Dear Stakeholders,

The revival in our sector that was backed by the downtrend in inflation and interest rates and that started in the third quarter of 2019 was interrupted in the second quarter of 2020 in the wake of the pandemic, before leapfrogging in the third quarter thanks to the economic support packages. In the last quarter of the year, however, the CBRT’s rate hikes and the second wave of the pandemic repressed the sector’s momentum.

Amid the current economic environment, İş REIC focused on minimizing the impacts of the pandemic drawing on its strong reflexes in risk and portfolio management, and concentrated its efforts on analyzing the risks both in financial terms and in relation to restrictions over operations and on taking action accurately.

In 2020, the Company derived TL 212 million in rental income, while generating total sales revenues in the amount of approximately TL 553 million, and booking a net profit for the period of TL 266.5 million at year-end. Our shareholders’ equity at 2020 year-end remains strong with TL 4,131 million. Total assets of the Company were recorded as TL 5,225 million, and the total portfolio value as TL 5,031 million. As at 31 December 2020, İş REIC represented nearly 4.5% of the real estate investment company sector with a market capitalization of TL 2,435 million.

We targeted to remain on track in the completion and sales of our projects.

Throughout the year, we carried on with our activities in line with our forecasted plans. Reduced interest rates in June 2020 acted as a contributing factor to significantly dispose of our housing stock.

The sales performance exceeded 80% in all our projects whose sales are ongoing. At the same time, the delivery processes of the projects were also finalized, and title deed processes were initiated.

For our İstanbul Financial Center Project, the construction of which is in progress, our development work gained speed following the announcement of the opening date by official authorities.

Our new plot purchases for development continued during the reporting period. Keeping a close eye on the new trends in the sector, Çekmeköy/Ömerli plot was added to our portfolio that already holds a building permit, which is expected to contribute positively to our Company’s results in this sense. Work was initiated to develop a boutique villa project consisting of 16 units on the plot that has an area of approximately 15,314 m2.

Throughout the year, evaluations continued regarding our projects in planning phase, which we had decided to postpone previously given the prevailing conjuncture. We continue to devise our plans as   needed to realize these projects upon emergence of suitable investment and marketplace conditions.

The pandemic’s effects on the sector will prevail also in the coming year.

The negativities that dominated in the real sector in 2020 will possibly be influential throughout a portion of 2021, but the exit process will likely begin depending on the vaccination process in Turkey and across the world.

A look at the sub-markets indicate at the following:

In the housing market, the pandemic impacts the ongoing projects with respect to sales and manufacturing alike. The players in the sector strive steadfastly to complete their projects despite the tough circumstances. In this period, the housing sector sales displayed a radical fall of nearly 50% in April and May on a year-over-year basis with the effect of the pandemic, followed by a significant recovery in June-August and partially in September even, enabled by the decreased housing loan rates applied by the banks. Although the campaign that featured the historically-low rate drove the sales of 1.5 million units across the overall sector, marking a new record in the housing sector, majority of the sales consisted of second hand housing units, resulting in limited fund transfer toour sector. Moreover, demand for housing declined as the loan rates began to escalate once again from September, and housing sales adopted a downturn in the last months of the year.

In the office market, the demand was negatively affected, as a large number of companies that switched to the teleworking model during the pandemic remained undecided about returning to offices and began considering contracting/downsizing options for their office spaces. In contrast, there is a growing demand for spaces available for short-term rental and usage managed by office operators working with the ‘flexible/co-work’ concept.

We project that the vacancy rates that went up to as high as 30% across İstanbul and the decline in average rental fees in Class-A office buildings will persist until the uncertainties are eliminated.

Housing and office markets will be kept under watch because of the risks they entail for the real estate sector, being areas needing support due to the available stock, coupled with insufficient demand resulting from reduced commercial activity.

While online sales and e-commerce volume gained significant momentum as an important implication of the pandemic with respect to the retailing market, physical retailing and shopping malls, in particular, were deeply impacted by the restrictions and social distancing measures. On the part of shopping malls where negative developments from the standpoint of tenants were attempted to be countered with various supports including deals for no-rent periods, exemption from common expenses, reduced VAT and withholding tax rates in rentals, demands for rental contracts linked to turnover might possibly become the rising trend in the year ahead. During 2020, prime retail rent figures slid down, while return rates remained flat with their 2019 levels.

We might anticipate a more concrete recovery in 2021 with the revocation of the regulations governing commercial life that was enforced for the good part of 2020 due to the pandemic.

Our focus is on sustainability in increasing stakeholder value.

We are going through a severe crisis period globally in terms of health and economy. Predicting and managing the potential risks amid a process we have not experienced before call for competencies that are unlike the usual ones.

To this backdrop, our Company has been preserving its differentiated position on the back of its vast market experience and vision, robust financial structure and efficient strategy.

Being a profitable company maintaining its focus on sustainability, our key strategy is to accurately manage the high-quality real estate portfolio and increase stakeholder value.

In the coming period, we will strengthen our presence with our projects adding value to their locations in the light of conjunctural and market dynamics.

I would like to extend my heartfelt thanks to our shareholder İşbank, our Board of Directors, all our business partners, employees and shareholders for their unyielding support and trust.

Sincerely,

Hasan K. Bolat

CEO