 2,062,625,000 (USD 594,057,000).

TORUN CENTER İSTANBUL

Composed of three blocks, two 42-story

residential blocks and one 36-story office

block, the Project also has 3-story car

parking with one of the parking floors

reserved for the municipality.

Operational Assets



Ownership



3Q 2012

Completion Date

4Q 2015 (Office Tower and Flat Offices2016 (Residence Tower)

Estimated CAPEX

TL 682 million

Land Area

33,615.15 m2

Sellable and Gross Leasable Area

77,938 m2 (Residence)82,158 m2 (Tower Offices and Flat Offices)15,312 m2 (Retail)

Appraisal Value

TL 2,063 million (USD 594.1 million)

www.toruncenter.com


TORUN TOWER

İSTANBUL

The Project that Combines

the Business World with

Comfort

GLA

Operational Date

66,000 M2

NOVEMBER 2014

Operational Assets




TORUN TOWER İSTANBUL

Designed as an A Class office project, Torun Tower rises on a 15,000 m² of land as

a 34-story building consisting of 66,000 m² of office space.

Torun Tower is located on the main street of Büyükdere in Şişli, the most expensive commercial district in İstanbul. With Torun Tower, comfort and efficiency standards of the business world are changing. Designed as an A Class office project, Torun Tower rises on a 15,000 m² of land as a 34-story building consisting of 66,000 m² of office space. With office options offered by Torun Tower ranging from 350 m² to 1,000 m², the pace of work is changing in the business world. İstanbul gained a work environment exceeding its usual standards. Located just 10 m from the Gayrettepe Metro Station, Torun Tower offers two different office types: tower and flat. The tower office, with an average office floor space of 1,700 m², aims to be İstanbul’s largest leasable tower office floor space. Two flat office floors, created with garden and terrace concepts, consist of office units ranging between 800 m² and 1,900 m². The construction of the Torun Tower project in Gayrettepe started in 2011 and was delivered to DenizBank in June 2014. As the largest office space rental in Turkey to date, a total of 60,023 m² of the Torun Tower Project, excluding the top four floors to be reserved for

the use of Torunlar REIC, was rented out to DenizBank for a period of 10 years in February 2014. On January 11, 2014, DenizBank relocated its headquarters to Torun Tower.

Bringing new vitality to the office concept with an exceptional location, unique architecture and an A Plus status, Torun Tower was deemed worthy of LEED Gold Certification in July 2014, having fulfilled LEED criteria related to sustainable spaces, water efficiency, energy and environment, materials and resources, as well as inner air quality.

Since DenizBank has rented all the floors in Torun Tower except the top four, a 93% occupancy rate was used in the appraisal report. Under the lease agreement between DenizBank and Torunlar REIC, DenizBank has assumed the management of the property.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., its appraisal value is TL 1,492,410,000.

Total Number of Floors

34Occupancy Rate

93%

Operational Assets



Ownership


Construction Cost

TL 135.6 Million


December 2011

Date of Completion

June 2014

Occupancy Rate

93%

Rental Income

TL 61,723,000

Appraisal Value

TL 1,492 million (USD 429.8 million)


Freehold

www.toruntower.com


TORIUM SHOPPING MALL

İSTANBUL

Shopping Mall that has the

Most Convenient Parking

and Shopping Opportunities

in the Area

GLA

Operational Date

87,873 M2

OCTOBER 30, 2010

Operational Assets




TORIUM SHOPPING MALL İSTANBUL

Torium pioneers a new trend in the retail and shopping mall sector with the

concept that 25% of leasable area is entertainment and catering areas, in an

enclosed area of 256,000 m².

Torium, a mixed-use shopping mall and residential project, is located in the city’s most densely populated region covering the Beylikdüzü, Esenyurt, Gürpınar, Bahçesehir, Küçükçekmece, Florya and Büyükçekmece districts. Opened in October 2010 at Haramidere Junction on the D100 (E5) motorway, Torium is easily accessible through various public transport alternatives. With a parking space having a capacity of 2,200 cars, Torium boasts the distinction of having the most convenient parking and shopping opportunities in the area. Torium pioneers a new trend in the retail and shopping mall sector with the concept that 25% of leasable area is entertainment and catering areas, in an enclosed area of 256,000 m². With this concept, entertainment and catering areas accounted for 25% of the total leasable area. With Turkey’s first and only snow center, Snowpark, Torium earned recognition across the country. With the Starpark funfair, designed according to an entertainment concept appealing to every age in a 3,500 m² enclosed area, and Cinetech Movie Theatre, having a capacity of 1,927 seats with nine screens and the eight-line bowling alley, Torium stands out as one of the primary attraction centers in İstanbul.

The performance arts center Torium Sahne, which can accommodate 300 people, became operational as of end-2015.

In order to make the best use of the young and working population advantage of the region, we created a powerful mix of stores at Torium. For the first time in shopping malls, stores had wide showcases through an 11 meter axis interval that provide brands with the opportunity to present themselves in wider spaces. Torium is a spacious shopping mall with its large atrium and galleries, bright frontage that makes maximum use of daylight, water pools and rich landscape. In addition, Torium is the first and only shopping mall in Turkey that has LEED certification. Torium operates with an occupancy rate of 77%. In 2016, Torium welcomed a total of 9.3 million visitors and 1.7 million vehicles.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., the appraisal value of Torium Shopping Mall is TL 525,190,000. 92% of the monthly rental income is in US dollars and the remaining 8% is denominated in Euros.

Total Number of Visitors Total Number of Stores

9.3 MILLION 149

Operational Assets



Ownership


Construction Cost

TL 221 Million

Total Number of Stores

149

Occupancy Rate

77%

Main Tenants

Migros, Bimeks, Boyner, H&M, Marks & Spencer, MacFit, LCW, Teknosa, Koton, De Facto, Özdilek, Toyzz Shop

Appraisal Value

TL 525.2 million (USD 151.3 million)


3.7 years


Freehold

GLA

87,873 m2


TL 49,137,000

Total Number of Visitors

9.3 million

www.torium.com.tr


NISHİSTANBUL

İSTANBUL

A Project that Connect the

Business Areas with Life

Areas

Operational Date

NOVEMBER 2010

Operational Assets




NISHİSTANBUL İSTANBUL

The offices range from 270 m² to 1,080 m² and are highly sought after, especially

for firms engaged in international trade due to Nishİstanbul’s proximity to the

airport.

Nishİstanbul, located in Yenibosna, Bahçelievler on the European side of İstanbul, 1.5 km from Atatürk Airport and by the side of the E5 motorway, is a mixed-use project composed of residential, office and retail space. The project was run by the Torunlar-Özyazıcı Joint Venture. Torunlar REIC’s share in the project is 60%. Some 585 housing units have been built and sold in the Nishİstanbul project. Construction of the project, consisting of three residential blocks, an office block and retail units, was completed in October 2010. Following completion of the project, the project partners shared the remaining unsold units among them. Currently, the joint venture is in the process of liquidation.

Thanks to its central location, the project features a combination of both living and business space. The offices range from 270 m² to 1,080 m² and are highly sought after, especially for firms engaged in international trade due to its proximity to the airport.

Its appraisal value is TL 15,853,000 according to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc.

Total Number of Flats Total Number of Offices

585 63

Operational Assets



Ownership

Torunlar REIC (60%)


Freehold

Construction Cost

TL 79.5 Million


2008

Number of Residential Units/Sellable Area

585/53,204 m2

Number of Office Units/Sellable Area

63/16,925 m2

Number of Retail Units/Sellable Area

52/10,937 m²

Appraisal Value*

TL 15.9 million (USD 6 million)

www.nishistanbul.com

*Appraisal value is the value of the remaining units.


KORUPARK SHOPPING MALL

BURSA

Life-Centre

of Bursa

GLA

Operational Date

71,267 M2

2007

Operational Assets




KORUPARK SHOPPING MALL BURSA

Korupark Shopping Mall continues to lead the industry in Bursa through its

renewed mix and quality of the stores introduced as a result of in depth sectoral

evaluations. Currently, there are many major national and international brands

in the queue willing to open stores in Korupark.

As the second project of Torunlar Real Estate Investment Company in Bursa, Korupark Shopping Mall has proved since day one that it is not just a shopping mall, but also a lifestyle center with the new brands, new shopping habits and events that were introduced to Bursa for the first time.

Korupark Shopping Mall continues to lead the industry in Bursa through its renewed mix and quality of the stores introduced as a result of in depth sectoral evaluations. Currently, there are many major national and international brands in the queue willing to open stores in Korupark.

Opened in May 2007 as second investment in Bursa of Torunlar REIC, Korupark is among the 20 largest shopping malls in Turkey. Korupark is located on the west side of the city and close to the region’s development axis and highway connection roads. It is accessible by public transportation through buses, light rail transit and minibuses. Korupark is located on the Bursa - Mudanya highway, the road that connects the city to resort districts and to the ferry port that provides the connection to İstanbul, South Marmara and the Aegean regions. With its size, complete mix of

shops, spacious architecture and customer satisfaction approach, Korupark is one of the major attraction centers not only in Bursa, but also in the whole South Marmara region.

As the shopping mall with the longest frontage to a main street in Turkey, Korupark also is distinguished as a mixed-use project. Our Korupark Residences and Korupark Terrace projects, the most prestigious residential projects of Bursa, are preferred by families in A and B socio-economic status. This is another factor that increases the appeal of Korupark Shopping Mall.

Located just one kilometer from the city and the region’s main highway artery, Korupark boasts an occupancy rate of 99%.

Korupark’s most important attraction for visitors is its retail store mix. As a result, it is critical to correctly develop this mix to remain ahead of the competition. Korupark’s main goals are to preserve the current tenant base, to replace inefficient stores with those in higher demand, and to sign deals with brands much-awaited by the inhabitants of Bursa before new shopping malls do so.

Total Number of Stores Occupancy Rate

190 99%

Operational Assets



Ownership


GLA

71,267 m2

Construction Cost

TL 77.3 Million

Occupancy Rate

99%

Number of Stores

190

Main Tenants

Kipa, Koçtaş, Zara, Boyner, Bimeks, LCW, FLO

Appraisal Value

TL 202 million (USD 346.1 million)


1.9 years


Freehold


TL 98,816,000

Number of Visitors

11.5 million

www.korupark.com.trThe Shopping Mall contains two car parks (one underground park with a capacity of 2,500 cars and one outdoor parking with a 500 car capacity), a hypermarket (12,000 m²), a DIY store (5,127 m²), a movie theater complex (with nine screens) and an entertainment area (an amusement park and a children’s play center).

In 2016, Korupark Shopping Mall welcomed 11.5 million visitors and 3.6 million vehicles.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., the appraisal value of Korupark Shopping Mall is TL 1,201,798,000.


KORUPARK RESIDENCES PHASES

1, 2 AND 3 BURSA

First Private, Gated

Community in Bursa

Operational Assets




KORUPARK RESIDENCES PHASES

1, 2 AND 3 BURSABursa, Korupark Residences is located

in one of the newly developing districts of

the city, and the value of this location is

increasing every day.

Located on the Bursa-Mudanya highway, Korupark Residences is an integral part of the mixed-use project consisting of a shopping mall and residential units. Built and offered for sale in three separate phases as the first private, gated community in Bursa, Korupark Residences is located in one of the newly developing districts of the city, and the value of this location is increasing every day.

Korupark Residences Phase 1 consists of six blocks (343 residential units, gross floor area: 57,119 m²); Phase 2 consists of seven blocks (403 residential units, gross floor area: 66,721 m²). All residential units completed in these two phases have been sold.

Korupark Terrace (Phase 3) is designed as a luxurious residential project on the land next to Korupark Shopping Mall and Korupark Residences (Phases 1 & 2). Consisting of seven blocks and 678 residential units, Korupark Terrace offers different types of apartments ranging from 1-bedroom to 4-bedroom units, and has a total of 102,213 m² of floor area. The construction permit for the project was obtained in 2011 and deliveries began in the fourth quarter of 2012. In the 3. Phase, 643 out of 678 housing units were sold as of 31.12.2016 (gross area of 95.638 m²) and delivered to the owners. There remain 35 units in the inventory. As of 31.12.2016, according to the appraisal report prepared by Epos Property Consulting and Valuation Inc., the value of Korupark 3. Phase is TL 23,184,000.

Total Number of Residential Units

678

Operational Assets




Construction of Korupark Residences started in 2006; Phase 1 was completed in 2008, Phase 2 in 2009, and Phase 3 was completed in 2012.

Units Sold

100% - Phase 1 and 2 95% - Phase 3

Appraisal Value*



Freehold

Number of Units/Sellable Area

678 units/102,213 m2 residences

www.korupark.com.tr

*Appraisal value is the total value of remaining units in Phase 3.


ZAFER PLAZA

BURSA

At the Heart of Bursa with

100% Occupancy Rate

GLA

Operational Date

23,449 M2

1999

Operational Assets




ZAFER PLAZA BURSA

In 2016, Zafer Plaza welcomed 12.1

million visitors and 612 thousand

vehicles.

The rental and management operations of Zafer Plaza, which opened in October 1999, are performed by Zafer Plaza İşletmecilik A.Ş. Located in downtown Bursa, Zafer Plaza has an occupancy rate of 100% and holds the Turkey’s “Best Shopping Mall” award for the year 2000.

Having celebrated its 17th anniversary in 2016, Zafer Plaza is the first shopping mall in Bursa built to world-class standards and scale. Deriving strength from its location, Zafer Plaza maintains its strong position in the market. In 2016, Zafer Plaza welcomed 12.1 million visitors and 612 thousand vehicles.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc. the appraisal value of Zafer Plaza is TL 455,314,000; nearly 70% of the monthly rental income is in US dollars and the remaining 30% is denominated in Euros.


120

Operational Assets



Ownership

Torunlar REIC (72.26%)

Construction Cost

TL 18.4 million

GLA

23,449 m2 (REIC’s Share: 16,944 m2)

Occupancy Rate

100%

Number of Stores

120

Main Tenants

Boyner, Teknosa Migros, Koton, Bimeks, Mango, Estetik International, FLO, Nevale, LCW

Appraisal Value (Share of TRGYO)



2.4 years


Freehold


TL 30,000,000

Number of Visitors

12.1 million

www.zaferplaza.com.tr


DEEPO OUTLET CENTER

ANTALYA

The Right Address for All

Brands

GLA

Operational Date

18,132 M2

2004

Operational Assets




DEEPO OUTLET CENTER ANTALYA

Deepo Outlet takes advantage of its location across from Antalya Airport in the

best possible way. With the flight information boards and airline check-in desk

services located in the building, Deepo Outlet makes a difference in terms of

increasing the time airline passengers spend at the outlet center.

As the largest outlet in the Mediterranean Region, Deepo Outlet opened in 2004. Located just across from the airport in Antalya, Turkey’s most important tourism destination, Deepo was converted from a food wholesale warehouse into a shopping complex with a modern outlet center concept. In this shopping mall project, we emphasized ease of movement with two main galleries while taking into account the region’s climatic conditions.

Antalya is a fast emerging region with an expanding population. Deepo Outlet’s location is at the center of a developing hinterland. The Deepo Outlet project continues to develop with a turnover-based management strategy in line with the evolving socio-economic and demographic characteristics of the province.

Antalya is considered by leading brands as the right address to stock end of season products with its distance to the Turkey’s other major cities and its tourism-based dynamism. Deepo Outlet takes advantage of its location across from Antalya Airport in the best possible way. With the flight information boards and airline check-in desk services located in the building,

Deepo Outlet makes a difference in terms of increasing the time airline passengers spend at the outlet center.

In order to facilitate access to Deepo, the Company increased the transport options to the shopping mall. The long-running construction of the tram line was finally completed and service began on June 6, 2016. The tram stop has been placed right in front of the shopping mall, increasing the number of visitors who reach the shopping mall via public transport. Furthermore, there is an increase in the use of the underpass (tunnel).

Although shop rentals are sluggish, brands such as Beymen Business, Columbia, Efor, Ruck & Maul, Efendi Kebap and Caribou started to operate in the mall.

In 2016, Deepo welcomed 5.4 million visitors and 1.3 million vehicles.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., its appraisal value is TL 513,370,000; 22% of the monthly rental income is in US dollars and the remaining 78% is denominated in Euros.

Total Number of Stores Total Number of Visitors

75 5,4 MILLION

Operational Assets



Ownership


Construction Cost

TL 10.1 Million

GLA

18,132 m2

Occupancy Rate

95%

Number of Stores

75

Main Tenants

Max Mara, Tommy Hilfiger, Diesel, Gant, Columbia, Adidas, Vakko, LCW, Boyner, Beymen Business, Ayakkabı Dünyası, Mudo, Collezione, Superstep, Occasion, Colin’s, Mavi Jeans, Desa, Derimod, Koton, Sarar, Cacharel, US Polo, Pierre Cardin, Teknosa

Appraisal Value



2.0 years


Freehold


TL 25,562,000

Number of Visitors

5.4 million

www.deepo.com.tr


ANKAMALL AND CROWNE PLAZA

HOTEL ANKARA

Tenant Mix, Central

Location, Accessability, High

Competitive Capacity

GLA

Operational Date

87,785 M2

1999

Operational Assets




ANKAMALL AND CROWNE PLAZA HOTEL

ANKARA

ANKAmall is the largest shopping

mall in Ankara and the seventh largest

shopping mall in Turkey.

Located in Yenimahalle, at the intersection of the İstanbul and Konya highways, ANKAmall can be reached directly through the pedestrian passage that connects the Akköprü Metro Station to the shopping mall.

ANKAmall, which also includes a 263-room Crowne Plaza Hotel, is the largest shopping mall in Ankara and the seventh largest shopping mall in Turkey in terms of GLA. ANKAmall has a major competitive advantage in terms of its tenant mix, central location and ease of access. Of course, a free 6,000-car parking lot and 315 stores play a part in this success.

With a leasable area of 87,785 m², ANKAmall hosts the largest hypermarket in Turkey, a home improvement store, multiplex cinema and a theater, various restaurants and cafes, and many national and international retail brands.

In 2016, the Company posted total revenues of TL 169,621,841 up 3% over the previous year; meanwhile, operating profit rose 6.5% in 2016 to TL 144,083,954, up from TL 135,309,689 in 2015.


292

Operational Assets



Ownership

Yeni Gimat REIC in which Torunlar REIC holds a 14.83% stake

GLA

Yeni Gimat REIC’s share 87,785 m2

Torunlar REIC’s share 13,019 m2

Occupancy Rate

96%

Number of Stores

292

Number of Hotel Rooms

263

Main Tenants

Migros, Koçtaş, Bimeks, Boyner, H&M, Mudo City, Marks & Spencer, LCW

Appraisal Value*



Freehold


ANKAmall TL 165.8 millionCrowne Plaza TL 7.4 million

www.ankamall.com.tr

*Torunlar REIC’s 14.83% share


BULVAR SAMSUN SHOPPING MALL

SAMSUN

Samsun’s Center of

Attraction

GLA

Operational Date

18,155 M2

2012

Operational Assets




BULVAR SAMSUN SHOPPING MALL SAMSUN

With 18,155 m² of GLA and an occupancy rate of 90%, Bulvar Samsun Shopping

Mall is the first shopping mall in Samsun city center. The Shopping Mall is located

in an area surrounded by residential and commercial buildings south of the city

center.

Formerly an old tobacco factory, Bulvar Samsun Shopping Mall opened on July 1, 2012 after a restoration. Through our partnership in TTA Real Estate Investment and Management Inc., we have a 40% stake in the project. The other partner in the project is Turkmall Real Estate. At the end of the 30-year lease period, the entire ownership of the Bulvar Samsun will be transferred to Samsun Greater City Municipality. With 18,155 m² of GLA and an occupancy rate of 90%, Bulvar Samsun Shopping Mall is the first shopping mall in Samsun city center. The Shopping Mall is located in an area surrounded by residential and commercial buildings south of the city center.

Bulvar Samsun Shopping Mall is located in the downtown area, between two important avenues, Gazi and Mecidiye, which are lined with residences and commercial space. Passing by the shopping mall, Gazi Avenue is used by around 150,000 people per day. Thanks to its central location, Bulvar Shopping Mall

has become a much preferred lunch venue for office employees working in the area. The retail center has also introduced an array of national brands to Samsun, adding to its general appeal to the region’s shoppers.

Bulvar Samsun Shopping and Life Center’s competitive edge is based on a prime, central location, proximity to neighborhoods populated by A and B socio-economic groups, ease of access, closeness to commercial and business centers, architectural references to the area’s historical heritage, comfort provided by a vast square and courtyard flanked by cafes and restaurants, three evenings of live music in the courtyard every week, nearness to educational institutions, and an on-site arts center which offers courses in ballet, painting, music and drama.

Total Number of Stores Occupancy Rate

40 90%

Operational Assets



Ownership

Torunlar REIC (40%)

GLA

18,155 m2

Occupancy Rate

90%

Number of Stores

40

Main Tenants

Teknosa, Boyner, Mudo City, Koton, Deichmann, De Facto, ADL, McDonald’s, FLO

Appraisal Value*



5.1 years


Right of Construction for 30 years


TL 12,995,203

www.bulvarsamsun.com.tr

* Torunlar REIC’s share of 40%


NETSEL MARINA

MUĞLA

A Unique Pearl in the Heart

of Marmaris Bay

GLA

Yacht Capacity

Operational Date

6,189 M2

850

1989

Operational Assets




NETSEL MARINA MUĞLA

With its strong breakwaters and the natural harbor structure, which provide

protection against adverse weather conditions, Netsel Marmaris Marina is one of

the safest shelters.

As one of the three largest marinas in Turkey, Marmaris Netsel Marina is also one of the country’s few marinas where international yachtspersons can perform the obligatory procedures such as customs and passport control. About 100,000 passengers coming with over 70 cruise ships annually to Marmaris Cruise Port, located next to the Marina, also benefit from the services provided by the Marina and its recreational facilities. In addition, Marmaris Netsel Marina is the largest marina in Turkey in terms of its 6,189 m² retail space.

Netsel Marmaris Marina, one of the most prestigious marinas in the Eastern Mediterranean, is operated jointly by Torunlar REIC and Koç Group, and is the sixth marina under Setur Marinas.

Adjacent to the marvelous pine forest in Marmaris, Netsel Marmaris Marina lies like a unique pearl in the heart of Marmaris Bay, which resembles a natural lake reflecting incredible shades of turquoise.

One of the most prominent features of Netsel Marmaris Marina is that it is a city marina. It is very close to the historical Marmaris Castle and entertainment venues, and within two minutes walking distance of Marmaris city center.

With its strong breakwaters and the natural harbor structure, which provide protection against adverse weather conditions, Netsel Marmaris Marina is one of the safest shelters.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., Torunlar REIC’s 44.6% stake in Netsel Marmaris Marina is valued at TL 38,356,000.

Total Number of Stores Yacht Capacity

75 850

Operational Assets



Ownership

Torunlar REIC (44.6%)

Land Area

37,478 m2

Yacht Capacity

850

GLA

6,189 m2 (Share of Torunlar REIC 2,760 m2)

Occupancy Rate

98%

Number of Stores

75

Main Tenants

Migros, Lacoste, Stefanel, Mudo

Appraisal Value (Share of Torunlar REIC)



Easement for 49 years

www.netselmarina.com


5. LEVENT PROJECT İSTANBUL

The 5.Levent Project has many important advantages, such as its location on the

European side of İstanbul, facing TEM; proximity to central business districts

(Levent-Maslak area), and also to existing and planned subway lines, thus

providing easy access to all major parts of the city.

Torunlar REIC signed an asset swap agreement with KİPTAŞ, a subsidiary owned by İstanbul Metropolitan Municipality, on June 28, 2013 regarding a project to be developed on a 515,977 m² of land. As per the property sharing agreement, Torunlar REIC will own 54.28% of the construction area. In return, the Company will build social housing, educational and social facilities, and hand them over to KİPTAŞ.

The 5.Levent Project has many important advantages, such as its location on the European side of İstanbul, facing TEM; proximity to central business districts (Levent-Maslak area), and also to existing and planned subway lines, thus providing easy access to all major parts of the city. Its location is not the only distinctive feature of this project; it also offers medium- to large-scale residential units that can meet all needs and appeal to people from all segments of society.

The Project offers 2,961 residential units ranging from 1-bedroom studios to 4-bedroom apartments. The Project will include bicycle paths, jogging routes, outdoor pools (with slides and children’s pools), special playgrounds for different age groups, football, basketball and tennis courts. Since the Project is within the context of urban renewal, it is subject to 1% VAT.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., its appraisal value is TL 663,935,000 (USD 191,220,000).

Pre-sales started on April 01, 2015. As of 31.12.2016, 5. Levent Project yielded preliminary sales revenue of TL 1.097 million.

Total Residential Units Land Area

2,961 515,977 M2

Ongoing Projects



Land Area

515,977 m²

Number of Residential Units/Sellable Area

2,961/400,546 m²

Estimated CAPEX

TL 1.6 billion

Appraisal Value

TL 664 million (USD 191 million)

Ownership

Asset Swap (Torunlar REIC 54.28%, KİPTAŞ 45.72%)


April 2015

Expected Date of Completion

4Q 2017 (Phase 1)1Q 2018 (Phase 2)2020 (Phase 3)


MALL OF İSTANBUL PHASE 2 HOTEL-OFFICE-CONVENTION CENTER

İSTANBUL

The second phase of Mall of İstanbul consists of the project of hotel, office and

conference hall based on 18,209 m² land area and 109,000 m² construction area.

Ownership Torunlar REICStart of Construction December 2014Estimated Date of Completion 2018Land Area 18,208.90 m²Construction Area 109,000 m²Estimated CAPEX TL 232.5 millionAppraisal Value TL 206.9 million (USD 59.6 million)Leasehold/Freehold Status Freehold

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., its appraisal value is TL 206,861,000 (USD 59,578,000).

Ongoing Projects



MALL OF ANTALYA PROJECT

ANTALYA

In response to the new needs of emerging Antalya, the shopping experience in

the city will be redefined with Mall of Antalya marketing season’s products and

Deepo marketing outlet products.

Ownership Torunlar REIC (100%)

Land Area 84,503.61 m² (As a result of land consolidation, the land of the existing Deepo Outlet and the land on which the new shopping mall will be built will share the same lot.)

GLA 42,000 m²Number of Stores 130Estimated CAPEX TL 134.2 million Leasehold/Freehold Status Freehold Current Status It will be opened on April 28, 2017.

The new shopping mall under construction, situated at a distance of 3 km to the Antalya airport and 9 km to Expo Antalya, will have a gross leasable area of around 42,000 m2. In response to the new needs of emerging Antalya, the shopping experience in the city will be redefined with Mall of Antalya marketing season’s products and Deepo marketing outlet products. With the innovative energy of Mall of Antalya and the consumer trust built by Deepo in ten years, this will be the most ambitious mixed use project in the Mediterranean Region of Turkey. Mall of Antalya dedicates one third of its leasable area to action, entertainment and fun activities. The high-tech Cinetech cinemas feature 11 movie theaters with a total capacity of 2,200 individuals.


PAŞABAHÇE LAND

İSTANBUL

Ownership Torunlar REIC (100%)Start of Construction 2017Estimated Date of Completion 2019Estimated Operational Date 2019Construction Area 64,633 m²Estimated CAPEX TL 317.5 million Appraisal Value TL 607.3 million (USD 174.9 million)Leasehold/Freehold Status FreeholdCurrent Status Construction permit will be obtained in 2017.

The project is designed as an Urban Resort Hotel, a mixed-use, low-intensity, luxury boutique hotel consisting of 120 rooms, apartments, and villas, which will be operated by a prestigious hotel operator, an upscale and prestigious international brand. Torunlar REIC has also received the easement for the pier, wharf and the filled land covering 3,935 m² for a period of 49 years.

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., the appraisal value of the land is TL 607,330,000.

Planned Projects

In September 2012, one of the most valuable parcels in İstanbul, the Paşabahçe

land, was added to the portfolio of Torunlar REIC through a bid price of

TL 355 million.



KEMANKEŞ LAND

İSTANBUL

Ownership Torunlar REIC (100%)Start of Construction 2017Expected Date of Completion 2018Land Area 1,501 m²Leasable Area 3,900 m²Estimated CAPEX TL 31.3 millionAppraisal Value TL 51.7 million (USD 14.9 million)Leasehold/Freehold Status FreeholdCurrent Status At the construction permit stage

The 1,501 m² land is located in an area offering commercial potential in the Kemankeş district of İstanbul Beyoğlu, very close to Karaköy ferry port and the İstanbul Modern Art Museum. The ramshackle 3-storey and 3,900 m² building will be demolished and replaced with a boutique hotel.

According to the 2016 Epos Property Consulting and Valuation Inc. the appraisal value of the land is TL 51,731,000.

The Kemankeş land is located adjacent to İstanbul’s cruise port with the potential

of attracting passengers. It is a candidate to make use of the urban transformation

that is planned with the Galataport Project.


KAYABAŞI LAND

İSTANBUL

Ownership Torunlar REIC (100%)Start of Construction 2018 beyondLand Area 60,833.20 m²Appraisal Value TL 49.2 million (USD 14.2 million)Leasehold/Freehold Status FreeholdCurrent Status At the construction permit stage

According to the 2016 appraisal report prepared by Epos Property Consulting and Valuation Inc., the appraisal value of the İstanbul/Kayabaşı property is TL 49,246,000.

After the opening of the Third Airport, Torunlar REIC plans to build a new

project befitting İstanbul on a 60,835.20 m2 of land in a new development district

of the city.

Planned Projects




RISKS AND ASSESSMENT OF THE MANAGEMENT BODY

Risk ManagementThe Early Detection of Risk Committee was established to detect and identify potential risks that may threaten the Company’s existence, development and continuity; implement the necessary measures against detected risks; and to manage risks.

Operational RiskAs a part of the portfolio management business, the Company invests in real estate, money and capital market instruments. As of December 31, 2106, real estate investments accounted for about 89.5% of the total portfolio. Operational risk includes possible changes to the legislation and zoning practices that may affect the Company’s operations; a decline in new investment opportunities due to contraction of the real estate sector; a decrease in demand for properties and falling prices; and policy changes by local and/or the central government, which may affect the Company’s operations; and other external factors. The Company takes necessary measures to minimize the risk arising from the business environment, uses control systems and monitors efficiency of the said measures and controls.

Credit RiskThe Company is exposed to credit risk resulting from trade receivables related to credit sales and also due to assets and receivables held by banks and financial institutions. The Company keeps its financial assets at commercial banks, which are among the 10 largest banks based in Turkey and have business relationships with the Company. The majority of the trade receivables are real estate note receivables from housing sales. The credit risk connected to receivables from unrelated

parties is managed by securing receivables with collateral covering the highest possible proportion of the receivables. The methods used are as follows:

• Bank guarantees (letter of guarantee, letter of credit, etal.),

• Mortgage on real estate,• Checks and notes.

As for customers not guaranteed through securities, individual limits are determined as a result of a customer credibility assessment involving risk control, financial status, previous experiences and other factors; use of such credit limits is regularly monitored.

Liquidity RiskLiquidity risk is the probability that a company might fail to meet its net funding liabilities. The Company management seeks to avoid liquidity risk by maintaining sufficient levels of cash and cash equivalents for its daily operations and by ensuring accessibility to liquidity through banks while optimizing the principles of managing the balance sheet on the basis of its projected cash flow. The management also seeks to align back payments of financial borrowings obtained for the construction cost and acquisition of investment properties with the rental revenue streams from these properties to the extent possible. The Group obtains cash advances from customers for residential construction by executing preliminary sales contracts in order to minimize the funding requirement in such projects.



MATERIAL EVENTS DISCLOSURE

AFTER THE ACCOUNTING PERIOD

ENDING ON DECEMBER 31, 2016

AMENDMENTS TO THE ARTICLES

OF ASSOCIATION DURING THE

ACCOUNTING PERIOD AND THEIR

EXPLANATIONS

AMENDMENTS TO REAL ESTATE

REGULATIONS

Interest Rate RiskOur Company is exposed to interest rate risk because of changes in interest rates on interest bearing assets and liabilities. Such exposure is managed by offsetting interest rate sensitive assets and liabilities and using derivative instruments with balance sheet related methods when considered necessary.

In this context, matching maturities of receivables and payables as well as interest readjustment periods are crucially important. In order to keep exposure of financial liabilities to interest rate changes at a minimum, the fixed interest/variable interest, short-term/long-term, TL/foreign currency balances should be structured in a manner consistent with its structure and the assets in the balance sheet.

Loans with variable risks, which are classified as financial liabilities on the Company’s balance sheet, are exposed to interest risk depending on the interest fluctuations.

Foreign Exchange RiskOur Company is exposed to exchange rate risk because of operations performed using multiple currencies. The main principle in the management of this risk is to maintain a foreign exchange position in a manner which minimizes fluctuations in exchange rates; in other words, by maintaining the foreign exchange position level close to zero.

Accordingly, the Company aims to maintain the ratio between the current proportion of the currencies against cross-currencies or Turkish lira and shareholders’ equity at certain limits.

Our Company is also exposed to foreign exchange rate risk, mainly in EUR and USD.

There were no significant developments after the end of the period on December 31, 2016.

There were no changes to the Articles of Association during the reporting period.

No significant changes have occurred during the period January 1, 2016-December 31, 2016.


INFORMATION ON CONSULTING FIRM, MANAGEMENT COMPANY, REAL ESTATE

APPRAISAL COMPANY, ASSET MANAGEMENT COMPANY AND DEPOSITORY INSTITUTION

RELATED TO THE ASSETS AND RIGHTS IN THE PORTFOLIO OF THE COMPANY

Bursa/Korupark Shopping Mall, İstanbul/Torium Shopping Mall, Mall of İstanbul and Antalya /Deepo Outlet Center – Management Company

Trade Name TORUN MALL INVESTMENT AND MANAGEMENT INC.Capital 100,000 TLShareholder Structure Shares in the Capital (%)

1-Aziz TORUN 46%2-Mehmet TORUN 49%3-Other 5%Field of Activity Shopping Mall ManagementDate and Validity Period of the Contract 06.01.2010

Service Charge Management Service for Korupark Shopping Mall

Service ScopeManagement Service for Bursa/Korupark Shopping Mall, İstanbul/Torium Shopping Mall, Mall of İstanbul Shopping Mall and Antalya/Deepo Outlet Shopping Mall

Service Charge

A 2% service charge is paid based on the monthly total amount (VAT excluded, in TL) of the rental invoices (fixed rent, turnover rent, ATM rent, warehouse rent and GSM/base station rent) issued for the tenants of the shopping mall.

Bursa/Zafer Plaza Shopping Mall - Consulting Firm

Trade Name ZAFER PLAZA MANAGEMENT INC.Capital 50,000 TLShareholder Structure Shares in the Capital (%)1-Aziz TORUN 44.50%2-Mehmet TORUN 39.50%3-Other 16.00%Field of Activity Shopping Mall Management

Date and Validity Period of the Contract

08.10.2014-08.10.2019

Service ScopeRenting out leasable areas at the shopping mall; renting out and operating event and parking spaces that involve or may involve tenant-landlord relations; providing repair and maintenance services for machines and equipment or outsourcing these services; managing and operating common areas as a whole.

Service ChargeThe Management Company pays Torunlar REIC the rental amount based on a per square meter rate, as determined in the contract. No payment is made to the Management Company except for personnel, administrative and other expenses.

The Company procures:• Real estate appraisal services from Epos Property Consulting and Valuation Inc. and Reel Real Estate Appraisal Inc.,• Full certification services from Chartered Accountants,• Independent audit services from PwC Independent Auditing and Accounting Financial Consultancy Inc. The

Company is not involved in any conflicts of interest with these firms.



LAWSUITS

INTERNAL CONTROL SYSTEM OF THE COMPANY AND INFORMATION ABOUT

INTERNAL AND EXTERNAL CONTROL OPERATIONS

SUBSIDIARIES AND RELATED PARTY TRANSACTIONS

The lawsuit concerning the accident, which occurred at the construction site of the Torun Center project on September 6, 2014, continues at the İstanbul 13th Court for Serious Crimes. With the bill of indictment presented by the public prosecutor to the court, it has been indicated that no investigation is necessary for the main shareholders and senior managers of Torunlar REIC. The lawsuit is ongoing.

The internal control system of the Company is established for examining, controlling, monitoring, assessing the compliance, efficiency and effectiveness of company operations and controls related to these operations. The system embraces a risk oriented control approach; thus, the internal control activities are based on controls designed for mitigating and eliminating inherent risks of company operations and efficiency of these controls is the basis of internal control process.

The Company complies with the principles set out under the Corporate Governance Principles. Accordingly, the Audit Committee was formed within the structure of the Board of Directors and the working principles of the Committee were determined by the Board of Directors. The financial statements of the Company illustrating the results of the Company’s activities are audited by the independent auditing company PwC Independent Auditing and Accounting Financial Consultancy Inc.

Torunlar REIC’s related party transactions with Group companies and other related parties are of a commercial nature.

The Company has two joint venture companies, namely Torunlar Özyazıcı Project Partnership (“Torunlar-Özyazıcı”) and TTA Real Estate Investment and Management Inc.; and two affiliated companies, namely Yeni Gimat REIC (“Yeni Gimat”) and Netsel Tourism Investment Inc. (“Netsel”).

As of December 31, 2016, the Company owes TL 31.0 million to related parties; of this total debt, TL 22.1 million to Torunlar-Özyazıcı JVC. Meanwhile, TL 22.1 million portion of the total debt has been incurred because revenue from independent office units (total of 1,289 m²) owned by Özyazıcılar has not yet been shared between Torunlar REIC (60%) and Özyazıcı (40%). On the other hand, receivables from related parties amount to TL 10.2 million. Of this total amount, TL 7.1 million is owed by Torun Shopping Mall, the mall management company, and of this total debt, an important part has originated from the sale of equipment, which belonged to MOİ Park at Mall of İstanbul, to Torun Shopping Mall.

Sales revenue and rental income from related parties amounted to TL 67.4 million. Torunlar REIC earned TL 460,000 in interest income from related parties and paid interest expense of TL 258,000.

The Company purchased goods and services worth TL 71.6 million from related parties.


SUSTAINABILITY

It is possible to base the importance of construction sector in the overall Turkish economy on three factors: • Role in the process of constructing

residences, schools, roads, hospitals and such other infrastructure;

• The impact of its volume;• Role of materials used at construction

sites within overall production activities.

Recently, customer expectations and demands have been rapidly changing all around the world and our country. These demands have been raising construction costs, thus the sector is in pursuit of new technologies. New technologies and investments made in these technologies reduce the costs and facilitate meeting the diverse customer demands and expectations. In this aspect, it is assumed that the construction sector is on the verge of a new era and the competitiveness criteria of the sector will be based on technological developments in the future.

Cost is not the sole reason for innovations and technological developments to be made in the construction materials sector. Besides customer demands, sustainable urbanization and environmental protection, thus minimizing the impact of urbanization on the environment, have forced innovation of the entire construction sector. In the case of the construction sector, sustainability is associated with design and construction of environment friendly buildings which consume less energy, emit less CO2 and produce less waste as well as production of materials used.

Sustainability is an approach covering both construction of new buildings and renovation of current buildings. The purpose of this approach known as sustainable design is to create synergy between the building’s lifecycle and design practices.

Green buildings are generally characterized with the advantages of using solar energy photovoltaic techniques, use of plants and trees on green roofs, rain gardens, preventing rainwater leaks and use of renewable resources such as waste heat recovery pumps. There are also several techniques such as using permeable concentrate rather than packed gravel or ordinary concentrate or using asphalt for renewal of underground waters.

For the construction sector which is the driving engine of economic growth in Turkey with the value added and employment generated, the objective is to reinforce its status and gain a competitive edge on international markets. In order to achieve this objective, technological capacity should be increased; products with higher added value should be preferred; and sustainability, which is an important issue in today’s world of rapidly consuming natural resources, should be set as a priority for the sector.

We should design buildings pollute the environment less, use natural resources more effectively, have higher energy efficiency and less carbon emission in order to ensure a sustainable future. Environment friendly, ecological, comfortable green buildings designed to minimize energy consumption also meet the expectations of consumers who are conscious about energy efficiency, environmental and climate change as well as caring about health and safety.

Minimizing consumption of energy for heating purposes in buildings is possible by minimizing heat loss in buildings. For this purpose, we should develop and use better insulation materials, prefer more effective heating and cooling systems as well as make better use of renewable energy resources, such as solar and wind energy.



We need construction materials and buildings that are lighter, more flexible, sturdier and that have longer lifecycle, have minimum impact on the environment during production and usage and make use of renewable energy resources more effectively.

Projects developed by Torunlar REIC have a role in the lives of millions of people and enterprises and stand by them in planning their future and construction process. In this respect, the Company works in close cooperation with the broadest range of business partners, non-governmental organizations, and public authorities, and strives to fully meet its corporate responsibilities within the service cycle.

Torunlar REIC defines its strategy as displaying long-term sustainable growth by continuously creating value, with a view to constantly and remarkably increasing the efficiency, agility and organizational efficiency it provides its customers, shareholders, employees, the community and environment.

Sustainability is closely related to devising an accurate strategy and business model by building plans and processes resistant to

external factors. In this respect, Torunlar REIC is very pleased to enjoy the unfaltering support of its shareholders; meanwhile, the employees’ strong sense of belonging and the stakeholders’ trust in the brand constitute the most valuable assets that the Company needs in this journey.

Torunlar REIC will continue to be a part of building a nation-wide sustainable future, to lead its sector with this approach and to contribute to the future of humanity.

Torunlar REIC defines its most basic obligation towards its shareholders as creating permanent value in the short-term as well as the long-term. It views sustainability as a valuable tool and a permanent goal which will help the Company contribute to the solution of the environmental, social and economic problems of our age. It also believes that sustainability efforts will strengthen its business in the eyes of customers and stakeholders, and become a source of pride for shareholders as well.

In every step of its service cycle, Torunlar REIC is committed to remaining honest and transparent, uphold ethical values and fully comply with laws. Torunlar REIC’s presence


in the market contributes to economic dynamism, social well-being, individuals’ living standards and even consumption patterns.

We are going through a business cycle where global conditions become harder each day and fluctuations have become normal. Limited resources fail to meet demands of an increasing population and humanity tries to overcome a series of problems. In such a world, competition, as we know it today, will be very different tomorrow.

The best approach to be embraced by companies in this process would be effectively managing risks as well as reinforcing shareholders’ value and effectively managing impacts on the society and the environment through transferring resources.

Recently, a number of measures were adapted across Turkey to reduce the consumption of resources in shopping malls. There are efforts to reduce power and fossil fuel consumption by means of efficient lighting methods and thermal insulation. The biggest proof of Torunlar REIC’s dedication to save resources and slash operating costs in this way is the Torium Shopping Mall, which has received awards based on LEED criteria.

Torunlar REIC considers that its power and stability stem from a robust corporate governance, strong and flexible balance sheet, transport reporting system, and most importantly, risk-sensitive perspective. All of these help the Company create more and more value to its customers, shareholders and employees in the long term, in line with the aforementioned sustainability approach.

Placing its employees at the center of success, Torunlar REIC focuses on creating and maintaining a labor-friendly and safe work environment that employees are proud to be a part of.

Always proud of supporting the society with different social responsibility projects, Torunlar REIC views these activities not as an obligation, but as its natural responsibility towards the society, of which it is a member and where it conducts commercial activities.

Torunlar REIC believes that efficiency and productivity are the foundations of profitability as well as establishing long lasting value for our stakeholders. The Company considers sustainability as an important platform to manage costs at an optimal level and to achieve performance goals. As long as it improves the efficiency and productivity of its structure, the Company will succeed in increasing the long-term value that it offers to stakeholders by sharpening its competitive edge and continuously increasing its total output in the service cycle. While this may be seen as only the economic aspect of sustainability, it is also crucial for the fulfillment of environmental and social responsibilities.

Torunlar REIC believes that fulfilling its social, economic and environmental responsibilities figure among its top business priorities, and therefore believes in the importance of sustainability, and upholds it in every field in which it operates. In this vein, the Company acts with the philosophy of giving back to the society and delivering value to the society, by improving business operations and conducting corporate social responsibility projects.

Torunlar REIC believes in the importance of an effective stakeholder communication policy for the sustainability of its business. By establishing open and transparent relationships with all of its stakeholders, the Company learns about their priorities and expectations, and seeks appropriate solutions. It translates their expectations into its business strategies, and takes decisions with the aim of creating benefit for all parties.

Sustainability



Torunlar REIC believes that conducting and expanding business with a responsible and sustainable approach is an economic and social need. Corporate responsibility is a management tool and also a part of corporate strategy for Torunlar REIC.

Pursuant to the Labor Law No. 4857, Occupational Health and Safety Law No. 6331 and related regulations and communiqués, Torunlar REIC has established an occupational health and safety culture in all of its constructions, shopping malls and factories. Training and audit programs are designed to ensure the continuity of this culture.

Torunlar REIC adopts a proactive approach to occupational health and safety; identifies risks before they occur; takes preventive measures with a continuous improvement perspective; and ensures that its own employees and interns, as well as the employees of suppliers and contractors are happy, healthy and safe in their working environment.

At all workplaces, employees participate in training seminars, where they are informed of good and bad practices, near-misses and accidents concerning occupational health and safety in Turkey and across the world. Lessons are drawn from the bad practices, near-misses and accidents in order to prevent the repetition of such events by taking the necessary preventive measures. The Company implements corrective and preventive actions to further improve workplace health and safety conditions, and to ensure continuity and sustainability.

A balanced and sustainable growth approach has become more important within the new economic era. Quality, offering products and services fit for changing demands and improvements, speed, productivity, proper and responsible use of resources, asset management, a responsible investment approach, common quality and value approach in the supply chain, customer satisfaction as well as welfare and satisfaction of employees are considered to top the primary sustainability list.


Torunlar REIC defines its sustainable growth approach as operational excellence and bases its future vision on this approach. The Company ambitiously focuses on such issues, and continues its work for creating responsible growth in light of this approach.

Torunlar REIC aims at improving customer satisfaction and loyalty through the processes defined and projects implemented. The organizational structure and activities conducted (e.g. customer satisfaction surveys) assures informing employees about these goals and achieving them.

Torunlar REIC prepares customer satisfaction questionnaires each year for the purpose of regularly monitoring product and service satisfaction of customers and improving its performance. Questionnaires prepared by expert and qualified research companies are handed out to the customers through sophisticated sampling methods, and due action is taken according to the results of the analyses.

Torunlar REIC acknowledges that responsibilities towards an ecologic environment start with minimizing the energy used for business processes, and to this end, places recycling boxes at the General Directorate and shopping malls for separately collecting and sorting paper, plastic and household wastes. Each type of waste is collected under terms appropriate for the type and then delivered to related enterprises for recycling. There are also battery waste boxes for collecting used batteries, which are then delivered to local municipalities for recycling.

2015-2016 Difference (%)

Mall of İstanbul Zafer Plaza Korupark Deepo Outlet Torium

Water (m3) +144 +45 +37 -7 0Electricity (kwh) -5 -2 -3 -8 -6

Mankind consumes natural resources rapidly. Thus the Company’s shopping malls try to use water, gas electricity and diesel oil as effectively as possible. Energy costs rise all the time and increased costs can be only compensated by saving. The Company is conscientious about the economic aspect of the matter, as well as environmental pollution and global warning issues. It is important to find systems able to save on resources and to monitor operations of these systems as well as the responses and technological developments. The Company ensures that the solutions available are convenient and at a practicable level.

The methods used are:• Monitoring, evaluating daily

consumption levels and taking action;• Determining saving systems and

developing implementations;• Informing technical personnel about the

saving culture and ensuring their active involvement in the process;

• Ensuring coordination between teams;• Assessing operational output.

As a result of these measures, the Company posted the following reductions in power consumption per shopping mall. Water consumption, however, was remarkably higher than the previous years’ average values due to the drought across the country.

Sustainability



Environment friendly features at Torium Shopping Mall and practices encouraging energy saving are recognized by US Green Building Council. Torium is Turkey’s first Shopping Mall to receive LEED (Leadership in Energy and Environmental Design) certification and it is one of the largest buildings in Europe to hold this certificate.

Breathing new life into the office concept with a prime location, unique architecture and A Plus status, Torun Tower was deemed worthy of LEED Gold Certification on July 21, 2014 having fulfilled LEED criteria concerning sustainable spaces, water efficiency, energy and atmosphere, materials and resources, as well as inner air quality.

Torun Tower supports public transportation with its close proximity to public transit hubs, and reduces carbon dioxide emissions arising from individual car use by encouraging bicycle use with the development’s bicycle parks and shower facilities. The project assigns the most prominent section of parking lots to eco-friendly cars with a view to emphasizing the importance of vehicles with low emissions and high fuel efficiency. In order to facilitate night vision and reduce light pollution, the project has a meticulous indoor and outdoor lighting design.

In order to reduce water consumption at Torun Tower, highly efficient faucets with sensors are used, yielding a 45% drop in the consumption of city water. The use of flush tanks and urinals with a low flow rate cuts waste-water by 50% and lightens the burden on sewage systems. Meanwhile, to lower water consumption in landscaped areas, Torun Tower opts for local plants with low water consumption, and utilizes drip irrigation systems.

Striving to maximize energy savings in the project, the energy performance of the building is compared with the ASHRAE 90.1.2007 standard and energy-efficient systems were deployed to slash energy costs by 32%.

In order to limit the use of natural resources, recycled materials corresponding to 30% of construction cost were used at Torun Tower. Plus, local materials corresponding to 50% of construction cost were utilized so as to contribute to the local economy and avoid environmental pollution arising from fuel consumption linked to transport.

With a view toward preserving indoor air quality, highly efficient filters were installed in all air-conditioning centers. In line with the ASHRAE 62.1.2007 standard, 30% more fresh air is pumped into the building. Negative pressure is created in cleaning rooms and parking areas, to prevent the entry of polluted air into the building’s ventilation system. In highly populated food court areas and parking facilities, carbon sensors are deployed to keep indoor air quality under control.

LEED is an eco-friendly certification system developed by USGBC. This system evaluates projects by taking into consideration criteria such as sustainable land, water and energy efficiency, materials and resources used, indoor living quality, innovation and design.

Torun Tower became the second Torunlar REIC project to obtain LEED Gold Certification, after its first shopping mall investment in İstanbul, Torium. Torunlar REIC’s Mall of İstanbul which opened in May 2014 as the largest entertainment, shopping and living center in the country, received LEED Gold certification in May 2015.


During the LEED certification process, our team acts with the mission of leaving sustainable and eco-friendly buildings to future generations by creating sustainable areas, and making innovations in water efficiency, energy and atmosphere, materials and resources, inner space quality and design.

The various activities carried out through the LEED certification process is summarized below:

• The side chosen for our projects are located near public transportation hubs and thus reduce CO2 emissions by promoting public transit rather than individual vehicle use.

• In lighting design, the Company opts for solutions that reduce light pollution and facilitate night vision.

• Erosion and sedimentation control (ESC) is carried out to avoid air and water pollution and to prevent soil loss.

• To prevent the heat island effect, parking facilities are placed underground, and green roof applications and materials with reflective dyes are used.

• In order to cut water consumption, the Company opts for faucets with sensors, flush tanks and urinals with a low flow rate, local plants with low water consumption, and drip irrigation systems.

• Plus, gases detrimental to the ozone layer are not used in cooling and heating systems, with special energy models set up to save energy.

• Use of recycled materials, and local materials to avoid environmental pollution arising from fuel consumption linked to transport are other important measures to make material usage sustainable.

In line with its economic growth and productivity goals, Torunlar REIC employs an optimal number of personnel. Torunlar REIC had 234 employees (2015: 175) employees at the end of the period. Gender is not a criterion for determining remuneration. Male and female employees are on the same salary scale; female and male employees receive similar salaries.

Occupational Health and Safety PolicyA leader in constructing, developing and managing shopping malls, entertainment centers, residences, office space, hotels, logistics centers, commercial and industrial buildings, and other multipurpose living and business center investments, Torunlar REIC defines its primary business objective as the generation of the required technical, financial and human resources in order to protect the health and welfare of the Company’s employees and surrounding communities and to minimize losses. To these ends, Torunlar REIC takes the following measures:

Customer Orientation• Fosters a culture of occupational health

and safety, and turns this corporate culture into a lifestyle;

• Monitors and implements the standards put forth by the institutions that it is a member of, in addition to adhering to occupational health and safety requirements; controls these on a regular basis and checks for compliance.

Continuous Improvement• Ensures the participation of every level of

the organization as well as stakeholders in order to improve the occupational health and safety performance;

• Implements preventive and corrective measures related to occupational health and safety.

Sustainability



Employees • Demonstrates a proactive approach to

occupational health and safety, identifies risks beforehand, takes preventive measures with a continuous improvement perspective, and ensures that employees work in a happy, health and safe fashion.

Responsibility in Occupational Health and Safety• Provides guidance to employees, as well

as suppliers, interns, visitors and the employees of subcontractors in issues of occupational health and safety, and encourages personnel to constantly communicate among themselves and with their managers due to the importance of employee participation in the safety culture.

Social Responsibility • Guarantees the health, safety and social

welfare of employees at each level, visitors, and subcontractors with due consideration of the impact of all the Company’s activities on the environment and people, aims at minimizing any possible material and moral damages to them and their families.

To this end, Torunlar REIC is committed to continuing its efforts to establish a healthy working environment in the workplaces.


PERSONNEL AND WORKER ACTIONS, COLLECTIVE BARGAINING PRACTICES,

RIGHTS AND BENEFITS OFFERED TO PERSONNEL AND WORKERS

INFORMATION ABOUT OUTSIDE ORGANIZATIONS

PROJECTIONS ABOUT THE COMPANY’S PROGRESS

CHANGES AFFECTING THE IMPLEMENTATION OF PRINCIPLES OF CORPORATE

GOVERNANCE

COMPANY FINANCING SOURCES AND RISK MANAGEMENT POLICIES

As of December 31, 2016, the Company had 234 employees. We staff non-unionized employees who are subject to the Labor Act. There is no collective bargaining. There are no rights and benefits offered excluding the monthly salary.

Aside from its subsidiaries, affiliates and joint venture companies, the Company does not have branches and employees outside of its headquarters.

In case the Turkish economy remains stable, the Company will inaugurate new projects for purchasing land in the current year to add to the projects in its portfolio.

As per Article 8 (“Principles of Corporate Governance Compliance Reports”) of Capital Markets Board’s Communiqué on Corporate Governance (Serial: II-17.1), which came into effect after publication in the Official Gazette, dated January 3, 2014, no changes have occurred during the period.

As of December 31, 2016, 58% of the Company’s assets are financed by shareholders’ equity (December 31, 2015: 54.85%) and 42% by external sources (December 31, 2015: 45.15%).

The Company uses external financing to make investments in line with corporate strategies and to ensure business continuity. The Company’s net financial debt rose from TL 1,902 million at year-end 2015 to TL 2,535 million at year-end 2016 due to changes in exchange rates.

The Company works actively to devise strategies and policies towards identifying, measuring, reporting and managing inherent risks.



RESEARCH AND DEVELOPMENT ACTIVITIES

QUALITY AND AMOUNT OF CAPITAL MARKET INSTRUMENTS ISSUED

DEVELOPMENTS IN INVESTMENTS, USE OF INCENTIVES, TO WHAT EXTENT

INCENTIVES HAVE BEEN USED, IF ANY

CHARACTERISTICS AND CAPACITY UTILIZATION RATES OF THE COMPANY’S

PRODUCTION UNITS; RELATED DEVELOPMENTS; CAPACITY UTILIZATION

RATE; DEVELOPMENTS IN PRODUCT AND SERVICE PRODUCTION IN THE CORE

BUSINESS AREA; AMOUNT, QUALITY, DEMAND AND PRICES IN COMPARISON

WITH PRIOR PERIODS

MONEY AND CAPITAL MARKET INSTRUMENTS

As a real estate investment company, Torunlar REIC does not undertake any R&D activities. The Company assigns professional consulting firms to carry out market research studies and other necessary analyses.

The Company did not issue any capital market instruments during the period.

The Company does not make use of any discount benefits applied to investment incentives.

Detailed information is provided in the appendix of this annual report, titled “Independently Audited Financial Statements and Footnotes for the Accounting Period January 1-December 31, 2016”

According to the Company’s consolidated financial statements, Torunlar REIC’s money and capital market instruments amount to TL 511 million.


PRODUCT AND SERVICE PRICES; SALES REVENUES; SALES CONDITIONS

AND RELATED DEVELOPMENTS THAT TOOK PLACE DURING THE YEAR;

IMPROVEMENTS IN PERFORMANCE AND PRODUCTIVITY COEFFICIENTS;

REASONS FOR SIGNIFICANT CHANGES COMPARED WITH PREVIOUS YEARS

MEASURES CONSIDERED TO IMPROVE THE COMPANY’S FINANCIAL

STRUCTURE

Detailed information is provided in the appendix of this annual report, titled “Independently Audited Financial Statements and Footnotes for the Accounting Period January 1-December 31, 2016”

The Company continues its investments by carefully maintaining the balance between shareholders’ equity and external financing.



TORUNLAR REAL ESTATE INVESTMENT COMPANY CORPORATE GOVERNANCE

PRINCIPLES COMPLIANCE REPORT

1. Statement of Compliance With Corporate Governance Principles Torunlar Real Estate Investment Company (Torunlar REIC), being a pioneering and leading publicly held company in its industry in terms of its size, recognizes the responsibilities incumbent thereupon towards its shareholders. Transparency, management accountability and compliance with ethical requirements and legal regulations have become essential parts of corporate governance, and Torunlar REIC has timely and duly fulfilled its responsibilities arising out of the applicable legislation.

In line with Article 11 of the Capital Markets Board’s Communiqué on Corporate Governance published in the Official Gazette dated 03.01.2014 and numbered II-17.1, the Company established the Investor Relations Department. The Department is charged with keeping the records pertaining to shareholders in a safe, secure and up-to-date manner; responding to shareholders’ written information requests about the Company; preparing the documents to be presented to shareholders as regards the General Assembly; taking the necessary measures to ensure the compliance of the General Assembly meeting with applicable legislation, Articles of Association and other in-house regulations; fulfilling and monitoring obligations arising from capital markets legislation concerning corporate governance and public disclosure; and ensuring compliance with applicable legislation, Articles of Association and other in-house regulations in the exercise of shareholder rights. The Investor Relations Department consists of one director and two personnel. The Director holds the Capital Markets Operations Advanced License (Capital Markets Operations Level 3) and

Corporate Governance Rating Expertise License (Corporate Governance Rating).

During 2016, the Company paid due care for achieving compliance with the topics detailed above with respect to the mandatory/optional requirements covered in the Principles of Corporate Governance.

Furthermore, the Company commenced work to quickly attain compliance as required by the CMB Communiqué Serial: IV No: 56 on the Determination and Implementation of Corporate Governance Principles, which was enforced upon its publication in the Official Gazette issue 28158 dated 30.12.2011. In this frame, amendments to the articles of association that are required to be made in accordance with the said Communiqué, and the Board of Directors decisions of the regulations relating to the Audit Committee, Corporate Governance Committee, Nomination Committee, Early Risk Detection Committee and Remuneration Committee approved at the Ordinary General Assembly Meeting for 2011 held on 28.05.2012, those pertaining to the Audit Committee, Corporate Governance Committee, Nomination Committee, and Remuneration Committee were revised according to the Capital Markets Board’s Communiqué on Corporate Governance Serial: II-17.1 which came into effect upon publication in the Official Gazette dated 03.01.2014. The resulting new regulations were approved by the Board of Directors at its meeting dated 20.03.2014 and numbered 1014/13, and then presented to the Ordinary General Assembly for 2014 held on 29.05.2014.


The policies devised under the Principles of Corporate Governance and the guidelines setting out the operating principles of committees are available on the corporate website.

The Company believes that full compliance with Principles of Corporate Governance is crucial. However, the Company has not achieved full compliance with some of the optional principles yet, as will be understood from the explanations provided below.

PART I - SHAREHOLDERS

2. Investor Relations DivisionAt the Board of Directors meeting dated 14.02.2014, in line with Article 11 of the Capital Markets Board’s Communiqué on Corporate Governance published in the Official Gazette dated 03.01.2014 and numbered II-17.1, it has been decided to establish an Investor Relations Division, consisting of one director and two personnel. The Division is charged with keeping the records pertaining to

Investor Relations Division Contact Information

Name Surname Title Telephone E-mail

Şerife Cabbar Corporate Governance Practices Coordinator

+90(216) 425 03 28 +90(216) 425 20 07 [email protected]

Zeynep Torun

Corporate Communication and Marketing Executive Board Member

+90(216) 425 03 28 +90(216) 425 20 07 [email protected]

Pelin Örsel Financial Analyst +90(216) 425 03 28 +90(216) 425 20 07 [email protected]

shareholders in a safe, secure and up-to-date manner; responding to shareholders’ written information requests about the Company; preparing the documents to be presented to shareholders as regards the General Assembly; taking the necessary measures to ensure the compliance of the General Assembly meeting with applicable legislation, Articles of Association and other in-house regulations; fulfilling and monitoring obligations arising from capital markets legislation concerning corporate governance and public disclosure; and ensuring compliance with applicable legislation, Articles of Association and other in-house regulations in the exercise of shareholder rights.

Investor Relations Division functions under the Assistant General Manager İsmail Kazanç. Şerife Cabbar, who works as Corporate Governance Practices Coordinator, carries out tasks of the Investor Relations Division as proxy. Investor Relations Division is composed of Zeynep Torun and Pelin Örsel.

Torunlar Real Estate Investment Company Corporate Governance Principles Compliance Report



3. Shareholders’ Right to Information Pursuant to legislation and the Disclosure Policy, any information that is of concern to capital market participants is announced via material events disclosures and posted on the corporate website.

Numerous information requests, written or oral, from shareholders are responded to by the Investor Relations Department in a prompt and timely manner under the provisions of the Capital Market legislation, save for undisclosed or confidential information or trade secrets.

Shareholders are granted the right to demand the appointment of a special auditor by means of the provision of the Company’s Articles of Association, which reads “Shareholders holding 5% of the Company’s capital may file an application with the Capital Markets Board and demand the appointment of another independent auditor, if such request is justified due to a reason in connection with the designated independent auditor in person and specifically if there exists doubt about the impartiality of the conduct of the designated independent auditor” however, no such request has been received from the shareholders during the reporting period. 4. General MeetingsGeneral meetings are convened ordinarily and extraordinarily.

An ordinary general meeting is convened at least annually within three months following the end of the Company’s fiscal year to discuss and decide upon the matters covered by the agenda, which is prepared by the Board of Directors in view of the requirements of the Turkish Commercial Code.

At the General Assemblies of the Company, the issues that the Assembly requests to discuss or announce to the shareholders without acting in accordance with the principle of complying with the agenda,

must be added on the agenda of the General Assembly. Dismissing the members of the Board of Directors and electing new members may be discussed and resolved even if the issue is not on the agenda.

If necessary, an extraordinary meeting call will be made for the General Assembly. Extraordinary General Assembly; i) will meet in cases necessitated by the company affairs, in accordance with the Turkish Commercial Code and the provisions specified in this Articles of Association, and ii) will take necessary decisions. The place and time of the Extraordinary General Assembly meeting will be announced in accordance with the requisites.

The Board of Directors may make a call for the General Assembly meeting even if its term has expired. For the issues regarding their tasks, liquidators may also make a call for the General Assembly meeting. In case the Board of Directors cannot meet regularly, or the meeting quorum cannot be reached, a shareholder may make a call for the General Assembly meeting, upon the consent of the court. The provisions of Article 421 of the Turkish Commercial Code are reserved.

If the Chairman of the Board of Directors is not present at the General Assembly meeting, the vice chairman, and if the vice chairman is not present, as well, any of the members of the Board of Directors will chair the meeting. At the General Assembly meeting, either a person from among the shareholders or a person from outside will be selected as vote collector. General Assembly clerk will be selected by the General Assembly, either from among the shareholders or from outside.

The Board of Directors issues an internal directive that; i) includes the rules regarding the working principles and procedures of the General Assembly, and ii) complies with the minimum requirements stipulated by the Ministry of Customs and Trade; and puts it


into force after the approval of the General Assembly. This internal directive will be registered and announced.

The Board of Directors prepares and issues the list of attendants in conformity with the “shareholders chart” that will be delivered by the Central Registry Agency regarding the holders of the registered shares as per the Capital Markets Law. Entitled persons whose names are on this list may attend the General Assembly after showing their ID.

Ordinary and extraordinary General Assembly meeting and decision quorum is subject to the provisions of the Turkish Commercial Code and the Capital Markets Law.

At the General Assembly meetings, shareholders cast their votes in proportion to the total nominal value of the shares they have as per Article 434 of the Turkish Commercial Code.

Members of the Board of Directors and independent auditors must attend the General Assembly meetings; furthermore, persons who have responsibilities regarding the issues on the agenda, and those who will have make an explanation/announcement must attend the meetings. Within the framework of this paragraph, Chairman of the Meeting Council will announce the excuses of those who cannot attend the meeting.

Persons nominated as members of the Board of Directors must also be present at the General Assembly meeting where the election will be made so that they answer any questions asked. Regarding the nominees; their ID information, education level, the level and aspects of their relationship with the Company, their experience, financial status, and other qualifications must be announced at the General Assembly.

Unless otherwise is decided by the General Assembly, meetings will be held open to

related persons and the media. Any person attending the meeting but not having the qualifications of a shareholder or proxy, will not have the right to vote or speak.

Provisions of Article 438 of the Turkish Commercial Code are reserved.

Within the period; 2015 Ordinary General Assembly Meeting was held by our Company.

The call for the Ordinary General Assembly Meeting held on May 24, 2016 regarding the activities of 2014, was made 3 weeks in prior, in conformity with the legislation and the Articles of Association, via Public Disclosure Platform, Trade Registry Gazette, a newspaper published nationwide and the Company website. Furthermore, the call for the General Assembly was also made via Central Registry Agency’s Electronic General Assembly System. The draft Articles of Association, regarding the agenda including the amendment to the Articles of Association, was also announced in the attachment of the call.

Independently audited financial statements regarding 2015, were publicly announced via Public Disclosure Platform, and the website. Financial statements were also made available for the shareholders’ review at the Company Headquarters while a copy was given to those who requested.

Some 90.72% of the shares were represented at the meeting.

Independently audited financial statements were publicly disclosed on the Public Disclosure Platform and posted on the corporate website.

5. Voting Rights and Minority Rights At the ordinary and extraordinary General Meetings, shareholders or their proxies who are present physically or electronically are entitled to one vote for each share they hold. At General Meetings, a shareholder may




have himself/herself represented by a proxy to be nominated from among shareholders or non-shareholders. Capital Markets Board requirements in relation to voting in proxy are reserved.

Pursuant to Article 1527 of the Turkish Commercial Code, the Company provides the means for eligible participants to electronically attend, share opinions, submit suggestions and vote at the general meetings pursuant to the provisions of the Regulation on Electronic General Meetings at Joint Stock Companies. The Company purchases services from systems created to this end, and it also has the capacity to set up the electronic general meeting system.

Eligible participants and their proxies will be able to physically or electronically attend all general meetings to be held, and exercise their rights as mentioned in the provisions of the said Regulation, pursuant to this provision.

• The capital is divided into Class A, B and C shares. Of these shares, the portion with a nominal value of TL 100,235,491.07 that represents 100,235,491.07 shares comprises entirely of registered shares and makes up Class A shares;

• The portion with a nominal value of TL 100,235,491.07 that represents 100,235,491.07 shares comprises entirely of registered shares and makes up Class B shares,

• The entire portion of the nominal value of TL 299,533,300.86 representing 299,533,300.86 shares are registered shares representing Group C.

Our Company has been merged, in a facilitated method through takeover as the “transferee”, with the ‘‘TRN Alışveriş Merkezleri Yatırım ve Yönetim Anonim Şirketi’’ (with a capital of TL 17,950,000.00) including all assets and liabilities of the firm where our Company has participated in the capital with TL 17,948,488.38 by 99.991579%, in accordance with the relevant provisions of

the 136th and 158th Articles of the Turkish Code of Commerce n.6102, 18th, 19th and 20th Articles of the Corporate Tax Law, and the relevant provisions of the Capital Markets Law n.6362 and Capital Markets Board “Mergers and Divestitures Communiqué” n.II-23.2. After the merger, our Company’s capital increased by a nominal value of TL 4,283 representing 4,283 nominal shares, and our issued capital which had been TL 500,000,000 increased to TL 500,004,283.

TL 299,529,017.86 nominal Group C shares representing 299,529,017.86 shares became nominal TL 299,533,300.86 representing 299,533,300.86 shares.

Merger process was registered on the 27th of December 2016, and the amendment to the articles of association regarding the capital increase was registered on the 5th of January 2017 by the T.R. İstanbul Trade Registry Directorate.

Class A and B shares have the privilege to nominate candidates for elections to be made to the Board of Directors.

There are no privileged votes at the General Meetings or in the Company’s articles of association. Shareholders or their proxies who are present at the General Meeting are entitled to one vote for each share. There is no participation relationship between the shareholders and the Company. The Company’s articles of association do not stipulate cumulative voting method.

Minority rights are not represented on the board of directors.

6. Entitlement to Dividends The Articles of Association do not grant any privileges regarding participation in the Company’s profit. Each share is equally entitled to dividends.


The profit distribution policy was approved at the Board of Directors meeting dated 28.04.2014 and numbered 2014/23; pursuant to the Capital Markets Board’s Communiqué on Dividends Serial: II-19.1, it was approved unanimously by the General Assembly; the policy was presented for the approval of shareholders at the Ordinary General Assembly Meeting on 29.05.2014 and approved by the General Assembly.

In principle, profit shall be distributed annually in accordance with the Turkish Commercial Code, Capital Markets Law, Articles of Association and the regulations herein. The profit planned for distribution will be 50% of the distributable profit.

The payment of 50% of distributable profit to shareholders may be deferred in response to the Company’s investment plans, the level of progress in investments, funding requirements for investments and extraordinary or unexpected developments in the economy.

The profit share can be in cash or “bonus shares” upon the addition of distributable profit to the capital.

10. If the General Assembly has decided to distribute a share of the profit, it is distributed in the manner outlined in the relevant decision or by the end of the year in which the General Assembly was held. The exact dates of distribution, within this deadline, are determined by the General Assembly.

The profit share distribution can be performed in a single transaction or in installments.

11. Distributable profit is calculated in accordance with; the Turkish Code of Commerce and the Capital Markets Law and arrangements made/to be made according to this Law, Corporate Tax Law and arrangements made/to be made according to this Law, provisions of the articles of association and decisions taken at the

general assembly. Dividend will be equally distributed to all shares as of the distribution date, regardless of their date of issue and acquisition.

The Articles of Association do not provide for privileged rights in profit distribution.

The Articles of Association provides for profit share payments in advance and such advances may be distributed to shareholders in accordance with capital markets regulations.

As regards cases not covered by the aforementioned articles, provisions of the Profit Share Communiqué Serial: II-19.1 published in the Official Gazette dated 23.01.2014 and numbered 28891 apply.

The dividend policy is posted on the corporate website.

In keeping with the requirements of the dividend policy, shareholders received cash dividends in 2011, 2012, 2013, 2014 and 2015 fiscal years. In line with the Company’s dividend policy, it is assumed that dividend distribution will be carried out also in the years ahead.

7. Transfer of Shares Transfer of Company shares prior to the public offering is subject to Board approval without taking any percentage/ratio into consideration. In the transfer of shares within this scope, the terms and conditions that the founders are required to fulfill shall also be applicable for the new shareholders of the company. In the period after the Company shares are publicly offered, shareholders who possess the shares that control the management of the Company shall also meet the requirements the founders have to meet. Transfer of sufficient number of privileged shares that would bring control of the management is subject to Board approval. In case the management control is obtained with unprivileged shares; shareholders who possess




these shares must submit the documents proving that they do meet the abovementioned requirements, to the Board in ten working days following the transfer of shares. In the transfer of sufficient number of privileged shares that would bring control of the management, shareholders who will take over the privileged shares must have the financial means to purchase the shares of the other shareholders, and must prove this situation within the scope of the provisions regarding the Board’s obligation to make share purchase proposal. For this issue, provisions regarding exemption from the Board’s obligation to make share purchase proposal, are reserved. In the period after the Company shares are publicly offered; in case the shareholders who possess the shares that control the management cannot meet the requirements the founders have to meet, they must dispose of their shares that control the management within maximum three months after the date they fail to meet the requirements.

Regarding the relations with the Company; company ledgers and registers are taken into consideration in determining the registered shareholders or holders of dividend-right certificates. Registered shares that are not publicly traded can only be transferred with the approval of the Company. However – without requiring the Company’s approval – privileged shares can be transferred to the shareholders in the same group, or to the shareholders who have the same privileges in the other groups.

Provided that the above procedures are reserved; the following issues are considered as “important reasons” within the scope of the Turkish Commercial Code: (i) Persons who are not members of the Torun family asking to acquire the privileged shares in order to ensure that the control of the Company remains in the Torun family; (ii) Other companies or businesses competing with the Company, owners, directors, direct or indirect partners, employers or employees (no matter what their

titles are) of the competitor companies or spouses and predecessors/successors of these persons or companies directly or indirectly controlled by the abovementioned persons asking to acquire the privileged shares; (iii) Any persons or group of persons (acting together) asking to directly or indirectly acquire 10% or more of the total number of privileged shares in order to maintain the economic independency of the Company. The Company may put forward important reasons and refuse to approve the share transfer in case of privileged share transfers. On the other hand, privileged shareholders who wish to transfer their shares, may freely transfer – without being subject to any restrictions – the “Shares To Be Transferred” at the offered price and terms & conditions to the Potential Buyer after they offer in conformity with the below procedures the shares they wish to transfer and the price and other terms & conditions (offered by the potential buyer in line with the market conditions) to the other privileged shareholders in proportion to their shares, and if this offer is not accepted by any of the offeree shareholders.

In share transfers, below issues are applicable.

I- The Transferor applies to the Board of Directors with his/her offer (to be presented to the other privileged shareholders) including the number of shares he/she wishes to transfer, the price he/she requests for these shares and the payment terms. Upon this application, the Board of Directors informs the other privileged shareholders about the offer of the shareholder who wishes to transfer his/her shares and gives them 30 days to give an answer.

II- In case the Notified Shareholders ask – within the Term of Notification – to buy all of the “Shares To Be Transferred”, the Company shall buy the “Shares To Be Transferred” at the offered price and terms & conditions, from the Transferor, on the account of the Notified Shareholders. In such case, Shareholders who


ask to buy the “Shares to Be Transferred”, may buy these shares in proportion to their shares. In case a single Shareholder asks to buy all of the “Shares to Be Transferred”, the Company may buy all of the “Shares to Be Transferred” on the account of that Shareholder.

III- In case the Transferor does not offer the “Shares To Be Transferred” in conformity with the abovementioned procedures to the Offeree Shareholders, the Company may put forward any of the Important Reasons and refrain from approving the share transfer.

IV- In case the Notified Shareholders do not make a request to buy the “Shares To Be Transferred” within the Term of Notification or make a request to buy only a part of these shares; within maximum 15 (fifteen) days after the end of the “Term of Notification” the Company may buy on its own account or the account of third parties, in its sole discretion, over the actual price at the time of application; (a) all of the “Shares To Be Transferred” if none of the Notified Shareholders makes a request to buy the “Shares To Be Transferred”; or (b) all of the shares the Notified Shareholders do not request to buy if the Notified Shareholders make a request to buy only a part of the “Shares To Be Transferred”. Otherwise, the Transferor may freely transfer all of the “Shares to Be Transferred” at the offered price and terms & conditions to the Potential Buyer, and the share transfer is registered in the share ledger. Not to leave any confusion, it is important to state that; all of the “Shares To Be Transferred” must be purchased, as specified in this Clause, by the Company on its own account, on the account of the Notified Shareholders or third parties in order for the Company to refrain from buying the Shares “To Be Transferred” over the actual price and approving the Transferor transferring his/her shares to the Potential Buyer, as per this Clause.

V- Besides the abovementioned procedures; even in cases such procedures are practiced, the Company, in any case, may buy the “Shares To

Be Transferred” over the actual price at the time of application on its own account, on the account of the shareholders or third parties.

VI- In the transactions that will be made and decisions that will be taken by the Company within the framework of the abovementioned Clause, member or members of the Board of Directors who were elected from among the persons nominated by the Transferor or Board members who have any relationship with the Transferor cannot attend the discussions on the issue and will not be taken into account in the meeting and decision quorum. In such case, Board of Directors decision will be taken by the affirmative votes of the majority of the other members who will be taken into account in the meeting and decision quorum.

VII- Furthermore; if the Transferee does not clearly states that he/she is buying the shares on his/her own account, the Company may refuse to register the share transfer to the share ledger. If the shares are acquired as a consequence of inheritance, Descent and Distribution, provisions of the matrimonial regime or foreclosure, the Company may refuse to give approval in case it offers the person acquiring the shares to acquire shares at the actual price.

VIII- Transfer of Group C cannot be restricted.

IX- As per this Clause; the Company shall determine the “actual price” of the “Shares to Be Transferred” at the time of making application to the Company. In case the Transferor disagrees with the “actual price” determined by the Company, the “actual price” shall be calculated by any of the; (i) independent audit firms that do not directly or indirectly have any capital and/or management relationship with the Company and/or the Transferor, and (ii) consulting companies that carry out activities within the framework of license, know-how, and similar agreements signed with the international companies that franchise such independent audit firms under membership contracts, (iii) intermediaries that have both the public offering




brokerage license and the investment consulting license, or (IV) that do not receive deposits.

PART II – PUBLIC DISCLOSURE AND TRANSPARENCY

8. Disclosure Policy Based on a decision passed at the Board of Directors meeting on 27.08.2010, the Torunlar Real Estate Investment Company Disclosure Policy has been created to make the Company’s past performance and future expectations equally available to the Capital Market participants (domestic/foreign shareholders, investors, capital market experts, brokerages, etc. are collectively referred to as Capital Market Participants) in a complete, fair, accurate, timely and intelligible manner and to maintain active and transparent communication at all times, within the frame of the generally accepted accounting principles and the provisions of the Capital Market legislation.

The essential principles when implementing the disclosure policy is to make the necessary information and explanations save for trade secrets available to all stakeholders that cover shareholders, investors, employees and customers on the principles of timeliness, accuracy, completeness, and intelligibility, easily accessible by all at low-cost.

The public disclosure policy is carried out within the frame of the Capital Market legislation, Capital Markets Board (CMB) and Borsa İstanbul (BİST) regulations and CMB Corporate Governance Principles.

The full text of the disclosure policy is available on the corporate website.

Recognizing the responsibility arising from being a publicly traded company, our Company announces all developments that fall under the scope of the Material Events Communiqué to our investors and the public at large as a matter of priority; necessary updates are constantly made and shared with the public to reflect any

subsequent changes and developments. During 2016, the Company made 46 material events disclosures.

On the other hand, all queries and demands conveyed by investors on the phone, by email or other means are being responded to by the Investor Relations Department paying attention to the principles of accuracy, completeness and equality under the Company’s disclosure policy. During the reporting period, emails from investors have been responded to, as well as numerous questions directed on the phone. The queries concentrated on the Company’s stock performance, projects, share repurchase program, dividends, capital increase, the possible lift of corporate tax exemption, the disposal of 7% share held in the Company by Torunlar Food, rental income, investment outlays and cash status. In 2016, 56 talks were held with foreign investments funds. During the year, the Company participated in 1 investment conferences and 2 roadshow. On 08.03.2016, informational meeting was held for analysts. Reports and information documents prepared and issued by the intermediary firms about the Company are regularly monitored.

In order to ensure that investors can keep track of the most up-to-date company-related information, the Company’s web site, investor presentations and investor bulletins were updated on a regular basis. Important disclosures concerning investors are published on the Public Disclosure Platform (KAP) and then posted on the Company web site with English translations. Updates related to investment instruments are carried out when necessary or in a maximum of three-monthly periods.

Utmost attention is shown in compliance with legal and regulatory requirements while fulfilling investor requests. To our knowledge, no complaints were presented to or no administrative or legal lawsuits were filed against the Company last year pertaining to the exercise of shareholder rights.


9. Company Website and Its ContentsIt’s possible to access the company website on www.torunlargyo.com.tr. Main sections available on our website are; Torunlar REIC, Assets, Investor Relations and News.

Company website’s Investor Relations section includes; establishment and capital information, shareholders structure, Board of Directors, executive board, information about its strategy and history, Corporate Governance principles compliance reports, general assembly internal directive, articles of association, prospectus, public offering circulars, trade registry certificate, code of ethics, information policy, profit distribution policy, Board of Directors committees, remuneration policy, periodical financial statements, investor presentations, portfolio tables, annual reports, valuation reports, pricing grid reports, general assembly information, capital increase table, disclosure of material matters, share repurchase program, company mergers and quick links.

The Internet web site is regularly updated to reflect the current status of the company and the management structure. All information inquiries relayed by way of the Internet web site are answered promptly by the company.

10. Annual ReportThe Company’s annual reports are prepared in sufficient detail to give the public access to accurate and complete information about the Company’s activities, and they are drawn up in accordance with the Principles of Corporate Governance and other points specified in the legislation.

PART III - STAKEHOLDERS

11. Disclosure to StakeholdersTorunlar REIC corporate governance practices safeguard the rights of the stakeholders governed by legislation, legal regulations and mutual agreements. Company employees, shareholders, affiliates or third persons or institutions in a business relationship can notify their suggestions

in these matters or violations directly to the Company executives.

Open and honest channels of communication are established with company employees and other stakeholders and utmost care is taken for them to be informed of issues that are of interest to them. Stakeholders are informed about company issues that are of interest to them. Potential investors who are considering buying our Company’s shares are able to directly contact our Investor Relations Department and relay their requests for information. Torunlar REIC Investor Relations informs investors about the Company through e-mails, telephone calls or meetings.

Rights of all stakeholders are protected within the framework of the ethical rules published by the board of directors.

12. Stakeholders’ Participation in the Company ManagementThe principle is to keep all channels of communication open and to eliminate all obstacles that could occur in front of the participation of stakeholders in the management. All the persons, groups or institutions that are impacted by our operations or those who affect our operations are our stakeholders. Their comments and assessments are invaluable to us.

Within this scope as indicated in the ethical rules, the company policy is determined and updated by regular communication with employees and by considering their wishes as well. Regular coordination meetings are held with the participation of company employees under the chairmanship of the general manager. These meetings play an important role in the decision making process of the senior management of the company.

No model was created for the participation into the management of the other stakeholders.




13. Human Resources PolicyThe Company’s human resources policy aims to ensure the recruitment of a high quality workforce in line with our objectives and strategies. Our corporate organization is set up so as to increase the efficiency of our labor force.

We create healthy and safe working conditions for our employees, as required by the law, and improve on them to the extent of our capacity.

In recruitment, priority is placed on the qualifications required in the vacant position(s). We provide training programs to ensure personal and professional development of our employees. Equal opportunities are offered to employees for their personal development; also, career opportunities are provided to employees.

The Company does not practice any discrimination against employees on the basis of gender, age, ethnic origin or religion.

14. Rules of Ethics and Social Responsibility• Torunlar REIC and its employees and

shareholders are guided by the principles of transparency, integrity and accuracy in the conduct of their activities.

• The Company abides by the law and all legal restrictions governing the Company with respect to its operations.

• The Company respects the rights and freedoms of its employees and other parties with which it interacts. Torunlar REIC always acts honestly in its relations with other companies and observes the principles of fair competition; the Company has formulated its set of ethical rules that cover key principles, which include an expectation of reciprocation in the same vein from its counterparts.

• The rules of ethics are accessible on the corporate website.

In all its operations, our company acts with due care for social responsibility, compliance with laws and environmental values. No lawsuit was filed against the company during this period for environmental damages.

Torunlar REIC has made charitable donation of TL 3,520,000 between the 1st of January 2016 and 31st of December 2016.

On the other hand, in 2016 Torunlar REIC paid TL 750,000 of the TL 3,000,000 which it had committed to “Nation Will Build The Nation’s Assembly” consortium established by the Turkish Real Estate Platform “GYODER” (Real Estate and Real Estate Investment Trust Association) in order to renovate the Turkish Grand National Assembly which was bombed during the coup attempt on the 15th of July.

PART IV – BOARD OF DIRECTORS

15. Structure and Formation of the Board of Directors The management, authority to represent and bind towards third persons is left to the Board of Directors consisting of 7 (seven) members elected by the General Assembly under the provisions of the Turkish Commercial Code for a period of one year, holding the qualifications indicated in the Turkish Commercial Code and Capital Markets Board Legislation.

A and B group shares have the privilege to nominate candidates for the election of members of the Board of Directors. Two of the board of directors members are elected from among candidates nominated by A Group shareholders, two from among those nominated by B Group shareholders and the other three members from among candidates nominated at the General Assembly meeting by the General Assembly. Two of the 3 members elected by the General Assembly are elected from among the independent candidates.


TORUNLAR REIC – MEMBERS OF THE BOARD OF DIRECTORS

Name Position External Positions HeldAziz TORUN Chairman and CEO Member of the board of directors of

various group companiesMehmet TORUN Vice Chairman Chairman and member of the board of

directors of various group companiesMahmut KARABIYIK Member Private legal practice, member on the

boards of directors of associates and other non-group companies

Prof. Dr. Ali ALP Member Academic, member of the board of directors of a company

Haluk SUR Independent Board Member

Member of the Board of Directors of other companies

Aziz YENİAY Independent Board Member

Member of the Board of Directors of other companies

Assoc. Prof. Saim KILIÇ

Independent Board Member

Academic

Members of the Board of Directors have been elected during the 2015 Annual General Meeting held on 24.05.2016 to serve until the next Annual General Meeting.

In accordance with its Principles of Corporate Governance, Torunlar REIC considers that the presence of independent members of the Board of Directors will provide a significant contribution to the development and strengthening of the Company’s activities and for the development of a more professional management concept.

Our Company, in accordance with the 4th Article of the Corporate Governance Communiqué n.II-17.1 of the Capital Markets Board, moved to the second group from the third group while the number of Independent Members of the Board of Directors was increased to 3 in accordance with the Article 4.3, “Board of Directors’ Structure” of the Corporate Governance Principles.

While Aziz Torun, Mehmet Torun, Mahmut Karabıyık, Ali Alp, Saim Kılıç and Aziz Yeniay remained in the positions as members, Haluk

Sur was elected as Independent Member since he complied with the Independency criteria.

Restrictions on directors have been indicated in Article 21 of the articles of association;

In case the members of the Board of Directors who will be the parties to the decisions that will be taken by the board of directors, are not independent members according to the criteria specified by the Board, they are obligated to inform the board of directors about this issue with justifications and register the issue in the meeting minutes. On this issue, Article 393 of the Turkish Commercial Code is reserved.

In determining and implementing prohibitions regarding the directors, the Company acts in compliance with the compulsory principles of the Capital Markets Board’s Corporate Governance Principles and relevant articles of the Turkish Commercial Code.

All the members of our Board of Directors act in compliance with these provisions.




As a principle, candidates for membership in the Board of Directors shall attend the General Assembly meetings where the elections will be made and shall answer the questions that will be directed to them. Notarized “Declaration of Candidacy for the Board of Directors” shall be received from the candidates who cannot attend the meeting. ID information, education levels, experiences, financial status of the candidates as well as level and nature of their relationship with the Company and their other qualifications must be announced at the General Assembly.

Following decisions were taken at the Nomination Committee meeting n. 2016/1 held on the 27th of April 2016 and at the Company ordinary general assembly meeting, within the scope of the assessment made regarding the Members of the Board of Directors, in accordance with the regulations specified in Articles n.4.3 and n.4.5 of the CMB Corporate Governance Principles given in the addendum of the Capital Markets Board Corporate Governance Communiqué n.II-17.1,

To nominate in accordance with Article n.4.3.6 of the Corporate Governance Principles; Mr. Aziz Yeniay, Mr. Saim Kılıç, Mr. Haluk Sur as candidate Independent Members since Mr. Aziz Yeniay and Mr. Saim Kılıç have maintained their independency, and Mr. Haluk Sur has complied with the independency criteria and as a result of their contributions to the Company,

To advise the Board of Directors, to elect Mr. Haluk Sur, Mr. Aziz Yeniay and Mr. Saim Kılıç, at the 2015 Ordinary General assembly meeting, as Independent Members of the Board of Directors, and to assume duty for a one year period.

Résumés of the Members of the Board of Directors are available on the Company website.

Due to the fact that Company’s investments carry on intensively, the same person assumes duty both as the Chairman of the Board of Directors and as the General Manager/CEO in order not to face with any problems in ensuring the coordination of investments.

16. Fundamental Activities of the Board of DirectorsAccording to the company articles of association, the Board of Directors convenes with the call of the chairman or the vice chairman when it is deemed necessary for the operations of the Company. But it is required to convene at least once a month. Each of the members of the Board of Directors or auditors can also request the Board to be convened for meeting by applying to the chairman or the vice chairman in writing. If the Chairman or the Vice Chairman still doesn’t call the Board to a meeting, the members shall be entitled to call ex officio.

The Chairman is responsible for ensuring the board’s meetings, calls and negotiations are properly made and the resolutions made are written to minutes; it fulfills this responsibility through the Secretariat of the Board of Directors.

Each member has one voting right at meetings. Right to vote is exercised in person. Unless one of the members requests a meeting, resolutions can also be made such that members notify their consents in writing for a proposal made by one member.

The meeting agenda of the board of directors is determined by the negotiation of the chairman of the Board of Directors with the other members of the board of directors and the general manager. The meeting agenda can be directly determined by the chairman of the board of directors in emergencies. Agendas can be amended with the resolution of the board of directors.


The place of the meeting is the head office of the Company. But the Board of Directors can also convene at another place provided that it decides so.

The Board of Directors convenes with at least four members and makes its resolutions with the majority of the participants of the meeting. In case of equality of votes, such issue is left for the next meeting. A proposal which also receives equal number of votes at that meeting is deemed to be rejected.

Votes at Board of Directors are exercised as affirmative or negative. A negative voter writes his/her reasonable and detailed refusal grounds under the resolution, signs and notifies to the company’s auditors. Detailed grounds for negative votes of independent members who exercise negative votes are disclosed to public on the website of the company.

Although as a principle the members of the Board of Directors attend meetings in person, as per the Article 1527 of the Turkish Commercial Code they can also attend meetings on electronic platform. As per the provisions of the Communiqué on “Electronic General Assembly meetings in the Trading Companies except General Assemblies of the Joint-Venture Companies”, the Company may decide to establish the Electronic General Assembly System (EGAS) or purchase services from the systems established with this purpose, to enable the entitled persons to attend the meetings on electronic platform and cast their votes. In all General Assembly meetings that will be held, the Company ensures that the entitled persons use their rights stipulated in the relevant legislation within the framework specified in the provisions of the Communiqué, over the system installed in accordance with this provision of the Articles of Association or over the system that the support services will be received.

The opinions of a member who fail to participate in a meeting but notify his/her opinions in writing are presented to the information of other members. Members who are absent in the meeting shall not vote by way of writing, appointing attorneys or other ways.

Unless one of the members of the Board of Directors request a discussion, the Board of Directors may take decisions by getting written approvals of the other members for the proposal submitted by one of the members regarding a specific issue. Decisions can be taken in a manner specified above and by means of getting the written approvals of the members of the Board of Directors. Submitting the same proposal to all members of the Board of Directors is a validity condition for taking a decision in such a manner. Approvals do not have to be on the same paper; however, in order for the decision to be valid, all papers containing the approval signatures must be inserted in the Board of Directors’ decision book or they must be converted to a decision containing the signatures of the approvers and must be registered in the decision book.

During the fiscal period the Board of Directors met 44 times. The meetings were usually held with full participation of the membership.

Board members, including independent members, did not express any disagreement or cast a dissenting vote against any decision.

In the event that unanimity of votes is not secured in the Board of Directors decisions regarding special resolutions as stipulated by Article 20 of the Articles of Association, which are also available on the corporate website, such decision is required to be publicly disclosed along with the grounds therefor within the frame of the CMB requirements governing material events disclosures; they also need to be included in the agenda of




the next general meeting to be held so as to present information to shareholders. There were no such decisions that were not passed unanimously during the reporting period.

17. Number, Structure and Independence of Board of Directors Committees• Early Risk Detection Committee Duties

and Operating Principles Guidelines were drawn up by the General Manager’s Office and adopted in a Board of Directors decision dated 30.03.2012 in an effort to work towards early detection of risks that may threaten the existence, development and continuity of the Company. As implementation of necessary measures in relation to risk identification and risk management remains critical, at the Board of Directors meeting dated 20.03.2014 and numbered 1014/13,

• Audit Committee Duties and Operating Principles Guidelines drawn up by the General Manager’s Office to ensure the efficient operation of the Company’s accounting system, financial data disclosure process, independent audit as well as internal control and internal audit systems;

• Corporate Governance Committee Duties and Operating Principles Guidelines drawn up by the General Manager’s Office in order to outline the working principles of the Corporate Governance Committee which was set up to ensure, monitor and enhance Company’s compliance with corporate governance principles;

• Nomination Committee Duties and Operating Principles Guidelines drawn up by the General Manager’s Office in order to create a transparent system so as to identify, assess and train the right candidates for the Board of Directors and senior management positions, and to formulate policies and strategies;

• Remuneration Committee Duties and Operating Principles Guidelines drawn up by the General Manager’s Office in order to make suggestions and conduct studies about the remuneration principles of the Board of Directors and senior management positions; The operating principles of the committees with the provisions of the Capital Markets Board’s Communiqué on Corporate Governance Serial: II-17.1.

The Committee guidelines, submitted to the General Assembly, are available on the Company web site.

At our Board of Directors Meeting n.2016/20 held on the 30th of May 2016;

Independent Member of the Board of Directors Saim Kılıç was elected as Audit Committee Chairman while Independent Member of the Board of Directors Aziz Yeniay was elected as Audit Committee Member; Independent Member of the Board of Directors Aziz Yeniay was elected as Nomination Committee Chairman while Independent Member of the Board of Directors Saim Kılıç was elected as Nomination Committee Member; Independent Member of the Board of Directors Haluk Sur was elected as Early Risk Detection Committee Chairman while Independent Member of the Board of Directors Aziz Yeniay, Member of the Board of Directors Ali Alp, Assistant General Manager Remzi Aydın and Assistant General Manager İsmail Kazanç were elected as Early Risk Detection Committee Members; Independent Member of the Board of Directors Haluk Sur was elected as Remuneration Committee Chairman while Independent Member of the Board of Directors Aziz Yeniay, Independent Member of the Board of Directors Saim Kılıç and member of the Board of Directors Ali Alp were elected as Remuneration Committee Members; Independent Member of the Board of Directors Saim Kılıç was elected as Corporate


Governance Committee Chairman while Member of the Board of Directors Ali Alp and Corporate Governance practices coordinator Şerife Cabbar were elected as Corporate Governance Committee Members.

The Company has aligned its Board of Directors member structure with the Communiqué on Corporate Governance Principles. Since the Audit Committee has to be composed only of independent Board members, and since the chairmen of the other committees have to be independent Board members, certain members sit on more than one committee. 18. Risk Management and Internal Control Mechanism Risk management was included among the tasks of the Executive Committee in order to systematically manage the risks our Company faces. Aziz Torun, İlham İnan Dündar, Remzi Aydın and İsmail Kazanç were elected to the Executive Committee to represent the risk management system to the Board of Directors. Audit Committee Tasks and Working Principles Directive was issued and Audit Committee was established in order to ensure that the internal and external audit process within the Company is effectively practiced as it adds value to the Company, and that accounting, financial reporting and internal control and related internal systems run smoothly and sufficiently. Independent Member of the Board of Directors Saim Kılıç was elected as the Chairman of the Audit Committee, and Independent Member of the Board of Directors Aziz Yeniay was elected as a member of the Audit Committee.

19. Strategic Goals of the CompanyThe Company aims to secure competitive advantage by pursuing the espoused strategies mentioned above:

• Develop retail-based mixed-use projects and keep focusing on shopping malls;

• Engage in active and dynamic management of shopping malls;

• Monitor the developments in the real estate sector;

• Capitalize on opportunities in areas and property types that offer high growth and development potential;

• Develop crisis management, and thus turn crises into opportunities;

• Play a pioneering role in the sector; develop exemplary projects;

• Employ the technological developments in the real estate and other sectors in new projects so as to create spaces that make life easier;

• Promote the sector ahead of the times through use of technology;

• Combine international consultancy and know-how with our local experiences to build the projects of the future;

• Keep a close eye on value-adding opportunities to provide the highest returns to our shareholders;

• Be a trusted Real Estate Investment Company preferred by the investors by strengthening its position in the sector and distributing the highest dividends.

20. Financial RightsThe Company’s remuneration policy has been created and is taken into consideration when determining the compensations. The remuneration policy is accessible on the corporate website.

The remunerations of the members of the Board of Directors are set by the General Assembly; at the Ordinary General Meeting of 24 May 2016, it has been decided to pay TL 4,000 net in attendance fee to the members of the Board of Directors. In the year 2016, TL 2,079,000 has been paid to the top management for remuneration and benefits.

During the reporting period, the Company has not lent any money, extended any credit, or provided any guarantees such as surety etc. to any member of the Board of Directors or to any executive, nor has there been any extension of period in relation to the same.




FINANCIAL STATEMENTS

The financial statements of our Company are audited by the Independent Audit Firm “Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (a member of PricewaterhouseCoopers) in compliance with the Capital Markets Board’s (CMB) Communiqué (Serial: II n.14.1) on the “Principles of Financial Reporting in Capital Markets” and with the generally accepted accounting principles and standards (GAAPs). Pursuant to Article 5 of the Communiqué, the Company complies with Turkish Accounting Standards/Turkish Financial Reporting Standards (TMS/ TFRS) and relevant annexes and comments, issued by the Public Oversight, Accounting and Auditing Standards Authority of Turkey (KGK).

In keeping the accounting records and preparing the statutory financial statements, the Company abides by the requirements of the Turkish Commercial Code (TTK), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The attached financial statements, which reflect the fair value measurements of financial assets and liabilities, are based on historical cost accounting and are in Turkish lira (TL). These statements are the result

of corrections and classifications made to the statutory TMS/TFRS records based on historical cost accounting, in order to ensure an accurate presentation.

Our Company’s financial statements were issued within the framework of the Capital Markets Board communique n.XII-14.1 and the announcements made to clarify this communique, in conformity with the Turkish Accounting Standard n.34 “Interim Period Financial Reporting”. Interim period financial statements and footnotes were issued including the compulsory information in conformity with the formats recommended by the Capital Markets Board.

Our Company is audited by the independent audit company PwC Independent Audit and Financial Consultant Inc.


TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2016 (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)

TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.

CONVENIENCE TRANSLATION INTO ENGLISH OF FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2016TOGETHER WITH INDEPENDENT AUDITOR’S REPORT(ORIGINALLY ISSUED IN TURKISH)

142

Torunlar GYO Annual Report 2016

Torunlar GYO Annual Report 2016 143

144



CONTENTS PAGE

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) 146-147

STATEMENT OF COMPREHENSIVE INCOME 148

STATEMENT OF CHANGES IN EQUITY 149

STATEMENTS OF CASH FLOW 150

NOTES TO THE FINANCIAL STATEMENTS 151-231

NOTE 1 COMPANY’S ORGANIZATION AND NATURE OF OPERATIONS 151-154NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 155-181NOTE 3 SEGMENT REPORTING 182-184NOTE 4 CASH AND CASH EQUIVALENTS 185-186NOTE 5 FINANCIAL LIABILITIES 186-188NOTE 6 PREPAID EXPENSES AND DEFERRED EXPENSES 189NOTE 7 TRADE RECEIVABLES AND PAYABLES 190-191NOTE 8 DERIVATIVE INSTRUMENTS 191-192NOTE 9 INVESTMENT PROPERTIES 193-195NOTE 10 INVENTORIES 195-196NOTE 11 PROPERTY, PLANT AND EQUIPMENT 197NOTE 12 OTHER ASSETS AND LIABILITIES 198NOTE 13 OTHER RECEIVABLES AND PAYABLES 199NOTE 14 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD 199-200NOTE 15 PROVISIONS 200-201NOTE 16 COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES 201-202NOTE 17 EQUITY 203-205NOTE 18 REVENUE AND COST OF REVENUE 205-206NOTE 19 GENERAL ADMINISTRATIVE AND MARKETING, SELLING AND DISTRIBUTION EXPENSES 206NOTE 20 EXPENSES BY NATURE 207NOTE 21 OTHER INCOME/EXPENSES 208NOTE 22 FINANCIAL INCOME/EXPENSES 209NOTE 23 EARNINGS PER SHARE 209NOTE 24 TAX ASSETS AND LIABILITIES 210NOTE 25 BALANCES AND TRANSACTIONS WITH RELATED PARTIES 210-212NOTE 26 FAIR VALUE OF FINANCIAL INSTRUMENTS 213-215NOTE 27 FINANCIAL RISK MANAGEMENT 215-227NOTE 28 SUBSEQUENT EVENTS 228NOTE 29 ADDITIONAL NOTES: CONTROL OF COMPLIANCE WITH THE PORTFOLIO LIMITATIONS 229-231

TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.FINANCIAL STATEMENTS AT 31 DECEMBER 2016

146

TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2016 AND 2015(Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)

Notes

Audited 31 December

2016

Audited 31 December

2015ASSETS

Current Assets 1,901,282 2,349,082

Cash and cash equivalents 4 511,204 903,447Trade receivables 7 205,256 197,366

-Trade receivables due from related parties 7, 25 10,166 19,227-Trade receivables due from third parties 7 195,090 178,139

Other receivables 13 1,221 975-Other receivables due from third parties 1,221 975

Inventories 10 1,066,462 1,131,546Prepayments 6 96,466 100,980Derivative financial assets 8 1,198 11,915Other current assets 12 19,475 2,853

Non-current Assets 8,476,398 6,513,427

Trade receivables 7 70,926 103,734-Trade receivables due from third parties 70,926 103,734

Inventories 10 137,135 174,059Investments accounted for using equity method 14 328,158 321,388Investment properties 9 7,753,884 5,751,336Property, plant and equipment 11 2,962 2,680Intangible assets and goodwill 568 553

-Other intangible assets 568 553Prepayment 6 91,734 92,468Other non-current assets 12 91,031 67,209

Total Assets 10,377,680 8,862,509

The financial statements at 31 December 2016 were authorized for issue by Assistant General Manager İsmail Kazanç and Accounting Manager Erkan Çetin.

The accompanying notes form an integral part of these condensed financial statements.



TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2016 AND 2015(Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)

Notes

Audited 31 December

2016

Audited 31 December

2015LIABILITIES

Current liabilities 2,386,785 1,378,129

Current borrowings 5 144,096 751,182Current portion of non-current borrowings 5 1,104,235 149,170Other payables 13 33,420 15,606

- Other payables to third parties 33,420 15,606Derivative financial liabilities 8 4,450 4,195Trade payables 7 141,262 170,227Trade payables to related parties 7, 25 31,020 27,069Trade payables to third parties 7 110,242 143,158Employee benefit obligations 2,087 1,141Current tax liabilities 360 -Current provisions 15 15,508 21,255

- Other current provisions 15,508 21,255Other current liabilities 12 5,871 5,618Deferred income 6 935,496 259,735

Non-current liabilities 2,017,346 2,623,292

Long-term borrowings 5 1,798,097 1,905,001Non-current provisions 15 799 749

- Non-current provision for employee benefits 799 749Deferred income 6 218,450 717,542

Equity 5,973,549 4,861,088

Equity attributable to owners of parent 5,973,549 4,861,088

Issued capital 17 500,004 500,000Share premium 17 25,770 25,770Restricted reserves appropriated from profits 53,732 37,852

- Legal reserves 17 53,732 37,852Treasury shares 17 (1,195) (1,195)Prior Years’ profit 17 4,222,854 3,345,057Current period net profit 17 1,172,384 953,604

Total liabilities and Equity 10,377,680 8,862,509


148

TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015(Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)

Notes

Audited 1 January -

31 December 2016

Audited 1 January -

31 December 2015

PROFIT AND LOSSES

Revenue 18 665,677 628,038Cost of sales (-) 18 (273,417) (250,444)

GROSS PROFIT COMMERCIAL OPERATIONS 392,260 377,594

General and administrative expenses (-) 19 (39,037) (27,028)Marketing expenses (-) 19 (9,431) (8,055)Other income from Operating Activities 21 1,323,830 1.025.661Other expenses from Operating Activities (-) 21 (14,738) (13,220)

PROFIT FROM OPERATIONS ACTIVITIES 1,652,884 1,354,952

Share of profit from investments accounted for using equity method 14 25,845 50,139

PROFIT BEFORE FINANCE INCOME/(EXPENSE) 1,678,729 1,405,091

Finance income 22 72,972 58,571Finance expense (-) 22 (576,600) (506,950)

PROFIT/(LOSS) BEFORE CONTINUING OPERATIONS, BEFORE TAX 1,175,101 956,712

Current period tax expense 24 (2,717) (3,108)

PROFIT FROM CONTINUING OPERATIONS 1,172,384 953,604

PERIOD PROFIT FROM DISCONTINUED OPERATIONS - -

PROFIT 1,172,384 953,604

Basic Earnings Per Share from Continuing Operations 23 2.34 1.91

OTHER COMPREHENSIVE INCOME

Other comprehensive income that will not be reclassified to profit or loss - -

Other comprehensive income that will be reclassified to profit or loss - -

OTHER COMPREHENSIVE INCOME - -

TOTAL COMPREHENSIVE INCOME 1,172,384 953,604




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150

TORUNLAR GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015(Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)

Notes1 January -

31 December 20161 January -

31 December 2015

CASH FLOWS FROM OPERATING ACTIVITIES 168,571 558,522

Profit for the year 1,172,384 953,604

Adjustments related to reconciliation of profit / (loss) for the period (721,989) (610,792)

Adjustments related with unrealized foreign exchange differences 535,908 471,420Adjustments related with interest income and expenses 21 69,058 66,931Adjustments related with provisions 4,535 19,266Adjustments related with depreciation and amortization 19 760 1,071Adjustments related with tax expense 23 2,717 3,108Adjustments related with decrease in fair value of derivative financial instruments 22 1,675 11,175Adjustments related with increase in fair value of investment properties 21 (1,310,797) (1,001,470)Share of profit of associates accounted under equity method 14 (25,845) (50,139)

Changes in working capital (279,288) 219,843

Adjustments related to (increase) / decrease in other receivables (40,690) 129,907Adjustments related with increase in other payables 13,266 5,984Adjustments related to increase in inventory (425,428) (191,880)Adjustments related to decrease / (increase) in trade receivables 20,612 (186,031)Adjustments related to decrease in trade payables (28,965) (49,816)Adjustments related to decrease/(increase) in prepaid expenses 5,248 (60,647)Adjustments related to increase in deferred revenue 176,669 572,326

Cash flows generated from operating activities 171,107 562,655

Taxes paid (2,357) (3,925)Payments related with provisions for employee benefits (179) (208)

CASH FLOWS USED IN INVESTING ACTIVITIES (106,051) (67,999)

Dividends received 14 19,075 14,392Cash outflows from purchase of tangible and intangible assets (1,057) (2,199)Cash ouflows from purchase of investment properties (124,069) (53,392)Cash flows used in obtaining control of subsidiaries or other businesses - (29,616)Other inflows of cash - 2,816

CASH FLOWS FROM FINANCING ACTIVITIES (463,804) (387,945)

Interest received 75,820 50,353Cash inflow from borrowings 2,401,739 447,293Cash outflow from repayment of borrowings (2,726,117) (691,062)Interest paid (164,616) (134,902)Dividends paid 17 (59,927) (49,939)Cash inflows from derivatives 12,193 799Cash outflow from derivatives (2,896) (10,487)

Net (decrease) / increase in cash and cash equivalents before currency translation differences (401,284) 102,578

Effect of currency translation differences on cash and cash equivalents 14,386 17,502

Net (decrease) / increase in cash and cash equivalents (386,898) 120,080

Cash and cash equivalents at the beginning of the period 4 893,899 773,819

Cash and cash equivalents at the end of the period 4 507,001 893,899





NOTE 1 - COMPANY’S ORGANIZATION AND NATURE OF OPERATIONS

Torunlar Gayrimenkul Yatırım Ortaklığı Anonim Şirketi (“Torunlar REIC” or “the Company”) has been incorporated on 1996, which was registered as Toray İnşaat Sanayi ve Ticaret A.Ş. in İstanbul, Turkey. With a change in the Articles of Association published on Trade Registry Gazette on 25 January 2008, the Company has been converted into Real Estate Investment Company (“REIC”) with the trade name Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. and was registered on 21 January 2008, the Company’s stocks have been traded at the BORSA İSTANBUL since 21 October 2010 and registered to Capital Markets Board (CMB). As of 31 December 2016, Torunlar REIC is active in Turkey and the total number of employees is 234 (31 December 2015: 175) and the main shareholders of Torunlar REIC are the Torun family members (Note 17).

The Company is registered in İstanbul Trade Registry Office in Turkey in the below address:

Rüzgarlıbahçe Mahallesi Selvi Çıkmazı Sokak No: 4 Beykoz 34805 İstanbul / Turkey.

The Company’s main scope of operation is to engage in written objectives and subjects stipulated in the Communiqué on real estate investment companies published by the Capital Markets Board of Turkey (“CMB”) such as investing in real estate, capital market instruments based on real estate, real estate projects and capital market instruments.

In accordance with Board of Directors Meeting that held in 27 September 2016 between TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. and Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş,it has been decided that the TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. will be completely merged into Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. with all of it’s assets and liabilities. This decision has been officialy registered by T.C. İstanbul Registry of Commerce in 27 December 2016 and the consolidation has been realized. Therefore; the company has no subsidiaries as of 31 December 2016. As of 31 December 2015, the subsidiaries of Torunlar Gayrimenkul Yatırım Ortaklığı A.Ş. are as follows:

Subsidiaries

The Subsidiaries of Torunlar REIC operate in Turkey and the natures of their business are as follows (Note 2):

Subsidiary Nature of businessTRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. (“TRN”)

Real Estate Project Development and Management

Hastalya Motorlu Vasıtalar Ticaret ve Sanayi A.Ş. (“Hastalya”)

Real Estate and Securities Purchase and Sale

152


TRN

In accordance with the Extraordinary General Assembly Meeting held on 9 March 2010, the Company has transferred Antalya Deepo Mall located in Antalya City, Centre County, Koyunlar Village which was unfavorable for it to retain in its investment portfolio due to its current zoning situation, to a newly incorporated subsidiary of the Company, TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. (“TRN”) by “spin-off”. Additionally, the immovable located in Antalya city Koyunlar village, which are not included in the shopping mall concept, however considered to be useful to maintain the conceptual integrity and to enable the implementation of additional projects for a future potential percolation plan are also transferred to TRN. The incorporation of TRN was approved by İstanbul Trade Register as at 31 March 2010.

Hastalya

In accordance with the 2015/27 numbered Board of Directors’ decision dated 29 September 2015, the Company has purchased shares of Hastalya Motorlu Vasıtalar Ticaret ve Sanayi A.Ş. (99.67%) that has a land adjacent to Antalya Deepo Shopping Mall at a price of TL 29,616.The company is planning to develop an enlargement project of Antalya Deepo Shopping Center on the land belonging to Hastalya.

Hastalya Motorlu Vasıtalar Ticaret ve Sanayi A.Ş has been merged into TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş.by dissolution without liquidation and all the assets and liabilities of Hastalya has been transferred to TRN as a whole according to the decision taken by TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. and Hastalya Motorlu Vasıtalar Ticaret ve Sanayi A.Ş.’s General Assembly dated on 29 March 2016. The decision has been registered by İstanbul Trade Registry Office as of 31 March 2016 and the merger has been completed.

Joint Ventures

The joint ventures of Torunlar REIC operate in Turkey and the nature of their business, the business segment and joint venture partners are as follows (Note 2):

Joint venture Nature of business Joint venture partner

Torunlar ÖzyazıcıProject Partnership (“Torunlar Özyazıcı”) Real estate project

Özyazıcı İnşaat Elektrik, Makine, Müşavirlik ve Taah.

Ltd. Şti.TTA Gayrimenkul Yatırım Geliştirme ve Yönetim A.Ş. (“TTA”) A.Ş. Shopping mall project

Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret




Torunlar Özyazıcı

Torunlar Özyazıcı has been incorporated as an ordinary partnership with a joint venture agreement on 26 January 2009. The subject of the joint venture is to conduct construction and sales of the housing development project Nishistanbul in Yenibosna İstanbul. This project includes 63 offices, 585 residences and 52 shops in 4 blocks each with 17 floors.

In accordance with the revenue sharing agreement signed between Torunlar Özyazıcı and land owner of the project, 31% of total project revenues will be distributed to the land owner and the remaining 69% portion will be shared to between the joint ventures as 60% Torunlar REIC and 40% Özyazıcı İnşaat Elektrik, Makine, Müşavirlik ve Taah. Ltd. Şti..

TTA

TTA Gayrimenkul Yatırım ve Yönetim A.Ş. has been incorporated on 7 January 2010 following the win of the tender related to the old cigarette factory and its auxiliary buildings which are located in Samsun, İlkadım district, 205 lot, 2, 8, 9, 10, 11, 12, 13, 14 parcels and 376 lot, 1 parcel and 377 lot, 5 parcel whose ownership is registered to Samsun Metropolitan Municipality. The project includes, by the approval of Samsun Cultural and Natural Heritage Protection Regional Committee; the renovation as shopping mall and/or hotel; constructing two stores underground car park and facilitating the right of operation to Samsun Metropolitan Municipality; operating for 30 years with a limited incorporeal right (permanent and individual usufruct right) on land registry by the same term and providing a certain share of the revenue of shopping mall and/or hotel to Samsun Metropolitan Municipality; delivering the project to Samsun Metropolitan Municipality at the end of the 30 year term.

In August 2011, 450,000 shares which were previously owned by Turkmall Gayrimenkul Geliştirme Yönetim ve Yatırım A.Ş. and valued nominally as TL450,000 and 50,000 shares which were previously owned by Ahmet Demir and valued nominally as TL50,000 were transferred to Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret A.Ş. After the transfer, the shareholding structure of TTA is 40% Torunlar REIC, 8% Torunlar Gıda Sanayi Ticaret A.Ş., 1% Aziz Torun, 1% Mehmet Torun and 50% Anaterra Gayrimenkul Yatırım İnşaat ve Ticaret A.Ş. The construction of the TTA Bulvar Samsun Mall project has been started in 2011 and the Mall started to operate on July 2012.

154


Associates

The Associates of Torunlar REIC are incorporated in Turkey and their primary operations and nature of businesses are stated below:

Associate Nature of business

Yeni Gimat GYO A.Ş. (“Yeni Gimat”)Owner of Ankamall Shopping Mall and

Crowne Plaza HotelNetsel Turizm Yatırımları A.Ş. (“Netsel”) Management of Marmaris Marina

Yeni Gimat

Yeni Gimat has been incorporated by participation of 1,050 individual shareholders as founding members on 30 July 1999. The entity owns Ankamall Shopping Mall since 2006 and Ankara Crowne Plaza Hotel since 2007. While the Company owns 14.83% of Yeni Gimat shares and Torunlar family members also own another 5% of Yeni Gimat, as a result the Company has significant influence on Yeni Gimat and is also represented in the Board of Directors. The investment in Yeni Gimat is accounted by the equity method in the financial statements.

Netsel

Netsel has been incorporated by Net Turizm Ticaret and Sanayi A.Ş. and Yüksel İnşaat A.Ş. on 6 October 1987. The coastal property operated by Netsel, has been leased from Ministry of Culture and Tourism for 49 years on 22 December 1988. Net Turizm sold its shares to Marmara Bank on 1992 and Yüksel İnşaat sold its shares to Çukurova Group in 1994. Following the liquidation process of Marmara Bank, 44.60% of Netsel was sold to Torunlar REIC in accordance with share transfer agreements on 31 May 2005 and 7 June 2005 respectively and 55% of Netsel was transferred to Tek-Art Kalamış and Fenerbahçe Marmara Turizm Tesisleri A.Ş. (a subsidiary of Koç Holding A.Ş.) in accordance with share transfer agreement on 22 August 2005 as a privatization transaction. The remaining 0.40% belongs to Torun family.




NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

2.1 Basis of preparation

Accounting standards

Preparation of the financial statements

The Company maintains their books of account and prepares their statutory financial statements (“Statutory Financial Statements”) in TL in accordance with the Turkish Commercial Code (“TCC”), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance, accounting principles issued by the TAS/TFRS for listed companies. These financial statements are based on the statutory records, which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the TAS/TFRS Financial Reporting Standards.

The financial statements as at 31 December 2016 of the Company, have been approved by the Board of Directors on 27 February 2017. General assembly has the right to change the financial statements.

Declaration of conformity to TAS

The financial statements of the Company have been prepared in accordance with the communiqué numbered II-14,1 “Communiqué on the Principles of Financial Reporting In Capital Markets” (“the Communiqué”) announced by the Capital Markets Board (“CMB”) (hereinafter will be referred to as “the CMB Accounting Standards”) on 13 June 2013 which is published on Official Gazette numbered 28676. In accordance with article 5th of the CMB Accounting Standards, companies should apply Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) and interpretations regarding these standards as adopted by the Public Oversight Accounting and Auditing Standards Authority (“POA”).

Accounting for the effects of hyperinflation

With the decision taken on 17 March 2005, the CMB has announced that, effective from 1 January 2005, for companies operating in Turkey and preparing their financial statements in accordance with CMB Financial Reporting Standards the application of inflation accounting is no longer required. Accordingly, the Company did not apply TAS 29 “Financial Reporting in Hyperinflationary Economies” issued by IASB in its financial statements for the accounting periods starting 1 January 2005.

Functional and presentation currency

Items included in the financial statements of the company is measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Company’s functional and presentation currency is thousand TL.

156


Joint Ventures

Joint Ventures are companies in respect of which there are contractual arrangements through which an economic activity is undertaken subject to joint control by the Company and one or more other parties. The Company exercises such joint control through the power to exercise voting rights relating to shares in the companies as a result of ownership interest directly and indirectly by itself.

Joint ventures have been accounted for using the equity method in accordance with clauses of TFRS 11 “Joint Arrangements” which has been effective from 1 January 2013. Under the equity method, investments in the joint ventures are carried in the statement of financial position at cost plus post acquisition changes in the Company’s share of net assets of the joint venture and the comprehensive income reflects the share of the results of operations of the joint ventures. Where there has been a change recognized directly in the equity of the joint ventures, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. When the Company has rights only to the net assets of the arrangements, it accounts for its interest using the equity method according to the Standard TAS 28.

As of 31 December 2016 and 2015 Torunlar REIC’s share in the Joint Ventures is a follows:

31 December 2016 (%) 31 December 2015 (%)Torunlar Özyazıcı 60.00 60.00TTA 40.00 40.00

Torunlar Özyazıcı and TTA joint ventures have been incorporated on 26 January 2009 and 18 October 2010, respectively. They were included to consolidate financial statements with proportional consolidation method until 31 December 2012 in accordance with clauses of TAS 31 “Interest in Joint Ventures” which ceased to be effective on 1 January 2013. As of 1 January 2013, they have been included to financial statements with equity method in accordance with TFRS11 and comparative information in the previous period’s financial statements have been restated in this context.




Interest in Joint Ventures on combined basis

31 December 2016 31 December 2015Current assets 77,341 82,353Non-current assets 128,872 146,336

Total assets 206,213 228,689

Short term liabilities 39,331 40,521Long term liabilities 38,309 44,846Equity 128,573 143,322

Total liabilities and equity 206,213 228,689

Net loss of the year (14,749) (3,399) Associates

Investments in Associates, over which the company has significant influence, but which it does not control, are accounted for by the equity method of accounting. The company’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the company’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates. Carrying amount in the date of termination of significant influence, presented with fair value if fair value after this date can be measured securely, otherwise, presented with cost value.

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Torunlar REIC’s effective ownership interests in its associates as at 31 December 2016 and 2015 are as follows (%):

31 December 2016(%) 31 December 2015(%)Netsel 44.60 44.60Yeni Gimat 14.83 14.83

Interest in associates on combined basis (*)

31 December 2016 31 December 2015Total assets 1,888,745 1,790,358Total liabilities 30,070 24,667Net profit of the year 194,812 314,055

(*) These combined balances represent amounts presented in the financial statements of associates which is accounted by the equity method after their classifications and adjustment entries for the equitymethod.

Interest in Yeni Gimat

31 December 2016 31 December 2015Total assets 1,860,018 1,756,939Total liabilities 18,307 11,958Net profit of the year 185,920 302,766

Interest in Netsel

31 December 2016 31 December 2015Total assets 28,727 33,419Total liabilities 11,763 12,709Net profit of the year 8,892 11,289 Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

Going concern

The Company’s financial statements are prepared under the going concern assumption.




2.2. Changes in accounting policies

Material changes in accounting policies are corrected, retrospectively; by restating the prior periods’ financial statements.

Changes in standards and interpretations

Company has been performed reviews in the current period which is issued by Turkey Accounting Standards Board (TASB) and TASB Turkey Financial Reporting Interpretations Committee (IFRIC) and is valid for the period that is beginning on 31 December 2016 the new and revised TAS / TFRS on the amendments and interpretations of the Company 'in changes that impact on the financial statements.

a) The new standards, amendments and interpretations which are effective for the financial statements as of 31 December 2016

- TFRS 14 ‘Regulatory deferral accounts’, effective from annual periods beginning on or after 1 January 2016. TFRS 14, ‘Regulatory deferral accounts’ permits first–time adopters to continue

to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt TFRS. However, to enhance comparability with entities that already apply TFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items.

- Annual improvements 2014, effective from annual periods beginning on or after 1 January 2016. These set of amendments impacts 4 standards:

• TFRS 5, ‘Non-current assets held for sale and discontinued operations’ regarding methods of disposal.

• TFRS 7, ‘Financial instruments: Disclosures’, (with consequential amendments toTFRS 1) regarding servicing contracts.• TAS 19, ‘Employee benefits’ regarding discount rates.• TAS 34, ‘Interim financial reporting’ regarding disclosure of information.

- Amendment to TFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation, effective from annual periods beginning on or after 1 January 2016. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions.

- Amendments to TAS 16 ‘Property, plant and equipment’, and TAS 41, ‘Agriculture’, regarding bearer plants, effective from annual periods beginning on or after 1 January 2016. These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. It has been decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of TAS 16, instead of TAS 41. The produce growing on bearer plants will remain within the scope of TAS 41.

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- Amendment to TAS 16, 'Property, plant and equipment' and TAS 38, 'Intangible assets', on depreciation and amortisation, effective from annual periods beginning on or after 1 January 2016. In this amendment the it has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. It is also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.

- Amendments to TAS 27, ‘Separate financial statements’ on the equity method, effective from annual periods beginning on or after 1 January 2016. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

- Amendment to TFRS 10 ‘Consolidated financial statements’ and TAS 28, ‘Investments in associates and joint ventures’, effective from annual periods beginning on or after 1 January 2016. These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries.

- Amendment to TAS 1, ‘Presentation of financial statements’ on the disclosure initiative, effective from annual periods beginning on or after 1 January 2016, these amendments are as part of the TASB initiative to improvepresentation and disclosure in financial reports.

b) The new standards, amendments and interpretations introduced to the prior Financial Statements as of 31 December 2016

- Amendments to TAS 7 ‘Statement of cash flows’ on disclosure initiative, effective from annual periods beginning on or after 1 January 2017. These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the TASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved.

- Amendments TAS 12 ‘Income Taxes’, effective from annual periods beginning on or after 1 January 2017. The amendments clarify the accounting for deferred tax where an asset is

measured at fair value and that fair value is below the asset’s tax base. It also clarify certain other aspects of accounting for deferred tax assets.

- Amendments to TFRS 2, ‘Share based payments’ on clarifying how to account for certain types of share-based payment transactions, effective from annual periods beginning on or after

1 January 2018. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in TFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority.




- TFRS 9 ‘Financial instruments’, effective from annual periods beginning on or after 1 January 2018. This standard replaces the guidance in TAS 39. It includes requirements on the

classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model.

- TFRS 15 ‘Revenue from contracts with customers’, effective from annual periods beginning on or after 1 January 2018. TFRS 15, ‘Revenue from contracts with customers’ is a converged standard from the TASB and TASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally.

- Amendment to TFRS 15, ‘Revenue from contracts with customers’, effective from annual periods begining on or after 1 January 2018. These amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of those areas of guidance. The TASB has also included additional practical expedients related to transition to the new revenue standard.

- TFRS 16 ‘Leases’, effective from annual periods beginning on or after 1 January 2019, This standard replaces the current guidance in TAS 17 and is a farreaching change in accounting by lessees in particular. Under TAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). TFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The TASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the TASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under TFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

- Amendments to TFRS 4, ‘Insurance contracts’ regarding the implementation of TFRS 9, ‘Financial instruments’, effective from annual periods beginning on or after 1 January 2018. These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will:

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• give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when TFRS 9 is applied before the new insurance contracts standard is issued; and give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying TFRS 9 until 2021. The entities that defer the application of TFRS 9 will continue to apply the existing financial instruments standard-TAS 39.

- Amendment to TAS 40, Investment property’ relating to transfers of investment property, effective from annual periods beginning on or after 1 January 2018. These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence.

- Annual improvements 2014–2016, effective from annual periods beginning on or after 1 January

2018. These amendments impact 3 standards:

• TFRS 1,’ First-time adoption of TFRS’, regarding the deletion of short-term exemptions for first-time adopters regarding TFRS 7, TAS 19, and TFRS 10 effective 1 January 2018.

• TFRS 12,’Disclosure of interests in other entities’ regarding clarification of the scope of the standard. These amendments should be applied retrospectively for annual periods beginning on or after 1 January 2017.

• TAS 28,’Investments in associates and joint ventures’ regarding measuring an associate or joint venture at fair value effective 1 January 2018.

- TFRS 22,’ Foreign currency transactions and advance consideration’, effective from annual periods beginning on or after 1 January 2018. This TFRS addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice.

Above mentioned amendments to the standards effects to its operations will be evaluated by the Company and if necessary will be effective at validity date.




2.3. Comparative information and reclassifications in the previous period’s financial statements

In order to enable consistent presentation of the financial status and performance trends, the financial statements of the Company are being prepared in comparison to the previous period. When the presentation or the classification of a financial item changes, in order to get the comparability, the previous period’s are classified accordingly and related explanations are done.

TAS 19 Effect

TAS 19 has been revised with effect from 1 January 2013. Accordingly, actuarial gains / losses related with employee benefits should be reflected in other comprehensive income. Aforementioned revision has not been applied to financial statements due to immaterial effect (Note 15).

2.4. Summary of significant accounting policies

Significant accounting policies applied during the preparation of the financial statements are summarized as follows:

Cash and cash equivalents

Cash and cash equivalents are comprised of cash, bank deposits with maturity periods of less than three-months and other highly liquid short-term investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value (Note 4).

Due from related parties

Close relatives of members of the Board of Directors and Senior Executives, and organizations that Company can able to control directly or indirectly are defined as related parties. Book value of receivables from related parties close to its fair value (Note 25).

Foreign Currency Transactions

Transactions in foreign currencies are translated into TL at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to TL at the exchange rate at that date. Gains or losses on translation of foreign currency denominated transactions to TL are recognized in profit of loss.

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Financial assets

Classification

The Company has the following financial assets, cash and cash equivalents and trade receivables. The Management does the classification of the financial assets according to their acquired dates.

a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets.

Trade receivables generally consist of receivables from sales on credit terms based on preliminary sale agreements and rent receivables from shopping malls.

b) Derivative financial instruments

The company applies rate swap, forward and option transactions in order to provide an economic hedge of the company’s cash flow risks arising from its borrowings, however; instruments have been accounted under the “Other financial liabilities” account balance in the financial statements due to not including necessary documentation requirements in terms of risk accounting according to TAS 39 “Recognition of financial instruments”.

Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date - the date on which the Company commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets except for these that are carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognized at fair value, and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Derivative financial instruments are initially recognized at cost and subsequently re-measured at fair value. Unrealized gains and losses arising from the changes in the fair values of these instruments are accounted in the statement of comprehensive income.




Derivatives which have positive fair value are recognized in assets, derivatives which have negative fair value are recognized in liabilities in the financial statements.

Impairments related to trade receivables are explained in the accounting policies related to trade receivables.

Trade receivables and payables

Trade receivables which arise from providing with a product or service to a purchaser by the company, are recognized net of unaccrued financing income. Trade receivables of the Company are initially recognized at fair value and subsequently carried at amortized cost using the effective interest rate method. Short term receivables with no stated interest rate are measured at original invoice amount unless the effect of imputing interest is significant (Note 7).

An impairment provision for trade receivables is established if there is objective evidence that the Company will not be able to collect all amounts due in accordance with the original agreement terms. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted based on the original effective interest rate of the originated receivables at inception.

If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is reversed through other operating income.

Trade payables consist of payables to suppliers for purchases of goods and services. Trade payables and other financial liabilities are accounted for at amortized cost. Payable amounts in the subsequent period of recorded payables from original invoice values of trade payables and other liabilities after unaccrued financial liabilities are calculated with discounted based on the original effective interest rate.

Advances received

Advances received comprise amounts received from customers who entered into preliminary sales contracts with the Company for its housing projects. Therefore, these amounts have been classified as short and long term based on the estimated delivery date of the underlying housing units.

The advances received for other operational activities are classified as short-term and long-term according to nature and duration of advances. Foreign currency advances given to the suppliers and subcontractors within the scope of the projects being developed are not subject to exchange rate valuation.

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Foreign currency advances received from legal and real persons regarding residential and office projects; Is subject to exchange rate valuation when the advance received is from the real persons and the payment obligation does not end until the delivery of residence or office and is not subject to exchange rate valuation when the advance received is from legal persons and there is no obligation regarding repayment of the advance received.

Financial liabilities and borrowing costs

Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method in financial statements. Borrowings are subsequently stated at amortized cost using the effective yield method in financial statements. For the projects starting after the 1 January 2009, the borrowing costs are capitalized as a part of the qualifying assets which are directly attributable with the construction or production of the regarding assets if it takes significant time to get ready to use or sale (“Qualifying Assets”). The Company has applied “allowed alternative treatment” in accordance with the previous TAS 23 for periods before 1 January 2009 and started to apply TAS 23 revised for periods starting 1 January 2009.

Financial lease

The Company as the lessee

Finance leases

Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Equipment acquired via finance leases are installed in investment properties (elevators, escalators etc.) and therefore considered an integral part of these investment properties. These investment properties are carried at fair value in the financial statements and therefore the cost of this equipment is not accounted for separately. Obligations under finance leases are accounted for under the “Financial liabilities” account balance on the balance sheet.

There are sales and lease back agreements for the equipments in the shopping malls. These contracts, in accordance with TAS Comment 27, are essentially treated as a financial liability and recognized as financial liabilities in the financial statements. Assets within the scope of sale and leaseback contract; Air conditioning and cooling systems, elevators and escalators and electronic devices.

As of 31 December 2016, the Company has a pecuniary obligation of EUR 25,578 and the contract duration is 5 years (Note 5).




Operational leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

The Company as the lessor

Operational leases

In operational leases, leased assets are classified under investment property in the balance sheet and the lease income received is reflected to the comprehensive income statement on an equal basis over the lease term. Rental income is reflected to the comprehensive income statement on a straight-line basis over the lease term. Rental income, which is the principal activity of the Company, is classified under income (Note 18).

Current and deferred income taxes

The Company is exempt from corporate income taxes in accordance with paragraph d-4 of Article 5 of the Corporate Income Tax Law. In accordance with paragraph 6-a of Article 94 of the Income Tax Law, the earnings of the real estate investment trusts are subject to withholding taxes, with Council of Ministers decision No, 93/5148, the withholding rate is determined as "0", Therefore, the Company has no tax obligation over its earnings for the related period. The TRN, which was established as a joint stock company and which merged with Torunlar REIC as of 27 December 2016, was taxpayer as of 27 December 2016. Accrued corporation tax liability as of this date has been transferred to Torunlar REIC.

Employment termination benefits

Provision for the employee termination benefits shows the present value of total liabilities resulting from retirement of personnel in the future for the company in accordance with Turkish Labor Law. Under the Turkish Labor Law, the Company is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). Since the legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of service prior to retirement. The amount payable consists of one month’s salary limited to a maximum of TL 4,297 amount as of 31 December 2016 (31 December 2015: TL 3,828).

Provision is related to fair value of defined benefit plan calculated with the method of estimated liability. All actuarial profit and losses are accounted under consolidate comprehensive income statement.

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TFRS requires actuarial valuation methods to be developed to estimate the enterprise’s obligation for such benefits. The liability for this unfunded plan recognized in the balance sheet is the full present value of the defined benefit obligation at the end of the reporting period, calculated using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows from the retirement of its employees using the long term TL interest rates.

The principal actuarial assumption is that the maximum liability will increase in line with inflation. Thus the effective discount rate applied represents the expected real interest rate after adjusting for the effects of future inflation. As the maximum liability amount is revised semi-annually by the authorities, the maximum amount of TL 4,426 which is effective from 1 January 2017 (1 January 2016: TL 4,092) has been taken into consideration when calculating the liability. TAS 19 had been regulated to be effective from 1 January 2013. According to this regulation, the actuarial (loss)/gain from employee benefits should be accounted under comprehensive income. Due to the insignificance of its impact to the financial statements, mentioned change has not been applied (Note 15).

Provisions, contingent assets and liabilities

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognized for future operating losses.

Contingent assets or contingent obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company are not included in financial statements and are treated as contingent assets or liabilities.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost elements included in inventories consist of the cost of lands which is held for residential construction for sale by the Company and residential construction in process on these lands. Cost of inventories includes all purchase costs, conversion costs and other costs incurred in bringing the inventories to their present state and position. The unit cost of inventories is determined using the lower of cost or net realizable value. Borrowing costs of the Inventories (Inventories that are identified as qualifying asset according to TAS 23) which the construction has started before 1 January 2009 are not capitalized but the borrowing costs that can be attributed to the projects that are started after 1 January 2009 are capitalized. The lands that are or will be used for residential constructions are evaluated in Inventory. Inventories are classified as short-term and long-term, taking into account the expected completion date of residential construction (Note 10).

Property, plant and equipment and related depreciation

Property and equipment are carried at cost less accumulated depreciation and provision for impairment, if any. Any directly attributable costs of setting the asset in working order for its intended use are included in the initial measurement.




Depreciation is calculated over of the cost of property and equipment using the straight-line method based on expected useful lives.

The expected useful lives are stated below:

YearsMotor vehicles 5Furniture and fixtures 4-5

Subsequent costs incurred for tangible assets are included in the asset’s carrying amount or recognized as a separate asset as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they were incurred.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount and the provision for impairment is charged to statement of comprehensive income.

Gains and losses on the disposal of property and equipment are determined by deducting the net book value of the property and equipment from its sales and are included in the related income and expense accounts, as appropriate.

Intangible fixed assets

Intangible assets acquired separately are carried at cost, less accumulated amortization and any accumulated impairment losses. Amortization is charged on a straight-line basis over their estimated useful lives. Estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in the estimate being accounted for on a prospective basis.

Construction contracts

The Company does not have any activities where TAS 11 “Construction Contracts” is applicable. The Company’s activities in housing development projects are accounted for under TAS 18 “Revenue”, as confirmed in the interpretation TFRIC 15 “Agreements for the construction of real estate”.

Non-current assets held for sale

Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell and no depreciation is calculated, if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. The Company does not have any non-current assets that meet the criteria for asset held for sale as of 31 December 2016 (31 December 2015: None).

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Investment properties

Lands and Buildings that are held for purpose of produce goods and services or management or rental income and increasing value instead of selling are classified as Invesment Property. Investment properties are carried at fair value. Gains and losses resulting from changes in fair values of investment property are recognized in the statement of comprehensive income (Note 9).

An investment property can be accounted as an asset, if and only if, it is probable that economic benefits related to real estate would flow to the company and the cost of the investment property would be measured reliably.

The profit or loss recognized due to the changes in the fair value of an investment property is included in the current year’s comprehensive income statement. The profit or loss recognized due to condemnation or disposal of an investment property is the difference between net collection obtained from the disposal of the asset and the book value of the real estate, and it is accounted in the income statement under fair value increase in investment properties.

Investment property is measured initially at cost. These costs comprise of the transaction costs and subsequent expenditures or services. The borrowing costs related to qualifying assets is also recognized during the construction of the asset, the mentioned capitalization continues until the completion of the construction. Company does not include the daily service expenses related to real estate in the book value of the investment property. Those costs are recognizes in the profit or loss statement to the extent that they are realized. Daily services costs mainly comprise of the labour and consumables however, it may also include the cost of small pieces. These types of expenditures are classified as the “maintenance expenses” related with the real estates.

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Company uses alternative valuation methods, such as discounted cash flow projections. Company considers the conditions resulted with the difference in the determination of the fair value of the investment properties in order to make the most reliable estimation.

The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure.




The Company measures the investment property under construction at fair value. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Company expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed. In order to evaluate whether the fair value of an investment property under construction can be determined reliably, management considers the stage of completion, comparability of the project in market, the level of reliability of cash inflows after completion, the development risk specific to the property, past experiences with similar constructions and status of construction permits.

The Company transfers its investment properties to inventory or fixed assets if and only if a change occurs in use of the investment property. The aforementioned change in use is to start development for the purpose of sale after the development. If the Companydecides on disposal of the investment properties without any development, until the disposal date, it is continued to be classified as investment property. Likewise, if the Company re-develops an existing investment property to be used as an investment property in the future, the classification of the property remained as investment properly and cannot be reclassified to fixed assets during the course of development.

Impairment of assets

The Company reviews all assets including tangible assets at each balance sheet date in order to see if there is a sign of impairment on the stated asset. If there is such a sign, carrying amount of the stated asset is projected. Impairment exists if the carrying value of an asset or a cash generating unit including the asset is greater than its net realizable value. Net recoverable value is the higher of the net sales value or value in use. Value in use is the present value of cash flows generated from the use of the asset and the disposal of the asset after its useful life. Impairment losses are recorded in the statement of comprehensive income. Impairment loss for an asset is reversed, if an increase in recoverable amount is related to a subsequent event following the booking of impairment by not exceeding the amount reserved for impairment.

Business combination and goodwill

A business combination is the bringing together of separate entities or business into one reporting entity.

When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

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Acquisition method requires allocation of the acquisition cost to the assets acquired and liabilities assumed at their fair values on the date of acquisition. Accordingly, acquired assets and liabilities and contingent liabilities assumed are recognized at TFRS 3 fair values on the date of acquisition. Acquired company is included in Income statement starting from the date of acquisition.

If the fair values of the acquired identifiable assets, liabilities and contingent liabilities or cost of the acquisition are based on provisional assessment as at the balance sheet date, the Company made provisional accounting. Temporarily determined business combination accounting has to be completed within twelve months following the combination date and adjustment entries have to be made beginning from combination date.

Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable net assets of the acquired business, at the date of acquisition. Company does not amortize goodwill arising from the business combinations and annually review for impairment.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors (Note 3).

Revenue recognition

Revenue is recognized when the amount of revenue can be measured reliably and when it is probable that the economic benefits associated with the transaction will flow to the Company. Revenue is presented net of value added and sales taxes. The following criteria are necessary for the recognition of revenue.

Rent income obtained from investment properties

Rent income from investment properties is recognized on an accrual basis. Revenue is realized when economic benefits arising from the transaction have passed, and when the amount of such income can be reliably measured.Seasonal rental discounts are netted off from rental income in the periods in which they are incurred.




Revenues from common area charges

Common area expenses of Torunlar REIC related to owned shopping malls charged to tenants in accordance with the individual provisions of rental contracts entered into with tenants.

Sale of real estate

Income obtained from the sales of the real estate (residential and commercial units classified as inventories) is accounted as soon as the below conditions are met:

• The Company has transferred all significant risks and rewards associated property to the buyer. (Transfer of title generally coincides with the final acceptance by the customers of the residential or office units sold and that is when the risk and rewards of ownership is considered to have passed to the customer).

• The Company is not having any control on the continued administrative participation associated with property and on the sold properties,

• Measuring the amount of income reliably,• Possibility of a flow of the economic benefits related to the transaction to the Company and• Reliable measurement of the inflows resulting from the transaction reliably.

Interest income

Interest income is accrued at the relevant period according to the outstanding principal amount and the effective interest rate that brings the estimated cash inflows through the expected life of the related financial asset to the net book value of the related asset.

Dividend income

Dividend income from equity investments is reflected in the financial statements when shareholders have right to collect dividends.

Paid-in capital

Ordinary shares are classified as equity. Proceeds from issuing new equity instruments are recorded net of transaction costs.

Share premium

Share premium represents the positive difference between the nominal value of issued shares and proceeds for such shares issued.

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Treasury shares

The Company’s own shares which are bought by the Company itself from Borsa İstanbul are named as treasury shares and recorded on nominal value in equities. Purchase/sale of treasury stocks is not associated with comprehensive income statement, and recognition is made directly on equities.

Earnings per share

Earnings per share are determined by dividing net comprehensive income by the weighted average number of shares that have been outstanding during the period concerned.

In Turkey, companies can increase their share capital by making a pro-rata distribution of their shares “bonus shares” to existing shareholders funded from retained earnings or other reserves. For the purpose of earnings per share computations, such bonus share issuances are regarded as issued shares for all periods presented and accordingly the weighted average number of shares used in earnings per share computations in prior periods is adjusted retroactively for the effects of these shares, issued without receiving cash or another consideration from shareholders.

Reporting of cash flows

The statement of cash flows includes cash and cash equivalents, cash with original maturity periods of less than three months and bank deposits (Note 4).

Offsetting

Each material class of similar items according to their nature or function is presented separately in the financial statements. If a line item is not individually material, it is aggregated with other similar items according to their nature or function. If the essence of the transaction and events requires offsetting, presentation of these transactions and events at their net values or following up of the assets at their amounts after the deduction of impairment, is not evaluated as a breach of the non-deductibility rule.

Dividends

Dividend income is recognized by the Company at the date the right to collect the dividend is realized. Dividend payables are recognized as a result of profit distribution in the period they are declared.




Subsequent events

Subsequent events cover any events which arise between the reporting date and the balance sheet date, even if they occurred after any declaration of the net profit for the period or specific financial information publicly disclosed. The Company adjusts its financial statements if such subsequent events arise which require an adjustment to the financial statements (Note 28).

2.5 Critical accounting estimates, assumptions and judgments

The preparation of financial statements requires the use of assumptions and estimates that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues expenses which are reported throughout the period. Even though, these assumptions and estimates rely on the best estimates of the Company management; the actual results might differ from them. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below:

Fair values of investment properties:

In the financial statements, principal assumptions used in valuation reports during the finding fair values of real estates classified as investment property are explained below:

In 2016 and 2015, fair values of the investment properties are determined by independent valuation expert; Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş. The Company assumes that expenditure amount on investment property has an equivalent effect on fair value of related real estate.

In the financial statements, the following assumptions used by valuation experts; selection of the valuation method, the discount rate, the rent increase per annum, the capitalization rate (which is the discount rate used to determine the terminal value) and determination of the market comparable m² values are considered critical and thus disclosed below in tabular format:

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Significant estimates and assumptions disclosed in the financial statements as of 31 December 2016 are as follows:

31 December 2016Valuation

report dateValuation

methodDiscount

rate (*)

Rent increase rate p.a

Capitalization rate

Valuation |market m²

value in full TL

Antalya Deepo Shopping Mall and Mall of Antalya 06.01.2017

Discounted cash flow 11% 3% 9% -

Antalya Kepez Land 06.01.2017 Sale comparison - - - 233-1,786

Korupark Shopping Mall 06.01.2017Discounted cash

flow 10% 3% 8% -

Torium Shopping Mall 06.01.2017Discounted cash

flow 11.5% 2.5% 8% -

Zafer Plaza Shopping Mall 06.01.2017Discounted cash

flow 10.5% 3% 8% -

MOI Shopping Mall 06.01.2017Discounted cash

flow 11% 3% 8% -

Torun Tower 06.01.2017Discounted cash

flow 8% 3% 7.3% -Paşabahçe Land 06.01.2017 Sale comparison - - - 2,778-9,895İstanbul İkitelli Kayabaşı Land 06.01.2017 Sale comparison - - - 810İstanbul Beyoğlu Kemankeş Building 06.01.2017 Sale comparison - - -

34,271-35,261

Bursa Korupark independent areas 06.01.2017 Sale comparison - - - 500-2,325Mall of İstanbul residents and offices 06.01.2017 Sale comparison - - - 9,459-11,186Mall of İstanbul Hotel, Convention Center and office project 06.01.2017 Cost Method - - - -

Torun Center 06.01.2017Discounted cash

flow 8.5% 3% 6% -




Significant estimates and assumptions disclosed in the financial statements as of 31 December 2015 are as follows:

31 December 2015Valuation

report dateValuation

methodDiscount

rate (*)

Rent increase rate p.a

Capitalization rate

Valuation market m²

value in full TL

Antalya Deepo Shopping Mall and Expansion Project 08.01.2016

Discounted cash flow 10% 3% 9% -

Antalya Kepez Land 08.01.2016Sale

comparison - - - 650-1,050

Korupark Shopping Mall 08.01.2016Discounted

cash flow 9.5% 3% 8% -

Torium Shopping Mall 08.01.2016Discounted

cash flow 9.5% 3% 9% -

Zafer Plaza Shopping Mall 08.01.2016Discounted

cash flow 10% 3% 9% -

MOI Shopping Mall 08.01.2016Discounted

cash flow 10.75% 3% 8% -

Torun Tower 08.01.2016Discounted

cash flow 7.5% 3% 7.3% -

Paşabahçe Land 08.01.2016Sale

comparison - - - 1,863-7,462

İstanbul İkitelli Kayabaşı Land 08.01.2016Sale

comparison - - - 547İstanbul Beyoğlu Kemankeş building 08.01.2016

Sale comparison - - -

29,508-31,412

Bursa Korupark İndependent area 08.01.2016Sale

comparison - - - 900-2,150

Mall of İstanbul Office 08.01.2016Emsal

Karşılaştırma - - - 5,681-7,329Mall of İstanbul Hotel, Convention Center and office project 08.01.2016 Cost Method - - - -

(*) Discount rates are based on the currency in which the majority of cash flows are denominated for each investment property. In Turkey Euro and USD are commonly used in rent agreement.

If all the variables in the valuations of the real estates (31 December 2015: TL 4,997,584) with fair value of TL 6,730,895 valued using the revenue reduction approach as of 31 December 2016 were fixed and the discount rate used was more than 0,5% and less than 0,5%, the real values of real estates would have been TL 196,357 lower and TL 204,478 higher (31 December 2015 TL 142,255 less, TL 148,061 more).

i) The Antalya Deepo Shopping Center and the Growth Project (Mall of Antalya), which were established on an area of 84,503.61 m² on the territory of Antalya Province, Merkez District, Koyunlar Village, which the Company classified under investment properties as of 31 December 2016 and 2015, It was opened in October 2004. Leasing and management of shopping center is conducted by Torun Alışveriş Merkezleri Yatırım ve Yönetim A.Ş..

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Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, as at 6 January 2017 with the report number 2016-019-GYO-017 the aforementioned property’s fair value is TL 513,370 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-018 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 358,681).

ii) The Company has 57,680 m² of land in the province of Antalya, Merkez District, Koyunlar Village, which is classified under investment properties as of 31 December 2016 and 2015.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, as at 6 January 2017 with the report number 2016-019-GYO-018 the aforementioned property’s fair value is TL 61,650 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-019 dated 7 January 2015, as at 31 December 2015 the aforementioned property’s fair value is TL 35,405).

iii) The Bursa Korupark Shopping Center, which was established on the area of 53,185.61 m² in Bursa Province, Osmangazi District, Emek Village, which is classified under investment properties as of 31 December 2016 and 2015, has been put into service on May 2007. The Management of Shopping Center is conducted by Torun Alışveriş Merkezleri Yatırım ve Yönetim A.Ş..

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report with the number 2016-019-GYO-013, Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017, at 31 December 2016, the aforementioned property’s fair value is TL 1,201,798 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-014 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 1,007,212).

iv) The Mall of İstanbul Shopping Center, which was established on the rentable area of 181,295 m2 in İstanbul Province, Başakşehir Disctrict, İkitelli – 2 Neighborhood, which is classified under invesment properties as of 31 December 2016 and 2015, has been put into service on 23 May 2014. The management of Shopping Center is conducted by Torun Alışveriş Merkezleri Yatırım ve Yönetim A.Ş..

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-002-AVM, the aforementioned property’s fair value is TL 1,640,914 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-003-AVM dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 1,617,983).




v) As of 31 December 2016 and 2015, the Company has completed the Torium Shopping Center project on an area of 44,571 m2 in Istanbul Province, Büyükçekmece District, Esenyurt Village which is classified under investment properties. The Torium AVM project has been completed and the shopping mall was opened on 30 October 2010.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-004, the aforementioned property’s fair value is TL 525,190 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-005 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 522,572).

vi) As of 31 December 2016 and 2015, the Company has an area of 70,644 m² in the Istanbul Province, Beykoz District which is classified as investment property and has 49 years of usage rights for a 3,935 m² pier and dock. It is planned to make a 5 star Hotel and Apart Hotel project on the land.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-007, the aforementioned property’s fair value is TL 607,330 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-008 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 452,462).

vii) On the 11,099 m² land located in İstanbul - Şişli 2nd District - which is classified under investment property as of 31 December 2016 and 2015 in the financial statements, the Company develops Torun Tower Project. The project has been completed on 6 February 2014 and a rent agreement has been signed with Denizbank A.Ş. for 60,023 m² of area (30 floors).

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-001, the aforementioned property’s fair value is TL 1,492,410 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-002 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 1,178,279).

viii) Bursa Zafer Plaza located on the 9,622 m² land in Bursa - Osmangazi Şehreküstü District - which is classified under investment property as of 31 December 2016 and 2015 in the financial statements has been opened in October 1999. Management of the Mall is conducted by Zafer Plaza İşletmecilik A.Ş..

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Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report, dated 6 January 2017 with the report number 2016-019-GYO-012 the aforementioned property’s fair value is TL 329,020 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-013 dated 8 January 2016, as at 31 December 2015, the aforementioned property’s fair value is TL 312,857). ix) The Company owns 60,833 m² land located in İstanbul - Küçükçekmece Kayabaşı District - which is classified under investment property as of 31 December 2016 and 2015 in the financial statements. The usage of this land has not been determined by the management as of balance sheet date and the land is retained for capital appreciation.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-005 the aforementioned property’s fair value is TL 49,246 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-006 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 33,260).

x) The Company owns a building located on 1,501 m² land in İstanbul - Beyoğlu Kemankeş District - which is classified under investment property as of 31 December 2016 in the financial statements. The building is planned to be renovated as a hotel.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-008 the aforementioned property’s fair value is TL 51,731 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-009 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 45,000).

xi) As at 31 December 2016 and 2015 separate unit of Bursa Korupark Shopping Mall located in Bursa - Osmangazi Emek district which is classified under investment properties includes a dolphin pool, social recreation areas, office and depots.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-014 the aforementioned property’s fair value is TL 21,730 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report numbered 2015-019-GYO-015 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 25,340).




xii) The Company has started to Mall of Istanbul Hotel, Convention Center and Office Project on 18,209 m² land located in İstanbul-Başakşehir district which is classified under investment properties as of 31 December 2016 and 2015.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-006 the aforementioned property’s fair value is TL 206.861 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş’s valuation report numbered 2015-019-GYO-007 dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 144,143). xiii) The company has rented 22 units consisting of 20 offices and 2 residents with a rentable area of 2,177 m² which is located in Istanbul Province, Başakşehir-İkitelli-2 District and is classified under invesment properties as of 31 December 2016 and 2015.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-022-OFİS and 2016-019-GYO-022-KONUT the aforementioned property’s fair value is TL 24.441 as at 31 December 2016 (Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş’s valuation report numbered 2015-019-GYO-003-OFİS dated 8 January 2016, as at 31 December 2015 the aforementioned property’s fair value is TL 18,142).

xiv) The Company, as of 31 December 2016, with the final decision that has been given in the context of company’s business plan, plans to lease in 2017 the rentable area of 68,673 m2 which consists of workplaces, offices and commercial units. This area which is located in Torun Center Project in Istanbul Province, Şişli District, Dikilitaş Neighborhood, is classified under investment property as of 31 December 2016 in the financial statements.

Based on Epos Gayrimenkul Danışmanlık ve Değerleme A.Ş.’s valuation report in accordance with Capital Markets Board’s Serie: IV No:1 Communiqué, dated 6 January 2017 with the report number 2016-019-GYO-011 the aforementioned property’s fair value is TL 1,028,193 as at 31 December 2016.

2.6 Control of Compliance with the Portfolio Limitations

Presented information in Additional Note: control of compliance with the portfolio limitations are the condensed information which comprised of Serial: II, No: 14.1 “Financial Reporting in Capital Markets” Amendment No: 16 and prepared in accordance with Capital Markets Board’s Communiqué Serial: III, No: 48.1“Real Estate Investment Company” published in the Official Gazette dated 23 January 2014 numbered 28891 Capital Markets Board’s Communiqué Serial: III, No: 48.1 a “Amendment on Real Estate Investment Company” published in the Official Gazette dated 23 January 2014 numbered 28891.

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NOTE 3 - SEGMENT REPORTING

The reportable segments of Torunlar REIC have been organized by the Management as a portfolio on a project-by-project basis and makes decisions about resources to be allocated to the properties on the same basis. Accounting policies applied by each operational segment of Torunlar REIC are the same as those are applied in Torunlar REIC’s financial statements which are prepared in accordance with TFRS. The information about each segment is below. Management follows and evaluates the performance of its segments in the statement of profit or loss until the operating profit before the financing revenue/expense. Since all of the loans and deposits which are constituted the financing activities of the Company can not be matched with the projects and are generally related to mixed projects, the Management does not make an assessment by distributing the financing activities according to the departments. In addition, the Management does not make an assessment by distributing its total assets and liabilities according to the divisions.




a) The segment information for the reportable segments as of and for the period ended 31 December 2016 is as follows;

Total segment revenue Gross Profit

Increase in investment

properties(*) Operating

profit/(loss)

Income/(loss) from

investmentsFinancial

expenses,net

Profit/ (loss) before

tax from continuing operations

Capital expenditure

(**)

Office for rent and Shopping mallsMOI Shopping Mall 155,103 107,097 19,046 126,143 - - 126,143 3,885Korupark Shopping Mall 98,816 80,072 194,234 274,306 - - 274,306 352Torun Tower 61,723 60,391 313,876 374,267 - - 374,267 255Torium Shopping Mall 49,137 24,632 (5,611) 19,021 - - 19,021 8,229Zafer Shopping Mall 30,000 21,876 16,163 38,039 - - 38,039 -Antalya Deepo Shopping Mall and Mall of Antalya 25,562 17,451 65,686 83,137 - - 83,137 89,003Mall of İstanbul Residents and Offices 1,505 1,505 4,579 6,084 - - 6,084 17Antalya Kepez Land 208 208 26,245 26,453 - - 26,453 -Korupark independent areas - - (3,616) (3,616) - - (3,616) 6Torun Center - - 462,214 462,214 - - 462,214 106,384Subtotal 422,054 313,232 1,092,816 1,406,048 - - 1,406,048 208,131

Residential and Office ProjectsTorun Center 227,604 70,202 - 67,312 - - 67,312 55,692Korupark 3. Phase residents 8,721 5,638 - 3,913 - - 3,913 -Mall of Istanbul 6,424 2,937 - 2,249 - - 2,249 -Torium residents 524 164 - 141 - - 141 -Nishistanbul Project - - - (139) - - (139) -Subtotal 243,273 78,941 - 73,476 - - 73,476 55,692

Projects under construction5. Levent Project - - - - - - - 401,907Torun Center - - - - - - - 69,025Mall of Istanbul hotel Congress center and office project - - 40,813 40,813 - - 40,813 21,905

Properties held for new projectsPaşabahçe land - - 154,525 154,525 - - 154,525 343Kayabaşı land - - 15,986 15,986 - - 15,986 -Kemankeş building - - 6,657 6,657 - - 6,657 74

AssociatesAnkamall andHotel (Yeni Gimat) - - - - 27,695 - 27,695 -Netsel - - - - 4,055 - 4,055 -TTA - - - - (5,888) - (5,888) -Torunlar Özyazıcı - - - - (17) - (17) -Unallocated 350 87 - (44,621) - (503,628) (548,249) -

Total 665,677 392,260 1,310,797 1,652,884 25,845 (503,628) 1,175,101 757,077

As of 31 December 2016, there is unallocated depreciation expense of TRY 760.

(*) Represents fair value gain/loss arised from investment properties.(**) Capital expenditures include expenditures made for residence and shopping mall constructions which are classified in inventories and investment properties in the financial statements.

184


b) The segment information for the reportable segments as of and for the period ended 31 December 2015 is as follows:

Total segment revenue Gross Profit

Increase in investment

properties(*) Operating

profit/(loss)

Income/(loss) from

investmentsFinancial

expenses,net

Profit/ (loss) before

tax from continuing operations

Capital expenditure

(**)

Office for rent and Shopping mallsMOI Shopping Mall 132,015 86,995 317,427 404,422 - - 404,422 10,200Korupark Shopping Mall 87,828 71,682 124,421 196,103 - - 196,103 556Torium Shopping Mall 49,766 29,606 52,449 82,055 - - 82,055 2,681Torun Tower 52,138 50,983 248,220 299,203 - - 299,203 1,968Zafer Shopping Mall 27,900 20,347 72,685 93,032 - - 93,032 -Antalya Deepo Shopping Mall and growth project (MOI) 27,087 19,628 52,873 72,501 - - 72,501 4,163Antalya Kepez Land 203 203 6,218 6,421 - - 6,421 -Mall of İstanbul Offices 120 120 10,954 11,074 - - 11,074 -Korupark independent areas - - 1,797 1,797 - - 1,797 -

Subtotal 377,057 279,564 887,044 1,166,608 - - 1,166,608 19,568

Residential and Office ProjectsTorun Center 188,711 76,103 - 75,269 - - 75,269 132,153Mall of Istanbul 24,620 7,340 - 6,366 - - 6,366 -Korupark 3. Phase residents 26,331 12,657 - 11,005 - - 11,005 -Korupark 1./2. Phase residents 4,948 212 - 212 - - 212 -Nishistanbul Project 2,288 68 - (74) - - (74) -Torium residents 2,789 383 - 296 - - 296 -

Subtotal 249,687 96,763 - 93,074 - - 93,074 132,153

Projects under constructionTorun Center - - - - - - - 112,3335. Levent Project - - - - - - - 142,363Mall of Istanbul hotel Congress center and office project - - 77,714 77,714 - - 77,714 33,358

Properties held for new projectsPaşabahçe land - - 21,873 21,873 - - 21,873 466Kemankeş building - - 6,830 6,830 - - 6,830 -Kayabaşı land - - 8,009 8,009 - - 8,009 -

AssociatesAnkamall and Hotel (Yeni Gimat) - - - - 45,023 - 45,023 -Netsel - - - - 5,068 - 5,068 -Torunlar Özyazıcı - - - - 1,382 - 1,382 -TTA - - - - (1,334) - (1,334) -Unallocated 1,294 1,267 - (19,156) - (448,379) (467,535) -

Total 628,038 377,594 1,001,470 1,354,952 50,139 (448,379) 956,712 440,241

As of 31 December 2015, there is unallocated depreciation expense of TL 1,071.

(*) Represents fair value gain/loss arised from investment properties.(**) Capital expenditures include expenditures made for residence and shopping mall constructions which are classified in inventories and investment properties in the financial statements.




NOTE 4 - CASH AND CASH EQUIVALENTS

31 December 2016 31 December 2015Cash in hand 3 5Cash at banks

- demand deposits 829 325- time deposits 510,081 902,710

Other 291 407

511,204 903,447

As of 31 December 2016 and 2015 cash and cash equivalents at the statement of cash flows are as follows:

31 December 2016 31 December 2015Cash and cash equivalents 511,204 903,447Less: Interest accrual of time deposits (4,203) (9,548)

Cash and cash equivalents at statement of cash flow 507,001 893,899

Maturities of cash and cash equivalents are as follows:

31 December 2016 31 December 2015Up to 30 days 285,759 656,82730 - 90 days 225,445 246,620

511,204 903,447

The breakdown of foreign currency denominated cash and cash equivalents in terms of TL is as follows:

31 December 2016 31 December 2015Original Balance TL Equivalent Original Balance TL Equivalent

USD 29,110 102,445 2,374 6,903EURO 8,939 33,161 46,654 148,248OTHER 1 4 - -

135,610 155,151

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Average effective interest rates of time deposits are as follows (%):

31 December 2016(%) 31 December 2015(%)USD 3.57 2.28EURO 1.71 1.89TL 11.12 12.35 NOTE 5 - FINANCIAL LIABILITIES

Financial Liabilities

31 December 2016 31 December 2015

Financial Liabilities

Bank borrowings 144,096 751,182

Short-term bank borrowings 144,096 751,182

Short-term portion of long-term bank borrowings 1,072,107 148,981Leasing 32,128 189

Short-term portion of long-term bank borrowings 1,104,235 149,170

Bank borrowings 1,723,899 1,898,932Leasing 74,198 6,069

Long-term bank borrowings 1,798,097 1,905,001

Total bank borrowings 3,046,428 2,805,353

As of 31 December 2016, there are mortgages which is the total amount of TL 4,594,676 (31 December 2015: TL 3,823,554) given to the banks regarding to financial liabilitites which is the total amount of TL 1,757,126 (31 December 2015: TL 1,597,706) on the investment properties.




a) Bank borrowings

31 December 2016 31 December 2015Short-term bank borrowings 144,096 751,182Short-term portion of long-term bank borrowings 1,072,107 148,981Long-term bank borrowings 1,723,899 1,898,932

2,940,102 2,799,095

31 December 2016

Weighted average

effective interest rate

p.a. (%) CurrencyOriginal balance

TL equivalent

Short-term bank borrowings 10.75 TL 65,000 65,0003.67 USD 22,475 79,096

Short-term portion of long-term bank borrowings 4.61 USD 236,633 832,755

2.88 EURO 64,517 239,352

Long-term bank borrowings 5.46 USD 378,375 1,331,5773.83 EURO 105,750 392,322

Total bank borrowings 2,940,102

31 December 2015

Weighted average

effective interest rate

p.a. (%) CurrencyOriginal balance

TL equivalent

Short-term bank borrowings 12.24 TL 134,782 134,7822.93 USD 131,453 382,2134.23 EURO 73,699 234,187

Short-term portion of long-term bank borrowings 5.01 USD 25,471 74,057

2.59 EURO 23,579 74,924Long-term bank borrowings 4.73 USD 501,458 1,458,040

4.01 EURO 138,750 440,892Total bank borrowings 2,799,095

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The redemption schedules of long-term borrowings at 31 December 2016 and 2015 are as follows:

31 December 2016 31 December 20152017 - 473,5432018 533,377 443,5772019 and over 1,190,522 981,812

1,723,899 1,898,932

b) Financial lease liabilities

The breakdown of the lease liabilities by maturity is as follows:

31 December 2016 31 December 2015Up to 1 year 32,128 1891 - 5 years 74,198 6,069

106,326 6,258

Financial lease liabilities consist of USD and EUR. The Company has a finance lease obligation of 3.89% interest rate with original currency of EUR 26,275 and interest rate of 3.30% with original currency USD 2,515 (31 December 2015: 1,407 USD and EUR 682) as of 31 December 2016.

As of 31 December 2016, a significant part of the financial lease liabilities consists of financial lease obligations related to the shopping malls which are sold to Ak Finansal Kiralama A.Ş regarding to the sales and leaseback agreement that it has made on 27 May 2016 and which are disclosed under the investment properties (Note 2).




NOTE 6 - PREPAID EXPENSES AND DEFERRED EXPENSES

31 December 2016 31 December 2015Short term prepaid expensesAdvances given 89,456 94,653Prepaid expenses 7,010 6,327

96,466 100,980

Long term prepaid expenses

Advances given (*) 89,651 89,651Prepaid expenses 2,083 2,817

91,734 92,468

(*) As of 31 December 2016, advances given amounting to TL 88,680 is related with purchased land (12,500 m²) which is located near to Mall Of İstanbul (31 December 2015: TL88,680).

31 December 2016 31 December 2015Short term deferred income

Advance received (**) 927,415 251,907Deferred income 8,081 7,828

935,496 259,735

(**) As of 31 December 2016, advances received amounting to TL 878,318 consist of the sales regarding the offices and residential units of 5.Levent Project, TL 42,992 consist of the sales commitments regarding the offices and residential units of Torun Center Project, TL 683 consist of the sales commitments regarding the offices and residential units of Korupark 3.Phase and remaining TL 5,422 consist of other advances. (31 December 2015: TL 247,751 Torun Center Project, TL 1,531 Korupark 1-2-3. Phase and remaining TL 2,625 other advances).

31 December 2016 31 December 2015Long term deferred income

Advance received (***) 218,450 717,542

218,450 717,542

(***) All advances received consist of the sales commitments regarding the residential units of 5. Levent Project as of 31 December 2016.

190


NOTE 7 - TRADE RECEIVABLES AND PAYABLES

Short-term trade receivables 31 December 2016 31 December 2015

Notes receivable (*) 154,737 145,446Trade receivable 39,349 29,831Trade receivables from related parties (Note 25) 10,166 19,227Cheques receivable 8,249 6,560

Less: Provision for doubtful receivables (6,732) (3,056)Less: Unearned credit finance income (513) (642)

205,256 197,366

Long-term trade receivables 31 December 2016 31 December 2015

Notes receivable (*) 70,926 103,734

70,926 103,734

(*) As of 31 December 2016, TL 214,132 of long term and short term notes receivable are related with 5. Levent project, TL 4,643 of Mall of Istanbul Project, TL 1,236 of Korupark 3. Phase resident project, TL 673 of Torun Center residence and offices Project, remaining TL 4,979 consist of other notes receivables (31 December 2015:5.Levent Project TL 231,888, Mall of İstanbul TL14,303, Torun Center TL2,225, Korupark 3. Phase TL764).

Movement of the provision for the doubtful receivables is as follows:

31 December 2016 31 December 2015At the beginning of the period (3,056) (2,777)Current period provisions (4,306) (2,514)Provisions no longer required 630 2,235

At the end of the period (6,732) (3,056)




The aging schedule of impaired doubtful receivables is as follows:

31 December 2016 31 December 20153-6 months (3,377) (687)6 months and over (3,355) (2,369)

(6,732) (3,056)

Short-term trade payables 31 December 2016 31 December 2015

Trade payables 106,332 142,372Due to related parties (Note 25) 31,020 27,069Notes payable 3,910 786

141,262 170,227

As of 31 December 2016 and 2015, majority of trade payables consist of payables to subcontractors relating to projects in progress. NOTE 8 - DERIVATIVE INSTRUMENTS

a) Other Financial Assets

Derivative financial instruments

31 December 2016 31 December 2015Notional

amountFair value

amountNotional

amountFair value

amountForward transactions (*) 23,450 1,198 80,447 11,915

23,450 1,198 80,447 11,915

(*) The Company has a purchase contract (forward) for TL deposits with a nominal value of TL 23,450. The starting date and maturity date of the deposit are 16 November 2016 and 12 January 2017, respectively, and the fair value is TRY 1,198 as of 31 December 2016. In addition, the Company’s nominal value of EUR 21,409 thousand TL forward transactions in exchange for foreign currency deposits has been closed as of 22 January 2016. TL 2,371 has been recognised as a loss from this closed transaction as of 31 December 2016. Related loss has been recorded under loss from financial activities (Note 22).

192


b) Other Financial Liabilities

Derivative financial instruments

31 December 2016 31 December 2015Notional

amountFair value

amountNotional

amountFair value

amountDual currency deposit option (**) 194,384 (4,450) 29,076 (269)Swap transaction (***) - - 57,964 (3,926)

194,384 (4,450) 87,040 (4,195)

(**) The Company has signed a dual currency deposit option amounting to TL 55 million ,USD 20 million, EUR 10 million from its deposits, with the option of selling the right to use against the contract partner and collected an option premium amounting to TL 2,649 as of 31 December 2016. TL 1,801 related loss has been recorded under expense from financial activities. Furthermore, the Company’s dual currency deposit option amounting to USD 10 million has been closed as of 29 March 2016. TL 269 has been recognised as an income from this closed transaction as of 31 December 2016. Related income has been recorded under income from financial activities (Note 22).(***) The Company’s nominal value of USD 20,529 thousand swap transaction in exchange for foreign currency deposits has been closed on 18 May 2016. TL1,030 has been recognised as an income from this closed transaction as of 31 December 2016. Related income has been recorded under income from financial activities (Note 22).




NOTE 9 - INVESTMENT PROPERTIES

Movement schedule of investment property as of 31 December 2016 and 2015:

1 January 2016 Additions Disposals Transfers

Change in fair value

31 December 2016

Office and Shopping Malls MOI shopping mall 1,617,983 3,885 - - 19,046 1,640,914Torun Tower 1,178,279 255 - - 313,876 1,492,410Bursa Korupark shopping mall 1,007,212 352 - - 194,234 1,201,798Torun Center(*) - - - 565,979 462,214 1,028,193Torium shopping mall 522,572 8,229 - - (5,611) 525,190Antalya Deepo shopping mall- and Mall of Antalya 358,681 89,003 - - 65,686 513,370Bursa Zafer Plaza- shopping mall 312,857 - - - 16,163 329,020MOI Residents and Office(**) 18,142 17 - 1,703 4,579 24,441Korupark independent areas 25,340 6 - - (3,616) 21,730

Investment properties under constructionMall of İstanbul hotel convention center and office Project 144,143 21,905 - - 40,813 206,861

Properties held for new projectsPaşabahçe land(***) 452,462 343 - - 154,525 607,330Antalya Kepez Land 35,405 - - - 26,245 61,650Kemankeş building 45,000 74 - - 6,657 51,731Kayabaşı land 33,260 - - - 15,986 49,246

5,751,336 124,069 - 567,682 1,310,797 7,753,884

(*) The Company has decided to held the workplace, office and commercial units with an area of 68,673 m² in the Torun Center project as a result of the Company's final decision on the business plan for leasing purposes and has transferred to invesment properties for purpose of obtaining rental income. The negotiations with potential tenants are still in progress. Therefore the independent units have been transferred to investment properties by their cost values and, as of 31 December 2016, these assets have been measured by the fair value. (**) The Company has rented 2 residents in Mall of Istanbul in 2016. Therefore, the cost of these residents have been transferred to invesment properties and accounted at their fair value as of 31 December 2016.(***) The Company has purchased a see-side in Bosporus after a successful tender at a price of TL355 million from Privatization Administration. Mentioned purchase contains real estates as follows: Block 195, Lot 7 as 54,870 sqm; Block 209, Lot 3 as 16,212 m²; Block 200, lot 3 as 827 m² and buildings on these real estates. Title deed processes of real estates have been completed as of 20 September 2012. Torunlar REIC is planning to develop a project on this land which will include a five-star hotel and apart hotel (villa).

194


Movement schedule of investment property as of 31 December 2015:

1 January 2015 Additions Disposals TransfersChange in fair

value31 December

2015

Office and Shopping Malls

MOI Shopping mall 1,290,356 10,200 - - 317,427 1,617,983

Torun Tower 928,091 1,968 - - 248,220 1,178,279

Bursa Korupark shopping mall 882,235 556 - - 124,421 1,007,212

Torium shopping mall 467,442 2,681 - - 52,449 522,572

Antalya Deepo shopping mall and development project (**) 254,988 4,163 - 46,657 52,873 358,681

Bursa Zafer Plaza shopping mall 240,172 - - - 72,685 312,857

Korupark separate units 23,543 - - - 1,797 25,340

Mall of Istanbul Office - - - 7,188 10,954 18,142

Investment properties under construction

Mall of İstanbul hotel convention center and office Project (*) - 33,358 - 33,071 77,714 144,143

Properties held for new projects

Paşabahçe land 430,123 466 - - 21,873 452,462

Kemankeş building 38,170 - - - 6,830 45,000

Antalya Kepez lands (**) 48,958 - - (19,771) 6,218 35,405

Kayabaşı land 25,251 - - - 8,009 33,260

Hastalya land (**) - 26,886 - (26,886) - -

4,629,329 80,278 - 40,259 1,001,470 5,751,336

(*) The Company has decided to develop a Hotel, Convention Center and Office Project on the land located next parcel of Mall of İstanbul Project to gain rent income. Therefore, the cost of the Project, which was previously classified under the long-term inventories in the financial statements as of 31 December 2014, have been transferred to the investment properties.(**) The lands which are located in the next parcel of Antalya Deepo Shopping Mall were previously disclosed under Antalya Kepez Land in the financial statements as of 31 December 2014, whose fair value is TL 19,771 as of 31 December 2014, have been assembled with the other parcels of land and transferred to “Antalya Deepo Shopping Mall and Development Project” as of 31 December 2015. Therefore, Hastalya land which was added to Torunlar REIC’s portfolio after the Company had purchased 99.67% of the shares of Hastalya Motorlu Vasıtalar Ticaret ve Sanayi A.Ş. as of 30 September 2015, has also been transferred to “Antalya Deepo Shopping Mall and Development Project”.




Liens on investment properties regarding bank borrowings at 31 December 2016 and 2015 are as follows:

31 December 2016

Original Balance

31 December 2015

Original Balance Currency

31 December 2016

31 December 2015

Torun Tower 390,000 390,000 USD 1,372,488 1,133,964Paşabahçe land 375,000 375,000 USD 1,319,700 1,090,350Mall of İstanbul 300,000 300,000 USD 1,055,760 872,280Bursa Korupark shopping mall 225,000 225,000 Euro 834,728 714,960Mall of İstanbul Additional Land 12,000 12,000 TL 12,000 12,000

4,594,676 3,823,554 NOTE 10 - INVENTORIES

Short-term inventories 31 December 2016 31 December 2015

Residents and Office Projects

Completed projects- Torun Center project (*) 249,503 534,140- Mall of İstanbul project (**) 30,443 35,026- Nishistanbul (***) 13,146 13,146- Korupark 3. phase (****) 7,553 10,108- Torium (*****) 438 788

Non-completed projects- 5. Levent Projesi 438,831 -- Torun Center project(*) 326,548 538,338

1,066,462 1,131,546

196


Impairment provision amounting to TL 67 has been recognised for Torium Residences (31 December 2015: TL137); TL 1,385 for Nishistanbul total of TL 1,452 as of 31 December 2016 (31 December 2015: TL1,522).

(*) The Torun Center Project consists of sellable area with a total of 175,408 m², segregated as 45,776 m² Office Tower, 36,382 m² Horizontal Office, 77,988 m² Residence and 15,312 m² Commercial Area. The delivery of Office Tower and Horizontal Office has started as of 31 December 2015. 65 residences, 44 offices and 31 Horizontal offices have been delivered in this context the Company has recognised revenue amounting to TL 416,315 as of 31 December 2016. (31 December 2015: 30 offices and 13 horizontal offices and in this context the Company has collected revenue TL188,711). As of 31 December 2016 the capitalized financial expense has been TL 40,246 during Torun Center Project (31 Aralık 2015: TL 65,879).(**) Construction license of Mall of İstanbul Project was taken on 18 March 2011. The Project with 656,528 m² construction area comprising 129,186 m² shopping mall, 97,700 m² residence, 8,433 m² office and 421,209 m² is mixed-use project. Project construction has started in March 2011, and shopping mall opened its door to the visitors on 23 May 2014. Based on the valuation report numbered 2011/TGYO/10 and dated 31 March 2011, which was prepared by Prime Gayrimenkul A,Ş., the fair value of land including 146,039 m² sellable residences and offices was determined as TL203,233 and the value of land belonging to residences and offices to be sold after Project completion has been transferred to inventories. The Company has started to deliver the projects on 24 December 2013 and has delivered 1,077 residences, 133 offices and 21 horizontal offices and in this context the Company has recognised revenue amounting TL 623.824 as of 31 December 2016. (31 December 2015: 1,069 residences, 132 offices and 21 horizontal offices and in this context the Company has collected revenue TL617,400).(***) There are 2 offices (gross 530 m²) and 7 retail units (gross 1,718 m²) registered in Nishistanbul project in İstanbul, Yenibosna, plate 243DS3A, Block 338, and Lot 1. Additionally, Torunlar REIC has 60% shares over 5 offices (gross 1,289 m²) which have not been shared among the partners yet.(****) In the context of 3. phase of the Korupark project, there are 17 blocks, 678 residences and 2 offices where on 20 March 2011 construction and on 30 April 2011 pre-sales started. As of 31 December 2016, 643 residences were sold with 95,638 m² and transferred to buyers (31 December 2015: 93,905 m² 626 residences).(*****) As of 31 December 2016, 51 residences (gross 5,534 m²), from the total 53 sellable units (gross 5,723 m²) have been sold and 2 residential units have been remained with gross 189 m² in the Company stocks.

Long-term inventories 31 December 2016 31 December 2015Non-completed projects

- 5.Levent project 137,135 174,059

137,135 174,059




NOTE 11 - PROPERTY, PLANT AND EQUIPMENT

1 January 2016 Additions Transfers Disposals31 December

2016Cost

Furniture and fixtures 3,518 955 - (198) 4,275Motor vehicles 2,292 - - (91) 2,201

5,810 955 - (289) 6,476

Accumulated depreciation

Furniture and fixtures (1,915) (421) - 64 (2,272)Motor vehicles (1,215) (118) - 91 (1,242)

(3,130) (539) - 155 (3,514)

Net book value 2,680 2,962

1 January 2015 Additions Transfers Disposals31 December

2015Cost

Furniture and fixtures 2,886 632 - - 3,518Motor vehicles 1,226 1,151 - (85) 2,292

4,112 1,783 - (85) 5,810

Accumulated depreciation

Furniture and fixtures (1,365) (550) - - (1,915)Motor vehicles (815) (473) - 73 (1,215)

(2,180) (1,023) - 73 (3,130)

Net book value 1,932 2,680

Current year amortization charge for intangible assets amounting to TL 221 (31 December 2015: TL 48). Thus, total depreciation charged to income statement is TL 760 in current year (31 December 2015: TL 1,071).

198


NOTE 12 - OTHER ASSETS AND LIABILITIES

31 December 2016 31 December 2015Other current assets

Value added tax (“VAT”) receivables 12,521 668Prepaid taxes and funds 6,644 1,957Other 310 228

19,475 2,853

Other non-current assets

VAT receivables 91,031 67,209

91,031 67,209

The Company plans to offset the VAT receipts from income generated from residential and office deliveries sales and shopping centers.

31 December 2016 31 December 2015Other short-term liabilities

Taxes and funds payable 5,190 5,034Accrued expenses 681 584

5,871 5,618




NOTE 13 - OTHER RECEIVABLES AND PAYABLES

Other liabilities


Deposits and warranties received 30,544 15,606Other 2,876 -

33,420 15,606

Other assets


Deposits and warranties given 1,139 920Other 82 55

1,221 975 NOTE 14 - INVESTMENTS ACCOUNTED UNDER EQUITY METHOD

31 December 2016 31 December 2015(%) TL (%) TL

Yeni Gimat 14.83 273,126 14.83 258,781Torunlar-Özyazıcı 60.00 23,965 60.00 23,982TTA 40.00 23,501 40.00 29,389Netsel 44.60 7,566 44.60 9,236

328,158 321,388


At the beginning of the period 321,388 285,641

Income from associates, (net) 31,750 50,091 Dividends received from associates (19,075) (14,392)Income/expense from joint ventures, (net) (5,905) 48

At the end of the period 328,158 321,388

200


Income/expense from investments in associates


Yeni Gimat 27,695 45,023Netsel 4,055 5,068Torunlar-Özyazıcı (17) 1,382TTA (5,888) (1,334)

Total 25,845 50,139

NOTE 15 - PROVISIONS

Short term provisions


Cost provisions 10,194 17,675Litigation provisions (*) 5,314 3,580

15,508 21,255

(*) According to the opinion received from lawyers of the Company, litigation provisions amounting to TL 5,314 has been recorded as of 31 December 2016 (31 December 2015: TL3,580). Litigation provisions amounting to TL 2,865 consist of the working accident lawsuits, TL1,014 consist of the business lawsuits and remaining TL1,435 consist of the other lawsuits. (31 December 2015: Litigation provisions amounting to TL2,476 consist of the working accident lawsuits, TL513 consist of the business lawsuits and remaining TL591 consist of the other lawsuits. No further liabilities is expected by the lawyers of the Company. Long term provisions

Provisions for employee benefits


Provisions for severance payment 799 749

799 749

Provisions for severance pay consist the present value of the future possible liabilities which occurs from the employees retirements. It’s calculated according to the Turkish Labor Law and accounted accrual basis. The calculation of severance payment provision is according to the price ceiling which is determined by the government. As of 1 January 2017, the effective price ceiling is TL 4,426 (1 January 2016: TL 4,092).




TAS 19 - Employee Benefits standard requires actuarial valuation methods on determining the severance payment liability. Due to the insignificance of actuarial (gain)/loss impact to the financial statements, related standard has not been applied. As at 31 December 2016, the estimations during the calculation of severance payment are; %4.72% of discount rate, 6.00% of salary/limit increase rate and 98% of the proportion of entitled to severance pay. (31 December 2015: the estimations during the calculation of severance payment are; 4.75% of discount rate, 6.00% of salary/limit increase rate and 98% of the proportion of entitled to severance pay).

NOTE 16 - COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES

Contingent assets and liabilities are as follows:


Guarantees received 273,503 263,797

Guarantees received usually consist of letters of guarantee received from subcontractors for projects which are developed by the Company.

The totals of expected minimum operational lease revenues as of 31 December 2016 and 2015 are as follows:


Between 0-1 years 318,595 287,293Between 1-5 years 1,421,795 1,279,989Between 5-10 years 2,165,596 1,943,943

The minimum operational lease revenue represents lease revenue from Mall of İstanbul, Korupark shopping mall, Torium shopping mall, Zafer shopping mall and Deepo shopping mall, The lease revenues from Ankamall and Crowne Plaza Hotel that are owned by Yeni Gimat-associate of the Company and Bulvar Samsun shopping mall that is owned by joint ventures are not included in minimum operational lease revenue.

202


Below are the amounts of guarantees, pledges and mortgages of the Company as of 31 December 2016 and 2015:

31 December 2016 31 December 2015CPM’s given by the company (Collaterals, Pledges, Mortgages)

A. CPM’s given for its own legal personality 4,945,993 4,253,921B. CPM’s given on behalf of fully consolidated companies - -C. CPM’s given for continuation of its economic activities on behalf of third parties - -D. Total amount of other CPM’s

i) Total amount of CPM’s given on behalf of the majority shareholder - -ii) Total amount of CPM’s given to on behalf of other Group companies which are not in scope of B and C - -iii) Total amount of CPM’s given on behalf of third parties which are not in scope of C - -

4,945,993 4,253,921

As of 31 December 2016 liens on investment properties of the Company is TL 4,594,676 (31 December 2015: TL 3,823,554) (Note 9).

31 December 2016 31 December 2015Foreign Currency TL Amount Foreign Currency TL Amount

USD 1,065,000 3,747,948 1,065,000 3,096,594EURO 225,000 834,728 225,000 714,960TL 12,000 12,000 12,000 12,000

4,594,676 3,823,554

The lease revenues from Korupark Shopping Mall, Torun Tower and MOI Shopping Mall are pledged against borrowings.

The Company also stands as the guarantor of the borrowings that will be used by the buyers of the residences until the completion of residences and transfer of deeds to the contracting parties in relation to sale of residences through loans.




NOTE 17 - EQUITY

The Company increased its issued capital from TL 176,100,000 to TL 224,000,000 through public offering. A total TL 56,352,942 nominal value of shares were offered to the public, consisting of TL 47,900,000 to be issued from the capital increase and additional shares TL 8,452,942 owned by current shareholders. The compulsory prospectus of the public offering was registered by the İstanbul Trade Registry Office on 7 October 2010 and announced in the Trade Registry no: 7669 on 14 October 2010 pages between 641-735 totally 95 pages. The Company’s quoted shares are traded in the İstanbul Stock Exchange as from 21 October 2010.

The board of directors decided in its meeting dated 10 May 2012 to increase its paid-up capital of TL 224,000,000 to TL 500,000,000 within the cap of TL 1,000,000,000 registered capital, through a bonus issue by adding TL 276,000,000 out of a total of TL 301,770,000 share premium, transactions related to capital increase was completed on 16 August 2012.

The Company, on 27 December 2016, completed its trade registry and its subsidiary TRN Alışveriş Merkezleri Yatırım ve Yönetim A.Ş. combined with facilitated mode. As a result of this merger, 4,283 full TL (C Group) capital increase was realized).

From first dividend payment TL 60,000 which is set apart for distribution from net profit of the year 2015, after TL 73 profit amount has been deducted which is equal to refunded shares, as of 2 June 2016 TL 59,927 dividend payment has been issued to the shareholders. The dividend amounting to TL 73 which correspond to its treasury shares which were repurchased has been accounted in “Retained Earnings”.

204


Company’s shareholders and capital structure as of 31 December 2016 and 2015 as below:

Shareholders (%)A Group

(quantity)B Group

(quantity)C Group

(quantity)31 December

2016

Aziz Torun 37.41 100,164 - 86,871 187,035Mehmet Torun 37.40 - 100,156 86,871 187,027Torunlar Gıda San. ve Tic. A.Ş. 0.02 71 71 - 142Mahmut Karabıyık less than 0.01 - 8 - 8Other Shareholders less than 0.01 - - 4 4Other (Public quotation) 25.16 - - 125,788 125,788

Total paid-in capital 100,235 100,235 299,534 500,004

Shareholders (%)A Group

(quantity)B Group

(quantity)C Group

(quantity)31 December

2015

Aziz Torun 37.41 100,164 - 86,871 187,035Mehmet Torun 37.40 - 100,156 86,871 187,027Torunlar Gıda San. ve Tic. A.Ş. 0.02 71 71 - 142Mahmut Karabıyık less than 0.01 - 8 - 8Other (Public quotation) 25.16 - - 125,788 125,788

Total paid-in capital 100,235 100,235 299,530 500,000

The A and B group shares have nomination privilege to the Board of Directors according to 13. article of association. The members of the Board of Directors are elected by the General Assembly among the two candidates nominated by the shareholders of Group B, two candidates nominated by the shareholders of the Group A and the other three members among the candidates nominated by the general assembly.The nomination and election of the independent board members, the regulations regarding the independent members of the Capital Markets Board are taken as basis.

Companies whose shares are quoted in Borsa İstanbul are subject to profit distribution rules of Capital Market Board as follows:

Dividend is distributed according to Communiqué Serial: IV, No: 27 on “Principles Regarding Distribution of Dividends for the quoted entities subjected to Capital Market Board Law”, principles determined in the Articles of Association and dividend distribution policy which is declared by the Companies to the market.




In addition, the decision also allows companies to compute their distributable profit amounts by considering the net profit for the period presented in the publicly disclosed financial statements prepared in accordance with the Communiqué Serial: XI, No: 29, if such distributable profits could be fully recovered from resources subject to profit distribution in the statutory records.

The profit for the period and retained earnings in the statutory records of the Company is total TL 767,433. The Company has distributable profit amount of TL 691,645 which can be subject to profit distribution for 2016.

NOTE 18 - REVENUE AND COST OF REVENUE

2016 2015Revenues

Rent income 351,652 309,864Residence sales 243,273 249,687Common area income 70,402 67,193Other 350 1,294

665,677 628,038

Cost of revenue

Cost of residence sales (164,332) (152,924)Common area expenses (94,327) (85,187)Rent expenses and management fees of shopping malls (14,495) (12,306)Other (263) (27)

(273,417) (250,444)

Gross profit 392,260 377,594

Operational lease revenues mainly consist of rent income from shopping malls and Torun Tower Office. Shopping malls in operation are Mall of İstanbul, Ankara Ankamall, Bursa Korupark, Bursa Zafer Plaza, Antalya Deepo, Istanbul Torium and Samsun Bulvar Shopping Mall. Bulvar Samsun Shopping Mall is started to operate on July 2012. Ankamall, is owned by the Company’s associate Yeni Gimat; Antalya Deepo is owned by the Company’s subsidiary TRN; Samsun Bulvar Shopping Mall, is owned by the Company’s joint venture TTA. Istanbul Torium, Bursa Korupark and Antalya Deepo is managed by the related party Torun AVM Yatırım ve Yönetim A.Ş. (“Torun AVM”), the management of Bursa Zafer Plaza is conducted by Zafer Plaza İşletmeciliği A.Ş. (Note 25).

206


Common area expenses consist of electricity, water, security, cleaning, advertising and other common area expenses of the shopping malls. Common area income consists of expenses of the common area expenses charged to tenants.

NOTE 19 - GENERAL ADMINISTRATIVE AND MARKETING, SELLING AND DISTRIBUTION EXPENSES

2016 2015General administrative expenses

Taxes, duties and fees (*) (19,764) (12,758)Personnel expenses (7,198) (6,697)Donations (3,520) (2,492)Social responsibililty expenses(**) (3,000) -Property expenses (1,894) (893)Consultancy expenses (994) (987)Depreciation expenses (525) (891) Transportation and travel expenses (428) (402)BIST expenses (269) (297)Other (1,445) (1,611)

(39,037) (27,028)

(*) The major part of taxes, duties and fees are related to property taxes. The property taxes are amounting to TL 19,616 in 2016 and TL 11,698 in 2015.(**) The social responsibility project expenses consist of the payment made on 23 August 2016 within the scope of “Turkish parliament building construction” consortium agreement.

Marketing, selling and distribution expenses2016 2015

Advertising expenses (***) (6,326) (4,176)Marketing expenses for residence sales (2,124) (2,200)Depreciation expenses (235) (180)Consultancy expenses (6) (557)Other (740) (942)

(9,431) (8,055)

(***) As of 31 December 2016; TL 4,727 (31 December 2015: TL 2,581) of the advertising expenses are related to 5. Levent project, the TL 843 (31 December 2015: TL 1,039) of it related to the advertising expenses of Mall of Istanbul project, the TL 238 (31 December 2015: TL 115) of it related to the advertising expenses of Torun Center and the rest of it related to the Company’s publicity expenses.




NOTE 20 - EXPENSES BY NATURE

2016 2015

Cost of residence sales (164,332) (152,924)Common area expenses (94,327) (85,187)Taxes, duties and fees (19,764) (12,758)Rent expenses and management fees of shopping malls (14,495) (12,306)Personnel expenses (7,198) (6,697)Advertising expenses (6,326) (4,176)Donations (3,520) (2,492)Social responsibility expenses (3,000) -Advertising of residence sales (2,124) (2,200)Property expenses (1,894) (893)Consultancy expenses (1,000) (1,544)Depreciation expenses (760) (1,071)Transportation and travel expenses (428) (402)BIST expenses (269) (297)Other (2,448) (2,580)

(321,885) (285,527)

208


NOTE 21 - OTHER INCOME/EXPENSES

2016 2015Other income

Net gain from fair value adjustment on investment property (Note 9) 1,310,797 1,001,470Other income from construction site (*) 9,682 7,169Provisions no longer required (Note 7) 630 2,235Foreign exchange income - 13,042Other 2,721 1,745

1,323,830 1,025,661

Other expenses

Other expense from construction site (*) (4,976) (6,944)Provision for doubtful accounts (Note 7) (4,306) (2,514)Foreign exchange losses (2,193) -Litigation Provisions (1,734) (1,606)Other (1,529) (2,156)

(14,738) (13,220)

(*) As of 31 December 2016, the major part of the construction income/expenses occur from the usage of construction services by the subcontractors of Torun Center and 5. Levent Projects (31 December 2015: Mall of İstanbul Project) and construction income generated from punishments to subcontractors.




NOTE 22 - FINANCIAL INCOME/EXPENSES

2016 2015Financial income

Interest income on time deposits 70,475 58,571Gains on derivative financial instruments 2,497 -

72,972 58,571

Financial expenses 2016 2015

Foreign exchange losses, net (*) (432,895) (370,273)Interest expenses (139,533) (125,502)Losses on derivative financial instruments (4,172) (11,175)

(576,600) (506,950)

(*) The Company discloses the foreign exchange gains and losses in net.

NOTE 23 - EARNINGS PER SHARE

In Turkey, companies can increase their share capital by making a pro-rata distribution of shares (“Bonus Shares”) to existing shareholders from retained earnings and revaluation surplus. The issue of such shares is treated as the issuance of ordinary shares in the calculation of earnings per share.

Earnings per share disclosed in the income statement is determined by dividing net income attributable to ordinary shareholders by the weighted average number of shares existing during the period concerned.

31 December 2016 31 December 2015Net income/(loss) attributable mto equity holders of the parent in full TL 1,172,384 953,604Weighted average number of ordinary shares (Full TL) 500,004,283 500,004,283

Earning per share (Full TL) 2.34 1.91

210


NOTE 24 - TAX ASSETS AND LIABILITIES

The Company is exempt from corporate income tax in accordance with paragraph d-4 of Article 5 of the Corporate Income Tax Law and in accordance with paragraph 6-a of Article 94 of the Income Tax Law, the earnings of the real estate investment trusts are subject to withholding taxes, According to the Council of Ministers decision, No: 93/5148, the withholding tax rate is determined as "0". Therefore, the Company has no corporate tax obligation. The current period corporate tax is composed of the taxes calculated on the profits of the associates and subsidiaries of the Company.

Tax charges for the period ended at 31 December 2016 and 2015 are as follows:


Current period corporate income tax (2,717) (3,108)

(2,717) (3,108)

NOTE 25 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES

a) Balances with related parties at 31 December 2016 and 2015 are as follows:

31 December 2016 31 December 2015Payables to related parties

Torunlar-Özyazıcı 22,130 22,151PRN Parakende Mağazacılık ve Tic. A.Ş. 1,126 -Torun Yapı San. ve Tic. A.Ş. 473 2,287Torun AVM - 1,093Torunlar Gıda - 52Other 7,291 1,486

31,020 27,069




Receivables from related parties 31 December 2016 31 December 2015

Torun AVM 7,145 18,223Zafer Plaza İşletmeciliği A.Ş. 3,021 -Mehmet Torun - 521Aziz Torun - 483

10,166 19,227

Torun AVM, is providing management and administration services to Istanbul Torium, Bursa Korupark shopping malls which are owned by the Company. In accordance with the management agreement signed for Bursa Korupark shopping mall, management fee is paid to Torun AVM which is 2% (VAT excluding) of the sum of monthly TL rent bills charged to tenants. The transactions with Torun AVM have been conducted through normal market conditions and market prices. b) Balances with related parties at 31 December 2016 and 31 December 2015 rent and interest income from related parties are as follows:

2016 2015Sales to related parties

Torun Shopping Mall 37,267 44,707Zafer Plaza İşletmeciliği A.Ş. 29,956 27,900Other 152 1,784

67,375 74,391

Zafer Plaza İşletmeciliği A.Ş. is providing management and administration services to Zafer Plaza Shopping Mall which is owned by the Company. In accordance with the management agreement signed for Zafer Plaza Shopping Mall, Torunlar REIC has a rent income amounting to TL 29,956 for the period ended 31 December 2016 and TL 27,900 for the period ended 31 December 2015. The transactions with Zafer Plaza İşletmeciliği A.Ş. have been conducted through normal conditions and market prices.

212


2016 2015Purchases from related parties

Torun AVM 66,091 60,000Torun Yapı 3,734 4,428PRN Parakende Mağazacılık ve Tic. A.Ş. 984 -Torunlar Gıda 736 535Torun-Turkmall Project Partnership 41 -

71,586 64,963

c) Balances with related parties at 31 December 2016 and 2015 interest income and interest expenses to related parties are as follows:

2016 2015Interest income:

Torun AVM 240 842Other 220 -

460 842

2016 2015Interest expenses

Torun AVM 120 453Torun Yapı 93 132Torunlar Gıda 45 48

258 633

d) Remuneration of top management

2016 2015

Salaries and premiums 2,079 2,015

The remuneration of top management consists of short-term wages and other short-term benefits and free from long-term benefits.




NOTE 26 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial assets

It is assumed that the carrying values of the cash and cash equivalents are approximate t their fair values since classified under short term.

Appraiser report values are used to determine the fair values of the investment properties which are shown in based on the fair values in the balance sheet. (Note 9).

It is assumed that the carrying values of the trade receivables reflect the fair values.

It is assumed that the revaluations of foreign currency denominated balances with the period end foreign exchange rates are approximate to their carrying values.

Financial liabilities

It is assumed that the carrying values of trade payables are approximate to their fair values since classified under short term.

It is assumed that the carrying values of financial liabilities are approximate to their fair values since classified under short term.

Derivative financial instruments are carried at their fair values.

Fair values and carrying values of the domestic and foreign currencies denominated loans with floating and fixed interest rates are as follows:

Carrying value Fair value31 December 2016 31 December 2015 31 December 2016 31 December 2015

Borrowings 2,940,102 2,799,095 2,945,985 2,805,455

214


Fair Value of Financial Instruments

The fair values of financial assets and financial liabilities are determined as follows:

- Level 1: Financial assets and financial liabilities with standard terms and conditions are valued with quoted market prices which are determined on active liquid markets.

- Level 2: Financial assets and financial liabilities are valued by directly or indirectly observable market prices rather than the quoted market prices mentioned in first level of the regarding assets or liabilities.

- Level 3: Financial assets and financial liabilities are valued by the inputs where there is no observable market data of the fair value of the regarding assets and liabilities.

Classifications of the assets and liabilities which are measured by fair values are as follows:

31 December 2016Fair value levels

Financial assets measured 1. Level 2. Level 3. LevelAt the fair value TL TL TL

Investment properties - 794,398 6,959,486Derivative instruments - 1,198 -

31 December 2016Fair value levels

Financial liabilities 1. Level 2. Level 3. LevelTL TL TL

Derivative instruments - 4,450 -




31 December 2015 Fair value levels

Financial assets measured 1. Level 2. Level 3. LevelAt the fair value TL TL TL

Investment properties - 584,266 5,167,070Derivative instruments - 11,915 -

31 December 2015 Fair value levels

Financial liabilities 1. Level 2. Level 3. LevelTL TL TL

Derivative instruments - 4,195 -

The fair value of the financial liabilities is set as the second level.

NOTE 27 - FINANCIAL RISK MANAGEMENT

The Company’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Company’s management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company.

Liquidity Risk

Liquidity risk is the inability of the Company to match the net funding requirements with sufficient liquidity. The Company management tries to avoid liquidity risk from daily operations by trying to keep sufficient levels of cash and to have open credit lines with creditors. Management also tries to align the repayment of borrowings obtained for the construction and acquisition of investment properties with the rental revenue streams from such properties to the extent possible. For the construction of residential units the Company obtains cash advances from customers by engaging in pre-sales agreements to minimize the funding requirement in such projects.

216


The analysis of the Company’s financial liabilities with respect to their maturities as of 31 December 2016 is as follows:

Carrying value

Contractual cash flows

Up to 3 months

3 months to 1 year

1 year -to 5 years Over 5 years

Short-term financial liabilities (Non-derivative):

Short term liabilities 144,096 149,328 94,494 54,834 - -Short term of long termliabilities 1,104,235 1,186,633 249,160 937,473 - -Other payables 33,420 33,420 - 33,420 - -Trade payables 141,262 141,262 141,262 - - -

1,423,013 1,510,643 484,916 1,025,727 - -

Long-term financial liabilities (Non-derivative):

Long term liabilities 1,798,097 1,997,500 - - 1,795,007 202,493

1,798,097 1,997,500 - - 1,795,007 202,493

Long-term financial liabilities (Non-derivative), Total 3,221,110 3,508,143 484,916 1,025,727 1,795,007 202,493

Derivative financial liabilities, net

Derivative cash inflow (1,198) (1,198) (1,198) - - -Derivative cash outflow 4,450 4,450 - 4,450 - -

3,252 3,252 (1,198) 4,450 - -




The analysis of the Company’s financial liabilities with respect to their maturities as of 31 December 2015 is as follows:

Carrying value

Contractual cash flows

Up to 3 months

3 months to 1 year

1 year -to 5 years Over 5 years

Short-term financial liabilities (Non-derivative):

Short term liabilities 751,182 763,552 146,101 617,451 - -Short term of long termliabilities 149,170 208,864 26,195 182,669 - -Other payables 15,606 15,606 - 15,606 - -Trade payables 170,227 170,227 97,091 73,136 - -

1,086,185 1,158,249 269,387 888,862 - -

Long-term financial liabilities (Non-derivative):

Long term liabilities 1,905,001 2,130,253 - - 1,837,440 292,813

1,905,001 2,130,253 - - 1,837,440 292,813

Financial liabilities (Non-derivative), Total 2,991,186 3,288,502 269,387 888,862 1,837,440 292,813

Derivative financial liabilities, net

Derivative cash inflow (11,915) (11,915) (11,915) - - -Derivative cash outflow 4,195 4,195 269 3,926 - -

(7,720) (7,720) (11,646) 3,926 - - Interest rate risk

The Company is exposed to interest rate risk through the impact of rate changes on interest bearing assets and liabilities. These exposures are managed by offsetting interest rate sensitive assets and liabilities and using derivative instruments when considered necessary.

In this context, matching of not only maturities of receivables and payables but also contractual repricing dates are crucial. In order to keep the exposure of financial liabilities to interest rate changes at a minimum, “fixed interest/floating interest”, “short-term/long-term”, “TL/foreign currency” balance should be structured consistent within and with assets in the balance sheet.

218


Borrowings with floating interest rate which have been classified as financial liabilities in the Company’s balance sheet have been exposed to the interest risk as a result of change in interest rates. At 31 December 2016, if interest rates at contractual repricing dates of EUR and USD denominated financial assets and liabilities with variable interest rates have strengthened/weakened by 1% with all other variables held constant, income would have been TL 22,177 lower/higher as a result of interest expenses. (31 December 2015: TL 7,392)

Average effective annual interest rates of balance sheet items as of 31 December 2016 and 2015 are as follows:

31 December 2016 (%) TL EURO USD

Current assetsCash and cash equivalents 11.12% 1.71% 3.57%Trade Receivables 10.00% - -

Short term liabilitiesFinancial liabilities 10.75% 2.98% 4.52%

Long term liabilitiesFinancial liabilities - 3.84% 5.46%

31 December 2015 (%) TL EURO USD

Current assetsCash and cash equivalents 12.35% 1.89% 2.28%Trade Receivables 10.00% - -

Short term liabilitiesFinancial liabilities 12.24% 3.83% 3.26%

Long term liabilitiesFinancial liabilities - 4.01% 4.73%




The Company’s financial instruments that are sensitive to interest rates are as follows:


Financial instruments with fixed interest rate

Time deposits 511,204 903,447Financial liabilities 793,102 811,009

Financial instruments with floating interest rate

Financial liabilities 2,253,326 1,994,344

The Company’s financial assets and liabilities in carrying amounts classified in terms of periods remaining to contractual repricing dates as of 31 December 2016 and 2015 are as follows:

31 December 2016

Up to 3 months

3 months to 1 year

More than 1 year

Non-interest bearing Total

Cash and cash equivalents 510,081 - - 1,123 511,204Trade receivables - 195,090 70,926 - 266,016Due from related parties 10,166 - - - 10,166Other financial assets 1,198 - - - 1,198

Total assets 521,445 195,090 70,926 1,123 788,584

Financial liabilities 327,825 920,506 1,798,097 - 3,046,428Trade payables 141,262 - - - 141,262Other financial liabilities - 4,450 - - 4,450

Total liabilities 469,087 924,956 1,798,097 - 3,192,140

Net repricing position 52,358 (729,866) (1,727,171) 1,123 (2,403,556)

220


31 December 2015

Up to 3 months

3 months to 1 year

More than1 year

Non-interest bearing Total

Cash and cash equivalents 902,710 - - 737 903,447Trade receivables - 178,139 103,734 - 281,873Due from related parties 19,227 - - - 19,227Other financial assets 11,915 - - - 11,915

Total assets 933,852 178,139 103,734 737 1,216,462

Financial liabilities 163,026 737,326 1,905,001 - 2,805,353Trade payables 97,091 73,136 - - 170,227Other financial liabilities 269 3,926 - - 4,195

Total liabilities 260,386 814,388 1,905,001 - 2,979,775

Net repricing position 673,466 (636,249) (1,801,267) 737 (1,763,313) Credit risk

The Company is subject to credit risk arising from trade receivables related to credit sales and deposits at banks.

The Company keeps majority of its deposits with top 10 retail banks established in Turkey, with which the Company had standing relations.

Credit risk mainly consists of receivables from related parties. Credit risk of receivables from third parties is managed by securing receivables with collaterals covering receivables at the highest possible proportion. Methods used are as follows:

• Bank guarantees (letter of guarantee, letter of credit, etc.),• Mortgage on real estate,• Cheques and notes,

In credit risk control, the credit quality of each customer is assessed; taking into account its financial position, past experience and other factors, individual risk limits are set in accordance and the utilization of credit limits is regularly monitored.




Credit and receivable risk of financial instruments as of 31 December 2016 is as follows:

Trade receivables31 December 2016 Related party Other party Deposits in Banks

Maximum exposed credit risk as of reporting date 10,166 266,016 511,204Secured portion of the maximum credit risk by guarantees, etc, 10,166 225,663 -A. Net book value of financial assets that are either not due or not impaired 10,166 245,523 511,204B. Net book value of the expired but not impaired financial assets - 20,493 -C. Net book value of impaired assets

- Overdue (Gross book value) - 6,732 -- Impairment (-) - (6,732) -- Not overdue (Gross book value) - - -- Impairment (-) - - -- Secured portion of the net value by guarantees, etc. - - -

D.Off balance sheet items with credit risks - - -

222


Credit and receivable risk of financial instruments as of 31 December 2015 is as follows:

Trade receivables31 December 2015 Related party Other party Deposits in Banks

Maximum exposed credit risk as of reporting date 19,227 281,873 903,447Secured portion of the maximum credit risk by guarantees, etc, 19,227 249,180 -A. Net book value of financial assets that are either not due or not impaired 19,227 272,824 903,447B. Net book value of the expired but not impaired financial assets. - 9,049 -C. Net book value of impaired assets

- Overdue (Gross book value) - 3,056 -- Impairment (-) - (3,056) -- Not overdue (Gross book value) - - -- Impairment (-) - - -- Secured portion of the net value by guarantees, etc.

D. Off balance sheet items with credit risks - - -

While determining the above-mentioned amounts, the factors that increase the credibility such as guarantees received are not considered. In the financial assets of the Company which are subject to credit risk, no impairment risk has been identified. Additionally, Company’s off balance sheet items which are subject to credit risk include overdue but not impaired assets.




a) Credit quality of not yet due, not impaired receivables whose conditions are re-negotiated:

31 December 2016 31 December 2015Group 1 - -Group 2 245,523 272,824Group 3 - -

245,523 272,824

Group 1- New customers (less than three months)Group 2- Existing customers with no defaults in the past (more than three months)Group 3- Existing customers with some defaults in the past which were however fully recovered with some delay

Foreign exchange risk

The Company is exposed to foreign exchange rate risk through operations done using multiple currencies. The main principle in the management of this foreign currency risk is maintaining foreign exchange position in a way to be affected least by the fluctuations in foreign exchange rates, in other words, maintaining foreign exchange position close to zero.

For this reason, the proportion of the positions of these currencies among each other or against new Turkish lira to shareholders’ equity is aimed to be controlled under certain limits.

The Company is exposed to foreign exchange rate risk mainly for EUR and USD.

Foreign currency position

Foreign currency denominated assets, liabilities and off-balance sheet accounts give rise to foreign exchange exposure.

The company does not have any export or import activity in 2016 and 2015.

Foreign currency denominated assets and liabilities held by the Company are as follows:

31 December 2016 31 December 2015Assets 157,273 155,151Liabilities (3,017,660) (2,739,755)

Net on-balance sheet position (2,860,387) (2,584,604)

224


The table below summaries foreign currency position risk of the Company as of 31 December 2016. The original currency amounts of assets and liabilities denominated in foreign currencies and the total TL equivalent are as follows:

EUR USDTL

Equivalent

Current assetsMonetary financial assets 8,939 29,110 135,606Other assets 3,356 2,619 21,667

Total assets 12,295 31,729 157,273

Short term liabilitiesTrade payables (46) (351) (1,407)Financial liabilities (70,792) (261,623) (1,183,331)Other short term liabilities (1,658) (8,147) (34,825)

Long term liabilities Financial liabilities (125,750) (378,375) (1,798,097)

Total liabilities (198,246) (648,496) (3,017,660)

Net balance sheet position (185,951) (616,767) (2,860,387)

Assets in foreign currency character off-balance sheet derivative products 323 - 1,198Liabilities in foreign currency character off-balance sheet derivative products - - -Foreign currency balance sheet net position of derivatives - - -

Net foreign currency liability position (185,628) (616,767) (2,859,189)




Net foreign currency position against currencies is as follows:

Against EUR (688,661)Against USD (2,170,528)

Net foreign currency position (2,859,189)

The table below summaries foreign currency position risk of the Company as of 31 December 2015. The original currency amounts of assets and liabilities denominated in foreign currencies and the total TL equivalent are as follows:

EUR USDTL

Equivalent

Current assetsMonetary financial assets 46,654 2,374 155,151

Total assets 46,654 2,374 155,151

Short term liabilitiesTrade payables (4,881) (1,720) (20,511)Financial liabilities (97,292) (156,974) (765,572)Other short term liabilities (1,147) (15,486) (48,672)

Long term liabilities Financial liabilities (139,418) (502,815) (1,905,000)

Total liabilities (242,738) (676,995) (2,739,755)

Net balance sheet position (196,084) (674,621) (2,584,604)

Assets in foreign currency character off-balance sheet derivative products 3,750 - 11,915Liabilities in foreign currency character off-balance sheet derivative products - (1,443) (4,195)Foreign currency balance sheet net position of derivatives - - -

Net foreign currency liability position (192,334) (676,064) (2,576,884)

226


Net foreign currency position against currencies is as follows:

Against EUR (611,160)Against USD (1,965,724)

Net foreign currency position (2,576,884)

The table below shows the Company’s sensitivity for 10% fluctuation of USD and EUR. These amounts represent the effect on the statement of comprehensive income of 10% fluctuation of USD and EUR against TL. During this analysis all other variables especially interest rate are assumed to remain constant.

Foreign currency sensitivity analysis as of 31 December 2016 and 2015 are as follows:

Gain/Loss Equity31 December 2016 Appreciation Depreciation Appreciation Depreciation

10% fluctuation in USD rateUSD net asset/liability (217,053) 217,053 (217,053) 217,053Secured portion from USD risk

USD net effect (217,053) 217,053 (217,053) 217,053

10% fluctuation in EUR rateEUR net asset/liability (68,866) 68,866 (68,866) 68,866Secured portion from EUR risk

EUR net effect (68,866) 68,866 (68,866) 68,866




Gain/Loss Equity31 December 2015 Appreciation Depreciation Appreciation Depreciation

10% fluctuation in USD rate USD net asset/liability (196,572) 196,572 (196,572) 196,572Secured portion from USD risk

USD net effect (196,572) 196,572 (196,572) 196,572

10% fluctuation in EUR rate EUR net asset/liability (61,116) 61,116 (61,116) 61,116Secured portion from EUR risk

EUR net effect (61,116) 61,116 (61,116) 61,116

Capital risk management

The Company attempts to manage its capital by minimizing the investment risk with portfolio diversification. The Company’s objectives are to safeguard the Company’s sustainability as a going concern to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital and to keep a gearing ratio that is in-line with industry averages.

When the company manages the capital, the Company aims to provide returns to shareholders and to reduce cost of capital, to maintain optimal capital structure by protecting company’s operation ability.

In order to maintain or adjust the capital structure, Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

228


Gearing ratios as of 31 December 2016 and 2015 are as follows:


Total liabilities 4,404,131 4,001,421Cash and cash equivalents (511,204) (903,447)

Net debt 3,892,927 3,097,974Total shareholders equity 5,973,549 4,861,088

Invested capital 500,004 500,000

Gearing ratio %65.17 %63.73

NOTE 28 - SUBSEQUENT EVENTS

None.




NOTE 29 - ADDITIONAL NOTES: CONTROL OF COMPLIANCE WITH THE PORTFOLIO LIMITATIONS

The information below, control of compliance with the portfolio limitations are the condensed information which comprised of Serial: II, No: 14.1 “Financial Reporting in Capital Markets” Amendment No: 16 and prepared in accordance with Capital Markets Board’s Communiqué Serial: III, No: 48.1“Real Estate Investment Company” published in the Official Gazette dated 28 May 2013 numbered 28660 Capital Markets Board’s Communiqué Serial: III, No: 48.1 a “Amendment on Real Estate Investment Company” published in the Official Gazette dated 23 January 2014 numbered 28891.

Financial statements main account items Related regulations 31 December 2016 31 December 2015

A Money and capital market instruments Series:III, No:48.1 , Art.24/(b) 511,204 900,733B Properties, projects based on properties

and rights based on properties Series:III,No:48.1 , Art.24/(a) 8,957,481 6,662,855C Subsidiaries Series:III, No:48.1 , Art.24/(b) 306,029 697,729

Due from related parties (Noncommercial) Series:III, No:48.1 , Art.23/(f) - -Other assets 580,837 578,957

D Total assets Series:III, No:48.1 , Art.3/(p) 10,355,551 8,840,274E Financial liabilities Series:III, No:48.1.1 , Art.31 2,940,102 2,799,095F Other financial liabilities Series:III, No:48.1.1 , Art.31 - -G Due from financial leases Series:III, No:48.1.1 , Art.31 106,326 6,258H Due to related parties (Noncommercial) Series:III, No:48.1 , Art.23/(f) - -I Shareholder’s equity Series:III, No:48.1 , Art.31 5,951,420 4,838,920

Other liabilities 1,357,703 1,196,001D Total liabilities Series:III, No:48.1 , Art.3/(p) 10,355,551 8,840,274

Financial statements main account items Related regulations 31 December 2016 31 December 2015

A1 The portion of money and capital market instruments held for payables of properties for the following 3 years Series:III, No:48.1, Art.24/(b) 511,204 900,733

A2 TL and foreign currency time and demand deposits Series:III, No:48.1, Art.24/(b) 511,204 900,733

A3 Foreign capital market instruments Series:III, No:48.1, Art.24/(d) - -B1 Foreign properties, projects based

on properties and rights based on properties Series:III, No:48.1, Art.24/(d) - -

B2 Idle lands Series:III, No:48.1 Art.24/(c) - -C1 Foreign affiliates Series:III, No:48.1, Art.24/(d) - -C2 Investments in affiliated operating

companies Series:III, No:48.1, Art.28/1/(a) - -J Non-cash loans Series:III, No:48.1 , Art.31 351,318 430,367K Mortgage amount on non-owned land to

be developed Series:III, No:48.1, Art.22/(e) - -L Total investments Series:III, No:48.1, Art.22/(1) - -

230


Portfolio limitations Related regulations31 December

201631 December

2015Minimum /

maximum rate1 Mortgage amount on non-owed land

to be developed (K/D)Series:III, No:48.1a, Art.22/(e) 0% 0% <10%

2 Properties, projects based on properties and rights based on properties (B+A1)/D)

Series:III, No:48.1a, Art.24/(a),(b) 91% 86% >50%

3 Money and capital market instruments and affiliates (A+C-A1)/D)

Series:III, No:48.1a, Art.24/(b) 3% 8% <50%

4 Foreign properties, projects based on properties rights based on properties affiliates capital, market instruments (A3+B1+C1/D)

Series:III, No:48.1a, Art.24/(d) 0% 0% <49%

5Idle lands(B2/D)

Series:III, No:48.1a, Art.24/(c) 0% 0% <20%

6 Investment in affiliated operating companies (C2/D)

Series:III, No:48.1a, Art.28/1/(a) 0% 0% <10%

7Borrowing limit (E+F+G+H+J)/I

Series:III, No:48.1, Art.31 57% 67% <500%

8 TL and foreign currency time and demand deposits (A2-A1)/D

Series:III, No:48.1, Art.24/(b) 0% 0% <10%

9 Total investments of monetary and capital market instruments at one company

Series:III, No:48.1, Art.22/(1) 0% 0% <10%




Shareholder valueAssociate Shareholding rate (%) 31 December 2016 31 December 2015

Yeni Gimat 14.83 273,126 258,781TTA 40.00 23,501 29,389Netsel 44.60 7,566 9,236Torunlar Özyazıcı 60.00 1,836 1,831TRN 99.99 - 330.248Hastalya 99,67 - 68,244

306,029 697,729

Yeni Gimat, Netsel, TTA, and Torunlar Özyazıcı which are associates and joint ventures of the Company (all together “Subsidiaries”) do not have valuation reports as of 31 December 2016. For the purposes of the control of compliance with the portfolio limitations, net asset values of associates are used. In this respect, Yeni Gimat and TTA’s stand-alone financial statements which are prepared in accordance with financial reporting standards of the Company, are multiplied with the Company’s ownership rate in the related subsidiary. Thus, it is assumed that net values which are determined by adding and deducting net receivables/ liabilities as of balance sheet date from the investment properties that are owned by associates and followed in stand-alone financial statements with fair values, approximate to the fair value of the associates. Investment properties which are owned by associates are explained in Note 1 in detail. Since, there are no valuation reports of Torunlar Özyazıcı and Netsel, net asset values of the subsidiaries based on their stand-alone financial statements are taken into account and they are multiplied with Company’s share in these subsidiaries.

01 Company Profile02 From the Chairman 08 Torunlar Group 10 Torunlar REIC in Brief12 Vision, Mission and Strategic Targets14 Awards and Certifications16 Corporate Social Responsibility Activities18 Board of Directors23 Independence Statements 26 Executive Board 28 Capital and Shareholding Structure 30 Agenda of Torunlar REIC 2016 Ordinary General Assembly Meeting Dated May 23, 201731 Profit Distribution Policy32 2016 Profit Distribution Table34 Financial Highlights 37 Evaluation of 2016 Operating Results on REICs47 Net Asset Value Table 49 Compliance with the Portfolio Limitations on REICs50 Assets of Torunlar REIC108 Risks and Assessment of the Management Body 109 Material Events Disclosure after the Accounting Period Ending on December 31, 2016109 Amendments to the Articles of Association during the Accounting Period and Their Explanations109 Amendments to Real Estate Regulations 110 Information on Consulting Firm, Management Company, Real Estate Appraisal Company, Asset Management Company and Depository Institution Related to the Assets and Rights in the Portfolio of the Company 111 Lawsuits 111 Internal Control System of the Company and Information about Internal and External Control Operations 111 Subsidiaries and Related Party Transactions 112 Sustainability 120 Personnel and Worker Actions, Collective Bargaining Practices, Rights and Benefits Offered to Personnel and Workers 120 Information about Outside Organizations120 Company Financing Sources and Risk Management Policies120 Projections about the Company’s Progress 120 Changes Affecting the Implementation of Principles of Corporate Governance121 Research and Development Activities 121 Quality and Amount of Capital Market Instruments Issued 121 Money and Capital Market Instruments121 Developments in Investments, Use of Incentives, to What Extent Incentives Have Been Used, If Any121 Characteristics and Capacity Utilization Rates of the Company’s Production Units; Related Developments; Capacity Utilization Rate; Developments in Product and Service Production in the Core Business Area; Amount, Quality, Demand and Prices in Comparison with Prior Periods122 Product and Service Prices; Sales Revenues; Sales Conditions and Related Developments that Took Place during the Year; Improvements in Performance and Productivity Coefficients; Reasons for Significant Changes Compared with Previous Years122 Measures Considered to Improve the Company’s Financial Structure 123 Torunlar Real Estate Investment Company Corporate Governance Principles Compliance Report 139 Financial Statements 141 Financial Statements and Independent Auditor’s Report for January 1- December 31, 2016 Reporting Period

CONTENTS

Torunlar REIC

ANNUAL REPORT

2016uwww.torunlargyo.com.tr

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Documents

Torunlar REIC ANNUAL REPORT · growth in consumer credit and Turkish lira denominated commercial ... rental income from shopping malls and offices increased 13.5% ... Torunlar REIC