Plaza Regulatory News (PLAZ)

29 March 2018

PLAZA CENTERS N.V.

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

FURTHER PORTFOLIO REPOSITIONING & DELEVERAGING

Plaza Centers N.V. ("Plaza" / "Company" / "Group") today announces its results for the year ended 31 December 2017.

Financial highlights:

· Reduction in total assets to €141 million as a result of the Company's portfolio repositioning and deleveraging strategy (31 December 2016: €322 million)

· Book value of the Company's Trading properties and investment in equity accounted investees decreased by €201 million to €93 million over the period, due to disposals (mainly Suwalki Plaza and Torun Plaza (in Poland) and Belgrade Plaza (in Serbia)) in line with the restructuring plan

· Consolidated cash position as at December 31, 2017 increased to €44.8 million (31 December 2016: €12.8 million including restricted bank deposits) and current cash position of circa €5.2 million

· Revenue from disposal of trading properties totalled €193 million (2016: €29 million) in line with the Company's extensive disposal program

· €15 million loss recorded at an operating level (December 31, 2016: €30.4) where a gain from selling trading properties and profit from operating active shopping centres was offset by write-down of trading properties and administrative expenses

· Losses decreased to €26.5 in million in 2017 from €46.5 million in 2016 as the write down of trading properties decreased by €29 million, while net finance expense were €10.6 and €15.4 million, respectively

· Basic and diluted loss per share of €3.87 (December 31, 2016: loss per share of €6.78)

Progress in portfolio rationalisation and financial highlights:

During 2017 and to the date of this announcement, Plaza received net proceeds of €119.4 million from sales transactions and price adjustments. The disposals form part of the Company's ongoing strategy to reduce the Company's debt.

Sale of Suwalki Plaza:

In January 2017, The Company sold its SPV holding Suwałki Plaza shopping and entertainment centre in Poland for €16.7 million. The purchaser was an investment fund which is connected to a former employee of the Company.

Out of the net proceeds, at least 75% were distributed to the Company's bondholders in March 2017, in line with the Company's stated amended restructuring plan.

Sale of Belgrade Plaza:

On January 26, 2017, the Company signed a binding share purchase agreement with BIG Shopping Centers Ltd., a publicly traded company listed in the TA 100 Index, for the sale of the SPV holding Belgrade Plaza shopping and entertainment centre.

The shopping centre, which was over 97% pre-let, opened on 20th of April 2017 and the Company had remained responsible for the development and leasing of the asset until the opening.

Upon completion of the transaction, the Company has received an initial payment of €31.7 million from the purchaser, and has since received a further €2 million following the opening and further payments are contingent upon certain operational targets and milestones being met. The Purchaser has provided a guarantee to secure these future payments.

The final agreed value of Belgrade Plaza, which comprises circa 32,300 sqm of GLA, will be calculated based on a general cap rate of 8.25% as well as the sustainable NOI after 12 months of operation, which the Company estimates will be approximately €6.2-6.5 million per annum.

Further installments will be due to the Company during the first year of operation based on this 12-month figure. The NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.

The Company received a further payment of €13.35 million during September 2017 based on the SPA on account of the final proceed which will be calculated one year following the opening of the mall, subject to price adjustments in the next two years. As a result, the Company recorded a gain from the sale totalling circa €3.2 million. Expected future purchase price adjustments are not recognised.

At least 75% of the net proceeds received from the disposal were distributed to the Company's bondholders in March 2017, and following the receipt of any future additional payments, in line with the Company's stated Amended Plan, 78% will be paid to the bondholders.

Sale of office building in Hungary:

On February 16, 2017, the Company signed an agreement for the sale of its SPV holding in David House, an office building in Budapest, to private investors for a gross amount of €3.2 million.

Out of the net proceeds, at least 75% were distributed to the Company's bondholders in March 2017, in line with the Company's stated Amended Plan.

Sale of Shumen plaza project, Bulgaria:

On February 23, 2017, the Company announced that it had concluded the sale of a 26,057 sqm plot of land in Shumen, Bulgaria, for circa €1 million, which is slightly above book value.

Of the net proceeds, at least 75% were distributed to the Company's bondholders in March 2017, in line with the Company's stated Amended Plan.

Compliance of the early prepayment term:

On March 15, 2017, the Company paid its bondholders a total amount of NIS 191.74 million (€49.2 million) as an early redemption and, accordingly, upon such payment the Company complied with the early redemption term with a total sum of at least NIS 382,000,000 and thus obtained a deferral of one year for the remaining contractual obligations of the bonds.

Preliminary Sale Agreement of Plot in Lodz, Poland:

On June 13, 2017, the Company announced that it has signed a preliminary sale agreement for the disposal of a 13,770 sqm plot at its second land holding in Lodz, Poland, (representing 22% of this holding) to a retail developer, for €1.2 million. As part of the agreement, the purchaser paid an immediate installment of EUR 0.035 million and the completion payment to make it totaling 10% of the sale price, comprising an immediate installment already paid of EUR 0.035 million followed by an installment of EUR 0.085 million shall be paid when the purchaser obtains environmental permit for investing in the access road to the plot. The remaining balance minus 50% of the sum invested in the road (up to maximum amount of EUR 0.12 million) will be paid once a building permit is obtained for development of the land which is expected to be granted till the end of 2018.

In line with the Company's stated amended restructuring plan, 78% of the net cash proceeds will be distributed to Plaza's bondholders.

New payment structure for the sale of project in Bangalore, India

On 16 June 2017, further to its announcement on 15 November 2016, that its jointly controlled subsidiary Elbit Plaza India Real Estate Holdings Limited (in which Plaza holds effectively a 50% stake with its joint venture partner, Elbit Imaging Ltd.) ("EPI") signed a revised agreement in relation to the sale of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India, to a local investor (the "Purchaser"). The Purchaser and EPI agreed that the purchase price will be amended to INR 338 Crores (approximately €44.2 million) instead of the INR 321 Crores (approximately €42 million) agreed in the previous agreement. Refer to key highlight since the period end regarding the dispute with the purchaser followed by a further revised agreement.

Sale of Kielce Plaza, Poland:

On June 19, 2017, The Company announced that it has signed the final sale agreement for the disposal of its 2.47 hectare plot in the centre of Kielce, Poland, for €2.28 million (a down payment of €0.47 million was received in 2016). In line with the Company's stated amended restructuring plan, 75% of the net cash proceeds was distributed to Plaza's bondholders.

Completed sale of Leszno plot in Poland:

In July 2017, The Company signed the final sale agreement for the disposal of a 1.8 hectare plot in the city of Leszno for €810,000.

In line with the Company's stated amended restructuring plan, 75% of the net cash proceeds from the disposal distributed to Plaza's bondholders.

Sale of plots in Timisoara and Constanta, Romania:

On 7 August, 2017 the Company completed the disposal of a plot totalling approximately 32,000 sqm in Timisoara, Romania, for €7.25 million. The Company also announced that it completed the sale of a plot totalling approximately 30,000 sqm in Constanta, Romania, for €1.3 million.

In line with the Company's stated amended restructuring plan, 75% of the net cash proceeds from both disposals were distributed to Plaza's bondholders.

Extension of long stop date regarding disposal of Piraeus plot in Greece

Following the preliminary agreement regarding the disposal of a plot in Piraeus, Greece, several amendments were signed during 2016-2017 the latest amendment deadline had expired on January 20, 2018. The last selling price of the share of the SPV holding the plot was set at EUR 3.545 million. In order to secure the prolonged validity of the initial agreement, the purchaser has paid advance payments in a total amount of EUR 0.3 million non-refundable to Plaza. The completion of the transactions is expected to be concluded in 2018 as an asset deal (instead of the original agreement of share deal) with a lower sale price of EUR 3.35 million.

Sale of land plot in Budapest, Hungary

On 2 October 2017 the Company concluded an agreement with an international investor, NEPI Rockcastle, on the termination of land use rights over a circa 21,788 sqm land plot adjoining Arena Plaza in Budapest, Hungary, registered to a subsidiary of the Company, Kerepesi 5 Irodaépület Kft ("K5"). The transaction also included the termination of the preliminary easement agreement, which provided K5 with certain easement rights over the plot. NEPI Rockcastle is the largest listed retail centre owner in CEE and recently acquired the Arena Plaza shopping centre from a third party.

As a result of the agreement, K5 received a net sum of €2.5 million. At least 75% of the net proceeds received from the disposal were distributed to the Company's bondholders.

Sale of Torun Plaza, Poland

On 21 November 2017 one of the Company's subsidiaries has completed the sale of Torun Plaza shopping and entertainment centre in Poland to a private investment fund.

The Company has received circa €28.3 million. This net cash is after the deduction of the bank loan (circa €43.3 million), and other working capital adjustments in accordance with the balance sheet of the SPV holding the Project. The above-mentioned sums do not include the earn-out payments in an amount of € 0.35 million, reduced by NAV adjustment of € 0.2 million. The Company recorded revenue of € 71.6 million from the disposal and a loss of circa €1.5 million (not including the earn-out payment mentioned).

78% of the net proceeds received from the disposal were distributed to the Company's bondholders during January 2018.

Sale of a plot in Belgrade, Serbia:

Following the sale of "MUP" plot in Belgrade, Serbia, the Company was entitled to an additional contingent consideration of €0.6 million once the purchaser successfully develops at least 69,000 sqm above ground. The consideration was received in September 2017 and is recorded as revenue from disposal of trading properties.

Of the net proceeds, at least 75% were distributed to the Company's bondholders in October 2017, in line with the Company's stated Amended Plan.

Sale of a plot in Lodz, Poland:

On September 28, 2016, the Company completed the sale of a 20,700 sqm plot of land in Lodz, Poland, to a residential developer, for €2.4 million in cash. Following this transaction, the Company owns a remaining 4,000 sqm site.

The Company received €1.44 million in 2016 in installments, and a final installment of €0.96 million was received in June 2017.

In line with the Company's stated restructuring plan, 75% of the net cash proceeds from the sale of the plot was distributed to the Company's bondholders.

Appointment of new auditor

On 29 June 2017, Plaza announced that, following the conclusion of a formal tender process led by the Company's Audit Committee, the Board of the Company approved the appointment of Kost Forer Gabbay & Kasierer, the largest accounting firm in Israel and a member of Ernst & Young Global, as its new IFRS auditor. In addition, the Company's general meeting of shareholders appointed on 20 February 2018, Baker Tilly Berk N.V. as the Dutch statutory auditor for the year 2017, who will audit the statutory annual accounts (comprising stand-alone accounts and consolidated (IFRS) accounts).

Standard & Poor's credit rating update

On September 28 2017 Standard & Poor's Maalot ("Maalot"), the Israeli credit rating agency which is a division of International Standard & Poor's, reduced its credit rating of Plaza's two series of Notes traded on Tel Aviv Stock Exchange from "ilCCC" to "ilCC" with negative outlook on a local Israeli scale.

Update regarding repayment to bondholders

On 21 December 2017 the Israeli Series A bondholders triggered the immediate repayment of the entire outstanding debt under the Series A trust deed. Further to its announcements of 4 October 2017 and 14 December 2017, with respect to the order of the Israeli court to allocate the mandatory repayment amounts according to the ratios set out in the Company's restructuring plan. On 27 December 2017 an initial agreement was reached among both Series of Israeli Bonds and the Company with respect to the allocation of funds between the 2 Series of Israeli Bonds, from that day onwards. On 11 January 2018 the agreement became final and the Series A Bondholders withdrew their request for immediate repayment.

At the date of this announcement, the board and management estimate that there are significant doubts regarding the Company's ability to serve its entire debt according to the current repayment schedule. Moreover, following the new payment structure agreed for the sale of the project in Bangalore, India, which is detailed below, it is expected that the Company will not be able to meet its entire contractual obligations in the upcoming 12 months.

Key highlights since the period end:

In January 2018, Maalot has discontinued tracking the Plaza's rating at the Company's request.

Dispute with the purchaser of a plot in India and a revised agreement

On 19 January 2018, further to its press release dated June 19, 2017 regarding the signing of a revised agreement for the sale of the100% interest in an SPV (in which Plaza holds a 50% stake with its joint venture partner, Elbit Imaging Ltd.), that holds property in Bangalore, India, to a local investor (the "Agreement" and the "Purchaser" respectively), that, due to a proposed change (initiated by the Indian authorities) which could potentially impact the development of the land, the Purchaser has given notice that all remaining payments under the Agreement will be stopped until a mutually acceptable solution is reached.

On 21 February 2018 despite the notice by the Purchaser that remaining payments under the Agreement will be stopped, the Purchaser has paid the January installment totalling INR 5 Crores (circa €0.65 million).

To date, since the signing of the Agreement, the Purchaser has paid non-refundable advance payments totalling INR 45 Crores (circa € 5.9 million), out of the total consideration of INR 338 Crores (circa €44.2 million) due under the Agreement.

In March 2018, the Company signed a further revised agreement. The Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). By the end of March 2018, the Purchaser will pay EPI INR 10 Crores (approximately €1.3 million), in addition to the INR 45 Crores (approximately €5.9 million) already paid since the period end. Further to this, a total of INR 83 Crores (approximately €10.8 million) will be paid by the Purchaser in monthly installments until the final close of the transaction. The Final Closing is now expected to take place on 31 August 2019, when the final installment of circa INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV. 

If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the Final Closing. 

Motion to reveal and review internal documents

In March 2018, a Shareholder of the Company has filed a motion with the Financial Department of the District Court in Tel-Aviv to reveal and review internal documents of the Company and of Elbit Imaging Ltd., with respect to the events surrounding that certain agreements that were signed in connection with the Casa Radio Project in Romania and the sale of the US portfolio. Such events were previously announced by the Company and are detailed in notes 8(6) and 27(d) of the financial statements. The Company is currently examining the motion with its legal advisors and intend to respond in due course.

Appointment of Acting CEO

Following the announcement that Dori Keren will step down from the Company at the end of March 2018, the Board appointed Avi Hakhamov, who has been with the Company for more than 11 years, as Acting CEO of the Company commencing 1 April 2018. Avi Hakhamov joined in 2006 as financial controller in the headquarters team of the Group and has been Acting CFO for the past two years. He has held past audit and professional advisory roles at accountancy firms, BDO, Arthur Andersen and KPMG Israel, and holds an MBA degree in Accounting and Business as well as being a certified public accountant in Israel.

Commenting on the results, CEO Dori Keren said:

"The focus of the last 12 months has very much been centred on our extensive disposal programme, as we continued with our efforts to decrease the Company's debt and to meet the demands of the restructuring programme. While it has been challenging, I am pleased with the progress we have made, having divested €183 million of assets (including an office building) during the course of the year.

"At end of March 2018, I am leaving Plaza Centers after 11.5 years, and I would like to wish the very best for the future."

For further details, please contact:

Notes to Editors

Plaza Centers N.V. (www.plazacenters.com) is listed on the Main Board of the London Stock Exchange, as of 19 October 2007, on the Warsaw Stock Exchange (LSE: "PLAZ", WSE: "PLZ/PLAZACNTR") and, on the Tel Aviv Stock Exchange. Plaza Centers N.V. is an indirect subsidiary of Elbit Imaging Ltd. ("EI"), an Israeli public company whose shares are traded on both the Tel Aviv Stock Exchange in Israel and on the NASDAQ Global Market in the United States. Plaza Centers has been active in real estate development in emerging markets for over 22 years.

Forward-looking statements

This press release may contain forward-looking statements with respect to Plaza Centers N.V. future (financial) performance and position. Such statements are based on current expectations, estimates and projections of Plaza Centers N.V. and information currently available to the company. Plaza Centers N.V. cautions readers that such statements involve certain risks and uncertainties that are difficult to predict and therefore it should be understood that many factors can cause actual performance and position to differ materially from these statements. Plaza Centers N.V. has no obligation to update the statements contained in this press release, unless required by law.

MANAGEMENT STATEMENT

During 2017 the management's focus has almost entirely been on delivering the €183 million of disposals that we completed in the 12 months to 31 December, which produced €119 million in net proceeds. Our commitment to this process has substantially reduced our total assets from €322 million to €141 million as we progressed our efforts to meet the obligations of the restructuring programme and to our stakeholders.

The sale of key properties to reputable purchasers, including NEPI Rockcastle and BIG Shopping Centers is testament to the quality of these assets, such as Toruń Plaza, which was developed by the Company, and the high standard of the asset management under our ownership. Belgrade Plaza was sold prior to the completion of its construction.

As a result of this activity, our total portfolio now comprises nine assets in five countries, including two plots in Poland, one plot in Serbia, three plots in Romania, one plot in Greece and two plots in India (under JV with Elbit).

Over the coming months, the Company will maintain its focus on and commitment to the portfolio rationalisation and the deleveraging of the balance sheet.

Results

During the year, Plaza recorded a €26.5 million loss attributable to the shareholders of the Company. This is a 43% decrease compared to the losses reported in 2017 (loss of €46.5 million).

Revenue from the operating shopping centres was €8 million (2016: €15.6 million), with the reduction, due to the disposal of Suwalki Plaza in Poland in January 2017, and Torun Plaza in November 2017. Currently the Company holds no operating assets.

Total result of operations excluding the finance income and finance cost was loss of €14.9 million in 2017 and €30.4 in 2016. Losses were generated in both years mainly from write down of trading properties.

The consolidated cash position as at 31 December 2017 was €44.8 million (31 December 2016: €12.8 million) and the current cash position is circa €5.2 million.

Liquidity & Financing

Plaza ended the period with a consolidated cash position of €44.8 million, compared to €12.8 million at the end of 2016.

As at December 31 2017 the Group's outstanding obligation to bondholders is €123 million after all bank loans were repaid or disposed. The outstanding balance of the debt to bondholders was €82.2 million as of 29 March 2018.

In November 2016, the Group agreed with its bondholders to amend the terms of the early repayment requirement under the original debt restructuring plan (the "Restructuring Plan"). On March 15, 2017, the Group repaid the required minimum early repayment to its bondholders and thus obtained a deferral of one year for the remaining contractual obligations of the bonds.

In January 2018, a settlement agreement was signed by and among the Company and the two Israeli Series of Bonds ("Settlement Agreement"). In the Settlement Agreement it was agreed, inter alia, to approve:

· New repayment ratios between the two Israeli Series of Bonds (new ratio: Bond A- 39% Bond B- 61%);

· An increase in the level of the mandatory early repayments from 75% to 78% of the relevant net income;

· New repayment schedule;

· An increase in the compensation to be paid to the Bondholders in the event of successful disposal of Casa Radio Project;

· A waiver of claims to the Company and its directors and officers; and

· To waive the request for publication of quarterly financial reports by the Company.

As a result of settlement agreement signing, Series A Bondholders withdrew their request for immediate repayment.

It is clarified that the Settlement Agreement is a separate agreement among the parties thereto with respect to the Company's restructuring plan, and as such has no effect on the Polish Bondholders.

On January 31, 2018 the Company paid the bondholders a total amount of principal and interest of EUR 38.5 millions.

Information concerning the Group's obligations and commitments to make future payments under contracts such as debt agreements in the 15 months starting April 1, 2018 is aggregated in the following table:

(*) An amount of Circa EUR 37.45 million was repaid (excluding interest) by the date of approval of these consolidated financial statements following the balance sheet date.

(**) The Company expects to increase the amount of its liquid balances during the 15 months starting April 1, 2018, by sale of plots of lands (including India) and others. Not including cash balances as of the date of signing the financial statements.

The board and management estimate that there are significant doubts regarding the Company's ability to serve its entire debt according to the current repayment schedule. Moreover, following the new payment structure agreed for the sale of the project in Bangalore, India, which is detailed below, it is expected that the Company will not be able to meet its entire contractual obligations in the upcoming 12 months.

As of December 31, 2017 the Company is not in compliance with Coverage Ratio Covenant ("CRC") as defined in the restructuring plan. This may entitle the bondholders to declare that all or a part of their respective (remaining) claims become immediately due and payable.

In respect of credit rating downgrade followed by withdraw of credit rating by Standard & Poor at the Company's request refer to Note 15 (e) to the financial statements.

In the case that the bondholders would declare their remaining claims to become immediately due and payable, the Company would not be in a position to settle those claims and would need to enter to an additional debt restructuring or might cease to be a going concern. As at the date of these financial statements the bondholders have not taken steps to assert their rights.

Strategy and Outlook

At this point in time, the Company remains focused on completing the disposal of the assets identified for sale and on delivering on its commitments to its stakeholders.

OPERATIONAL REVIEW

Over the course of the year to date, Plaza has continued to make good progress against its operational and strategic objectives. The status of the nine projects is outlined in the table below.

The Company's current assets are summarised in the table below:

*Projects that are classified as "Under planning and permitting phase" also have potential to be sold as land.

Details of major activities by country are as follows:

Poland

Preliminary Sale Agreement of Plot in Lodz, Poland:

On June 13, 2017, the Company announced that it has signed a preliminary sale agreement for the disposal of a 13,770 sqm plot at its second land holding in Lodz, Poland, (representing 22% of this holding) to a retail developer, for €1.2 million. As part of the agreement, the purchaser paid an immediate installment of EUR 0.035 million and the completion payment to make it totaling 10% of the sale price, comprising an immediate installment already paid of EUR 0.035 million followed by an installment of EUR 0.085 million shall be paid when the purchaser obtains environmental permit for investing in the access road to the plot. The remaining balance minus 50% of the sum invested in the road (up to maximum amount of EUR 0.12 million) will be paid once a building permit is obtained for development of the land which is expected to be granted till the end of 2018.

Romania

Plaza holds a 75% interest in a joint venture with the Government of Romania to develop Casa Radio (Dambovita), which is the largest development opportunity in central Bucharest. A 467,000 sqm complex, including a 90,000 sqm GLA shopping mall, leisure centre, offices, a hotel and a convention and conference hall, is planned for the site. The Company has obtained a PUD (Detailed Urban Permit) and a PUZ (Zonal Urban Plan) for the Dambovita Centre Multifunctional Complex.

Following the global financial crisis and to ensure that the development process was more aligned with the current market conditions, the Company initiated preliminary discussions with the Authorities (which are shareholders in the SPV and a party to the Public Private Partnership) regarding the future of the project. The Company has also officially notified the Authorities that it will be seeking to redefine some of the terms in the existing PPP contract, including the timetable, structure and project milestones.

Refer to the Company's financial statements section for additional information.

India

In 2008, Plaza formed a 50:50 joint venture with Elbit Imaging (the "JV") to develop large mixed-use projects in Bangalore, Chennai and Kochi. Under the terms of the agreement, Plaza acquired a 47.5% stake in Elbit Plaza India Real Estate Holdings Limited ("EPI"), which had existing stakes in mixed-use projects in India, in conjunction with local Indian partners.

The JV projects are as follows:

Bangalore

In June 2017, EPI signed a revised sale agreement with the former partner (the "Purchaser"), which amended the purchase price to INR 338 Crores (approximately €44.2 million), an increase on the INR 321 Crores (approximately €42 million) previously agreed. As part of the agreement, INR 110 Crores (approximately €14.4 million) was to be paid by the Purchaser in installments up to the Final Closing, set at September 1, 2018. Since the signing of the revised agreement, the Purchaser has paid non-refundable advance payments totalling INR 45 Crores (circa €5.9 million).

After the period end, in January 2018, the Purchaser notified EPI that, due to a proposed zoning change initiated by the Indian authorities which could potentially impact the development of the land, all remaining payments under the Agreement would be stopped until a mutually acceptable solution was reached on this matter. EPI rejected the Purchaser's claims, having no relevance to the existing Agreement, and commenced an evaluation of its legal options. 

In March 2018, the Company signed a further revised agreement. The Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). By the end of March 2018, the Purchaser will pay EPI INR 10 Crores (approximately €1.3 million), in addition to the INR 45 Crores (approximately €5.9 million) already paid since the period end. Further to this, a total of INR 83 Crores (approximately €10.8 million) will be paid by the Purchaser in unequal monthly installments until the final close of the transaction. The Final Closing is now expected to take place on 31 August 2019, when the final installment of INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV. 

If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the Final Closing. 

On May 4, 2016, the National Green Tribunal ("NGT"), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as "no construction zones" due to their proximity to water reservoirs and water drains ("Order"). The restrictions are applicable to all construction projects.

The government of Karnataka has been directed to apply the above conditions to all construction projects in the city of Bangalore, including the Company's project which is adjacent to the Varthur Lake. 

An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has stayed the operation of certain portions of the Order. At this stage, it is difficult to predict the expected timing of a decision from the Supreme Court of India on the matter.

Chennai

On July 21, 2016 Chennai Project SPV signed a Joint Development Agreement with a local developer (respectively the "JDA" and the "Developer") with respect to the Property. Under the terms of the JDA, the Chennai Project SPV granted the property development rights to the Developer who shall bear full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices.

Development will commence subject to the obtainment of the required governmental / municipal approvals and permits, and it is intended that 67% of the Property will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale.

The Chennai Project SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units. In order to secure its obligation, the Developer has paid a refundable deposit of INR 10 Crores (approximately €1.3 million) following the signing and registration of the JDA.

The JDA may be terminated in the event that the required governmental approvals for the construction of an access road to the Property are not received within 12 months of the execution date of the JDA. As at the date of this announcement, the required approvals have not yet been obtained within the target period, but the agreement remains in place. Should the agreement be terminated, the Developer will be entitled to the refund of amounts paid as a Refundable Deposit, as well as any other costs associated with the access road project or the title over the Property. The JDA may also be terminated by the Chennai Project SPV, inter alia, if the Developer has not completed certain development milestones and / or has breached the terms of the JDA . As a result, the SPV's financial statements include a provision for INR 30 Crores (€3.9 million) for cost reimbursement, including the INR 10 Crores (€1.3 million) advanced payment received.

FINANCIAL REVIEW

Results

Losses for the period amounted to €26.5 million in 2017, reflecting basic and diluted losses per share of €3.87, a 43% reduction on the 2016 loss of €6.78 per share.

Revenue for the period derived from the disposal of trading properties amounted to €193 million, compared to €29 million in 2016, the increase being largely attributable to the sales of Suwalki Plaza and Torun Plaza in Poland in January and November respectively, and the disposal of Belgrade Plaza in Serbia in January.

Due to these disposals, operating income from the shopping and entertainment centres has decreased to €5.7 million in 2017 from €10.7 million in 2016.

The write down of trading properties reduced from €40.8 million in 2016 to €11.5 million in 2017. The 2017 write down is mainly attributable to Casa Radio (€9.7 million, net) and Lodz Plaza (€1.2 million) projects.

During the year, administrative expenses decreased to €6.1 million (2016: €6.5 million) and further reductions are targeted for 2018. The decrease was offset by an increase in audit and other related costs due to the 2016 re-audit and replacement of the IFRS financial statements auditors and the cost of the new settlement agreement.

Finance income in 2017 was €0.6 million (2016: €18.6 million). A gain of €17.6 million was recorded in 2016 due to settlement of loans connected to a plot in Brasov, Romania and Zgorzelec Plaza.

Finance costs decreased considerably to €11 million in 2017, from €34 million in 2016. The main components were:

• FOREX (NIS-EUR) - the effect on the debentures totalled €1.1 million (2016 - €5.5 million).

• Interest expenses booked on bank loans and debentures totalled €10.7 million (2016: €17.3 million).

• €0.7 million recorded as non-cash income, associated with the amortisation of the discount on debentures (2016: €13.7 million expense).

• In 2017 no financial costs were capitalized (2016: €5.1 million).

Balance sheet and cash flow

The balance sheet as at 31 December 2017 showed total assets of circa €141 million compared to total assets of €322 million at the end of 2016, largely as a result of the implementation of the debt reduction strategy through asset disposal.

The consolidated cash position as at 31 December 2017 increased to €44.8 million (31 December 2016: €12.8 million) mainly due the sale of Torun Plaza in November.

The value of the Company's trading properties decreased from €263.7 million as at 31 December 2016 to €73.5 million at the end of 31 December 2017, following the disposals of Suwalki Plaza, Belgrade Plaza and Torun Plaza, and the circa €10 million impairment against the Casa Radio project in Romania.

Investments in equity accounted investee companies has decreased to €19.5 million (31 December 2016: €30 million) mainly as a result of impairment of the two projects in India in an amount of € 5.4 million (31 December 2016: € 11.6 million).

Due the sale of Belgrade Plaza, trade payables has decreased from €7.4 million to €0.6 million.

There were no bank loan borrowings as of 31 December 2017 due to the sale of Torun Plaza, Suwalki Plaza and Belgrade Plaza (31 December 2016: €82.3 million).

Aside from bank financing, Plaza has a balance sheet liability (including accrued interest) of €117 million (with an adjusted par value of circa €123 million) from issuing bonds on the Tel Aviv Stock Exchange and to Polish institutional investors. These bonds are presented at amortised cost under current liabilities.

Provision was created with respect to the obligation connected to Casa Radio project (Bucharest Romania) in the amount of €12.8 million (2016: €13.2 million) for the construction of the Public Authority Building.

Disclosure in accordance with Regulation 10(B)14 of the Israeli Securities Regulations (periodic and immediate reports), 5730-1970

1. General Background

According to the abovementioned regulation, upon existence of warning signs as defined in the regulation, the Company is obliged to attach to its report's projected cash flow for a period of two years, commencing from the date of approval of the reports ("Projected Cash Flow").

The Material uncertainty related to going concern was included in the independent auditors' report and in view of the management's plans for asset disposals and also in respect of material uncertainty related to Casa Radio project, as described in Notes 2, 8 of these Financial Statements in this press release.

With such warning signs, the Company is required to provide projected cash flow for the period of 24 months following the reporting period, and also provide explanations on differences between previously disclosed estimated projected cash flows with actual cash flows.

2. Projected cash flow

The Company has implemented the restructuring plan that was approved by the Dutch court on July 9, 2014 (the "Restructuring Plan"). Under the Restructuring Plan, principal payments under the bonds issued by the Company and originally due in the years 2013 to 2015 were deferred for a period of four and a half years, and principal payments originally due in 2016 and 2017 were deferred for a period of one year.

The Restructuring Plan further provided that, if the Company does not prepay an aggregate amount of at least NIS 434 million (€107.3 million) on the principal of the bonds on or before December 1, 2016 (the "Early Prepayment"), the principal payments due under the Extended Repayment Schedule will be advanced by one year (the "Accelerated Repayment Schedule"). On November 29, 2016, the Company's bondholders approved a postponement of the Early Prepayment date by up to four months and the reduction of the total amount of the required Early Prepayments to at least NIS 382 million (€94.5 million) (a reduction of 12% on the original amount). In addition, the Company agreed to pay to its bondholders, on March 31, 2018, a one-time consent fee (which is equal to 0.25% from the Company's outstanding debt under the bonds at that time). The consent Fee shall be paid to the Company's bondholders on a pro rata basis. During 2017, the Company paid to its bondholders a total amount of NIS 191.74 million (€49.2 million) as an early redemption. Upon such payments, the Company complied with the Early Prepayment Term (early redemption at the total sum of at least NIS 382,000,000) and thus obtained a deferral of one year for the remaining contractual obligations of the bonds.

In January 2018, a settlement agreement was signed by and among the Company and the two Israeli Series of Bonds (refer to section "Liquidity and financing").

The materialisation, occurrence consummation and execution of the events and transactions and of the Assumptions on which the projected cash flow is based, including with respect to the proceeds and timing thereof, although probable, are not certain and are subject to factors beyond the Company's control as well as to the consents and approvals of third parties and certain risks factors. Therefore, delays in the realisation of the Company's assets and investments or realisation at a lower price than expected by the Company, as well as any other deviation from the Company's Assumptions (such as additional expenses due to suspension of trading, delay in submitting the statutory reports etc.), could have an adverse effect on the Company's cash flow and the Company's ability to service its indebtedness in a timely manner.

1. Comprised from the sale of plots: Piraeus, Lodz Residential, Lodz Plaza, Krusevac, Mirecurea Ciuc, Brasov, Chennai and Bangalore (Company's share 50%), 50% of Casa Radio and additional installment for Torun Plaza, Riga Plaza and Belgrade Plaza.

2. Assuming EUR/NIS rate of 4.2 and EUR/PLN rate of 4.16. The repayment schedule takes into consideration that in the case of a disposal of an asset, 78% of the proceeds are used for the early prepayment of the Unsecured Debt in accordance with the terms of the settlement agreement signed in January 2018.

Below is a summary table of the comparison between forecasted and actual cash flow, with explanations on the differences published for the year ending 31 December 2017.

* Including advanced payments for the sale of assets

(1) The NOI from Torun Plaza is included in the proceeds from the sale.

(2) The payment was made in January 2018 following the settlement agreement with the bondholders

(3) Increase as a result of unexpected audit and other related costs due to the 2016 re-audit and replacement of the IFRS financial statements auditors and the cost of the new settlement agreement.

Dori Keren

CEO

29 March 2018

PLAZA CENTERS N.V.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

IN 000 EUR

CONTENTS

- - - - - - - - - - - - - - - - - - - - - -

CONSOLIDATED STATEMENT OF FINANCIAL POSITION IN '000 EUR

The notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS IN '000 EUR

The notes are an integral part of the consolidated financial statements.

The notes are an integral part of the consolidated financial statements.

The notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS IN '000 EUR

The notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS IN '000 EUR

The notes are an integral part of the consolidated financial statements.

NOTE 1:- PRINCIPAL ACTIVITIES AND OWNERSHIP

Plaza Centers N.V. ("the Company" and together with its subsidiaries, "the Group") was incorporated and is registered in the Netherlands. The Company's registered office is at Prins Hendrikkade 48-S, 1012 AC, Amsterdam, the Netherlands. In past the Company conducted its activities in the field of establishing, operating and selling of shopping and entertainment centers, as well as other mixed-use projects (retail, office, residential) in Central and Eastern Europe (starting 1996) and India (from 2006). Following debt restructuring plan approved in 2014 the Group main focus is to reduce corporate debt by early repayments following sale of assets and to continue with efficiency measures and cost reduction where possible.

The consolidated financial statements for each of the periods presented comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities.

The Company is listed on the premium segment of the Official List of the UK Listing Authority and to trading on the main market of the London Stock Exchange ("LSE"), the Warsaw Stock Exchange ("WSE") and on the Tel Aviv Stock Exchange ("TASE"). 

The Company's immediate parent company is Elbit Ultrasound (Luxembourg) B.V. / S.à r.l. ("EUL"), which holds 44.9% of the Company's shares, as at the end of the reporting period (December 31, 2016 - 44.9%). The Company regards Elbit Imaging Limited ("EI") as the ultimate parent company (refer to Note 28 for more details). For the list of the Group entities, refer to Note 32.

NOTE 2:- BASIS OF PREPARATION

a. Statement of compliance:

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU").

These consolidated financial statements are not intended for statutory filing purposes. The Company is required to file consolidated financial statements prepared in accordance with The Netherlands Civil Code. At the date of approving these financial statements the Company had not yet submitted consolidated financial statements for the year ended December 31, 2017 in accordance with the Netherlands Civil Code.

The consolidated financial statements were authorized for issue by the Board of Directors on March 29, 2018.

b. Functional and presentation currency:

These consolidated financial statements are presented in EURO ("EUR"), which is the Company's functional currency. All financial information presented in EUR has been rounded to the nearest thousand, unless otherwise indicated.

NOTE 2:- BASIS OF PREPARATION (Cont.)

c. Going concern and liquidity position of the Company:

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will be able to meet the mandatory repayment obligations of its bonds and other working capital requirements.

The Group's primary need for liquidity is to repay its debts and fund general corporate purposes. The Group has incurred losses and experienced negative operating cash flows for the past several years, and accordingly, it has taken a number of actions to continue to support its operations and meet its obligations.

As at December 31, 2017 the Group's outstanding obligations to bondholders are EUR 123.2 million.

In November 2016, the Group agreed with its bondholders to amend the terms of the early repayment requirement under the original debt restructuring plan (the "Restructuring Plan"). On March 15, 2017, the Group repaid the required minimum early repayment to its bondholders and thus obtained a deferral of one year for the remaining contractual obligations of the bonds. In January 2018, a settlement agreement was signed by and among the Company and the two Israeli Series of Bonds including a new repayment schedule (refer to Note 15 (b) (3)).

Information concerning the Group's obligations and commitments to make future payments under contracts such as debt agreements in the 15 months starting April 1, 2018 is aggregated in the following tables.

(*) An amount of Circa EUR 37.45 million was repaid (excluding interest) by the date of approval of these consolidated financial statements following the balance sheet date.

(**) The Company expects to increase the amount of its liquid balances during the 15 months starting April 1, 2018, by sale of plots of lands (including India) and others. Not including cash balances as of the date of signing the financial statements.

The board and management estimate that there are significant doubts regarding the Company's ability to serve its entire debt according to the current repayment schedule. Moreover, following the new payment structure for the sale of the project in Bangalore, India, it is expected that the Company will not be able to meet its entire contructual obligations in the following 12 months.

NOTE 2:- BASIS OF PREPARATION (Cont.)

Management acknowledges that the above expected cash flows are based on forward-looking plans and estimations which rely on the information known to management at the time of the approval of these financial statements. The materialization of the above forecast is not certain and is subject to factors beyond the Company's control. Therefore, delays in the realization of the Group's assets and investments or realization at lower price than expected by management could have an adverse effect on the Group's liquidity position and its ability to meet its contractual obligations on a timely manner.

Management further acknowledges that the Company is exposed to foreign currency risk derived from borrowings denominated in currency other than the functional currency of the Group, more specifically a further devaluation of the EUR against the NIS can significantly increase the remaining contractual obligation to bondholders.

As of December 31, 2017 the Company is not in compliance with Coverage Ratio Covenant ("CRC") as defined in the restructuring plan. This may entitle the bondholders to declare that all or a part of their respective (remaining) claims become immediately due and payable. 

The Company's financial statements as of December 31, 2016 include an auditor's opinion with emphasis of matter to going concern uncertainty as well as auditor's review report on interim financial statements as of June 30, 2017 include the same. As a result, there is a risk that the bondholders could argue that there exists a substantial suspicion with respect to the Company's ability to repay its obligations that entitles them to immediate repayment.

In addition, based on trust deeds in case of material deterioration in the Company's business and substantial suspicion exists that the Company will not be able to repay the bonds on time, the bondholders may declare immediate repayment of bonds.

In respect of credit rating downgrade followed by withdraw of credit rating by Standard & Poor at the Company's request refer to Note 15 (e) to these consolidated financial statements.

In the case that the bondholders would declare their remaining claims to become immediately due and payable, the Company would not be in a position to settle those claims and would need to enter to an additional debt restructuring or might cease to be a going concern. As at the date of these financial statements the bondholders have not taken steps to assert their rights. 

A combination of the abovementioned conditions indicates the existence of a material uncertainty that casts significant doubt about the Company's ability to continue as a going concern.

NOTE 2:- BASIS OF PREPARATION (Cont.)

d. Investment property vs. trading property classification:

The Group has designated all its properties for sale. The Company is actively seeking buyers and does not hold the properties with the intention to gain from capital appreciation. Therefore, management also believes that these are appropriately classified as trading properties.

e. Use of estimates and judgments:

The preparation of the consolidated financial statements in conformity with IFRS as adopted by the EU requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Information about other critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

· Note 8 - Judgements used in determining the net realisable value of trading properties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

§ Notes 8 - key assumptions used in determining the net realisable value of trading properties;

· Note 8, 27 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.

Functional currency

The EUR is the functional currency for Group companies (with the exception of Indian companies - in which the functional currency is the Indian Rupee - INR) since it is the currency of the economic environment in which the Group operates. This is because the EUR (and in India the INR) is the main currency in which management determines its pricing with tenants, potential buyers and suppliers, determine its financing activities and budgets and assesses its currency exposures.

NOTE 2:- BASIS OF PREPARATION (Cont.)

Operating cycle determination

The Group is unable to clearly identify its actual operating cycle with respect to trading properties. As such, the Group's operating cycle relating to trading properties and corresponding liabilities is 12 months. Trading properties and liabilities associated therewith are presented as non-current assets and non-current liabilities, respectively. 

Despite of the above, where a sale and purchase agreement exists as of the end of the reporting period, the asset and related liabilities are reclassified as current.

NOTE 3: - MEASUREMENT OF FAIR VALUES

A number of the Group's accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. The Company's finance department reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes, is used to measure fair values, then the finance department assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

Further information about the assumptions made in measuring fair values is included in the following notes:

· Note 26 - Financial instruments

NOTE 4: - CASH AND CASH EQUIVALENTS

*) The balances are not bearing interest.

The Group's sensitivity analysis for financial assets and liabilities are disclosed in Note 26.

NOTE 5: - RESTRICTED BANK DEPOSITS

NOTE 6 - TRADE RECEIVABLES

(1) 2016 - Includes EUR 5.6 million from sale of plots

NOTE 7:- OTHER ACCOUNTS RECEIVABLES, PREPAYMENTS AND ADVANCES

a. Other receivables:

b. Prepayments and advances:

c. Non-current Prepayments:

NOTE 8: - TRADING PROPERTIES

(1) 2017 and 2016 - mainly due to construction activities in Serbia. 

(2) Includes EUR 0 million of non-specific borrowing costs capitalized, using a capitalization rate of 13% in 2017 (in 2016 - EUR 5.1 million).

(3) Breakdown of write-downs of trading properties is presented in the table below.

(*) See also (6)(e) below.

NOTE 8: - TRADING PROPERTIES (Cont.)

The 2017 write-downs were caused mainly due to the following factors:

· EUR 1.2 million of write-down in Lodz Plaza project, Poland, which reflects a discount rate of 30% on the market value under special assumption that the marketing period is limited to 12-15 months.

· EUR 9.7 million of write-down (net of change in provision in respect to PAB) in Casa Radio project, Romania due to the following: a slight increase in construction cost, a slight decrease in financing interest rate, prolongation of lead-in period in half a year and an increase in the discount factor for restricted marketing period from 25% to 35%. As compared to 2016, deals take longer to exchange as the level of due diligence and scrutiny is heightened domestically and internationally. As a consequence a restricted marketing period would have a marked impact on the realizable value as a greater discount would be sought by a purchaser.

For detailed information with respect to valuation techniques and main assumptions, refer also to (7) in this Note.

(4) 2016 - Including Belgrade Plaza (Visnjicka) in Serbia

(5) Sale of assets in the reporting period:

a. Sale agreement of Suwalki Plaza:

In January 2017, the Company sold its SPV holding Suwałki Plaza shopping and entertainment center in Poland to an investment fund for EUR 16.7 million and recorded a gain of EUR 0.8 million. The purchaser is an investment fund which is connected to a former employee of the Company. The received consideration is after the deduction of the bank loan (circa EUR 26.4 million).

As a result, the Company recorded revenue of EUR 43.1 million from the disposal.

Out of the net proceeds, at least 75% were distributed to the Company's bondholders in March 2017, in line with the Company's stated amended restructuring Plan.

b. Sale of Belgrade Plaza:

On January 26, 2017, the Company signed a binding share purchase agreement with BIG Shopping Centers Ltd., a publicly traded company listed in the TA 100 Index, for the sale of the SPV holding Belgrade Plaza shopping and entertainment center.

Upon completion of the transaction, the Company received an initial payment of EUR 31.7 million from the purchaser, further EUR 2 million has been received following the opening, further payment of EUR 13.35 million has been received during September 2017 and additional payments are contingent upon certain operational targets and milestones being met. The Purchaser has provided a guarantee to secure these future payments. The received consideration is after the deduction of the bank loan (circa EUR 15.4 million).

The final agreed value of Belgrade Plaza, which comprise circa 32,300 sqm of GLA, will be calculated based on a general cap rate of 8.25% as well as the sustainable NOI after 12 months of operation, which the Company estimates in the range of EUR 6.2-6.5 million per annum.

NOTE 8:- TRADING PROPERTIES (Cont.)

Further instalments will be due to the Company during the first year of operation based on this 12-month figure. The NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.

The Company recorded a gain from the sale in amount of circa EUR 3.2 million. Expected future purchase price adjustments are not included.

As a result, the Company recorded revenue of EUR 62.5 million from the disposal. At least 75% of the net proceeds received from the disposal were distributed to the Company's bondholders during 2017, and following the receipt of any future additional payments, in line with the Company's stated Amended Plan, 78% will be paid to the

bondholders.

c. Sale of Shumen plaza project, Bulgaria:

On February 23, 2017, the Company announced that it had concluded the sale of a 26,057 sqm plot of land in Shumen, Bulgaria for circa EUR 1 million, which is slightly above book value and recorded a gain of 0.2 EUR million.

The Company recorded revenue of EUR 1 million from the disposal.

Of the net proceeds, at least 75% were distributed to the Company's bondholders in March 2017, in line with the Company's stated Amended Plan.

d. Preliminary Sale of Plot in Lodz, Poland:

On June 13, 2017, the Company announced that it has signed a preliminary sale agreement for the disposal of a 13,770 sqm plot at its second land holding in Lodz, Poland, (representing 22% of this holding) to a retail developer, for €1.2 million. As part of the agreement, the purchaser paid an immediate instalment of EUR 0.035 million and the completion payment to make it totalling 10% of the sale price, comprising an immediate instalment already paid of EUR 0.035 million followed by an instalment of EUR 0.085 million shall be paid when the purchaser obtains environmental permit for investing in the access road to the plot. The remaining balance minus 50% of the sum invested in the road (up to maximum amount of EUR 0.12 million) will be paid once a building permit is obtained for development of the land which is expected to be granted till the end of 2018.

In line with the Company's stated amended restructuring plan, 78% of the net cash proceeds will be distributed to the bondholders.

e. Final agreement for sale of Kielce Plaza, Poland:

On June 19, 2017, The Company announced that it has signed the final sale agreement for the disposal of its 2.47-hectare plot in the centre of Kielce, Poland, for EUR 2.28 million. The Company received a down payment of EUR 0.465 million when the preliminary sale agreement was signed at 2016 and the remaining EUR 1.815 million has been paid to the Company during June 2017.

The Company recorded revenue of EUR 2.2 million from the disposal and a gain of EUR 1.3 million.

In line with the Company's stated amended restructuring plan, 75% of the net cash proceeds were distributed to Plaza's bondholders.

f. Completed sale of Plot in Leszno, Poland:

In July 2017, the Company has signed the final sale agreement for the disposal of a 1.8-hectare plot in the city of Leszno for EUR 0.81 million.

NOTE 8:- TRADING PROPERTIES (Cont.)

The Company recorded revenue of EUR 0.81 million from the disposal. In line with the Company's stated amended restructuring plan, 75% of the net cash proceeds from the disposal will be distributed to Plaza's bondholders.

g. Sale of plots in Timisoara and Constanta, Romania:

On 7 August, 2017 the Company has completed the disposal of a plot totaling approximately 32,000 sqm in Timisoara, Romania, for EUR 7.25 million, which was recorded as revenue from disposal.

The Company also announced that it has completed the sale of a plot totaling approximately 30,000 sqm in Constanta, Romania, for EUR 1.3 million.

The Company recorded revenue of EUR 1.3 million from the sale of the property.

In line with the Company's stated amended restructuring plan, 75% of the net cash proceeds from both disposals were distributed to Plaza's bondholders.

h. Land Plot in Budapest, Hungary:

On October 2, 2017 the Company announces that it has concluded an agreement with an nternational investor, NEPI Rockcastle, on the termination of land use rights over a circa 21,788 sqm land plot adjoining Arena Plaza in Budapest, Hungary, registered to a subsidiary of the Company, Kerepesi 5 Irodaépület Kft ("K5"). The transaction also includes the termination of the preliminary easement agreement, which provided K5 with certain easement rights over the plot. As a result of the agreement, K5 received a net sum of EUR 2.5 million.

The Company recorded revenue of EUR 2.5 million from the disposal.

At least 78% of the net proceeds received from the disposal were distributed to the Company's bondholders during January 2018.

i. Sale of Torun Plaza:

On 21 November, 2017 one of the Company's subsidiaries has completed the sale of Torun Plaza shopping and entertainment center in Poland to a private investment fund.

The Company has received circa EUR 28.3 million. This net cash is after the deduction of the bank loan (circa EUR 43.3 million), and other working capital adjustments in accordance with the balance sheet of the SPV holding the Project. The above-mentioned sums do not include the earn-out payments in an amount of EUR 0.35 million, reduced by NAV adjustment of EUR 0.2 million. The Company recorded revenue of EUR 71.6 million from the disposal and a loss of circa EUR 1.5 million (not including the earn-out payment mentioned).

At least 78% of the net proceeds received from the disposal were distributed to the Company's bondholders during January 2018.

j. Disposal of plot in Belgrade, Serbia

Following the sale of "MUP" plot in Belgrade, Serbia, the Company was entitled to an additional contingent consideration of EUR 0.6 million once the purchaser successfully develops at least 69,000 sqm above ground. The consideration was received in September 2017 and is recorded as revenue from disposal of trading properties.

NOTE 8:- TRADING PROPERTIES (Cont.)

k. Update on disposal of land plot in Greece

Following the preliminary agreement regarding the disposal of a plot in Piraeus, Greece, several amendments were signed during 2016-2017 the latest amendment deadline had expired on January 20, 2018. The last selling price of the share of the SPV holding the plot was set at EUR 3.54 million. In order to secure the prolonged validity of the initial agreement, the purchaser has paid advance payments in a total amount of EUR 0.3 million non-refundable to Plaza. The completion of the transactions is expected to be concluded in 2018 as an asset deal (instead of the original agreement of share deal) with a lower sale price of EUR 3.35 million.

(6) Casa radio note:

(a) General:

In 2006 the Company entered into an agreement according to which it acquired 75% interest in a company ("Project SPV") which is under a PPP agreement with the Government of Romania to develop the Casa radio site in the center of Bucharest ("Project"). After signing the PPP agreement, the Company holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and a third party private investor (10%).

As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006 (37 years remaining at the end of the reporting period). As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building ("PAB") measuring approximately 11.000 square meters for the Romanian Government at its own cost.

Large scale demolition, design and foundation works, financed by loans given to the Project SPV by the Company were performed on the construction site until 2010, when current construction and development was put on hold due to lack of progress in the renegotiation of the PPP agreement with the Authorities, as discussed in subsection (c) below, and the global financial crisis. These circumstances (and mainly the bureaucratic deadlock with the Romanian Authorities to deal with the issues specified below) caused the Project SPV not to meet the development timeline of the Project, as specified in the PPP. However, management believes that it had legitimate reasons for the delays in this timeline, as discussed in subsection (c) below. 

(b) Obtaining of the Detailed Urban Plan ("PUD") permit:

The Project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan ("PUZ") related to the Project. The court decision is irrevocable.

As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.

NOTE 8:- TRADING PROPERTIES (Cont.)

(c) Discussions with Authorities on construction time table deferral:

Following the Court decision with respect to the PUZ, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit. The building permits have not been obtained.

However, due to substantial differences between the approved PUD and stipulations in the PPP agreement as well as changes in the EU directives concerning environmental considerations in buildings used by public authorities the Project SPV attempted to renegotiate the future development of the Project with the Romanian Authorities on items such as time table, structure and milestones as well as adaptation of the PAB development to the current EU requirements. Despite many notifications sent to the Romanian Authorities expressing a wish to renegotiate the existing PPP agreement no major breakthrough could be achieved. The Company can be subject to significant delay penalties under the terms of the PPP agreement if it is determined that the Company was at fault in causing the delays.

Because of the failure of the public authorities to cooperate, negotiate and adjust the PPP agreement, the Project SPV was not able to meet its obligations under the PPP. This resulted in a situation where the Project SPV could not "de facto" continue the execution of the Project and created a risk that the public authorities could attempt to terminate the PPP agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, the Company may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (€ 50.4 million). As of the date of approval of these consolidated financial statements the Project SPV did not receive any termination notification by the public authorities.

The Company believes that although there is no formal obligation for the Romanian Authorities to renegotiate the PPP agreement, such obligation is implicitly provided for the situation when significant unexpected circumstances arise and that the unresponsiveness of the authorities is a violation of the general undertaking to support the Project SPV in the execution of the Project as agreed in the PPP agreement.

The Company believes that the risk that the public authorities may seek to terminate the PPP and/or relevant permits on the basis of the perceived breach of the Company's commitments and/or may seek to impose delay penalties on the basis of the PPP contract is unlikely given the public authorities have not sought to do such since the perceived breach in 2012 and given the Company believes that it has basis for counter claims against the relevant public authorities.

In the case of termination for breach under the PPP agreement the relationship and compensation between the parties is to be decided by a competent court of arbitrations. Management believe that, in the case of termination, the Company has a strong case to claim compensation for damages.

NOTE 8 - TRADING PROPERTIES (Cont.)

Since 2016 management has taken a number of steps in order to unblock the development of the project and mitigate the risk of termination of the PPP agreement, including commencing a process to identify third party investors willing and capable to join the Group for the development of the project and/or potential buyers for the Project. Management believes that reputable investors with considerable financial strength can enhance negotiation position vis-à-vis the public authorities and assist in advancing an amicable agreement with the relevant authorities with respect to the development of the project.

Management considers the risk of termination of the PPP agreement and/or the imposition of penalties by the authorities to be unlikely and the consolidated financial statements do not include any provision in respect to any potential future penalties in respect to the breach of the PPP agreement

(d) Co-operation with the Romanian Authorities regarding potential irregularities

In 2015, the Board and Management became aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, the Board appointed the chairman of the Audit Committee to investigate the matters and independent law firms to analyze the available alternatives in this respect. The chairman of the Audit Committee did not conclude the investigation as the person with key information was not available to answer questions. The Board, among other steps, implemented a specific policy in order to prevent the reoccurrence of similar issues and appointed the chairman of the audit committee to monitor the policy's implementation by the Company's management. In addition, it was decided that in the future certain agreements will be brought to the Board's approval prior to signing.

The Company has approached and is co-operating fully with the relevant Romanian Authorities regarding the matters that have come to its attention and it has submitted its initial findings in March 2016 to the Romanian Authorities. The Company, during this process has been verbally informed by the Romania Authorities that it has received immunity from certain potential criminal charges and received further verbal assurance that the mentioned investigation should have no effect on the Company's existing legal rights to the Project and the PPP Agreement. As the investigation by the Romanian Authorities is still on-going, the Company in unable to comment further on any details related to this matter. Management is currently unable to estimate any monetary sanctions in respect to the potential irregularities, consequently no provision has been recorded in connection with these matters.

Elbit, the Company's parent company, announced in March 2016 that it appointed a special committee to examine these matters as they may contain potential violation of the requirements of the U.S. Foreign Corrupt Practices Act (FCPA), including the books and records provisions of the FCPA, and that it has approached and is co-operating fully with the US Securities and Exchange Commission (SEC). Following discussions with the SEC regarding the potential violation of the requirements of the FCPA, Elbit submitted an Offer of Settlement ("Offer"). Solely for the purpose of the proceedings brought by or on behalf of the SEC and without admitting or denying the findings in the Offer, Elbit consented to the entry of an order containing the SEC's findings.

NOTE 8:- TRADING PROPERTIES (Cont.)

The SEC has determined to accept the Offer and ordered that: (i) Elbit cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; and (ii) Elbit shall pay a civil money penalty in the amount of $500,000 to the SEC for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). In determining to accept the Offer, the SEC considered remedial acts that Elbit promptly undertook, its self-reporting, and its cooperation afforded to the SEC staff, including having conducted a thorough internal investigation, voluntarily providing detailed reports to the staff, fully responding to the staff's requests for additional information in a timely manner, and providing translations of certain documents.

(e) Provision in respect of PAB:

As mentioned in point a above, when the Company entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own costs for the benefit of the Romanian Government. Consequently, the statement of financial position includes a provision in the amount of EUR 12.8 million in respect of the construction of the PAB (December 31, 2016: EUR 13.2 million). During 2017, the Company recorded income in total amount of EUR 0.4 million from change in PAB provision as part of write down of trading properties (in 2016 - EUR 1.7 million).

Management believes that the current level of provision is an appropriate estimation in the current circumstances. Upon reaching concrete agreements with Authorities, the Company will be able to further update the provision.

(7) Write-down of trading properties:

Trading properties are measured at the lower of cost and net realizable value. Determining net realizable value is inherently subjective as it requires estimates of future events and takes into account special assumptions in the valuations, many of which are difficult to predict.

Actual results could be significantly different than the Company's estimates and could have a material effect on the Company's financial results. Trading Properties accumulated write-downs from cost as of December 31, 2017, amounted to EUR 171.8 million or 70% percent of outstanding trading properties original cost (December 31, 2016 - EUR 170 million or 39% of gross trading property balance). These valuations become increasingly difficult as they relate to estimates and assumptions for projects in the preliminary stage of development.

Management is responsible for determining the net realizable value of the Group's trading properties. In determining net realizable value of the vast majority of trading properties, management utilizes the services of an independent third party recognized as a specialist in valuation of properties (as at December 31, 2017, 91.3% of the value of trading properties was based on valuations done by the independent third-party valuation service (2016 - 81.2%). 

The trading property Casa Radio was valued using the Residual technique and Lodz Plaza plot was valued using the comparable method. A description of each approach is discussed below. The remaining properties were valued by reference to existing or preliminary sale agreements.

NOTE 8:- TRADING PROPERTIES (Cont.)

All trading properties carrying amounts equal their net realizable values.

The Company reviews annually (and in certain cases during the year), the valuation methodologies utilized by the independent third party valuator service for each property. The main features included in each valuation are:

(1) Comparable method:

Valuation by comparison is essentially objective in that it is based on an analysis of the price achieved for sites with broadly similar development characteristics. Valuation by comparison is generally used if evidence of actual sales can be found and analysed on a common unit basis, such as site area, developable area or habitable room.

Where comparable development cannot be identified in the immediate area of the subject site or when sales information is not clearly available through common channels of information (internet, newspapers, trade journals, periodic market research) it is necessary to look further out for suitable comparable and to make necessary adjustments to the price in order to account for dissimilarities between the comparable development and the subject site. Such adjustments include, but not limited to:

· Adjustment due to the time of the transaction. Market conditions at the time of the sales transaction of a comparable property may differ from those on the valuation date of the property being valued. Factors that impact market conditions include rapidly appreciating or depreciating property values, changes in tax laws, building restrictions or moratoriums, fluctuations in supply and demand, or any combination or forces working in concert to alter market conditions from one date to another.

· Adjustment due to asking price and condition of payment. The special motivations of the parties to the transaction in many situations can affect the prices paid and even render some transactions as non-market. Examples of special conditions of sale include a higher price paid by a buyer because the parcel has synergistic, or marriage value; a lower price paid because a seller was in a hurry to conclude the sale; a financial, business, or family relationship between the parties involved in the transaction, unusual tax considerations; lack of exposure of the property in the (open) market; or the prospect of lengthy litigation proceedings.

· Adjustment because of size, shape, contiguous and surface area. Where the physical characteristics of a comparable property vary from those of the subject property, each of the differences is considered, and the adjustment is made for the impact of each of these differences on value.

· Adjustment because of location. The locations of the comparable sale properties and the subject property are compared to ascertain whether location and the immediate environment are influencing the prices paid. The better location a property is located in the more it is worth per square meter; and conversely the worse location a property is in the less it is worth per square meter. An adjustment is made to reflect such differences based on the valuers' professional experience. Extreme location differences may indicate that a transaction is not truly comparable and are disqualified.

NOTE 8:- TRADING PROPERTIES (Cont.)

(2) Residual method:

The residual method, in contrast, relies on an approach that is a combination of comparison and cost and it requires making a number of assumptions - any of which can affect the outcome in varying degrees. Having established the development potential a residual valuation can be expressed as a simple equation: (value of completed development) - (development costs + developers profit+ financing cost) = land value. Each element of this equation is discussed in the following paragraphs.

· Value of completed development:

The value of the completed development is the market value of the proposed development assessed on the special assumption that the development is complete as at the date of valuation in the market conditions prevailing at that date.

· Development costs:

The development costs include planning and design costs, construction costs, site related costs, holding costs, finance costs and contingencies.

Larger schemes such as Casa radio in Romania is phased over time. Is such case the phasing is reflected in the cash flows as deferral of some of costs to a date when it might be reasonable to expect them to be incurred. Similarly, not all proceeds occur simultaneously.

· Developer's profit:

The nature of the development determines the selection of the profit margin, or rate of return and the percentage to be adopted varies for each case. The developers profit is expressed as a percentage of the Gross Development Value (GDV).

· Exit Yield represents the capital value of the property at the end of the period of analysis (exit value) expressed in percentage terms. The exit value is the net amount which an entity expects to obtain for an asset at the end of the period of analysis after deducting the expected costs of disposal. Usually the estimation is done through analyzing market evidence and then adjustments are made with regards to the individual property.

(3) Fair value under the assumption of restricted marketing period - due to the financial condition of the Company, the fair value of two properties was based on the assumption of marketing period restricted to a period which is lower than the normal one, but in any case not shorter than six months. In this case the valuator, using commercial judgement, assumes a significant discount rate attributable to the fair value of the property. This conclusion is based on advice from brokers who are actively participating in sale transactions with comparable assets.

NOTE 8:- TRADING PROPERTIES (Cont.)

(8) Significant estimates:

The following table shows the valuation techniques used in measuring the net realizable value of the main trading property:

NOTE 8:- TRADING PROPERTIES (Cont.)

The following table provides sensitivity analysis on value of certain projects (in thousands of EUR), assuming the following changes in key inputs used in valuations: