Alony-Hetz Properties and Investments Ltd. Concise Consolidated Financial Statements As of September (Unaudited)

Transcription

1 AlonyHetz Properties and Investments Ltd. Concise Consolidated Financial Statements As of September (Unaudited)

2 AlonyHetz Properties and Investments Ltd. Concise Consolidated Financial Statements (Unaudited) As of September Table of Contents Page Report of the Board of Directors 3 Accountants Review 39 Concise Consolidated Financial Statements (Unaudited) 40 Special Report of the C.P.A. 60 Separate Financial Information (Unaudited) 61 Report on Effectiveness of Internal Control of Financial Reporting and Disclosure Reference to Report on the Corporation s Liabilities Inventory by Redemption Dates Reference to Financial Statements of Affiliated Company PSP 73 2

3 Report of the Board of Directors Ramat Gan, November Board of Directors' Report on the State of Corporate Affairs For the Nine Month Period Ending September The Board of Directors of AlonyHetz Properties and Investments Ltd. (hereinafter: the Company ) is honored to submit its Report of the Company s Board of Directors for the ninemonth period ending September (hereinafter: "The Reported Period").The Board of Directors Report for the Reported Period must be studied in the context of the 2011 Board of Directors Report. 1. Summary Description of the Group The Company and its subsidiaries (hereinafter: the Group ) have two areas of activity: 1. Principal areas of activity longterm investments in revenueproducing real estate in Israel and in western countries. As of the publication of this report, the Group is active mainly in the following markets: Israel, Switzerland, Canada and the UK. 2. An additional area of activity investment in renewable energy. As of the publication of this report the Group has investments in Israel in the field of photovoltaic energy only. In addition, the Group is currently developing and initiating wind energy projects in Israel and in Poland. 1.1 The Group s principal investments in the field of cashgenerating real estate as of September : Activity in Israel A 62.6% stake in Amot Investments Ltd. (hereinafter: Amot ), a public company the securities of which are listed for trade on the Tel Aviv Securities Exchange Ltd. (hereinafter: TASE ). Activity in Europe In Switzerland a 14.37% stake in PSP Swiss Property Ltd. (hereinafter: "PSP"). PSP is a public company in the revenueproducing real estate industry listed for trade on the Zürich Stock Exchange. According to PSP publications, the Group is the sole interested party and largest shareholder in PSP. On the matter of the sale of 1.4 million PSP shares over the course of the third quarter of 2012 and subsequent to the balance sheet date, see below. In the UK holdings in British real estate funds from the Brockton Group: 25% of Brockton Capital Fund I LP and 5% of Brockton Capital Fund II (including a 9% stake in the funds management company). Operations in North America In Canada a 10.3% stake in First Capital Reality Inc. (hereinafter: FCR), a public Canadian company holding revenueproducing real estate in Canada. 3

4 Report of the Board of Directors In the U.S. the Company is currently studying and examining investment opportunities in the office market in the Northeast. Regarding the realization of the Group s holdings in GAA and EQY see and below. 1.2 The Group s principal investments in the field of renewable energy as of September : Activity in Israel the Group holds, directly and indirectly, a 66% stake in Energix Renewable Energy Ltd. (hereinafter: Energix ), a public company the securities of which are traded on the Tel Aviv Securities Exchange. Energix deals in the sale of electric power from photovoltaic solar powered systems: Regarding engagements for the construction of projects in the field of wind energy in Poland that are in their initial stages of development, see Note 4.(f) to the Financial Statements. Expanded Company The Company s Principal Investments as of September (*) Regarding the realization of some of PSP s shares after the balance sheet date, see Note below. 4

5 Report of the Board of Directors 1.3 The Group s key holdings as of September : (*) As of the publication of this report the Company's stake in PSP is 12.2%. 1.4 Stock Market Indices Company shares are traded on the Tel Aviv Stock Exchange Ltd. The key stock market indices to which the Company's securities belong are: Tel Aviv 100, Tel Aviv 75, Tel Aviv Real Estate 15, Tel Div, Tel Bond 40, Tel Bond 60, Tel Bond Linked and Tel AvivMa alah. 5

6 Report of the Board of Directors 1.5 Summary of Key Data the Group Unit 2012 / / /Q /Q % Change 1 Main Financial Results Consolidated Report Income from rental and management fees of Thousands of NIS investment property , , , , , Fair value adjustment of investment real estate and Thousands of NIS profit from its sale... 74, , ,834 The Group's share of the profits of associates, net... Thousands of NIS 373, ,848 87,433 83, ,334 )37.4( Dividend income from investment in securities Thousands of NIS available for sale... 87,343 34,453 35,733 83,753 53,334 )38.4( Net profit for the period... Thousands of NIS 834, , ,348 38, ,443 )33.8( Net profit for the period attributed to Company Thousands of NIS shareholders , , ,348 83, ,843 )33.5( Comprehensive earnings for the period assigned to Thousands of NIS Company shareholders , , , , ,487 )3.7( FFO attributed to Company shareholders 2... Thousands of NIS 334, ,443 45,474 33, ,448 )3.3( Balance sheet total... Thousands of NIS 38,334,538 33,878,845 11,310, Shareholders' equity (including minority interest)... Thousands of NIS 4,785,485 4,348,784 4,448, Financial debt (bank credit and debentures) 3... Thousands of NIS 3,438,444 3,454,337 3,874, Net financial debt 4... Thousands of NIS 3,373,377 8,433,334 3,338,835 4 Net financial debt ratio to balance sheet total 5... % Main Financial Results Expanded Company 6 Balance sheet total... Thousands of NIS 3,738,443 8,454,358 8,548, Equity attributed to Company shareholders... Thousands of NIS 7,447,443 7,333,483 7,444, Financial debt (bank credit and debentures)3... Thousands of NIS 8,583,354 8,333,348 8,344, Net financial debt 4... Thousands of NIS 8,787,738 8,474,343 8,833,535 )4.8( Net financial debt ratio to balance sheet total % Earnings per Share Data Earnings per share basic... NIS )38.8( Comprehensive earnings per share basic... NIS )3.4( FFO per share 2... NIS )3.4( Current dividends per share... NIS Special dividends per share... NIS 3.77 NAV per share... NIS NNAV per share 7... NIS Price per share at the end of the period... NIS Balance sheet data September vs. December Result data 19/2012 compared to 19/ In calculating FFO, index rate differentials and linkage differentials due to debentures and CPIlinked loans were not included, as in Company Management's opinion the expenses in question do not reflect cash flows from ongoing current activities. 3 The financial debt includes liabilities due to foreign currency forward agreements carried out by the Company, which as of September , September and December amounted to a total of 9 million NIS, 63 million NIS and 26 million NIS, respectively. Financial debt is after offsetting the discount balance of debentures, and does not include interest payable classified under other accounts payable. 4 Financial debt presented net mainly of cash balances. 5 Balance sheet total net of cash. 6 In the expanded company balance sheet, investments in Amot and in Energix are presented on a book value basis in lieu of the consolidation of their reports with the Company's reports (the remaining investments are presented unchanged in the report presented in accordance with the IFRS). 7 When calculating NNAV per share, the Company s tax reserves (expanded company) were neutralized, as was the Company s share of Amot s and PSP s tax reserves 6

7 1.6 Summary of Key Data Major Investments Report of the Board of Directors Unit 2012 / / /Q /Q % Change 1 Investment in Israel Amot Investments Ltd. (62.6% stake) Number of properties... Unit Value of investment real estate (without selfconstructed real estate)... Thousands of NIS 3,443,874 8,538,384 8,583, Weighted capitalization rate deriving from investment real estate... % Occupancy rate at the end of the period... % Thousands of Value of selfconstructed investment property... NIS 383, , , Net financial debt ratio to balance sheet total 5... % Thousands of 8 NOI... NIS 743, , , , , FFO per share 9... NIS Ordinary dividends per share... NIS NAV per share... NIS NNAV per share... NIS Price per share at the end of the period... NIS )8.3( Investment in Switzerland PSP Swiss Property (14.37% stake) 10 Number of properties... Unit Value of investment real estate (without selfconstructed Thousands of real estate)... CHF 8,583,554 8,483,854 8,333, Weighted discount rate deriving from revenueproducing investment real estate % Occupancy rate at the end of the period... % Thousands of Value of selfconstructed investment property... CHF 837, , ,534 )83.8( Financial debt rate from balance sheet total... % Thousands of EBITDA... CHF 358, ,548 87, , FFO per share... CHF Dividends per share by way of equity reduction CHF 7.44 NAV per share... CHF NNAV per share... CHF Price per share at the end of the period... CHF Investment in Canada First Capital Reality Inc.(10.3% stake) FFO per share CAD Ordinary dividends per share... CAD Price per share at the end of the period... CAD Net operating income 9 Funds from operations 10 As of the publication of this report the Company s stake in PSP is 12.2%. 11 Implied yield, net 12 Equity reduction receipts with for 2011 were paid in April Diluted FFO per share. 7

8 2. Comments of the Board of Directors on the State of Corporate Affairs 2.1 Business Environment Report of the Board of Directors As a group engaged in the field of revenueproducing real estate in Israel and abroad, the Group is exposed to changes in the states of the economies in which it operates in general, and in the real estate sector in particular. Over the course of the reported period and in particular during the second quarter of the year, an additional downturn took place in developments in the Euro Zone countries along with additional signs of a slowdown in the growth rate of the global economy. The European debt crisis continues to be the primary risk to the global economy. The scope of debts and deficits of many Zone countries comes after the application of a strict fiscal austerity policy, but concerns exist that these austerity steps will be insufficient and these economies will not return to a state of growth in coming years. The EU unemployment rate reached a peak of 11%, with peripheral countries reaching unemployment rates exceeding 25%. In this state, social pressures are extremely high and may lead to the withdrawal of a state or states from the Zone, which may lead to a severe shock in the financial market and a heavy economic price for Euro Zone states and the rest of the world as well. Most economic data in the U.S. indicates a slowdown that is largely expressed in the labor market and in consumer expenses. In the large emerging markets, China, India and Brazil, data continued to arrive indicating a significant slowdown in their rates of growth. The global inflation rate is expected to remain low in the developing markets and become more moderate in emerging markets, which are undergoing a significant slowdown. In light of this, the main economies in which the Group is active, Israel, Switzerland and Canada, are currently undergoing a period of severe uncertainty. Most of the indicators point at continued growth in these countries, but at a reduced rate. In addition, Israel itself, obviously, has structural geopolitical risks. Company management estimates that the continued slowdown of the global economy in light of the European debt crisis, as well as the possibility of its escalation in light of political crises (such as Greece), may indirectly influence the countries in which the Group is active and as a result on the Group s revenues from its activity in the revenueproducing real estate sector in Israel and in the markets in which it operates. These influences may be expressed by a slowdown and/or drop in demand along with the possibility of drops in prices and/or the value of revenueproducing real estate. A drop in stock prices may lead to, among other things, a negative impact on maintaining financial relationships, increases in financing costs, difficulties in securing sources of finance and difficulties in recycling existing loans. Company management believes that the financial robustness and the state of the assets of Amot, PSP and FCR will allow them to deal in an adequate manner, should the current recession in the markets escalate. The Company estimates that the Group's cash balances and credit frameworks, its inventory of unpledged assets, its current cash flow and access to bank credit should allow it to continue its activity and to meet its obligations. All references appearing in this section to the Company's estimates regarding its future development in the general environment in which the Group operates and in outside factors, constitutes forwardlooking information as defined in Section 32a of the Securities Law and as such its materialization is uncertain and is not under the Company's control. 2.2 Liquidity and Financing Sources Cash and Credit Frameworks As of September the Group has 0.8 billion NIS in cash balances (0.5 billion NIS expanded company). 8

9 Report of the Board of Directors As of September the Group has unused lines of credit to the amount of 1.3 billion NIS, of which the Company (expanded company) has 0.7 billion NIS. In addition, Amot has unused credit frameworks of 0.3 billion NIS to accompany projects under construction Unpledged Assets As of September , the Company (expanded company) has a balance of unpledged assets totaling 2.8 billion NIS (market value of 2.5 billion NIS), and Amot has unpledged assets worth 4.6 billion NIS Financial Debt As of September , the Group's net financial debt amounted to 6.1 billion NIS, or 54.6% of the Group s assets, compared to net financial debt of 6.1 billion NIS, or 56.1% of Group assets, as of December As of September the Company's net financial debt (expanded company) amounted to billion NIS, or 39.6% of all of the Group s assets (expanded company), compared to net financial debt of 2.6 billion NIS, or 44.5% of the Company s assets (expanded company), as of December (as of the publication of the report the Company s net financial debt (expanded company) is 23 billion NIS). Over the course of the reported period and subsequent to the balance sheet date, the Company (expanded company) performed the following actions: 1. In February 2012 the Company issued 246 million NIS NV debentures (Series H) in return for a net total of 244 million NIS. The debentures (Series H) are redeemable in eight yearly payments in each of the years between 2016 and 2023 (6.6 year bond duration), bearing 4.45% yearly interest and linked to the CPI. 2. In March 2012 the Company signed a loan agreement with a foreign bank for the receipt of a nonrecourse loan to the amount of 100 million CHF (411 million NIS) for a period of 3 years. The loan bears yearly interest of Libor plus a 2.15% margin. The loan is guaranteed by a firstdegree lien on 2.6 million tradable shares of PSP held by the Company. Pursuant to the loan in question the Company undertook, among other things, that the ratio of the loan to encumbered share value (LTV) shall not exceed 60%. For further details see Section 5 below. 3. In December 2011 then Company (through a fullyowned subsidiary) signed an agreement with an Israeli bank to extend the duration of a $50 million Canadian loan by an additional five years with the right to expand the loan by an additional $15 million Canadian, so that after the extension in question, 75% of the balance of the loan will be repaid over the course of 2017 and 25% of the principal will be repaid in equal payments over the course of 2012 to The interest rate will be revised to 1.7% over the cost of the bank s resources (starting from the loan s renewal date). In April and July 2012 the Company repaid the full balance of the loan and at the same time, signed a revision of the agreement with the bank according to which the Company has the right to use the loan to the amount of $65 million Canadian as of March , while the rest of the terms of the loan including the repayment dates are as detailed above. 4. In May 2012 the Company (through a fullyowned subsidiary) signed a letter of intent (LOI) with an Israeli bank according to which a loan to the amount of $70 million Canadian, to be repaid in April 2013, would be extended by an additional five years, with the loan increased by an additional $20 million Canadian on the loan renewal date. 75% of the loan principal will be repaid in 2018 and 25% of the loan principal will be repaid in equal payments in Pursuant to the extension of the loan, it was decided that the ratio of the loan to the value of the 14 The financial debt includes liabilities due to foreign currency forward agreements carried out by the Company, which as of September , September and December amounted to a total of 9 million NIS, 63 million NIS and 26 million NIS, respectively. Financial debt is after offsetting the discount balance of debentures, and does not include interest payable classified under other accounts payable. 9

10 Report of the Board of Directors pledged securities (LTV) would be revised so that it would not exceed 85% and the interest rate would be revised to 1.9% over the cost of the bank s resources (starting from the loan s renewal date). Despite the fact that the Company has the right to extend the loan by an additional five years, the balance of the loan to the amount of $68 million Canadian (273 million NIS) is presented under current maturities in the Financial Statements, in accordance with IFRS rules. 5. In October 2012 the Company signed a termsheet with a foreign bank according to which the bank would provide a fullyowned Company subsidiary (hereinafter: the Subsidiary ) a nonrecourse loan to the amount of $100 million Canadian (390 million NIS) for a period of 3 years (hereinafter: the Loan or the New Loan ). The loan will bear yearly interest of Libor plus a 1.8% margin. The collateral for the loan shall be a firstdegree lien on the FCR shares held by the subsidiary, at a value twice that of the sum of the loan. in addition, the Subsidiary was granted the right to ask the foreign bank for 6 months from the closing date to increase the loan by an additional $50 million Canadian (195 million NIS), subject to the bank's ability to raise additional sources of finance under similar terms. Pursuant to the termsheet, it the Company and the foreign bank agreed that the repayment date of a previous loan provided by the bank to the Company to the amount of 100 million CHF (411 NIS) in March 2012 (hereinafter: the Previous Loan see 2. above) will be extended from June 2012 to December 2015, alongside with and subject to the receipt of the new loan. It was also agreed that the bank would have a cross collateral right, meaning the collateral from the Previous Loan would also serve as collateral for the new loan, and vice versa. The loan is subject to the signing of a binding agreement. After the loan is granted, the Company intends to cancel/reduce some of its credit frameworks and/or loans at a similar sum, provided by Israeli banks (see 3 and 4 above) and release collateral to the amount of 0.8 billion NIS granted to guarantee those loans/credit frameworks. In addition, over the course of the reported period and subsequent to the balance sheet date, Amot carried out the following actions: 1. In February and April 2012 Amot expanded, by way of a private issue to a number of institutional investors, an existing series of debentures (Series C) to the amount of million NIS NV in return for a net total of 182 million NIS. The total yield to the amount of 182 million NIS embodies an effective gross yield of 3.18% with a bond duration of 4.66 years. 2. In July 2012 Amot issued 344 million NIS NV debentures (Series B) in return for a net total of 344 million NIS. The debentures are linked, bear 4.8% yearly interest and are redeemable in four yearly payments (first payment at 10% of the principal will be repaid on July and three more payments at 30% each will be repaid on July 2 of each year from 2020 to 2022). The interest payments will be paid on July 2 of each year from 2013 to The effective interest rate for the issue of the series in question is 4.94% and the series average life span is 7.5 years. As of September and as of the date of this report, the Group has been in compliance with all financial covenants Capital Market Activity The Company Regarding the issue of debentures (Series H) in return for a total of 244 million NIS, see above. 10

11 Report of the Board of Directors Amot Regarding the expansion of Amot debentures (Series C) and debentures (series B) see above Working Capital Deficit The Group s and the Company s (expanded company) working capital deficit as of September amounted to a total of 489 million NIS and 189 million NIS, respectively. The Group and the Company (expanded company) have unused lines of longterm credit and a high balance of unencumbered assets (see and above). In addition, current maturities of longterm loans item includes a liability to the amount of $68 million (273 million NIS) for which the Company has the right to extend the loan by five additional years (see above). In light of this, the Company s Board of Directors believes that the existence of a working capital deficit deriving from the Group s policy in the matter of holding unused credit frameworks in lieu of cash and deposits does not indicate a liquidity problem Credit Rating As of the date of this report, Company debentures (Series F and C) are rated A1/stable outlook by Midroog Ltd., and are rated ila/stable outlook by Ma alot the Israel Securities Rating Company Ltd. In addition, the Company s debentures (Series H) are rated A1 stable outlook by Midroog Ltd. Amot s debentures (Series A) are rated Aa3/stable outlook by Midroog Ltd., and are rated ila+/stable outlook by Ma alot the Israel Securities Rating Company Ltd. Amot s debentures (Series C) and debentures (Series B) are rated Aa3/stable outlook by Midroog Ltd. 2.3 Financial Status Below is a description of developments in major Group investments during and after the reported period Investment in Real Estate in Israel Via Amot Amot is the Group's revenueproducing real estate arm in Israel. Amot is engaged, directly and indirectly through corporations it controls, in the rental, management and maintenance of revenueproducing properties in Israel, as well as in the purchase, initiation and development of rental real estate. As of September Amot holds cashgenerating properties throughout Israel with a total area of 840,000 m² (600,000 m² of aboveground rental space and 237,000 m² of parking space, not including real estate under construction).the occupancy rate in all of Amot's properties as of September is 97.6%. These properties are spread out across the country, with the majority of the properties being located in the large cities in central Israel of the country and in highdemand areas. The properties are rented out to a large numbers of tenants, via contracts of varying durations. In addition, Amot has properties intended for development for rental purposes. The Company purchased 4.7 million NV Amot shares at a cost of 42 million NIS over the course of the reported period. 15 Not including nonmaterial overseas properties. 11

12 The following is key information on Amot s properties, divided by uses: AboveGround Area As of NOI Fair Value of CashGenerating Real Estate as of Report of the Board of Directors Fair Value of Real Estate Under Construction as of Occupancy Rate of Cash Generating Real Estate as of Uses Sep /19 Sep Sep Sep m² In Thousands of NIS % Offices 833, ,433 8,844, , % Commercial centers 344, ,384 3,535,357 34, % Supermarkets 44,834 78, , % Industrial parks 888,448 85, , % Central bus stations 38,333 7,343 33, % Other 78,544 Overseas assets and unattributable expenses ) 8,744( 34,538 Total 373, ,143 3,743, , % The following is key information on Amot s properties, divided by geographical regions: AboveGround Area As of NOI Fair Value of CashGenerating Real Estate as of Fair Value of Real Estate Under Construction as of Occupancy Rate of Cash Generating Real Estate as of Geographical region Sep /19 Sep Sep Sep m² In Thousands of NIS % Tel Aviv, Ramat Gan, Givatayim 334,873 48,434 3,344, , % Gush Dan surrounding area 884, ,377 8,743, , % JerusalemHaderaAshdod 338,883 33,344 3,353, % Northern and Southern Israel 54,445 84, ,385 34, % Overseas assets and unattributable expenses ) 8,744( 34,538 Total 373, ,143 3,743, , % 12

13 Report of the Board of Directors The following is information regarding the NOI (Net Operating Income profit from the rental and operation of properties, less depreciation and amortization) of Amot in Israel: The Company's management believes that NOI is an important parameter in valuing revenueproducing real estate. The result of dividing this data by the commonly used discount rate in the geographic location of the property ( cap rate") is one of the indications of valuation of the property (beyond other indications, such as: market value of similar properties in the same area, sales price per m² of built area deriving from the latest transactions effected, etc.). In addition, NOI is used to measure the free cash flow available to service the financial debt taken to finance the property's purchase, after the NOI has been offset by investments for the improvement and maintenance of existing property (CapEx). Note that NOI: Does not present cash flows from regular activities in accordance with generally accepted accounting rules. Does not reflect cash available for the financing of the Group's entire cash flows, including its ability to distribute monies. Cannot be considered a replacement for reported net profit for purposes of evaluating the results of the Group's activities. Israel existing properties in the period (1) 344, ,583 Properties classified to real estate under construction (2) Israel properties acquired (3) 3,733 NOI Total 338,334 Q3 Q2 Q1 Q4 Q , ,844 In Thousands of NIS 343,353 4, , ,834 3,337 7, , ,338 8,474 8, ,334 (1) Same Property NOI. (2) Haifa Central Bus Station and Massad Bank Tel Aviv (3) Primarily a property in Modi in and a property in Caesarea. The table indicates that in the third quarter of 2012, total NOI from properties in Israel increased by 3.1% compared to the same quarter last year and sameproperty NOI in Israel increased by 2.5% in the third quarter of 2012 compared to the same quarter last year. The weighted cap rate derived from all of Amot's revenueproducing properties as of September is 7.9%. Any positive or negative change of 0.25% in the cap rate influences, on average, the value of Amot s real estate portfolio by 188 million NIS (gross). Transactions in Investment Real Estate in the Reported Period During the reported period, Amot carried out purchases to increase its interests in assets in Amot s joint control to the amount of 114 million NIS (Amot s share). 13

14 Report of the Board of Directors Amot's 2012 forecast: The following is the forecast for 2012 published by Amot as part of its Q Board of Directors Report. The forecast is based on signed leases and Amot management s projections regarding current lease renewals in 2012; on an inflation environment of 2% in 2012 and on the assumption that no material changes will occur in the business environment in which Amot is active in Israel. The forecast includes the assets purchased in the reported period (see above). In Practice Forecast In practice Data 2012 / NOI (in millions of NIS) Real FFO (in millions of NIS) FFO per share (in 0.01 NIS) Amot predicts that in 2012 as a whole, the NOI, FFO and FFO per share will be closer to the upper range of the forecast than the average of the forecast in question. The information concerning the 2012 forecast is forwardlooking information, as defined in Section 32 of the Securities Act, Forwardlooking information is any forecast, estimate, assessment or other information with regard to a future event or matter the materialization of which is uncertain and not solely under the control of the Group. Dividend (Amot) Pursuant to Amot s dividend policy, in March, May and August 2012 Amot announced that it would be distributing quarterly dividends for the second and third quarters of 2012 to a total amount of 0.48 NIS per share (112 million NIS; the Company's share 69 million NIS), to be paid in April, June and September In November 2012 Amot declared that it would be distributing dividends for Q to the amount of 0.16 NIS per share (37 million NIS, with the Company s share being 23 million NIS), to be paid in December The Company predicts, based on Amot s stated dividend policy, that its dividend income from Amot will amount to 92 million NIS in The Group's Activity in Switzerland As of September the Group held 6.6 million PSP shares constituting 14.37% of PSP's share capital. The investment in PSP is presented according to the book value method. The Group's investment in PSP shares as of September is presented on the Company's Financial Statements at 567 million CHF (2.4 billion NIS). The value of the investment in PSP as of September , based on the closing rate of PSP shares on the Zürich, Switzerland stock exchange, amounted to 563 million CHF (2.4 billion NIS). As of September , PSP's market value was 3.9 billion CHF. PSP s equity, based on its September Financial Statements, amounted to 3.5 billion CHF (14.8 billion NIS). In the reported period, PSP reported an income of 215 million CHF (882 million NIS). The Company's share of PSP s earnings in the period in question amounted to 140 million NIS. In April 2012, the General Meeting of PSP shareholders approved the appointment of all of the members of its Board of Directors for an additional year (the Company has 2 out of the 7 members on the PSP Board of Directors). In April 2012 the Group received cash receipts from PSP (by way of capital reduction) to the amount of 21 million CHF (some 86 million NIS) for 2011 profits. Over the course of the third quarter of the year and subsequent to the balance sheet date, the Company sold 1.4 million shares of PSP at an average price of CHF per share for a total 14

15 Report of the Board of Directors of 120 million CHF (500 million NIS) and with a total capital gain of 50 million NIS (a capital gain of 20 million NIS was listed in the reported period and the remaining capital gain will be recognized in the fourth quarter of the year). Subsequent to these sales, the Company holds 5.6 million PSP, shares granting it 12.2% of the rights to PSP, listed in its books to the amount of 2.0 billion NIS. The value of the investment immediately prior to the issue of this report amounted to 262 million CHF (1.9 billion NIS). As of this report, according to PSP's information as reported on the Zürich, Switzerland stock exchange, the Group is the largest shareholder in PSP Group Activity in Canada Investment in FCR As of September and the publication of this report the Group holds 21.3 million shares of FCR constituting 10.3% of FCR's share capital as of that date. In August 2012, the Company received 0.6 million FCR shares as part of a purchase offer made by GAA in lieu of GAA shares in it possession (for further information see section on investment in GAA below). The Group's investment in FCR shares, presented on the Company's Financial Statements at the price of these securities as quoted on the Toronto Stock Exchange on September 30, 2012, amounts to $400 million Canadian (1.6 billion NIS). Immediately prior to the issue of this report, the market value of the investment was $390 million Canadian (1.5 billion NIS). In the reported period, the Group received current dividend income from FCR amounting to $12.8 million Canadian (49 million NIS). The Group predicts, based on FCR's stated dividend policy, that its dividend receipts from FCR in 2012 will amount to $17.2 million Canadian (67 million NIS). Investment in GAA In August 2012 the Company sold all of its holdings (10%) in GAA shares and options as part of a purchase offer and reorganization GAA carried out in Canada in conjunction with FCR and Gazit Globe, in return for $18.9 million Canadian (76 million NIS) of which $10.3 million Canadian (41 million NIS) were received in FCR shares (0.6 million shares). Following the sale of GAA shares and options, the Company listed a capital gain (before tax) of 33 million NIS in the third quarter of Group Activity in the UK In March 2006 the Group entered into an agreement along with other parties to establish a fund for real estate investments in the UK by the name of Brockton Capital, which will deal in the identification, administration and execution of investments in revenueproducing real estate and development real estate, including development and improvement, in the UK. Details of the Group s holdings in these funds as of September 30, 2012: Brockton Capital Find II LP 25% in the limited partner and 9% in the general partner. As of September there are three investments remaining in the fund (undergoing realization), in which 70 million of equity was invested. Investment in the fund, presented in the Company s Financial Statements as a financial asset available for sale presented at fair value, amounts to 27 million (169 million NIS). Brockton Capital Fund II LP 5% in the limited partner and 10% in the general partner. The Group undertook to invest 25 million in it, of which it has invested 7 million as of September As of September the fund in question has invested at a sum total of 286 million in five projects, of which 101 was in equity. 15

16 Report of the Board of Directors Brockton Capital LLP in addition to the two funds mentioned above, the Group holds 9% of their management company Other Investment EQY In August 2012 the Company sold, through a fullyowned subsidiary, 1.15 million shares of EQY in return for a total of $24 million U.S. (97 million NIS) ($21.03 per share). Following the sales in question, the Group listed in the third quarter of the year a net capital gain of 37 million NIS after tax influence as well as after recognizing deferred profits or losses due to hedging instruments. The balance of the Group's holdings in EQY after the sale in question, which is stated on the Company's Financial Statements at the price of EQY shares as quoted on the New York Stock Exchange as of the balance sheet date, amounts to $9.5 million (37 million NIS) Investments in the Field of Renewable Energy Solar PhotoVoltaic Energy The Group began to deal in the sale of electric power from photovoltaic systems through its subsidiary Energix. In addition, the Group is currently developing and initiating wind energy projects in Israel and in Poland. As of these Financial Statements, Energix has constructed and is operating 31 small solar photovoltaic systems at a total installed output of 1,550 KWp installed on rooftops (most of the roofs are owned by Amot and its investees). All of the above systems are expected to provide Energix with a gross yearly income of 4.7 million NIS. In addition, Energix is acting to develop medium photovoltaic systems. As of this report, Energix is acting to receive licenses (currently at various stages) for the operation of 13 medium systems with a total installed output of 6.41MWp (Energix s share 8.8MWp), of which 6 systems have received approval for financial closing at a total installed output of 5.4 MWp (Energix s share 3 MWp). In addition, Energix is acting to initiate regulated systems for large photovoltaic systems. To be clear, no certainty exists that Energix will receive additional licenses for the operation of photovoltaic systems, among other reasons, due to the excess of demand submitted over the quota. The information concerning the forecast of revenues from working facilities and concerning additional licenses issued constitutes forwardlooking information, as defined in Section 32a of the Securities Law, Forwardlooking information is any forecast, estimate, assessment or other information with regard to future events or issues the materialization of which is uncertain and not under the full control of the Group. Wind Energy Regarding engagements for the construction of projects in the field of wind energy in Poland, see Note 4.(f) to the Financial Statements. 2.4 Operating Results The Group recognized net earnings of 279 million NIS in the reported period. The share of Company shareholders in the earnings in question amounted to 234 million NIS, compared to 265 million NIS in earnings assigned to Company shareholders in the corresponding period last year. The Group listed comprehensive earnings of 463 million NIS in the reported period. The share of Company shareholders in the earnings in question amounted to 418 million NIS, compared to 451 million NIS in earnings assigned to Company shareholders in the corresponding period last year. For an explanation of the operating results in the reported period, see and below. 16

17 Report of the Board of Directors FFO (Funds from Operations) FFO is a widelyused American and European index used to provide additional knowledge on the results of the activities of real estate companies, granting a proper basis for comparisons between revenueproducing real estate companies. FFO reflects net income, neutralizing income (or losses) from the sale of properties and securities, plus depreciation and amortization and neutralizing deferred taxes. The index in question presents the Company's cash production capability from regular and continuing operations over the course of the reported period. In calculating FFO, index rate differentials and linkage differential expenses due to debentures and CPIlinked loans were not included, this as in Company management's opinion, said expenses do not reflect cash flow from regular continuing activities. The Company believes that analysts, investors and shareholders may receive extra value information from the presentation of this index, however, it must be noted that the FFO: Does not present cash flows from regular operations in accordance with generally accepted accounting rules Does not reflect cash held by the Company and its ability to distribute it; Cannot be considered a replacement for reported net profit for purposes of evaluating the results of the Group's operations. 17

18 Report of the Board of Directors FFO calculation (in thousands of NIS): 2012 / / Thousands of NIS Thousands of NIS Thousands of NIS Company shareholders share of net income for the period 877, , ,843 Adjustments to Gain/Loss: Fair value adjustment of investment real estate and profit from its sale ) 74,454( ) 344,384( )333,834( Equity profits due to real estate revaluations, net ) 33,385( ) 58,847( )338,885( Net losses (gains) from changes in holding rates and realization of investments in investees ) 87,484( ) 37,345( )34,454( Profit from securities ) 53,734( ) 38,334( )37,333( Others (including fair value adjustments of employee options and benefits) 34,437 3,833 8,387 Linkage differences and exchange rate differences accumulated 335, , ,348 Deferred taxes and current taxes from the realization of securities, net 84,454 84, ,583 Net discontinued operations )8,844( The minority share of the above adjustments to FFO. ) 83,888( 7,334 )47,383( FFO (*) 334, , ,442 The following are the sources of the FFO: Revenues NOI from investment property and the sale of electricity (**) 744,487 PSP portion of FFO with no real estate revaluations 35,458 Dividend income from investments 84,733 Total revenues 403, ,478 33,844 38, , , ,473 54, ,431 Expenses Real financing, net ) 343,333( ) 353,454( )888,473( General and administrative ) 74,373( ) 73,473( )88,444( Current taxes ) 8,533( ) 3,554( )3,843( Minority share charged to current operations ) 38,785( ) 34,537( )44,438( Total expenses ) 632,323( ) 263,000( )477,733( FFO (*) 334, , ,442 FFO per share (NIS) (*) The FFO does not include cash flows deriving from profits from the realization of shares (in 19/2011 mainly PSP, GAA and EQY. In 19/2011 mainly EQY; in 2011 mainly PSP and EQY). (**) Including NOI from the sale of electricity at negligible sums. 18

19 Report of the Board of Directors The following table provides a summary of operating results (in thousands of NIS): Income and Earnings Income from rental and management fees of investment property 758, ,483 Fair value adjustment of investment real estate and profit from its sale 74, ,384 The Group's share of the profits of associates, net 373, ,848 Dividend income from investments in securities available for sale 87,343 34,453 Net gain from changes in holding rates and realization of investments in investees 87,484 37,345 Net gain (loss) with respect to investments in longterm securities and securities held for sale 53,348 38, / /19 Q3/2011 Q3/ Thousands of NIS 374,434 87,433 35, ,384 83,334 83,753 84,444 34,357 34,484 ) 435( 448, , ,334 53,334 34,454 37,354 Other revenues, net 4, ,336 7, ,233 3, ,644 3, ,320 5,783 3,736,661 Costs and Expenses Cost of investment property rental and operation 43,334 44,854 38,333 37,434 34,743 General and administrative 43,378 47,348 Adjusting fair value of conversion option of debentures ) 343( Net financing expenses 733, ,454 33, ,538 34,455 43,355 85,744 )343( 754, , , , , ,303 Profit before taxes on income 633,636 Tax on income expenses 78,744 Income from ongoing operations after taxes on income 206,734 Profit from discontinued activity, net Net income for the period 206, ,261 88, , , ,234 3, , ,063 31,102 7,843 33,363 33, , , ,473 8, ,673 Distribution of net profit for the period: Company shareholder interest 877, , ,348 83, ,843 Minority interest 48, ,734 37, ,630 33, ,063 37,544 33,363 83, ,673 19

20 Report of the Board of Directors Revenues from rental fees and management of investment property amounted to 386 million NIS in the reported period, compared to 364 million NIS in the corresponding period last year, a 6% increase. The 22 million NIS increase is due to a 17 million NIS increase in rent revenues from existing properties and from an increase in revenues from additional assets over the course of 2011 to the amount of 13 million NIS, contrary to a 8 million NIS decrease due to properties creating rental fee revenues in the corresponding period last year presented in real estate under construction in the reported period. Group share of earnings of associates, net earnings in the reported period are primarily due to the Group's share of PSP earnings, which amounted to 140 million NIS compared to 161 million NIS in the corresponding period last year. The decrease derives from higher revaluation values than those listed last year by PSP. Dividend revenues from investments in securities available for sale most of the decrease in dividend revenues in the reported period compared to the corresponding period last year derives from a onetime dividend receipt from the Brockton Fund to the amount of 10 million NIS in the corresponding period last year for the realization of an asset, as well as a 3 million NIS decrease in dividend revenues from EQY following the realization of EQY shares over the course of 2011 and On the other hand, a 4 million NIS increase occurred in dividend revenues from FCR following changes in exchange rates and as a result of an increase in the amount of FCR shares held by the group. Net gain from changes in holding rates and realization of investments in investees earnings in the reported period derive mainly from the realization of 415,000 PSP shares (20 million NIS). The profit in the same period last year derived mainly (12 million NIS) from the realization of 340,000 PSP shares. Net gain, pertaining to investments in longterm securities intended for sale the earnings in the reported period mainly derive from the realization of 1.15 million EQY shares (46 million NIS) and from the realization of all of the Company s holdings in GAA (33 million NIS). The profit in the same period last year derived mainly (67 million NIS) from the realization of 3 million EQY shares. Cost of renting and managing investment properties property rental and operation costs amounted to 47 million NIS in the reported period, compared to 44 million NIS in reported period last year. The increase derives mainly from the purchase of rights to assets over the course of the year. Financing expenses the 10 million NIS decrease in net financing expenses over the course of the reported period compared to the same period last year is primarily due to the influence of the CPI (in the reported period last year the Consumer Price Index (known) increased 2.12%, compared to 2.75 in the corresponding period last year). Taxes on income the 6 million NIS increase in tax expenses in the reported period compared to the corresponding period last year is primarily due to the following factors: A 15 million NIS increase in tax expenses at Amot deriving mainly from adjustments of deferred tax reserves to the new corporate tax rate (25% compared to 18%) as the Tax Burden Changing Law (Legislative Amendments) came into effect, as well as from the influence of CPI differences, which were lower in the reported period compared to the corresponding period last year, on the deferred tax reserves. On the other hand, a 6 million NIS decrease occurred in tax expenses from the realization of EQY shares as a result of higher capital gains in the corresponding period last year relative to the reported period. 20

21 Report of the Board of Directors The following is information for the Group's comprehensive earnings (in thousands of NIS): 19/ /2011 Q3/2011 Q3/ Thousands of NIS Net profit for the period: 279, , ,795 65, ,901 Gain from investment in PSP 43, ,845 83,588 83,483 Gain from investment in FCR 354, ,834 34,733 84,433 Gain from investment in EQY 84,344 ) 7,538( 343 ) 5,387( 338, ,833 Profit (loss) from investment in Brockton Funds 5,583 5,554 8,384 4, Classification of gain from the realization of the investment in EQY, GAA and PSP and the Brockton Fund to the Statement of Operations (before tax) ) 48,844( ) 53,438( ) 48,844( ) 34,335( )54,585( Gain (loss) from other investments 84,337 ) 34,453( 3,838 ) 8,488( )38,537( Tax effect ) 33,333( ) 4,334( Other comprehensive earnings for the period 314, ,314 8,443 3,878 ) 3,378( )3,874( 20,616 33, ,160 Total comprehensive earnings for the period 436, , , , ,061 Distribution of comprehensive income for period: Company shareholder interest 433,554 Minority interest 48, , ,447 37, , ,345 33, , ,435 37, , ,487 83, ,061 (1) Gain from investment in PSP the gain represents the increase in investment in PSP, due to changes in NIS/CHF exchange rates in the above periods. This gain is presented net of exchange rate differences generated by CHFdenominated loans and by forward transactions denominated in CHF, designated to hedge the investment in PSP. The net gain in the reported period is mainly due to a 3.1% devaluation of the NIS vs. the CHF (compared to an 8.9% devaluation in the corresponding period last year). (2) Gain from investment in FCR the gain represents the increase in value of investment in FCR, deriving both from changes in the NIS/CAD exchange rates, and from changes in stock market rates of FCR shares in the periods presented above. This gain is presented net of exchange rate differentials generated by Canadian dollar loans and Canadian dollar forward transactions designated as hedges for the investment in FCR. The net gain in the reported period is due to an 8.6% increase in FCR s share price and the 6.8% devaluation of the NIS vs. the CAD. The net gain in the corresponding period last year is due to a 12.5% increase in FCR s share price and the 2.5% devaluation of the NIS vs. the CAD. (3) Gain (loss) from investment in EQY the gain represents the increase in the value of investment in EQY, due both to changes in the NIS/USD exchange rates, and to changes in stock market prices of EQY shares in the periods presented above. This gain is presented net of exchange rate differentials generated by USDdenominated loans and by forward transactions denominated in USD, designated as hedges for the investment in EQY. The net gain in the reported period is due to a 24% increase in EQY s share price and the 2.4% devaluation of the NIS vs. the USD. 21