Plaza Regulatory News (PLAZ)

21 March 2019

PLAZA CENTERS N.V.

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

FURTHER PORTFOLIO REPOSITIONING & DELEVERAGING

Plaza Centers N.V. ("Plaza" / "Company" / "Group") today announces its results for the year ended 31 December 2018.

Financial highlights:

· Reduction in total assets to €62 million (31 December 2017: €141 million) as a result of the Company's deleveraging including principal repayments and the redemption in full of Series of bonds issued in Poland in total amount of €40.1 million

· Book value of the Company's Trading properties decreased by €31 million to €42.6 million over the period, due to disposals (land plots in Poland and Serbia, and disposal of shares of SPV holding plot in Greece) in line with the restructuring plan and an impairment of €29.5 million of Trading Properties in Romania, Poland, Greece and Serbia

· Consolidated cash position as at December 31, 2018 decreased to €1.4 million (31 December 2017: €44.8 million) and current cash position of circa €1.28 million

· Revenue from disposal of trading properties totaled €2.3 million (2017: €193 million) in line with the Company's disposal program

· €31.7 million loss recorded at an operating level (December 31, 2017: €15 million) where a loss from selling trading properties was increased by write-down of trading properties and decreased administrative expenses

· Administrative Expenses reduced to €2.7 million in 2018 due to cost cutting of professional services and manpower (2017: €6.15 million)

· Losses increased to €38.4 million in 2018 from €26.6 million in 2017 as the write down of trading properties increased by €18 million, while net finance expense were €7.7 and €10.6 million, respectively

· Basic and diluted loss per share of €5.60 (December 31, 2017: loss per share of €3.87)

Progress in portfolio rationalisation and financial highlights:

During 2018 Plaza received gross proceeds of €2.3 million from sales transactions, price adjustments and other income. The disposals form part of the Company's ongoing strategy to reduce the Company's debt.

Settlement agreement with the Bondholders:

In January 2018, a settlement agreement was reached and approved (and all the conditions precedent in the agreement fulfilled) between the holders of two Series of Israeli Bonds and the Company regarding the allocation of funds, to be repaid by the Company, across the Israeli Bonds Series. As a result, the 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 had no effect on the Polish Bondholders. On January 31, 2018 the Company paid the bondholders a total amount of principal and interest of €38.5 million.

Retirement of Chief Executive Officer:

On 11 January 2018, the Company announced that the CEO, Dori Keren, would retire from his position at the end of March 2018. The Board of Directors appointed Avi Hakhamov, who has been with the Company for more than 11 years, as Acting CEO commencing 1 April 2018.

Ceasing of rating by S&P 

On 18 January 2018, S&P Maalot announced that it ceases updating the rating of the Company's bonds following the Company's request.

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 the notes to consolidated financial statements as of December 31, 2018. In July 2018, the Company has filed a response to the relevant court. The case is still pending at court. For further information see Note 17(6).

Redemption of the Polish Bonds:

In May 2018, further to the decision of the Israeli Series A and Series B Bondholders, the Company has redeemed in full the series of bonds issued in Poland at their principal amount together with interest accrued to the maturity date in total amount of €2.66 million. Upon completion of the redemption, the Company has no outstanding bonds issued in Poland.

Earn-out payment for the sale of Torun:

In June 2018, the Company received the earn-out payment for the sale of Torun Plaza totaling €0.35 million, reduced by NAV adjustment of €0.14 million.

Sale of a plot Lodz, Poland ("Lodz Centrum Plaza"):

In July 2018, a subsidiary of the Company has signed a preliminary agreement with respect to the sale of a 4,000 sqm plot of land in Lodz, Poland known as "Lodz Centrum Plaza", in consideration for PLN 1.3 million (circa €0.3 million). The plot was sold in September 2018.

Update on disposal of land plot in Miercurea Ciuc, Romania:

Further to the Company's announcement dated October 17, 2018 regarding signing the pre-agreement for the sale of land plot in Miercurea Ciuc, Romania, the Company grant an option for the purchase of the Plot till mid-April 2019 for a total consideration of €0.11 million. The Company has received €95,000 in 2018 and an additional €15,000 in 2019 (Non-refundable payments). In March 2019, following negotiations with the purchaser, the parties agreed that (i) the signing date of a definitive agreement will be postponed by 3 months to mid-July 2019, (ii) the receipt of non-refundable advance payments of €250,000 in two tranches by the end of April 2019, and; (ii) the sale price will be increased by €30,000.

To the extent that the Company will enter into a definitive agreement and consummates the transaction, the Company expects to receive €1.47 million (including non-refundable advanced payments).

Sale of a plot in Krusevac, Serbia:

On December 3, 2018 the Company announced that it completed the sale of its (indirectly) 100% stake in a 5-acre plot in Krusevac, Serbia, for a total consideration of approximately €0.29 million which is slightly below book value.

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 €1.15 million. As part of the agreement, the purchaser paid an immediate installment of €0.035 million followed by an installment of €0.073 million paid on 2018 after obtaining environmental permit for investing in the access road to the plot.

During February 2019 the Company has signed conditional sale agreement for which the remaining balance less 50% of the sum invested in the road (up to maximum amount of circa €0.19 million) will be paid once the final agreement is signed after the municipality confirms that it will not exercise pre-emptive rights. The rest of consideration (circa €0.84 million) will be paid in two instalments: €0.75 million at the date of the signing of the final sale agreement and the remaining amount of €0.09 million till the end of April 2019.

Disposal of land plot in Greece:

On December 24, 2018 the Company signed a definitive agreement for the sale of its (indirectly) 100% stake in a Greek subsidiary (on an "as is" basis) for a total gross amount of €1.05 million (out of which €0.3 million has already been received as advance payments during 2017). The total net proceeds to the Company, following the deduction of working capital adjustments in accordance with the balance sheet of the SPV and transaction costs, were circa €0.66 million.

As a result of the transaction, an amount €1.05 million is recorded in Revenue from disposal of trading properties and amount of circa €2.28 million is recorded in Cost of trading properties sold. In addition, as a result of sale on "as is" basis, the Company reversed tax liability previously recorded in the financial statements resulted in tax benefit of €1.015 million.

Belgrade Plaza:

On January 26, 2017, the Company signed a binding share purchase agreement with BIG Shopping Centers Ltd ("BIG"), for the sale of the SPV holding Belgrade Plaza shopping and entertainment centre. 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. 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.

During June 2018 (the first adjustment date) the First purchase price adjustment was examined and accordingly no additional proceed was made.

During December 2018, BIG paid €466,000 for the stands and signage at the Big Fashion mall in Belgrade (previously known as "Belgrade Plaza"). In addition, BIG further informed us that they intend to hold an additional €1 million until an orderly engineering examination of the mall's technical conditions is completed as part of the final Price adjustment to be performed in May 2020. The Company is currently evaluating its options regarding BIG's intention to hold the €1 million which was not recorded in the consolidated financial statements due to uncertainty related to receipt of such amount.

Update re 2012 Disposal of Shopping Centers in the US:

On December 20, 2018 Plaza Centers announced that following its announcement of 21 November 2017, and the review concluded in 2018 by the Financial Conduct Authority (FCA), no retrospective disclosures or other actions are required under the FCA's Listing Rules in relation to this matter.

Elbit Imaging announces it is no longer the Controlling Shareholder of Plaza Centers:

Elbit Imaging Ltd. (TASE, NASDAQ: EMITF) ("Elbit") informed in December 2018, that it has signed a trust agreement according to which Elbit will deposit its shares of Plaza Centers N.V (the "Shares" and "Plaza", respectively) with a trustee. In accordance with the trust agreement, Elbit retains the right to receive any and all rights in connection with the Shares, other than the voting rights which are vested with the trustee for all matters and purposes effective from December 18, 2018. In addition, Elbit may instruct the trustee, from time to time, to sell all or any portion of the Shares. The trust agreement shall terminate upon the earlier of: (i) a sale of all of the Shares to a third party; and (ii) the date on which actions have been taken for realization of any of the liens Elbit granted in favor of the holders of the Series I Notes issued by Elbit. The outcome of the above mentioned is that Elbit no longer considers itself to be the controlling shareholder of Plaza and accordingly will not consolidate Plaza's financial reports in its own financial reports.

Sale agreement of plot in Bangalore, India:

In June 2017, Elbit Plaza India Real Estate Holdings Ltd. ("EPI") (in which Plaza holds a 50% stake with its joint venture partner, Elbit Imaging Ltd.) signed a revised sale agreement with the former partner (the "Purchaser"). In January 2018, the Purchaser has 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 will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Purchaser's claims, having no relevance to the existing Agreement, and started to evaluate its legal options. INR 46 Crores (approximately €6.06 million) were paid till March 2018.

In March 2018, the Company signed an amended revised agreement as follows: The Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €44.5 million). The Final Closing will take place on 31 August 2019 when the final installment of circa INR 212 Crores (approximately €26.9 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 all amounts paid by now 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 February 4, 2019 Plaza announced that the Purchaser defaults on payments and that EPI is considering all legal measures available to it to protect its interest.

During March, 2019, Plaza announced that the Purchaser has further paid to EPI INR 9.25 cores (approximately €1.15 million), thereby having paid approximately INR 80 crores (approximately €10.26 million) as against approximately INR 92 crores (approximately €11.8 million) that was supposed to be paid by end of February 2019. The Parties continue to discuss regarding getting further payments. Plaza part from the consideration is 50%.

Regarding Environmental update on Bangalore project and the implications on the net realisable value refer to Note 6 (b) (1) in the consolidated financial statements and key highlights below.

Sale agreement of plot in Chennai, India:

In July 2018, Elbit Plaza India Real Estate Holdings Limited ("EPI"), has signed a term sheet with its local partner ("Buyer"), relating to the sale of EPI's Indian subsidiary ("SPV") that holds 74.7-acre plot in Chennai, India ("Term Sheet"). Under the terms of the Term sheet, the Buyer shall have 60 (sixty) days to conduct due diligence only with respect to the SPV, following which definitive agreements, for the sale of the SPV in consideration of approximately €13.2 million (INR 1,060 million, the Company's share approximately €6.6 million), (subject to adjustment with respect to the previous deposit that was placed and the existing cash in the SPV level), shall be signed and closing shall take place on the same day. The closing of the transaction was expected in February 2019. As the transaction was not completed the Term Sheet was terminated by EPI.

In February 2019 the Chennai Project SPV issued notice to the buyer terminating the Joint Development Agreement ("JDA") due to its failure to obtain the access road. The said termination of JDA has been disputed by the Buyer. Therefore, the Chennai Project SPV has initiated arbitration proceeding against the Buyer in accordance with the Arbitration Rules of the Singapore International Arbitration Centre, in accordance with the JDA Agreement to protect its rights.

Key highlights since the period end:

Next payment to the holders of series A and series B bonds:

On February 18, 2019 the company paid principal of circa €250,000 and penalty interest on arrears of €150,000 following the bondholder's approval for the deferral of certain principal payments to July 1, 2019 instead of December 31, 2018.

Pre-agreement for the sale of land plot in Brasov, Romania:

On February 5, 2019 the Company has signed a Pre-Agreement for the sale of a plot in Brasov, Romania for a total gross amount of €620,000 which is slightly above the last reported book value. The consummation of the Transaction (which will take place not later than January 15, 2020) is subject to the fulfillment of certain conditions, including, inter alia: (i) the former financing bank of the Project did not exercise its right to purchase the Property until December 6, 2019; (ii) successful conclusion by the potential purchaser of its due diligence investigations; and (iii) the execution of definitive agreement.

As of the date hereof, there can be no certainty that a definitive agreement will be signed and/or that the Transaction will be consummated.

Environmental update on Bangalore project - India:

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 its proximity to water reservoirs and water drains ("Order"). The restrictions in respect of the "no construction zone" are applicable to all construction projects.

The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company's project which is adjacent to the Varthur Lake and have several storm-water crossing it.

An appeal was filed before the Supreme Court of India against the Order. On March 2019, the Supreme Court has set aside the Order thereby restoring the position as it existed before the Order was passed by NGT.

Non-binding agreement for the sale of the Company's indirect shareholdings in the Dambovita Center Project ("CASA RADIO"):

On February 11, 2019 the Company signed a non-binding Letter of Intent ("LOI") with AFI Europe N.V. (the "Purchaser", and together with the Company, the "Parties"), for the sale of its entire indirect shareholdings (75%) in the Casa Radio Project, for a maximum consideration of €60 million, subject to the fulfilment of certain conditions.

Following the execution of the LOI, the Purchaser shall have a period of 3 months to conduct due diligence investigations (with the aim of concluding the due diligence investigations before April 19, 2019), after which, if satisfactory, a pre-sale agreement will be executed within 30 days following the conclusion of the due diligence investigations (the "Pre-Sale Agreement").

In the framework of the Pre-Sale Agreement, the Purchaser will pay the Company a non-refundable down payment 15 months following the execution of the Pre-Sale Agreement, and subject to the satisfactory fulfilment of certain conditions precedent, the Parties will sign a sale agreement.

The consummation of the Transaction is subject to the fulfilment of certain conditions ("the closing conditions"), including, inter alia: (i) certain confirmations and approvals of competent public authorities regarding the PPP agreement in place and acceptance of the Purchaser; (ii) the successful conclusion by the Purchaser of its due diligence investigations; (iii) obtaining the approval of the Romanian authorities for the updated structure of the Project and timetable; (iv) confirmation that the 49-year lease period under the PPP agreement (signed between the Romanian Authorities and the Company) will commence from 2012 at the earliest, although, should the said lease period commence earlier, the parties shall amicably negotiate a price adjustment mechanism to the Purchaser's satisfaction and approval; and (v) the execution of definitive agreements.

During the period commencing on the date of the execution of the LOI and ending on the earlier of: (i) 18 month, or (ii) the Purchaser informs the Company of his withdrawal from the Transaction, the Company and its representatives have undertaken to refrain from negotiating with any other third party other than the Purchaser for the purpose of selling its shareholdings in the Project.

The payment schedule according to the LOI is expected to be set as follows:

The Company is not obligated to participate in the financing of the Project. In addition, the Purchaser acknowledged the liability to build the public authority building under the PPP agreement.

As of the date hereof, there can be no certainty that either the Pre-Sale Agreement, or the Sale Agreement will be executed and/or that the Transaction will be consummated as presented above or at all.

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

Commenting on the results, acting CEO Avi Hakhamov said:

"Our active focus has continued to centre on asset disposals in CEE (including signing pre-agreements for future sales), continuing efforts to realize projects in India and generating cash flows, material cost cutting, tight budget control and the optimisation of the business with the aim of satisfying our obligations to our stakeholders. This remains our absolute priority for the next year."

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.

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 2018 the management's focus has almost entirely been on cost reductions, delivering the €2.3 million of disposals of plots of land that we completed in the 12 months to 31 December, which produced €2 million in net proceeds, and repayment of material funds - circa €38.5 million (principal and interest) paid to the bondholders following signing settlement agreement on January 2018 by and among the Company and the two Israeli Series of Bonds.

In addition, following several years of efforts to promote the development of the Casa Radio project either by bringing a partner or through the sale of the Company's holdings, a number of serious proposals were received during the course of 2018 from serious and experienced real estate investors which were examined by management and the board. The management and the board of directors came to the conclusion that the proposed price and terms of LOI are optimal and reasonable considering the Company's current status and decided to sign a LOI with AFI Europe in 2019.

In India, the Company focus its efforts to bring cash flows from Bangalore project in accordance with the signed sale agreement, and signed a term sheet for the sale of its 50% stake in a 74.7-acre plot in Chennai, India. The closing date was extended several times and in 2019 the company (through its 50% subsidiary) terminated the the Joint Development Agreement and the Term Sheet and initiated arbitration proceeding,

As a result of this activity, our total portfolio now comprises six assets in three countries, including one plot in Poland, three plots in Romania 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 continuous deleveraging of the balance sheet.

Results

During the year, Plaza recorded a €38.4 million loss attributable to the shareholders of the Company. This is a 44% increase compared to the losses reported in 2017 (loss of €26.5 million).

Total result of operations excluding the finance income and finance cost was loss of €31.7 million in 2018 and €14.9 in 2017. Losses were generated in both years mainly from write down of trading properties. Additionally, currently the Company holds no operating assets.

The consolidated cash position as at 31 December 2018 was €1.4 million (31 December 2017: €44.8 million) and the current cash position is circa €1.28 million.

Liquidity & Financing

Plaza ended the period with a consolidated cash position of €1.4 million, compared to €44.8 million at the end of 2017.

As at December 31 2018 the Group's outstanding obligation to bondholders is €80.5 million after all bank loans were repaid or disposed. The outstanding balance of the debt to bondholders is circa €84.3 million as of today.

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 €38.5 million.

In February 18, 2019 the Company paid approximately €400,000 to its Series A and Series B. The bondholders approved the deferral of payment to July 1, 2019.

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, 2019 is aggregated in the following table:

(*) An amount of Circa EUR 0.4 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, 2019, by sale of plots of lands (excluding Chennai, India) and others, and on the assumption that a final agreement for sale Casa Radio Project will be concluded, 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 recent default of purchaser of Bangalore project to meet payments schedule according to the signed amendment agreement, and default of purchaser of Chennai Project to complete the sale transaction, which is detailed above, 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, 2018, 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 addition, the Minimum Cash Reserve Covenant is not maintained as of December 31, 2018. If its continued throughout a period comprising two consecutive quarterly reports following the year-end report on which such breach has been established, then such breach shall constitute an event of default under the trust deeds, and the Bondholders shall be entitled to declare that all or a part of their respective (remaining) claims become immediately due and payable.

Moreover, the Company's financial statements as of December 31, 2017 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, 2018 include the same. As a result, there is a risk that the bondholders could argue that there are significant doubts with respect to the Company's ability to repay its obligations, which will trigger the immediate repayment of the bonds.

In respect of credit rating downgrade followed by withdraw of credit rating by Standard & Poor at the Company's request refer to Note 8 (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.

On January 31, 2019 the bondholders of Series A and Series B approved a partial deferral of the scheduled Principal payment as of December 31, 2018 to July 1, 2019.

Strategy and Outlook

At this point in time, the Company remains focused on cost cutting, completing the disposal of the assets identified for sale (including signing definitive sale agreements), concentration of efforts with aim to sign a pre-sale agreement of Casa Radio, getting further payments for Bangalore project, progress and decision in the arbitration process of Chennai Project and 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 summarized in the table below:

FINANCIAL REVIEW

Results

Revenue for the period derived from the disposal of trading properties amounted to €2.3 million, compared to €193 million in 2017, the decrease being largely attributable to the sales of the last operating shopping and entertainment centres such as Suwalki Plaza and Torun Plaza in Poland in January and November 2017 respectively, and the disposal of Belgrade Plaza in Serbia in January 2017, whilst disposals of 2018 included the sale of three plots: the disposal of shares of SPV holding plot in Greece, land plot known as "Lodz Centrum Plaza" in Poland and the plot in Krusevac, Serbia, earn-out payment for the sale of Torun Plaza reduced by NAV adjustment and income for the stands and signage in Belgrade Plaza. Other income includes €0.22 due to settlement agreement with the buyer of Kragujevac Plaza mall regarding refund of claim from the city of Kragujevac.

The write down of trading properties increased from €11.5 million in 2017 to €29.5 million in 2018. The 2018 write down is mainly attributable to Lodz Plaza (€1.9 million) and Casa Radio (€24.2 million, net) projects.

Following signing of LOI for the sale of Casa Radio project, the Company measured the net realizable value of the project based on the signed LOI. For this purpose, a valuation was performed through an external appraiser whose opinion does not reflect the risk related to uncertainty in respect of fulfilment of the closing conditions, as described in Note 5(4)(f) and derived to a value of EUR 37.7 million. As a result, the Company's management assumed additional discount of 33.3% in order to reflect this uncertainty which resulted in value of the proposed deal of EUR 25 million.

Accordingly, since the value based on the Residual technique is higher than estimated value of the proposed deal, as of December 31, 2018, the Company recorded Casa Radio project at its net realizable value in the amount of EUR 25 million (trading property is presented at gross basis in the amount of EUR 39.1 million and provision for PAB liability in the amount of EUR 14.1 million).

During the year, administrative expenses decreased to €2.7 million (2017: €6.1 million) as a result of material cost cutting of professional services and manpower and further reductions are targeted for 2019.

Finance income increased considerably to €3.6 million in 2018, from €0.6 million in 2017. A gain of €3.4 million was recorded in 2018 due to foreign currency gain on bonds.

Finance costs slightly increased to €11.3 million in 2018, from €11.2 million in 2017. The main components were:

• FOREX (NIS-EUR) - foreign currency loss other €1.9 million (the effect on the debentures in 2017 - €1.1 million).

• Interest expenses booked on bank loans and debentures totaled €5.7 million (2017: €10.7 million).

• €3.7 million recorded as a cost, associated with the amortisation of the discount on debentures (2017: €0.7 million non-cash income).

• No financial costs were capitalized 2018 and 2017.

Tax benefit of circa €1 million was recorded as a result of reversed tax liability previously recorded following the disposal of SPV holding the plot in Athens, Greece on "as is" basis.

Balance sheet and cash flow

The balance sheet as at 31 December 2018 showed total assets of circa €62 million compared to total assets of €141 million at the end of 2017, largely as a result of the implementation of the debt reduction strategy through asset disposal, repayment of principal and interest in total amount of €38.5 million in January 2018 following the signed settlement agreement, and due to impairment of trading properties recognized in amount of EUR 29.5 million.

The consolidated cash position as at 31 December 2018 decreased to €1.4 million (31 December 2017: €44.8 million) mainly due to payment of principals and interests for bonds in total amount of circa €38.3 million in January 2018 from the cash which was at the closing balance as of December 31, 2017.

The value of the Company's trading properties decreased from €73.5 million as at 31 December 2017 to €42.6 million at the end of 31 December 2018, following the disposals of shares of SPV holding plot in Greece, land plot known as "Lodz Centrum Plaza" in Poland and the plot in Krusevac, Serbia, and the circa €24.2 million impairment against the Casa Radio project in Romania as explained in the results above.

Investments in equity accounted investee companies has decreased by €1.8 million to €17.7 million (31 December 2017: €19.5 million) mainly as a result of value increase of the Bangalore project in India in an amount of € 1.6 million and cash distribution of €2.5 million (31 December 2017: € 5.4 million).

Due to the sale of shares of SPV holding the plot in Greece and reverse of tax liability previously recorded in 2017 in an amount of €1 million, other current liabilities has decreased from €1.9 million to €0.5 million.

As at 31 December 2018, Plaza has a balance sheet liability of €76.7 million (with an adjusted par value of circa €80.5 million) from issuing bonds on the Tel Aviv Stock Exchange. 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 €14.1 million (2017: €12.8 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 1 (b) and 5 of these Consolidated Financial Statements in this press release. The board and management estimates that the Company is unable to serve its entire debt according to the current repayment schedule. Moreover, following the recent default of purchaser of Bangalore project to meet payments schedule according to the signed amendment and default of purchaser of Chennai Project to complete the sale, it is expected that the Company will not be able to meet its entire contractual obligations in the following 12 months.

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. During first three months 2017, the Company paid to its bondholders a total amount of NIS 191.7 million (EUR 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 million) 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").

On November 22, 2018 the Company announced based on its current forecasts, the Company expected to pay the accrued interest on Series A and Series B Bonds on December 31, 2018, in accordance with the repayment schedule determined in the Company's Restructuring Plan and Settlement Agreement with Series A and Series B Bondholders from 11 January 2018 (the "Settlement Agreement"). The Company noted that it will not meet its principal repayment due on December 31, 2018 as provided for in the Settlement Agreement. On February 18, 2019 the company paid principal of circa EUR 250,000 and Penalty interest on arrears of EUR 150,000 following the bondholder's approval to defer principal repayment to July 1, 2019.

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: Lodz Mall, Mirecurea Ciuc, Brasov and Bangalore (Company's share 50%), price adjustment from Belgrade Plaza during 2019 and 2020;

(2) Assuming EUR/NIS rate of 4.1. The last schedule payment for Bangalore plot sale is at August 2019. The company took a conservative approach regarding payment schedule and therefore payments spread up to and including 2020. Chennai Project excluded;

(3) Casa Radio project - assuming EUR 20 million to be received (2020).

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 2018.

(1) Forecast included proceeds from: Chennai (€3.44 m), Bangalore (€2.70 m), Riga (€0.30 m), Kochi Advance (€1.4 m), Greece (€3.1 m), Lodz Plaza (€1.2 m), Lodz Centrum (€0.31 m), Torun Plaza price adjustment (€0.15 m), Belgrade (€1.0 m).

Actual included proceeds from: Bangalore (€1.85 m), Riga (€0.20 m), Kochi Advance (€1.55 m), Greece (€0.66 m), Lodz Plaza (€0.07 m), Lodz Centrum (€0.30 m), Torun Plaza price adjustment (€0.21 m), Belgrade (€0.47 m), Krusevac (€0.29 m), settlement in Kragujevac (€0.23 m), Miercurea Ciuc (€0.09 m).

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

(3) Decrease as a result of non-cash costs of 2018 (€0.4 m) and material cost cutting of professional services and manpower.

Avi Hakhamov

Acting CEO

21 March 2019

PLAZA CENTERS N.V.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

IN 000 EUR

CONTENTS

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

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.

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.

NOTE 1:- GENERAL INFORMATION

a. 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 Pietersbergweg 283, 1105 BM, 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 was Elbit Ultrasound (Luxembourg) B.V. / S.à r.l. ("EUL"), which held 44.9% of the Company's shares, till December 19, 2018 when EUL informed that it has signed a trust agreement according to EUL will deposit its shares of the Company with a trustee no longer considers itself to be the controlling shareholder of Plaza. (December 31, 2017 - 44.9%). For the list of the Group entities, refer to Note 20.

b. 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, 2018 the Group's outstanding obligations to bondholders are EUR 80.5 million (refer also to Note 8).

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, 2019 is aggregated in the following tables.

NOTE 1:- GENERAL INFORMATION (Cont.)

(*) An amount of Circa EUR 0.4 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, 2019, by sale of plots of lands (excluding Chennai, India) and others, and on the assumption that a final agreement for sale Casa Radio Project will be concluded, not including cash balances as of the date of signing the financial statements.

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.

The board and management estimate that the Company is unable to serve its entire debt according to the current repayment schedule. Moreover, following the recent default of purchaser of Bangalore project to meet payments schedule according to the signed amendment agreement (refer to Note 6(b)(1)), and default of purchaser of Chennai Project to complete the sale transaction (refer to Note 6(b)(2)), it is expected that the Company will not be able to meet its entire contractual obligations in the following 12 months.

As of December 31, 2018, 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 addition, the Minimum Cash Reserve Covenant as defined in Note 17(b)(1)(d) is not maintained as of December 31, 2018. If its continued throughout a period comprising two consecutive quarterly reports following the year-end report on which such breach has been established, then such breach shall constitute an event of default under the trust deeds, and the Bondholders shall be entitled to declare that all or a part of their respective (remaining) claims become immediately due and payable.

Moreover, the Company's financial statements as of December 31, 2017 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, 2018 include the same. As a result, there is a risk that the bondholders could argue that there are significant doubts with respect to the Company's ability to repay its obligations, which will trigger the immediate repayment of the bonds.

In addition, based on trust deeds, in the case of material deterioration in the Company's business and the existence of significant doubts regarding the Company's ability to repay the bonds on time, the bondholders may require an immediate repayment of bonds due to the Company's breach of a covenant in the trust deeds.

In respect of credit rating downgrade followed by withdraw of credit rating by Standard & Poor at the Company's request refer to Note 8(e) to these consolidated financial statements.

NOTE 1:- GENERAL INFORMATION (Cont.)

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.

On January 31, 2019 the bondholders of Series A and Series B approved a partial deferral of the scheduled Principal payment as of December 31, 2018 to July 1, 2019 (see Note 8).

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:- SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation of these financial statements:

The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.

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

The consolidated financial statements have been prepared on the historical cost basis.

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, 2018 in accordance with the Netherlands Civil Code.

The consolidated financial statements were authorized for issue by the Board of Directors on March 20, 2019.

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.

c. 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.

d. Functional and presentation 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 potential buyers and suppliers, determine its financing activities and budgets and assesses its currency exposures.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

e. 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.

f. 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 5 - 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 5 - key assumptions used in determining the net realisable value of trading properties;

· Note 5,16 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.

g. Basis of consolidation:

1. Subsidiaries:

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group in the consolidated financial statements.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

2. Interests in equity-accounted investees:

The Group's interests in equity-accounted investees comprise interests in associates and joint ventures.

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and the joint venture are accounted for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence or joint control ceases.

When the equity attributable to the owners of an associate changes as a result of the associate selling or buying shares of its subsidiaries (that are consolidated in its financial statements) to third parties while retaining control in those subsidiaries, the balance of the investment in the associate that is presented on the Company's books on the equity basis changes. The Company has chosen the accounting policy of recognizing the change in the balance of the investment in these cases directly in Profit or loss. 

3. Loss of control:

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity.

Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

4. Transactions eliminated on consolidation:

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

h. Foreign currency:

1. Foreign currency transactions:

Transactions in foreign currencies are translated to the respective functional currencies of Group companies at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined.

Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

2. Foreign operations:

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into euro at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into euro at the exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interest.

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interest.

When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency differences arising from such item form part of the net investment in the foreign operation. Accordingly, such differences are recognised in other comprehensive income and accumulated in the translation reserve.

3. Index-linked monetary items:

Monetary assets and liabilities linked to the changes in the Israeli Consumer Price Index ("Israeli CPI") are adjusted at the relevant index at each reporting date according to the terms of the agreement.

i. Cash equivalents:

Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of investment or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Group's cash management.

j. Financial instruments:

As described in Note 2a(u)(2) regarding the initial adoption of IFRS 9, "Financial Instruments" ("the Standard"), the Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data.

The accounting policy for financial instruments applied until December 31, 2017, is as follows:

1. Financial assets:

Financial assets within the scope of IAS 39 are initially recognized at fair value plus directly attributable transaction costs, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

After initial recognition, the accounting treatment of financial assets is based on their classification as follows:

a) Loans and receivables:

Loans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effective interest method and less any impairment losses. Short-term borrowings are measured based on their terms, normally at face value.

2. Financial liabilities:

Financial liabilities are initially recognized at fair value. Loans and other liabilities measured at amortized cost are presented less direct transaction costs.

After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:

a) Financial liabilities at amortized cost:

After initial recognition, loans and other liabilities are measured based on their terms at amortized cost less directly attributable transaction costs using the effective interest method.

3. Offsetting financial instruments:

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.

4. Derecognition of financial instruments:

a) Financial assets:

A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Company has transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

b) Financial liabilities:

A financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the debtor (the Group) discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

5. Impairment of financial assets:

The Group assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial asset or group of financial assets as follows:

Financial assets carried at amortized cost:

Objective evidence of impairment exists when one or more events that have occurred after initial recognition of the asset have a negative impact on the estimated future cash flows. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate. If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.

The accounting policy for financial instruments applied commencing from January 1, 2018, is as follows:

1. Financial assets:

Financial assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except for

financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.

Debt instruments are measured at amortized cost when:

The Company's business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate method, less any provision for impairment.

2. Impairment of financial assets:

The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or loss.

3. Derecognition of financial assets:

A financial asset is derecognized only when:

- The contractual rights to the cash flows from the financial asset has expired; or

- The Company has transferred substantially all the risks and rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially all the risks and rewards of

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

the asset, but has transferred control of the asset; or

- The Company has retained its contractual rights to receive cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to a third party.

4. Financial liabilities:

a) Financial liabilities measured at amortized cost:

Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.

After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method.

5. Derecognition of financial liabilities:

A financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is discharged or cancelled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability.

6. Offsetting financial instruments:

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.

k. Fair value measurement

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 categorized 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)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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

· Note 16 - Financial instruments

l. Share capital:

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12. Costs attributable to listing existing shares are expensed as incurred.

m. Trading properties:

Trading properties are being designated for sale in the ordinary course of business and as such are classified as trading properties (inventory) and measured at the lower of cost and net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs to complete construction and selling expenses. If net realisable value is less than the cost, the trading property is written down to net realisable value.

In each subsequent period, a new assessment is made of net realisable value. When the circumstances that previously caused trading properties to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed so that the new carrying amount is the lower of the cost and the revised net realisable value. 

The amount of any write-down of trading properties to net realisable value and all losses of trading properties are recognised as a write-down of trading properties expense in the period the write-down or loss occurs. The amount of any reversal of such write-down arising from an increase in net realisable value is recognised as a reduction in the expense in the period in which the reversal occurs.

Costs comprise all costs of purchase, direct materials, direct labour costs, subcontracting costs and other direct overhead costs incurred in bringing the properties to their present condition.

Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalized as part of the costs of the asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are recognized as an expense in the period in which they incurred.

n. Impairment of non-financial assets:

The Company evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

An impairment loss of an asset is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.

The following criteria are applied in assessing impairment of these specific assets:

Investment in associate or joint venture:

After application of the equity method, the Company determines whether it is 3necessary to recognize any additional impairment loss with respect to the investment in associates or joint ventures. The Company determines at each reporting date whether there is objective evidence that the carrying amount of the investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire investment, including the goodwill attributed to the associate or the joint venture.

o. Provisions:

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

Warranties

A provision for warranties is recognised when the underlying products or services are sold, based on historical warranty data and a weighting of possible outcomes against their associated probabilities.

Legal claims:

A provision for claims is recognized when the Group has a present legal or constructive obligation as a result of a past event, it is more likely than not that an outflow of resources embodying economic benefits will be required by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation.

p. Revenue recognition:

As described in Note 2(u)(1) regarding the initial adoption of IFRS 15, "Revenue from Contracts with Customers" ("the Standard"), the Company elected to adopt the provisions of the Standard using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data.

The accounting policy for revenue recognition applied until December 31, 2017, is as follows:

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenues from selling of trading property

Revenue from selling of trading property is measured at the fair value of the consideration received or receivable. Revenues are recognized when all the following conditions are met:

a. the Group has transferred to the buyer the significant risks and rewards of ownership;

b. the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the property sold; 

c. the amount of revenue can be measured reliably;

d. it is probable that the economic benefits associated with the transaction will flow to the Group (including the fact that the buyer's initial and continuing investment is adequate to demonstrate commitment to pay);

e the costs incurred or to be incurred in respect of the transaction can be measured reliably; and

f. there are no remaining significant performance obligations.

Determining whether these criteria have been met for each sale transaction, requires certain degree of judgment by the Group management. The judgment is made in determination whether, at the end of the reporting period, the Group has transferred to the buyer the significant risks and rewards associated with the real estate assets sold.

Such determination is based on an analysis of the terms included in the sale agreement executed with the buyer as well as an analysis of other commercial understandings with the buyer in respect of the real estate sold. In certain cases, the sale agreement with the buyer is signed during the construction period and the consummation of the transaction is subject to certain conditions precedents which have to be fulfilled prior to delivery.

Revenues are, therefore, recognized when all the significant condition precedent included in the agreement have been fulfilled by the Group and/or waived by the buyer prior to the end of the reporting period.

Generally, the Group is provided with a bank guarantee from the buyer for the total estimated proceeds in order to secure the payment by the buyer at delivery. Therefore, the Group is not exposed to any significant risks in respect of payment of the proceeds by the buyer.

The accounting policy for revenue recognition applied commencing from January 1, 2018, is as follows:

Revenue recognition:

Revenue from contracts with customers is recognized when the control over the goods or services is transferred to the customer. Revenues from trading properties are taken into account at the moment the trading property is sold. The company considers the moment of sale being the latest of a) receiving the payment for the trading property; or b) the transfer of the deed at the public notary. The transaction price is the amount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third parties (such as taxes).

In determining the amount of revenue from contracts with customers, the Company evaluates whether it is a principal or an agent in the arrangement. The Company is a principal when the Company controls the promised goods or services before transferring them to the customer. 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In these circumstances, the Company recognizes revenue for the gross amount of the consideration. When the Company is an agent, it recognizes revenue for the net amount of the consideration, after deducting the amount due to the principal.

Revenue from the sale of goods:

Revenue from sale of goods is recognized in profit or loss at the point in time when the control of the goods is transferred to the customer, generally upon delivery of the goods to the customer.

Variable consideration:

The Company determines the transaction price separately for each contract with a customer. When exercising this judgment, the Company evaluates the effect of each variable amount in the contract, taking into consideration discounts, penalties, variations, claims, and non-cash consideration. In determining the effect of the variable consideration, the Company normally uses the "most likely amount" method described in the Standard. Pursuant to this method, the amount of the consideration is determined as the single most likely amount in the range of possible consideration amounts in the contract.

According to the Standard, variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

q. Operating lease payments:

The criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the following principles as set out in IAS 17.

Payments made under operating leases (in respect of plots of land under usufruct) are recognized in profit or loss on a straight-line basis over the term of the lease but are capitalized in relation to land used for the development of trading properties during the construction period (similar to borrowing costs).

r. Finance income and cost:

Interest income and expense which are not capitalized are recognized in the income statement as they accrue, using the effective interest method.

s. Income tax:

Income tax expense comprises current and deferred tax. It is recognised in profit or loss.

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible Temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Such reduction is reversed when the probability of future taxable profits improved.

Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences.

When they reverse, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset only if certain criteria are met.

t. Employee benefits:

1. Bonuses:

The Group recognizes a liability and an expense for bonuses, which are based on agreements with employees or according to management decisions based on Group performance goals and on individual employee performance. The Group recognizes a liability where contractually obliged or where past practice has created a constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

2. Share-based payment transactions:

The fair value of options granted to employees to acquire shares of the Company is recognized as an employee expense or capitalized if directly associated with development of trading property, with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the actual

number of share options that vest.

Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification, which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employees as measured at the date of modification. The fair value of the amount payable to employees in respect of share-based payments, which may be settled in cash, at the option of the holder, is recognized as an expense, with a corresponding increase in liability, over the period in which the employees become unconditionally entitled to payment. The fair value is re-measured at each reporting date and at settlement date.

Any changes in the fair value of the liability are recognized as an additional cost in salaries and related expenses in the income statement.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

u. Changes in accounting policies - initial adoption of new financial reporting and accounting standards and amendments to existing financial reporting and accounting standards:

1. Initial adoption of IFRS 15, "Revenue from Contracts with Customers":

The IASB issued IFRS 15, "Revenue from Contracts with Customers" ("the new Standard") in May 2014. The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter Transactions Involving Advertising Services".

The new Standard introduces a five-step model that applies to revenue earned from contracts with customers.

The new Standard has been applied for the first time in these financial statements. The Company elected to adopt the provisions of the new Standard using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data. The Company recognizes any difference between the previous carrying amount and the carrying amount on the date of initial application of the new Standard as an adjustment to the opening balance of retained earnings (or another component of equity, as applicable).

The effect of the initial application of the new Standard on the Company's financial statements is not significant.

2. Initial adoption of IFRS 9, "Financial Instruments":

In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("the new Standard"), which replaces IAS 39, "Financial Instruments: Recognition and Measurement". The new Standard mainly focuses on the classification and measurement of financial assets and it applies to all assets within the scope of IAS 39.

The new Standard has been applied for the first time in these financial statements retrospectively without restatement of comparative data.

The effect of the initial adoption of the new Standard on the Company's financial statements is as follows:

During 2017, a non-substantial modification to the terms of previously issued debentures was made by the Company due to modification of the trust deeds terms. Accordingly, the Company accounted for the modification in accordance with the principles of IAS 39.AG7 by adjusting the effective interest rate such that the revised cash flows, discounted at the new interest rate, was equal to the carrying amount of the debentures before the modification in terms. Under the provisions of the new Standard, the change should be accounted for pursuant to the principles of IAS 39.AG8 whereby the revised cash flows after the modification in terms are discounted using the original effective interest rate of the debentures to arrive at a new carrying amount, with any difference from the existing carrying amount on the date of modification being recorded in profit or loss.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The effects of the above changes on the Company's financial statements are as follows:

In the consolidated statements of financial position:

v. Disclosure of new standards in the period prior to their adoption:

1. IFRS 16, "Leases":

In January 2016, the IASB issued IFRS 16, "Leases" ("the new Standard"). According to the new Standard, a lease is a contract, or part of a contract, that conveys the right to use

an asset for a period of time in exchange for consideration.

The effects of the adoption of the new Standard are as follows:

· According to the new Standard, lessees are required to recognize all leases in the statement of financial position (excluding certain exceptions, see below). Lessees will recognize a liability for lease payments with a corresponding right-of-use asset, similar to the accounting treatment for finance leases under the existing standard, IAS 17, "Leases". Lessees will also recognize interest expense and depreciation expense separately.

· The accounting treatment by lessors remains substantially unchanged from the existing standard, namely classification of a lease as a finance lease or an operating lease.

The new Standard is effective for annual periods beginning on or after January 1, 2019.

The Company believes, based on an assessment of the impact of the adoption of the new Standard, that its application is not expected to have a material effect on the financial statements.

2. IFRIC 23, "Uncertainty over Income Tax Treatments":

In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the Interpretation"). The Interpretation clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, "Income Taxes", in situations of uncertainty involving income taxes. The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement of the effects of uncertainty involving

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

income taxes on the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty.

The Interpretation is to be applied in financial statements for annual periods beginning on January 1, 2019. Early adoption is permitted. Upon initial adoption, the Company will apply the Interpretation using one of two approaches:

1. Full retrospective adoption, without restating comparative data, by recording the cumulative effect as of the date of initial adoption in the opening balance of retained earnings.

2. Full retrospective adoption including restatement of comparative data.

The Company does not expect the Interpretation to have any material effect on the financial statements.

3. IAS 28, "Investments in Associates and Joint Ventures":

In October 2017, the IASB published an amendment to IAS 28, "Investments in Associates and Joint Ventures" ("the Amendment"). The Amendment clarifies that long-term interests in associates and joint ventures (such as loans receivable or investments in preferred shares) which form part of the net investment in an associate or joint venture are initially accounted for according to the provisions of IFRS 9 (both regarding measurement and impairment) and subsequently those interests are subject to the provisions of IAS 28.

The Amendment is to be applied retrospectively for annual periods beginning on January 1, 2019. Early adoption is permitted.

The Company is currently evaluating potential effect of the Amendment on its financial statements.

NOTE 3: - CASH AND CASH EQUIVALENTS

*) The balances are not bearing interest.

The Group's sensitivity analysis for financial assets and liabilities are disclosed in Note 16.

NOTE 4:- OTHER RECEIVABLES

Other receivables:

*) refer to Note 18.

NOTE 5: - TRADING PROPERTIES

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

NOTE 5: - TRADING PROPERTIES (Cont.)

(2) Breakdown of write-downs of trading properties is presented in the table below:

(*) See also (5)(4)(e) below.

The 2018 write-downs were caused mainly due to the following factors:

· EUR 0.1 million of write-down in Lodz Centrum (Residential Plot), Poland, which is based on the preliminary agreement signed during July 2018.

· EUR 1.9 million of write-down regarding plot in Lodz Plaza ("Lodz mall"), Poland based on indications received from the local brokers regarding investors' interest, including the expected price level, direct talks with investors and non-binding proposals received.

· EUR 0.3 million of write-down in Krusevac, Serbia during first half of 2018 based on management internal estimation, which reflects the fact that no proposals have been received for a long period including brokers for the expected price, and the legal status of the Plot.

· EUR 0.55 million of write-down in Brasov plot of land, Romania, which reflects signed sale agreement (see Note 19(a)).

· EUR 25.4 million of write-down (including change in provision in respect to PAB) in Casa Radio project, Romania (see 4 in this Note).

For detailed information with respect to valuation techniques and main assumptions, refer also to (5) in this Note.

NOTE 5: - TRADING PROPERTIES (Cont.)

(3) Sale of assets in the reporting period:

a. Lodz Centrum Plaza:

In July 2018, a subsidiary of the Company has signed a preliminary agreement with respect to the sale of the land plot known as " Centrum Plaza", in consideration for PLN 1.3 million (circa EUR 0.3 million). The agreement was conditional upon the pre-emptive right of the municipality of Lodz. The plot was sold in September 2018.

b. 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 €1.15 million. As part of the agreement, the purchaser paid an immediate installment of EUR 0.035 million followed by an installment of EUR 0.073 million paid on 2018 after obtaining environmental permit for investing in the access road to the plot.

During February 2019 the Company has signed conditional sale agreement for which the remaining balance less 50% of the sum invested in the road (up to maximum amount of circa EUR 0.19 million) will be paid once the final agreement is signed after the municipality confirms that it will not exercise preemptive rights. The rest of consideration (circa EUR 0.84 million) will be paid in two installments: EUR 0.75 million at the date of the signing of the final sale agreement and the remaining amount of EUR 0.09 million till the end of April 2019.

c. Earn-out payment for the sale of Torun:

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 received in 2018. 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).

In June 2018 the Company received the earn-out payment for the sale of Torun Plaza in amount of EUR 0.35 million, reduced by NAV adjustment of EUR 0.14 million included in Revenue from disposal of trading properties.

d. Disposal of land plot in Greece:

Following certain 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 was 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.

NOTE 5: - TRADING PROPERTIES (Cont.)

In May 2018, a third party has filed a legal claim in the court of Greece against Helios Plaza AE ("HP"), a fully owned subsidiary of Plaza which holds land property in Athens ("Land Property"). The claimant is claiming from HP an amount of EUR 2.96 million based on a certain allegedly agreement that was claimed to be agreed in 2010, and has also filed a request for an injunction with respect to the Land Property in order to secure its claim. In June 2018, the injunction was granted until final decision regarding the main dispute.

On December 24, 2018 the Company signed a definitive agreement for the sale of its (indirectly) 100% stake in a Greek subsidiary (on an "as is" basis) for a total gross amount of EUR 1.05 million (out of which EUR 0.3 million has already been received as advance payments during 2017). The total net proceeds to the Company, following the deduction of working capital adjustments in accordance with the balance sheet of the SPV and transaction costs, were circa EUR 0.66 million.

As a result of the transaction, an amount EUR 1.05 million is recorded in Revenue from disposal of trading properties and amount of circa EUR 2.28 million is recorded in Cost of trading properties sold. In addition, as a result of sale on "as is" basis, the Company reversed tax liability previously recorded in the financial statements resulted in tax benefit of EUR 1.015 million (refer also to Note 9).

e. Update on disposal of land plot in Miercurea Ciuc, Romania:

Further to the Company's announcement dated October 17, 2018 regarding signing the pre-agreement for the sale of land plot in Mercuria Ciuc, Romania, the Company grant an option for the purchase of the Plot till mid-April 2019 for a total consideration of EUR 0.11 million. The Company has received EUR 95,000 in 2018, and received an additional EUR 15,000 in 2019 (non-refundable payments). In March 2019, following negotiations with the purchaser, the parties agreed that (i) the signing date of a definitive agreement will be postponed by 3 months to mid-July 2019, (ii) the receipt of non-refundable advance payments of EUR 250,000 in two tranches by the end of April 2019, and; (ii) the sale price will be increased by EUR 30,000. To the extent that the Company will enter into a definitive agreement and consummates the transaction, the Company expects to receive EUR 1.47 million (including non-refundable advanced payments).

f. Belgrade Plaza

On January 26, 2017, the Company signed a binding share purchase agreement with BIG Shopping Centers Ltd ("BIG"), for the sale of the SPV holding Belgrade Plaza shopping and entertainment center. 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 estimated in the range of EUR 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 did not record a gain from expected future purchase price adjustments at the sale date.

During June 2018 (the first adjustment date) the First purchase price adjustment was examined and accordingly no additional proceed was made.

During December 2018, BIG paid to the Company EUR 466,000 for the stands and signage recorded as Revenue from disposal of trading property. In addition, BIG further informed the Company that they intend to hold an additional EUR 1 million until an orderly engineering examination of the mall's technical conditions is completed as part of the final Price adjustment to be performed in May 2020. The Company is currently evaluating its options regarding BIG's intention to hold the EUR 1 million which was not recorded in the consolidated financial statements due to uncertainty related to receipt of such amount.

NOTE 5: - TRADING PROPERTIES (Cont.)

g. Disposal of land plot in Krusevac, Serbia

On December 3, 2018 the Company announced that it completed the sale of its (indirectly) 100% stake in a 5-acre plot in Krusevac, Serbia, for a total consideration of approximately EUR 290 thousands which is slightly below book value.

(4) Casa Radio:

(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.

(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 building permit. The building permits have not been obtained.

NOTE 5: - TRADING PROPERTIES (Cont.)

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 (EUR 25 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.

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. As a result of its ongoing efforts, a non-binding LOI for the sale of its holdings was signed after the balance sheet date. (refer to section (f)).

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

NOTE 5:- TRADING PROPERTIES (Cont.)

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 Romanian 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.

(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 14.1 million in respect of the construction of the PAB (December 31, 2017: EUR 12.8 million).

During 2018, the Company recorded loss in total amount of EUR 1.2 million from change in PAB provision as part of write down of trading properties (in 2017 income - EUR 0.4 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.

(f) On February 11, 2019 the Company signed a non-binding Letter of Intent ("LOI") with AFI Europe N.V. (the "Purchaser", and together with the Company, the "Parties"), for the sale of its entire indirect shareholdings (75%) in the Casa Radio Project, for a maximum consideration of EUR 60 million, subject to the fulfilment of certain conditions.

NOTE 5:- TRADING PROPERTIES (Cont.)

Following the execution of the LOI, the Purchaser shall have a period of 3 months to

conduct due diligence investigations (with the aim of concluding the due diligence investigations before April 19, 2019), after which, if satisfactory, a pre-sale agreement will be executed within 30 days following the conclusion of the due diligence investigations. (the "Pre-Sale Agreement").

In the framework of the Pre-Sale Agreement, the Purchaser will pay the Company a non-refundable down payment. 15 months following the execution of the Pre-Sale Agreement, and subject to the satisfactory fulfillment of certain conditions precedent, the Parties will sign a sale agreement.

The consummation of the Transaction is subject to the fulfillment of certain conditions ("the closing conditions"), including, inter alia: (i) certain confirmations and approvals of competent public authorities regarding the PPP agreement in place and acceptance of the Purchaser; (ii) the successful conclusion by the Purchaser of its due diligence investigations; (iii) obtaining the approval of the Romanian authorities for the updated structure of the Project and timetable; (iv) confirmation that the 49-year lease period under the PPP agreement (signed between the Romanian Authorities and the Company) will commence from 2012 at the earliest, although, should the said lease period commence earlier, the parties shall amicably negotiate a price adjustment mechanism to the Purchaser's satisfaction and approval; and (v) the execution of definitive agreements.

During the period commencing on the date of the execution of the LOI and ending on the earlier of: (i) 18 month, or (ii) the Purchaser informs the Company of his withdrawal from the Transaction, the Company and its representatives have undertaken to refrain from negotiating with any other third party other than the Purchaser for the purpose of selling its shareholdings in the Project.

The payment schedule according to the LOI is expected to be set as follows:

The Company is not obligated to participate in the financing of the Project. In addition, the Purchaser acknowledged the liability to build the public authority building under the PPP agreement.

As of the date hereof, there can be no certainty that either the Pre-Sale Agreement, or the Sale Agreement will be executed and/or that the Transaction will be consummated as presented above or at all.

NOTE 5:- TRADING PROPERTIES (Cont.)

 (5) 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, 2018, amounted to EUR 184.7 million or 79.5% percent of outstanding trading properties original cost (December 31, 2017 - EUR 171.8 million or 70% 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, 2018, 91.8% of the value of trading properties was based on valuations done by the independent third-party valuation service (2017 - 91.3%). 

In 2017 the trading property Casa Radio was valued using the Residual technique which set a value of EUR 50 million. Prior to the signing of the LOI, the Company had obtained an updated appraisal as of December 31, 2018 based on the same technique which reflected a value of EUR 43 million.

Following several years of efforts to promote the development of the project either by bringing a partner or through the sale of the Company's holdings, a number of serious proposals were received during the course of 2018 from serious and experienced real estate investors which were examined by management and the board. The management and the board of directors came to the conclusion that the proposed price and terms of LOI are optimal and reasonable considering the Company's current status and decided to sign a LOI with AFI Europe.

Following signing of LOI as described in Note 5(4)(f), the Company measured the net realizable value of the project based on the signed LOI .For this purpose, a valuation was performed through an external appraiser whose opinion does not reflect the risk related to uncertainty in respect of fulfilment of the closing conditions, as described in Note 5(4)(f) and derived to a value of EUR 37.7 million. As a result, the Company's management assumed additional discount of 33.3% in order to reflect this uncertainty which resulted in value of the proposed deal of EUR 25 million.

Accordingly, since the value based on the Residual technique is higher than estimated value of the proposed deal, as of December 31, 2018, the Company recorded Casa Radio project at its net realizable value in the amount of EUR 25 million (trading property is presented at gross basis in the amount of EUR 39.1 million and provision for PAB liability in the amount of EUR 14.1 million).

NOTE 5:- TRADING PROPERTIES (Cont.)

Following parameters have been considered to arrive at the net realizable value of the property:

 The following table provides sensitivity analysis on net realizable value of the property, based on additional discount implemented by the management:

 Trading property in India owned by joint controlled entity were valued using comparable method (refer to Note 6).

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.

NOTE 5:- TRADING PROPERTIES (Cont.)

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 5:- TRADING PROPERTIES (Cont.)

(6) Below is a summary table for main projects status: