TIDMPLAZ
RNS Number : 2972I
Plaza Centers N.V.
31 March 2020
31 March 2020
PLAZA CENTERS N.V.
RESULTS FOR THE YEARED 31 DECEMBER 2019
Plaza Centers N.V. ("Plaza" / "Company" / "Group") today
announces its results for the year ended 31 December 2019.
Financial highlights:
-- Reduction in total assets by EUR 6 million to EUR56 million
mainly due to decrease in Trading properties as detailed below and
decrease in the Equity - accounted investees mainly from decrease
in trading properties in the Indian companies.
-- Book value of the Company's Trading properties decreased by
EUR 2.2 million to EUR40.4 million over the period, due to
disposals (land plots in Poland and Romania) in line with the
disposal program and reverse of an impairment of EUR1.2 million of
Trading Properties in Romania.
-- Consolidated cash position as at December 31, 2019 decreased
to EUR1.13 million (31 December 2018: EUR1.4 million) and current
cash position is circa EUR2.5 million.
-- Revenue from disposal of trading properties totaled EUR3.7
million (2018: EUR2.3 million), which is in line with the Company's
disposal program.
-- EUR4.4 million loss recorded at an operating level (December
31, 2018: EUR31.7 million) including partial reverse of write-downs
of EUR1.2 million (recorded gain), which increase the trading
properties value, write down of EUR1.7 million, relating the change
of provision in respect of PAB and significant decrease in
administrative expenses.
-- General & Administrative Expenses reduced to EUR1.6
million in 2019 mainly due to cost cutting of professional services
and manpower (2018: EUR2.7 million).
-- Recorded loss of EUR21. 2 million (December 31, 2019: EUR38.4
million), mainly due to finance expenses on bonds.
-- Basic and diluted loss per share of EUR3.09 (December 31, 2018: loss per share of EUR5.60).
Coronavirus pandemic:
During the first quarter of 2020 the Coronavirus pandemic that
first surfaced in China is spreading all around the world. Many
countries are taking significant steps in trying to prevent the
spread of the virus, such as restrictions on civilian movements,
gatherings, border closures and the like. The Company monitors the
consequences of the event and the actions taken on countries in
which it operates and assesses the risks and exposures arising from
these consequences. At this stage, the Company is unable to
estimate full impact of the effect of the Coronavirus on our
business. Still this can have a negative potential impact on the
values on the net realizable value of our assets compare to the
values in the annual financial reports as of December 31, 2019. In
addition, this crisis can have a material impact on the ability of
the Company to complete the sale of the plots it owned.
Material events during the period:
Update on disposal of land plot in Lodz, Poland
1. 22% of this holding:
On March 26, 2019 the Company has signed definitive sale
agreement with a Local Developer, under terms of which the
purchaser paid the rest of consideration (circa EUR 0.85 million)
in two installments: EUR 0.76 million was paid at the date of the
signing of the definitive sale agreement and the remaining amount
of EUR 0.09 million was paid on April 29, 2019 ( the amount above
don't include an advance payments of EUR 0.11 million which were
already received as a refundable advance payment).
2. 78% of this holding:
In May 2019, the Company has signed a preliminary agreement for
the sale of its remaining holdings in the plot (circa 47,860 sqm)
to a local developer for a total gross consideration of
approximately EUR 1.10 million.
On October 10, 2019 the Company has signed definitive sale
agreement. The Company has received 50% upon signing of the
definitive sale agreement and the remaining 50% was paid before
December 10, 2019.
Update on disposal of land plot in Miercurea Ciuc, Romania:
On July 10, 2019 the directly owned subsidiary completed the
sale of land plot in Miercurea Ciuc, Romania and signed a
definitive agreement for a total amount of EUR 1.58 million,
following which it received the last installment of EUR 1.22
million (the amount of EUR 0.36 million was already received as
non-refundable advance payment).
Update on the sale of the shopping center in 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. In respect of the last purchase price
adjustment, which will be examined during 2020, the Company assess
it will not receive any additional proceed on account of the
above.
During June 2018 (the first adjustment date) and July 2019 (the
second adjustment date) price adjustments were examined and
accordingly no additional proceeds were made in both periods.
During December 2018 and July 2019, BIG paid EUR466,000 and
EUR110,000 respectively for the stands and signage at Belgrade
Plaza. In addition to the above, during 2020 the Company is
expected to receive the last instalment for the stands and
signage.
BIG further informed the company that they intend to hold an
additional EUR1 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. During November the
Company received Technical Review prepared by a Consultancy firm
which detailed the proposed investments to be performed by BIG. The
Company believes that it has a good counter claims against BIG's
claims and is currently evaluating its options regarding BIG's
intention to hold the EUR1 million. The Company did not record a
revenue in the annual consolidated financial statements due to
uncertainty related to receipt of such amount.
Update on the sale of the Company's indirect shareholdings in
the Dambovita Center Project ("CASA RADIO") (for more details refer
to note 5(3) in the annual consolidated financial statements):
On February 11, 2019 the Company signed a non-binding Letter of
Intent ("LOI") with AFI Europe N.V. ( "AFI Europe", 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 precedent.
On July 3, 2019 the Company's wholly owned subsidiary Dambovita
Center Holding B.V ("Dambovita NL") as seller, the Company as
guarantor and AFI Europe as buyer entered into a pre-sale agreement
for the sale of the shareholding in Dambovita Center S.R.L
("Dambovita RO") (the "Pre-Sale Agreement"). Pursuant to the terms
of the Pre-Sale Agreement, AFI Europe shall carry out a due
diligence review which shall be completed no later than 5 September
2019 following which, subject to the satisfaction of the other
conditions precedent in the Pre-Sale Agreement, the parties to the
Pre-Sale Agreement will execute a share purchase agreement in the
short form being Annex 3 to the Pre-Sale Agreement (the "SPA") and
an intragroup loan assignment/novation agreement.
In the framework of the Pre-Sale Agreement, AFI Europe will pay
the Company a 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.
On July 30, 2019 at the bondholders' meeting of Bonds series A
and Bonds Series B it was decided to authorize the company to enter
into an agreement and execute the transaction contained therein,
despite the Company's failure to comply with the minimum coverage
ratio (as defined in the Trust Deed) and notwithstanding the
provision of section 4.6 of the Trust Deed.
In addition, an extraordinary general meeting of Shareholders of
the Company held on 29 August 2019 approved the transaction as
detailed in the Notice of EGM.
On September 5, 2019 in accordance with the pre-sale agreement,
AFI Europe has paid the down payment of EUR 200,000. The above
mentioned down payment shall be repaid upon certain conditions (for
details on the condition in which the company will have to repay
the down payment refer to note 5(3)(f) in the annual consolidated
financial statements).
The Purchase Price is defined in the Pre-Sale Agreement as EUR
60 million minus 75% of Dambovita RO's liabilities computed based
on the closing accounts (being the annual financial statements of
Dambovita RO for the period from 1 January of the year in which the
closing of the Transaction will occur) and excluding the Intragroup
Loan, plus 75% of Dambovita RO's available cash and other current
assets as shown in the closing accounts (as referred to above) and
minus (insofar applicable) an amount agreed upon by the parties to
the Pre-Sale Agreement to be reduced from the Purchase Price if the
49-year PPP-rights period will be calculated from any date prior to
the year 2012.
Upon execution of the SPA, AFI Europe is bound to make a payment
of EUR 20 million to Dambovita NL. A further EUR 22 million is to
be paid later upon the issuance by the competent authorities of a
building permit for the first stage of the Dambovita Project (the
development of the shopping mall or the office building, excluding
the public authority building as referred to above). The balance
between the Purchase Price and the payments already made, will be
paid out to Dambovita NL upon all permits required for the
operation of any of the components (office building or shopping
mall) of the first stage of the Dambovita Project including a fire
permit and the operation permit having been obtained.
As described above, the Parties have 15 months from September 5,
2019 to execute the SPA, subject to the satisfaction of conditions
precedent.
Since September 2019 the parties are trying to cooperate with
the relevant authorities in Romania in order to amend the PPP
agreement as agreed in the pre-sale agreement.
As of the date hereof, there can be no certainty that either the
condition's precedent in the Pre-Sale Agreement as detailed above
will be met and/or that the Sale Agreement will be executed and/or
that the Transaction will be consummated as presented above or at
all.
Update on 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. On September
23, 2019, the Romanian Prosecutor (the "Prosecutor") decided to
close the investigation considering that there is no evidence to
indicate that any bribery offense was committed in relation to the
Project. The Prosecutor decided that no money laundry exists and
that the evidence regarding a potential traffic of influence leads
to the conclusion that this may be considered a matter for civil
litigation and not a criminal offense.
Sale agreement of plot in Bangalore, India:
In March, 2008 Elbit Plaza India Real Estate Holdings Limited (a
subsidiary held by the Company (50%) and Elbit Imaging ltd.(50%))
("EPI") entered into a share subscription and framework agreement
(the "Agreement"), with a third-party local developer (the
"Partner"), and a wholly owned Indian subsidiary of EPI which was
designated for this purpose ("SPV"), to acquire together with the
Partner, through the SPV, up to 440 acres of land in Bangalore,
India (the "Project") in certain phases as set forth in the
Agreement. As of December 31, 2019, the Partner has surrendered
sale deeds to the SPV for approximately 54 acres (the "Plot"). In
addition, under the Agreement the Partner has also been granted
with 10% undivided interest in the Plot and have also signed a
Joint Development Agreement with the SPV in respect of the
Plot.
On December 2, 2015 EPI has signed an agreement to sell 100% of
its interest in the SPV to the Partner (the "Sale Agreement"). The
total consideration upon completion of the transaction was INR 321
crores (approximately EUR 40.2 million) which should have been paid
no later than September 30, 2016 (" Long Stop Date"). On November
15, 2016, the Partner informed EPI that it will not be able to
execute the advance payments.
As a result of the foregoing, the Company has received from the
escrow agent the sale deeds in respect of additional 8.7 acres (the
"Additional Property") which has been mortgaged by the Partner in
favor of the SPV in order to secure the completion of the
transaction on the Long Stop Date. The Additional Property has not
yet been registered in favor of the SPV for cost-benefit reasons.
In addition, as per the Sale Agreement, the Company took actions in
order to get full separation from the Partner with respect to the
Plot and specifically the execution of the sale deed with respect
of the 10% undivided interest, all as agreed in the Sale
Agreement.
As a result of the failure of the Partner to complete the
transaction under the Sale Agreement and in accordance with the
provisions thereto, EPI has 100% control over the SPV and the
partner is no longer entitled to receive the 50% shareholding.
In light of the above, and after lengthy negotiations between
the parties, new understandings were formulated and the parties
signed a revised agreement that substantially altered the outline
of the original transaction (and this agreement was amended several
more times, the last of which in April 2019), and concluded that:
(i) the closing date for the transaction will be extended to
November 2019, and may be further extended to August 2020 (the
"Closing Date"). It should be clarified that the postponement of
the closing date to November 2019 and August 2020 was subject to
receipt of payments as agreed in the Sale Agreement and subject to
mutually agreed payment terms; and (ii) the consideration was
increased to INR 356 crores (approximately EUR 44.6 million) (Plaza
part approximately EUR 22.3 million) (the "Consideration").
On January 10, 2020, the Company announced that a notice has
been issued to the Partner to file its response in the insolvency
proceedings initiated for the recovery of the amounts due. As
regards the criminal cases filed for dishonor of the cheques which
were given as security for payment of certain installments, the
court has issued arrest warrants and the local police is on the
look out for the accused persons.
Until the approval of the financial statements the Partner paid
to EPI approximately EUR 11.2 million (INR 87.00 crores) (Plaza
part INR 43.5 crores (approximately EUR 5.6 million) out of a total
consideration of INR 356 crores (EUR 44.6 million) (Plaza part INR
178 crores (approximately EUR 22.3 million) the SPV should have
been received as of the said date as per the Agreement.
As of the date the Partner has paid during 2019 INR 17 crores
(Plaza part INR 8.5 crores (app. EUR 1.1 million)), during 2018 INR
30 crores (Plaza part INR 15 crores (app. EUR 2 million)), during
2017 INR 40 crores (Plaza part INR 20 crores (app. EUR 2.5
million)). Further, the Partner has mortgaged approximately 8.7
acres of plots as security for completion of the transaction as
noted above.
At this stage, there is no clarity on payment of the remaining
amount based on the agreement. Accordingly the Company is taking
necessary steps to protect its interest, including, notice letters
that were sent to the Partner, and filing a motion with court in
order to collect checks given by the Partner to secure payments
under the transaction, but were dishonored.
The Company estimates that the procedures for separating from
the Partner and canceling his 10% undivided interest in the Plot,
could cost up to EUR 1 million and will required the time frame of
one year to four years. (The difference in costs and the length of
time associated with such separation process is depending on the
legal proceedings that EPI will take as well as whether or not the
Partner will seek to compromise during legal proceedings).
Environmental update on Bangalore project - India :
Regarding Environmental update on Bangalore project and the
implications on the net realisable value refer to Note 6 (b) (1) in
the annual consolidated financial statements.
Sale agreement of plot in Chennai, India:
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.
In June 2019, the parties have signed a share purchase agreement
("SPA") according to which:
a. The Purchaser has paid a deposit of INR 5 crores
(approximately Euro 0.625 million) in order to provide the
Purchaser with an additional six months to complete the closing,
which may be extended by another month upon payment by the
Purchaser of an additional deposit of INR of 5 crores.
b. If the Purchaser is unable to complete the closing within the
aforesaid time periods, then the parties will mutually appoint an
international real estate consulting firm for the purpose of
identifying a third-party buyer within a period of six months.
c. If the Purchaser is unable to complete the closing and no
third-party buyer is found within the aforesaid time periods, both
the JDA and SPA shall be terminated, subject to the Purchaser
receiving the Deposits. However, the Purchaser will not be entitled
to reimbursement of expenses incurred by it under the JDA.
d. Any final price received from a third-party buyer above the
Consideration will be shared 67% by the Purchaser and 33% by EPI.
The Consideration is subject to adjustment with respect to the
Deposits and the existing cash in the SPV.
e. The Consideration will be remitted in Euro at the base rate
already agreed upon by the parties. Foreign exchange loss arising
due to change in conversion rate from INR to euro will be borne by
the Purchaser and gain will be credited to the account of EPI.
f. the Company and of Elbit Imaging Ltd. as guarantor under the
SPA, undertake EPI will transfer to the partner 100% of the rights
in SPV . The liability in connection with the guarantee as stated
here in on standalone bases (and not together) and limited to an
amount not exceeding 200% of the updated consideration and for a
period not exceeding 5 years from the date of the agreement being
concluded
g. The parties withdraw the arbitration proceedings and other notices.
One December 5, 2019 the Company announced that EPI and the
Developer have reached a revised understanding regarding the
amendment of the agreement according to which:
a. the Developer further paid the SPV INR 5 crores
(approximately EUR0.625 million) and received a three months
extension to complete the closing (i.e., until March 3, 2020). This
closing may be extended for an additional three months period
(i.e., until June 3, 2020), for an additional payment of INR 5
crores, to be paid by the Developer. As of December 5, 2019, the
Developer has paid the SPV a total of INR 20 crores (approximately
EUR2.5 million) out of the Consideration.
b. According to the SPA, if the Developer is unable to complete
the closing within the aforesaid time periods, then the parties
will mutually appoint an international property consultant for the
purpose of identifying a third-party buyer within a period of six
months.
c. Out of the payments received from the Developer (as detailed
in the paragraph above) EPI is entitled to receive a total of INR
17 crores (Plaza part INR 8.5 crores (approximately EUR1.05
million).
On February 18, 2020 the Company announced that has received INR
17 crores (approximately EUR2.1 million (Plaza part EUR1.05
million)) from the Chennai Project SPV.
On March 8, 2020 the Company announced that EPI and the
Developer have reached a revised understanding regarding the
amendment of the agreement according to which:
a. The Purchaser paid further INR 5 crores (approximately EUR
0.625 million) and get additional three months to complete the
closing until June 3, 2020, which may be extended by another three
months upon payment by the Purchaser of an additional deposit of
INR 7.5 crores (approximately EUR 0.92 million).
b. If the Developer is unable to complete the closing within the
aforesaid time periods, then the parties will mutually appoint an
international real estate consulting firm for the purpose of
identifying a third-party buyer within a period of six months.
At this stage, there is no certainty that the SPA closing will
occur.
Motion to reveal and review internal documents :
In March 2018, a Shareholder of the Company has filed a motion
with the Financial Department of the District Court in Tel-Aviv to
reveal and review internal documents of the Company and of Elbit
Imaging Ltd., with respect to the events surrounding that certain
agreements that were signed in connection with the Casa Radio
Project in Romania and the sale of the US portfolio. Such events
were previously announced by the Company and are detailed in notes
5(4)(d) and 17(5) of these annual financial statements. In July
2018, the Company has filed a response to the relevant court.
On January 13, 2019, a Court hearing was held following which
the judge decided that the board of directors of each of the
Company and Elbit Imaging Ltd. would examine the allegations raised
by the plaintiff in connection with the said events and the
relevant facts and decide whether or not they should file a lawsuit
against any of its officers.
The parties reached a procedural agreement whereby, without
derogating from any parties claims, the Company and of Elbit
Imaging Ltd will share with the plaintiff, under their sole
discretion some of the documents he requested (subject a
confidentiality obligation) and thereafter the plaintiff will
notify the court whether he wants to continue with the motion.
Following the recipient of the documents by the plaintiff the
parties have reached an understanding based on which they will
notify the court that as the Shareholder received part of the
documents he requested and without the company and Elbit Imaging
Ltd admitting in any of the allegations raised by the plaintiff,
the parties request that the motion will be closed without an order
for expenses. The parties will consider filing a lawsuit against
defaulters in certain grounds to be agreed upon between the
parties
On February 16, 2020, a Court verdict was received according to
which the motion was erased without any order for the payment of
expenses. the Judge stated that the Motion had resulted in the
plaintiff had received certain of the documents requested by him
and that he would not be receiving any more documents as part of
the present proceedings, and therefore there is no longer dispute
between the parties in connection with the Motion. The Judge
further noted that the plaintiff and the Company are free to act as
they deem fit with respect to the possibility of filing a future
lawsuit based on the grounds of some or all of the grounds
specified in the Motion.
As of today, the parties are considering to file a lawsuit as
detailed above.
Appointment of the executive director and non-executive director
of the Board of Directors:
On December 19, 2019 Mr. Ron Hadassi was appointed as executive
director and Ms. Maria Andrei was appointed as non-executive
director and Mr. Avi Hakhamov as former executive director was
dismissed on his own request following the Company's Extraordinary
General Meeting held on that date.
Request to reveal documents:
An indirect subsidiary of the Group in Romania (which holds plot
of land outside Bucharest) received a request from Romanian
authorities to reveal documents regarding the years in 2007-2011 as
part of an ongoing investigation procedure. The company has
submitted all relevant documents in respect of the said years.
During 2019 another indirect subsidiary of the group (which was
liquidated) was ordered to a court hearing.
A criminal investigation carried out regarding the commission of
the money laundering and fiscal evasion offenses against legal
representative (directors) of certain companies in which the
company had indirect holdings through JV in the past. The
prosecutor closed the case and the chief prosecutor denied the
complaint of National Agency for Fiscal Administration as tardy.
Against the prosecutor's disposition to close the case, the
National Agency for Fiscal Administration filed a complaint in
court.
In November 2019, the court denied the National Agency for
Fiscal Administration complaint as unfounded. The court's decision
is final.
Interest and principal payments:
Refer to the below in Liquidity & Financing.
Key highlights since the period end:
Update on disposal of a plot of land in Brasov, Romania :
On February 14, 2020 an indirect subsidiary completed the sale
of the plot in Brasov, Romania and signed the definitive agreement
for a total consideration of EUR 620,000 following which it
received the last instalment of EUR 570,000 (the company already
received a down payment of EUR 50,000).
Update regarding the transaction for the sale of plot in Chennai
and Bangalore in India:
Refer to the above section regarding the sale agreements of plot
in Chennai and Bangalore, India.
Motion to reveal and review internal documents:
Refer to the above section regarding the Motion to reveal and
review internal documents.
Appointment of the Chairman of the Board of Directors:
On March 23, 2020 Mr. David Dekel was appointed as the
non-executive chairman of the Board of Directors following a
meeting of the board held on that date.
Coronavirus pandemic:
Refer to the above section regarding the influence of
Coronavirus pandemic .
Dutch statutory auditor:
As described in Note 2(a) 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. During 2019
the Company has been informed by the audit firm, Baker Tilly
(Netherlands) N.V., that they would cancel their license to audit
public interest entities (such as the Company) and that, as a
consequence, they are not in the position to provide the Company
with their audit services for the 2019 statutory annual accounts.
As a listed company, the Company needs to engage a Dutch audit firm
that is licensed to perform audits for public interest entities.
The choice for such firms in the Netherlands is very limited as
only six firms have the appropriate license.
Despite extensive effort of the Company to find a new Dutch
auditor, none of those six firms has been found prepared to accept
the Company as their client. The Company approached in writing the
Dutch Ministry of Finance, The Royal Dutch Institute of Chartered
Accountants, the Authority for the Financial Markets to indicate
the severe adverse consequences the Company would suffer if this
problem will not be solved but none of those authorities has been
able to find the solution. The Royal Dutch Institute of Chartered
Accountants has put considerable effort in helping the Company by
approaching audit firms and assessing their procedures for client
acceptance but has no legal possibilities at its disposal to force
audit firms to accept a specific client. This leaves the Company in
the awkward position of not being able to meet its obligations
regarding the statutory audit.
The Company has proposed to the authority's various alternative
solutions to get the annual accounts of 2019 audited. It appeared
that none of those are legally feasible and none of the addressees
came up with any alternatives. It is now time to emphasize that the
Company exhausted its sources to comply with the requirements of
mandatory Dutch law.
Due to the above and in order to avoid an outright violation of
applicable stock exchange regulations, the Company decided to
engage EY Israel to audit its IFRS consolidated annual accounts and
to issue an auditor statement on that. The IFRS report and the
auditor statement will be submitted to the London Stock Exchange,
the Warsaw Stock Exchange and the Tel Aviv Stock Exchange. In
addition, the board of directors intends to submit the reports (as
audited by EY Israel) to the AFM and to approach after all the
Dutch authorities once again in order to explore a solution.
The company don't expect any material effect of the financial
statement due to the above.
Commenting on the results, executive director Ron Hadassi
said:
"Our active focus has continued to centre on asset disposals in
CEE (including signing pre-agreements for future sales), continuing
efforts to r eceive a Government Decision confirming to transfer
the shares to AFI Europe N.V. as well as amendment of the PPP
Agreement in line with the agreement with AFI Europe N.V. and
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. In
addition, we intend to request the bondholders' approval to
postpone the repayment of the bonds from July,1 2020 (the last
repayment schedule date) in order to allow us to continue with the
realization of the company assets. This remains our absolute
priority for the next year".
For further details, please contact:
Plaza
Ron Hadassi, Executive Director 972-526-076-236
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.
MANAGEMENT STATEMENT
During 2019 the management's focus has been on signing SPA for
the sale of Chennai project in India and received cash proceed from
the purchaser, In the Bangalore project the company together with
Elbit continued to protect its interest in the project, including,
by sending notice letters to the Partner, and filing a motion with
court in order to collect checks received by the partner (refer
also to Note 6(b)(1) in the consolidated financial statements). The
company also continued the disposals of plots of land in CEE and
cost reductions and partial repayments to its bondholders. This
disposal and cost cutting process is evidenced by the sale of plot
of land in Poland and Romania and significant reduction of
administrative expenses. The repayments to its bondholders are
evidence by certain payments during the period.
In addition, following several years of efforts to promote the
development of the Casa Radio project, 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 N.V. in
2019 followed by a pre-sale agreement signed in July 2019, and
which was approved by the Company's bondholders and shareholders.
This is a significant milestone in efforts to promote the
development of the project but still there can be no certainty that
the SPA will eventually be executed and/or that the Transaction
will be consummated as presented above or at all.
As a result of this activity, our total portfolio now comprises
three assets in two countries, including one plot in Romania and
two plots in India (under JV with Elbit).
Over the coming months, the Company will maintain its focus on
executing the agreement signed and to take necessary steps to
protect its interest in the project in Bangalore India. And to also
take the necessary steps
to execute the agreement with with AFI Europe N.V.
In light of the cash position, the Company, during 2019, have
paid to the bondholders a few payments based on the cash position
after it exercised the sale of the plots it held. Still, as the
payments mainly covered only part of the interest due the Company
received the bondholders' approval to deferral the full repayment
of principal together with part of the interest due to July 1,
2020.
Due to the board and management estimation that the Company is
unable to serve its entire debt according to the current bond's
repayment schedule in its current liquidity position, the Company
intends to request from the bondholders of both series (Series A
and Series B) postponement of the repayment of the remaining
balance of the bonds
Results
During the year, Plaza recorded a EUR21.2 million loss
attributable to the shareholders of the Company. This is a 45%
decrease compared to the losses reported in 2018 (loss of EUR38.4
million) the losses were mainly from the Finance costs which were
increased to EUR16.6 million in 2019, from EUR11.3 million in 2018
mainly due to foreign exchange movements on the debentures and
interests expenses accrued (partly due to penalty interest
calculated on the deferred principal).
Total result of operations excluding the finance income and
finance cost was loss of EUR4.4 million in 2019 and EUR31.7 in 2018
mainly due to the decrease in the write down of trading property to
only EUR0.5 million in 2019 compare to EUR29,450 in 2018.
The consolidated cash position as at 31 December 2019 was EUR1.1
million (31 December 2018: EUR1.4 million) and the current cash
position is circa EUR2.5 million ( cash on standalone basis as well
as fully owned subsidiaries).
Liquidity & Financing
Plaza ended the period with a consolidated c ash position of
EUR1.13 million, compared to EUR1.4 million at the end of 2018.
For details of the Projected cash flow see below.
As at December 31, 2019 the Group's outstanding obligation to
bondholders (including accrued interests) are app. EUR93
million.
Following Note 8(c) to the consolidated financial statements in
which the Company announced it will not meet its principal
repayment due on December 31, 2018 as provided for in the
settlement agreement with Series A and Series B Bondholders from 11
January 2018 (the "Settlement Agreement"), the bondholders approved
the deferral of payment to July 1, 2019 and the company paid
principal of circa EUR 250,000 and Penalty interest on arrears of
EUR 150,000 on February 2019.
In addition, during June 2019 the bondholders approved the
deferral of the full payment of principal due on July 1, 2019 and
of 58% ("deferred interest amount") of the sum of interest
(consisting of the total interest accrued for the outstanding
balance of the principal, including interest for part of the
principal payment which was deferred as of February 18, 2019, plus
interest arrears for part of the principal which was fixed on
February 18, 2019 and was not paid by the Company and all in
accordance with the provisions of the trust deed; "the full amount
of interest"), the effective date of which is June 19, 2019, and
the payment date was fixed as of July 1, 2019. The company paid on
the said date a total amount of circa EUR 1.17 million, which is
only 42% of the full amount of interest.
On July 11, 2019, the Company announced that its Romanian
subsidiary had signed a binding agreement to sell land in Romania
(refer to Note 5(2)(c)) of the consolidated financial statements,
and that the Company would use part of the proceeds now received by
it EUR 0.75 million (hereinafter: "the amount payable"), in order
to make a partial interest payment to the bondholders (Series A)
and (Series B) issued by the Company. The payment required changes
in the repayment schedule and amendments of the trust deeds which
was approved unanimously by the Bondholders. The amount payable was
paid on August 14, 2019 and reflects 30% of accrued interest as of
that date.
On November 17, 2019 the bondholders of Series A and Series B
approved a deferral of all the scheduled Principal payment and app.
87% of deferral of the scheduled Interest payment, both, as of
December 31, 2019 to July 1, 2020.
Accordingly, in December 2019, Company made a partial interest
payment in amount of circa EUR 0.6 million of which is only 13% of
the full amount of interest.
Due to the board and management estimation that the Company is
unable to serve its entire debt according to the current bond's
repayment schedule in its current liquidity position, the Company
intends to request the bondholders of both series to postponement
of the repayment of the remaining balance of the bonds. However,
there is an uncertainty if the bondholders will approve the
request. 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.
Strategy and Outlook
The Company's priorities are focused on efforts to sign
definitive sale agreement of Casa Radio project, getting further
proceeds for Bangalore and Chennai projects. The company also
intend to seek bondholders approval for postponement of the
repayment of the bonds subject to sale of the projects. In
addition, the Company intend to continue the cost-cutting of its
operational cost.
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 four projects is outlined in the table below.
The Company's current assets are summarized in the table
below:
Asset/ Location Nature of asset Plot Size Plaza's Status
Project sqm effective
ownership
%
Casa Radio Bucharest, Mixed-use retail, 467,000 75 Pre-sale agreement
Romania hotel and leisure signed
plus office scheme
(GBA including
parking
spaces)
------------ ------------------------ ---------------- ----------- -------------------
Definitive
sale agreement
signed in
Brasov, Retail & entertainment February,
Brasov Romania scheme 67,000 100 2020
------------ ------------------------ ---------------- ----------- -------------------
Amended revised
Bangalore, agreement
Bangalore India Residential Scheme 218,500 25 in place
------------ ------------------------ ---------------- ----------- -------------------
JDA and term
Chennai, sheet terminated;
Chennai India Residential Scheme 302,400 50 SPA signed
------------ ------------------------ ---------------- ----------- -------------------
FINANCIAL REVIEW
Results
In 2019, the Revenue for the period derived from the disposal of
trading properties amounted to EUR3.7 million, compared to EUR2.3
million in 2018. The proceeds received in 2019 were related to the
sale of two plots (land plot in Lodz, Poland and land plot in
Miercurea Ciuc, Romania) and income for the stands and signage in
Belgrade Plaza. The proceeds received in 2018 were related to 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.
In 2019, the general & administrative expenses amounted to
EUR1.6 million, a decrease compare to EUR2.7 million in 2018. The
decrease was a result of a material scale down of the Company's
activities, mainly in respect of salaries and related expenses and
professional services.
The write down of trading properties decreased from EUR29.5
million in 2018 to EUR0.5 million in 2019. The 2018 write down is
mainly attributable to Lodz Plaza (EUR1.9 million) and Casa Radio
(EUR24.2 million, net) projects. The 2019 relates to the net change
in the cost of Casa Radio property (the change in the value of the
asset minus the change in the provision of the PAB) decreased by
partial reversal of write downs of plots in Romania.
In 2019 there were no finance income to the Company compared to
EUR3.6 million finance income for 12 months ended December 31,
2018.
Finance costs increased to EUR16.6 million in 2019, compared to
EUR11.3 million in 2018 mainly due to foreign exchange movements on
the debentures and interests' expenses accrued which includes also
penalty interest calculated on the deferred principal.
During 2019 the Company recognized only EUR0.07 million tax cost
due to withholding tax compared to tax benefit of circa EUR1
million in 2018 which 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.
As a result, the loss for the period amounted to circa EUR21.2
million in 2019, representing a basic and diluted loss per share
for the period of EUR3.09 (2018: EUR5.60 loss).
Balance sheet and cash flow
The balance sheet as at 31 December 2019 showed total assets of
circa EUR56 million compared to total assets of EUR62 million at
the end of 2018, mainly as a result of payment of principal and
interests for bonds in total amount of circa EUR2.9 million in
2019, disposal of land plots in Poland and Romania, the receipt of
advance payment of EUR0.2 million for the Casa Radio,
administrative expenses and costs of operations which amounted to
EUR1.6 million for the 12 months of 2019.
The consolidated cash position as at 31 December 2019 decreased
to EUR1.1 million (31 December 2018: EUR1.4 million) and current
cash position is circa EUR2.5 million ( cash on standalone basis as
well as fully owned subsidiaries).
.
The value of the Company's trading properties decreased from
EUR42.6 million as at 31 December 2018 to EUR40.4 million at the
end of 31 December 2019, following the disposals land plot in Lodz,
Poland and the plot in Miercurea Ciuc, Romania and partial reversal
of write-downs of plots in Romania.
Investments in equity accounted investee companies has decreased
by EUR3.3 million to EUR14.4 million (31 December 2018: EUR17.7
million) mainly as a result of write downs due to value decrease of
projects in Bangalore, India in an amount of EUR1.8 million and in
Chennai, India in an amount of EUR0.4 million and cash distribution
of EUR0.8 million (31 December 2018: EUR2.5 million).
As at 31 December 2019, Plaza has a balance sheet liability of
EUR86.5 million (with an adjusted par value of circa EUR89 million)
from issuing bonds on the Tel Aviv Stock Exchange. These bonds are
presented at amortized cost under current liabilities.
Additionally, Plaza recorded provision for interests on bonds as of
December 31, 2019, in amount of EUR3.8 million.
Provision was created with respect to the obligation connected
to Casa Radio project (Bucharest Romania) in the amount of EUR15.8
million (2018: EUR14.1 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 agreement (refer to Note 6(b)(1)), and the SPA signed
with the purchaser of Chennai Project (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.
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.
In addition, during June 2019 the bondholders approved the
deferral of the full payment of principal due on July 1, 2019 and
of 58% ("deferred interest amount") of the sum of interest
(consisting of the total interest accrued for the outstanding
balance of the principal, including interest for part of the
principal payment which was deferred as of February 18, 2019, plus
interest arrears for part of the principal which was fixed on
February 18, 2019 and was not paid by the Company and all in
accordance with the provisions of the trust deed; "the full amount
of interest"), the effective date of which is June 19, 2019, and
the payment date was fixed as of July 1, 2019. The company paid on
the said date a total amount of circa EUR 1.17 million, which is
only 42% of the full amount of interest.
On July 11, 2019, the Company announced that its Romanian
subsidiary had signed a binding agreement to sell land in Romania
(refer to Note 5(2)(c)) of the consolidated financial statements,
and that the Company would use part of the proceeds now received by
it EUR 0.75 million (hereinafter: "the amount payable"), in order
to make a partial interest payment to the bondholders (Series A)
and (Series B) issued by the Company. The payment required changes
in the repayment schedule and amendments of the trust deeds which
was approved unanimously by the Bondholders. The amount payable was
paid on August 14, 2019 and reflects 30% of accrued interest as of
that date.
On November 17, 2019 the bondholders of Series A and Series B
approved a deferral of all the scheduled Principal payment and app.
87% of deferral of the scheduled Interest payment, both, as of
December 31, 2019 to July 1, 2020.
Accordingly, in December 2019, Company made a partial interest
payment in amount of circa EUR 0.6 million of which is only 13% of
the full amount of interest.
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.
In EUR millions 2020 2021
Cash - Opening Balance (2) 1.13 0.56
Proceeds from sales transactions, price
adjustments (3) 0.80 -
Cashflow from equity companies in India
(4) 1.18 5.29
Total Sources 3.11 5.85
Debentures - principal - -
Debentures - interest (5) 0.50 3.45
Other operational costs (6) 0.50 0.50
Operating costs (7) 0.15 0.15
G&A expenses (8) 1.40 1.25
Total Uses 2.55 5.35
Cash - Closing Balance (2) 0.56 0.50
(1) The above cash flow is subject to the approval of the
bondholders of both series to postponement of the repayment of the
remaining balance of the bonds which are due on July 1, 2020.
(2) Total cash on standalone basis as well as fully owned subsidiaries .
(3) Proceeds in the amount of EUR 0.55 million (last instalment)
from disposal of land plot of an indirect subsidiary in Brasov,
Romania which the Company received during February 2020 and an
amount of app. EUR 0.25 million the Company is expected to receive
from BIG Shopping Centers Ltd as the last instalment for the stands
and signage based on the agreement signed between the parties BIG
Shopping Centers Ltd on January 26, 2017.
(4) The Company's part (50%) in the expected proceeds from
future payments on account of the sale of plot in Chennai, India
(which held by indirect subsidiary owned 50% by the Company's)
based on sale agreement signed on June 13, 2019 for a total
consideration of approximately EUR 13 million (the company part EUR
6.5 million out of which EUR 1.18 million the Company received on
February 18, 2020 and the rest which sum up to EUR 5.29 million is
expected to be received during 2021);
At this stage, due to among others, the influence of the
Coronavirus pandemic on the real estate market in India (as
detailed above), there is uncertainty if the buyer will exercise
the sale agreement and pay the additional instalment.
(5) The payments are subject to recipient of all the proceeds
the Company included in the cash flow the actual amount which will
be paid to the bondholders will be adjusted based on the actual
proceeds the company will receive.
(6) Includes provision for legal costs /Arbitrations.
(7) Includes property maintenance (taxes, security, energy and other).
(8) Total general and administrative includes both cost of the
Company and of all the subsidiaries.
(9) As BIG Shopping Centers Ltd informed the Company that they
intend to hold an additional EUR1 million they owe the Company,
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 didn't include this amount in
the cash flow. The Company is currently evaluating its options
regarding BIG's intention to hold the EUR1 million (see also Note
17(10) of the consolidated financial statements as of
31.12.2019).
(10) In addition, the Company didn't includes any proceeds from
pre-sale agreement signed with AFI, due to the uncertainty as to
the fulfillment of the conditions set out in the preliminary
agreement as mentioned in Note 5(3)(f) of the consolidated
financial statements as of 31.12.2019, thus there can be no
certainty an SPA will eventually be executed and/or that the
Transaction will be completed.
(11) The company didn't include any proceeds from its holding in
an indirect subsidiary (50%) which holds a property in Bangalore,
India due to the recent default of purchaser of Bangalore project
to meet payments schedule according to the signed amendment
agreement (as detailed in Note 6(b)(1) of the consolidated
financial statements as of 31.12.2019) as there can be no certainty
that the agreement will be completed, hence no resources are
expected to be available in forceable future at this time.
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 2019.
In EUR millions 2019 2019
Forecast Actual
-------------------------------------------- ---------- --------
Cash - Opening Balance (1) 1.48 1.48
Proceeds from sales transactions, price
adjustments and other income (2) 6.56 4.81
Total Sources 8.04 6.29
Cash outflow from operating activity
Administrative expenses including property
maintenance (3) 1.90 1.99
Cash outflow from financing activity
Principal repayment to bondholders 0.25 0.25
Interest repayment to bondholders (4) 5.74 2.68
Total Uses 7.89 4.92
Cash - Closing Balance (1) 0.15 1.37
-------------------------------------------- ---------- --------
(1) Total cash on standalone basis as well as fully owned
subsidiaries and cash balance being held in EPI (50%).
(2) Detailed differences between forecast and actuals (in EUR millions) :
2019 2019
Forecast Actual DIFF
Belgrade 0.13 0.11 (0.02)
Casa Radio - 0.20 0.20
Miercurea Ciuc 1.44 1.44 -
Lodz Plaza 0.84 1.94 1.10
Brasov - 0.05 0.05
Bangalore 4.15 1.07 (3.08)
Total 6.56 4.81 (1.75)
(3) Increase mainly as a result of additional services of professional and legal advisors.
(4) Including penalty interests on arrears paid in 2019.
Ron Hadassi
Executive Director
31 March 2020
PLAZA CENTERS N.V.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
IN 000 EUR
CONTENTS
Consolidated statement of financial position
Consolidated statement of profit or loss
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
- - - - - - - - - - - - - - - - - - - - - -
CONSOLIDATED STATEMENT OF FINANCIAL POSITION IN '000 EUR
December 31,
--------------------
Note 2019 2018
------- --------- ---------
ASSETS
Cash and cash equivalents 3 1,126 1,405
Prepayments and other receivables 4 181 240
Total current assets 1,307 1,645
--------- ---------
Trading properties 2,5 40,375 42,600
Equity - accounted investees 6 14,419 17,676
Property and equipment - 19
Total non-current assets 54,794 60,295
--------- ---------
Total assets 56,101 61,940
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bonds at amortized cost 8 86,506 76,698
Accrued interests on bonds 8 3,846 -
Trade payables 94 56
Other liabilities 7 477 500
--------- ---------
Total current liabilities 90,923 77,254
--------- ---------
Provisions 5(3)(e) 15,825 14,087
Total non-current liabilities 15,825 14,087
--------- ---------
Share capital 10 6,856 6,856
Translation reserve 10 (29,677) (29,598)
Other reserves (19,983) (19,983)
Share based payment reserve 10 35,376 35,376
Share premium 10 282,596 282,596
Retained losses (325,815) (304,648)
--------- ---------
Total equity (50,647) (29,401)
--------- ---------
Total equity and liabilities 56,101 61,940
--------- ---------
The notes are an integral part of the consolidated financial
statements.
March 31, 2020
--------------------- ----------------- ---------------------
Ron Hadassi David Dekel
Date of approval of Executive Officer
the Chairman of the Board
financial statements of Directors
CONSOLIDATED STATEMENT OF PROFIT OR LOSS IN '000 EUR
Year ended
December 31,
------------------
Note 2019 2018
---- -------- --------
Revenues and gains
Revenue from disposal of trading properties 5 3,684 2,333
Total revenues 3,684 2,333
-------- --------
Gains and other
Other income 14 78 254
-------- --------
Total gains 78 254
Total revenues and gains 3,762 2,587
-------- --------
Expenses and losses
Cost of trading properties disposed 5 (3,463) (2,891)
Cost of operations (207) (357)
Write-down of trading properties 5 (500) (29,450)
Share in results of equity-accounted
investees 6 (2,396) 1,443
Administrative expenses 13 (1,577) (2,722)
Other expenses 14 (67) (329)
-------- --------
(8,210) (34,306)
Finance income 15 - 3,647
Finance costs 15 (16,648) (11,306)
(24,858) (41,965)
-------- --------
Loss before income tax (21,096) (39,378)
Tax benefit (Income tax expense) (71) 1,013
Loss for the year (21,167) (38,365)
-------- --------
Loss attributable to:
Equity holders of the Company (21,167) (38,365)
======== ========
Earnings per share
Basic and diluted loss per share (EUR) 11 (3.09) (5.60)
======== ========
The notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME IN '000 EUR
Year ended
December 31,
------------------
2019 2018
-------- --------
Loss for the year (21,167) (38,365)
Other comprehensive income
Items that are or may be reclassified to profit
or loss:
Foreign currency translation differences - foreign
operations (Equity accounted investees) (79) (798)
Other comprehensive loss for the year, net of
income tax (79) (798)
Total comprehensive loss for the year (21,246) (39,163)
======== ========
The notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN '000 EUR
Capital reserve
from acquisition
Share based of
Share Share payment Translation non-controlling Retained
capital Premium reserves Reserve interests losses Total
-------- -------- ----------- ----------- ----------------- --------- --------
Balance at
January 1, 2018 6,856 282,596 35,376 (28,800) (19,983) (267,682) 8,363
Adjustments on
initial
application
of IFRS 9 (see
Note 2(j)) - - - - - 1,399 1,399
Comprehensive
income for the
year
Net loss for the
year - - - - - (38,365) (38,365)
Foreign currency
translation
differences - - - (798) - - (798)
Total
comprehensive
loss for the
year - - - (798) - (36,966) (37,764)
-------- -------- ----------- ----------- ----------------- --------- --------
Balance at
December 31,
2018 6,856 282,596 35,376 (29,598) (19,983) (304,648) (29,401)
Comprehensive
income for the
year
Net loss for the
year - - - - - (21,167) (21,167)
Foreign currency
translation
differences - - - (79) - - (79)
-------- -------- ----------- ----------- ----------------- --------- --------
Total
comprehensive
loss for the
year - - - (79) - (21,167) (21,246)
-------- -------- ----------- ----------- ----------------- --------- --------
Balance at
December 31,
2019 6,856 282,596 35,376 (29,677) (19,983) (325,865) (50,647)
-------- -------- ----------- ----------- ----------------- --------- --------
The notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS IN '000 EUR
Year ended
December 31,
------------------
2019 2018
-------- --------
Cash flows from operating activities
Loss for the year (21,167) (38,365)
Adjustments necessary to reflect cash flows used
in operating activities
Depreciation and impairment of property and equipment 19 155
Net finance costs 16,648 7,659
Share of loss (Gain) of equity-accounted investees,
net of tax 2,396 (1,443)
Income tax expense (Tax benefit) 71 (1,013)
(2,033) (33,007)
-------- --------
Changes in:
Trade receivables (6) 27
Other receivables (5) 2,287
Provision 1,738 1,238
Trading properties 2,224 30,970
Trade payables 41 (85)
Other liabilities, related parties' liabilities
and provisions (88) (634)
3,904 33,803
-------- --------
Interest paid (2,682) (5,887)
Net cash used in operating activities (811) (5,091)
-------- --------
Cash from investing activities
Proceeds from sale of property and equipment - 4
Distribution received from Equity Accounted Investees 782 2,503
Net cash provided by investing activities 782 2,507
-------- --------
Cash from financing activities
Repayment of debentures (250) (40,065)
Net cash used in financing activities (250) (40,065)
-------- --------
Decrease in cash and cash equivalents during the
year (279) (43,439)
Effect of movement in exchange rate fluctuations
on cash held - (790)
Cash and cash equivalents as at January 1(st) 1,405 44,844
-------- --------
Cash and cash equivalents as at December 31(st) 1,126 1,405
======== ========
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 which EUL will deposit
its shares of the Company with a trustee and no longer considers
itself to be the controlling shareholder of the Company. For the
list of the Group entities, refer to Note 19.
b. Going concern and liquidity position of the Company:
As at December 31, 2019 the Company's outstanding obligations to
bondholders (including accrued interests) are app. EUR 93 million
(refer also to Note 8) which is due on July 1, 2020. In addition,
the Company is not in compliance with the main Covenants as defined
in the restructuring plan (for more details refer also to Note 8),
hence under defaulted which could trigger early repayment clause by
the bondholders.
Due to the above the Company's primary need is for liquidity.
The Company's resources include the following: (i) cash and cash
equivalents (including the cash of fully owned subsidiaries) of
approximately EUR 1.13 million; (ii) the Company's part (50%) in
the expected proceeds from future repayments on account of the sale
of a plot in Chennai, India (which is held by indirect subsidiary
of the Company) based on a sale agreement signed on June 13, 2019
(see also Note 6(b)(2)) in a total amount of approximately EUR 13
million (the Company's part EUR 6.5 million out of which an amount
of EUR 1.18 million have been repaid to the Company on February 18,
2020). At this stage, there is uncertainty if the buyer will
exercise the sale agreement and pay the additional instalments;
(iii) proceeds in the amount of EUR 0.57 million (last instalment)
from disposal of land plot of an indirect subsidiary in Brasov,
Romania as mentioned in Note 19(a); (iv) in addition, the fully
owned subsidiary of the Company have signed a pre-sale agreement
with AFI Europe N.V. ("AFI Europe") to transfer its interest in a
Romanian subsidiary to AFI Europe for the maximum consideration of
EUR 60 million, subject to the fulfilment of certain conditions
which includes among others an execution of an SPA between the
parties not later than December
NOTE 1:- GENERAL INFORMATION (Cont.)
5, 2020, following which AFI Europe is bound to make the first
instalment in the amount of EUR 20 million.
At this stage, due to the uncertainty as to the fulfillment of
the conditions set out in the pre sale agreement as mentioned in
Note 5(3)(f), there can be no certainty that the SPA will
eventually be executed and/or that the Transaction will be
completed.
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)) there can be no certainty that the agreement will be
completed, hence no resources are expected to be available in
forceable future at this time.
Moreover, due to recent developments related to the COVID-19
virus epidemic there is additional uncertainty as to the short-term
impacts on economic growth and on the business activity in the
markets in which the Company operate which could also lead to
severe and sustained slowdown. This will limit the ability of the
Company to complete the sale of the plots it owned.
Due to the abovementioned and due to the board and management
estimation that the Company is unable to serve its entire debt
according to the current bond's repayment schedule in its current
liquidity position, the Company intends to request the bondholders
of both series to postponement of the repayment of the remaining
balance of the bonds. However, there is an uncertainty if the
bondholders will approve the request. 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 basis.
Due to the abovementioned conditions a material uncertainty
exists that casts significant doubt about the Company's ability to
continue as a going concern.
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.
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
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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, 2019 in
accordance with the Netherlands Civil Code.
The consolidated financial statements were authorized for issue
by the Board of Directors on March 31, 2020.
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.
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
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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:
- Note 5 - key assumptions used in determining the net
realisable value of trading properties;
- Notes 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.
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
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
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.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. Financial instruments:
On January 1, 2018, the Company initially adopted IFRS 9,
"Financial Instruments" ("the Standard"). The Company elected to
apply 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.
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
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
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:
a) 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:
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 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:
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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)
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.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
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
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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:
On January 1, 2018, the Company initially adopted IFRS 15,
"Revenue from Contracts with Customers" ("the Standard"). The
Company elected to apply 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 custom er, 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:
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
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. 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.
r. Income tax:
Income tax expense comprises current and deferred tax. It is
recognised in profit or loss.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
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.
s. 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
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
t. 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 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 had no impact on the Company's financial
statements as the Group does not have long-term interests in its
associate and joint venture.
2. Initial adoption of 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 income taxes on the financial statements and accounting
for changes in facts and circumstances in respect of the
uncertainty.
The Group applies significant judgement in identifying
uncertainties over income tax treatments. Since the Group operates
in a complex multinational environment, it assessed whether the
Interpretation had an impact on its consolidated financial
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
statements.
Upon adoption of the Interpretation, the Group considered
whether it has any uncertain tax positions, particularly those
relating to transfer pricing.
The Company's and the subsidiaries' tax filings in different
jurisdictions include deductions related to transfer pricing and
the taxation authorities may challenge those tax treatments.
The interpretation did not have an impact on the Company's
financial statements.
3. Initial adoption of IFRS 16, "Leases":
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases-Incentives
and SIC-27 Evaluating the Substance of Transactions Involving the
Legal Form of a Lease. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases and
requires lessees to account for all leases under a single
on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged under
IAS 17. Lessors will continue to classify leases as either
operating or finance leases using similar principles as in IAS 17.
Therefore, IFRS 16 did not have an impact for leases where the
Group is the lessor.
The Group adopted IFRS 16 using the modified retrospective
method of adoption with the date of initial application of 1
January 2019. Under this method, the standard is applied
retrospectively with the cumulative effect of initially applying
the standard recognised at the date of initial application. The
Group elected to use the transition practical expedient allowing
the standard to be applied only to contracts that were previously
identified as leases applying IAS 17 and IFRIC 4 at the date of
initial application. The Group also elected to use the recognition
exemptions for lease contracts that, at the commencement date, have
a lease term of 12 months or less and do not contain a purchase
option ('short-term leases'), and lease contracts for which the
underlying asset is of low value ('low-value assets').
The effect of adoption IFRS 16 as at 1 January 2019 did not have
a material effect on the financial statements.
4. Annual Improvements to IFRS Cycle for 2015-2017:
In December 2017, the IASB issued amendments to the following
standards in the context of the Annual Improvements to IFRS
2015-2017 Cycle.
a) IAS 12 Income Taxes
The amendments clarify that the income tax consequences of
dividends are
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
linked more directly to past transactions or events that
generated distributable profits than to distributions to owners.
Therefore, an entity recognises the income tax consequences of
dividends in profit or loss, other comprehensive income or equity
according to where it originally recognised those past transactions
or events.
An entity applies the amendments for annual reporting periods
beginning on or after 1 January 2019, with early application
permitted. When the entity first applies those amendments, it
applies them to the income tax consequences of
dividends recognised on or after the beginning of the earliest
comparative period.
Since the Group's current practice is in line with these
amendments, they had no impact on the Company's financial
statements.
b) IAS 23 Borrowing Costs
The amendments clarify that an entity treats as part of general
borrowings any borrowing originally made to develop a qualifying
asset when substantially all of the activities necessary to prepare
that asset for its intended use or sale are complete.
The entity applies the amendments to borrowing costs incurred on
or after the beginning of the annual reporting period in which the
entity first applies those amendments. An entity applies those
amendments for annual reporting periods beginning on or after 1
January 2019, with early application permitted.
Since the Group's current practice is in line with these
amendments, they had no impact on the Company's financial
statements.
u. Disclosure of new standards in the period prior to their adoption:
1. IFRS 3, "Business Combinations":
In October 2018, the IASB issued an amendment to the definition
of a "business" in IFRS 3, "Business Combinations" ("the
Amendment"). The Amendment is intended
to assist entities in determining whether a transaction should
be accounted for as a business combination or as an acquisition of
an asset.
The Amendment consists of the following:
1. Clarification that to meet the definition of a business, an
integrated set of activities and assets must include, as a minimum,
an input and a substantive process that together significantly
contribute to the ability to create output.
2. Removal of the reference to the assessment whether market
participants are capable of acquiring the business and continuing
to operate it and produce
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
outputs by integrating the business with their own inputs and
processes.
3. Introduction of additional guidance and examples to assist
entities in assessing whether the acquired processes are
substantive.
4. Narrowing the definitions of "outputs" and "business" by
focusing on goods and services provided to customers.
5. Introducing an optional concentration test that permits a
simplified assessment of whether an acquired set of activities and
assets is not a business.
The Amendment is to be applied prospectively to all business
combinations and asset acquisitions for which the acquisition date
is on or after the beginning of the first annual reporting period
beginning on or after January 1, 2020, with earlier application
permitted.
2. Amendments to IFRS 9, IFRS 7 and IAS 39:
In September 2019, the IASB published an amendment to IFRS 9,
"Financial Instruments", IFRS 7, "Financial Instruments:
Disclosures" and IAS 39," Financial Instruments: Recognition and
Measurement" ("the Amendment").
In view of global regulatory changes, numerous countries have
considered introducing a reform in the benchmark Interbank Offered
Rates ("IBORs") (LIBOR, the London Interbank Offered Rate, being
one of the most common examples) and switching to a risk-free
interest rate alternative ("RFRs") which extensively rely on data
of specific transactions. The IBOR reform leads to uncertainty
regarding the dates and amounts to be attributed to future cash
flows relating to both hedging instruments and hedged items that
rely on existing IBORs.
According to the existing accounting guidance of IFRS 9 and IAS
39, entities that have entered into the above hedges are facing
uncertainty as a result of the IBOR reform which is likely to
affect their ability to continue meeting the effective hedging
requirements underlying existing transactions as well as the
hedging requirements of future transactions. In order to resolve
this uncertainty, the IASB issued the Amendment to offer
transitional reliefs for entities that apply IBOR-based hedge
accounting. The Amendment represents phase one in the reform that
will include additional amendments in the future.
The Amendment also permits certain reliefs in applying the hedge
accounting effectiveness tests during the period of transition from
IBORs to RFRs. These reliefs assume that the benchmark interest
underlying the hedge will not change as a result of the expected
interest reform. The reliefs will be effective indefinitely, until
the occurrence of one of the events specified in the Amendment. The
Amendment also requires entities to provide specific disclosures of
the application of any reliefs.
The Amendment is to be applied retrospectively for annual
periods beginning on or
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
after January 1, 2020. Early adoption is permitted.
The Company believes that the adoption of the Amendment will not
have an effect on the Company's financial statements since it does
not enter into substantial IBOR-based hedges.
NOTE 3:- CASH AND CASH EQUIVALENTS
December 31,
--------------
Bank deposits and cash denominated in 2019 2018
------------------------------------------- ------ ------
EUR - bank balances 1,044 1,323
United States Dollar (USD) - bank balances 9 11
New Israeli Shekel (NIS) 4 4
Polish Zlotys (PLN) 9 34
Other currencies 60 33
1,126 1,405
====== ======
*) The balances are not bearing interest.
The Group's sensitivity analysis for financial assets and
liabilities are disclosed in Note 16.
NOTE 4:- PREPAYMENTS AND OTHER RECEIVABLES
Prepayments and other receivables:
December 31,
--------------
2019 2018
------ ------
Tax receivables *) 133 226
Prepayments and others *) 48 14
------ ------
181 240
====== ======
*) refer to Note 18.
NOTE 5:- TRADING PROPERTIES
December 31,
-----------------
2019 2018
------- --------
Balance as at 1 January 42,600 73,569
Increase in value (Write-down) of trading
properties, net (1) 1,238 (28,212)
Trading properties disposed (2) (3,463) (2,757)
------- --------
Balance as at 31 December 40,375 42,600
======= ========
Trading properties designated for sale 40,375 42,600
------- --------
NOTE 5:- TRADING PROPERTIES (Cont.)
(1) Breakdown of write-downs (Increase in value) of trading
properties is presented in the table below:
Year ended
December 31,
----------------
Project name (location) 2019 2018
------- -------
Helios Plaza (Athens, Greece) - 1,150
Krusevac (Krusevac, Serbia) - 300
Lodz Plaza (Lodz, Poland) - 1,940
Lodz Centrum (Lodz, Poland) - 100
Casa radio (Bucharest, Romania) (738) 24,172
Brasov (Brasov, Romania) - 550
Miercurea Ciuc (Miercurea Ciuc,
Romania) (500) -
------- -------
(1,238) 28,212
------- -------
Change in provision in respect to
PAB (*) 1,738 1,238
------- -------
Total write-downs 500 29,450
------- -------
(*) See also (3)(e) in this Note below.
The 2019 write-downs were caused mainly due to the following
factors:
-- EUR 0.5 million of partial reversal of write-down in
Miercurea Ciuc, Romania, which reflects signed sale agreement.
-- EUR 0.7 million of partial reversal of write-down in Casa
Radio project, Romania and EUR 1.7 million of write-down (relating
to change in provision in respect to PAB) in Casa Radio project,
Romania (see (3) in this Note).
For detailed information with respect to valuation techniques
and main assumptions, refer also to (4) in this Note.
(2) Sale of assets in the reporting period:
a) Disposal of land plot in Lodz, Poland (representing 22% of this holding):
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 EUR 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
in 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
NOTE 5:- TRADING PROPERTIES (Cont.)
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.
On March 26, 2019 the Company has signed definitive sale
agreement, under terms of which the purchaser paid the rest of
consideration (circa EUR 0.84 million) in two installments: EUR
0.76 million was paid at the date of the signing of the definitive
sale agreement and the remaining amount of EUR 0.09 million was
paid on April 29, 2019.
b) Disposal of the remaining land plot in Lodz, Poland:
In May 2019, the Company has signed a preliminary agreement for
the sale of its remaining holdings in the plot (circa 47,860 sqm)
to a local developer for a total gross consideration of
approximately EUR 1.10 million.
On October 10, 2019 the Company has signed definitive sale
agreement. The Company has received 50% upon signing of the
definitive sale agreement and the remaining 50% was paid before
December 10, 2019.
c) Disposal of land plot in Miercurea Ciuc, Romania:
On June 15, 2017 a directly owned subsidiary signed a
Pre-Agreement for the sale of land plot in Miercurea Ciuc, Romania.
On April 1, 2019 the last amendment of the Pre-Agreement was
signed, based on which the purchase price of land plot was fixed at
EUR 1.58 million and the date of a definitive agreement was
postponed by 3 months to mid-July 2019.
By the end of April 2019, a directly owned subsidiary received
an amount of EUR 0.36 million as non-refundable advance
payments.
On July 10, 2019 a directly owned subsidiary completed the sale
of land plot in Miercurea Ciuc, Romania and signed a definitive
agreement for a total amount of EUR 1.58 million, following which
it received the last installment of EUR 1.22 million (as described
above the amount of EUR 0.36 million was already received as
non-refundable advance payment).
(3) 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 city 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%).
NOTE 5:- TRADING PROPERTIES (Cont.)
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 (36 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.
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.
NOTE 5:- TRADING PROPERTIES (Cont.)
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 of
year end (EUR 24 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 believes
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,
pre-sale agreement for the sale of its holdings was signed on 3
July, 2019 (see (3)(f) in this Note).
Management considers the risk of termination of the PPP
agreement and/or the imposition of penalties by the authorities to
be unlikely and the consolidated financial statements do not
include any provision in respect to any potential future penalties
in respect to the breach of the PPP agreement.
NOTE 5:- TRADING PROPERTIES (Cont.)
(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 was 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. On September 23, 2019, the
Romanian Prosecutor (the "Prosecutor") decided to close the
investigation considering that there is no evidence to indicate
that any bribery offense was committed in relation to the Project.
The Prosecutor decided that no money laundry exists and that the
evidence regarding a potential traffic of influence leads to the
conclusion that this may be considered a matter for civil
litigation and not a criminal offense.
(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 15.8
million in respect of the construction of the PAB (December 31,
2018: EUR 14.1 million).
During 2019, the Company recorded a loss amounting to EUR 1.7
million as a result from the change in the PAB provision as part of
write-down of trading properties (in 2018 loss - EUR 1.2
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.
NOTE 5:- TRADING PROPERTIES (Cont.)
(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 precedent.
On July 3, 2019 the Company's wholly owned subsidiary Dambovita
Center Holding B.V ("Dambovita NL") as seller, the Company as
guarantor and AFI Europe as buyer entered into a pre-sale agreement
for the sale of the shareholding in Dambovita Center S.R.L
("Dambovita RO") (the "Pre-Sale Agreement"). Pursuant to the terms
of the Pre-Sale Agreement, AFI Europe N.V. shall carry out a due
diligence review which shall be completed no later than 5 September
2019 following which, subject to the satisfaction of the other
conditions precedent in the Pre-Sale Agreement, the parties to the
Pre-Sale Agreement will execute a share purchase agreement in the
short form being Annex 3 to the Pre-Sale Agreement (the "SPA") and
an intragroup loan assignment/novation agreement.
The Company, as guarantor under the Pre-Sale Agreement, will
undertake to indemnify AFI Europe, jointly and severally, against
all losses, charges, costs and expenses (including reasonable
attorney's fees) which AFI Europe N.V. shall sustain or incur (i)
by reason of a breach of Dambovita NL's warranties under the
Pre-Sale Agreement in whole or in part (the aggregate liability of
Dambovita NL under claims for breach of Dambovita NL's warranties
and any other indemnification event under the Pre-Sale Agreement:
(a) occurring between the signing date of the Pre-Sale Agreement
and the Closing Date shall be limited to the costs and expenses
actually incurred by AFI Europe in connection with the fulfillment
of the conditions precedent and only after and subject to (i)
satisfactory due diligence and (ii) down payment; (b) arising after
the Closing date, shall not exceed EUR 60 million; and (ii) in
connection with a specific indemnity granted by Dambovita NL in the
Pre-Sale Agreement, whereby Dambovita NL expressly, irrevocably and
unconditionally undertakes to fully indemnify AFI Europe N.V.
against any losses related to or deriving from the investigation of
the Romanian National Anticorruption Directorate that is currently
pending against Dambovita RO and/or its current and former officers
or any other criminal investigation concerning Dambovita RO and/or
its current and/or former officers in relation to events occurring
prior to the Closing Date which specific indemnity is unlimited;
these guarantee obligations from the Company are not laid down in a
separate document but are incorporated in the Pre-Sale Agreement
(the "Company Guarantee").
NOTE 5:- TRADING PROPERTIES (Cont.)
Conditions precedent in the Pre-Sale Agreement comprise inter
alia (i) the satisfactory completion of a due diligence
investigation by AFI Europe N.V. by the latest on 5 September 2019;
(ii) the Romanian competition council having issued competition
approval for the Transaction; (iii) publication of the contemplated
sale of the shares in Dambovita RO by Dambovita NL in the Official
Gazette of the Romanian Government and the lapse of a 30-day
objection period with no opposition being lodged; (iv) no pending
or imminent material adverse change (which includes insolvency of
Dambovita RO, termination of the PPP Agreement or a significant
amendment of the terms and conditions of the PPP Agreement
rendering the fulfilment thereof more onerous; (v) issuance of a
Government Decision confirming that Dambovita NL may transfer the
shares to AFI Europe N.V.(or any of its affiliates) and that the
Company and Elbit Imaging Ltd. may transfer their rights and
obligations under the PPP Agreement to AFI Europe N.V.(vi);
amendment of the PPP Agreement in order to transfer the rights of
Elbit Imaging Limited and the Company to AFI Europe N.V.; (vii)
obtaining a written confirmation that the 49 years term of the PPP
Agreement shall be calculated, the earliest, starting from 2012,
however, in case the 49 years concession term is calculated from
any other previous date, the parties to the Pre-Sale Agreement will
try to find an amicable compromise, discounting the Purchase Price
(as defined below) to reflect the shorter concession term; in case
of such parties' failure to reach an agreement with respect to the
discounted Purchase Price, AFI Europe N.V. has the right to
consider this condition precedent as not being fulfilled; and
(viii) the receipt of approval of the General Meeting and the
Company's bondholders for the Transaction.
The fulfilment of the condition's precedent relating to the
approval of the Company's shareholders and bondholders as referred
to above must occur no later than 5 September 2019. The long stop
date as referred to in the Pre-Sale Agreement (i.e. the date on
which all conditions precedent must be fulfilled and closing of the
Transaction must occur) is 15 months after the lapse of the due
diligence period (5 September 2019).
On July 30, 2019 at the bondholders' meeting of Bonds series A
and Bonds Series B it was decided to authorize the company to enter
into an agreement and execute the transaction contained therein,
despite the Company's failure to comply with the minimum coverage
ratio (as defined in the Trust Deed) and notwithstanding the
provision of section 4.6 of the Trust Deed.
In addition, an extraordinary general meeting of Shareholders of
the Company held on 29 August 2019 approved the transaction as
detailed in the Notice of EGM.
NOTE 5:- TRADING PROPERTIES (Cont.)
PRE-SALE AGREEMENT - SPECIFIC PROVISIONS
Pursuant to the Pre-Sale Agreement, Dambovita NL will transfer
its interest in Dambovita RO and will assign the Intragroup Loans
to AFI Europe N.V. for the maximum consideration of EUR 60 million,
subject to the fulfilment of certain conditions (the "Purchase
Price").
The Purchase Price is defined in the Pre-Sale Agreement as EUR
60 million minus 75% of Dambovita RO's liabilities computed based
on the closing accounts (being the financial statements of
Dambovita RO for the period from 1 January of the year in which the
closing of the Transaction will occur) and excluding the Intragroup
Loan, plus 75% of Dambovita RO's available cash and other current
assets as shown in the closing accounts (as referred to above) and
minus (insofar applicable) an amount agreed upon by the parties to
the Pre-Sale Agreement to be reduced from the Purchase Price if the
49-year PPP-rights period will be calculated from any date prior to
the year 2012. The loan assignment amount (as part of the Purchase
Price) will be
calculated on the Closing Date as the balance between the
Purchase Price and the price for the shares sold (being the nominal
value of these shares RON 44,050,380, which is the equivalent of
USD 14,778,862).
Upon satisfactory completion of the due diligence to be carried
out by AFI Europe, there will be a down payment of EUR 200,000,
which shall be repaid upon the occurrence of (i) cancellation of
the PPP Agreement; (ii) initiation of Dambovita RO's dissolution
due to negative equity requirements; (iii) the existence of
elements of criminal investigation against Dambovita RO, beyond the
information as disclosed to AFI Europe or, if such investigation
would be held against Dambovita RO's directors of employees, in
case this would trigger a significant impact on the Dambovita
Project or (iv) Dambovita NL refuses to proceed to closing or is
not present at the closing date, although all the conditions
precedent were fulfilled or waived.
Subject to fulfilment of the condition's precedent in the
Pre-Sale Agreement as detailed above which includes, among others,
the execution of the SPA, AFI Europe is bound to make a payment of
EUR 20 million to Dambovita NL. A further EUR 22 million is to be
paid later upon the issuance by the competent authorities of a
building permit for the first stage of the Dambovita Project (the
development of the shopping mall or the office building, excluding
the public authority building as referred to above). The balance
between the Purchase Price and the payments already made, will be
paid out to Dambovita NL upon all permits required for the
operation of any of the components (office building or shopping
mall) of the first stage of the Dambovita Project including a fire
permit and the operation permit having been obtained.
On September 5, 2019 in accordance with the pre-sale agreement,
AFI has paid the down payment of EUR 200,000.
As described above, the Parties have 15 months from September 5,
2019 to execute the SPA, subject to the satisfaction of conditions
precedent.
NOTE 5:- TRADING PROPERTIES (Cont.)
As of the date hereof, there can be no certainty that either the
condition's precedent in the Pre-Sale Agreement as detailed above
will be met, or that the Sale Agreement will be executed and/or
that the Transaction will be consummated as presented above or at
all.
There can be no certainty that the SPA will eventually be
executed and/or that the Transaction will be consummated as
presented above or at all.
(4) 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, 2019, amounted to EUR
132.4 million or 76.6% percent of outstanding trading properties
original.
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, 2019, 98.6% of the value of trading properties was
based on valuations done by the independent third-party valuation
service (2018 - 91.8%).
On the Casa Radio project, 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 pre-sale
agreement are optimal and reasonable considering the Company's
current status and decided to sign a pre-sale agreement with AFI
Europe.
Following signing of pre-sale agreement as described in Note
5(3)(f), the Company measured the net realizable value of the
project based on the signed pre-sale agreement. 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(3)(f)
and derived to a value of EUR 37 million (2018 - 37.7 million). As
a result, the Company's management assumed additional discount of
35% (2018 - 33.3%) in order to reflect this uncertainty which
resulted in value of the proposed deal of EUR 24 million (2018 -
EUR 25 million).
NOTE 5:- TRADING PROPERTIES (Cont.)
In addition, the Company, with the assistance of an independent
appraisal, carried out a valuation using the Residual value
approach which set a value of EUR 47.3 million (2018 - EUR 43
million).
Accordingly, since the value based on the Residual value
approach is higher than estimated present value of the proposed
deal, as of December 31, 2019, the Company recorded Casa Radio
project at its net realizable value in the amount of EUR 24 million
(2018 - EUR 25 million).
Trading property is presented at gross basis in the amount of
EUR 39.8 million (2018 - EUR 39.1 million) and provision for PAB
liability in the amount of EUR 15.8 million (2018 - EUR 14.1
million).
The following parameters have been considered to arrive at the
net realizable value of the property (based on the signed pre-sale
agreement):
7.085% Prime Yield - the prime real
estate yield as a basis for the
computation of the discount rate
since this risk reflects investors'
sentiment regarding the country
risk as well as liquidity/industry
risk; and
0.375% Submarket risk - based on
relevant transactions recently closed
but as well as considering current
market sentiment, the respective
prime yield was adjusted, for each
asset class planned to be developed
on the site
The overall estimated transaction
yield is resulting from the weighted
average, for each asset class, between
the expected GLA and its respective
Asset risk 7.46% transaction yield.
Their assessment, assumed that all
authorizations will be obtained
therefore no risk was considered
Approval risk 0.00% in this respect.
Project risk 1.75% Considering the legal specificities
of the transaction (PPP legal framework),
the potential delays in obtaining
all authorizations/approvals as
well as the potential adjustments
resulting from the CPs fulfilment,
we assumed an overall project risk
of 1.75%
Counterparty 4.50% Considering the macroeconomic encouraging
risk perspective, the continuity of ECB's
quantitative easing, the recent
spread reduction on bonds markets,
the interest rate expected stability,
the slight improvement of local
financing conditions as well as
AFI's financial standing and shareholding
structure, we estimated a 4.5% counterparty
risk for this transaction.
Discount rate 13.71%
============== ====== ============================================
NOTE 5:- TRADING PROPERTIES (Cont.)
The following table provides sensitivity analysis on net
realizable value of the property, based on additional discount
implemented by the management:
Discount rate
12.71% 13.21% 13.71% 14.21% 14.71% 15.21% 15.71% 16.21%
Potential
discount 0.00% 38.2 37.6 37.0 36.5 36.0 35.5 35.0 34.5
10.00% 34.4 33.8 33.3 32.9 32.4 32.0 31.5 31.1
20.00% 30.6 30.1 29.6 29.2 28.8 28.4 28.0 27.6
35.00% 24.8 24.4 24.1 23.7 23.4 23.1 22.8 22.4
40.00% 22.9 22.6 22.2 21.9 21.6 21.3 21.0 20.7
50.00% 19.1 18.8 18.5 18.3 18.0 17.8 17.5 17.3
Relating the trading property in India owned by joint controlled
entity 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.)
(5) Below is a summary table for main projects status:
Carrying Carrying
amount amount
Holding December December
Purchase Rate Nature of Plot Size 31, 2019 31, 2018
Project Location year (%) rights Permit status (sqm) (MEUR) (MEUR)
Perpetual Planning permit
Lodz plaza Poland 2009 100 usufruct pending 61,500 sold 1.96
--------- ---------- -------- ----------- ----------------- ---------- ------------ ------------
Remained
Lease Detailed Urban
period 37 Plan 467,000
Casa radio Romania 2007 75 years ("PUD") valid GBA (*) (**) 39.8 (**) 39.1
--------- ---------- -------- ----------- ----------------- ---------- ------------ ------------
Miercurea No valid permit
Ciuc (Building Permit
Plaza Romania 2007 100 Ownership expired) 36,500 sold 1.0
--------- ---------- -------- ----------- ----------------- ---------- ------------ ------------
Brasov Plot Romania 0.55 0.55
--------------------- -------- ----------- ----------------- ---------- ------------ ------------
Total 40.4 42.6
-------- ----------- ----------------- ---------- ------------ ------------
(*) Gross Building area (sqm)
(**) Represents gross value including commitment for PAB
construction, which is presented as non-current provision in amount
of EUR 15.8 million as of December 31, 2019 (EUR 14.1 million as of
December 31, 2018).
NOTE 6:- EQUITY ACCOUNTED INVESTEES
a. The Group has the following interest (directly and
indirectly) in the below joint ventures.
Interest of holding
(percentage)
as at December
31,
---------------------
Company name Country Activity 2019 2018
----------------------- -------- ------------- ---------- ---------
Elbit Plaza India Real Mixed-use
Estate Holdings Ltd. large-scale
("EPI") (*) Cyprus projects 47.5% 47.5%
None of the joint ventures are publicly listed.
(*) Though EPI is 47.5% held by the Company, the Company is
accounted for 50% of the results, as the third party holding 5% in
EPI is deemed not to participate in accumulated losses, hence Elbit
and the Company, the holders of the remaining 95% each account for
50% of the results of EPI.
The movement in equity accounted investees (in aggregation) was
as follows:
2019 2018
------- -------
Balance as at 1 January 17,676 19,530
Distribution received from equity-accounted
investees, net (3) (782) (2,499)
Share in results of equity-accounted
investees, net of tax (1) (2,396) 1,443
Effect of movements in exchange rates (79) (798)
Balance as at 31 December (2) 14,419 17,676
======= =======
(1) Breakdown of the Group's share of increase (write-downs) of
trading properties projects held by equity accounted investees is
as follows:
Year ended
December 31
--------------
Project name (holding company 2019 2018
name)
------- -----
Bangalore (held by EPI) (*) (1,809) 1,623
Chennai (held by EPI) (*) (472) -
(2,236) 1,623
======= =====
(*) Refer to the below paragraphs b(1) and b(2) regarding the properties' write downs.
NOTE 6:- EQUITY ACCOUNTED INVESTEES (Cont.)
(2) Repayment of loan granted to the Company by EPI from
proceeds received from the Partner in Bangalore property. See b (1)
below.
b. Material joint ventures:
The summarized financial information of the material joint
venture EPI (due to holding of major schemes in Bangalore and
Chennai) is as follows:
2019 2018
-------- --------
Current assets (*) 2,994 1,956
Trading properties-non current 39,354 46,390
Other current liabilities (13,510) (12,994)
Net assets (100%) 28,838 35,352
Group share of net asset (50%) (**) 14,419 17,676
Carrying amount of interest in joint
venture 14,419 17,676
======== ========
(*) Including cash and cash equivalents in the amount of EUR
2,816 thousand (2018 - EUR 1,812 thousand);
(**) Refer to remark on EPI holding rate in section a above.
2019 2018
------- -----
Increase (write-downs) of trading properties (4,472) 3,246
Other income (expenses) (320) (360)
Total net profit (loss) and comprehensive
income (100%) (4,792) 2,886
Group share of Profit (loss) and comprehensive
income (50%) (2,396) 1,443
Total results from investees (2,396) 1,443
======= =====
(1) Bangalore:
In March, 2008 EPI entered into a share subscription and
framework agreement (the "Agreement"), with a third-party local
developer (the "Partner"), and a wholly owned Indian subsidiary of
EPI which was designated for this purpose ("SPV"), to acquire
together with the Partner, through the SPV, up to 440 acres of land
in Bangalore, India (the "Project") in certain phases as set forth
in the Agreement. As of December 31, 2019, the Partner has
surrendered sale deeds to the SPV for approximately 54 acres (the
"Plot"). In addition, under the Agreement the Partner has also been
granted with 10% undivided interest in the Plot and have also
signed a Joint Development Agreement with the SPV in respect of the
Plot.
On December 2, 2015 EPI has signed an agreement to sell 100% of
its interest in the SPV to the Partner (the "Sale Agreement"). The
total consideration upon completion of the transaction was INR 321
crores (approximately EUR 40.2 million) which should have been paid
no later than September 30, 2016 ("Long Stop Date"). On November
15, 2016, the Partner informed EPI that it will not be able to
execute the advance payments.
NOTE 6:- EQUITY ACCOUNTED INVESTEES (Cont.)
As a result of the foregoing, the Company has received from the
escrow agent the sale deeds in respect of additional 8.7 acres (the
"Additional Property") which has been mortgaged by the Partner in
favor of the SPV in order to secure the completion of the
transaction on the Long Stop Date. The Additional Property has not
yet been registered in favor of the SPV for cost-benefit reasons.
In addition, as per the Sale Agreement, the Company took actions in
order to get full separation from the Partner with respect to the
Plot and specifically the execution of the sale deed with respect
of the 10% undivided interest, all as agreed in the Sale
Agreement.
As a result of the failure of the Partner to complete the
transaction under the Sale Agreement and in accordance with the
provisions thereto, EPI has 100% control over the SPV and the
partner is no longer entitled to receive the 50% shareholding.
In light of the above, and after lengthy negotiations between
the parties, new understandings were formulated and the parties
signed a revised agreement that substantially altered the outline
of the original transaction (and this agreement was amended several
more times, the last of which in April 2019), and concluded that:
(i) the closing date for the transaction will be extended to
November 2019, and may be further extended to August 2020 (the
"Closing Date"). It should be clarified that the postponement of
the closing date to November 2019 and August 2020 was subject to
receipt of payments as agreed in the Sale Agreement and subject to
mutually agreed payment terms; and (ii) the consideration was
increased to INR 356 crores (approximately EUR 44.6 million) (Plaza
part approximately EUR 22.3 million) (the "Consideration").
On January 10, 2020, the Company announced that a notice has
been issued to the Partner to file its response in the insolvency
proceedings initiated for the recovery of the amounts due. As
regards the criminal cases filed for dishonor of the cheques which
were given as security for payment of certain installments, the
court has issued arrest warrants and the local police is on the
look out for the accused persons.
Until the approval of the financial statements, the Partner paid
to EPI approximately EUR 11.2 million (INR 87.00 crores) (Plaza
part INR 43.5 crores (approximately EUR 5.6 million) out of a total
consideration of INR 356 crores (EUR 44.6 million) (Plaza part INR
178 crores (approximately EUR 22.3 million) the SPV should have
been received as of the said date as per the Agreement.
.
As of the date the Partner has paid during 2019 INR 17 crores
(Plaza part INR 8.5 crores (app. EUR 1.1 million)), during 2018 INR
30 crores (Plaza part INR 15 crores (app. EUR 2 million)), during
2017 INR 40 crores (Plaza part INR 20 crores (app. EUR 2.5
million)). Further, the Partner has mortgaged approximately 8.7
acres of plots as security for completion of the transaction as
noted above.
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
NOTE 6:- EQUITY ACCOUNTED INVESTEES (Cont.)
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.
Net realizable value measurement of Bangalore project:
As for December 31, 2019 and 2018 the Group measured the net
realizable value of the project. The net realizable value of the
project based on the comparable Method is INR 206 crores (EUR 25.8
million); 2018 - INR 235 crores (EUR 29.5) Due to decrease in value
of the plot EPI recognized a write down in the amount of app. Euro
3.6 Million (the company part (50%) app. EUR 1.8 Million) .
The evaluation Value in INR million Value in EUR million
method
Comparable Method 2,061 25,80
--------------------- ---------------------
DCF Method 1,979 24, 7 3
--------------------- ---------------------
In light of the Company's intention to sell the Plot to the
Partner or to any other third party (see above), and in light of
the uncertainty as to the completion of the transaction with the
Partner, the Company believes that the comparable method reliably
reflects the net realizable value of the Plot and therefore the
Property is included in the financial statements at the value of
EUR 12.9 million (the Company's part 50%) .
The plot in Bangalore is still in land stage and therefore the
value of the plot has been derived using land comparable method.
The valuation of the property reflects the interest that the
partner still holds in the plot (10% as described above), the size
of the plot and the non-contiguous land parcel and the petition /
application filed with NCLT against the partner.
The local authorities have proposed a revised master plan for
Bangalore under which it is proposed to change the zoning of the
Plot from residential to open Space/ parks/ recreation zone which
if given effect might adversely affect the development prospects on
the Plot. It should be clarified that as long as the proposed
change has not been definitively approved, the land zoning remains
intact (residential zoning). However, there is no certainty as to
the response of the local authorities if and as a construction plan
is submitted to them during this period (before a final decision is
made as to whether or not to approve the change). The Company being
aggrieved by the proposed change was entitled to and has filed (as
well as other third parties) the necessary objections with the
concerned authorities (the period for submitting
NOTE 6:- EQUITY ACCOUNTED INVESTEES (Cont.)
objections to the revised master plan has expired) and believes
that the current zoning
regulations will be maintained. Management believes that the
current discount rate used towards this end is an appropriate
estimation in the current circumstances.
The following main parameters have been considered to arrive at
the land value of the subject property by land sale comparison
method:
Parameter Premium
(Discount)
-------------
Applicable land value (INR Mn/acre) 99
-------------
Applicable FSI value (INR / Sq. ft) 1,229
-----------
Total land value 5389
-----------
Discount on account of Revised Master Plan
2015 Buffer zone norms (%) -25%
-----------
Presence of minority shareholder -20%
-----------
Discount on account of possible change
in zoning (open space/parks) -25%
-----------
Discount on account of the petition / application
filed with NCLT -15%
-----------
Total land value (INR Mn) 2,061
-----------
(2) Chennai:
In December 2007, EPI executed agreements for the establishment
of a special purpose vehicle ("Chennai Project SPV") together with
a local developer in Chennai ("Local Partner"). The Chennai Project
SPV acquired 74.73 acres of land situated in the Sipcot Hi-Tech
Park in Siruseri District in Chennai ("Property").
On September 16, 2015, EPI has obtained a backstop commitment
from the Local Partner for the purchase of its 80% shareholding in
the Chennai SPV by January 15, 2016, for a net consideration of
approximately INR 161.7 Crores (EUR 21.1 million). Since the Local
Partner had breached its commitment, EPI exercised its rights and
acquired the Local Partner's 20% holdings in the Chennai Project
SPV. Accordingly, as of the balance sheet date EPI has 100% of the
equity and voting rights in the Chennai Project SPV. However, there
are two lawsuits (being filed in India) by plaintiffs claiming to
be legal heirs of the landowners of the Property, who wish to
recognize them as owners of 2.5% the Property.
During 2016, Chennai Project SPV has signed a Joint Development
Agreement with a local developer ("Developer" and "JDA",
respectively) with respect to the Property. Under the terms of the
JDA, the Chennai Project SPV granted the property development
rights to the Developer" who shall bear full responsibility for all
of the
project costs and liabilities, as well as for the marketing of
the scheme. The JDA also stipulates specific project milestones,
timelines and minimum sale prices.
The JDA may be terminated in the event that the required
governmental approvals for establishment of access road to the
Property has not been achieved within 12 (twelve) months period
from the execution date of the JDA. The required approvals have not
yet been obtained at the target date. Upon such termination, the
Developer shall be entitled to the refund of the relevant amounts
paid as Refundable Deposit
NOTE 6:- EQUITY ACCOUNTED INVESTEES (Cont.)
and any other cost related to such access road or the title over
the Property.
On July 5, 2018 EPI signed a term sheet ("Term Sheet") with the
Developer, which were adjusted during October 2018, for the sale of
the Property for a total consideration of approximately EUR 13.2
million (INR 108 crores). 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
Developer terminating the JDA due to its failure to obtain the
access road. The said termination of JDA has been disputed by the
Developer. Therefore, the Chennai Project SPV has initiated
arbitration proceeding against the Developer in accordance with the
Arbitration Rules of the Singapore International Arbitration
Centre, in accordance with the JDA Agreement to protect its rights
.
On June 13, 2019 the Company announced that EPI and the
Developer have signed a share purchase agreement ("SPA") according
to which: (i) the Developer has paid a deposit of INR 5 crores
(approximately EUR 0.625 million) in order to provide the Developer
with an additional six months to complete the closing, which may be
extended by another three month upon payment by the Developer of an
additional deposit of INR of 5 crores (approximately EUR 0.625
million). (ii) if the Developer is unable to complete the closing
within the aforesaid time periods, then the parties will mutually
appoint an international real estate consulting firm for the
purpose of identifying a third-party buyer within a period of six
months; (iii) if the Developer is unable to complete the closing
and no third-party buyer is found within the aforesaid time
periods, both the JDA and SPA shall be terminated, subject to the
Developer receiving the Deposits. However, the Purchaser will not
be entitled to reimbursement of expenses incurred by it under the
JDA; (iv) any final price received from a third-party buyer above
approximately EUR 13.2 million (INR 108 crores) (the
"Consideration") will be shared 67% by the Developer and 33% by
EPI. The Consideration is subject to adjustment with respect to the
Deposits and the existing cash in the Chennai Project SPV; (v) the
Consideration will be remitted in Euro at the base rate already
agreed upon by the parties. Foreign exchange loss arising due to
change in conversion rate from INR to Euro will be borne by the
Developer and gain will be credited to the account of EPI; (vi) the
parties withdraw the arbitration proceedings and other notices of
the Company and of Elbit Imaging Ltd. as guarantor under the SPA,
undertake EPI will transfer to the partner 100% of the rights in
SPV. The liability in connection with the guarantee as stated here
in on standalone bases (and not together) and limited to an amount
not exceeding 200% of the updated consideration and for a period
not exceeding 5 years from the date of the agreement being
concluded .
NOTE 6:- EQUITY ACCOUNTED INVESTEES (Cont.)
One December 5, 2019 the Company announced that EPI and the
Developer have reached a revised understanding regarding the
amendment of the agreement according to which: (i) The Developer
further paid the Chennai Project SPV INR 5 crores (approximately
EUR 0.625 million) and received a three months extension to
complete the closing (i.e., until March 3, 2020). This closing may
be extended for an
additional three months period (i.e., until June 3, 2020), for
an additional payment of INR 5 crores, to be paid by the Developer.
As of December 5, 2019, the Developer has paid the SPV a total of
INR 20 crores (approximately EUR 2.5 million) out of the
Consideration; (ii) According to the SPA, if the Developer is
unable to complete the closing within the aforesaid time periods,
then the parties will mutually appoint an international property
consultant for the purpose of identifying a third-party buyer
within a period of six months; (iii) Out of the payments received
from the Developer (as detailed above) EPI is entitled to receive a
total of INR 17 crores (Plaza part INR 8.5 crores (approximately
EUR 1.05 million).
On February 18, 2020 the Company announced that EPI has received
the 17 crores (approximately EUR 2.1 million (the Company's part
EUR 1.05 million)) from the Chennai Project SPV.
On March 8, 2020 the Company announced that EPI and the
Developer have reached a revised understanding regarding the
amendment of the agreement according to which: (i) The Purchaser
paid further INR 5 crores (approximately EUR 0.625 million) and get
additional three months to complete the closing until June 3, 2020,
which may be extended by another three months upon payment by the
Purchaser of an additional deposit of INR of 7.5 crores
(approximately EUR 0.92 million) . (ii) if the Developer is unable
to complete the closing within the aforesaid time periods, then the
parties will mutually appoint an international real estate
consulting firm for the purpose of identifying a third-party buyer
within a period of six months.
At this stage, there is no certainty that the SPA closing will
occur.
Net realizable value measurement of Chennai project
Following signing of SPA (as described above)and in spite of the
uncertainty on the ability of the developer to complete the closing
within the aforesaid time periods (as detailed above), the
management and the board of EPI decided in order to measure the
value of the property, to compare between the Consideration (INR
1,082 million) which were agreed between the parties in the SPA to
the value in the valuation prepared by an external appraisal based
on the assets comparable method .
Accordingly, since the appraiser valued the property in the
valuation based on the comparable method in the value of INR 1,245
million (app. EUR 15.6 million) which is higher than the
consideration, the company recorded the value of the plot as of
December 31, 2019, in the value of INR 1,082 million (app. EUR 13.5
million) out of which the company part in financial reports were
EUR 6.77 million. Due to decrease in value of the plot EPI
recognized a write down in the amount of app. EUR 0.86 million (the
company part (50%) app. EUR 0.43 million).
NOTE 7:- OTHER LIABILITIES
December 31,
--------------
2019 2018
------ ------
Prepayments (*) 250 202
Salaries and related expenses (**) 53 8
Accrued expenses 177 290
Total 480 500
====== ======
(*) Including EUR 200 thousand payable due to down payment in
regard to pre-sale agreement for the sale of Casa Radio Project and
EUR 50 thousand prepayments in regard to plot sale in Brasov,
Romania (In 2018 - EUR 107 thousand payable due to refundable
deposit received regarding the sale of plot in Lodz, Poland and EUR
95 thousand prepayments in regard to plot sale in Miercurea Ciuc
Plaza, Romania).
(**) Refer to Note 18.
NOTE 8:- BONDS
a. Composition:
Carrying
amounts
Effective Contractual Principal as at
interest interest final Adjusted December
rate (*) rate maturity par value 31 2019
--------- ----------- --------- ---------- ---------
Series A Bonds 11.58% CPI+6% 2020 36,742 35,824
Series B Bonds 13.83% CPI+6.9% 2020 52,275 50,682
89,017 86,506
========== =========
b. Mandatory repayments subsequent to the reporting date (without early repayments):
2020 89,017
89,017
======
(*) Revised effective interest rate - refer to Note 2(j)
regarding the effect of the initial adoption of IFRS 9 on effective
interest rate.
(1) Pursuant to the Company's Restructuring Plan, the Company
will assign 78% of the net proceeds received from the sale or
refinancing of any of its assets as early repayment.
NOTE 8:- BONDS (Cont.)
(2) Approved amendment to an early prepayment term under the Restructuring
The Company has implemented the restructuring plan that was
approved by the Dutch court on July 9, 2014 (the "Restructuring
Plan").
Under the Restructuring Plan, principal payments under the bonds
issued by the Company and originally due in the years 2013 to 2015
were deferred for a period of four and a half years, and principal
payments originally due in 2016 and 2017 were deferred for a period
of one year.
The Restructuring Plan further provided that, if the Company
does not prepay an aggregate amount of at least NIS 434 million
(EUR 107.3 million) on the principal of the bonds on or before
December 1, 2016 (the "Early Prepayment"), the principal payments
due under the Extended Repayment Schedule will be advanced by one
year (the "Accelerated Repayment Schedule").
On November 29, 2016, the Company's bondholders approved a
postponement of the Early Prepayment date by up to four months and
the reduction of the total amount of the required Early Prepayments
to at least NIS 382 million (EUR 94.5 million) (a reduction of 12%
on the original amount).
In addition, the Company agreed to pay to its bondholders, on
March 31, 2018, a one-time consent fee in the amount of
approximately EUR 238 thousand (which is equal to 0.25% from the
Company's outstanding debt under the bonds at that time) (the
"Consent Fee"). The consent Fee shall be paid to the Company's
bondholders on a pro rata basis.
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 382,000,000) and thus obtained a deferral of one
year for the remaining contractual obligations of the bonds.
In addition to the above, the following terms were approved by
the bondholders:
(a) Casa radio proceeds - If the Company shall sell the Casa
radio project located in Romania (hereinafter: the "Project") to a
third party, including by way of selling its holdings in any of the
entities through which the Company holds the project (and said sale
shall be carried out before the full repayment of the bonds and
until no later than December 31, 2019, and for an amount which
exceeds EUR 45 million net (i.e. after brokerage fees (if any),
taxes, fees, levies or any other obligatory payment due to any
authority in respect to the said sale) which shall actually be
received by the Company, then the holders of bonds shall be
eligible for a one-time payment (which shall come in addition to
the principal and interest payments in accordance with the
repayment schedule), in certain amounts specified in tranches.
NOTE 8:- BONDS (Cont.)
(b) Registering of Polish bonds for trade - the Company has
committed to undertake best efforts to admit the Polish bonds for
trading on the Warsaw Stock Exchanges and proceeding in this
respect are ongoing.
(c) Deferred debt ratio of Series B bonds - were reduced to
68.24% from 70.44% following the cancellation of the treasury
bonds. The ratio has been changed for Series B bonds in order to
maintain a distribution ratio between the three series.
(c) Settlement agreement with Bondholders of Israeli Series of Bonds:
On September 26, 2017 the Company announced that, further to the
resolutions of the Israeli series A bondholders and the series B
bondholders in connection with future bondholder repayments (i.e.,
repayments to series A bondholders, to series B bondholders and to
the Polish bondholders), the Company intends to repay a total
amount of circa EUR 18,800,000, during October 2017, an amount
which represents 75% of the funds Plaza has received in the last
quarter from sale of real estate assets, as determined in the
restructuring plan ("Mandatory Repayment Amount") to be allocated
as follows:
- To the Polish bondholders: 8.33% of the Mandatory Repayment
Amount - as per the ratio determined in the restructuring plan.
- To the Israeli series A bondholders: 21.23% of the Mandatory
Repayment Amount - as per the ratio determined in the restructuring
plan.
- To the Israeli series B bondholders: 31.16% of the Mandatory
Repayment Amount - the proportional amount that corresponds to the
ratio between the outstanding debts of the two Israeli series of
bonds.
The Company intended to deposit the reminder of the funds with a
third-party trustee for the benefit of both Israeli series of bonds
and subsequently approached the competent court in Israel for the
receipt of instructions with regard to the allocation of such
reminder amount.
On October 4, 2017 the Company has received the consent of the
trustees of its Israeli series A bonds and series B bonds for the
allocation of certain funds received by the Company between the
Company's series A bonds and series B bonds due for repayment of
such bonds as detailed above.
NOTE 8:- BONDS (Cont.)
During December 2017, the Israeli court has instructed that the
mandatory repayment amounts due to the Israeli series A and series
B bondholders should be allocated according to the ratios set out
in the Company's restructuring plan. The court has also
acknowledged that Plaza is not an interested party in this
bondholder dispute and has granted the Company a protective order
from any claims in this respect. The Israeli Series A bondholders
triggered the immediate repayment of the entire outstanding debt
under the Series A trust deed.
2018
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 withdraw 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.
NOTE 8:- BONDS (Cont.)
On January 31, 2018 the Company paid the bondholders a total
amount of principal and interest of EUR 38,487 thousand.
(1) The net cash flow received by the Company following an exit
or raising new financial indebtedness (except if taken for the
purpose of purchase, investment or development of real estate
asset) or refinancing of real estate assets after the full
repayment of the asset's related debt that was realized or in
respect of a loan paid in case of debt recycling (and in case where
the exit occurred in the subsidiary - amounts required to repay
liabilities to the creditors of that subsidiary) and direct
expenses in respect of the asset (any sale and tax costs, as
incurred), will be used for repayment of the accumulated interest
till that date in all of the series (in case of an exit which is
not one of the four shopping centers only 50% of the interest) and
78% of the remaining cash (following the interest payment) will be
used for an early repayment of the close principal payments for
each of the series (A, B, Polish) each in accordance with its
relative share in the deferred debt. Such prepayment will be real
repayment and not in bond purchase.
(2) 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. The Company may be able to partially pay the
said principal depending, among other things, on the actual sale of
assets and taking into consideration the cash needs in accordance
with the scope of the forecasted activity.
2019
Following the announcement of the Company from January 2019, the
Company repaid in February 2019 circa EUR 400,000 (principal of
circa EUR 250,000 and penalty interests of circa EUR 150,000) to
its Series A and Series B. As provided for in the Settlement
Agreement, the bondholders approved the deferral of payment to July
1, 2019.
In addition, during June 2019 the bondholders approved the
deferral of the full payment of principal due on July 1, 2019 and
of 58% ("deferred interest amount") of the sum of interest
(consisting of the total interest accrued for the outstanding
balance of the principal, including interest for part of the
principal payment which was deferred as of February 18, 2019, plus
interest arrears for part of the principal which was fixed on
18.2.2019 and was not paid by the Company and all in accordance
with the provisions of the trust deed; "the full amount of
interest"), the effective date of which is 19.6.2019, and the
payment date was fixed as of 1.7.2019. The Company paid on the said
date a total amount of circa EUR 1.17 million of which is only 42%
of the full amount of interest.
NOTE 8:- BONDS (Cont.)
On July 11, 2019, the Company announced that its Romanian
subsidiary had signed a binding agreement to sell land in Romania
(refer to Note 5(2)(c)), and that the Company would use part of the
proceeds now received by it EUR 0.75 million (hereinafter: "the
amount payable"), in order to make a partial interest payment to
the bondholders (Series A) and (Series B) issued by the Company.
The payment required changes in the repayment schedule and
amendments of the trust deeds which was approved unanimously by the
Bondholders. The amount payable was paid on August 14, 2019 and
reflects 30% of accrued interest as of that date.
On November 17, 2019 the bondholders of Series A and Series B
approved a deferral of all the scheduled Principal payment and app.
87% of deferral of the scheduled Interest payment, both, as of
December 31, 2019 to July 1, 2020.
Accordingly, in December 2019, Company made a partial interest
payment in amount of circa EUR 0.6 million of which is only 13% of
the full amount of interest.
As detailed in Note 1(b) the Company expects that it will not be
able to meet its entire contractual obligations in the following 12
months.
Accordingly, it intends to request the bondholders of both
series to postponement of the repayment of the remaining balance of
the Bonds.
d. Covenants:
The bonds' covenants are detailed in Note 17(b).
In respect of the Coverage Ratio Covenant ("CRC"), as defined in
the restructuring plan, as at December 31, 2019 the CRC is not in
compliance with 118% minimum ratio required.
e. Credit rating:
In January 2018, Standard & Poor's Maalot, the Israeli
credit rating agency which is a division of International Standard
& Poor's has discontinued tracking Plaza's rating at the
Company's request.
f. Redemption at Maturity of Series of Bonds issued in Poland:
On May 16, 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. Upon completion of the
redemption, the Company has no outstanding bonds issued in
Poland.
NOTE 9:- INCOME TAXES
a. Deferred taxes recognized are attributable to the following items:
Recognized
December in Profit December
31, or loss 31,
----------
Assets/(liabilities) 2019 2018 2019 2019
-------- ---------- --------
Bonds (943) 315 (628)
Tax value of carry-forwards
loss recognized (*) 943 (315) 628
-------- ---------- --------
Deferred tax asset (liability),
net - - -
======== ========== ========
Recognized
December in Profit December
31, or loss 31,
----------
Assets/(liabilities) 2018 201 7 2018 2018
-------------------------------- -------- ---------- --------
Bonds (1,561) 618 (943)
Tax value of carry-forwards
loss recognized (*) 1,561 (618) 943
Deferred tax asset (liability),
net - - -
======== ========== ========
(*) Due to tax losses created at the Company level.
b. Unrecognized deferred tax assets:
Deferred tax assets have not been recognized in respect of tax
losses in a total amount of EUR 112,073 thousand (2018: EUR 111,669
thousand).
Deferred tax assets have not been recognized in respect of these
items because it is not probable that future taxable profit will be
available against which the Group can utilize the benefits there
from. As of December 31, 2019, the expiry date status of tax losses
to be carried forward is as follows:
Total tax
losses carried After
forward 2020 2021 2022 2023 2023 2024
----- ------ ------ ------ ------ ------
114,584 8,894 12,890 25,231 18,490 14,652 34,427
Tax losses are mainly generated from operations in the
Netherlands. Tax settlements may be subject to inspections by tax
authorities. Accordingly, the amounts shown in the financial
statements may change at a later date as a result of the final
decision of the tax authorities.
NOTE 9:- INCOME TAXES (Cont.)
c. Amounts recognized in profit or loss :
Year ended
December 31
--------------
2019 2018
------ ------
Adjustment in respect of previous
years taxes (1) (71) 1,013
Total (71) 1,013
====== ======
(1) 2019 - result from withholding tax paid in Israel.
2018 - result of reverse of tax liability previously recorded in
the financial statements (disposal of land plot in Greece).
d. Reconciliation of effective tax rate:
2019 2018
-------- --------
Dutch statutory income tax rate 25% 25%
-------- --------
Loss from continuing operations before
income taxes (21,096) (39,378)
Tax benefit at the Dutch statutory
income tax rate (5,274) (9,844)
Recognition of previously unrecognized
tax losses - 5
Effect of tax rates in foreign jurisdictions (1,670) 3,043
Adjustment in respect of previous
years taxes 71 (1,015)
Current year tax loss and other timing
differences for which no deferred
taxes are created (1) 6,329 5,622
Non-deductible expenses (exempt income) 615 1,176
Tax Expense (Tax Benefit) 71 (1,013)
======== ========
(1) 2019 and 2018 - Mainly due to write-down of trading property
not recognized for tax purposes.
(2)
NOTE 9:- INCOME TAXES (Cont.)
e. The main tax laws imposed on the Group companies in their countries of residence:
The Netherlands:
a. Companies resident in the Netherlands are subject to
corporate income tax at the general rate of 25%. The first EUR
200,000 of profits is taxed at a rate of 20%. Tax losses may be
carried back for one year and carried forward for nine years.
b. The Dutch participation exemption gives a full exemption from
corporation tax applies to benefits such as dividends and capital
gains derived from a qualifying participation. The participation
exemption generally applies if the parent Company holds at least 5
percent of the shares in the participation. The requirements to
meet the participation exemption are as follows:
1. The parent Company has an interest of at least 5 percent in the participation; and
2. At least one of the following three tests is met:
a) The parent Company's objective with respect to its
participation is to obtain a return that is higher than a return
that may be expected from normal active asset management ("Motive
Test"); or
b) The participation is subject to a "reasonable taxation"
according to Dutch tax standards ("Subject-to-Tax Test"); or
c) The direct and indirect assets of the participation generally
consist of less than 50 percent of 'low taxed free passive
investments' ("Asset Test").
NOTE 10:- EQUITY
December 31,
----------------------
2019 2018
---------- ----------
Remarks Number of shares
--------
Authorized ordinary shares of par
value EUR 1 each 10,000,000 10,000,000
========== ==========
Issued and fully paid 6,855,603 6,855,603
========== ==========
Share based payment reserve
Share based payment reserve is in respect of Employee Share
Option Plans ("ESOP") in the total amount of EUR 35,376 thousand as
of December 31, 2019 (2018 - EUR 35,376 thousand).
Translation reserve
The translation reserve comprises, as of December 31, 2019, all
foreign currency differences
NOTE 10:- EQUITY (Cont.)
arising from the translation of the financial statements of
foreign operations in India.
Restriction of dividend
The Company shall not make any dividend distributions, unless
(i) at least 75% of the Unpaid Principal Balance of the Bonds (EUR
199 million) has been repaid and the Coverage Ratio on the last
Examination Date prior to such Distribution is not less than 150%
following such Distribution, or (ii) a Majority of the Plan
Creditors consents to the proposed Distribution.
Notwithstanding the aforesaid, in the event an additional
capital injection of at least EUR 20 million occurs, then after one
year following the date of the additional capital injection, no
restrictions other than those under the applicable law shall apply
to dividend distributions in an aggregate amount of up to 50% of
such additional capital injection.
NOTE 11:- EARNINGS PER SHARE
The calculation of basic earnings per share ("EPS") at December
31, 2019 was based on the loss attributable to ordinary
shareholders of EUR 21,167 thousand (2018: loss of EUR 38,365
thousand) and a weighted average number of ordinary shares
outstanding of 6,856 thousand (2018: 6,856 thousand).
Weighted average number of ordinary shares:
In thousands of shares with a EUR 1 par
value December 31,
--------------
2019 2018
------ ------
Issued ordinary shares at 1 January 6,856 6,856
------ ------
Weighted average number of ordinary shares
at 31 December 6,856 6,856
====== ======
The calculation of diluted earnings per share from continuing
operations for comparative figures is calculated as follows:
Weighted average number of ordinary shares (diluted):
In thousands of shares with a EUR 1 par
value December 31,
--------------
2019 2018
------ ------
Weighted average number of ordinary shares
(basic) 6,856 6,856
Effect of share options on issue - -
------ ------
Weighted average number of ordinary shares
(diluted) at 31 December 6,856 6,856
====== ======
The average market value of the Company's shares for purposes of
calculating the dilutive effect of share options was based on
quoted market prices for the period that the options were
outstanding.
NOTE 12:- EMPLOYEE SHARE OPTION PLAN
On October 26, 2006 the Company's Board of Directors approved
the grant of up to 338,345 non-negotiable options for the Company's
ordinary shares to the Company's board members, employees in the
company and other persons who provide services to the Company
including employees of the Group ("Offerees").
The options were granted to the Offerees for no consideration.
Furthermore, 2nd ESOP plan was adopted on November 22, 2011 which
is based on the terms of the 1st ESOP as amended in accordance with
the terms as referred to above, with a couple of amendments, the
most important of which is the total number of options to be
granted under the 2nd ESOP is fourteen million (14)
and a cap of GBP 200. Exercise of the options is subject to the
following mechanism:
Contractual
Number life of options
Grant date / employees entitled of options (1)
------------------------------------------- ----------- ----------------
ESOP No.1(3)
Option grant to key management at October
27, 2006 132,180 15 years
Option grant to employees at October 15 years
27, 2006 18,585
-----------
Total granted in 2006 150,765 15 years
-----------
Total granted in 2007 (2) 10,161 15 years
Total granted in 2008 (2) 7,638 15 years
Total granted in 2009 (2) 3,916 15 years
Total granted in 2011(2) 1,200 15 years
ESOP No.2(3)
Total granted in 2011 (2) 44,790 10 years
Total granted in 2012 (2) 8,600 10 years
Total granted in 2013 (2) 8,450 10 years
-----------
Total share options Granted 235,520
-----------
(1) Following the 4(th) amendment of ESOP1, the contractual life
for stock options granted changed from 10 years to 15 years
(2) Share options granted to key management: 2007 - 1,000 share
options; 2008 - 2,600 share options; 2009 - 733 share options;
2011- 32,250 share options (ESOP No. 2); 2012 - 4,500 share
options; 2013 - 1,500 share options.
(3) Vesting conditions - three years of service.
On the exercise date the Company shall allot, in respect of each
option so exercised, shares equal to the difference between (A) the
opening price of the Company's shares on the LSE (or WSE under
certain conditions) on the exercise date, provided that if the
opening price exceeds GBP 324, the opening price shall be set at
GBP 324 (Except 2(nd) ESOP as stated above); less (B) the Exercise
Price of the Options; and such difference (A minus B) will be
divided by the opening price of the Company's Shares on the LSE (or
WSE under certain conditions) on the exercise date:
NOTE 12:- EMPLOYEE SHARE OPTION PLAN (Cont.)
Weighted Weighted
average average
exercise Number exercise Number
price (*) of options price of options
---------- ----------- --------- -----------
2019 2018
----------------------- ----------------------
GBP GBP
---------- ---------
Outstanding at the beginning
of the year 43 235,520 43 235,520
Forfeited during the period
- back to pool - -
Outstanding at the end of
the year 43 235,520 43 235,520
----------- -----------
Exercisable at the end of
the year 235,520 235,520
=========== ===========
(*) The options outstanding at 31 December 2019 have an exercise
price in the range of GBP 28 to GBP 54 (app. EUR 32.9 - EUR 63.5),
and have weighted average remaining contractual life of two
years.
The maximum number of shares issuable upon exercise of all
outstanding options as of the end of the reporting period is
357,774. The estimated fair value of the services received were
measured based on a binomial lattice model.
During 2019 and 2018 there were no employee costs for the share
options granted.
NOTE 13:- ADMINISTRATIVE EXPENSES
Year ended
December 31
--------------
2019 2018
------ ------
Salaries and related expenses 641 1,092
Professional services 748 1,258
Offices and office rent 95 130
Travelling and accommodation 24 54
Depreciation and amortization 3 1
Others 66 187
------ ------
Total 1,577 2,722
====== ======
NOTE 14:- OTHER INCOME AND OTHER EXPENSES
Year ended
December 31
--------------
2019 2018
------ ------
Other income (1) 78 254
------ ------
Total other income 78 254
====== ======
Other expenses 67 329
Total other expenses 67 329
====== ======
(1) 2018 - Including EUR 225 thousand due to a settlement
agreement with the buyer of Kragujevac shopping centre regarding
refund of claim from the city of Kragujevac.
NOTE 15:- FINANCE INCOME AND FINANCE COSTS
Year ended
December 31
------------------
2019 2018
-------- --------
Recognized in profit or loss
Interest from loans to related parties - 24
Other finance income - 64
Foreign currency gain other - 148
Foreign currency gain on bonds - 3,411
-------- --------
Finance income - 3,647
-------- --------
Interest expense on bonds (8,099) (9,436)
Foreign currency losses on bonds (8,536) -
Foreign currency losses other - (1,870)
Other finance expenses (13) -
Finance costs (16,648) (11,306)
-------- --------
Net finance costs (16,648) (7,659)
======== ========
NOTE 16:- FINANCIAL INSTRUMENTS
Financial Risk Management:
Overview
The Group has exposure to the following risks from its use of
financial instruments:
-- Credit risk
-- Liquidity risk
-- Market risk
This Note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital.
The Board of Directors has established a continuous process for
identifying and managing the risks faced by the Group (on a
consolidated basis), and confirms that it is responsible to take
appropriate actions to address any weaknesses identified.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's
activities.
The Company's Audit Committee oversees how management monitors
compliance with the Group's risk management policies and procedures
and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group.
a. Credit risk:
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's financial instruments held in banks and from other
receivables.
Management had a credit policy in place and the exposure to
credit risk is monitored on an ongoing basis.
Cash and deposits and other financial assets
The Group limits its exposure to credit risk in respect to cash
and deposits, by investing mostly in deposits and other financial
instruments with counterparties that have a credit rating of at
least investment grade from international rating agencies. Given
these credit ratings, management does not expect any counterparty
to fail to meet its obligations.
b. Liquidity risk:
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. For detailed
information refer to Note 2(c).
NOTE 16:- FINANCIAL INSTRUMENTS (Cont.)
Liquidity risk
The following are the contractual maturities of financial
liabilities, including estimated interest payments and excluding
the impact of netting agreements:
December 31, 2019
Non-derivative 6-12
financial Carrying Contractual 6 months months 1 -2
liabilities amount cash flow or less (*) years 2-5 years > 5 years
--------- ------------ --------- --------- --------- ---------- ----------
Bonds issued (*) 90,352 (96,512) - (96,512) - - -
Trade and
other payables 144 (144) (144) - - - -
Related parties - - - - - - -
--------- ------------ --------- --------- --------- ---------- ----------
90,496 (96,656) (144) (96,512) - - -
========= ============ ========= ========= ========= ========== ==========
December 31, 2018
Non-derivative 6 months
financial Carrying Contractual or less 6-12 1 -2 2-5
liabilities amount cash flow (*) months years years > 5 years
Bonds issued
(*) 76,698 (84,505) (51,067) (3,515) (29,923) - -
Trade and
other payables 60 (60) (60) - - - -
Related parties 3 (3) (3) - - - -
-------- ----------- -------- ------- -------- ------ ---------
76,761 (84,568) (51,130) (3,515) (29,923) - -
======== =========== ======== ======= ======== ====== =========
(*) Refer to Note 8.
c. Market risk:
Currency risk :
Currency risk is the risk that the Group will incur significant
fluctuations in its profit or loss as a result of utilizing
currencies other than the functional currency of the respective
Group company.
The Group is exposed to currency risk mainly on borrowings
(Bonds issued in Israel) that are denominated in NIS.
The Company ceased the using of currency options effective
October 2015 in order to avoid liquidity risk. The Company can
carry out hedging transactions occasionally using derivatives
subject to limitation set by the Board.
NOTE 16:- FINANCIAL INSTRUMENTS (Cont.)
The following exchange rate of EUR/NIS applied during the
year:
Reporting date
----------------
Average rate Spot rate
-------------- ----------------
EUR 2019 2018 2019 2018
------ ------ ------- -------
NIS 1 0.251 0.235 0.257 0.233
NIS denominated bonds - a change of 5 percent in EUR/NIS rates
at the reporting date would have increase profit by EUR 4.12
million or increase loss by EUR 4.33 million, as a result of having
issued NIS linked Bonds.
This effect assumes that all other variables, in particular CPI
index, remain constant.
Interest Rate Risk (including inflation):
The Group's interest rate risk arises mainly from Bonds issued
at fixed interest rate expose the Group to changes in fair value,
if the interest is changing. As the Israeli inflation risk is
diminishing to a level that management believes is acceptable
(Israeli CPI 2019 - 0.8%; 2018 - 0.8%) and due to liquidity
constraints, the Company has stopped using hedging of CPI in recent
years.
Sensitivity analysis - effect of changes in Israeli CPI on
carrying amount of NIS bonds
A change of 3 percent in Israeli Consumer Price Index ("CPI") at
the reporting date (and in 2018) would have increased (decreased)
profit or loss by the amounts shown below. This analysis assumes
that all other variables, in particular foreign currency rates,
remain constant.
Profit (loss) effect
------------------------------
For the year ended Carrying amount CPI increase CPI
December 31, of bonds effect decrease effect
------------------- --------------- ------------ ----------------
2018 76,698 (2,300) 2,300
2019 76,698 (2,595) 2,595
Profile
As of the reporting date the interest rate profile of the
Group's interest-bearing financial instruments was:
Carrying amount
------------------
2019 2018
-------- --------
Fixed rate instruments
Bonds (86,506) (76,698)
Other financial liabilities - Loan
from EPI - (315)
NOTE 16:- FINANCIAL INSTRUMENTS (Cont.)
Shareholders' equity management:
Refer to Note 12 in respect of shareholders equity components in
the restructuring plan including dividend policy. The Company's
Board of Directors is updated on any possible equity issuance, in
order to assure (among other things) that any changes in the
shareholders equity (due to issuance of shares, options or any
other equity instrument) is to the benefit of both the Company's
bondholders and shareholders.
Fair values:
The table below is a comparison between the carrying amount and
fair value of the Company's financial instruments that are
presented in the financial statements not at fair value:
Carrying amount Fair value (*)
----------------- ----------------
2019 2018 2019 2018
-------- ------- ------- -------
Bonds A at amortized
cost - Israeli bonds 35,824 31,767 7,184 9,388
Bonds B at amortized
cost - Israeli bonds 50,682 44,931 10,340 14,365
(*) The fair value is based on Level 1 in fair value hierarchy
and measured based on market quote.
Management believes that the carrying amount of cash, trade
receivables and trade payables approximate their fair value to the
short-term maturities of these instruments.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS
a. Contingent liabilities and commitments to related parties:
1. The Company entered into an indemnity agreement with all of
the Company's directors and senior management- the maximum
indemnification amount to be granted by the Company to the
directors shall not exceed 25% of the shareholders' equity of the
Company based on the shareholders' equity set forth in the
Company's last consolidated financial statements prior to such
payment. No consideration was paid by the Company in this respect
since the agreement was signed.
2. The Company maintains Directors' and Officers' liability
cover, presently at the maximum amount of USD 60 million for a term
of 18 months commencing on May 1, 2019. Pursuant to the terms of
this policy, all the Directors and senior manager are insured. The
new policy does not exclude past public offerings and covers the
risk that may be incurred by the Directors through future public
offerings of equity up to the amount of USD 50 million.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
b. Contingent liabilities and commitments to others:
1. As part of the completion of the restructuring plan (refer
also to Note 8), the Group has taken the following commitments and
collaterals towards the creditors:
a) Restrictions on issuance of additional bonds - The Company
undertakes not to issue any additional bonds other than as
expressly provided for in the Restructuring Plan.
b) Restrictions on amendments to the terms of the bonds - The
Company shall not be entitled to amend the terms of the bonds, with
the exception of purely technical changes, unless such amendment is
approved under the terms of the relevant series and the applicable
law and the Company also obtains the approval of the holders of all
other series of bonds issued by the Company by ordinary majority.
Refer to Note 8 for recent amendments.
c) Coverage Ratio Covenant ("CRC") - the CRC is a fraction
calculated based on known Group valuation reports and consolidated
financial information available at each reporting period. The CRC
to be complied with by the Group is 118% ("Minimum CRC") in each
reporting period. For December 31, 2019 the calculated CRC is not
in compliance with Minimum CRC (also refer to Note 8(d) regarding
breach of covenant). In the event that the CRC is lower than the
Minimum CRC, then as from the first cut-off date on which a breach
of the CRC has been established and for as long as the breach is
continuing, the Company shall not perform any of the following: (a)
a sale, directly or indirectly, of a Real Estate Asset ("REA")
owned by the Company or a subsidiary, with the exception that it
shall be permitted to transfer REA's in performance of an
obligation to do so that was entered into prior to the said cut-off
date, (b) investments in new REA's; or (c) an investment that
regards an existing project of the Company or of a subsidiary,
unless it does not exceed a level of 20% of the construction cost
of such project (as approved by the lending bank of these projects)
and the certain loan to cost ratio of the projects are met.
If a breach of the Minimum CRC has occurred and continued
throughout a period comprising two consecutive quarterly reports
following the first quarterly/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.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
d) Minimum Cash Reserve Covenant ("MCRC") - cash reserve of the
Company has to be greater than the amount estimated by the
Company's management required to pay all administrative and general
expenses and interest payments to the bondholders falling due in
the following six months, minus sums of proceeds from transactions
that have already been signed (by the Company or a subsidiary) and
closed and to the expectation of the Company's management have a
high probability of being received during the following six months.
MCRC is not maintained as of December 31, 2019.
e) Negative Pledge on REA of the Company - The Company
undertakes that until the bonds have been repaid in full, it shall
not create any encumbrance on any of the REA, held, directly or
indirectly, by the Company except in the event that the encumbrance
is created over the Company's interests in a subsidiary as
additional security for financial indebtedness ("FI") incurred by
such subsidiary which is secured by encumbrances on assets owned by
that subsidiary.
f) Negative Pledge on the REA of Subsidiaries - The subsidiaries
shall undertake that until the bonds have been repaid in full, none
of them will create any encumbrance on any of REA except in the
event that:
(i) the subsidiary creates an encumbrance over a REA owned by
such subsidiary exclusively as security for new FI incurred for the
purpose of purchasing, investing in or developing such REA;
Notwithstanding the aforesaid, subsidiaries shall be entitled to
create an encumbrance on land as security for FI incurred for the
purpose of investing in and developing, but not for purchasing, an
REA held by a different Group company (hereinafter: a "Cross
Pledge"), provided the total value of the lands owned by the Group
charged with Cross Pledges after the commencement date of the plan
does not exceed EUR 35 million, calculated on the basis of book
value (the "Sum of Cross Pledges"). When calculating the Sum of
Cross Pledges, lands that were charged with Cross Pledges created
prior to the commencement date of the plan or created solely for
the purpose of refinancing an existing FI shall be excluded. The
Group did not have cross-pledge as of December 31, 2019.
(ii) The encumbrance is created over an asset as security for
new FI that replaces existing FI and such asset was already
encumbered prior to the refinancing. Any excess net cash flow
generated from such refinancing, shall be subject to the mandatory
early prepayment of 75%.
(iii) The encumbrance is created over interests in a Subsidiary
as additional security for FI incurred by such subsidiary which is
secured by encumbrances on assets owned by that subsidiary as
permitted by sub-section (i) above.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
The encumbrance is created as security for new FI that is
incurred for purposes other than the purchase of and/or investment
in and development of a REA, provided that at least 75% of the net
cash flow generated from such new FI is used for mandatory early
prepayment.
g) Limitations on incurring new FI by the Company and the
subsidiaries - The Company undertakes not to incur any new FI
(including by way of refinancing an existing FI with new FI) until
the outstanding bonds debt (as of November 30, 2014) have been
repaid in full, except in any of the following events:
(i) the new FI is incurred for the purpose of investing in the
development of a REA, provided that: (a) the Loan To Cost ("LTC")
Ratio of the investment is not less than 50% (or 40% in special
cases); (b) the new FI is incurred by the subsidiary that owns the
REA or, if the FI is incurred by a different subsidiary, any
encumbrance created as security for such new FI is permitted under
the negative pledge stipulation above; and (c) following such
investment the consolidated cash is not less than the MCRC;
(ii) The new FI is incurred by a subsidiary for the purpose of
purchasing a new REA by such Subsidiary, provided that following
such purchase the cash reserve is not less than the MCRC.
(iii) At least 75% of the net cash flow resulting from the
incurrence of new FI is used for a 75% early prepayment of the
bonds. Subject to the terms of the plan, the Group may also
refinance existing FI if this does not generate net cash flow.
h) No distribution policy - The Company's ability to pay
dividend is limited unless certain conditions are met.
i) 75% mandatory early repayment - Refer to Note 8 and to other
sections in this note regarding changes in increase of repayment to
78%.
2. General commitments and warranties in respect of trading property disposals:
In the framework of the transactions for the sale of the Group's
real estate assets, the Group has provided indemnities which are
customary for such transactions to the respective purchasers.
Such indemnifications are limited in time and amount. No
indemnifications were exercised against the Group till the date of
the statement of financial position (refer to note 17(10) below
relating a dispute with BIG Shopping Centers Ltd). The Company's
management estimates that no significant costs will be borne
thereby, in respect of these indemnifications.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
3. The Company is liable to the buyer of its previously owned
shopping center in the Czech Republic ("NOVO") - sold in June 2006
- in respect to one of its tenants ("Tesco"). Tesco leased an area
within the shopping center for a period of 30 years, with an option
to extend the lease period for an additional 30 years, in
consideration for EUR 6.9 million which was paid in advance.
According to the lease agreement, the tenant has the right to
terminate the lease agreement subject to fulfilment of certain
conditions as stipulated in the agreement.
In case Tesco leaves the mall before expiration of lease period
the Company will be liable to repay the remaining consideration in
amount of EUR 1.59 million as of balance sheet date, unless the
buyer finds another tenant that will pay higher annual lease
payment than Tesco. The management does not expect to bear a
material loss.
4. Contingent liabilities due to legal proceedings:
The Company is involved in litigation arising in the ordinary
course of its business. Although the final outcome of each of these
cases cannot be estimated at this time, the Company's management
believes, that the chances these litigations will result in any
material outflow of resources to settle them is remote, and
therefore no provision or disclosure is required.
5. Certain issues with respect to an agreement from 2011:
The Company became made aware that commission paid to an agent
in connection with the disposal of the US portfolio in 2012 may
have benefited a former director of the Company, and it is probable
therefore that those arrangements should have been classified as a
related party transaction under the Listing Rules. At the time of
the disposal, it appears that the Company was not aware that there
was any potential related party interest with respect to the
commission arrangements. The Company was discussing this matter
with its Sponsor and the UKLA and were seeking appropriate advice
as to whether any retrospective disclosures or other actions may be
required under the Listing Rules.
In order to address this matter, Plaza's Board has appointed, on
April 25, 2017, the chairman of the audit committee Mr. David
Dekel, to investigate and examine the issues raised as part of a
joint committee together with a special committee formed for the
purpose by EI, and with the joint committee's external legal
advisors. The internal committees have concluded their examination
of these matters and submitted their recommendations to the
Company's board of directors. The Company's board of directors
fully adopted the committee's recommendations, and is working to
implement them. Please also see Note 5(4)(d) in this respect, with
respect to Elbit's settlement with the SEC.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
Elbit, the Company's former parent company, announced in March
2016 that it appointed a special committee to examine these matters
as they may contain potential violation of the requirements of the
U.S. Foreign Corrupt Practices Act (FCPA), including the books and
records provisions of the FCPA, and that it has approached and is
co-operating fully with the US Securities and Exchange Commission
(SEC).
Following discussions with the SEC regarding the potential
violation of the requirements of the FCPA, Elbit submitted an Offer
of Settlement ("Offer"). Solely
for the purpose of the proceedings brought by or on behalf of
the SEC and without admitting or denying the findings in the Offer,
Elbit consented to the entry of an order containing the SEC's
findings.
The SEC has determined to accept the Offer and ordered that: (i)
Elbit cease and desist from committing or causing any violations
and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B)
of the Exchange Act; and (ii) Elbit shall pay a civil money penalty
in the amount of $500,000 to the SEC for transfer to the general
fund of the United States Treasury, subject to Exchange Act Section
21F(g)(3).
In determining to accept the Offer, the SEC considered remedial
acts that Elbit promptly undertook, its self-reporting, and its
cooperation afforded to the SEC staff, including having conducted a
thorough internal investigation, voluntarily providing detailed
reports to the staff, fully responding to the staff's requests for
additional information in a timely manner, and providing
translations of certain documents.
Since 2012, Plaza has made significant changes to update and
strengthen its financial controls and corporate governance in order
to address the issues identified by SEC and to prevent any
recurrence. In addition, a review was ongoing, as announced on 21
November 2017, with regard to one of the payments referred to by
the SEC made in 2012 and which should have been treated as a
related party transaction under the Listing Rules.
Following 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.
6. Motion to reveal and review internal documents:
In March 2018, a Shareholder of the Company has filed a motion
with the Financial Department of the District Court in Tel-Aviv to
reveal and review internal documents of the Company and of Elbit
Imaging Ltd., with respect to the events surrounding that certain
agreements that were signed in connection with the Casa Radio
Project in Romania and the sale of the US portfolio. Such events
were previously announced by the Company and are detailed in notes
5(4)(d)and 17(5) of these annual financial statements In July 2018,
the Company has filed a response to the relevant court.
On January 13, 2019, a Court hearing was held following which
the judge decided
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
that the board of directors of each of the Company and Elbit
Imaging Ltd. would examine the allegations raised by the plaintiff
in connection with the said events and the relevant facts and
decide whether or not they should file a lawsuit against any of its
officers.
The parties reached a procedural agreement whereby, without
derogating from any parties claims, the Company and of Elbit
Imaging Ltd will share with the plaintiff, under their sole
discretion some of the documents he requested (subject a
confidentiality obligation) and thereafter the plaintiff will
notify the court whether he wants to continue with the motion.
Following the recipient of the documents by the plaintiff the parties have reached an understanding based on which they will notify the court that as the Shareholder received part of the documents he requested and without the company and Elbit Imaging Ltd admitting in any of the allegations raised by the plaintiff, the parties request that the motion will be closed without an order for expenses. The parties will consider filing a lawsuit against defaulters in certain grounds to be agreed upon between the parties
On February 16, 2020, a Court verdict was received according to
which the motion was erased without any order for the payment of
expenses. the Judge stated that the Motion had resulted in the
plaintiff had received certain of the documents requested by him
and that he would not be receiving any more documents as part of
the present proceedings, and therefore there is no longer dispute
between the parties in connection with the Motion. The Judge
further noted that the plaintiff and the Company are free to act as
they deem fit with respect to the possibility of filing a future
lawsuit based on the grounds of some or all of the grounds
specified in the Motion
As of today, the parties are considering to file a lawsuit as
detailed above.
7. Request to reveal documents:
An indirect subsidiary of the Group in Romania (which holds plot
of land outside Bucharest) received a request from Romanian
Authorities to reveal documents regarding the years in 2007-2011 as
part of an ongoing investigation procedures. The company is unaware
of the subject of investigation and any illegal acts or
irregularities which may cause investigation initiated. The company
has submitted all relevant documents in respect of the said years.
During 2019 another indirect subsidiary of the group (which was
liquidated) was invited to a court hearing.
A criminal investigation carried out regarding the commission of
the money laundering and fiscal evasion offenses against legal
representative (directors) of certain companies in which the
Company had indirect holdings through JV in the past. The
prosecutor closed the case and the chief prosecutor denied the
complaint of National Agency for Fiscal Administration as tardy.
Against the prosecutor's disposition to close the case, the
National Agency for Fiscal Administration filed a complaint in
court.
In November 2019, the court denied the National Agency for
Fiscal Administration complaint as unfounded. The court's decision
is final.
NOTE 17:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
8. For details on the Romanian Prosecutor decision to close the
investigation relating the Co-operation with the Romanian
Authorities regarding potential irregularities on the property Casa
Radio please refer to Note 5(3)(d).
9. For details on the notice which were issued to a local
investor in the Bangalore project - India and on
the Environmental status of the property in the project Please refer to Note 6(b)(1).
10. The Final Price adjustment of 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 July 2019 (the second
adjustment date) the Second purchase price adjustment was examined
and accordingly no additional proceed was made. In respect of the
last purchase price adjustment, which will be examined during 2020,
the Company assess it will not receive any additional proceed on
account of the above.
During December 2018, BIG paid to the Company EUR 466,000 for
the stands and signage recorded as Revenue from disposal of trading
property.
On July 20, 2019, BIG paid EUR 0.11 million for the stands and
signage at the Belgrade Plaza.
In addition to the above, during 2020 the Company is expected to
receive the last instalment for the stands and signage.
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. During November
the Company received Technical Review prepared by a Consultancy
firm which detailed the proposed investments to be performed by
BIG. The Company believes that it has a good counter claims against
BIG's claims and is currently evaluating its options regarding
BIG's intention to hold the EUR1 million.
The Company didn't record a revenue in the annual consolidated
financial statements due to uncertainty related to receipt of such
amount.
NOTE 18:- RELATED PARTY TRANSACTIONS
Related party transactions
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
Details of transactions between the Group and other related parties
are disclosed below.
During the year, Group entities had the following trading
transactions with related parties that are not members of the
Group:
Year ended
December 31,
--------------
2019 2018
------ ------
Income
Interest on balances with EI - 24
Costs and expenses
Recharges - EI 24 33
Compensation to key management personnel
(2) 243 196
Performance linked benefits - management 29 6
Compensation to board members (1), (2) 265 321
The amounts disclosed in the table are the amounts recognised as
an expense during the reporting period related to key management
personnel.
(1) 2019 - two board members (Executive director resigned in
April 2019); 2018 - three board members.
(2) There was no change in the number of Company share options
granted to key personnel in 2019. There are no other benefits
granted to directors.
As of the balance date owes the Company an amount of EUR 0.133
million, which is expected to be paid during 2020.
Year ended
December 31,
--------------
2019 2018
------ ------
Prepayments and other receivables
Elbit Imaging Ltd 139 226
Other liabilities
Due amounts to directors and key management
personnel. 42 4
As of December 31, 2019, the Company identified Davidson Kempner
Capital Management LLC ("DK") among the Company's related
parties.
DK holds 26.3% of the Company's outstanding shares of the
Company as of the reporting date, following the finalization of the
Restructuring plan. DK has no outstanding balance as of the
reporting date with any of the Group companies.
NOTE 19:- EVENTS AFTER THE REPORTING PERIOD
a. Definitive agreement for the sale of a Plot of Land in Brasov, Romania:
On February 5, 2019 an indirect subsidiary signed a
Pre-Agreement for the sale of a plot in Brasov, Romania for a total
gross amount of EUR 620,000.
On November 25, 2019 an indirect subsidiary signed Addendum no.
1 to the Pre-Agreement signed on February 5, 2019 and the Parties
agreed that the consummation if the Transaction will take place not
later than February 15, 2020. An amount of circa EUR 50,000 was
paid by the Promissory Purchaser as down Payment, which is included
in Other liabilities (please refer to Note 7).
On February 14, 2020 the sale of the plot in Brasov, Romania was
completed, followed by, a definitive agreement was signed for a
total consideration of EUR 620,000 following which it received the
last instalment of EUR 570,000 (as describe above the company
already received a down payment of EUR 50,000).
b. Update regarding the transaction for the sale of Plot in Chennai and Bangalore in India:
Please refer to Note 6.
c. Motion to reveal and review internal documents:
Please refer to Note 17(6).
d. Appointment of the Chairman of the Board of Directors:
On March 23, 2020 Mr. David Dekel was appointed as the
non-executive chairman of the Board of Directors.
e. Impact of the Coronavirus pandemic:
During the first quarter of 2020 the the risks and exposures
arising from these consequences. At this stage, the Company is
unable to estimate full impact of the effect of the Coronavirus on
our business, Still this can have a negative potential impact on
the values on the net realizable value of our assets compare to the
values in the financial reports as of December 31, 2019. In
addition, this crisis can have a material impact on the ability of
the Company to complete the sale of the plots it owned.
f. Dutch statutory auditor:
As described in Note 2(a) 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. During 2019
the Company has been informed by the audit firm, Baker Tilly
(Netherlands) N.V., that they would cancel their license to audit
public interest entities (such as the Company) and that, as a
consequence, they are not in the position to provide the Company
with their audit services for the 2019 statutory annual accounts.
As a listed company, the Company needs to engage a Dutch audit firm
that is licensed to perform audits for public interest entities.
The choice
NOTE 19:- EVENTS AFTER THE REPORTING PERIOD (Cont.)
for such firms in the Netherlands is very limited as only six
firms have the appropriate license.
Despite extensive effort of the Company to find a new Dutch
auditor, none of those six firms has been found prepared to accept
the Company as their client. The Company approached in writing the
Dutch Ministry of Finance, The Royal Dutch Institute of Chartered
Accountants, the Authority for the Financial Markets to indicate
the severe adverse consequences the Company would suffer if this
problem will not be solved but none of those authorities has been
able to find the solution. The Royal Dutch Institute of Chartered
Accountants has put considerable effort in helping the Company by
approaching audit firms and assessing their procedures for client
acceptance but has no legal possibilities at its disposal to force
audit firms to accept a specific client. This leaves the Company in
the awkward position of not being able to meet its obligations
regarding the statutory audit.
The Company has proposed to the authorities various alternative
solutions to get the annual accounts of 2019 audited. It appeared
that none of those are legally feasible and none of the addressees
came up with any alternatives. It is now time to emphasize that the
Company exhausted its sources to comply with the requirements of
mandatory Dutch law.
Due to the above and in order to avoid an outright violation of
applicable stock exchange regulations, the Company decided to
engage EY Israel to audit its IFRS consolidated annual accounts and
to issue an auditor statement on that. The IFRS report and the
auditor statement will be submitted to the London Stock Exchange,
the Warsaw Stock Exchange and the Tel Aviv Stock Exchange. In
addition, the board of directors intends to submit the reports (as
audited by EY Israel) to the AFM and to approach after all the
Dutch authorities once again in order to explore a solution.
The Company don't expect any material effect of the financial
statement due to the above.
NOTE 20:- LIST OF GROUP ENTITIES
As of December 31, 2019, the Company owns the following
companies (all are 100% held subsidiaries at the end of the
reporting period presented unless otherwise indicated):
Hungary
----------------------------------- ------------------ --------------------------------
Directly wholly owned
----------------------------------- ------------------ --------------------------------
HOM Ingatlanfejlesztesi és Management company
Vezetesi Kft.
----------------------------------- ------------------ --------------------------------
Plaza Centers Establishments Holding company
B.V.
----------------------------------- ------------------ --------------------------------
Tatabanya Plaza Ingatlanfejlesztesi Inactive
Kft.
----------------------------------- ------------------ --------------------------------
Plasi Invest 2007 Kft. Inactive
----------------------------------- ------------------ --------------------------------
Poland
----------------------------------- ------------------ --------------------------------
Directly wholly owned
----------------------------------- ------------------ --------------------------------
Wloclawek Plaza Sp. z o.o. Mixed-use project Lodz Plaza project, plot
w likwidacji - plot land land sold 10/2019;
sold 10/2019 Company under liquidation
since 12/2019
----------------------------------- ------------------ --------------------------------
EDMC Sp. z o.o. w likwidacji Inactive Company under liquidation
since 2018
----------------------------------- ------------------ --------------------------------
Plaza Centers (Poland) Sp. Management company Company under liquidation
z o.o. w likwidacji since 2018
----------------------------------- ------------------ --------------------------------
Szczecin Plaza Sp. z o.o. Inactive
----------------------------------- ------------------ --------------------------------
Indirectly or jointly owned
----------------------------------- ------------------ --------------------------------
EDP Sp. z o.o. Inactive 50% held by Plaza Centers
N.V. with Israeli-based partner
----------------------------------- ------------------ --------------------------------
Lublin Or Sp. z o.o. Inactive 50% held by Plaza Centers
N.V. with Israeli-based partner
----------------------------------- ------------------ --------------------------------
Hokus Pokus Rozrywka Sp. z Inactive 50% held by Plaza Centers
o.o. w likwidacji N.V.
50% held by P.L.A.Z.A B.V.
----------------------------------- ------------------ --------------------------------
Fantasy Park Suwalki Sp. z Inactive 100% held by Mulan B.V.,
o.o. w likwidacji company under liquidation
----------------------------------- ------------------ --------------------------------
Fantasy Park Torun Sp. z o.o. Inactive 100% held by Mulan B.V.,
w likwidacji company under liquidation
----------------------------------- ------------------ --------------------------------
Fantasy Park Zgorzelec Sp. Inactive 100% held by Mulan B.V.,
z o.o. w likwidacji company under liquidation
----------------------------------- ------------------ --------------------------------
Fantasy Park Kraków Sp. Inactive 100% held by Mulan B.V.
z o.o.
----------------------------------- ------------------ --------------------------------
Romania
----------------------------------- ------------------ --------------------------------
Indirectly or jointly owned
----------------------------------- ------------------ --------------------------------
S.C. Dambovita Center S.R.L. Mixed-use project 75% held by Dambovita Centers
Holding B.V.
Casa Radio project
----------------------------------- ------------------ --------------------------------
Plaza Bas B.V. Holding company 50.1% held by Plaza Centers
N.V.
----------------------------------- ------------------ --------------------------------
Adams Invest S.R.L. Residential 95% held by Plaza Bas B.V.
project 5% held by Plaza Centers
Management B.V.
Valley View project
----------------------------------- ------------------ --------------------------------
Serbia
----------------------------------- ------------------ --------------------------------
Directly wholly owned
----------------------------------- ------------------ --------------------------------
Plaza Centers (Estates) B.V. Inactive
----------------------------------- ------------------ --------------------------------
Plaza Centers Management D.O.O. Management company
----------------------------------- ------------------ --------------------------------
Czech Republic
----------------------------------- ------------------ --------------------------------
Directly wholly owned
----------------------------------- ------------------ --------------------------------
Plaza Centers Czech Republic Inactive
S.R.O.
----------------------------------- ------------------ --------------------------------
Bulgaria
----------------------------------- ------------------ --------------------------------
Directly wholly owned
----------------------------------- ------------------ --------------------------------
Shumen Plaza EOOD Inactive Shumen Plaza project - Sold
03/2017;
Company under liquidations
in 2018
----------------------------------- ------------------ --------------------------------
Plaza Centers Management Bulgaria Management company Company under liquidations
EOOD in 2018
----------------------------------- ------------------ --------------------------------
Plaza Centers Development Inactive Company under liquidations
EOOD in 2018
----------------------------------- ------------------ --------------------------------
Cyprus - Ukraine
----------------------------------- ------------------ --------------------------------
Directly wholly owned
----------------------------------- ------------------ --------------------------------
Tanoli Enterprises Ltd. Inactive
----------------------------------- ------------------ --------------------------------
PC Ukraine Holdings Ltd. Inactive
----------------------------------- ------------------ --------------------------------
Plaza Centers Ukraine Ltd. Inactive 100% held by PC Ukraine Holdings
Ltd.
----------------------------------- ------------------ --------------------------------
NOTE 20:- LIST OF GROUP ENTITIES (Cont.)
The Netherlands
------------------------------------ ------------------ --------------------------------
Directly wholly owned
------------------------------------ ------------------ --------------------------------
Plaza Dambovita Complex B.V. Holding company
------------------------------------ ------------------ --------------------------------
Plaza Centers Enterprises Finance company 100% held by Plaza Dambovita
B.V. Complex B.V.
------------------------------------ ------------------ --------------------------------
Mulan B.V. (Fantasy Park Enterprises Holding company Holds Fantasy Park subsidiaries
B.V.) in CEE
------------------------------------ ------------------ --------------------------------
P.L.A.Z.A B.V. Inactive 100% held by Mulan B.V.
------------------------------------ ------------------ --------------------------------
Plaza Centers Management B.V. Holding company
------------------------------------ ------------------ --------------------------------
Dambovita Centers Holding Holding company 100% held by Plaza Centers
B.V. N.V.
------------------------------------ ------------------ --------------------------------
Plaza Bas B.V. Holding company 50.1% held by Plaza Centers
N.V.
------------------------------------ ------------------ --------------------------------
Plaza Centers Establishments Holding company
B.V.
------------------------------------ ------------------ --------------------------------
Plaza Centers (Estates) B.V. Holding company
------------------------------------ ------------------ --------------------------------
Cyprus - India
------------------------------------ ------------------ --------------------------------
Directly wholly owned
------------------------------------ ------------------ --------------------------------
PC India Holdings Public Company Inactive
Ltd.
------------------------------------ ------------------ --------------------------------
Indirectly or jointly owned
------------------------------------ ------------------ --------------------------------
HOM India Management Services Management company 99.99% held by PC India Holdings
Pvt. Ltd. Public Company Ltd.
------------------------------------ ------------------ --------------------------------
Elbit Plaza India Real Estate Holding company Equity accounted investee
Holdings Ltd. 47.5% held by Plaza Centers
N.V.
------------------------------------ ------------------ --------------------------------
Polyvendo Ltd. Holding company 100% held by Elbit Plaza
India Real Estate Holdings
Ltd.
------------------------------------ ------------------ --------------------------------
Elbit Plaza India Management Management company 99.99% held by Polyvendo
Services Pvt. Ltd. Ltd.
------------------------------------ ------------------ --------------------------------
Vilmadoro Ltd. Holding company 100% held by Elbit Plaza
India Real Estate Holdings
Ltd.
------------------------------------ ------------------ --------------------------------
Kadavanthra Builders Pvt. Mixed-use project 100% held by Elbit Plaza
Ltd. India Real Estate Holdings
Ltd.
Chennai (SipCot) project
------------------------------------ ------------------ --------------------------------
Aayas Trade Services Pvt. Mixed-use project 99.9% held by Elbit Plaza
Ltd. India Real Estate Holdings
Ltd.
Bangalore project
------------------------------------ ------------------ --------------------------------
NOTE 20:- LIST OF GROUP ENTITIES (Cont.)
Entities disposed or dissolved in 2019
---------------------------------------------------------------------------------------
Hungary
---------------------------------------- ------------------ -------------------------
Directly wholly owned
---------------------------------------- ------------------ -------------------------
Szombathely 2002 Ingatlanhasznosito Inactive Company disposed 11/2019
es Vagyonkezelo Kft.
---------------------------------------- ------------------ -------------------------
Kerepesi 5 Irodaepulet Ingatlanfejleszto Holder of land Company disposed 11/2019
Kft. usage rights
---------------------------------------- ------------------ -------------------------
Poland
---------------------------------------- ------------------ -------------------------
Directly wholly owned
---------------------------------------- ------------------ -------------------------
Lodz Centrum Plaza Sp. z o.o. Owner of plot Company dissolved 11/2019
of land - sold
09/2018
---------------------------------------- ------------------ -------------------------
O2 Fitness Club Sp. z o.o. Inactive Company dissolved 12/2019
---------------------------------------- ------------------ -------------------------
Kielce Plaza Sp. z o.o. Inactive Company dissolved 10/2019
---------------------------------------- ------------------ -------------------------
Leszno Plaza Sp. z o.o. Inactive Company dissolved 11/2019
---------------------------------------- ------------------ -------------------------
Wloclawek Plaza Sp. z o.o. Inactive Company dissolved 10/2019
SKA (previously Legnica Plaza
Spolka z ograniczona odpowiedzialnoscia
1 S.K.A.)
---------------------------------------- ------------------ -------------------------
Indirectly or jointly owned
---------------------------------------- ------------------ -------------------------
Fantasy Park Poznań Sp. Inactive Company dissolved 03/2019
z o.o. w upad ości likwidacyjnej
---------------------------------------- ------------------ -------------------------
Latvia
---------------------------------------- ------------------ -------------------------
Indirectly or jointly owned
---------------------------------------- ------------------ -------------------------
Diksna SIA Operating shopping Company dissolved 09/2019
center - Sold
2016
---------------------------------------- ------------------ -------------------------
Romania
---------------------------------------- ------------------ -------------------------
Directly wholly owned
---------------------------------------- ------------------ -------------------------
S.C. North Gate Plaza S.R.L. Shopping center Company dissolved 09/2019
project - plot
of land sold
07/2019
---------------------------------------- ------------------ -------------------------
- - - - - - - - - - - - - - - - - - -
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London Stock Exchange. RNS is approved by the Financial Conduct
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contact rns@lseg.com or visit www.rns.com.
END
FR UASVRRVUOOAR
(END) Dow Jones Newswires
March 31, 2020 11:58 ET (15:58 GMT)
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