Description of the General Developments in the Company s Business

Transcription

1 Update of the Description of the Company s Business included in the Periodic Report for 2015 of Africa Israel Investments Ltd. (hereinafter the Company ) Pursuant to Regulation 39A of the Securities Regulations (Periodic an Immediate Reports), 1970, set forth below is detail regarding material changes and occurrences that have taken place with respect to all matters required to be described in the Company s Periodic Report for 2015 and that occurred from the publication date of the Periodic Report up to the publication date of this quarterly report. It is clarified that, in general, the description included in this quarterly report presents only information that the Company deems to be material. Nonetheless, in some cases, for the sake of presenting a complete picture, the Company has provided a more detailed description than required, which includes information the Company does not necessarily believe is material. This update was prepared under the assumption that its reader is in possession of the Company s Periodic Report for 2015 (as published in the Magna information system on March 29, 2016, Reference No ) (heretofore and hereinafter the Periodic Report ). The information presented in the Periodic Report is included herein by means of reference. The terms appearing in this Report shall have the meanings attributed to them in the Periodic Report, unless indicated otherwise. In any case of a contradiction between that stated in Part A of this quarterly report and the information presented in the Description of the Company s Business in the Periodic Report, that stated in this quarterly report will prevail. Description of the General Developments in the Company s Business 1. Section of the Description of the Company s Business included in the Periodic Report On March 30, 2016, AFI Development published an Immediate Report regarding receipt of notifications from a Russian bank (hereinafter the Bank or the Russian Bank ) directed to two subsidiaries of AFI Development (hereinafter the Borrowers ) regarding loans made to the Borrowers in the AFIMALL Shopping Mall project and in the Ozerkovsky 3 project. Pursuant to the Bank s notifications, it has reached the conclusion that there has been a serious deterioration, in the opinion of the Bank, in the financial position of the Borrowers and there are additional circumstances indicating that the liabilities of the Borrowers based on the financing agreements will not be repaid on their scheduled repayment dates. In light of that stated, the Russian Bank proposed that action be taken for purposes of removing the possible unfavorable consequences stemming from the said circumstances within 30 days of the notification and if not, the Russian Bank will exercise its rights under the loan agreements to demand early repayment of the loans. Pursuant to the Report of AFI Development, the reason is not clear why the Bank reached the conclusion that there has been a significant worsening in the positon of the Borrowers of the AFIMALL loan. Further to publication of the financial statements of AFI Development as at March 31, 2016, on May 17, 2016, the Company gave notice that at the meeting of the Company s Board of Directors held on May 17, 2016, the Company s Board of Directors addressed the recent developments occurring with respect to AFI Development and the Company s strategic plan. As part the Immediate Report, the Company updated that in the framework of the discussions and negotiations being carried on between the management of AFI Development and the Russian Bank, the parties are examining the possibility whereby the loans will be settled against transfer to the Russian Bank of a number of significant properties of AFI Development, the total value of which in the books of AFI Development as at March 31, 2016 amounted to about U.S.$877 million (hereinafter the Exchange Transaction ). Accordingly, AFI Development estimates that as a result of the Exchange Transaction the equity of AFI Development will decline by the amount of about US$266 million (and based on the rate of the Company s holdings in AFI Development, the Company s equity will decline by an estimated amount of about US$173 million). 1

2 Description of the General Developments in the Company s Business (Cont.) 1. (Cont.) AFI Development examined this proposal after it looked into the feasibility of other financing alternates, which were found to be inapplicable (including, contacts made by AFI Development with other banks for receipt of financing and after it contacted the Company in order to receive its position regarding the possibility of an inflow of equity from the Company, and it having received a negative response taking into account the Company s financial position and its limited sources). In light of that stated above, and taking into account the significant deterioration of AFI Development s financial position against the background of the possibility of calling the loans, in the amount of about US$611 million for immediate repayment, along with AFI Development entering into a position of insolvency in the immediate future or, alternatively, delivery of significant core assets of AFI Development, developments that have an extreme unfavorable impact on the chances of the occurrence of the forecasts regarding the Company s ability to meet its liabilities in the long-term, the Company s Board of Directors reached the conclusion that at the present time there is a lack of clarity regarding the Company s ability to meet its liabilities and from a well-considered perspective, in order to provide a proper response to the risks described above, as well as to additional unfavorable changes that may occur as time goes on, and as a practical result, in order to improve the Company s chances of successfully coping with payment of its liabilities, the responsible thing to do is to commence negotiations as soon as possible with the holders of the Company s debentures, in order to formulate a plan for reorganizing the Company s liabilities to all of the holders of its debentures, which will include, among other things, strengthening of the Company s capital base, including, a request from the Company s controlling shareholder to invest monies in the Company subject to completion of the arrangement as stated. The Company s Board of Directors instructed Company Management to take action to formulate an arrangement as stated within accelerated and intensive timetables, with an undertaking to maintain fairness and unbiased treatment as between the holders of the debentures, taking into account the terms of each debenture series, the existing assurances for securing them and the rate of the unsecured debt to them. In addition, for purposes of re-examining the Company s plans, the Company s Board of Directors believes that the best interest of the Company (as well as the best interest of the debenture holders) supports suspension of Management s plans to sell additional significant core assets of the Company until the negotiation processes, as stated, are completed and the situation is clarified. As a practical result, taking into account the scope of the liquid balances held by the Company, and so long as the negotiations for formulation of the arrangement are continuing, the Company will not be able to continue making principal and interest payments with respect to its debts to its financial creditors based on the existing repayment schedules. For additional details see the Immediate Report published by the Company on May 17, 2016 (Reference No ). The information presented in the said Report is included herein by means of reference. On May 22, 2016, at the Company s request the trustee for the holders of the Company s debentures convened an urgent meeting of the General Meetings of the holders of the Company s debentures in order to discuss, among other things, appointment of a joint representative body for the three series of the Company s debentures and, accordingly, on May 29, 2016, the holders of the Company s debentures decided to set up a joint representative body for the debentures (Series Z and Series ZA) and a separate representative body for the holders of the debentures (Series ZB). 2

3 Description of the General Developments in the Company s Business (Cont.) 1. (Cont.) Further to that stated above, on May 26, 2016, AFI Development published that the Russian Bank delivered to it written notification of its intention to act to realize its rights as part of the loan agreements to call the loans for immediate repayment unless the Exchange Transaction is completed by June 10, As part of the notification the Russian Bank noted that the parties must reach agreement regarding the full and final version of the Exchange Transaction agreements no later than June 1, Pursuant to AFI Development s report, at this stage, the structure of the Exchange Transaction is expected to include release of AFI Development and its subsidiaries (hereinafter together the AFI Development Group ) from the loans against delivery to the Bank of the AFIMALL Shopping Mall property, the Ozerkovsky 3 office building and the Aquamarine Hotel (hereinafter together the Transfer Properties ). Taking into account the scope of the Exchange Transaction, pursuant to the rules of the London Stock Exchange it generally requires publication of a report summoning a General Meeting of the shareholders of AFI Development, including a description of the transaction, for purposes of its approval by the shareholders of AFI Development. Nonetheless, in light of the timetables stated in the notification of the Russian Bank, AFI Development is not able to publish a summons report and a description, as stated, and to hold a General Meeting of its shareholders prior to June 10, Therefore, AFI Development intends to make use of an exception that exists in the rules of the London Stock Exchange, which permits a company experiencing serious financial difficulties to sell assets with an exemption from obtaining the approval of its shareholders, in certain circumstances, subject to the consent of English Regulator (hereinafter the Exemption ). If the Exchange Transaction is not completed by June 10, 2016, and the Russian Bank exercises its rights pursuant to the loan agreements, there is a high probability that this will have a significant adverse impact on the ability the AFI Development Group to continue to maintain its business as well as on the value of AFI Development s shares. AFI Development estimates that it is capable of completing all the required steps in order to enter into a contractual undertaking with the Russian Bank within the timetables stipulated in the notification of the Russian Bank, and it intends to contact the English Regulator in the near future with a request for use of the Exemption. On May 29, 2016, the trustees for the holders of the debentures summoned General Meetings of the holders of the debentures where on the Day s Agenda is discussion and consultation with respect to provision of instructions to the trustees to summon a General Meeting in order to call the debt for immediate repayment, pursuant to the provisions of the trust indentures, and with reference to provision of instructions to the trustees to notify the Company of cancellation of the power of attorney granted to the Company by the trustees relating to the securities of AFI Development that are pledged in favor of the trustees. Real Estate Development in Israel 2. Section of the Description of the Company s Business included in the Periodic Report on May 22, 2016, Africa Residences published an amended report with respect to a private issuance to institutional investors of NIS 60,000,000 par value debentures (Series C) in exchange for an aggregate consideration of NIS 61,740,000, by means of expansion of the existing debentures (Series C), and on May 24, 2016, Africa Residences issued the debentures as stated. 3

4 Rental Properties in Israel 3. Sections of the Description of the Company s Business included in the Periodic Report it is noted that on April 19, 2016, Africa Properties (through a company it wholly controls) signed an agreement (hereinafter the Agreement ) for sale of all its holding and exclusive use rights in the Yachin lot in Petah Tiqwa, for a consideration of NIS 86 million (plus VAT as per law), which will be paid in a number of installments, as determined between the parties. If and to the extent the transaction is completed Africa Properties is expected to receive total cash flows, net of tax, estimated at NIS 86 million. As a result of the transaction, Africa Properties is not expected to record a significant gain or loss in its financial statements. The information detailed above, regarding completion of the transaction and the results thereof (if completed), is forward-looking information regarding which there is no certainty of its occurrence, among other things, due to violation of the Agreement by any of the parties. 4. Sections of the Description of the Company s Business included in the Periodic Report on May 9, 2016, Africa Properties completed a transaction for sale of its rights and liabilities in a real estate property in the Global Park high-tech and offices project in Lod. Upon completion of the above-mentioned transaction, the purchasers transferred to the trust account, the full amount of the consideration in respect of the property, in the amount of about NIS million (plus VAT as per law), which will be transferred to Africa Properties after removal of the lien on the property recorded in favor of the lending parties that provided the credit to Africa Properties. The free cash flows of Africa Properties as a result of completion of the transaction amount to about NIS 160 million. During April 2016, Africa Properties the agreement of the lenders with reference to the loan against the rental properties of Africa Properties and its subsidiary in Israel. Pursuant to the said consents, the Global Park project in Lod and the Yachin Land in Petah Tiqwa will be released from every lien or mortgage or liability provided in favor of the lenders as part of the loan agreement, this being against early repayment of part of the loan, in the amount of about NIS 5.6 million. Real Estate Development and Rental Property in Europe Sector 5. Section (d) of the Description of the Company s Business included in the Periodic Report (details regarding projects the execution of which has not yet commenced (except land reserves, as detailed below), as at December 31, 2015) it is noted that from time to time, the management of Africa Properties examines the various projects, and based on the conditions in the various markets in which Africa Properties operates, along with various other business considerations, it decides which projects will be developed during the upcoming business cycle of Africa Properties (that is a period of 3 years) and which projects will be developed after its the business cycle 1. 1 The information detailed in the following table is forward-looking information and is based on the data in the Group s possession as at the date of the prospectus. It is possible that due to factors unrelated to the Group, there will be changes in the planning and nature of the project, as stated in the table. 4

5 Real Estate Development and Rental Property in Europe Sector (Cont.) 5. (Cont.) Lands the development of which is expected to take place during the operating cycle of Africa Properties: Rate of Group s plans Original Cost of holdings Date of regarding cost plus Reductions/ in land in the acquisition the project expenses adjustments the books Name and project of the at the date Statutory capitalized/ made up to as at location Holding (of AFI rights in of the planning accrued 12/31/ /31/2015 of project company Europe) the land prospectus situation (NIS 000) (NIS 000) 1 (NIS 000) AFI City Prague/Czech Republic Tuplia City s.r.o. 100% 2007 Construction of a residential project with a total area for sale of about 26,000 square meters There is an appropriate Urban Planning Scheme. There is a building permit for Stage A (residential). Construction work is expected to start in June ,433 (1,134) 21,299 Zlota 83, Waraw, Poland AFI Zlota 83 Sp. z.o.o. 100% 2015 Abandoned building for preservation. The project will include 5,000 square meters of residential and commercial space. There is an appropriate Urban Planning Scheme. Building permits have not yet been received. 9,677 9,677 AFI Towers (Inox), Bucharest, Romania SC Tulip Management SRL 100% 2007 Construction of an offices project on an aggregate area of about 60,000 square meters, including total rentable area of about 50,000 square meters. The appropriate Urban Planning Scheme for construction of the project was approved and received during The building permits are presently in the approval process. 100,884 (26,831) 74,053 AFI Palace B. Noi Bucharest, Romania (Stage 1) SC Premier Solutions & Team SRL 100% 2007 Construction of an integrated project including more than 2,000 residential units, a commercial center of 5,000 square meters held for rent and an office/residential building located above the commercial center. There is an Urban Planning Scheme for Stage A of the project that includes about 200 residential units, the commercial center of about 5,000 square meters held for rent and an office/residential building located above the commercial center. Requests for building permits have been submitted. 154,850 (42,490) 112,359 Trebu Home, Riga, Lativia (Stage 1) SIA AFI Investments 100% 2007 Construction of a residential and commercial center project on a total area of about 2,240 square meters. Building permits have been received for construction of the first stage of the project; building permits have not yet been received for construction of the next stages of the project. 74,329 (59,228) 15,101 Osiedle Europejskie Phase 10, Krakow, Poland Novo Maar Sp. z.o.o. 100% 2007 Construction of a residential project having about 250 residential units. There is an appropriate Urban Planning Scheme. The building permits have not yet been received. 96,889 (76,184) 20,705 Tulipa Trebesin, Prague, Czech Republic Tulipa Trebesin 100% 2013 Construction of an integrated commercial/residential project on an area of about 78,000 square meters for residential and 6,400 for commercial. There is an appropriate Urban Planning Scheme; a planning permit has been received and there is a building permit for the entire project. 36,160 36,160 Total 495,222 (205,867) 289, According to the calculation made by Africa Properties with reference to the original cost data and write downs and adjustments data on the basis of the euro/shekel exchange rate as at December 31, 2015, it can be estimated that the cumulative impact of the translation differences of the local currencies to the shekel on the scope of the write downs and adjustments in each project, as at December 31, 2015, is in the range of about 10% to about 20%. 5

6 Real Estate Development and Rental Property in Europe Sector (Cont.) 5. (Cont.) Lands the development of which is expected to take place after the operating cycle of Africa Properties: Rate of Group s plans Original Cost of holdings Date of regarding cost plus Reductions/ in land in the acquisition the project expenses adjustments the books Name and project of the at the date Statutory capitalized/ made up to as at location Holding (of AFI rights in of the planning accrued 12/31/ /31/2015 of project company Europe) the land prospectus situation (NIS 000) (NIS 000) 1 (NIS 000) AFI City Prague, Czech Republic Tuplia City s.r.o. 100% 2007 Construction of an offices and commercial project with a total area for rent of about 97,000 square meters. There is an appropriate Urban Planning Scheme. 103,903 (5,257) 98,646 Tulipa Modranska Rokle Phase 2, Prague, Czech Republic Tulipa Modranska Rokle s.r.o. 100% 2006 Construction of a residential project having about 90 residential units on an aggregate area for sale of about 7,000 square meters. The approvals required for construction of the project have not yet been received. 5,276 5,276 AFI Gardens (Pipera), Bucharest, Romania SC Star Real Estate SRL 100% 2007 Construction of a residential project having about 2,125 residential units. The approvals required for construction of the project have not yet been received. 56,550 (22,357) 34,193 AFI Palace B. Noi Bucharest, Romania (Stage 2) SC Premier Solutions & Team SRL 100% 2007 Construction of an integrated project including more than 2,000 residential units, a commercial center of about 5,000 square meters held for rent and an office/residential building located above the commercial center. There is an Urban Planning Scheme for Stage A of the project that includes about 200 residential units, the commercial center of about 5,000 square meters held for rent and an office/residential building located above the commercial center. Requests for building permits have been submitted. 232,274 (63,736) 168,538 AFI Village (Butimano), Bucharest, Romania SC Star Real Estate SRL 100% 2007 Construction of a residential project having about 850 residential units and a commercial center on an aggregate area of about 2,500 square meters. There is no appropriate Urban Planning Scheme for construction of the project. 3,891 3,891 AFI Green City (Magurele), Bucharest, Romania SC Plaza Arad Imobiliar SRL 100% 2007 Construction of a residential project having about 3,084 residential units and a commercial center on an aggregate area of about 2,400 square meters. There is an appropriate site plan. There is no appropriate Urban Planning Scheme for construction of the project. 59,688 (27,500) 32, According to the calculation made by Africa Properties with reference to the original cost data and write downs and adjustments data on the basis of the euro/shekel exchange rate as at December 31, 2015, it can be estimated that the cumulative impact of the translation differences of the local currencies to the shekel on the scope of the write downs and adjustments in each project, as at December 31, 2015, is in the range of about 10% to about 20%. 6

7 Real Estate Development and Rental Property in Europe Sector (Cont.) 5. (Cont.) Lands the development of which is expected to take place after the operating cycle of Africa Properties: (Cont.) Rate of Group s plans Original Cost of holdings Date of regarding cost plus Reductions/ in land in the acquisition the project expenses adjustments the books Name and project of the at the date Statutory capitalized/ made up to as at location Holding (of AFI rights in of the planning accrued 12/31/ /31/2015 of project company Europe) the land prospectus situation (NIS 000) (NIS 000) 1 (NIS 000) Trebu Home, Riga, Lativia (Stage 1) SIA AFI Investments 100% 2007 Construction of a residential project and commercial center project on a total area of about 2,240 square meters. Building permits have been received for construction of the first stage of the project; building permits have not yet been received for construction of the next stages of the project. 223,070 (177,750) 45,320 Malina Tulip, Sofia, Bulgaria Malina Gardens EOOD 100% 2006 Construction of a residential project having about 450 residential units. There is an appropriate Urban Planning Scheme. Building permits have not yet been received. 27,383 27,383 Lagera Tulip Phases 2, 3, Sofia, Bulgaria AFI Lagera Tulip EOOD 100% 2007 Construction of a residential project having about 248 residential units and 205 parking spaces. There is an appropriate Urban Planning Scheme. Building permits have not yet been received. 29,018 (976) 28,042 Nepliget, Budapest, Hungary Szepliget Kft. and Akar-Lak Kft. 100% 2007 Construction of a residential project having about 550 residential units. There is an appropriate Urban Planning Scheme. 25,059 (8,984) 16,075 Total 766,112 (306,560) 459,552 * Not including the Karlin project, the construction of which had not yet commenced as at December 31, This project is included in the Company s financial statements as at December 31, 2015 in the inventory of real estate (lands) category, since the conditions for classifying it as investment property under construction according to the accounting standards had not yet been met. 1. According to the calculation made by Africa Properties with reference to the original cost data and write downs and adjustments data on the basis of the euro/shekel exchange rate as at December 31, 2015, it can be estimated that the cumulative impact of the translation differences of the local currencies to the shekel on the scope of the write downs and adjustments in each project, as at December 31, 2015, is in the range of about 10% to about 20%. 7

8 Real Estate Development and Rental Property in Europe Sector (Cont.) 5. (Cont.) Set forth below are additional details in connection with valuations performed for a number of projects the construction of which has not yet commenced: A. Project B. Noi in Romania (hereinafter in this Section the Project ) Valuation Fair Value (NIS thousands) Model Main Assumptions Property Value of the Property as at Identity of the used by the used in Performance Valued 12/31/ /31/2014 Appraiser Appraiser of the Valuation B. Noi, Romania 280, ,909 Clare Sheils, MRICS, Certified Appraiser in the Office of CBRE. The appraiser was not given a letter of indemnity. To the best of the Company s knowledge, the appraiser has appropriate knowledge and experience for performing a valuation of this property. Extraction method Construction of an integrated project including more than about 2,000 residential units, a commercial center having about 5,000 square meters for rent and an combined offices/residential building located above the commercial center. Area of the residential units for sale: 245 thousand square meters. No. of parking spaces: 3,600 units. Average price per square meter of residential unit: 1,140. Average price per square meter of outside parking: 140. Average price per square meter of underground parking: 214. Developer s profit: 20%. Average rent per meter of commercial space: about 19. Average rent per meter of office space: about 13. Duration of project: about 6 years. B. Project Trebu Home in Latvia (hereinafter in this Section the Project ) Valuation Fair Value (NIS thousands) Model Main Assumptions Property Value of the Property as at Identity of the used by the used in Performance Valued 12/31/ /31/2014 Appraiser Appraiser of the Valuation Trebu Home, Latvia 60,402 86,285 Clare Sheils, MRICS, Certified Appraiser in the Office of CBRE. The appraiser was not given a letter of indemnity. To the best of the Company s knowledge, the appraiser has appropriate knowledge and experience for performing a valuation of this property. Extraction method Construction of residential and commercial center project on a total area of about 2,240 square meters. Area of the residential units for sale: 110 thousand square meters. Average price per square meter: 1,319. Developer s profit: 20%. No. of parking spaces: 900 units. Average price per parking space: 2,500 for elevated; 4,500 for underground. Duration of project: about 6 years. It is noted that the value of the properties based on the appraisals derives from, among other things, the plans of Africa Properties in connection with development of the projects, as updated during the performance periods of the various appraisals for the projects. It is noted that the appraisal for the Trebu Home project was based on the updated plan (scope of the expected construction / expected selling price) with reference to development of the project which was changed compared with the original plan, in such a manner as to respond to the demands of the local market. 8

9 Real Estate Development and Rental Property in Europe Sector (Cont.) 6. Section (12) of the Description of the Company s Business included in the Periodic Report (combined data with respect to the Group s rental properties in Europe that are in the construction stages) set forth below is data regarding the completion dates of the projects: Area Romania Offices park adjacent to the Cotoroceni shopping mall in Bucharest Expected Completion Date Completed in the first quarter of 2016 Area Czech Republic Expected Completion Date Office building in Prague Classic 7 Stage 3 Second quarter of 2016 Office building in Prague Karlin Fourth quarter of 2016 Area Serbia Expected Completion Date Office building in Belgrade Stage 4 Bldg. No. 1 Completed in the first quarter of 2016 Office building in Belgrade Stage 4 Bldg. No. 2 First quarter of Section of the Description of the Company s Business included in the Periodic Report on April 21, 2016, Africa Properties (through AFI Europe NV) (hereinafter AFI Europe ), signed an exclusive agreement that includes non-binding consents of foreign companies (hereinafter the Purchasers ) (hereinafter in this subsection the Agreement ), for sale of the portfolio of properties of AFI Europe in Berlin, Germany (hereinafter the Properties in Berlin ). Pursuant to the Agreement, the Purchasers will conduct (by themselves and/or through companies they own) a due diligence examination of the Properties in Berlin and the holdings of AFI Europe in the various companies and/or partnerships that hold the Properties in Berlin (hereinafter the Holdings ) and will take action to sign a detailed agreement whereby the Purchasers will acquire the Holdings from AFI Europe. In this framework, AFI Europe committed to the Purchasers not to enter into an agreement with another party for sale of the Holdings and/or the Properties in Berlin, for a period of 6 weeks from the signing date of the Agreement. The consideration agreed upon in respect of sale of the Holdings is an amount of about 103 million 109 million, subject to customary adjustments. It is noted that since the beginning of 2016, a subsidiary of AFI Europe in Germany sold three additional properties in West Germany for an aggregate consideration of 3.7 million. If the said transactions are completed, Africa Properties is expected to receive total cash flows, net of tax in Germany, in an amount estimated at about 54 million (about NIS 231 million based on the exchange rate of the euro on April 20, 2016), this being on the basis of the expected consideration in respect of sale of the Holdings, in the amount of 103 million. Based on the value of the properties in the books of Africa Properties as at December 31, 2015, sale of the Holdings (if sold) and sale of the additional properties will generate an expected gain in Germany, after tax and after transaction expenses, in the amount of about 17 million (about NIS 73 million based on the exchange rate of the euro on April 20, 2016). It is noted that AFI Europe has additional properties in West Germany, having a value, as at March 31, 2016, of about 24 million, and it intends to take action to sell them during The information detailed above, regarding the undertaking of AFI Europe in a detailed agreement and regarding the consequences thereof on the financial results of Africa Properties constitutes forward-looking information, regarding which there is no certainty that it will be realized, due to, among other things, a failure to reach agreement with respect to the terms of the detailed agreement and/or violation of the detailed agreement (if and to the extent it is ultimately signed) by either of the parties. 9

10 Real Estate Development and Rental Property in Europe Sector (Cont.) 8. Section (e) of the Description of the Company s Business included in the Periodic Report set forth below is an update of detail of the data regarding very significant investment property of the Group in Europe Cotroceni Shopping Mall in Romania 1 : (Data based on 100%. Share of Africa Properties in the Data for the property about 98%) Three months ended Year ended March 31, 2016 December 31, 2015 Value of the property ( thousands) 435, ,958 NOI in the period ( thousands) 8,158 30,713 Revaluation gains (losses) in the period ( thousands) (63) 31,621 Average occupancy rate in the period (%) 98.8% 98.2% Rate of return (%) in annual terms 7.49% 7.06% Average monthly rents per sq.m. ( per sq.m.) Average monthly rents per sq.m. in contracts signed in the period ( per sq.m.) Section 1.10 of the Description of the Company s Business included in the Periodic Report on May 18, 2016, Africa Properties notified that a Dutch subsidiary of AFI Europe signed an agreement (hereinafter the Acquisition Agreement ) with a subsidiary of Plaza Centers N.V. (hereinafter the Seller ), whereby it will acquire from the Seller 100% of the issued share capital of a Serbia company that owns land in center of the city of Belgrade having an area of about 10,400 square meters (hereinafter the Land ) on which a project is planned that will include residential units, offices and commercial space (hereinafter the Planned Project ) on an aggregate area of up to 70,000 square meters, for a consideration of 15.9 million. In addition, the purchaser committed to pay the Seller an additional amount of up to 600,000, if and to the extent the Urban Planning Scheme applicable to the Land will permit construction of the Planned Project in a scope of more than 69,000 square meters above the land. Real Estate Development and Rental Property in the Commonwealth of Nations 10. Sections (1) of the Description of the Company s Business included in the Periodic Report (Odinburg Project) (Footnote No. 3) as at the date of the quarterly report, a permit was received for operation of Stage No. 1 out of Part No. 1. As stated in the Periodic Report, in light of the change in the planning agreements, the Property Company intends to make the required revisions in the building permit (which was received with reference to the first two parts of the project), however these revisions have no consequences on Stage No. 1 out of Part No. 1 (the construction of which has been completed), but rather only in connection with those parts the construction of which has not yet been completed. It is noted that in a case where the said revisions are not made in the building permit (or alternatively a new building permit is not received with the revised parameters), the relevant municipal authority may refuse to request of the Property Company to receive an operation permit for Stage No. 1 out of Part No. 2, or alternatively the possibility exists, albeit with a low probability, that the relevant municipal authority will even require that construction of the project will be discontinued until the said revisions are made. 1 As noted in the Periodic Report, even though this property does not meet the definition of a very significant property, in light of the fact that the said property is a very significant property, in the financial statements of Africa Properties, which is a public subsidiary and since the data presented in this Section in connection with the property was included as part of the quarterly report of Africa Properties, the Company chose to include the data shown in the table as part of this activity sector. 10

11 Real Estate Development and Rental Property in the Commonwealth of Nations (Cont.) 10. Section (1) of the Description of the Company s Business included in the Periodic Report (Odinburg Project) (Footnote No. 3) (Cont.) As at the date of the quarterly report, the independent appraisal report regarding the relevant market value with reference to the new allocation in the project was deliver to the municipal district of Odintzovo and to the Ministry of Construction by the Property Company. It is noted that the consequences of the new allocation were taken into account as part of the income the Group expects from the project as at December 31, 2015, as was detailed in Section (2) of the Periodic Report. 11. Section (4)(a) of the Description of the Company s Business included in the Periodic Report (Botanic Gardens Project) as at the date of the quarterly report, the addendum to the lease agreement dated December 24, 2012 was recorded in the Real Estate Register and is currently valid. 12. Section (e) of the Description of the Company s Business included in the Periodic Report (Tversky Tzbata Project) Tversky Plaza 1c as at the date of the quarterly report, AFI Development received an extension with respect to the completion date of the construction work in the project as part of the lease agreement up to the end of December 2018 (hereinafter the Extension Period ). Nonetheless, it is noted that as at the date of the quarterly report, AFI Development had not yet received an extension of the building permit that is effective up to November 4, 2016, since based on the usual practice in Russia, AFI Development is expected to receive extension of the building permit only about two months prior to expiration of the validity of the building permit, unless it gives notice of cancellation of the project. As at the date of the quarterly report, the project is not progressing until favorable financing conditions are obtained for development of the project. If up to shortly before the conclusion date of the Extension Period the project is not completed, it would appear that AFI Development will request an additional extension. Tversky Plaza IV as at the date of the quarterly report, a lease agreement had not yet been signed, however pursuant to Russian law, AFI Development is required to sign a lease agreement up to December 31, It is noted that in light of the fact that AFI Development is not making use of land of Tversky Plaza IV, there is no exposure to a demand for rent with respect to this project. Tversky Plaza 1b as at the date of the quarterly report, a new lease agreement had been signed between the Project Company and the City of Moscow, however this agreement has not yet been recorded in the Real Estate Register in light of the fact that the process of marking off the project boundaries has not yet been completed as required. It is noted that upon completion of marking off the project s boundaries (which in the estimation of AFI Development is expected to be completed in July 2016), and accordingly upon completion of recording the new lease agreement, the Project Company intends to pay the lease rentals also with respect to the period that commenced on February 9, 2014, in the estimated amount of NIS 100 thousand. Tversky Plaza II it is noted that the lot is jointly owned by the company holding the project and the tenants of the buildings located on the lot and, therefore, the company holding the project is required to sign a lease agreement with the City of Moscow. In light of that stated above, the Project Company has no exposure to a possible claim on the part of the City of Moscow in connection with non-payment of lease rentals. 11

12 Real Estate Development and Rental Property in the Commonwealth of Nations (Cont.) 13. Section of the Description of the Company s Business included in the Periodic Report Set forth below is date regarding an investment property under construction of the Group in the Commonwealth of Nations Potztovia 1 Financial data Rate of the Cumulative property cost area for at the which end of Data regarding fair value binding the year, and revaluations lease including Reval- contracts land, Fair Book uation Rate have Data regarding the valuation construction value value gains of been and its basic model and at the at the (losses) completion signed Name Additional other end of end of for the at the at the and assumptions items the year the year year end of end of experience forming the basis Name and characteristics Reporting Consolidated the year the year of Valuation of the valuation of the investment property period Thousands of U.S. dollars (%) appraiser model (as applicable) Name Location Functional currency Potztovia Bulshia St., Potztovia, 24, 30, 34, Moscow U.S. dollar ,743 71,460 71,460 (33,458) 65 0 JLL DCF Cap Rate 11% Discount rate 22% Average sale price: Residential units U.S.$2,750 per square meter Commercial U.S.$2,331 per square meter 1 The Project Company is developing and constructing a project for combined renovation and use on an area measuring about 54 dunams. The Project Company has signed 6 lease agreements with the City of Moscow, where 4 of the said lease agreements permit performance of construction work and are valid up to 2020, while the other 2 of the said lease agreements (which are valid up to 2062 and 2064, respectively) permit operation of existing buildings only, however the Project Company is taking action to obtain a permit to change the designation of the two above-mentioned lease agreements in order that it will be also be able to build under these lease agreements. Most of the buildings presently located on the land site are designated for demolition, however the local Ancient Artifacts Authority is examining the possibility of declaring two buildings located on the land as buildings designated for preservation. Based on prior decisions of Ancient Artifacts Authority, AFI Development estimates that the said buildings will not be declared as being designated for preservation and it will be possible to demolish them. In order to commence execution of the work, the Project Company must receive a building permit, which in the estimation of AFI Development is expected to be received in the second half of 2016, and the construction will be completed in

13 Real Estate Development and Rental Property in the Commonwealth of Nations (Cont.) 13. Section of the Description of the Company s Business included in the Periodic Report (Cont.) Set forth below is date regarding an investment property under construction of the Group in the Commonwealth of Nations Potztovia 1 (Cont.) Financial data Rate of the Cumulative property cost area for at the which end of Data regarding fair value binding the year, and revaluations lease including Reval- contracts land, Fair Book uation Rate have Data regarding the valuation construction value value gains of been and its basic model and at the at the (losses) completion signed Name Additional other end of end of for the at the at the and assumptions items the year the year year end of end of experience forming the basis Name and characteristics Reporting Consolidated the year the year of Valuation of the valuation of the investment property period Thousands of U.S. dollars (%) appraiser model (as applicable) Acquisition date of the land on which the property is being built Company s actual share Presentation method in the financial statements Lease agreements for 5 land areas planned for use for the project were acquired by the holding company in 2007, 2012 and % Full consolidation , , ,300 (39,873) 43 0 C&W Moscow branch. Valuations Dept. of C&W in Russia, which has operated in Russia for about 17 years, and has 25 real estate experts. The team holds Russian authorization certificates and is certified by the RICS Royal Institution of Chartered Surveyors. The team is known as being very choice and having very extensive experience in the local market. DCF Cap Rate 11% Discount rate 22% Average sale price: Residential units U.S.$5,000 per square meter Commercial U.S.$4,000 per square meter 1 The Project Company is developing and constructing a project for combined renovation and use on an area measuring about 54 dunams. The Project Company has signed 6 lease agreements with the City of Moscow, where 4 of the said lease agreements permit performance of construction work and are valid up to 2020, while the other 2 of the said lease agreements (which are valid up to 2062 and 2064, respectively) permit operation of existing buildings only, however the Project Company is taking action to obtain a permit to change the designation of the two above-mentioned lease agreements in order that it will be also be able to build under these lease agreements. Most of the buildings presently located on the land site are designated for demolition, however the local Ancient Artifacts Authority is examining the possibility of declaring two buildings located on the land as buildings designated for preservation. Based on prior decisions of Ancient Artifacts Authority, AFI Development estimates that the said buildings will not be declared as being designated for preservation and it will be possible to demolish them. In order to commence execution of the work, the Project Company must receive a building permit, which in the estimation of AFI Development is expected to be received in the second half of 2016, and the construction will be completed in

14 Real Estate Development and Rental Property in the Commonwealth of Nations (Cont.) 13. Section of the Description of the Company s Business included in the Periodic Report (Cont.) Set forth below is date regarding an investment property under construction of the Group in the Commonwealth of Nations Potztovia 1 (Cont.) Financial data Rate of the Cumulative property cost area for at the which end of Data regarding fair value binding the year, and revaluations lease including Reval- contracts land, Fair Book uation Rate have Data regarding the valuation construction value value gains of been and its basic model and at the at the (losses) completion signed Name Additional other end of end of for the at the at the and assumptions items the year the year year end of end of experience forming the basis Name and characteristics Reporting Consolidated the year the year of Valuation of the valuation of the investment property period Thousands of U.S. dollars (%) appraiser model (as applicable) Estimated completion date of the construction Designated property areas (based on use) (in square meters) Total expected investment (including land, construction and other) (in thousands of U.S. dollars) 2019 Residences 56,952 sq. m. Commercial 6,200 sq. m. Offices 28,008 sq. m. 352, , , ,400 (834) 39 0 C&W Moscow branch. Valuations Dept. of C&W in Russia, which has operated in Russia for about 17 years, and has 25 real estate experts. The team holds Russian authorization certificates and is certified by the RICS Royal Institution of Chartered Surveyors. The team is known as being very choice and having very extensive experience in the local market. DCF Cap Rate 10% Discount rate 19% Average sale price: Residential units U.S.$6,000 per square meter Commercial U.S.$5,000 per square meter 1 The Project Company is developing and constructing a project for combined renovation and use on an area measuring about 54 dunams. The Project Company has signed 6 lease agreements with the City of Moscow, where 4 of the said lease agreements permit performance of construction work and are valid up to 2020, while the other 2 of the said lease agreements (which are valid up to 2062 and 2064, respectively) permit operation of existing buildings only, however the Project Company is taking action to obtain a permit to change the designation of the two above-mentioned lease agreements in order that it will be also be able to build under these lease agreements. Most of the buildings presently located on the land site are designated for demolition, however the local Ancient Artifacts Authority is examining the possibility of declaring two buildings located on the land as buildings designated for preservation. Based on prior decisions of Ancient Artifacts Authority, AFI Development estimates that the said buildings will not be declared as being designated for preservation and it will be possible to demolish them. In order to commence execution of the work, the Project Company must receive a building permit, which in the estimation of AFI Development is expected to be received in the second half of 2016, and the construction will be completed in

15 Real Estate Development and Rental Property in the Commonwealth of Nations (Cont.) 14. Section of the Description of the Company s Business included in the Periodic Report for details regarding developments in connection with discussions between AFI Development and a Russian bank see Section 1 above. 15. Section (d) of the Description of the Company s Business included in the Periodic Report set forth below is an update of data regarding a very significant investment property of the Group in the Commonwealth of Nations the AFIMALL Shopping Mall in Moscow: (Data based on 100%. Share of Africa Development in the Data for the property 100%) Three months ended Year ended March 31, 2016 December 31, 2015 Value of the property (U.S.$ thousands) 666, ,200 NOI in the period (U.S.$ thousands) 12,442 53,283 Revaluation gains in the period (NIS thousands) (33,356) (231,995) Average occupancy rate in the period 82% 79% Rate of return 7.5% 7.8% Average (annual) rents per sq.m. (US$ per sq.m.) 828 1,103 Average (annual) rents per sq.m. in contracts signed in the period (US$ per sq.m.) The Home Design Sector 16. Section of the Description of the Company s Business included in the Periodic Report on April 24, 2016, an amended (and consolidated) request was received in the offices of the subsidiaries for certification of the claim as a class action claim filed by the plaintiffs, whereby, according to the plaintiffs, the defendants violated the Consumer Protection Law on additional grounds (beyond the grounds detailed in the financial statements included in the Periodic Report) of not presenting the total price the consumer is required to pay. The plaintiffs contend that the defendants present a fictitious and overstated price, in order to create the impression with the customer that he is receiving a discount. The plaintiffs further contend that provision of a continual discount, as apparently is the case with the defendants, cannot be considered a discount (hereinafter the Additional Grounds ). Furthermore, in the estimation of the plaintiffs, the amount of the claim relating to the subsidiaries amounts to about NIS 288 million, this being in place of the amount stated in the financial statements of the Company for For additional details see Note 9G to the Company s consolidated financial statements as at March 31, Section of the Description of the Company s Business included in the Periodic Report (two requests for certification of a claim as a class action and the class action claim against Africa Industries, Negev Ceramics and others) on April 20, 2016, a request was filed for approval of a compromise arrangement, as part of which it was agreed that to the extent the Court approves the a compromise arrangement the class action claim and the claim s causes of action against the defendants will not be accepted. The Court transferred the request for approval of a compromise arrangement for receipt of the position the State Attorney General, the Securities Authority and the Supervisor of the Courts, who are expected to provide their responses no later than June 17,

16 Additional Information at the Level of the Company and the Group 18. Section 1.17 of the Description of the Company s Business included in the Periodic Report on May 29, 2016, the Company s Board of Directors approved and ratified (after the approval and ratification of the Company s Remuneration Committee) the Company s undertaking with a group insurers in the international insurance market in insurance policies for insuring officers liability for the period from May 1, 2016 through January 1, For additional details see the Leniency Report published by the Company on May 29, 2016 (Reference No ). The information presented in the said Report is included herein by means of reference. Additional Investment 19. Section 1.19 of the Description of the Company s Business included in the Periodic Report on May 22, 2016, the Company published that Africa Israel Hotels Ltd., a jointly-controlled company in which the Company holds 50% of the issued shares (hereinafter Africa Hotels) is carrying on negotiations aimed at signing a binding agreement of principles (hereinafter the Agreement of Principles ) with a third party that is not related to the Company Group (hereinafter the Purchaser ), for sale of all of its holdings in real estate and additional properties serving as the Crowne Plaza Hotel in Tel-Aviv, as well as sale of all the holdings in subsidiaries of Africa Hotels (direct and indirect) that hold rights in the Crowne Plaza Hotel in Jerusalem and in the Crowne Plaza Hotel in Eilat (hereinafter the Hotels ) (hereinafter together the Properties Being Sold ). It was agreed between the parties that the consideration for the Properties Being Sold will be an aggregate amount of about NIS 718 million (plus VAT to the extent it applies) (where part of this amount will be provided as a shareholders loan by the Purchaser to the subsidiaries for purposes of repayment of loans to banks). It is emphasized that there is no certainty that the parties will reach agreement as to the terms of the Agreement of Principles and/or that the transaction described above will be completed. 20. Section 1.20 of the Description of the Company s Business included in the Periodic Report on March 31, 2016, a rating report was published whereby Midroog reduced the rating of the Company s debenture series (Z, ZA and ZB) from a rating of Ba1 to a rating of Ba3 and left the rating outlook with negative implications. On May 22, 2016, a rating report was published whereby Midroog reduced the rating of the Company s debenture series (Z, ZA and ZB) from a rating of Ba3 to Ca and set a negative rating outlook. 16

17 Additional Information at the Level of the Company and the Group (Cont.) 21. Section of the Description of the Company s Business included in the Periodic Report set forth below is detail of significant loans and/or credit frameworks of the Company Group: Balance of Description Restrictions Collaterals loan /credit of the credit applicable provided for framework Description agreement / to the the benefit No. as at 3/31/2016 of lender framework company of the lender 1 Loan to finance the AFIMALL shopping mall project in Moscow. Balance of the loan as at 3/31/2016 about US$419 million (of which, a dollar loan of about US$276.8 million and a ruble loan of about 9.6 billion rubles). A foreign bank Loan repayment dates (principal and interest). The loan is denominated in rubles. Principal Equal quarterly payments, of US$6.5 million, between 2014 and The balance of the principal is to be repaid in April Interest On a current basis once a quarter. Interest rate ruble loans provided to Bellgate Construction Ltd. (hereinafter the Borrower ), bearing interest of 9.5% per year. The loans provided to the Borrower in U.S. dollars will bear interest at the 3 month Libor rate plus 5.02% per year. The bank may raise the interest rate on the loans provided to the Borrower in rubles if one of the interest indicators denominated by the Central Bank of Russia and defined in the loan contracts increases, this being at the same rate. 1. The quarterly revenues shall not fall below the amounts stipulated (commencing from revenues of 651 million rubles in the third quarter of 2012, and up to revenues of 1,139 million rubles in the first quarter of 2018). In a case where the quarterly revenues fall below the amounts stipulated, as stated, 0.5% per year will be added to the interest rate. The updated interest rate, as stated, will apply upon payment of the quarterly interest for every quarter wherein the Borrower is not in compliance with the required quarterly revenues, as stated. 2. Liquidation value (immediate realization value) is higher than the amount of the principal and the interest for six months. Non-compliance with the condition will give the bank the right to demand immediate repayment of the loan. As at the date of the report, the Borrower is in compliance with the above conditions. 1. Lien on all the share capital of the Borrower. 2. Guarantee of AFI Development limited to US$1 million. 3. Mortgage on 100% of AFIMALL the areas. 4. Mortgage on all the areas owned by the Borrower in the parking facility, this being upon recording of the Borrower s rights in the parking facility. 5. Authorization to charge the accounts the Borrower holds in the bank. 6. Mortgage on all the areas in the Aquamarine hotel, in Moscow, which was removed upon payment of US$20 million out of the loan principal. 7. A guarantee from Semprex LLC, an indirect subsidiary of AFI Development, the parent company of the Borrower, which is incorporated in Russia, which will be cancelled upon payment of US$20 million out of the loan principal. For additional details in connection with the loan see Section 1, above. 17

18 Additional Information at the Level of the Company and the Group (Cont.) 21. Section of the Description of the Company s Business included in the Periodic Report set forth below is detail of significant loans and/or credit frameworks of the Company Group: (Cont.) Balance of Description Restrictions Collaterals loan /credit of the credit applicable provided for framework Description agreement / to the the benefit No. as at 3/31/2016 of lender framework company of the lender 2 Non-recourse loan to finance the Cotroceni shopping mall in Romania, of a subsidiary of the Company. Balance as at 3/31/ ,563 thousand. Three foreign banks. Loan repayment dates (principal and interest). Principal On a current basis once a quarter total of 3.75% of the original principal balance per year. Interest On a current basis once a quarter. Interest rate: 4.794% after hedge of the base interest rate (3M Euribor %). Final repayment date of the loan June 18, The ratio of the balance of the loan to the market value of the property (LTV) may not exceed 70%, where staring from a ratio of 67.5% the subsidiary is not entitled to make transfers of monies to AFI Europe. As at March 31, 2016, the LTV ratio is about 50.1%. 2. The ratio of the cash flow revenues of the property on an NOI basis to all the debt service payments (DSCR) must be higher than 130% with reference to the preceding year and 110% with reference to the upcoming year after the relevant examination date. If the ratio falls below a ratio of 135% with reference to the preceding year and 115% with reference to the upcoming year the subsidiary will not be entitled to make transfers of monies to AFI Europe. As at March 31, 2016, the DSCR for the past year ratio is about 161.4% and the ratio for the upcoming year is about 160.9%. 1. Lien in the form of a mortgage on the land and building. 2. Lien on all the share capital of the subsidiary. As at March 31, 2016, the Company is in compliance with the above-mentioned commitments. 18

19 Additional Information at the Level of the Company and the Group (Cont.) 21. Section of the Description of the Company s Business included in the Periodic Report set forth below is detail of significant loans and/or credit frameworks of the Company Group: (Cont.) Balance of Description Restrictions Collaterals loan /credit of the credit applicable provided for framework Description agreement / to the the benefit No. as at 3/31/2016 of lender framework company of the lender 3 Debentures (Series Z). Balance as at 3/31/2016 NIS 1.2 billion. Debentures registered for trading on the stock exchange. See Section 5.3 of Part E of the Report of the Board of Directors included in the Periodic Report. For details regarding the Company s obligations to the holders of the debentures (Series Z) as part of the debt arrangement, including a financial condition the Company is required to maintain whereby the Company s ratio between the net financial debt to CAP (as these terms are defined in Section of the Periodic Report) will not exceed 70%, see Sections , and above. For details regarding the collaterals provided by the Company for the benefit of the holders of the debentures (Series Z) as part of the arrangement see Section to the Description of the Periodic Report. As at March 31, 2016 the Company was in compliance with the above-mentioned financial condition, based on the following calculation: CAP as at March 31, 2016 NIS 3.9 billion. Net financial debt as at March 31, 2016 NIS 2.7 billion. The ratio of net financial debt to CAP as at March 31, 2016 was about 67.06%. For further details regarding additional causes of action of the debenture holders see Note 1(B)(2) to the consolidated financial statements included in this quarterly report. 19

20 Additional Information at the Level of the Company and the Group (Cont.) 21. Section of the Description of the Company s Business included in the Periodic Report set forth below is detail of significant loans and/or credit frameworks of the Company Group: (Cont.) Balance of Description Restrictions Collaterals loan /credit of the credit applicable provided for framework Description agreement / to the the benefit No. as at 3/31/2016 of lender framework company of the lender 4 Debentures (Series ZA). Balance as at 3/31/2016 NIS 0.9 billion. Debentures registered for trading on the stock exchange. See Section 5.3 of Part E of the Report of the Board of Directors included in the Periodic Report. The Company s liabilities to the holders of the debentures (Series ZA) are the same as the Company s liabilities to the holders of the debentures (Series Z), as detailed in subsection 3 above. As at March 31, 2016, the Company is in compliance with the above-mentioned commitments as detailed in subsection 3 above.. For details regarding the collaterals provided by the Company for the benefit of the holders of the debentures (Series ZA) as part of the arrangement see Section to the Description of the Periodic Report. For further details regarding additional causes of action of the debenture holders see Note 1(B)(2) to the consolidated financial statements included in this quarterly report. 20